-----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, Dmkf4+wUdpRSK5nMEREJ/pK1wK5NQ9BLTTAAO8hMkeOE1iytte+zyHgzZOB1pj4s sikE8iSoaj7WlXI+LRsqYQ== 0000931763-03-000822.txt : 20030331 0000931763-03-000822.hdr.sgml : 20030331 20030331145550 ACCESSION NUMBER: 0000931763-03-000822 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVOSTE CORP /FL/ CENTRAL INDEX KEY: 0001012131 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 592787476 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20727 FILM NUMBER: 03629555 BUSINESS ADDRESS: STREET 1: 3890 STEVE REYNOLDS BLVD CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7707170904 MAIL ADDRESS: STREET 1: 3890 STEVE REYNOLDS BLVD. CITY: NORCROSS STATE: GA ZIP: 30093 10-K 1 d10k.htm FORM 10-K Form 10-K
Table of Contents

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-K

 

x    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2002.

 

¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934.

 

For the transition period                      to                      .

 

Commission File Number: 0-20727

 


 

NOVOSTE CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Florida

 

59-2787476

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification No.)

 

3890 Steve Reynolds Blvd., Norcross, GA

 

30093

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone, including area code: (770) 717-0904

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $.01 par value

(Title of Class)

 

Rights to Purchase Preferred Shares

(Title of Class)

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes  x    No  ¨

 

Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x    No  ¨

 

As of March 14, 2003, there were 16,351,953 shares of Common Stock outstanding. The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $71,882,455 based upon the closing sales price of the Common Stock on June 28, 2002 on the Nasdaq National Market. Shares of Common Stock held by each officer, director, and holder of five percent or more of the Common Stock outstanding as of June 28, 2002 have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of Registrant’s Proxy Statement for the 2003 Annual Meeting of Stockholders, which the Registrant intends to file not later than 120 days following December 31, 2002, are incorporated by reference to Part III of this Form 10-K Report.

 



Table of Contents

 

NOVOSTE CORPORATION

FORM 10-K

INDEX

 

PART I.

         

Page


ITEM 1.

  

BUSINESS

  

3

ITEM 2.

  

PROPERTIES

  

23

ITEM 3.

  

LEGAL PROCEEDINGS

  

23

ITEM 4.

  

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  

23

PART II.

ITEM 5.

  

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

  

26

ITEM 6.

  

SELECTED CONSOLIDATED FINANCIAL DATA

  

27

ITEM 7.

  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

28

ITEM 7A.

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  

36

ITEM 8.

  

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  

36

ITEM 9.

  

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

  

36

PART III.

ITEM 10.

  

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  

37

ITEM 11.

  

EXECUTIVE COMPENSATION

  

37

ITEM 12.

  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

  

37

ITEM 13.

  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  

37

ITEM 14.

  

CONTROLS AND PROCEDURES

  

37

PART IV.

ITEM 15.

  

EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

  

38

 

 

2


Table of Contents

 

Cautionary Note Regarding Forward-Looking Statements

 

The forward-looking statements in this Form 10-K are made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Our operating results and financial condition have varied and may in the future vary significantly depending on a number of factors. Statements in this Form 10-K which are not strictly historical statements, including, without limitation, statements regarding management’s expectations for future growth and plans and objectives for future management and operations, domestic and international marketing and sales plans, product plans and performance, research and development plans, management’s assessment of market factors, as well as statements regarding our strategy and plans, constitute forward-looking statements that involve risks and uncertainties. In some cases these forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “expect,” “project,” “predict,” “potential” or the negative of these words or comparable words. The factors listed under “Certain Factors Which May Affect Future Results” in Part I, Item 1 – “Business”, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors, among others, may have a material adverse effect upon our business, financial condition, and results of operations. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made.

 

PART I

 

ITEM 1.    BUSINESS

 

In this Form 10-K, “Novoste,” the “Company,” “we,” “us” and “our” refer to Novoste Corporation.
Novoste®
, Beta-Cath, Corona® and the Novoste® logo are trademarks of the Company.

 

General

 

Novoste, a Florida corporation, has developed the Beta-Cath System, a hand-held device to deliver beta, or low penetration, radiation to the site of a treated blockage in a coronary artery to decrease restenosis. Restenosis, the renarrowing of a previously treated artery, is the major limitation of percutaneous coronary angioplasty or PTCA, a procedure used by interventional cardiologists to open blocked coronary arteries. Coronary stents, metal tubes or coils permanently deployed at a blockage in a coronary artery, were developed to reduce the incidence of restenosis, however restenosis still occurs in greater than 15% of the patients who receive stents. In August 1998, we qualified to apply CE marking to the Beta-Cath System. CE marking is a regulatory approval and is a requirement to sell our device in most of the European Union and commenced the active marketing of our device there in January, 1999. On November 3, 2000, Novoste received U.S. marketing approval from the United States Food and Drug Administration (“FDA”) for the Beta-Cath System (30-millimeter source train) for use in patients suffering from “in-stent restenosis”, a condition in which previously placed coronary stents become clogged with new tissue growth. Novoste received additional approvals from the FDA for The Beta-Cath System with a 40-millimeter source train during 2001 and the 60-millimeter source train and smaller, next generation 3.5 French catheter and source train in early 2002.

 

Novoste was incorporated in Florida in 1987 and remained dormant until May 22, 1992 (date of inception) at which time it began operations. Novoste has its principal operations in the United States and sales and distribution in Western Europe, Canada, Asia and South America. Novoste markets it products through a direct sales force in the United States and a combination of direct sales representatives and independent distributors in markets outside the United States. All of our revenues have been generated from the marketing of the Beta-Cath System and during 2002, 94% of net sales were generated in the United States. Information concerning revenues and long-lived assets by geographic area for the past three years may be found under Notes To Consolidated Financial Statements, Note 12. Segment Information.

 

3


Table of Contents

 

Available Information. Novoste files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy any document the Company files at the SEC’s public reference room at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including Novoste) file electronically with the SEC. The SEC’s website is http://www.sec.gov.

 

Novoste’s website is http://www.novoste.com. The Company makes available free of charge through its internet site its annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information on Novoste’s website is not incorporated by reference into this report.”

 

INDUSTRY OVERVIEW

 

Coronary Artery Disease.    Coronary artery disease is the leading cause of death in the United States. More than 13 million people in the United States currently suffer from coronary artery disease, which is generally characterized by the progressive accumulation of plaque as a result of the deposit of cholesterol and other fatty materials on the walls of the arteries. The accumulation of plaque leads to a narrowing of the interior passage, or lumen, of the arteries, thereby reducing blood flow to the heart muscle. When blood flow to the heart muscle becomes insufficient, oxygen supply is restricted and a heart attack and death may result. Depending on the severity of the disease and other variables, patients will be treated either surgically with coronary artery bypass graft surgery or less invasively with a PTCA procedure.

 

Coronary Artery Bypass Graft Surgery (CABG).    Coronary artery bypass graft surgery, or CABG, was introduced as a treatment for coronary artery disease in the 1950’s. CABG is a highly invasive, open surgical procedure in which blood vessel grafts are used to bypass the site of a blocked artery, thereby restoring blood flow. CABG, still considered the most durable treatment for coronary artery disease, is generally the primary treatment for severe coronary artery disease involving multiple vessels. In addition, CABG is often a treatment of last resort for patients who have undergone other less invasive procedures like percutaneous transluminal coronary angioplasty, but require revascularization. However, CABG has significant limitations, including medical complications such as stroke, multiple organ dysfunction, inflammatory response, respiratory failure and post-operative bleeding, each of which may result in death. In addition, CABG is a very expensive procedure and requires a long recovery period. In the United States, the average cost of undergoing CABG, including hospital stay, is approximately $45,000; and the average recuperation period following discharge from the hospital is at least four to six weeks. In 2002, approximately 400,000 CABG procedures were performed in the United States. Several new minimally invasive surgical techniques have been commercialized which attempt to lessen the cost and trauma of CABG procedures while maintaining efficacy.

 

Percutaneous Transluminal Coronary Angioplasty (PTCA).    Since its introduction in the late 1970s, PTCA has emerged as the principal less invasive alternative to CABG. PTCA is a procedure performed in a cardiac catheterization labs, commonly referred to cath labs, by an interventional cardiologist. During PTCA, a guidewire is inserted into a blood vessel through a puncture in the leg (or arm, in some cases) and guided through the vasculature to a diseased site in the coronary artery. A balloon-tipped catheter is then guided over the wire to the deposit of plaque or lesion occluding the artery. Once the balloon is positioned across the lesion inside the vessel, the balloon is inflated and deflated several times. Frequently, successively larger balloons are inflated at the lesion site, requiring the use of multiple balloon catheters. The inflation of the balloon cracks or reshapes the plaque and the arterial wall, thereby expanding the arterial lumen and increasing blood flow. However, the inflation of the balloon typically results in injury to the arterial wall. In 2002, it is estimated that about 1,000,000 PTCA procedures were performed in the United States and approximately 600,000 procedures were performed outside the United States. The average cost of each PTCA procedure in the United States is approximately $20,000, or less than one-half of the average cost of CABG. The length of stay and recuperation period are substantially less than those required for CABG.

 

 

4


Table of Contents

Though PTCA has grown rapidly as a highly effective, less invasive therapy to treat coronary artery disease, the principal limitation of PTCA is the high rate of restenosis, the renarrowing of a treated artery, which often requires reintervention. Studies have indicated that, within six months after PTCA, between 30% and 50% of PTCA patients experience restenosis.

 

Pathology of Restenosis.    Restenosis is typically defined as the renarrowing of a treated coronary artery within six months of a revascularization procedure, such as PTCA, to less than 50% of its normal size. Restenosis is a vascular response to the arterial trauma caused by PTCA. Due to multiple mechanisms controlling vascular repair, restenosis may occur within a short period after a revascularization procedure or may develop over the course of months or years.

 

Restenosis that occurs within a day of a revascularization procedure is usually attributed to elastic recoil (acute loss of diameter) of the artery. Restenosis also may result from hyperplasia, which is the excessive proliferation of cells at the treatment site, or from vascular remodeling of the arterial segment, which is a slow contraction of a vessel wall. Hyperplasia is a physiological response to injury, similar to scarring, which occurs in wound healing. Vascular remodeling is a contraction of the vessel caused by a thickening of the outside wall of the artery. In response to an arterial injury from revascularization, the body sets off a biochemical response to repair the injured site and protect it from further harm. This response will include a signal to adjacent cells of the arterial wall to multiply. Often this cell proliferation goes unchecked, resulting in a much thicker and inelastic arterial wall and in reduced blood flow. Hyperplasia and vascular remodeling are the primary causes of restenosis.

 

Coronary Stenting.    Coronary stents are expandable, implantable metal devices permanently deployed at a lesion site. Stents maintain increased lumen diameter by mechanically supporting the diseased site in a coronary artery. Of all the non-surgical treatments seeking to improve upon PTCA, stents have been the most successful in improving the outcome immediately following the procedure and reducing the incidence of restenosis. In a typical stent procedure, the artery is pre-dilated at the lesion site with a balloon catheter, and the stent is delivered to the site of the lesion and deployed with the use of a second balloon catheter which expands the stent and firmly positions it in place. This positioning may be followed by a third expansion, using a high-pressure balloon to fully deploy and secure the stent. Once placed, stents exert radial force against the walls of the coronary artery to enable the artery to remain open and functional.

 

Studies have concluded that the rate of restenosis in patients receiving coronary stents following PTCA is approximately 30% lower than in patients treated only by PTCA. Since their commercial introduction in the United States in 1994, the use of stents has grown rapidly, and it is estimated that they were utilized in over 75% of the approximately 1.6 million PTCA procedures performed in 2002.

 

 

Despite their rapid adoption, stents have certain drawbacks. The use of stents increases the cost of a PTCA procedure, especially when, as is often the case, two or more stents are used. In addition, studies have shown that restenosis still occurs in approximately 30% to 40% of the patients who receive stents following PTCA. This is commonly referred to as “in-stent” restenosis. Studies have shown that patients with “in-stent” restenosis often experience recurrent restenosis and as a result are prone to multiple revascularization procedures. Stents are also permanent implants which may result in unforeseen, long-term adverse effects, and cannot be used in cases where the coronary arteries are too tortuous or too narrow. Further, stents appear to be effective in reducing the frequency of restenosis resulting from elastic recoil and vascular remodeling, but they increase the degree of hyperplasia.

 

Vascular Brachytherapy vs. Drug Coated Stents.    Vascular brachytherapy is the delivery of radiation within blood vessels. Studies conducted by Novoste and other companies using radiation to treat in-stent restenosis led to FDA approval and the subsequent introduction of vascular brachytherapy (VBT) devices in 2000 and 2001. These devices, which deliver a dose of radiation to the site of restenosis, have proven to reduce in-stent restenosis, but because of the complexity of using radiation in the cath lab, other companies have been researching coatings and treatments to coronary stents that could also reduce restenosis and would possibly be

 

5


Table of Contents

more acceptable to a medical community already experienced at using stents. One of the drug coated stents has continued development in its current configuration and is believed to be likely to receive its approval in the second quarter of 2003 (as discussed further in “Competition; Rapid Technological Change”). Other companies are seeking to test multiple drug coatings in an effort also to produce a competitive coated stent. While not completely effective, it is believed that drugs will reduce the rate of in-stent restenosis from approximately 15% down below 10%. Novoste believes, however, that the early clinical data is not representative of the wide variety of patients that will be treated by the wide variety of physicians in typical commercial settings. Novoste believes that many of those patients who do suffer from restenosis will still benefit from treatment with vascular brachytherapy. Since the price of drug coated stents is projected to be about three times the price of traditional bare metal stents, from an economic standpoint it also may not be practical or possible for many hospitals to use drug-coated stents on all their patients. Novoste believes the cost benefit of only using vascular brachytherapy on the low percentage of failed stents is currently the most attractive financial alternative for the health care system.

 

The Novoste Solution

 

The Beta-Cath System has been shown to reduce the incidence of restenosis in patients who are being treated for blocked stents, or in-stent restenosis. The administration of localized beta radiation reduces restenosis rates by inhibiting hyperplasia and vascular remodeling. Radiation has been used therapeutically in medicine for more than 50 years in the treatment of proliferative cell disorders, such as cancer. Cancer therapy has primarily involved the use of gamma radiation, which is highly penetrating and may be hazardous unless handled and used with great care. By contrast, beta radiation is far less penetrating and easier to use and shield than gamma radiation while still delivering a sufficient dose to the treated coronary arteries. We view beta radiation as well-suited for intracoronary use following PTCA in a blocked stent, where the objective is to treat the coronary artery with minimal exposure to adjacent tissues.

 

The Beta-Cath System is designed to fit well with techniques currently used by interventional cardiologists in the cath lab. It is a hand-held device that hydraulically delivers beta radiation sources through a closed-end catheter to the area of the coronary artery injured by the immediately preceding PTCA procedure. To facilitate easy placement of the catheter, it is advanced over the same guidewire used in the PTCA procedure. After the administration of the prescribed radiation dose to a lesion site, which takes less than five minutes per lesion, the radiation sources are hydraulically returned to the hand-held transfer device. We are able to reuse the radiation isotopes for up to a eighteen months due to the long half-life of Strontium-90, the isotope used in the Novoste device.

 

Our Business Strategy

 

Our objective is to maintain our leadership position in the vascular brachytherapy market and to generate additional revenue and profits by leveraging our distribution network and our ability to execute product development and clinical trials. Elements of our strategy include:

 

    Maintaining our vascular brachytherapy market leadership position by offering additional enhancements and catheter options to the Beta-Cath System. We’ve responded to customer demand in 2002 by introducing a next generation small-diameter catheter and source train, the longest radiation treatment length (60mm) available in a single dwell time and the option of a longer catheter length for the convenience of remaining outside the sterile field for non-cath lab personnel. We plan to offer additional enhancements throughout 2003 to enable interventional cardiologists greater ability to treat in-stent restenosis.

 

    Improving our financial performance by applying our resources to products that can generate near term revenue and profits. We are also improving our enterprise resource-planning infrastructure to provide the necessary information to operate efficiently and reduce costs. Focusing on the preservation of our existing cash balances and operating profitably will allow us to fund our operating and product development activities internally.

 

 

6


Table of Contents
    Expanding into the peripheral markets for growth. We plan to focus our development and leverage our vascular brachytherapy technology into larger peripheral markets treating arterial-venous (A-V) dialysis grafts and femoral-popliteal (fem-pop) disease – where drug-coated stents are not likely to be a competitive threat. We are already enrolling patients in our BRAVO A-V Graft trial and our MOBILE Fem-Pop trial. See “Product Development on Clinical Trials.”

 

Our goals and strategies are aimed at creating a global company that is recognized for innovative, clinically superior and economically beneficial therapeutic solutions for the treatment of vascular disease. Our vision is to be the recognized leader in providing simple solutions to complex interventional therapies.

 

Beta-Cath System Design and Advantages

 

The primary components of the Beta-Cath System are: radiation source train, transfer devices and delivery catheter.

 

Radiation Source Train.    The beta radiation administered by the Beta-Cath System emanates from a “train” of several miniature sealed sources containing Strontium-90 (Strontium/Yttrium), a beta-emitting radioisotope. We currently manufacture trains in 2 diameters and in 30mm, 40mm and 60mm lengths, with the longer length intended for use on longer lesions. The use of beta, rather than gamma, radiation is intended to make the Beta-Cath System safer (less radiation exposure to cath lab personnel and shorter patient treatment dwell times versus Gamma) and easier to use in the cath lab environment. In addition, due to the long half-life (approximately 28 years) of Strontium-90, and because the source train will not come into contact with a patient’s blood or tissue, the radiation sources are reused for up to eighteen months and deliver a consistent dose in a short period. Beta radiation from the Strontium-90 source is easily shielded from health care workers by the use of approximately one-half-inch-thick quartz in the transfer device.

 

Transfer Device.    The transfer device is a multiple-use, hand-held instrument used to deliver, retrieve and then store the radiation sources when not in use. The transfer device:

 

    transfers the radiation sources to and from the delivery catheter via a proprietary hydraulic delivery system;

 

    contains a radiation source sensing system which is interlocked with a gating system to prevent the radiation sources from exiting the transfer device until the delivery catheter is locked in place and to prevent removal of the delivery catheter from the transfer device prior to the return of the radiation sources to the device; and

 

    shields the beta radiation from health care workers when the radiation source train is housed inside it.

 

Delivery Catheter.    The delivery catheter is a single-use, multi-lumen catheter that provides a pathway for the radiation sources to be rapidly delivered to and retrieved from the coronary arterial segment to be treated. The delivery catheter is positioned by advancing it over the same guidewire used during the immediately preceding PTCA procedure. The radiation sources are delivered and retrieved through a dual-lumen closed hydraulic circuit, which uses a fluid-filled standard syringe to create the hydraulic pressure. We currently sell two versions of the catheter in the United States: the Beta-Cath 5.0 French(F) System which fits over the guidewire used in the PTCA procedure, commonly known as an “over the wire” catheter and our next generation 3.5F distal monorail “rapid exchange” version which we refer to as the Beta-Cath 3.5F System.

 

The Beta-Cath System is used in a cath lab by an interventional cardiologist in conjunction with a radiation oncologist or designated authorized user. The cardiologist places the delivery catheter into the patient’s vasculature until the catheter reaches the targeted site. The radiation oncologist operates the transfer device to deliver the radiation source train hydraulically to the end of the catheter in a matter of seconds. The radiation sources remain at the targeted site for less than five minutes to deliver a predetermined dose of radiation. The

 

7


Table of Contents

radiation sources are then returned by the use of positive hydraulic pressure applied through a different lumen of the delivery catheter. Upon completion of each procedure, the train of radiation sources is stored safely inside the transfer device. At the end of the day, the transfer device is delivered to a designated radiation storage site within the hospital for safekeeping. We believe the Beta-Cath System is cost-effective, principally by reducing the need for costly revascularization procedures often required following treatment of in-stent restenosis.

 

We believe the Beta-Cath System has the following advantages:

 

    Excellent economic cost benefit.    The Beta-Cath System is applied only when and where it is needed to treat in-stent restenosis lessions.

 

    Site-specific Therapy.    The Beta-Cath System is designed to confine radiation exposure to the targeted intervention area.

 

    Short Procedure Times.    The Beta-Cath System is designed to enhance patient safety and comfort, as well as to promote productivity in the cath lab, by delivering the recommended dosage in less than five minutes of radiation exposure per lesion.

 

    Utilization of Existing PTCA Techniques.    Although intracoronary radiation is a new concept in coronary artery disease treatment, the hand-held Beta-Cath System is designed to be easily adopted and used by the interventional cardiologist. The Beta-Cath System is very similar to other catheter-based tools used by the cardiologist.

 

    Multiple-Use System.    The radiation source train can be reused for numerous patients, due to the long half-life of the isotope and because the source train does not come into contact with the patient’s blood. As a result, inventory planning is very straightforward, and last minute treatment decisions can be made.

 

    Ease of Use and Accuracy of Dosing.    The Beta-Cath System is a hand-held device that is easy to operate. Because of the long half-life of our radiation source, prescribed treatment times will remain constant over the approved shelf life of the isotope. Vascular brachytherapy systems that utilize short half-life isotopes are likely to require complex case-by-case dose calculations based on the current decay state of the isotope. In addition, they require frequent inventory replacement due to their short half-lives.

 

    Designed for Safety.    The Beta-Cath System utilizes localized beta radiation, which results in total body radiation exposure significantly less than that received during routine x-ray during PTCA or during treatment with a gamma radiation device. Other safety mechanisms include: a closed-source train lumen, special locking mechanisms to connect the delivery catheter to the transfer device and sufficient shielding in the transfer device to protect health care workers from beta radiation exposure. In addition, the beta radiation sources are delivered and, following the administration of the prescribed dose, retrieved hydraulically in a matter of seconds, thereby minimizing exposure to adjacent tissue.

 

PRODUCT DEVELOPMENT AND CLINICAL TRIALS

 

We are engaged in ongoing product development to introduce new products to provide simple solutions to complex interventional therapies. In addition, we seek to enhance the effectiveness, ease of use, safety and reliability of our Beta-Cath System and to expand the applications for which its uses are appropriate.

 

Clinical trials are administered by our internal clinical and regulatory staff. We also use consultants to monitor the clinical sites and to assist in training and have engaged independent contract research organizations and consultants to compile data from the trials and to perform statistical and reimbursement analyses.

 

Research and development expenses, which include the cost of clinical trials, for the years ended December 31, 2002, 2001, and 2000 were approximately $13.3 million, $12.7 million and $17.1 million, respectively. We have conducted numerous clinical trials to provide the basis for approval by the FDA of several versions of the Beta-Cath System.

 

 

8


Table of Contents

Additional Beta-Cath System Approvals

 

During 2001, Novoste applied to the FDA for approval to market two additional Beta-Cath System products. The Beta-Cath 3.5F System, Novoste’s next generation smaller diameter catheter system received marketing approval from the FDA in February, 2002. The Beta-Cath 3.5F System, offered with both a 30mm and 40mm radiation source train, is a smaller diameter vascular brachytherapy catheter approved for the treatment of in-stent restenosis. Due to its lower profile, the 3.5F System should be able to treat areas unable to be addressed with the current 5F System.

 

Marketing approval for the 60mm Beta-Cath System was received from the FDA in March 2002. The 60mm device is designed to treat long, diffuse in-stent restenosis. Approval of the 60-mm device was based on the results of a 139 patient subset (RENO Long) of the 1,098 patient RENO (REgistry NOvoste) European registry trial. An analysis was performed on the RENO Long group and compared to a placebo control group selected from the Washington Radiation for In-Stent Restenosis Trials (WRIST / LONG WRIST (n=94)). These data demonstrated a 75% reduction in Target Vessel Revascularization (TVR) rate (14.9% vs. 60.6%) and a 72% reduction in Major Adverse Cardiac Event (MACE) rate (17.9% vs. 64.9%) for the subset of patients receiving Sr-90 beta radiation compared to this placebo control group. The average lesion length for the RENO Long patient subset was 35.3 mm (site reported) compared to the average lesion length of 28.0 mm in the WRIST / LONG WRIST placebo control group.

 

New Products and Applications

 

Future development efforts will focus on modifying the Beta-Cath System for use in peripheral applications, such as arterial-venous shunts and the femoral arteries. There can be no assurance that we will be successful in developing these or other products or that clinical trials will prove that the product is safe and effective for the treatment or therapy.

 

BRAVO TRIAL

 

In June 2002, Novoste received approval for an investigational device exemption (IDE) application to the FDA for its CORONA System to treat non-thrombotic arterial-venous dialysis graft stenosis. In February 2002, Novoste received approval for a major modification to the BRAVO trial to include thrombotic arterial-venous dialysis graft stenosis. More than 220,000 people in the U.S. currently undergo long-term dialysis for end stage renal disease and a majority of these patients rely on arterial-venous dialysis grafts for vascular access. Unfortunately, these grafts are associated with a very low patency rate of 40 – 60% at one year and many of these grafts require interventional therapy to maintain patency. There is evidence that the stenosis is due to intimal hyperplasia formation at the graft site as a result of turbulent blood flow, increased pressure and cyclical stretching of the vein wall, and therefore may be an ideal target for vascular brachytherapy.

 

The BRAVO (Beta Radiation for treatment of Arterial-Venous graft Outflow) trial IDE, approved by the FDA, is a prospective, randomized, multi-center, placebo-controlled trial investigating the safety and efficacy of the CORONA System to treat venous outflow stenosis in arterial-venous dialysis grafts.

 

The BRAVO trial protocol will include 215 patients who will be assigned at random after either conventional treatment or conventional treatment plus radiation. The trial is expected to be performed in 30 sites in North America. We anticipate completion of the enrollment of the 215 patients in the second half of 2003. Provided the trial is successful we intend to file, in 2004, an application to obtain pre-market approval from the FDA to sell the CORONA System in the United States for the treatment of venous outflow stenosis in arterial-venous dialysis grafts. Approval from the FDA, if any, would likely not be obtained any earlier than six months after submission.

 

 

9


Table of Contents

 

MOBILE TRIAL

 

Novoste is developing the CORONA System to deliver Beta vascular brachytherapy to treat patients with peripheral artery disease (restricted blood flow in the upper legs). Novoste believes that there is currently no effective treatment of diffuse peripheral artery disease, which can range from debilitating by limiting a patient’s ability to walk without pain, all the way to amputation, for patients who suffer from this disease. Symptomatic peripheral artery disease affects over 1.25 million patients annually in the U.S. The CORONA System differs from the Beta-Cath System by the addition of a balloon-based delivery system which allows for the treatment of large 4mm–8mm diameter vessels.

 

In December 2001, Novoste began its Mobile MOre patency with Beta In the Lower Extremity trial. The MOBILE trial will include 410 patients from 30 sites in North America and Europe. Patients will be assigned at random for either standard percutaneous catheter-based revascularization therapy followed by vascular brachytherapy or standard therapy alone.

 

SALES AND MARKETING

 

Novoste has its U.S. sales and marketing management located in our corporate office in Norcross, Georgia and our European operation is located in Krefeld, Germany.

 

We have recruited, trained and deployed a qualified and experienced sales organization made up of field management, sales representatives and clinical trainers. Our marketing organization is also made up of professionals experienced in cardiology and vascular medicine as well as medically applied radiation. At the end of the year, the Sales and Marketing organization consisted of 69 employees.

 

We market and sell directly into the markets of the U.S. and most of Europe and Canada and we work through our distributor network for the rest of the world where the market conditions are viable for our technology.

 

Novoste directs its sales and marketing efforts primarily at the prominent domestic and international cardiac catheterization laboratories that perform the majority of the interventional cardiology procedures. We believe that these hospitals control the majority of procedures and will utilize new coronary technologies such as the Beta-Cath System for treating restenosis. Our sales and marketing strategy includes developing and maintaining a close working relationship with its customers in order to assess and satisfy their needs for products and services. All customers must be trained, proctored and certified, pursuant to FDA requirements, by Novoste before they are eligible to do cases independently.

 

We also periodically meet with clinicians to share ideas regarding the marketplace, existing products, procedure techniques, products under development and existing or proposed research projects.

 

Our direct sales activities require contact with all of the medical specialists involved in vascular brachytherapy: cardiologists, radiation therapists and medical physicists as well as hospital administration, which results in a lengthy sales process. In addition to our multidiscipline sales force calling on these customers, we have a team of medical physicists who help the hospitals through this licensing process with both the NRC and agreement states. Amended licenses are required by every hospital before vascular brachytherapy can be performed.

 

We expect the existing sales force, supplemented by additional expertise for the particular application, will distribute future products currently in development or by additional personnel required to properly support the market.

 

We are not dependent on any single customer, and no single customer accounted for more than 10% of revenue in 2002.

 

 

10


Table of Contents

Manufacturing, Sources of Supply and Scale-up

 

Our manufacturing operations are required to comply with the FDA’s quality system regulations, which included an inspection of our manufacturing facilities prior to pre-market approval of the Beta Cath System. In addition, certain international markets have quality assurance and manufacturing requirements that may be more or less rigorous than those in the United States. Specifically, we are subject to the compliance requirements of ISO 9001 certification and CE mark directives in order to produce products for sale in Europe. We received ISO 9001/EN 46001 certification from our European notified body in April 1998. We are subject to periodic inspections by regulatory authorities to ensure such compliance. See “Government Regulation.” We conduct quality audits of suppliers and we are establishing a supplier certification program. All suppliers of components must also be in compliance with Novoste’s requirements and the FDA’s quality system regulations.

 

Beta Radiation Source Train Suppliers

 

Beginning in 1996, Novoste contracted with Bebig Isotopentechnik Medizintechnik (Bebig), a German corporation, to equip a production site for the production of radioactive sealed Strontium-90 seed trains.

 

On June 20, 2001, the Company entered into a new manufacturing and supply agreement with Bebig to manufacture and supply the Company with seed trains. The agreement supercedes all prior agreements with Bebig and neither the Company nor Bebig have any rights or obligations under any of the previous agreements. During each calendar year under the four-year contract, the Company guarantees to pay to Bebig minimum annual payments. All product purchases are credited against the annual guaranteed payment. In the event that the Company does not purchase product to exceed the annual guaranteed payment, the deficiency will be due and payable to Bebig within thirty days after the end of each one-year contract period. At December 31, 2002, the Company exceeded the annual guaranteed payment.

 

Bebig is required to comply with various regulatory requirements with respect to the supply of radiation sources. Bebig has agreed to manufacture Strontium-90 seed trains at an agreed-upon base price.

 

On October 14, 1999, Novoste signed a development and manufacturing supply agreement with AEA Technologies QSA GmbH for a second source of radioactive seed trains and for the development of smaller diameter radiation seed trains. The agreement provided for the construction of a production line to be finished in two phases. The first phase, the design phase, was completed in February 2001 and the second phase, the construction phase, was completed in October 2002 by using the design equipment to produce the smaller diameter radiation source. The completion of the first phase provided Novoste with access to a limited supply of the smaller diameter radiation source. Payments to cover the cost of this production line were paid as construction progressed.

 

Significant proportions of key components and processes relating to the Company’s products are purchased from single sources due to technology, availability, price, quality, and other considerations. Key components and processes currently obtained from single sources include isotopes, protective tubing for catheters, proprietary connectors, and certain plastics and electronic components used in the design and manufacture of the transfer device. In the event a supply of a key single-sourced material or component was delayed or curtailed, Novoste’s ability to produce the related product in a timely manner could be adversely affected. Novoste attempts to mitigate these risks by working closely with key suppliers regarding the Company’s product needs and the maintenance of strategic inventory levels.

 

Supply of Other Components by Third Parties

 

Through 2002, Novoste relied on Plexus Corporation as third party manufacturer for the hand-held transfer device. During 2002, Novoste began a project to manufacture the transfer devices at its Norcross location. FDA approval is expected for this manufacturing change in the summer of 2003. While the Company believes it will

 

11


Table of Contents

be better positioned to control transfer device design, lead time, product availability and overall transfer device cost, our inability to obtain sub-assemblies and components from suppliers could have a material adverse effect on our ability to manufacture the Beta-Cath System and, therefore, on our ability to market the Beta-Cath System. The Company will continue its efforts to mitigate the risks associated with this issue by continued careful review and proactive control of its inventories, and ensuring adequate safety stock of both finished devices and components is maintained

 

Patents and Proprietary Technology

 

Our policy is to protect our proprietary position by, among other methods, filing United States and foreign patent applications. We were issued United States Patent No. 5,683,345 on November 4, 1997, Patent No. 5,899,882 on May 4, 1999, No. 6,013,020 on January 11, 2000, No. 6,261,219 on July 17, 2001 and Patent No. 6,306,074 on October 23, 2001, all of which relate to both or either the Beta-Cath System with an over-the-wire catheter of the Beta Cath System with a “rapid exchange” catheter. We also have several additional United States applications pending covering aspects of our Beta-Cath System. With respect to the above identified United States Patents and our other pending United States patent applications, we have filed, or will file in due course, counterpart applications in the European and certain other regions or countries.

 

Like other firms that engage in the development of medical devices, we must address issues and risks relating to patents and trade secrets. United States Patent Nos. 5,683,345; 5,899,882; 6,013,020; 6,261,219 and 6,306,074 may not offer any protection to us because competitors may be able to design functionally equivalent devices that do not infringe these patents. Any of the patients may also be reexamined, invalidated or circumvented. In addition, claims under our other pending applications may not be allowed, or if allowed, may not offer any protection or may be reexamined, invalidated or circumvented. In addition, competitors may have or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products in either the United States or international markets.

 

We received a letter from NeoCardia, L.L.C., dated July 7, 1995, in which NeoCardia notified us that it was the exclusive licensee of United States Patent No. 5,199,939, or the Dake patent, and requested that we confirm that our products did not infringe the claims of the Dake patent. On August 22, 1995 our patent counsel responded on our behalf that we did not infringe the Dake patent.

 

The United States Patent and Trademark Office later reexamined the Dake patent. In the reexamination proceeding some of the patent claims were amended and new claims were added. We have concluded, based upon advice of patent counsel, that our Beta-Cath System does not infringe any claim of the Dake patent as reexamined.

 

In May 1997, Guidant Corporation (“Guidant”) acquired NeoCardia together with the rights under the Dake patent. Guidant currently markets and distributes products that compete with the Beta-Cath System and has significantly greater capital resources than Novoste. Novoste does not believe that its products infringe the Dake patent or that an action by Guidant for infringement would have merit.

 

The medical device industry has been characterized by extensive litigation regarding patents and other intellectual property rights. Companies in the medical device industry have employed intellectual property litigation to gain a competitive advantage. There can be no assurance that we will not become subject to patent-infringement claims or litigation or interference proceedings declared by the United States Patent and Trademark Office to determine the priority of inventions. The defense and prosecution of intellectual property suits, or interference proceedings and related legal and administrative proceedings are both costly and time-consuming. Litigation may be necessary to enforce our patents, to protect our trade secrets or know-how or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings will result in substantial expense to us and significant diversion of effort by our technical and management

 

12


Table of Contents

personnel. An adverse determination in litigation or interference proceedings to which we may become a party could subject us to significant liabilities to third parties, require us to seek licenses from third parties, require us to redesign our products or processes to avoid infringement or prevent us from selling our products in certain markets, if at all. Although patent and intellectual property disputes regarding medical devices have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include significant ongoing royalties.

 

Furthermore, there can be no assurance that the necessary licenses would be available to us on satisfactory terms, if at all, or that we could redesign our products or processes to avoid infringement. Any adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products, which would have a material adverse effect on our business, financial condition and results of operations.

 

Patent applications in the United States and patent applications in foreign countries are maintained in secrecy for a period after the earliest claimed priority date. Publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries and the filing of related patent applications. Patents issued and patent applications filed relating to medical devices are numerous. Accordingly, there can be no assurance that current and potential competitors, many of which have substantial resources and have made substantial investments in competing technologies, or other third parties have not or will not file applications for, or have not or will not receive, patents and will not obtain additional proprietary rights relating to products made, used or sold or processes used or proposed to be used by us.

 

We have developed certain of our patent and proprietary rights relating to the Beta-Cath System in conjunction with Emory University Hospital, a leader in the research of intravascular radiation therapy. To obtain the exclusive rights to commercialize the Beta-Cath System for the treatment of restenosis, we entered into a license agreement with Emory. Under this agreement, Emory assigned to us all of Emory’s rights to one United States patent application and exclusively licensed to us its rights under another United States application and related technology. Emory made no representation or warranty with respect to its ownership of the assigned patent application, and made only limited representations as to its ownership of the licensed patent application and related technology. Under the agreement Emory will be entitled to royalty payments based upon net sales of the Beta-Cath System. The term of the agreement runs through the later of (i) the date the last patent covered by the agreement expires or (ii) January 2016 (unless earlier terminated as provided in the agreement). Any inventions developed jointly by our personnel and Emory during the term of the license agreement are owned jointly by Emory and us. If Emory terminated the agreement as a result of our failure to pay such royalties or any other breach of our obligations under such agreement, our rights to use jointly owned patents (including the United States Patent No. 5,899,882) would become non-exclusive and we would have no rights to use future patents owned exclusively by Emory. In addition, if we breach our obligations under the license agreement, we could be required by Emory to cooperate in licensing the pending jointly-owned United States patent application and our foreign counterparts to third parties so that they would be able to commercialize and sell the Beta-Cath System.

 

All of the physicians on staff at Emory who were involved in the development of the Beta-Cath System, have assigned their rights in the technology, if any, to Emory and/or Novoste. In addition, we have entered into a license agreement with one of the physicians and under the terms of this agreement, he is entitled to receive a royalty on the net sales of the Beta-Cath System (excluding consideration paid for the radioactive isotope), up to a maximum, over the term of the agreement, of $5,000,000.

 

We employ a full time manager of intellectual property to prepare invention records and to coordinate the prosecution of new intellectual property. We obtain confidentiality and invention assignment agreements in connection with employment, consulting and advisory relationships. These agreements generally provide that all confidential information developed or made known to the individual by us during the course of the individual’s relationship with us, is to be kept confidential and not disclosed to third parties, except in specific circumstances. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for us in the event of unauthorized use, transfer or disclosure of such information or inventions.

 

13


Table of Contents

Furthermore, our competitors may independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our proprietary technology, and we may not be able to meaningfully protect our rights in unpatented proprietary technology.

 

COMPETITION; RAPID TECHNOLOGICAL CHANGE

 

Competition in the medical device industry, and specifically the markets for cardiovascular devices, is intense and characterized by extensive research and development efforts and rapidly advancing technology. New developments in technology could render vascular brachytherapy noncompetitive.

 

Many of our competitors and potential competitors have substantially greater resources than we do and also have greater resources and expertise in the area of research and development, obtaining regulatory approvals, manufacturing and marketing. Our competitors and potential competitors may succeed in developing, marketing and distributing technologies and products that are more effective than those we will develop and market or that would render our technology and products obsolete or noncompetitive. Additionally, many of the competitors have the capability to bundle a wide variety of products in sales to cath labs. We may be unable to compete effectively against such competitors and other potential competitors in terms of manufacturing, marketing, distribution, sales and servicing.

 

Both J&J and Guidant offer vascular brachytherapy products that compete directly with Novoste Beta-Cath System and both have substantially greater capital resources and greater resources and experience at introducing new products than does Novoste. J&J’s product, the CHECKMATE System, is a gamma radiation vascular brachytherapy device. Although the CHECKMATE System received approval at the same time as our Beta-Cath System, we believe the Beta-Cath System competes effectively against the CHECKMATE System because of the ease of use of beta radiation over gamma. In November 2001, Guidant received FDA approval to market the GALILEO Intravascular Radiotherapy System. The GALILEO System is a beta radiation system as is the Beta-Cath System and the Company competes with Guidant based upon price and product performance. For 2002 the Beta-Cath System maintained approximately 60% of the vascular brachytherapy market worldwide.

 

Many of these same companies and others are researching coatings and treatments to coronary stents, commonly referred to as drug eluting stents, which could reduce restenosis and would possibly be more acceptable to a medical community already experienced at using stents. Their development represents a potentially revolutionary advance in cardiovascular treatment. During 2002 drug eluting stents began to enter the European market and we anticipate initial US entry in the second quarter of 2003. We expect these introductions to reduce the use of metallic stents in the US and, if the reduction of in-stent restenosis is significant, it could have a negative impact on the ultimate acceptability of vascular brachytherapy

 

GOVERNMENT REGULATION

 

United States

 

Our Beta-Cath System is regulated in the United States as a medical device. The manufacture and sale of medical devices intended for commercial distribution are subject to extensive governmental regulations in the United States. Medical devices are regulated in the United States by the FDA under the Federal Food, Drug, and Cosmetic Act (the “FDC Act”) and generally require pre-market clearance or pre-market approval prior to commercial distribution. In addition, certain material changes or modifications to medical devices also are subject to FDA review and clearance or approval. The FDA regulates the clinical testing, manufacture, packaging, labeling, storage, distribution and promotion of medical devices. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing approvals, a recommendation by the FDA that we not be permitted to enter into government contracts, and criminal prosecution. The FDA also has the authority to request

repair, replacement or refund of the cost of any device manufactured or distributed.

 

14


Table of Contents

 

In the United States, medical devices are classified into one of three classes (Class I, II or III) on the basis of the controls deemed necessary by the FDA to reasonably assure their safety and effectiveness. Under FDA regulations Class I devices are subject to general controls (for example, labeling, pre-market notification and adherence to good manufacturing practices or quality systems regulations) and Class II devices are subject to general and special controls (for example, performance standards, postmarket surveillance, patient registries, and FDA guidelines). Class III is the most stringent regulatory category for medical devices. Generally, Class III devices are those that must receive pre-market approval by the FDA after evaluation of their safety and effectiveness (for example, life-sustaining, life-supporting or implantable devices, or new devices that have not been found substantially equivalent to other Class II legally marketed devices). The Beta-Cath System is a Class III device, which required the FDA’s pre-market approval prior to its commercialization, which occurred November 2000.

 

A pre-market approval application must be supported by valid scientific evidence, which typically includes extensive data, including preclinical and human clinical trial data to demonstrate safety and effectiveness of the device. If human clinical trials of a device are required and the device is a “significant risk device,” the sponsor of the trial, usually the manufacturer or the distributor of the device, is required to file an investigational device exemption application with the FDA and obtain FDA approval prior to commencing human clinical trials. The investigational device exemption application must be supported by data, typically including the results of animal and laboratory testing. If the investigational device exemption application is approved by the FDA and one or more appropriate Institutional Review Boards, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA.

 

The pre-market approval application must also contain the results of all relevant bench tests, laboratory and animal studies, a complete description of the device and its components, and a detailed description of the methods, facilities and controls used to manufacture the device. In addition, the submission should include the proposed labeling, advertising literature and training methods (if required).

 

If the FDA’s evaluation of the pre-market approval application is favorable, the FDA will either issue an approval letter or an “approvable letter,” containing a number of conditions, which must be satisfied in order to secure the final approval of the pre-market approval application. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a letter approving a pre-market approval application authorizing commercial marketing of the device for certain indications. If the FDA’s evaluation of the pre-market approval application or manufacturing facilities is not favorable, the FDA will deny approval of the pre-market approval application or issue a “not approvable letter.” The FDA may also determine that additional clinical trials are necessary, in which case approval of the pre-market approval application could be delayed for several years while additional clinical trails are conducted and submitted in an amendment to the pre-market approval application.

 

The process of obtaining a pre-market approval and other required regulatory approvals can be expensive, uncertain and lengthy, and we may be unsuccessful in obtaining approvals to market future products. The Company anticipates submitting applications for pre-market approval for the use of radiation in treating femoral-popliteal (fem-pop) disease and arterial-venous (A-V) dialysis grafts after the completion of their respective clinical trials. The FDA may not act favorably or quickly on any of our submissions. We may encounter significant difficulties and costs in our efforts to obtain additional FDA approvals that could delay or preclude us from selling new products in the United States. Furthermore, the FDA may request additional data or require that we conduct further clinical studies, causing us to incur substantial cost and delay. In addition, the FDA may impose strict labeling requirements, onerous operator training requirements or other requirements as a condition of our pre-market approval, any of which could limit our ability to market new products. Labeling and marketing activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. FDA enforcement policy strictly prohibits the marketing of FDA cleared or approved medical devices for unapproved uses, further, if a company wishes to modify a product after FDA approval of a pre-market approval,

 

15


Table of Contents

including any changes that could affect safety or effectiveness, additional approvals will be required by the FDA. Such changes include, but are not limited to new indications for use, the use of a different facility to manufacture, changes to process or package the device, changes in vendors to supply components, changes in manufacturing methods, changes in design specifications and certain labeling changes.

 

Any products we manufacture or distribute pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the use of the device. Device manufacturers are required to register their establishments and list their devices with the FDA and certain state agencies, and are subject to periodic inspections by the FDA and those state agencies. The Food, Drug, and Cosmetic Act requires device manufacturers to comply with good manufacturing practices regulations, called the quality systems regulations (QSR). The QSR require that medical device manufacturers comply with various quality control requirements pertaining to design controls, purchasing contracts, organization and personnel; device and manufacturing process design; buildings, environmental control, cleaning and sanitation; equipment and calibration of equipment; medical device components; manufacturing specifications and processes; reprocessing of devices; labeling and packaging; in-process and finished device inspection and acceptance; device failure investigations; and recordkeeping requirements including compliance files. The FDA enforces these requirements through periodic inspections of medical device manufacturing facilities. In addition, a set of regulations known as the medical device reporting regulations obligates manufacturers to inform the FDA whenever information reasonably suggests that one of its devices may have caused or contributed to a death or serious injury, or when one of its devices malfunctions and, if the malfunction were to recur, the device would be likely to cause or contribute to a death or serious injury.

 

Labeling and promotional activities are also subject to scrutiny by the FDA. Among other things, labeling violates law if it is false or misleading in any respect or it fails to contain adequate directions for use. Moreover, any labeling claims that exceed the representations approved by the FDA will violate the Food, Drug and Cosmetic Act.

 

Our product advertising is also subject to regulation by the Federal Trade Commission under the Federal Trade Commission Act, which prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce, including the dissemination of any false or misleading advertisement pertaining to medical devices. Under the Federal Trade Commission’s “substantiation doctrine,” an advertiser is required to have a “reasonable basis” for all product claims at the time claims are first used in advertising or other promotions. What constitutes a “reasonable basis” may depend on the context of the claim and the level of substantiation expressly or impliedly claimed in the advertising.

 

Our business involves the import, export, manufacture, distribution, use and storage of Strontium-90 (Strontium/Yttrium), the beta-emitting radioisotope utilized in the Beta-Cath System’s radiation source train. Accordingly, manufacture, distribution, use and disposal of the radioactive material used in the Beta-Cath System in the United States is subject to federal, state and/or local rules relating to radioactive material. The State of Georgia Department of Natural Resources (DNR) issued a sealed source and device registration certificate for the Company’s Beta-Cath System on August 4, 2000, allowing it to be listed on the Nuclear Regulatory Commission’s Sealed Source and Device Registry. The DNR authorized Novoste to commercially distribute its radiation sources to licensed recipients in the United States with the issuance of a license allowing the manufacturing and distribution of the Beta-Cath System. In addition, we must comply with NRC, Georgia and United States Department of Transportation regulations on the labeling and packaging requirements for shipment of radiation sources to hospitals or other users of the Beta-Cath System.

 

Hospitals in the United States are required to have radiation licenses to hold, handle and use radiation. Many of the hospitals and/or physicians in the United States are required to amend their radiation licenses to include Strontium-90 prior to receiving and using our Beta-Cath System. Depending on the state in which the hospital is located, its license amendment will be processed at the DNR in agreement states, or by the NRC. Obtaining any of the foregoing radiation-related approvals and licenses can be complicated and time consuming.

 

16


Table of Contents

 

Novoste is also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire-hazard control and disposal of hazardous or potentially hazardous substances. We may be required to incur significant costs to comply with such laws and regulations now or in the future and such laws or regulations could have a material adverse effect upon our ability to do business.

 

Changes in existing requirements or adoption of new requirements or policies could adversely affect our ability to comply with regulatory requirements. Our failure to comply with regulatory requirements could have a material adverse effect on our business, financial condition or results of operations. We may be required to incur significant costs to comply with laws and regulations in the future and these laws and regulations could have a material adverse effect upon our business, financial condition or results of operations.

 

International

 

We qualified to apply the CE mark to the Beta-Cath System in August 1998, which allows us to sell the device in the 18 countries of the European Economic Area, or EEA, and Switzerland. Although the medical devices directive is intended to ensure free movement within the EEA of medical devices that bear the CE marking, many countries in the EEA have imposed additional requirements, such as labeling in the national language and notification of placing the device on the market. In addition, regulatory authorities in European countries can demand evidence on which conformity assessments for CE-marked devices are based, and in certain circumstances can prohibit the marketing of products that bear the CE marking. Many European countries maintain systems to control the purchase and reimbursement of medical equipment under national health care programs, and the CE marking does not affect these systems.

 

In order for us to market the Beta-Cath(TM) System in Japan and certain other foreign jurisdictions, we must obtain and retain required regulatory approvals and clearances and otherwise comply with extensive regulations regarding safety and manufacturing processes and quality. These regulations, including the requirements for approvals or clearance to market and the time required for regulatory review, vary from country to country, and in some instances within a country. We may not be able to obtain regulatory approvals in such countries or may be required to incur significant costs in obtaining or maintaining our foreign regulatory approvals. Delays in receipt of approvals to market our products, failure to receive these approvals or future loss of previously received approvals could have an adverse effect on our results of operations. The time required to obtain approval for sale in foreign countries may be longer or shorter than that required for FDA approval, and the requirements may differ. The European Union has promulgated rules requiring that medical devices placed on the market after June 14, 1998 bear CE marking, a legal symbol attesting to compliance with the appropriate directive which, in our case, is the medical devices directive. The Company’s products have not received regulatory approval in Japan nor have they been approved for government reimbursement in Japan.

 

In addition, there are generally foreign regulatory barriers other than pre-market approval (including separate regulations concerning the distribution, use, handling and storage of radiation sources), and the export of devices must be in compliance with FDA regulations. The distribution and use of the Beta-Cath System outside the United States is subject to radiation regulatory requirements that vary from country to country and sometimes vary within a given country. Generally, each country has a national regulatory agency responsible for regulating the safe practice and use of radiation in its jurisdiction. In addition, each hospital desiring to use the Beta-Cath System is generally required to amend its radiation license to hold, handle and use the Strontium 90 sources in our device. Generally, these licenses are specific to the amount and type of radioactivity utilized. In addition, generally, the use of a radiation source by a physician, either for a diagnostic or therapeutic application, also requires a license which, again, is specific to the isotope and the clinical application.

 

The adoption of the Beta-Cath System in the European market was not as rapid as the U.S. market adoption. In order to improve profitability and continue to focus on the markets with the greatest opportunity to generate revenue growth, the Company elected to restructure European operations in the fourth quarter of 2001. As a result, Novoste consolidated its operations into one office located in Germany.

 

17


Table of Contents

 

HEALTH CARE COST CONTAINMENT AND THIRD PARTY REIMBURSEMENT

 

Our products typically are purchased by clinics and hospitals which bill various third-party payors, such as governmental programs and private insurance plans, for the healthcare services provided to their patients. Third-party payors carefully review and increasingly challenge the prices charged for medical products and services. Reimbursement rates from private companies vary depending on the procedure performed, the third-party payor, the insurance plan, and other factors. Medicare reimburses hospitals a prospectively determined fixed amount for the costs associated with an in-patient hospitalization based on the patient’s discharge diagnosis, and reimburses physicians a prospectively determined fixed amount based on the procedure performed, regardless of the actual costs incurred by the hospital or physician in furnishing the care and unrelated to the specific devices used in that procedure. Medical and other third-party payors are increasingly scrutinizing whether to cover new products and the level of reimbursement for covered products. After the Company develops a promising new product, the Company may find limited demand for it unless the Company obtains reimbursement approval from private and governmental third-party payors.

 

In international markets, reimbursement by private third party medical insurance providers, including government insurers and providers, varies significantly, country by country. In certain countries, the Company’s ability to achieve significant market penetration may depend upon the availability of third party governmental reimbursement.

 

We believe that reimbursement in the future will be subject to increased restrictions such as those described above, both in the United States and in foreign markets. We believe that the overall escalating cost of medical products and services has led to and will continue to lead to increased pressures on the health care industry, both foreign and domestic, to reduce the cost of products and services, including products we offer. In the United States or foreign markets third-party reimbursement and coverage may not be available or adequate, current reimbursement amounts may be decreased in the future and future legislation, regulation, or reimbursement policies of third-party payors could have a material adverse affect on the demand for our products or our ability to sell our products on a profitable basis, particularly if our system is more expensive than competing products or procedures. If third-party payor coverage or reimbursement is unavailable or inadequate, our business, financial condition, and results of operations could be materially adversely affected.

 

PRODUCT LIABILITY AND INSURANCE

 

Our business entails the risk of product liability claims. Although we have not experienced any product liability claims to date, such claims could be asserted and we may not have sufficient resources to satisfy any liability resulting from such claims. We maintain product liability insurance with coverage of an annual aggregate maximum of $11 million. Product liability claims could exceed such insurance coverage limits, such insurance may not continue to be available on commercially reasonable terms or at all, and a product liability claim could have a material adverse affect on our business, financial condition or results of operations.

 

EMPLOYEES AND CONSULTANTS

 

As of December 31, 2002 we directly employed 306 full-time individuals. Most of our employees have prior experience with medical device or pharmaceutical companies. We believe that we maintain good relations with our employees. None of our employees is represented by a union or covered by a collective bargaining agreement. Our success will depend in large part upon our ability to attract and retain qualified employees. We face competition in this regard from other companies, research and academic institutions and other organizations.

 

We maintain continuing relationships with a number of independent consultants that have contributed to the development of our products and work on specific development projects. These relationships are integral to our continued success and the generation of new products from the research and development departments.

 

18


Table of Contents

 

CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS

 

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, set forth below are cautionary statements identifying important factors that could cause actual events or results to differ materially from any forward-looking statements made by or on behalf of us, whether oral or written. We wish to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to maximize to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause actual events or results to differ materially from our forward-looking statements. For additional information regarding forward-looking statements, please read the “Cautionary Note Regarding Forward-Looking Statements” section beginning on page 3.

 

We Are Dependent On The Successful Commercialization Of One Product, The Beta-Cath System.

 

We began to commercialize the Beta-Cath System in the United States in November 2000. Substantially all of our revenue in 2002 was from sales in the United States. We anticipate that for the foreseeable future we will be solely dependent on the continued successful commercialization of the Beta-Cath System; however; in the future we may be unable to manufacture the Beta-Cath System in commercial quantities at acceptable costs or to demonstrate that the Beta-Cath System is an attractive and cost-effective alternative or complement to other procedures, including coronary stents, competing vascular brachytherapy devices, or drug coated stents. Because the Beta-Cath System is our sole near-term product focus, we could be required to cease operations if new technology rendered vascular brachytherapy non-competitive. Our failure to continue commercialization of the Beta-Cath System would have a material adverse effect on our business, financial condition and results of operations.

 

Drug-Eluting Stents Or Other New Technology Could Render Vascular Brachytherapy Generally Or The Beta-Cath™ System In Particular Noncompetitive Or Obsolete.

 

Competition in the medical device industry, and specifically the markets for cardiovascular devices, is intense and characterized by extensive research and development efforts and rapidly advancing technology. New developments in technology could render vascular brachytherapy generally noncompetitive.

 

Johnson & Johnson and Guidant compete directly with Novoste for market acceptance of vascular brachytherapy and each has substantially greater resources and experience at introducing new products than does Novoste. We may not be able to compete effectively against J&J or Guidant in the vascular brachytherapy market if they develop products, which are more effective than our products and are preferred by the international cardiologists in treating in-stent restenosis. We would also be negatively affected if these competitors were successful at competing solely by reducing the price of their products because of our sole dependence on the Beta-Cath System.

 

Many of these same companies and others are researching coatings and treatments to coronary stents that could reduce restenosis and possibly be more acceptable to a medical community already experienced at using stents. Clinical trial results have reported a significant reduction in restenosis rates to below 10%. In addition, Johnson & Johnson recently received unanimous approval by a FDA advisory panel that its drug eluting stent be approved for distribution in the U.S. Full FDA approval may occur as early as the second quarter of 2003. If drug-eluting stents are proven effective at reducing restenosis and are widely adopted by the medical community, these stents could have a material adverse effect on Novoste’s business.

 

Our Patents And Proprietary Technology May Not Adequately Protect Our Proprietary Products.

 

Our policy is to protect our proprietary position by, among other methods, filing United States and foreign patent applications. On November 4, 1997 we were issued United States Patent No. 5,683,345, on May 4, 1999

 

19


Table of Contents

we received United States Patent No. 5,899,882 (which is jointly owned by us and Emory University) and on January 11, 2000 we received United States Patent No. 6,013,020, all related to the Beta-Cath™ System. We also have several additional United States applications pending covering other aspects of our Beta-Cath™ System. The United States Patent and Trademark Office has indicated that certain claims pending in another United States application are allowable. With respect to the above identified United States Patents and our other pending United States patent applications, we have filed, or will file in due course, counterpart applications in the European Patent Office and certain other countries.

 

Like other firms that engage in the development of medical devices, we must address issues and risks relating to patents and trade secrets. United States Patent No. 5,683,345 may not offer adequate protection to us because competitors may be able to design functionally equivalent devices that do not infringe the patent. Our patents could also be reexamined, invalidated or circumvented. Furthermore, claims under our other pending applications may not be allowed, or if allowed, may not offer any protection or may be reexamined, invalidated or circumvented. In addition, competitors may have or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products in either the United States or international markets.

 

We May Be Unable To Compete Effectively Against Larger, Better Capitalized Companies.

 

Many of our competitors and potential competitors have substantially greater resources than we do and also have greater resources and expertise in the area of research and development, obtaining regulatory approvals, manufacturing and marketing. Our competitors and potential competitors may succeed in developing, marketing and distributing technologies and products that are more effective than those we will develop and market or that would render our technology and products obsolete or noncompetitive. Additionally, many of the competitors have the capability to bundle a wide variety of products in sales to cath labs or to effectively reduce the price of competing VBT products. We have experienced significant pricing pressure from the largest VBT competitor, Guidant. We may be unable to compete effectively against such competitors and other potential competitors in terms of manufacturing, marketing, distribution, sales and servicing.

 

Compliance With Applicable Government Regulations Will Be Expensive And Difficult.

 

Our Beta-Cath System is regulated in the United States and other Foreign jurisdiction as a medical device. As such, we are subject to extensive regulation by the FDA, by other federal, state and local authorities and by foreign governments. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing approvals, a recommendation by the FDA that we not be permitted to enter into government contracts, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed.

 

The process of obtaining a pre-market approval and other required regulatory approvals can be expensive, uncertain and lengthy, and we may be unsuccessful in obtaining additional approvals to market new versions of the Beta-CathTM System or new indications for the Beta-Cath System. The FDA may not act favorably or quickly on any of our submissions to the agency. We may encounter significant difficulties and costs in our efforts to obtain additional FDA approvals that could delay or preclude us from selling new products in the United States. Furthermore, the FDA may request additional data or require that we conduct further clinical studies, causing us to incur substantial cost and delay. In addition, the FDA may impose strict labeling requirements, onerous operator training requirements or other requirements as a condition of our market approval, any of which could limit our ability to market our systems. Labeling and marketing activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. FDA enforcement policy strictly prohibits the marketing of FDA cleared or approved medical devices for unapproved uses. Further, if a company wishes to modify a product after FDA approval of a pre-market approval, including

 

20


Table of Contents

any changes that could affect safety or effectiveness, additional approvals will be required by the FDA. Such changes include, but are not limited to new indications for use, the use of a different facility to manufacture, changes to process or package the device, changes in vendors to supply components, changes in manufacturing methods, changes in design specifications and certain labeling changes. Failure to receive or delays in receipt of FDA approvals, including the need for additional clinical trials or data as a prerequisite to approval, or any FDA conditions that limit our ability to market our systems, could have a material adverse effect on our business, financial condition and results of operations.

 

Additionally, in October 2002, the FDA began to require the payment of fees for the review of submissions requesting clearance or approval to market medical products, called user fees. Submissions requesting clearance or approval for marketing can be assessed a fee of approximately $2200 for a Section 510(k) pre-market notification or approximately $33,000 to approximately $154,000 for a pre-market application or supplement (depending on the type of submission).

 

The Hospitals With Which We Do Business May Be Delayed In Obtaining Or May Be Unable To Obtain The Licenses To Hold, Handle And Use Radiation That Are Required For Our Products.

 

Our business involves the import, export, manufacture, distribution, use and storage of Strontium-90 (Strontium/Yttrium), the beta-emitting radioisotope utilized in the Beta-CathTM System’s radiation source train. Hospitals in the United States are required to have radiation licenses to hold, handle and use radiation. Many of the hospitals and/or physicians in the United States have been required to amend their radiation licenses to include Strontium-90 prior to receiving and using our Beta-CathTM System. Depending on the state in which the hospital is located, its license amendment will be processed by and its use of the isotope will be regulated by The State of Georgia Department of Natural Resources (“DNR”), in states that have agreed to such arrangement or by The United States Nuclear Regulatory Commission (“NRC”). Obtaining any of the foregoing radiation-related approvals and licenses can be complicated and time consuming.

 

We May Be Unable To Obtain Foreign Approval To Market Our Products.

 

In order for us to market the Beta-CathTM System in Japan and certain other foreign jurisdictions, we must obtain and retain required regulatory approvals and clearances and otherwise comply with extensive regulations regarding safety and manufacturing processes and quality. These regulations, including the requirements for approvals or clearance to market and the time required for regulatory review, vary from country to country, and in some instances within a country. We may not be able to obtain regulatory approvals in such countries or may be required to incur significant costs in obtaining or maintaining our foreign regulatory approvals. Delays in receipt of approvals to market our products, failure to receive these approvals or future loss of previously received approvals could have a material adverse effect on our business, financial condition, and results of operations.

 

Some Of Our Activities May Subject Us To Risks Under Federal and State Laws Prohibiting “Kickbacks” And False Or Fraudulent Claims.

 

A federal law commonly known as the Medicare/Medicaid anti-kickback law, and several similar state laws, prohibit payments that are intended to induce physicians or others either to refer patients or to acquire or arrange for or recommend the acquisition of health care products or services. While the federal law applies only to referrals, products or services for which payment may be made by a federal health care program, state laws often apply regardless of whether federal funds may be involved. These laws constrain the sales, marketing and other promotional activities of manufacturers of medical devices, such as us, by limiting the kinds of financial arrangements, including sales programs, with hospitals, physicians, laboratories and other potential purchasers of medical devices. Other federal and state laws generally prohibit individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, or are for items or services that were not provided as claimed. Since we may provide some coding and billing advice to purchasers of our products, and since we cannot assure that the government will regard any billing errors that may be made as inadvertent, these laws are potentially applicable to us. Anti-

 

21


Table of Contents

kickback and false claims laws prescribe civil and criminal penalties for noncompliance that can be substantial. Even an unsuccessful challenge could cause adverse publicity and be costly to respond to, and thus could have a material adverse effect on our business, results of operations and financial condition.

 

Product Liability Suits Against Us Could Result In Expensive And Time-Consuming Litigation, Payment Of Substantial Damages And Increases In Our Insurance Rates.

 

 

The sale and use of our products could lead to the filing of product liability claims if someone were to allege that one of our products contained a design or manufacturing defect. A product liability claim could result in substantial damages and be costly and time-consuming to defend, either of which could materially harm our business or financial condition. We cannot assure you that our product liability insurance would protect our assets from the financial impact of defending a product liability claim. Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing insurance coverage in the future.

 

Our Quarterly Operating Results May Vary

 

Our operating results have fluctuated significantly in the past on a quarterly basis. We expect that our operating results may fluctuate significantly from quarter to quarter and we may experience losses in the future depending on a number of factors, including the extent to which our products continue to gain market acceptance, the rate and size of expenditures incurred as we expand our domestic and establish our international sales and distribution networks, the timing and level of reimbursement for our products by third-party payors, and other factors, many of which are outside our control.

 

We Are Highly Dependent On Key Personnel.

 

We are highly dependent on the principal members of our management and scientific staff. Loss of our key personnel would likely impede achievement of our research and development, operational, or strategic objectives. To be successful, we must retain key employees and attract additional qualified employees.

 

Our Lack Of Redundant Manufacturing Facilities Could Harm Our Business.

 

We assemble all of our products at our facilities in Norcross, Georgia. The loss of these facilities would likely impede our manufacturing and sales efforts, which would materially and adversely affect our business and financial condition. Should this occur we would have to depend on outsourcing to produce our catheter products.

 

Issuance Of Preferred Stock May Adversely Affect Rights Of Common Shareholders Or Discourage A Takeover

 

In October 1996 our board of directors authorized 1,000,000 shares of Series A Participating Preferred Stock in connection with its adoption of a shareholder rights plan, under which we issued rights to purchase Series A Participating Preferred Stock to holders of the common stock. Upon certain triggering events, such rights become exercisable to purchase common stock (or, in the discretion of our Board of Directors, Series A Participating Preferred Stock) at a price substantially discounted from the then current market price of the common stock. Our shareholder rights plan could generally discourage a merger or tender offer involving our securities that is not approved by our board of directors by increasing the cost of effecting any such transaction and, accordingly, could have an adverse impact on shareholders who might want to vote in favor of such merger or participate in such tender offer.

 

Under our amended and restated articles of incorporation, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our shareholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any shares of preferred stock that may be issued in the future.

 

22


Table of Contents

 

While we have no present intention to authorize any additional series of preferred stock, such issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could also have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. The preferred stock may have other rights, including economic rights senior to the common stock, and, as a result, the issuance thereof could have a material adverse effect on the market value of the common stock.

 

Certain Provisions Of Our Charter, By Laws and Florida Law May Delay Or Prevent A Change Of Control Of The Company

 

 

The amended and restated articles of incorporation provide for a classified board of directors, the existence of which could discourage attempts to acquire us. Additionally, in October 2002, the Board of Directors enacted two amendments to the Company’s by-laws intended to strengthen the provisions of the by-laws that protect Novoste and its shareholders from unfair or coercive takeover tactics. In general, the amendments set forth certain notice requirements for shareholders when calling a special meeting of the Company’s shareholders or submitting shareholder proposals (either a shareholder nomination of director or other business) at our annual meetings. In addition, the amended bylaws establish certain timing requirements for the setting of the record and meeting dates. We are also subject to the anti-takeover provisions of the Florida Business Corporation Act, the application of which may have the effect of delaying or preventing a merger, takeover or other change of control of Novoste and therefore could discourage attempts to acquire Novoste.

 

Item 2.    PROPERTIES

 

The Company’s facilities are located in Norcross, Georgia and consist of two separate locations totaling approximately 90,000 square feet of leased office and manufacturing space, including a 3,000 square foot class 100,000 clean room. The Company also leases 3,000 square feet in Krefeld, Germany which serves as its European customer service and distribution headquarters.

 

Item 3.    LEGAL PROCEEDINGS

 

Novoste is subject to legal claims and assertions in the ordinary course of business. We are not aware of any such assertions that would have a material effect on Novoste.

 

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable

 

Item 4A.    EXECUTIVE OFFICERS OF THE REGISTRANT

 

Our executive officers and directors are as follows:

 

Name
  

Age


  

Position


Alfred J. Novak

  

55

  

President and Chief Executive Officer

Donald J. Webber

  

40

  

Chief Operating Officer

Edwin B. Cordell, Jr.

  

44

  

Vice President, Finance and Chief Financial Officer

David C. Field

  

44

  

Vice President, New Technology

Andrew Green

  

34

  

Vice President, Regulatory Affairs

Daniel G. Hall

  

56

  

Vice President, Secretary and General Counsel

Adam G. Lowe

  

40

  

Vice President, Quality Assurance

Pia Mikkelsen Lynch, M.D

  

42

  

Vice President, Global Clinical Affairs

Susan D. Smith

  

53

  

Vice President, Human Resources

Robert N. Wood, Jr.

  

48

  

Vice President, Sales

 

Alfred J. Novak. Mr. Novak joined Novoste Corporation and was elected President and Chief Executive Officer on October 16, 2002. Mr. Novak is a Founding Member of Syntheon LLC, a company focused on minimally invasive medical devices for the vascular and gastroenterology markets. He serves as Chairman of the Board of Directors of Orbus Medical Technologies, Inc. and is also Chairman of Transurgical, Inc., two start-up medical device companies focused in cardiology. Between 1996 and 1998 Mr. Novak served as President and Chief Executive Officer of Biosense, Inc. Mr. Novak was employed at Cordis Corporation between 1984 and

 

23


Table of Contents

1996 in a variety of management positions culminating in his election as Vice President and Chief Financial Officer and a member of the executive committee in August, 1989. Al Novak received his MBA from the Wharton School of the University of Pennsylvania and earned his B.S. at the U.S. Merchant Marine Academy.

 

Donald J. Webber. Mr. Webber joined Novoste in March 1998 as Director of Manufacturing and served as our Vice President, Manufacturing since January 2000. In January 2002 he was promoted to the position of Chief Operating Officer. From July 1996 through March 1998, Mr. Webber worked for Abiomed, Inc., a manufacturer of cardiac products, as Director of Operations. From January 1995 to July 1996, Mr. Webber was employed by Cabot Medical Corporation, a medical device manufacturer, as Plant Manager and from 1988 to 1995 he was employed by Cordis Corporation, a manufacturer of cardiovascular products. Mr. Webber received an MBA from Nova Southeastem University and a B.S. degree in Industrial Engineering from the State University of New York, Binghamton.

 

Edwin B. Cordell, Jr. Mr. Cordell joined Novoste in May 2000 as Vice President of Finance and Chief Financial Officer. From November 1994 through April 2000, Mr. Cordell was Vice President of Finance and Chief Financial Officer of CryoLife Inc. (NYSE: CRY), a producer of implantable living human tissues and adhesives for surgical use. From August 1987 to November 1994, Mr. Cordell served as Controller and Chief Financial Officer of Video Display Corporation, a publicly held consumer electronics manufacturing and distribution company. Mr. Cordell, a CPA, received his B.S. in Accounting from the University of Tennessee.

 

David C. Field. Mr. Field joined Novoste in April 2001 as Vice President, New Technologies. Prior to joining Novoste, Mr. Field served as Director of Business Development for the Peripheral Technologies Division of C.R. Bard, Inc. From 1995 to 1998 he was the Director of Marketing for the same division of C.R. Bard, Inc. Earlier in his career David was Territory Manager for Medi-Tech Inc. a division of Boston Scientific. He holds a B.S. in Business Management from the University of Maryland and an A.D. in Engineering from the State University of New York in Canton.

 

Andrew M. Green. Mr. Green joined Novoste in 1996. Prior to 1996 he served as Scientific Reviewer for the U.S. Food and Drug Administration (FDA), where he reviewed scientific, technical, pre-clinical and clinical data submitted in support of and effectiveness of interventional cardiology medical devices. Mr. Green holds a M.S. degree in Bioengineering and a B.S. degree in Biological Science, both from Clemson University.

 

Daniel G. Hall. Mr. Hall joined Novoste in June 2000 as Vice President and General Counsel. He served as vice president, secretary and general counsel of Cordis Corporation beginning in 1981 until the company was acquired by Johnson & Johnson in 1995. From 1995 to 1999, Mr. Hall managed his own private law practice. From June 1999, he practiced with Feldman, Gale & Weber, P.A. in Miami, Florida, serving as managing attorney from December 1999 to June 2000.

 

Adam G. Lowe. Mr. Lowe joined Novoste in June 1999 as our Vice President, Quality Assurance. From July 1993 to June 1999 Mr. Lowe worked for various divisions of C.R. Bard, Inc., a diversified medical device manufacturer, having served most recently as the Vice President, Quality at Bard Access Systems, Mr. Lowe received a B.S. in Materials Science and Engineering from North Carolina State University and became an ASQ Certified Quality Engineer in 1992.

 

Pia Mikkelsen Lynch, M.D. Dr. Lynch joined Novoste in April 2002 from Elan Pharmaceutical Research Corporation where she served as Director, Clinical Research since 1997. In this role, she was responsible for developing business and clinical strategies for various projects in multi-therapeutic areas, as well as managing all worldwide clinical development programs for Phase I through IV studies. From 1996 to 1997, Dr. Lynch served as Medical Project Manager, at Worldwide Clinical Trials, Inc., where she directed global clinical research organization services for Phase I through III clinical trials. From 1995 to 1996, she was employed as a Medical Consultant with Integrated Micro Technologies, Inc. and from 1991 through 1994, Dr. Lynch served as a post-graduate research fellow in the Department of Hematology and Oncology at the University of Aarhus, Denmark. Dr. Lynch holds a Doctor of Medicine (M.D.) degree from the University of Aarhus, Denmark.

 

24


Table of Contents

 

Susan D. Smith. Ms. Smith joined Novoste in March 1996. She was promoted to Director of Human Resources in July 1998 and to Vice President in December 2001. She has over 25 years experience in administration and human resource management. She attended the University of Georgia. Prior to joining Novoste, she served as Human Resources Administrator for Solos Endoscopy.

 

Robert N. Wood, Jr. Mr. Wood joined Novoste in June 2000 from Perclose, a manufacturer of arterial closure devices that was acquired by Abbott Laboratories in 1999. He served as the Eastern regional sales manager of Perclose from 1997-2000. From 1987 to 1997, Mr. Wood was employed by Cordis Corporation (a Johnson & Johnson Company), where he held various senior sales management positions, most recently that of national sales manager for Cordis’ Endovascular Systems division. He began his career in the medical device business as a sales representative for Medrad, Inc. in 1983.

 

25


Table of Contents

PART II

 

Item 5.    MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED

STOCKHOLDER MATTERS

 

Our common stock has been traded on the Nasdaq National Market (Nasdaq symbol: NOVT) since May 1996. The number of record holders of the Company’s Common Stock at March 14, 2003 was 99 excluding beneficial owners of shares are registered in nominee or street name. The Company has not paid any dividends since its inception, other than the distribution of the Shareholder Rights described in “Item 1, Business—Issuance Of Preferred Stock May Adversely Affect the Rights of holders of common stock or delay or prevent a change of control of the Company” and does not intend to pay any dividends in the foreseeable future. Pursuant to the terms of our revolving line of credit, we are restricted from paying dividends on our Common Stock.

 

The range of high and low closing sale prices for the Common Stock is as follows:

 

Quarter Ended
  

High


  

Low


Year Ended December 31, 2001

             

March 31, 2001

  

$

38.8700

  

$

14.0000

June 30, 2001

  

$

25.7500

  

$

13.6200

September 30, 2001

  

$

25.2500

  

$

5.9300

December 31, 2001

  

$

13.3100

  

$

5.7300

Year Ended December 31, 2002

             

March 31, 2002

  

$

11.2700

  

$

6.5500

June 30, 2002

  

$

8.7500

  

$

4.6200

September 30, 2002

  

$

5.0500

  

$

3.3500

December 31, 2002

  

$

7.2200

  

$

3.9690

 

On March 14, 2003, the last reported sale price for the Common Stock was $7.95.

 

On April 7, 2000 Novoste completed a private placement offering, in which we sold 1,463,500 shares of our common stock at $35.00 per share. The placement raised net proceeds of approximately $49 million, of which $5 million was received during the second quarter. After the offering, Novoste had 15.85 million shares of common stock outstanding.

 

26


Table of Contents

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

 

The selected financial data shown below for the fiscal years ended December 31, 2002, 2001 and 2000, and as of December 31, 2002 and 2001, have been taken or derived from our audited financial statements included in this Form 10-K. The selected financial data set forth below for the fiscal years ended December 31, 1999 and 1998, and as of December 31, 2000, 1999 and 1998, have been derived from our audited financial statements for those years, which are not included in this Form 10-K. The selected consolidated financial data set forth below should be read in conjunction with the consolidated financial statements and related notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

 

    

For The Year Ended December 31,


 
    

2002


    

2001


    

2000


    

1999


    

1998


 
    

(in thousands, except per share amounts)

 

Consolidated Statement of Operations Data:

                                            

Net sales and revenues

  

$

69,030

 

  

$

69,908

 

  

$

6,530

 

  

$

1,823

 

  

$

19

 

Costs and expenses:

                                            

Cost of sales

  

 

27,313

 

  

 

19,164

 

  

 

4,258

 

  

 

1,642

 

  

 

117

 

Impairment and related charges

  

 

6,900

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

Research and development

  

 

13,300

 

  

 

12,756

 

  

 

17,119

 

  

 

22,889

 

  

 

21,089

 

Sales and marketing

  

 

26,875

 

  

 

34,654

 

  

 

15,651

 

  

 

6,606

 

  

 

3,074

 

General and administrative

  

 

8,335

 

  

 

9,324

 

  

 

6,321

 

  

 

3,775

 

  

 

2,528

 

Restructuring and one-time charges

  

 

—  

 

  

 

1,214

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

    


  


  


  


  


Loss from operations

  

 

(13,693

)

  

 

(7,204

)

  

 

(36,819

)

  

 

(33,089

)

  

 

(26,789

)

Interest income (expenses), net

  

 

642

 

  

 

2,095

 

  

 

3,746

 

  

 

2,169

 

  

 

2,127

 

    


  


  


  


  


Net loss

  

$

(13,051

)

  

$

(5,109

)

  

$

(33,073

)

  

$

(30,920

)

  

$

(24,662

)

    


  


  


  


  


Basic and diluted net loss per share (1)

  

$

(0.80

)

  

$

(0.32

)

  

$

(2.13

)

  

$

(2.30

)

  

$

(2.34

)

    


  


  


  


  


Weighted average shares outstanding (1)

  

 

16,268

 

  

 

16,152

 

  

 

15,517

 

  

 

13,433

 

  

 

10,536

 

                                              

Consolidated Balance Sheet Data:

                                            

Working capital

  

$

30,496

 

  

$

40,482

 

  

$

53,742

 

  

$

38,821

 

  

$

21,797

 

Total assets

  

 

67,519

 

  

 

82,911

 

  

 

77,073

 

  

 

49,367

 

  

 

29,482

 

Long-term liabilities

  

 

5

 

  

 

203

 

  

 

401

 

  

 

—  

 

  

 

—  

 

Accumulated deficit

  

 

(134,434

)

  

 

(121,384

)

  

 

(116,275

)

  

 

(83,201

)

  

 

(52,281

)

Total shareholder’ equity

  

 

52,765

 

  

 

64,728

 

  

 

67,042

 

  

 

43,065

 

  

 

24,517

 


(1)   See note 1 to the consolidated financial statements for an explanation of the method used to compute net loss per share.

 

27


Table of Contents

 

ITEM  7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

Novoste commenced operations as a medical device company in May 1992. Since 1994, we have devoted substantially all of our efforts to developing the Beta-Cath System. The Company commenced the active marketing of the Beta-Cath System in Europe in January 1999 for use in patients suffering from “in-stent restenosis”, a condition in which coronary stents become clogged with new tissue growth. On November 3, 2000, Novoste received U.S. marketing approval for the 30-millimeter Beta-Cath System from the FDA and subsequently shipped its first commercial system on November 27, 2000. The number of commercial sites in the U.S. increased to over 400 in 2002.

 

Since our inception through June 30, 2001 we experienced significant losses in each period due to product development and clinical trial costs and, beginning in 2000, the costs of launching the Beta-Cath System in the U.S. At December 31, 2002 we had an accumulated deficit of approximately $134.4 million. The Company experienced its first net operating profit in the third quarter of 2001. We expect to achieve an operating profit in 2003 as we continue to allocate resources to leverage our existing manufacturing operations, both internally and with outside vendors, we also expect our sales and marketing efforts in support of United States market development to level off as a percent of net sales and anticipate that our administrative activities to support our growth will remain at a constant level. At the same time we will continue to conduct clinical trials and research and development projects in order to expand the opportunities for our technology.

 

The Company also faces intense competition in the field of vascular brachytherapy with companies that have significantly greater resources than Novoste including Johnson & Johnson and Guidant. Both Johnson & Johnson and Guidant have introduced vascular brachytherapy products that compete with our Beta-Cath System. A new technology called drug-coated stents poses additional competitive threats in treating restenosis. We may not be able to sustain an acceptable level of market demand for the Beta-Cath System if this technology is successfully introduced. Failing to sustain our current level of demand could significantly reduce revenues and affect our ability to remain profitable.

 

Critical Accounting Policies

 

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires that we adopt and follow certain accounting policies. Certain amounts presented in the financial statements have been determined based upon estimates and assumptions. Although we believe that our estimates and assumptions are reasonable, actual results may differ and could be material.

 

We have included below a discussion of the critical accounting policies that we believe are affected by our more significant judgments and estimates used in the preparation of our financial statements, how we apply such policies, and how results differing from our estimates and assumptions would affect the amounts presented in our financial statements. Other accounting policies also have a significant effect on our financial statements, and some of these policies also require the use of estimates and assumptions. Note 1 to the Consolidated Financial Statements discusses our significant accounting policies.

 

Revenue Recognition

 

Revenue from the sale of products is recorded when an arrangement exists, delivery has occurred and services have been rendered, the seller’s price is fixed and determinable and collectability is reasonably assured. The Company earns revenue from sales of catheters and from license and lease agreements to use the radiation source trains and transfer devices included in the Beta-Cath System.

 

28


Table of Contents

 

Novoste uses distributors in countries where the distributors’ experience and knowledge of local radiation and medical device regulatory issues is considered beneficial by the Company’s management. Under the distributor arrangements, there are generally no purchase commitments and no provisions for cancellation of purchases. Novoste or the distributor may cancel the distributor agreements at any time.

 

Revenue from sales of catheters directly to hospitals is recognized upon shipment after the hospital has leased a Beta-Cath System and completed all licensing and other requirements to use the system. The Company recognizes revenue from sales of catheters to distributors at the time of shipment.

 

The Company retains ownership of the radiation source trains and transfer devices and enters into either a lease or license agreement with its customers. Revenue recognition begins once an agreement has been executed, the system has been shipped, and all licensing and other requirements to use the system have been completed. The revenue is recognized ratably over the term of the agreement. The terms of the operating lease signed with customers located in the United States requires, as dictated by FDA regulatory approval, replacement and servicing of the radiation source train and transfer device at six-month intervals or number of usages. This amount is included in cost of sales as incurred. No other post-sale obligations exist.

 

The Company sells its catheters with no right of return except in cases of product malfunction or shipping errors. In connection with the approval to relaunch the 3.5F catheter system on January 6, 2003 the Company plans to exchange some 5F catheters for 3.5F catheters for its customers. A reserve has been recorded against revenue for known returns and an estimate of unknown returns. The exchange of these catheters is expected to continue in the future until the 3.5F system had been fully launched to a significant majority of customer sites. At December 31, 2002, the Company had recorded a reserve for approximately $2,150,000 to recognize the 5F catheters purchased prior to December 31, 2002 that were expected to be returned in the future in exchange for 3.5F catheters.

 

Radiation and Transfer Devices and Amortization of Costs

 

The Company retains ownership of the radiation source trains (RSTs) and transfer devices (TDs) that are manufactured by third party vendors. The costs to acquire, test and assemble these assets are recorded as incurred. The Company has determined that based upon experience, testing and discussions with the FDA the estimated useful life of RSTs and TDs exceeds one year and is potentially as long as four years. Accordingly, the Company classifies these assets as long-term assets. Depreciation of the costs of these assets is included in Cost of Sales and is recognized over their estimated useful lives using the straight-line method. Depreciation begins at the time the Beta-CathTM System is placed into service. Valuation reserves are recorded for the balance of unamortized costs of TDs and RSTs that are not available for use by a customer due to expiration or unsatisfactory performance measures.

 

The Company has invested significant resources to acquire RSTs and TDs that make up the Beta-CathTM System and offers multiple treatment length catheters (each of which requires a different TD and RST). The acquisition of these various length systems are based upon demand forecasts derived from available information provided by the Company’s Sales and Marketing organizations. If actual demand were less favorable, or of a different mixture of treatment lengths than those projected by management, additional valuation allowances might be required which would negatively impact operating profits.

 

During the second quarter of 2002, Novoste decided to concentrate marketing and development efforts on the 3.5 F diameter Beta-CathTM System. Accordingly, the Company evaluated the recoverability of the carrying value for 5.0F devices and other assets to determine if an impairment charge was necessary. The Company performed this evaluation in accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). Based on this evaluation, the Company determined that an impairment and other related charges of $6.9 million was warranted (See Note 8). Management will continue to evaluate its long-lived assets in accordance with SFAS NO. 144.

 

29


Table of Contents

 

Stock Based Compensation

 

The Company uses the intrinsic value method for valuing its awards of stock options and restricted stock and recording the related compensation expense, if any, in accordance with APB No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company grants stock options generally for a fixed number of shares to employees, directors, consultants and independent contractors with an exercise price equal to the fair market value of the shares at the date of grant. Compensation expense is recognized for increases in the estimated fair value of common stock for any stock options with variable terms. No compensation expense is recognized for stock option grants to employees for which the terms are fixed and the exercise price is equal to the fair value of the shares at the date of the grant.

 

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation “SFAS” 123 and Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments that Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

 

Any compensation expense related to grants that do not vest immediately is amortized over the vesting period of the stock options using the straight-line method as that methodology most closely approximates the way in which the option holder earns those options.

 

Allowance for Doubtful Accounts

 

We maintain allowances for doubtful accounts for the estimated losses resulting from the inability of our customers to make required payments. Most of our customers are hospitals located in the U.S., however, some are distributors of our products in foreign countries or hospitals located in Europe. The amount recorded in the allowances is based primarily on management’s evaluation of the financial condition of the customers. If the financial condition of any customers deteriorates, additional allowances may be required. Allowances are also maintained for future sales returns and allowances based on an analysis of recent trends of product returns. Actual losses from uncollectible accounts are charged against the allowance when it is determined that the account cannot be collected. Ending balances for the allowance for doubtful accounts were $1,135,000 and $878,000 for the years ending December 31, 2002 and 2001, respectively. Bad debt expenses were $372,000 in 2002 and $590,000 in 2001. Actual write-offs of balances due were $246,000 in 2002 and $83,000 in 2001. A portion, $131,000, of the increase in the allowance for doubtful accounts in 2002 was due to increases in the exchange rate of accounts denominated in Euros during 2002.

 

Inventories

 

Novoste values its inventories at the lower of cost or market value on a first-in, first-out (FIFO) basis. Provisions are recorded for excess or obsolete inventory equal to the cost of the inventory. Shelf-life expiration or replacement products in the marketplace may cause product obsolescence. If actual product demand and market conditions were less favorable than those projected by management, additional provisions might be required which would negatively impact operating profits. Novoste evaluates the adequacy of these provisions quarterly. Inventory reserves were $844,000 at December 31, 2002 and $15,000 at December 31, 2001. The increase was due primarily to revenues against 3.5F catheters following the voluntary recall in August 2002.

 

RESULTS OF OPERATIONS

 

Comparison of Years Ended December 31, 2002 and 2001

 

The net loss for the year ended December 31, 2002 was $13,051,000, or $.80 per share, as compared to $5,109,000, or $0.32 loss per share, for the year earlier.

 

Net Sales and Revenues.    Net sales and revenues were $69,030,000 for the year ended December 31, 2002 as compared to $69,908,000 for the year ended December 31, 2001. The decrease was due to the voluntary recall of the 3.5F catheters in August 2002. Revenues recorded in the United States for the year ended December 31, 2002 were $64,746,000 as compared to $64,697,000 for the year ended December 31, 2001. Comparatively,

 

30


Table of Contents

international revenue decreased 17.8% to $4,284,000 in 2002 compared to $5,212,000 in 2001. Factors impacting both US and international revenue included the voluntary recall of the 3.5F catheters in August 2002 as well as increased competition in the US.

 

Cost of Sales.    Cost of sales for the year ended December 31, 2002 were $34,213,000 resulting in a gross margin of $34,817,000 or 50.4% as compared to cost of sales of $19,164,000 and a gross margin of $50,744,000 or 72.6% of net sales for the year ended December 31, 2001. The decrease in gross margin on both an absolute and percentage basis is impacted partially due to the introduction of the 3.5F system during the second quarter of 2002 and the additional amortization and service costs associated with having a second Beta-Cath System in the market. However, the margins were also impacted by the impairment and other related charges of $6,900,000 taken in the second quarter of 2002 against the carrying value of 5F assets. Cost of sales includes raw material, labor and overhead to manufacture catheters as well as the amortized costs of transfer devices and radiation source trains (including device servicing and repair costs, and radiation shipping and disposal costs) used in the Beta-Cath System.

 

Research and Development Expenses.    Research and development expenses increased 4.3% to $13,300,000 for the twelve months ended December 31, 2002 from $12,756,000 for the twelve months ended December 31, 2001. This increase was primarily the result of the launch of both the MOBILE and BRAVO clinical trials. Novaste anticipates increasing research and development expenses in 2003 as it pursues substantial completion of these two trials.

 

Sales and Marketing Expenses.    Sales and marketing expenses decreased 22.4% to $26,875,000 for the year ended December 31, 2002 as compared to $34,653,000 for the previous year. The decrease represents lower costs to distribute the catheter products considering that a significant portion of customer sites were added during 2001 and 2002 included costs for maintaining those accounts and launching (and subsequently recalling) the 3.5F Beta-Cath System. Sales and marketing expenses were also reduced based upon consolidation of European facilities begun in 2001 and certain workforce reductions in the U.S.

 

General and Administrative Expenses.    General and administrative expenses decreased 10.6% to $8,335,000 for the year ended December 31, 2002 from $9,324,000 for the year ended December 31, 2001. The decrease for this period was primarily the result of lower management expenses (accounting, information systems, human resources and benefits) due to the reduction in revenue growth of the Beta-Cath System. In addition, salaries and expenses for the office of CEO were less in 2002 prior to the transition to our new CEO, in October 2002.

 

Other Income.    Net other income decreased 69.4% to $642,000 for the year ended December 31, 2002 from $2,095,000 for the prior year. The decrease in other income is primarily attributable to the decrease in interest income year-to-date as a result of a decrease in short-term investment balances combined with falling interest rates.

 

Comparison of Years Ended December 31, 2001 and 2000

 

The net loss for the year ended December 31, 2001 was $5,109,000, or $.32 per share, as compared to $33,073,000, or $2.13 loss per share, for the year earlier. The decrease in net loss for the twelve months ended December 31, 2001 was primarily due to an increase in revenue from sales in the U.S. market from its commercial launch of the Beta-Cath System.

 

Net Sales and Revenues.    Net sales and revenues were $69,908,000 for the year ended December 31, 2001 as compared to $6,530,000 for the year ended December 31, 2000. The increase was due to the FDA approval of the Beta-Cath System in November 2000 and the initial, first full year of sales in the U.S. Revenues recorded in the United States for the year ended December 31, 2001 were $64,696,793 as compared to $1,816,250 for the year ended December 31, 2000. The increase in revenues was primarily due to the addition of over 300 sites in

 

31


Table of Contents

the U.S. market and the accompanying stocking orders for catheters in these new sites. Typically a new site in the U.S. will order 5 to 10 catheters. Comparatively, international revenue increased 10.6% to $5,211,503 compared to $4,713,331. International sales increased from the prior year due to adding sites in other parts of the world. Non U.S. revenue has not risen at the same rate seen in the United States because of a lack of acceptance of vascular brachytherapy in Europe and no insurance reimbursement approval. The U.S. market received insurance reimbursement for the procedure in the second half of 2001 that contributed to the acceptance and growth in revenue in this market.

 

Cost of Sales.    Cost of sales for the year ended December 31, 2001 were $19,164,000 resulting in a gross margin of $50,744,000 or 72.6% as compared to cost of sales of $4,258,000 and a gross margin of $2,272,000 or 34.8% of net sales for the year ended December 31, 2000. The increase in gross margin on both an absolute and percentage basis is due to the higher sales and production volumes and improved production yields during 2001. Cost of sales includes raw material, labor and overhead to manufacture catheters as well as the amortized costs of transfer devices and radiation source trains (including device servicing and repair costs, and radiation shipping and disposal costs) used in the Beta-Cath System.

 

Research and Development Expenses.    Research and development expenses decreased 25.5% to $12,756,000 for the year ended December 31, 2001 from $17,119,000 for the year ended December 31, 2000. These decreases were primarily the result of decreased clinical trial activity related to the completion of patient enrollment in the pivotal trials, the largest expense of which was the costs of supplying product to clinical sites. Research and development expenses were favorably impacted by the approval of the Beta-Cath System in November 2000.

 

Sales and Marketing Expenses.    Sales and marketing expenses increased 121.4% to $34,653,000 for the year ended December 31, 2001 as compared to $15,651,000 for the previous year. These increases were primarily the result of higher personnel, trade show, consulting and promotional literature costs associated with marketing our product on a direct basis in the U.S. and Europe and significant expenses in recruiting, training and retaining a United States sales force for the launch of the Beta-Cath System in the United States.

 

General and Administrative Expenses.    General and administrative expenses increased 47.5% to $9,324,000 for the year ended December 31, 2001 from $6,321,000 for the year ended December 31, 2000. The increase for this period was primarily the result of additional management personnel at higher salaries and the increase in infrastructure (accounting, information systems, human resources and benefits) to support the commercial launch of the Beta Cath System.

 

Restructuring and Other Expenses.    Restructuring charges of $1,214,000 were recorded in 2001 primarily related to a reduction in workforce of thirteen employees located in Europe and six employees located in the Unites States in addition to termination of certain facility leases in Europe. We paid $560,000 of the restructuring charges in 2001 related to severance payments and lease payments for closed facilities and had $654,000 remaining in accrued expenses at December 31, 2001 related primarily to severance agreements and facility lease and termination payments.

 

Other Income.     Net other income decreased 44.1% to $2,095,000 for the year ended December 31, 2001 from $3,745,000 for the prior year. The decrease in interest income was primarily due to the decrease in average cash equivalent and short-term investment balances that were used for operations combined with falling interest rates.

 

Liquidity and Capital Resources

 

During the year ended December 31, 2002, Novoste generated cash from operations of $10.7 million. The components of cash generated or used and reasons for change from 2002 over 2001 are as follows: (i) $9,326,000 provided from accounts receivable as collections outrun revenues due to the slower revenue run rate in the last half of 2002, compared to the last half of 2001 and the recall of the 3.5F product beginning in August 2002 which generated catheter exchanges at no charge, (ii) $85,000 used for inventory increases, but less than 2001 due to

 

32


Table of Contents

slower inventory growth also due to the slower revenue run rate offset by the introduction of more catheter offerings by the company necessitating greater inventory requirements per revenue dollar, (iii) $36,000 provided by a decrease in prepaid expenses as several clinical trials reached conclusion, (iv) $17,634,000 provided by a decrease in other assets offset by an increase in amortization of radiation and transfer devices and a $5,065,000 impairment charge, (v) $13,051,000 used by operating losses, (vi) $2,033,000 used by reducing accounts payables because purchases at the end of 2002 were significantly lower than the end of 2001 when the Company was getting ready to launch the 3.5F diameter catheter, (vii) $1,001,000 used by fewer accrued expenses and taxes withheld because of slower growth, and (viii) $387,000 used by a decrease in unearned revenue related to revenue recognized on radiation and transfer devices due to much lower revenues on second year leases of transfer devices.

 

The improvement in cash from operations during 2002 resulted from fewer resources were required in 2002 to fund the opening of customer sites, expansion of the launch of the Beta-Cath System and the related transfer devices, radiation source trains and catheter inventory required during 2001 when Novoste opened over 300 sites. Activities related to the launch of the 3.5F Beta-Cath System and the subsequent voluntary recall of the 3.5F catheters were the primary uses of cash in 2002.

 

Net cash provided by investing activities for the year ended December 31, 2002, was $5.2 million. $20.0 million in cash was provided by shorter maturities of available-for-sale securities, $2,730,000 was used for purchase of property and equipment, but at a lower level than 2001 due to completion of manufacturing facilities, and $12,124,000 was used for the purchase of additional radiation and transfer devices, but at a lower level than 2001 as the rate of adding new customer sites slowed.

 

Novoste’s financing activities include the purchase of treasury stock, equity offerings and borrowings and repayments of capital leases. Financing activities for the year ended December 31, 2002 used $.2 million and provided net cash of $1.7 and $56.1 million for the years ended December 31, 2001 and 2000, respectively.

 

In 2002, the Company received $.5 million from the exercise of stock options, purchased $.6 million of treasury stock and repaid $.2 million for capital leases of computer equipment.

 

At December 31, 2002 the Company had commitments to purchase $4.4 million in inventory components of the Beta-Cath System over the next year.

 

On October 14, 1999 Novoste signed a development and manufacturing supply agreement with AEA Technologies QSA GmbH for a second source of radioactive supply and for the development of a smaller diameter radiation source. The agreement provided for the construction of a production line to be finished in two phases. The first phase, the design phase, was completed in February and the second phase was completed in October 2002. The completion of the first phase provided Novoste with access to a limited supply of the smaller diameter radiation source. The cost of this production line was paid as construction progressed. Depreciation of the production line began when the equipment was placed into service, in October 2002. In addition, the agreement provides for joint ownership of all intellectual property arising form the development work and that AEA may manufacture vascular brachytherapy sources only for us.

 

On June 20, 2001, the Company entered into a manufacturing and supply agreement with Bebig Isotopen-und Medizintechnik GmbH (Bebig), a German corporation, to manufacture and supply the Company with radioactive sealed Strontium-90 seed trains. During each calendar year under the four-year contract, the Company guarantees to pay to Bebig minimum annual payments. All product purchases are credited against the annual guaranteed payment. Any product payments in excess of the annual guaranteed payment can be credited against the guaranteed payment of the next year. In the event that the Company does not purchase product to exceed the annual guaranteed payment, the deficiency will be due and payable to Bebig within thirty days after the end of each one-year contract period. At December 31, 2002, the Company exceeded the annual guaranteed payment.

 

The Company has entered into a license agreement with a physician pursuant to which he is entitled to receive a royalty on the net sales of the Beta-Cath System (excluding consideration paid for the radioactive isotope), subject to a maximum payment of $5,000,000. Royalty fees to the physician aggregated $667,540, $632,600, and $63,200 in 2002, 2001 and 2000, respectively, and have been expensed in cost of sales. Approximately $3.6 million remains to be paid.

 

33


Table of Contents

 

On January 30, 1996, the Company entered into a license agreement whereby Emory University assigned its claim to certain technology to the Company for royalties based on net sales (as defined in the agreement) of products derived from such technology, subject to certain minimum royalties. The royalty agreement term is consistent with the life of the related patent and applies to assignments of the patent technology to a third party. Royalty fees to Emory University aggregated $1,377,579, $1,443,967, and $146,050 in 2002, 2001 and 2000, respectively, and have been expensed in Cost of Sales.

 

The Company’s principal source of liquidity at December 31, 2002 consisted of cash, cash equivalents and short-term investments of $33.6 million. The Company has a $10 million revolving line of credit with a financial institution (lender) that matures in February 2004. At December 31, 2002, there were no outstanding borrowings under this agreement. The Company may borrow an amount not to exceed the borrowing base as defined in the loan agreement. Interest is payable on the first of each month calculated on the outstanding balance and accrues at a rate of the bank’s prime rate plus 1%. At such time that the Company sustains three consecutive months of profitability, the rate decreases to the prime rate. The Company granted a first priority security interest in substantially all assets of the Company. Additionally, the loan agreement contains certain financial and non-financial covenants.

 

At December 31, 2002, the Company was in violation of the tangible net worth covenant of the loan agreement; the lender has issued a waiver for that violation through February 28, 2003. By agreement between the Company and the lender, the maturity date of the original loan agreement between the parties has been extended to February 27, 2004. Also as part of that modification, the tangible net worth covenant was changed, bringing the Company into compliance, and the interest rate was changed to a base of the greater of the bank’s prime rate or 4.25%, plus 1%.

 

The Company also has letters of credit available under the line of credit. The lender will issue or have issued letters of credit for the Company’s account not exceeding (i) the lesser of the committed revolving line of the borrowing base minus (ii) the outstanding principal balance of the Advances and minus (iii) the Cash Management Sublimit as defined below; however, the face amount of outstanding letters of credit (including drawn but unreimbursed letters of credit) may not exceed $500,000. Each letter of credit will have an expiry date of no later than 180 days after the revolving maturity date, but the Company’s reimbursement obligation will be secured by cash on terms acceptable to the lender at any time after the revolving maturity date if the term of this agreement is not extended by the lender. The Company agrees to execute any further documentation in connection with the letters of credit as the lender may reasonably request.

 

The Company may use up to $500,000 for the lender’s Cash Management Sublimit, which may include merchant service, direct deposit of payroll, business credit card, and check cashing services identified in various cash management services agreements related to such services (the “Cash Management Services”). All amounts the Lender pays for any Cash Management Services will be treated as advances under the committed revolving line. The Company did not have any credit lines or borrowings outstanding at December 31, 2002.

 

As of December 31, 2002, we had contractual obligations as follows:

 

    

Payments due by period


Contractual Obligations

  

Total


  

Less than 1 year


  

1-3

years


  

3-5 years


  

More than 5 years


Long-Term Debt

  

$

  —  

  

$

—  

  

$

—  

  

$

—  

  

$

—  

Capital Lease Obligations

  

 

183,000

  

 

178,000

  

 

5,000

  

 

—  

  

 

—  

Operating Leases

  

 

2,524,500

  

 

901,000

  

 

1,623,500

  

 

—  

  

 

—  

Purchase Obligations

  

 

4,409,000

  

 

3,159,000

  

 

1,250,000

  

 

—  

  

 

—  

Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP

  

 

—  

  

 

—  

  

 

—  

  

 

—  

  

 

—  

    

  

  

  

  

Total

  

$

7,116,500

  

$

4,238,000

  

$

2,878,500

  

$

—  

  

$

—  

 

34


Table of Contents

 

The Company believes that existing cash and cash expected to be generated from a operations will be sufficient to meet its working capital, financing and capital expenditure requirements through at least 2003. The Company’s future liquidity and capital requirements will depend upon numerous factors, including, among others: market demand for its products; the resources required to maintain a direct sales force in the United States and in the larger markets of Europe, the resources required to introduce enhancements to and expansion of the Beta Cath System product line; the resources the Company devotes to the development, manufacture and marketing of its products; resources expended to license or acquire new technologies; and the progress of the Company’s clinical research and product development programs. Novoste may in the future seek to raise additional funds through bank facilities, debt or equity offering or other sources of capital. Additional financing, if, required, many not be available on satisfactory terms, or at all.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not maintain any off-balance sheet financing arrangements apart from the operating leases described above.

 

Recent Accounting Pronouncements

 

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact of SFAS 143 on its financial statements.

 

In July 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring). The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect that the adoption of SFAS No. 146 will have a material impact on its financial statements.

 

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees.” FIN 45 requires a gurarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in issuing the guarantee. The Company will apply FIN 45 to guarantees, if any, issued after December 31, 2002. At adoption, FIN 45 did not have a significant impact on the Company’s consolidated statements of operations or financial position. FIN 45 also requires guarantors to disclose certain information for guarantees, including product warranties, outstanding at December 31, 2002

 

In November 2002, the EITF reached a consensus on EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”). The Issue addresses certain aspects of the accounting for arrangements under which a vendor will perform multiple revenue-generating activities. EITF 00-21 addresses when a revenue arrangement with multiple deliverables should be divided into separate units of accounting and, if separation is appropriate, how the arrangement consideration should be allocated to the identified accounting units. The Company is required to adopt the provisions of EITF 00-21 effective July 1, 2003, and the Company does not expect the adoption of EITF 00-21 to have a material impact on its results of operations or financial condition.

 

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure (“SFAS 148”). SFAS 148 amends Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (“SFAS No. 123”) to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method on reported results.

 

35


Table of Contents

 

ITEM   7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments

 

The Company does not participate in derivative financial instruments, other financial instruments for which the fair value disclosure would be required under SFAS No. 107, Disclosures about Fair Value of Financial Instruments, or derivative commodity instruments. All of the Company’s investments are in short-term, investment-grade commercial paper, corporate bonds, certificates of deposit and U.S. Government and agency securities that are carried at fair value on our books.

 

Interest Rate Risk

 

The Company’s cash and cash equivalents and short-term investments are subject to market risk, primarily interest-rate and credit risk. The Company’s investments are managed by outside professional managers within investment guidelines set by the Company. Such guidelines include security type, credit quality and maturity and are intended to limit market risk by restricting the Company’s investments to high credit quality securities with relatively short-term maturities.

 

At December 31, 2002, the Company had $21.9 million in cash and cash equivalents with a weighted average interest rate of .91% and $11.8 million in available for sale investments with a weighted average interest rate of 2.02%. At December 31, 2001, the Company had $5.9 million in cash and cash equivalents with a weighted average interest rate of 1.8% and $31.7 million in available for sale investments with a weighted average interest rate of 4.07%.

 

Foreign Currency Risk

 

International revenues from the Company’s foreign direct sales and distributor sales comprised 6%, 7% and 72% of total revenues for the years ended December 31, 2002, 2001 and 2000, respectively. With the exception of the Australian, Chinese and New Zealand distributors, which sales are denominated in U.S. dollars, sales are denominated in Euros. The Company experienced an immaterial amount of transaction gains and losses for the year ended December 31, 2002. The Company is also exposed to foreign exchange rate fluctuations as the financial results of its Dutch, Belgian, German and French subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, these results when translated may vary from expectations and adversely impact overall expected profitability. The net effect of foreign exchange rate fluctuations on the Company during the year ended December 31, 2002 was not material.

 

ITEM   8.   CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The consolidated financial statements, with the report of the independent auditors, listed in Item 15, are included in this Annual Report on Form 10-K.

 

ITEM   9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING              FINANCIAL DISCLOSURE

 

Not applicable.

 

36


Table of Contents

PART III

 

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 

The information on directors required by Items 401 and 405 of Regulation S-K is incorporated herein by reference to the Company’s definitive Proxy Statement (“Proxy Statement”), which will be filed with the Securities and Exchange Commission (“SEC”) within 120 days after December 31, 2002.

 

Information concerning the Company’s executive officers required by Item 401(b) of Regulation S-K appears in Part I of this Annual Report on Form 10-K.

 

ITEM 11.   EXECUTIVE COMPENSATION

 

The information required by Item 402 of Regulation S-K is incorporated herein by reference to the Company’s Proxy Statement, which will be filed with the SEC within 120 days after December 31, 2002, except that the Report of the Compensation Committee and the Stock Performance Graph contained in the Proxy Statement are specifically excluded from incorporation by reference herein.

 

ITEM   12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The information required by Item 403 of Regulation S-K is incorporated herein by reference to the Company’s Proxy Statement, which will be filed with the SEC within 120 days after December 31, 2002.

 

ITEM   13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The information required by Item 404 of Regulation S-K is incorporated herein by reference to the Company’s Proxy Statement, which will be filed with the SEC within 120 days after December 31, 2002.

 

ITEM 14.    CONTROLS AND PROCEDURES

 

(a)   Disclosure Controls and Procedures.    Within the 90-day period prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely notification to them of information we are required to disclose in our periodic SEC filings and in ensuring that this information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations.

 

(b)   Internal Controls.    There have been no significant changes in our internal controls or in other factors that could significantly affect those controls, including any corrective actions with regard to significant deficiencies and material weaknesses, subsequent to the date of their evaluation.

 

(c)   Limitations on the Effectiveness of Controls.    The company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls or our Internal Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Some inherent limitations in all control systems include the realities that (i) judgments in decision-making can be faulty; (ii) breakdowns can occur because of simple error or mistake; (iii) controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control; and (iv) the design of any system of controls is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

37


Table of Contents

PART IV

 

ITEM   15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

 

(a)1.    Index to Financial Statements.

 

The following consolidated financial statements of Novoste Corporation are included herein:

 

    

Page Number


Report of Independent Auditors

  

42

Consolidated Balance Sheets as of December 31, 2002 and 2001

  

43

Consolidated Statements of Operations for the years ended

    

December 31, 2002, 2001 and 2000

  

44

Consolidated Statements of Shareholders’ Equity for the years ended

    

December 31, 2002, 2001 and 2000

  

45

Consolidated Statements of Cash Flows for the years ended

    

December 31, 2002, 2001 and 2000

  

48

Notes to Consolidated Financial Statements

  

49

 

2.    Financial Statement Schedules.

 

Information required by consolidated financial statement schedules for which provision is made in the applicable accounting regulation of the SEC is included in the Notes to Consolidated Financial Statements; thereby eliminating the needs for these schedules.

 

3.    Exhibits.

 

The exhibits listed in the accompanying Index to Exhibits immediately following the financial statements are filed as part of this Report.

 

(b)    Reports on Form 8-K.

 

The Registrant filed the following reports on Form 8-K during the fiscal quarter ended December 31, 2002.

 

  (1)   The Company filed a Form 8-K on October 17, 2002 (i) setting forth the content of amendments to the Company’s By-Laws, which were enacted by the Board of Directors on October 16, 2002 and (ii) announcing the appointment of Alfred J. Novak as President and Chief Executive Officer of the Company.

 

 

38


Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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, on March 31, 2003.

 

NOVOSTE CORPORATION

 

/s/    ALFRED J. NOVAK        

By:                                                                                                  

Alfred J. Novak

Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 31, 2003.

 

/s/    ALFRED J. NOVAK        


Alfred J. Novak

  

Chief Executive Officer
(Principal Executive Officer)

/s/    EDWIN B. CORDELL, JR.        


Edwin B. Cordell, Jr.

  

Chief Financial Officer
(Principal Financial and Accounting Officer)

/s/    DONALD C. HARRISON        


Donald C. Harrison, M.D.

  

Director

/s/    J. STEPHEN HOLMES        


J. Stephen Holmes

  

Director

/s/    CHARLES E. LARSEN        


Charles E. Larsen

  

Director

/s/    JUDY LINDSTROM      


Judy Lindstrom

  

Director

/s/    STEPHEN I. SHAPIRO        


Stephen I. Shapiro

  

Director

/s/    NORMAN R. WELDON        


Norman R. Weldon, PhD.

  

Director

/s/    THOMAS D. WELDON        


Thomas D. Weldon

  

Director

/s/    WILLIAM E. WHITMER        


William E. Whitmer

  

Director

 

39


Table of Contents

CERTIFICATIONS

 

I, Alfred J. Novak, certify that:

 

1.    I have reviewed this annual report on Form 10-K of Novoste Corporation;

 

2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

  a)   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within these entities, particularly during the period in which this annual report is being prepared;

 

  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

 

  c)   presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.    The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: March 31, 2003

/s/    ALFRED J. NOVAK

 

ALFRED J. NOVAK

Chief Executive Officer

 

40


Table of Contents

CERTIFICATIONS

 

I, Edwin B. Cordell, Jr., certify that:

 

1.    I have reviewed this annual report on Form 10-K of Novoste Corporation;

 

2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

  a)   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

 

  c)   presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.    The registrant’s other executive officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: March 31, 2003

/s/ EDWIN B. CORDELL, JR.

 

EDWIN B. CORDELL, JR.

Chief Financial Officer

 

41


Table of Contents

 

REPORT OF INDEPENDENT AUDITORS

 

The Board of Directors and Shareholders

Novoste Corporation

 

We have audited the accompanying consolidated balance sheets of Novoste Corporation (the “Company”) as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

 

Ernst & Young LLP

 

Atlanta, Georgia

February 4, 2003, except for Notes 4

and 13, as to which the date is March 4, 2003

 

42


Table of Contents

 

NOVOSTE CORPORATION

CONSOLIDATED BALANCE SHEETS

 

    

December 31,


 
    

 


2002


 


  

 


2001


 


ASSETS

                 

Current assets:

                 

Cash and cash equivalents

  

$

21,928,462

 

  

$

5,878,286

 

Short-term investments

  

 

11,646,800

 

  

 

31,683,627

 

Accounts receivable, net of allowance of $1,134,876 and $878,424, respectively

  

 

6,757,697

 

  

 

16,130,721

 

Inventories

  

 

3,926,879

 

  

 

3,746,433

 

Prepaid expenses and other current assets

  

 

986,197

 

  

 

1,023,137

 

    


  


Total current assets

  

 

45,246,035

 

  

 

58,462,204

 

    


  


Property and equipment, net

  

 

9,541,802

 

  

 

9,886,711

 

Radiation and transfer devices, net

  

 

11,352,801

 

  

 

13,534,356

 

Receivable from officers

  

 

282,429

 

  

 

144,025

 

Other assets

  

 

1,096,375

 

  

 

883,311

 

    


  


    

 

67,519,442

 

  

$

82,910,607

 

    


  


LIABILITIES AND SHAREHOLDERS’ EQUITY

                 

Current liabilities:

                 

Accounts payable

  

$

2,176,063

 

  

$

4,026,866

 

Accrued expenses

  

 

9,966,958

 

  

 

10,917,277

 

Deferred revenue

  

 

2,429,155

 

  

 

2,786,476

 

Capital lease obligations

  

 

177,451

 

  

 

249,212

 

    


  


Total current liabilities

  

 

14,749,627

 

  

 

17,979,831

 

    


  


Long-term liabilities:

                 

Capital lease obligations

  

 

5,201

 

  

 

203,135

 

    


  


Shareholders’ equity:

                 

Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and outstanding

  

 

—  

 

  

 

—  

 

Common stock, $.01 par value, 25,000,000 shares authorized; 16,351,953 and 16,265,081 shares issued, respectively

  

 

163,520

 

  

 

162,651

 

Additional paid-in capital

  

 

187,813,442

 

  

 

187,357,044

 

Accumulated other comprehensive income (loss)

  

 

190,087

 

  

 

(408,139

)

Accumulated deficit

  

 

(134,434,438

)

  

 

(121,383,528

)

    


  


    

 

53,732,611

 

  

 

65,728,028

 

Less treasury stock, 118,077 and 5,780 shares of common stock, respectively, at cost

  

 

(445,317

)

  

 

(23,840

)

Unearned compensation

  

 

(522,680

)

  

 

(976,547

)

    


  


Total shareholders’ equity

  

 

52,764,614

 

  

 

64,727,641

 

    


  


    

$

67,519,442

 

  

$

82,910,607

 

    


  


 

See accompanying notes.

 

43


Table of Contents

 

NOVOSTE CORPORATION

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    

Year Ended December 31,


 
    

 


2002


 


  

 


2001


 


  

 


2000


 


Net sales

  

$

69,029,866

 

  

$

69,908,296

 

  

$

6,529,581

 

Cost of sales

  

 

27,312,811

 

  

 

19,164,436

 

  

 

4,257,602

 

Impairment and related charges

  

 

6,900,000

 

  

 

—  

 

  

 

—  

 

    


  


  


Gross margin

  

 

34,817,055

 

  

 

50,743,860

 

  

 

2,271,979

 

    


  


  


Operating expenses:

                          

Research and development

  

 

13,299,677

 

  

 

12,756,257

 

  

 

17,118,976

 

Sales and marketing

  

 

26,874,945

 

  

 

34,653,392

 

  

 

15,650,756

 

General and administrative

  

 

8,334,928

 

  

 

9,324,347

 

  

 

6,321,186

 

Restructuring and other expense

  

 

—  

 

  

 

1,213,705

 

  

 

—  

 

    


  


  


Total operating expenses

  

 

48,509,550

 

  

 

57,947,701

 

  

 

39,090,918

 

    


  


  


Loss from operations

  

 

(13,692,495

)

  

 

(7,203,841

)

  

 

(36,818,939

)

    


  


  


Interest income

  

 

747,318

 

  

 

2,164,295

 

  

 

3,784,378

 

Interest expense

  

 

(105,734

)

  

 

(75,783

)

  

 

(22,535

)

Other income (expense)

  

 

—  

 

  

 

6,488

 

  

 

(16,377

)

    


  


  


Total other income

  

 

641,584

 

  

 

2,095,000

 

  

 

3,745,466

 

    


  


  


Net loss

  

$

(13,050,911

)

  

$

(5,108,841

)

  

$

(33,073,473

)

    


  


  


Net loss per share—basic and diluted

  

$

(0.80

)

  

$

(0.32

)

  

$

(2.13

)

Weighted average shares outstanding-basic and diluted

  

 

16,268,329

 

  

 

16,152,360

 

  

 

15,517,272

 

 

 

See accompanying notes.

 

44


Table of Contents

 

NOVOSTE CORPORATION

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

    

Common Stock


    

Additional Paid-In Capital


    

Accumulated Other Comprehensive

Income (Loss)


         

Treasury Stock


              
    

Shares


    

Amount


         

Accumulated Deficit


   

Shares


    

Amount


    

Unearned

Compensation


   

Total


 

Balance at December 31, 1999

  

14,201,632

 

  

$

142,016

 

  

$

128,182,542

 

  

$

57,722

 

 

$

(83,201,214

)

 

(5,780

)

  

$

(23,840

)

  

$

(2,092,382

)

 

$

43,064,844

 

Issuance of stock in private placement, 1,463,500 shares at $35 per share, net of issuance costs of $2,525,275

  

1,463,500

 

  

 

14,635

 

  

 

48,682,590

 

  

 

—  

 

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

48,697,225

 

Issuance of restricted stock for compensation to officer and employees, 1,500 shares at $41 per share, 1,950 shares at $22.50 per share

  

3,450

 

  

 

35

 

  

 

105,340

 

  

 

—  

 

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

(105,375

)

 

 

—  

 

Cancellation of unvested equity awards issued to officer

  

(7,500

)

  

 

(75

)

  

 

(249,300

)

  

 

—  

 

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

249,375

 

 

 

—  

 

Other equity transactions

  

—  

 

  

 

—  

 

  

 

114,880

 

  

 

—  

 

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

114,880

 

Amortization of unearned compensation

  

—  

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

710,162

 

 

 

710,162

 

Deferred consulting charges on stock option grants

  

—  

 

  

 

—  

 

  

 

328,876

 

  

 

—  

 

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

328,876

 

Exercise of stock options at $1.00 to $29.63 per share

  

426,544

 

  

 

4,265

 

  

 

7,141,874

 

  

 

—  

 

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

7,146,139

 

Issuance of stock under Employee Stock Purchase Plan 3,219 shares at $36.125 and 3,790 shares at

$23.375

  

7,009

 

  

 

70

 

  

 

204,808

 

  

 

—  

 

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

204,878

 

Comprehensive loss:

                                                                         

Translation adjustment

  

—  

 

  

 

—  

 

  

 

—  

 

  

 

(151,412

)

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

(151,412

)

Net loss

  

—  

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

(33,073,473

)

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

(33,073,473

)

    

  


  


  


 


 

  


  


 


Total comprehensive

loss

  

—  

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

—  

 

 

—  

 

  

 

—  

 

  

 

—  

 

 

 

(33,224,885

)

                                                                     


Balance at December 31, 2000

  

16,094,635

 

  

$

160,946

 

  

$

184,511,610

 

  

$

(93,690

)

 

$

(116,274,687

)

 

(5,780

)

  

$

(23,840

)

  

$

(1,238,220

)

 

$

67,042,119

 

    

  


  


  


 


 

  


  


 


 

 

 

See accompanying notes

 

45


Table of Contents

 

NOVOSTE CORPORATION

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

   

Common Stock


 

Additional Paid-In Capital


  

Accumulated Other Comprehensive Income (Loss)


  

Accumulated Deficit


 

Treasury Stock


 

Unearned

Compensation


 

Total


   

Shares


 

 


Amount


         

Shares


 

 


Amount


   

Exercise of stock options at $3.20 to $27.00

 

117,188

 

 

1,172

 

 

1,258,302

  

 

—  

  

 

—  

 

—  

 

 

—  

 

 

—  

 

 

1,259,474

Deferred compensation relating to issuance of stock options to officers

 

—  

 

 

—  

 

 

839,361

  

 

—  

  

 

—  

 

—  

 

 

—  

 

 

(594,547)

 

 

244,814

Issuance of stock under Employee Stock Purchase Plan, 36,776 shares at $14.93 and 12,482 shares at $7.15

 

49,258

 

 

493

 

 

637,731

  

 

—  

  

 

—  

 

—  

 

 

—  

 

 

—  

 

 

638,224

Issuance of restricted stock to an officer (3,000 shares) and consultant (1,000 shares) at $23.02 per share

 

4,000

 

 

40

 

 

92,040

  

 

—  

  

 

—  

 

—  

 

 

—  

 

 

(92,080)

 

 

—  

Amortization of unearned compensation

                                         

 

948,300

 

 

948,300

Other equity transactions

 

—  

 

 

—  

 

 

18,000

  

 

—  

  

 

—  

 

—  

 

 

—  

 

 

—  

 

 

18,000

Comprehensive loss:

                                                   

Translation adjustment:

 

—  

 

 

—  

 

 

—  

  

 

(314,449)

  

 

—  

 

—  

 

 

—  

 

 

—  

 

 

(314,449)

Net loss

 

—  

 

 

—  

 

 

—  

  

 

—  

  

 

(5,108,841)

 

—  

 

 

—  

 

 

—  

 

 

(5,108,841)

   
 

 

  

  

 
 

 

 

Total Comprehensive loss

 

—  

 

 

—  

 

 

—  

  

 

—  

  

 

—  

 

—  

 

 

—  

 

 

—  

 

 

(5,423,290)

                                                 

Balance at December 31, 2001

 

16,265,081

 

$

162,651

 

$

187,357,044

  

$

(408,139)

  

$

(121,383,528)

 

(5,780)

 

$

(23,840)

 

$

(976,547)

 

$

64,727,641

   
 

 

  

  

 
 

 

 

 

 

 

See accompanying notes.

 

46


Table of Contents

 

NOVOSTE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

   

Common Stock


 

Add’l

Paid-In

Capital


    

Accumulated Other Compre-

hensive

Income (Loss)


   

Accumu-

lated

Deficit


   

Treasury Stock


   

Unearned

Compen-

sation


   

Total


 
   

Shares


 

Amount


        

Shares


   

Amount


     

Exercise of stock options $1.00 to $6.65

 

61,375

 

 

614

 

 

336,751

 

                  

26,150

 

 

110,685

 

         

 

448,050

 

Deferred compensation relating to issuance of stock options

 

—  

 

 

—  

 

 

364,816

 

  

 

—  

 

 

 

—  

 

 

—  

 

 

—  

 

 

 

(364,816

)

 

 

—  

 

Issuance of stock under Employee Stock Purchase Plan,
25,497 shares at $4.08 and 21,353 shares at $3.927

 

25,497

 

 

255

 

 

103,759

 

  

 

—  

 

 

 

—  

 

 

21,353

 

 

83,868

 

 

 

—  

 

 

 

187,882

 

Amortization of unearned compensation

 

—  

 

 

—  

 

 

—  

 

  

 

—  

 

 

 

—  

 

 

—  

 

 

—  

 

 

 

272,883

 

 

 

272,883

 

Stock-repurchase

 

—  

 

 

—  

 

 

—  

 

  

 

—  

 

 

 

—  

 

 

(159,800

)

 

(616,030

)

 

 

—  

 

 

 

(616,030

)

Compensation expense relating to accelerated vesting of stock options to a former officer

 

—  

 

 

—  

 

 

196,873

 

  

 

—  

 

 

 

—  

 

 

—  

 

 

—  

 

 

 

—  

 

 

 

196,873

 

Cancellation of unvested equity awards issued to officers

 

—  

 

 

—  

 

 

(545,800

)

  

 

—  

 

 

 

—  

 

 

—  

 

 

—  

 

 

 

545,800

 

 

 

—  

 

Comprehensive income (loss):

                                                              

Unrealized loss on short-term investments

 

—  

 

 

—  

 

 

—  

 

  

 

(19,468

)

         

—  

 

 

—  

 

 

 

—  

 

 

 

(19,468

)

Translation adjustment

 

—  

 

 

—  

 

 

—  

 

  

 

  617,694

 

 

 

—  

 

 

—  

 

 

—  

 

 

 

—  

 

 

 

617,694

 

Net loss

 

—  

 

 

—  

 

 

—  

 

          

 

(13,050,911

)  

 

—  

 

 

—  

 

 

 

—  

 

 

 

(13,050,911

)

   
 

 


  


 


 

 

 


 


Total comprehensive
loss

 

—  

 

 

—  

 

 

—  

 

  

 

—  

 

 

 

—  

 

 

—  

 

 

—  

 

 

 

—  

 

 

 

(12,452,685

)

Balance at December 31, 2002

 

16,351,953

 

$

163,520

 

$

187,813,442

 

  

$

190,087

 

 

$

(134,434,438

)

 

(118,077

)

 

(445,317

)

 

$

(522,680

)

 

$

52,764,614

 

   
 

 


  


 


 

 

 


 


 

 

See accompanying notes.

 

47


Table of Contents

 

NOVOSTE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    

2002


    

2001


    

2000


 

CASH FLOWS FROM OPERATING ACTIVITIES

                          

Net loss

  

$

(13,050,911

)

  

$

(5,108,841

)

  

$

(33,073,473

)

Adjustments to reconcile net loss to net cash provided (used) by operating activities:

                          

Depreciation and amortization of property and equipment

  

 

3,125,499

 

  

 

2,413,135

 

  

 

1,458,994

 

Amortization of radiation and transfer devices

  

 

9,240,887

 

  

 

5,087,576

 

  

 

131,815

 

Issuance of stock for services or compensation

  

 

—  

 

  

 

244,814

 

  

 

328,876

 

Amortization of deferred compensation

  

 

469,756

 

  

 

948,300

 

  

 

710,162

 

Provision for doubtful accounts

  

 

288,227

 

  

 

590,814

 

  

 

305,633

 

Unrealized loss on short-term securities

  

 

(19,468

)

  

 

—  

 

  

 

—  

 

Impairment charge

  

 

5,065,000

 

  

 

—  

 

  

 

—  

 

Change in assets and liabilities:

                          

Accounts receivable

  

 

9,325,631

 

  

 

(12,410,361

)

  

 

(3,871,403

)

Inventory

  

 

(85,396

)

  

 

(2,585,997

)

  

 

1,144,159

 

Prepaid expenses and other current assets

  

 

36,294

 

  

 

(541,035

)

  

 

(265,502

)

Accounts payable

  

 

(2,032,948

)

  

 

644,186

 

  

 

2,422,905

 

Accrued expenses and taxes withheld

  

 

(1,000,948

)

  

 

5,535,613

 

  

 

250,908

 

Unearned revenue

  

 

(387,268

)

  

 

2,216,210

 

  

 

577,881

 

Other

  

 

(265,402

)

  

 

(465,609

)

  

 

(404,572

)

    


  


  


Net cash provided (used) by operations

  

 

10,708,953

 

  

 

(3,431,195

)

  

 

(30,283,617

)

    


  


  


CASH FLOWS FROM INVESTING ACTIVITIES

                          

Maturities (purchase) of short-term investments, net

  

 

20,036,830

 

  

 

(1,028,191

)

  

 

3,677,230

 

Purchase of property and equipment

  

 

(2,729,730

)

  

 

(4,920,879

)

  

 

(4,564,549

)

Purchase of radiation and transfer devices

  

 

(12,124,342

)

  

 

(13,140,984

)

  

 

(5,612,763

)

    


  


  


Net cash provided (used) by investing activities

  

 

5,182,758

 

  

 

(19,090,054

)

  

 

(6,500,082

)

    


  


  


CASH FLOWS FROM FINANCING ACTIVITIES

                          

Proceeds from issuance of common stock

  

 

635,932

 

  

 

1,915,698

 

  

 

56,163,122

 

Purchase of treasury stock

  

 

(616,030

)

  

 

—  

 

  

 

—  

 

Payments on capital lease obligations

  

 

(269,695

)

  

 

(261,918

)

  

 

(52,248

)

    


  


  


Net cash provided (used) by financing activities

  

 

(249,793

)

  

 

1,653,780

 

  

 

56,110,874

 

    


  


  


Effect of exchange rate changes on cash

  

 

408,258

 

  

 

233,357

 

  

 

94,198

 

    


  


  


Net increase (decrease) in cash and cash equivalents

  

 

16,050,176

 

  

 

(20,634,112

)

  

 

19,421,373

 

Cash and cash equivalents at beginning of period

  

 

5,878,286

 

  

 

26,512,398

 

  

 

7,091,025

 

    


  


  


Cash and cash equivalents at end of period

  

$

21,928,462

 

  

$

5,878,286

 

  

$

26,512,398

 

    


  


  


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

                          

Cash paid for interest

  

$

105,734

 

  

$

74,091

 

  

$

17,004

 

Noncash investing and financing activities:

                          

Assets acquired under capital leases

  

$

—  

 

  

$

105,000

 

  

$

661,000

 

 

See accompanying notes.

 

48


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.   SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Basis of Presentation

 

Novoste Corporation (the “Company”) was incorporated on January 8, 1987 and commenced operations on May 22, 1992. The Company is a medical device company that is engaged in commercializing the Beta-Cath System, an intraluminal beta radiation catheter delivery system designed to reduce restenosis subsequent to percutaneous transluminal coronary angioplasty. In addition, the Company is investigating the use of the Beta-Cath System in peripheral vascular applications. In the course of its development activities the Company has sustained operating losses through December 31, 2002.

 

During years prior to 1998 the Company was in the development stage. In 1998 the Company received CE mark approval to sell the Beta-Cath System in Europe and recorded its first sale of commercial product in December 1998. In November 2000, the Company received Food and Drug Administration (FDA) approval to sell the Beta-Cath System in the United States. To achieve profitable operations, the Company must successfully achieve market acceptance. The Company plans to finance the Company with revenues from product sales. The Company’s ability to continue its operations is dependent upon successful market acceptance and achieving profitable operations.

 

The consolidated financial statements include the accounts of Novoste Corporation and its wholly-owned subsidiaries incorporated in August 1998 in the Netherlands, in December 1998 in Belgium, in February 1999 in Germany, in January 2000 in France and a dedicated sales corporation incorporated in the state of Florida in July, 2002. Significant inter-company transactions and accounts have been eliminated.

 

On August 19, 2002, the Company initiated a voluntary recall of the Beta-Rail 3.5F Delivery Catheter inventory from its customers. The recall related to the discovery by the Company of a small number of catheter-tip separations in the 3.5F product. An extensive evaluation and improvement program was initiated. A pre-market approval supplement was submitted to the Food and Drug Administration (“FDA”) on October 15, 2002, defining the improvements to the product and manufacturing processes and requesting approval for re-launch of the product. The FDA approved the re-launch on January 6, 2003.

 

The impact of the 3.5F catheter recall has been included in the consolidated financial statements of the Company and is recorded in the corresponding revenue and expense categories as appropriate, based upon the nature of the expense or adjustment. During the third quarter of 2002, net sales were adjusted by approximately $3.3 million for 3.5F catheters that were sold to customers but subsequently returned due to the recall. Cost of sales reflects approximately $800,000 for the disposal of existing 3.5F catheters in inventory and for the additional labor and costs in shipping 5.0F replacement transfer devices, radiation source trains and catheters to our customers. Operating expenses reflect the labor and material costs involved in testing the 3.5F catheters in order to determine the proper corrective actions to be included in our reports to the FDA.

 

In the opinion of management, all adjustments (consisting of normal recurring accruals and estimated write-downs and accruals resulting from the recall) considered necessary for a fair presentation of Novoste’s financial results and condition have been recorded.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company earns revenue from sales of catheters and from license and lease agreements to use the radiation source trains and transfer devices included in the Beta-Cath System. Novoste uses distributors in

 

49


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

countries where the distributors experience and knowledge of local radiation and medical device regulatory issues is considered beneficial by the Company’s management. Under the distributor arrangements, there are no purchase commitments and no provisions for cancellation of purchases. Novoste or the distributor may cancel the distributor agreements at any time.

 

Revenue from sales of catheters directly to hospitals is recognized upon shipment once the hospital has leased a Beta-Cath System and completed all licensing and other requirements to use the system. The Company recognizes revenue from sales of catheters to distributors at the time of shipment.

 

Sales are final and revenue is recorded at time of shipment. Product is not returnable except for shipping errors or warranty claims. An estimate of $78,000 for such returns is recorded as a reduction to net sales and included in accrued liabilities. In addition, due to the pending re-launch of the 3.5F diameter catheter, the Company recorded a reserve of $2,150,000 for anticipated exchanges which is recorded as a reduction to net sales and included in deferred revenue. The Company intends to allow customers who previously utilized the 3.5F Beta-Cath System prior to the recall to exchange 5.0F catheters once the appropriate training has been performed. Additionally, from time to time the Company offers opportunities for customers to earn allowances through promotional activities such as reaching quantity milestones. An estimate of $86,000 for promotional allowances is recorded as a reduction to net sales and included in accrued liabilities. At December 31, 2001, the total accrual for returns and allowances was approximately $100,000.

 

The Company retains ownership of the radiation source trains and transfer devices and enters into either a lease or license agreement with its customers. Revenue recognition begins once an agreement has been executed, the system has been shipped, and all licensing and other requirements to use the system have been completed. The terms of the operating lease signed with customers located in the United States requires, as dictated by FDA regulatory approval, replacement and servicing of the radiation source train and transfer device at six-month intervals. No other post-sale obligations exist.

 

During 1999 and through the second quarter of 2000, all payments under license agreements were payable at the inception of the agreement. These agreements were accounted for as sales-type leases and, accordingly, revenue and the related costs of sales were recognized upon shipment. Beginning in the third quarter of 2000, after the Company determined the estimated useful life of the system exceeded one year, license and lease agreements were determined to be operating leases and, accordingly, revenue has been recorded over the term of the related agreements and costs are recorded over their estimated useful life. (See Radiation and Transfer Devices)

 

Beginning in the fourth quarter of 2000 and in subsequent years, payments under license and lease arrangements are either due in full at the inception of the agreement or over the term of the agreement as catheters are purchased. Revenue for these arrangements has been recorded at the lower of revenue earned based on actual catheters purchased or on a straight-line basis over the term of the related agreements, if collection is considered probable. Costs are recorded over the estimated useful life of the radiation source train and transfer device.

 

During 2002, 2001 and 2000, approximately $4,547,000, $6,814,000 and $365,000 respectively, of net sales related to the lease of radiation transfer devices were recorded.

 

Accounts Receivable

 

Accounts receivable at December 31, 2002 and 2001 include receivables due from product sales and amounts due under lease arrangements to hospitals relating to radiation and transfer devices (see Radiation and Transfer Devices). The carrying amounts reported in the consolidated balance sheets for accounts receivable approximate their fair value.

 

50


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

There were no significant concentrations of credit risk in 2002 or 2001. The Company performs periodic credit evaluations of its customer’s financial condition and generally does not require collateral. Management records estimates of expected credit losses and returns of product sold. Bad debt expense for the years ended December 31, 2002, 2001 and 2000 amounted to $372,000, $598,000 $311,000 respectively. For December 31, 2002, 2001 and 2000, un-collectible accounts written off totaled $346,000, $23,000 and $0, respectively.

 

Receivable From Officers

 

In October 2001, the Company adopted a split-dollar life insurance plan for all officers. The Company matches officer contributions to the plan and also provides an advance for related payroll taxes. The payroll tax advance is reflected as a receivable from officers on the balance sheet. The advances are unsecured and are subject to the life insurance company’s ability to repay the Company in the future from the available funds. In accordance with the plan agreement, if an officer leaves the Company for any reason, retires or in any way terminates or withdraws from the plan, the life insurance company is obligated to repay the Company for the tax advances prior to settlement of the account with the officer. At December 31, 2002 and 2001, the receivable from officers balance was $282,429 and $144,025, respectively.

 

The Company has ceased accepting further contributions to the plan from Executive Officers. Several officers have withdrawn from the plan and $163,143 of the outstanding balance was refunded to the Company in January 2003.

 

Advertising Costs

 

All advertising costs are expensed as incurred. Approximately $838,000, $1,350,000 and $1,155,000 were charged to advertising expense for the years ended December 31, 2002, 2001 and 2000, respectively.

 

Basic and Diluted Loss Per Share

 

The basic and diluted loss per share is computed based on the weighted average number of common shares outstanding. Common equivalent shares of 3,590,016, 3,506,144 and 2,483,157 related primarily to stock options are not included in the per share calculations for 2002, 2001 and 2000, respectively, as the effect of their inclusion would be anti-dilutive.

 

Cash Equivalents and Short-term Investments

 

Cash equivalents are comprised of certain highly liquid investments with maturities of less than three months at the time of their acquisition. In addition to cash equivalents, the Company has investments in commercial paper and other securities that are classified as short-term. Management determines the appropriate classification of debt securities at the time of purchase.

 

All securities are considered as available-for-sale and reported at fair value, with the unrealized gains and losses reported as a component of Other Comprehensive Income (Loss) on the Consolidated Statement of Shareholders’ Equity. The amortized cost of debt securities in this category, if significant, is adjusted for amortization included in interest income but are nominal. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities, of which there were none, would be included in other income. Realized gains and losses are included in interest income and are determined on a specific identification basis. Interest and dividends on securities classified as available-for-sale are included in interest income.

 

Concentrations of Finance Risk

 

The Company’s cash equivalents and short-term investments are subject to market risk, primarily interest-rate and credit risk. The Company’s investments are managed by outside professional managers within

 

51


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

investment guidelines set by the Company. Such guidelines include security type, credit quality and maturity and are intended to limit market risk by restricting the Company’s investments to high credit quality securities with relatively short-term maturities.

 

Foreign Currency Risk

 

International revenues from the Company’s foreign direct sales and distributor sales comprised 6%, 7% and 74% of total revenues for the years ended December 31, 2002, 2001 and 2000, respectively. The Company experienced an immaterial amount of transaction gains and losses in 2002 and 2001 when converting from local currencies into the respective functional currencies. The Company is also exposed to foreign exchange rate fluctuations as the financial results of its Dutch, Belgian, German and French subsidiaries are translated from Euros into U.S. dollars for reporting purposes during consolidation. As exchange rates vary from period to period, these results, when translated into U.S. dollars (the reporting currency), may vary from expectations and adversely impact overall expected profitability. Foreign exchange rate fluctuations, during 2002, 2001 and 2000 are reflected in Other Comprehensive Income (Loss) on the consolidated statement of shareholders’ equity. During 2002, the Euro appreciated against the dollar approximately 18 percent, resulting in approximately $600,000 of Other Comprehensive Income.

 

Inventories

 

Inventories are stated at the lower of cost or market on a first-in, first-out (FIFO) basis and are comprised of the following:

 

    

December 31, 2002


  

December 31, 2001


Raw Materials

  

$

2,877,997

  

$

1,971,347

Work in Process

  

 

201,869

  

 

811,406

Finished Goods

  

 

847,013

  

 

963,680

    

  

Total

  

$

3,926,879

  

$

3,746,433

    

  

 

Inventory resources increased from $15,000 at December 31, 2001 to 844,000 at December 31, 2002. The increase is due mainly to product which was part of the voluntary recall.

 

 

Property and Equipment

 

Property and equipment, including amounts under capital leases (Note 7), are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Leasehold improvements are amortized over the remaining term of the underlying lease using the straight-line method. Repairs and maintenance are expensed as incurred.

 

Property and equipment is comprised of the following:

 

    

December 31, 2002


    

December 31, 2001


 

Furniture and Fixtures

  

$

1,413,276

 

  

$

1,358,180

 

Office Equipment

  

 

5,292,590

 

  

 

4,759,623

 

Laboratory Equipment

  

 

1,007,420

 

  

 

732,818

 

Leasehold Improvements

  

 

2,213,114

 

  

 

2,131,813

 

Production Equipment

  

 

8,472,118

 

  

 

7,119,161

 

    


  


    

 

18,398,518

 

  

 

16,101,595

 

Less: Accumulated Depreciation and Amortization

  

 

(8,856,716

)

  

 

(6,214,884

)

    


  


    

$

9,541,802

 

  

$

9,886,711

 

    


  


 

52


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Long-lived Assets

 

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets are reviewed for impairment whenever events indicate that their carrying amount may not be recoverable. In such reviews, estimated discounted future cash flows associated with these assets are compared with their carrying value to determine if a write-down to fair value is required. (Note 8)

 

Radiation and Transfer Devices

 

The Company retains ownership of the radiation source trains (RSTs) and transfer devices (TDs). Depreciation of the costs of these assets is taken over the estimated useful life using the straight-line method and is recorded in Cost of Sales. Depreciation begins at the time the Beta-Cath System is placed into service. The annual agreements with the Company’s customers to license the use of radiation and transfer devices are classified by the Company as operating leases. Income is recognized ratably over the length of the lease. During 2002 the Company’s pricing policy for leases changed as an accommodation to customers. Many of the second year leases were renewed at no additional costs to the customer based on individual customer pricing decisions. At December 31, 2002, deferred revenue under these leases approximated $.3 million.

 

During 2001, the Company estimated the useful lives of these assets to be eighteen months based upon the information available at that time. During January 2002, the Company determined that, based upon new testing and experience, the estimated useful lives of RSTs was twelve months and the TDs was three years. Accordingly, depreciation has been recorded over the new estimated lives starting at the beginning of the first quarter 2002. The Company begins depreciation when the Beta-Cath system is placed into service.

 

In June 2002, the Company decided to concentrate marketing and product development efforts on the 3.5F diameter Beta-Cath system. An impairment charge of $5.1 million was recognized in the second quarter for the estimated fair value of the 5.0F diameter system (Note 8). Depreciation on the remaining fair value of the 5.0F assets (after the impairment charge) has been accelerated and is being recorded over the expected remaining useful commercial life, which extends through March 31, 2003. Fair value was determined by reviewing the estimated future cash flows associated with 5.0F assets compared to the carrying value of these assets in accordance with SFAS 144 (Note 8).

 

The impact of the change in estimate of useful lives in 2002 is as follows:

 

Change


  

Increase (Decrease)


 

Change in radiation devices life from 18 months to 12 months (RST’s) and
36 months (TD’s)

  

(3,838,000

)

Impairment of $5,065,000 and other related charges of $1,800,000 on 30mm and 40mm 5.0F RST’s and TD’s (Note 8)

  

6,865,000

 

Acceleration of useful lives of 30mm, 40mm and 60mm 5.0F RST’s and TD’s

  

612,000

 

    

The net effect on earnings per share is a $0.22 reduction

  

3,639,000

 

    

        

 

The result of this change is that amortization for existing assets at December 31, 2002, will be less in future periods due to the impairment charges and accelerated amortization of 5.0F assets, offset by longer lives for other radiation devices.

 

At December 31, 2002, equipment with a cost of approximately $31.0 million, less $5.1 million reserve for impairment (See Note 8) before accumulated depreciation and obsolescence reserves of approximately $14.6

 

53


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

million, was subject to operating leases. Obsolescence reserves of $937,000 and $895,000 for 2002 and 2001, respectively, are included with depreciation due to their non-cash nature. Radiation and transfer devices are stated at cost and are comprised of the following

 

 

    

December 31, 2002


    

December 31, 2001


 

Radiation and Transfer Devices

  

$

31,004,602

 

  

$

19,649,069

 

Less: Impairment

  

 

(5,065,000

)

  

 

—  

 

    


  


Net Radiation and Transfer Devices

  

 

25,939,602

 

  

 

19,649,069

 

Less: Accumulated Depreciation

  

 

(14,586,801

)

  

 

(6,114,713

)

    


  


    

$

11,352,801

 

  

$

13,534,356

 

    


  


 

Approximately $2.2 million of radiation and transfer devices were available for lease at December 31, 2002.

 

Research and Development and Patent Costs

 

All research and development costs are charged to operations as incurred. Legal fees and other direct costs incurred in obtaining and protecting patents are expensed as incurred.

 

Shipping Costs

 

All shipping costs incurred by the Company are classified as Cost of Sales.

 

Stock Based Compensation

 

SFAS No. 123, Accounting for Stock-Based Compensation sets forth accounting and reporting standards for stock-based employee compensation plans (Note 9). As permitted by SFAS 123, the Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. Under APB 25 no compensation expense is recognized for stock option grants to employees for which the terms are fixed. The Company grants stock options generally for a fixed number of shares to employees, directors, consultants and independent contractors with an exercise price equal to the fair market value of the shares at the date of grant. Compensation expense is recognized for increases in the estimated fair value of common stock for any stock options with variable terms.

 

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS 123 and Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments that Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

 

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure (“SFAS 148”). SFAS 148 amends Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (“SFAS No 123) to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method on reported results.

 

Pro forma information regarding net loss and net loss per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee and director stock options under the fair value method of SFAS 123. The fair value for options was estimated at the date of grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for 2002, 2001 and 2000: 10-year treasury bill interest rates of 4.24%, 4.22% and 5.66%, respectively; no dividend yields; volatility factor of the

 

54


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

expected market price of the Company’s common stock of 1.24, 1.29 and 1.29, in 2002, 2001 and 2000, respectively; and a weighted-average expected life of the option of five years for 2002, and 2001 and 2000. See Note 1 for pro forma presentation.

 

Option valuation models used under SFAS 123 were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

 

Any compensation expense related to grants that do not vest immediately is amortized over the vesting period of the stock options using the straight-line method as that methodology most closely approximates the way in which the option holder earns those options.

 

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows:

 

    

Year ended December 31,


 
    

2002


    

2001


    

2000


 

Net loss, as reported

  

$

(13,050,911

)

  

$

(5,108,841

)

  

$

(33,073,473

)

Add: Total stock-based employee compensation expense included in net loss

  

 

469,756

 

  

 

948,300

 

  

 

710,162

 

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards

  

 

(7,006,064

)

  

 

(13,497,824

)

  

 

(8,651,205

)

    


  


  


Pro forma net loss

  

$

(19,587,219

)

  

$

(17,658,365

)

  

$

(41,014,516

)

    


  


  


Earnings per share:

                          

Basic-as reported

  

$

(0.80

)

  

$

(0.32

)

  

$

(2.13

)

    


  


  


Basic-pro forma

  

$

(1.20

)

  

$

(1.09

)

  

$

(2.64

)

    


  


  


Dilutive-as reported

  

$

(0.80

)

  

$

(0.32

)

  

$

(2.13

)

    


  


  


Diluted-pro forma

  

$

(1.20

)

  

$

(1.09

)

  

$

(2.64

)

    


  


  


 

New Accounting Pronouncements

 

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact of SFAS 143 on its financial statements.

 

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002 and is not expected to have a material effect on the financial statements of Novoste.

 

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees. FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in issuing the guarantee. The Company will apply FIN 45 to guarantees, if any, issued after December 31, 2002. At adoption, FIN 45 did not have a significant impact on the

 

55


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Company’s consolidated statements of operations or financial position. FIN 45 also requires guarantors to disclose certain information for guarantees, including product warranties, outstanding at December 31, 2002.

 

In November 2002, the EITF reached a consensus on EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”). The Issue addresses certain aspects of the accounting for arrangements under which a vendor will perform multiple revenue-generating activities. EITF 00-21 addresses when a revenue arrangement with multiple deliverables should be divided into separate units of accounting and, if separation is appropriate, how the arrangement consideration should be allocated to the identified accounting units. The Company is required to adopt the provisions of EITF 00-21 effective July 1, 2003, and the Company does not expect the adoption of EITF 00-21 to have a material impact on its results of operations or financial condition.

 

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which is effective for fiscal years beginning after December 15, 2002. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123. The Company is currently assessing SFAS No. 148.

 

Reclassifications

 

Certain amounts have been reclassified in prior year statements to conform to current year presentation.

 

2.   CONSULTING AGREEMENTS

 

The Company has agreements with certain physicians, various consultants and others with terms ranging from one to five years. Substantially all of these agreements provide for stock or stock option grants on the agreement dates. Shares issued under these agreements are generally valued at fair value on the date of grant and include certain registration rights. Stock option grants under these agreements are measured in accordance with EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, Goods or Services. During 2002, 2001, and 2000 approximately, $0, $20,000 and $399,000, respectively, was charged to operations as amortization of deferred compensation under these agreements in accordance with their vesting terms.

 

3.   COMMITMENTS AND CONCENTRATIONS OF SUPPLIERS

 

The Company is committed under operating leases for its facility and various equipment. Rent expense was approximately $676,700, $956,000 and $707,000 for 2002, 2001 and 2000, respectively. The total future minimum rental payments are as follows:

 

2003

  

$

901,000

2004

  

 

848,500

2005

  

 

775,000

    

    

$

2,524,500

    

 

The Company has entered into a license agreement with a physician pursuant to which he is entitled to receive a royalty on the net sales of the Beta-Cath System (excluding consideration paid for the radioactive isotope), subject to a maximum payment of $5,000,000. Royalty fees to the physician aggregated, $667,540, $632,300 and $63,200 in 2002, 2001 and 2000 and have been expensed in cost of sales.

 

On January 30, 1996, the Company entered into a license agreement whereby Emory University assigned its claim to certain technology to the Company for royalties based on net sales (as defined in the agreement) of

 

56


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

products derived from such technology, subject to certain minimum royalties. The royalty agreement term is consistent with the life of the related patent and applies to assignments of the patent technology to a third party. Royalty fees to Emory University aggregated, $1,377,579, $1,443,967 and $146,050 in 2002, 2001 and 2000 and have been expensed in cost of sales.

 

During 2000, the Company obtained all of its requirements of radiation source materials (totaling $1,487,000) pursuant to an agreement, as amended (the “Supply Agreement”), with a single German supplier, Bebig Isotopentechnik and Umweltdiagnostik GmbH. In 2002 and 2001, the Company purchased radiation source materials from two suppliers, Bebig Isotopentechnik und Umweltdiagnostik GmbH ($4,161,000 and $2,438,000, respectively) and AEA Technologies QSA, GmbH ($5,046,000 and $1,115,000, respectively). At December 31, 2002 and 2001, the Company had commitments to purchase approximately $4,409,000 and $7,185,000 respectively, of various inventory components for the Beta-Cath System. At December 31, 2002, approximately $1,800,000 of the purchase commitments has been expensed in cost of sales.

 

Significant proportions of key components and processes relating to the Company’s products are purchased from single sources due to technology, availability, price, quality, and other considerations. Key components and processes currently obtained from single sources include isotopes, protective tubing for catheters, proprietary connectors, and certain plastics used in the design and manufacture of the transfer device. In the event a supply of a key single-sourced material or component was delayed or curtailed, the Company’s ability to produce the related product in a timely manner could be adversely affected. The Company attempts to mitigate these risks by working closely with key suppliers regarding the Company’s product needs and the maintenance of strategic inventory levels. The Company has disposal requirements for isotopes and has contracted with third parties to handle this disposal. The Company has also accrued $250,000 for the isotope equipment disposal which is recorded in accrued expenses. In addition, the Company has accrued $319,000 for isotope seed disposal at December 31, 2002 which is recorded in accrued expenses and radiation and transfer devices, net???. The amount is recorded as a cost of acquiring the radiation source train asset and is amortized.

 

The Company maintains termination agreements with certain executives providing for severance pay and other related benefits upon separation from the Company under a change of control.

 

The Company is subject to legal claims and assertions in the ordinary course of business. At December 31, 2002, the Company is not aware of any such assertions that are material to the Company’s financial statements.

 

4.   LINE OF CREDIT

 

In August 2001, the Company obtained a $10 million revolving line of credit. During the twelve months ended December 31, 2002 the Company had borrowed $4 million against the line of credit; however, at December 31, 2002 and December 31, 2001, the Company had no outstanding borrowings. The Company may borrow an amount not to exceed the borrowing base as defined in the loan agreement, which is principally based on domestic accounts receivables. Interest on outstanding balances is payable on the first of each month, calculated on the outstanding balance, and accrues at a rate of the bank’s prime rate plus 1%. The Company granted a first priority security interest in substantially all assets of the Company to the lender. At December 31, 2002 the Company was in violation of the tangible net worth covenant of its revolving loan agreement; the lender has issued a waiver for that violation through February 28, 2003. By agreement between the Company and the lender, the maturity date of the original Loan Agreement between the parties had been extended to February 28, 2003, and by further agreement, the maturity date has been extended to February 27, 2004. Also as part of that modification, the tangible net worth covenant was changed, bring the Company into compliance, and the interest rate was changed to a base of the greater of the bank’s prime rate or 4.25%, plus 1%.

 

The Company also has letters of credit available under the revolving line of credit. The lender will issue or has issued letters of credit for the Company’s account subject to certain limitations; however, all such issued letters of credit may not exceed $500,000 in the aggregate.

 

57


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

5.   INCOME TAXES

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax purposes. Significant components of the Company’s deferred income tax assets for federal and state income taxes are as follows:

 

    

December 31, 2002


    

December 31, 2001


 

Deferred Income Tax Assets:

                 

Net operating loss carryforwards

  

$

50,521,805

 

  

$

48,334,941

 

R&D tax credit carryforwards

  

 

2,432,065

 

  

 

1,481,225

 

Provision for doubtful accounts

  

 

57,000

 

  

 

57,000

 

Other

  

 

2,811

 

  

 

—  

 

Accruals/reserves

  

 

4,061,928

 

  

 

1,436,791

 

Property and Equipment

  

 

396,452

 

  

 

935,714

 

Deferred compensation

  

 

—  

 

  

 

360,352

 

    


  


    

 

57,472,061

 

  

 

52,606,023

 

Valuation allowance for Deferred Income Tax assets

  

 

(57,472,061

)

  

 

(52,606,023

)

    


  


Net Deferred Income Tax Assets

  

$

—  

 

  

$

—  

 

    


  


 

At December 31, 2002 and 2001, a valuation allowance has been recognized to reduce the net deferred tax assets to zero due to uncertainties with respect to the Company’s ability to generate taxable income in the future sufficient to realize the benefit of deferred income tax assets. No income taxes were paid during 2002, 2001, or 2000. The Company has approximately $119 million of net operating losses for U.S. federal income tax purposes available to offset future taxable income. Such losses expire in 2007 through 2022 and may be subject to annual limitations on usage due to changes in ownership. Net operating loss carry forwards aggregating approximately $13.5 million representing cumulative exercises of non-qualified stock options will result in a credit to contributed capital when recognized. The activity in the valuation allowance includes the tax effect of these non-qualified stock options. The Company has approximately $13.9 million of foreign net operating losses related to its European subsidiaries. Additionally, the Company has approximately $2.4 million in research and development tax credits that expire in 2008 through 2022 unless utilized earlier.

 

A reconciliation of the provision for income taxes to the federal statutory rate is presented below for the years ended December 31:

 

    

2002


    

2001


    

2000


 

Tax benefit at statutory

  

 

(4,178,936

)

  

 

(1,737,006

)

  

 

(11,244,981

)

State tax, net of federal benefit

  

 

(454,611

)

  

 

(203,679

)

  

 

(1,322,939

)

R&D tax credit

  

 

(925,351

)

  

 

(441,262

)

  

 

(501,561

)

Other

  

 

314,743

 

  

 

577,019

 

  

 

61,027

 

Valuation allowance for deferred income tax

  

 

5,244,155

 

  

 

1,804,928

 

  

 

13,008,454

 

    


  


  


    

$

—    

 

  

$

—    

 

  

$

—    

 

    


  


  


 

6.   SHORT-TERM INVESTMENTS

 

At December 31, 2002 and 2001, short-term investments consist of debt securities classified as available-for-sale. The Company has invested primarily in commercial paper and U.S. corporate notes, all of which have a minimum investment rating of A, in addition to government agency notes and certificates of deposit. The Company had insignificant realized gains or losses from the sale of investments for the years ended December 31, 2002, 2001 and 2000.

 

58


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Available-for-Sale Investments

 

Available-for-sale investments at December 31, 2002 were as follows:

 

    

Adjusted

Cost


    

Gross

Unrealized

Gains


  

Gross

Unrealized

Loss


    

Estimated

Fair Value


             
           

Money market

  

$

9,240,000

 

  

$

—  

  

$

—  

 

  

$

9,240,000

Commercial paper

  

 

8,676,000

 

  

 

—  

  

 

—  

 

  

 

8,676,000

Asset backed bonds

  

 

4,750,000

 

  

 

—  

  

 

(26,000

)

  

 

4,724,000

Corporate bonds

  

 

4,166,000

 

  

 

6,000

  

 

—  

 

  

 

4,172,000

Government bonds

  

 

1,003,000

 

  

 

1,000

  

 

—  

 

  

 

1,004,000

    


  

  


  

Total available for sale investments

  

 

27,835,000

 

  

$

7,000

  

$

(26,000

)

  

$

27,816,000

             

  


  

Less amounts classified as cash equivalents

  

 

(16,169,000

)

                      

Unrecognized net loss

  

 

(19,000

)

                      
    


                      
    

$

11,647,000

 

                      
    


                      

 

Available-for-sale investments at December 31, 2001 were as follows:

 

    

Adjusted

Cost


  

Gross

Unrealized

Gains


  

Gross

Unrealized

Loss


  

Estimated

Fair Value


           
           

Money market

  

$

14,494,000

  

$

—  

  

$

—  

  

$

14,494,000

Commercial paper

  

 

1,494,000

  

 

—  

  

 

—  

  

 

1,494,000

Asset backed bonds

  

 

5,098,000

  

 

—  

  

 

—  

  

 

5,098,000

Corporate bonds

  

 

10,598,000

  

 

—  

  

 

—  

  

 

10,598,000

Government bonds

  

 

—  

  

 

—  

  

 

—  

  

 

—  

    

  

  

  

Total available for sale investments

  

$

31,684,000

  

$

—  

  

$

—  

  

$

31,684,000

           

  

  

Less amounts classified as cash equivalents

  

 

—  

                    

Unrecognized net loss

  

 

—  

                    
    

                    
    

$

31,684,000

                    
    

                    

 

The amortized cost and estimated fair value of available-for-sale investments in debt securities at December 31, 2002, by contractual maturity, were as follows:

 

    

Adjusted

Cost


  

Estimated

Fair Value


     
     

Due in 1 year or less

  

$

23,085,000

  

$

23,092,000

Due in 1-2 years

  

 

2,720,000

  

 

2,701,000

Due in 2-5 years

  

 

2,030,000

  

 

2,023,000

 

7.   CAPITAL LEASE OBLIGATIONS

 

The Company leases computers and equipment under capital leases with initial or remaining terms in excess of one year or more. During the year ended December 31, 2002, lease payments under capital leases were $303,399. Amortization of assets recorded under capital leases is included in depreciation expense.

 

59


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Future minimum lease payments under capital leases are as follows:

 

2003

  

$

192,407

2004

  

 

5,333

2005

  

 

0

    

    

$

197,740

Less amounts representing interest

  

 

15,088

    

    

$

182,652

    

 

8.   RESTRUCTURING CHARGES, IMPAIRMENT CHARGES, AND OTHER EXPENSE

 

Restructuring charges of $773,000 were recorded in 2001 primarily related to a reduction in workforce of thirteen employees located in Europe and six employees located in the Unites States in addition to termination of certain facility leases in Europe. The Company paid $560,000 of the restructuring charges in 2001 related to severance payments and lease payments for closed facilities and the balance in 2002. The Brussels office closed in March.

 

During 2001, the Company contributed $440,000 for an 8% ownership interest in an equity method investment. This amount was subsequently expensed in 2001 as a result of the impairment of that investment.

 

Impairment charges of $6.9 million were recorded in 2002 related to the Company’s decision to concentrate marketing and development efforts on the new 3.5F diameter Beta Cath System. The Company evaluated the recoverable value of the 5.0F systems that are equipped to use with 30mm and 40mm radiation source trains. Based on this evaluation, the Company determined that the 5.0F transfer devices and the related radiation source trains, which are long-lived assets, with a carrying amount of $8.6 million, were impaired and wrote them down by $5.1 million to their estimated fair value of $3.5 million, and accrued $1.8 million for related contract commitments, resulting in impairment and other related charges of $6.9 million for the second quarter of 2002. Fair value was based on expected future net cash flows to be generated by the transfer devices and radiation source trains during their remaining service lives, discounted at the risk-free rate of interest. The remaining fair value is amortized ratably over the estimated useful life of these assets which extends through March 31, 2003. At December 31, 2002 the net book value of 5.0F impaired assets was $1.4 million.

 

9.   SHAREHOLDERS’ EQUITY

 

Shareholder Rights Plan

 

On October 25, 1996, the Company’s Board of Directors declared a dividend of one Right for each share of Common Stock held of record at the close of business on November 25, 1996. The Rights are generally not exercisable until 10 days after an announcement by the Company that a person or group has acquired at least 15% of the Company’s Common Stock. The Rights, which do not have any voting rights, may be redeemed by the Company at a price of $.01 per Right at any time prior to a person’s or group’s acquisition of 15% or more of the Company’s Common Stock. Each Right, should it become exercisable, will entitle the owner to buy 1 1/100th (0.01) of a share of new Series A participating preferred stock at an exercise price of $85.

 

In the event the Rights become exercisable as a result of the acquisition of at least 15% of the Company’s Common Stock, each Right will entitle the owner, other than the acquiring person, to buy at the Rights’ then current exercise price a number of shares of Common Stock with a market value equal to twice the exercise price. In addition, unless the acquiring person or group owns more than 50% of the outstanding shares of Common Stock, the Board of Directors may elect to exchange all outstanding Rights (other than those owned by

 

60


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

such acquiring person or group) at an exchange ratio of one share of Common Stock per Right. The Rights expire on November 25, 2006 unless they are earlier exercised, redeemed, or exchanged. As a result of the adoption of this Plan, 1,000,000 shares of authorized preferred stock have been reserved and designated as Series A Participating Preferred Stock.

 

Stock Option Plans and Stock Grant

 

The Company’s Board of Directors adopted in May 1992, the Novoste Corporation Stock Option Plan (the “Plan”) under which options designated as either incentive or non-qualified stock options may be issued to employees, officers, directors, consultants and independent contractors of the Company or any parent, subsidiary or affiliate of the Company. Options granted under the Plan are at prices not less than the fair market value at the time of grant and may be exercised for a period of ten years from the grant date. Options granted under the Plan have vesting periods ranging from immediately to four years. The Plan includes a provision for options to accelerate and become immediately and fully exercisable upon a 50% or more change in control as defined in the Amended and Restated Stock Option Plan. In 2001, this Plan was terminated and replaced with the 2001 Stock Plan. In August 1996 the Stock Option and Compensation Committee of the Board of Directors of the Company adopted a Non-Employee Director Stock Option Plan (the “Director Plan”). In 2001, this Plan was terminated and replaced with the 2001 Stock Plan.

 

During April 2001, the 2001 Stock Plan (the “2001 Plan”) was adopted by the Company’s Board of Directors and on June 14, 2001, the 2001 Plan was approved by the Company’s Shareholders. Any employee, officer, consultant, independent contractor or director is eligible to participate in the 2001 Plan. The 2001 Stock Plan permits the granting of both incentive and non-qualified stock options, stock appreciation rights, restricted stock, performance awards and common stock. Options granted under the 2001 Plan are at prices not less than the fair market value at the time of grant and may be exercised for a period of ten years from the grant date. Options granted under the 2001 Plan have vesting periods ranging from immediately to four years. The 2001 Plan includes a provision for options to accelerate and become immediately and fully exercisable upon a 50% or more change in control as defined in the incentive and non-qualified stock option agreements.

 

Effective February 12, 2002, the Company’s Board of Directors adopted the Novoste Corporation 2002 Broad-Based Stock Plan (the “Plan”), which makes 200,000 shares available for grant to employees, officers, consultants, independent contractors or non-employee directors providing services to the Company or affiliates. The Plan limits the number of shares that may be granted to officers and directors to 100,000 shares. The Plan permits the granting of options, stock appreciation rights, restricted stock, restricted stock units, performance awards, other stock grants and other stock-based awards. Furthermore, awards other than options are limited to 10% of the total number of shares authorized and the purchase price per share of options may not be less than the fair market value on grant date. The Plan authorizes the committee designated by the Company’s Board of Directors to set the term and to accelerate the exercisability of awards. Under the Plan, 180,800 shares were granted, 24,400 shares were cancelled and 43,600 shares remain available for grant in year 2002.

 

61


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Activity under the above-described three plans is summarized as follows:

 

    

Number Of Shares


    

Price Per Share


  

Weighted Average Price


Outstanding at December 31, 1999

  

2,069,707

 

  

$

1.000-29.625

  

$

18.30


             

Options granted

  

978,444

 

  

 

20.750-49.250

  

 

28.83

Options exercised

  

(426,544

)

  

 

1.000-29.630

  

 

16.75

Options forfeited

  

(169,166

)

  

 

9.750-28.250

  

 

19.50


             

Outstanding at December 31, 2000

  

2,452,441

 

  

 

1.000-49.250

  

 

22.69


             

Options granted

  

1,425,350

 

  

 

6.65-34.750

  

 

9.52

Options exercised

  

(117,188

)

  

 

3.20-27.000

  

 

10.75

Options forfeited

  

(260,045

)

  

 

6.65-49.250

  

 

25.11


             

Outstanding at December 31, 2001

  

3,500,558

 

  

 

1.000-49.250

  

 

17.53


             

Options granted

  

1,413,274

 

  

 

3.700-8.100

  

 

4.86

Options exercised

  

(87,525

)

  

 

1.000-6.650

  

 

5.12

Options forfeited

  

(1,240,266

)

  

 

3.700-49.250

  

 

22.54


             

Outstanding at December 31, 2002

  

3,586,041

 

  

 

3.200-49.250

  

 

11.14


             

Exercisable at December 31, 2002

  

1,632,212

 

  

$

3.200-49.250

  

$

13.82


             

 

At December 31, 2002 the Company has 3,771,916 shares of common stock reserved for issuances under these employee and director stock option arrangements and 146,883 shares of common stock reserved for issue under the Employee Stock Purchase Plan (Note 10).

 

The following table summarizes information concerning currently outstanding and exercisable options:

 

Range Of
Exercise Prices


  

Number Of
Shares


    

Options Outstanding


  

Options Exercisable


       

Weighted
Average
Remaining Contractual
Life (Years)


    

Weighted Average Exercise Price Of Options Outstanding


  

Number
Exercisable


    

Weighted
Average
Exercise
Price


$  1.00–$  5.00

  

   955,700

    

9.67

    

$

  4.16

  

   140,000

    

$

  4.11

    5.01–    7.00

  

1,219,750

    

9.03

    

 

    6.52

  

   568,896

    

 

    6.61

    7.01–  10.50

  

   130,500

    

9.11

    

 

    7.86

  

     57,150

    

 

    7.71

  10.51–  13.38

  

   244,947

    

6.08

    

 

  11.77

  

   228,322

    

 

  11.83

  13.39–  21.94

  

   338,200

    

6.25

    

 

  16.73

  

   195,785

    

 

  17.42

  21.95–  22.50

  

   269,589

    

7.76

    

 

  22.50

  

   139,451

    

 

  22.50

  22.51–  24.69

  

   153,400

    

5.95

    

 

  23.86

  

   125,600

    

 

  23.97

  24.70–  49.25

  

   273,955

    

6.27

    

 

  31.81

  

   177,008

    

 

  31.16

    
                  
        
    

3,586,041

    

8.30

    

$

11.14

  

1,632,212

    

$

13.82

    
                  
        

 

During the period October 1998 to February 1999, options to purchase 200,000 shares were granted at prices per share ranging from $11.75 to $28.00 per share. These grants were subject to shareholder approval in May 1999. When approval was obtained, the market price per share exceeded the exercise price, and the Company incurred compensation of $1,792,500, which will be expensed over the four-year vesting period of

 

62


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

these options: $343,750, $415,035 and $429,220 were expensed in 2002, 2001 and 2000, respectively. Approximately 37,500 of these options awarded to a former officer of the Company were forfeited during 2000, reducing the incurred compensation by $72,656 to $1,719,844.

 

In April 2001, options to purchase 101,000 shares were granted at $14.71 per share. These grants were subject to shareholder approval in June 2001. When approval was obtained, the market price per share exceeded the exercise price, and the Company incurred compensation of $839,361, which will be expensed over the vesting period of these options. The vesting period allowed for one-quarter vesting of the options on the date of grant and the remainder to be vested one-quarter over the next three grant date anniversaries. Approximately $209,840 and $344,800 were expensed in 2002 and 2001 respectively, relating to these options.

 

In July 2002 the Company accelerated the vesting of options to a former senior officer serving on the board as part of his separation compensation. The Company recorded compensation expense of $196,876 as a result of this acceleration.

 

In November 2002, the Company issued 19,375 shares to an officer of the Company as a replacement award to previously canceled options. The Company recorded $304,900 in compensation expense associated with the issuance of these awards.

 

The weighted-average fair value of options granted during 2002 is $4.14.

 

Pro forma information regarding net loss and net loss per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee and director stock options under the fair value method of SFAS 123. The fair value for options was estimated at the date of grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for 2002, 2001 and 2000: 10-year treasury bill interest rates of 4.24%, 4.22% and 5.66%, respectively; no dividend yields; volatility factor of the expected market price of the Company’s common stock of 1.24, 1.29 and 1.29, in 2002, 2001 and 2000, respectively; and a weighted-average expected life of the option of five years for 2002, and 2001 and 2000. See Note 1 for proforma presentation.

 

Option valuation models used under SFAS 123 were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

 

During 2002, 2001, and 2000, the Company has granted a total of 56,450 shares of restricted Common Stock from the Plan to consultants and certain officers of the Company. Of these restricted shares, 7,500 were cancelled during 2000. In October 2001, the Company accelerated the vesting of 39,000 shares of restricted stock previously issued to an officer. The Company recognized approximately $190,000 in expense associated with the accelerated vesting. As of December 31, 2002, 44,975 of these restricted shares have vested. The remaining 3,975 shares will vest over the three or four year vesting period from the date of grant provided that the consultant continues to provide services and the officer is still employed by the Company. Holders of these shares have voting rights once the shares vest. Based on the quoted market value per share at the grant dates, the Company incurred compensation of $55,119, $433,538 and $280,943 in 2002, 2001 and 2000, respectively. The value of the remaining shares awarded totaled $82,858 at December 31, 2002 and has been recorded as unearned compensation in the statement of shareholders’ equity. Such unearned compensation is being amortized to compensation expense over the vesting periods of the awards.

 

63


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

10.   EMPLOYEE BENEFIT PLANS

 

The Company has adopted a Defined Contribution 401(k) Plan in which all employees who are at least 21 years of age are eligible to participate. Contributions of up to 15% of compensation to the 401(k) Plan may be made by employees through salary withholdings. Company matching contributions are discretionary. In 2002, 2001 and 2000 the Company matched 33 1/3% of the first 6% of employee contributions, aggregating $293,000, $239,000 and $124,000, respectively.

 

Effective July 1, 2000, the Company adopted an Employee Stock Purchase Plan (“Plan”), which makes available up to 250,000 shares of Common Stock of the Company to be sold to eligible employees under the Plan. The purchase price of each share of Common Stock sold pursuant to this Plan shall be the lesser of 85% of the Fair Market Value of such share on the first day of the purchase period or 85% of the Fair Market Value of such share on the last day of the purchase period. As of December 31, 2002, 103,117 shares have been purchased under the Plan.

 

11.   RELATED PARTY TRANSACTIONS

 

On December 23, 2002, the Company signed a Distribution Agreement with Orbus Medical Technologies, Inc., a manufacturer of cardiology products. The Company’s Chief Executive Officer, Mr. Al Novak is also the Chairman of Orbus Medical Technologies, Inc. As of December 31, 2002, the Company has prepaid $250,000 for future product inventory.

 

12.   SEGMENT INFORMATION

 

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information requires the reporting of segment information based on the information provided to the company’s chief operating decision maker for purposes of making decisions about allocating resources and assessing performance. The Company’s business activities are represented by a single industry segment, the manufacture and distribution of medical devices. For management purposes, the Company is segmented into three geographic areas: United States, Europe and Rest of World (Canada, Asia and South America).

 

The Company’s net sales, loss from operations, long-lived assets and long term assets by geographic area are as follows:

 

Net sales

  

United States


    

Europe


    

Rest of World


    

Consolidated


 

2002

  

$

64,746,263

 

  

$

3,815,499

 

  

$

468,104

 

  

$

69,029,866

 

2001

  

 

64,696,793

 

  

 

4,576,114

 

  

 

635,389

 

  

 

69,908,296

 

2000

  

 

1,816,250

 

  

 

4,224,776

 

  

 

488,555

 

  

 

6,529,581

 

Net Loss

  

United States


    

Europe


    

Rest of World


    

Consolidated


 

2002

  

$

(8,108,949

)

  

$

(4,253,159

)

  

$

(688,803

)

  

$

(13,050,911

)

2001

  

 

2,953,210

 

  

 

(7,524,276

)

  

 

(537,775

)

  

 

(5,108,841

)

2000

  

 

(27,683,138

)

  

 

(5,235,572

)

  

 

(154,763

)

  

 

(33,073,473

)

Long-lived assets

  

United States


    

Europe


    

Rest of World


    

Consolidated


 

2002

  

$

18,303,608

 

  

$

2,452,071

 

  

$

138,924

 

  

$

20,894,604

 

2001

  

 

22,539,628

 

  

 

723,329

 

  

 

158,110

 

  

 

23,421,067

 

Total long term assets

  

United States


    

Europe


    

Rest of World


    

Consolidated


 

2002

  

$

19,011,654

 

  

$

3,122,829

 

  

$

138,924

 

  

$

22,273,407

 

2001

  

 

23,400,897

 

  

 

766,572

 

  

 

280,934

 

  

 

24,443,403

 

 

64


Table of Contents

NOVOSTE CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

At December 31, 2002 and 2001, the Company’s net assets outside of the United States, consisting principally of cash and cash equivalents, accounts receivable, inventory and office equipment, were approximately $4,904,000 and $6,192,000; respectively.

 

13.   SUBSEQUENT EVENTS

 

On January 6, 2003, the FDA approved the re-launch of a redesigned 3.5F diameter Beta Rail catheter. On March 4, 2003, the signed an agreement extending the maturity date of its revolving loan to February 27,2004.

 

14.   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

 

Fiscal 2002


  

First Quarter Ended
March 31


    

Second Quarter Ended
June 30


    

Third Quarter Ended September 30


    

Fourth Quarter Ended December 31


 

Net sales and revenue

  

$

22,932,352

 

  

$

16,824,300

 

  

$

14,655,449

 

  

$

14,617,765

 

Cost of sales

  

 

6,678,121

 

  

 

6,214,300

 

  

 

6,774,235

 

  

 

7,646,155

 

Impairment Charge

  

 

0

 

  

 

6,900,000

 

  

 

0

 

  

 

0

 

Gross Margin

  

 

16,254,231

 

  

 

3,710,000

 

  

 

7,881,214

 

  

 

6,971,610

 

Income (loss) from operations

  

 

3,179,785

 

  

 

(8,592,358

)

  

 

(3,380,660

)

  

 

(4,899,262

)

Net income (loss)

  

 

3,402,492

 

  

 

(8,551,494

)

  

 

(3,286,874

)

  

 

(4,615,035

)

Net income (loss) per share

  

 

0.21

 

  

 

(0.52

)

  

 

(0.20

)

  

 

(0.29

)

Fiscal 2001


  

First Quarter Ended

March 31


    

Second Quarter Ended
June 30


    

Third Quarter Ended September 30


    

Fourth Quarter Ended December 31


 

Net sales and revenue

  

$

9,290,629

 

  

$

17,290,707

 

  

$

20,916,638

 

  

$

22,410,322

 

Cost of sales

  

 

3,744,504

 

  

 

5,725,840

 

  

 

5,118,949

 

  

 

4,575,143

 

Gross Margin

  

 

5,546,125

 

  

 

11,564,867

 

  

 

15,797,689

 

  

 

17,835,179

 

Income (loss) from operations

  

 

(7,246,946

)

  

 

(3,884,953

)

  

 

1,612,921

 

  

 

2,315,137

 

Net income (loss)

  

 

(6,628,567

)

  

 

(3,296,606

)

  

 

2,086,241

 

  

 

2,730,091

 

Net income (loss) per share

  

 

(0.41

)

  

 

(0.20

)

  

 

0.13

 

  

 

0.17

 

 

The Company recorded impairment and related charges of $6.9 million in the second quarter of 2002 and a restructuring charge and other expense in the amount of $1.2 million during the fourth quarter ended December 31, 2001. Quarterly net income (loss) per share amounts do not agree to full year net income (loss) per share amounts because of the dilutive effect of options outstanding on profitable quarters.

 

65


Table of Contents

 

INDEX TO EXHIBITS

 

Exhibit
Numbers


  

Description


3.1

  

Amended and Restated Articles of Incorporation of Registrant filed on May 28, 1996.

3.2(a)

  

Copy of First Amendment to Amended and Restated Articles of Incorporation of Novoste Corporation filed with the Department of State of the State of Florida on November 1, 1996. (2)

3.3(a)

  

Copy of Amended and Restated By-Laws of Registrant adopted December 20, 1996. (3)

3.3(b)

  

First Amendment to the Second Amended and Restated By-Laws dated October 16, 2002.

4.1

  

Form of Specimen Common Stock Certificate of Registrant. (1)

4.17(a)

  

Amended and Restated Rights Agreement, dated as of July 29, 1999, between Novoste Corporation and American Stock Transfer & Trust Company, which includes as Exhibit B thereto the Form of Right Certificate. (2)

4.17(b)

  

Amended and Restated Summary of Rights to Purchase Preferred Shares of Novoste Corporation. (2)

4.20

  

Registration Rights Agreement dated as of March 28, 2000 by and among Novoste Corporation and the investors listed on the signature pages thereto. (12)

*10.1

  

Copy of Stock Option Plan of Registrant, as amended. (3)

H10.2

  

License Agreement, dated January 30, 1996, between Emory University and Registrant. (1)

H10.4

  

License Agreement, dated January 31, 1996, between Spencer B. King III, M.D. and Registrant. (1)

H10.5

  

Restenosis Therapy Project Development and Supply Agreement, dated November 28, 1994, with Registrant, relating to the supply of radioactive beta isotopes. (1)

H10.6

  

Option to Purchase Assets Agreement dated August 22, 1995, with Registrant relating to the purchase of assets of Registrant’s supplier of radioactive beta isotopes. (1)

H10.10

  

Frame Agreement with Bebig Isotopentechnik und Umweltdiagnostik GmbH regarding purchases and investment grant.

*10.12

  

Copy of Non-Employee Director Stock Option Plan. (3)

H10.13

  

Memorandum of Understanding between Registrant and Bebig Isotopentechnik und Umweltdiagnostik GmbH regarding purchases and investment grant dated April 23, 1997. (4)

10.14

  

Employment Agreement with William A. Hawkins III. (5)

10.16

  

Restricted Stock Award Agreement with William A. Hawkins III. (5)

10.17

  

Non-Incentive Stock Option Agreement with William A. Hawkins III. (5)

H10.18

  

Amendment to Framework Agreement and Security Agreement with Bebig GmbH. dated February 11, 2000 (5)

10.19

  

Lease, dated October 23, 1998, between Weeks Realty, L.P. and Registrant. (6)

H10.20

  

Manufacturing and Supply Agreement dated April 21, 1998 between Registrant and SeaMED Corporation. (7)

#10.20a

  

Manufacturing and Supply Agreement dated September 1, 1999 between Registrant and SeaMED, a Plexus Company. (11)

*10.22

  

Restricted Stock Award dated July 1, 1999 between Novoste Corporation and William A. Hawkins. (9)

H10.25

  

Development and Manufacturing Agreement between AEA Technology –QSA GmbH and Novoste Corporation. (10)

H10.27

  

Amendment to the Framework Agreement and Security Agreement (NOV 34) between Registrant and Bebig Isotopentechnik und Umweltdiagnostik GmbH. (11)

 

66


Table of Contents

Exhibit
Numbers


  

Description


10.29

  

Amendment to the Framework and Security Agreement (NOV 34) between Registrant and Bebig Isotopentechnik und Umweltdiagnostik GmbH. (14)

10.30

  

Loan and Security Agreement dated August 1, 2001 between Silicon Valley Bank and Novoste Corporation. (13)

10.31

  

Negative Pledge Agreement dated August 1, 2001 between Silicon Valley Bank and Novoste Corporation. (13)

10.32

  

Form of change of control agreement executed between Novoste Corporation and Executive officers. (13)

10.34

  

Employment Agreement with Alfred Novak dated October 8, 2002

10.35

  

Non-Qualified Stock Option Agreement with Chief Executive Officer dated October 16, 2002

10.36

  

Non-Qualified Stock Option Agreement with Chief Executive Officer dated October 16, 2002

10.37

  

2002 Chief Executive Officer Stock Option Plan

21.    

  

Subsidiaries of Novoste Corporation

23.1  

  

Consent of Ernst & Young LLP, Independent Auditors

99.1  

  

Statements of Alfred J. Novak, Chief Executive Officer, and Edwin B. Cordell, Jr. Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.


  H   Portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to an order granting confidential treatment.
(1)   Filed as same numbered Exhibit to the Registrant’s Registration Statement on Form S-1 (File No. 333-4988).
(2)   Filed as same numbered Exhibit to the Registrant’s Report on Form 8-A filed on November 5, 1996.
(3)   Filed as Exhibit A to the Registrant’s Proxy Statement for its 1999 Annual Meeting of Stockholders filed on April 12, 1999.
(4)   Filed as same numbered Exhibit to the Registrant’s Registration Statement on Form S-3 (File No. 333-38573).
(5)   Filed as same numbered Exhibit to the Registrant’s Report on Form 10-Q filed on August 11, 1998.
(6)   Filed as same numbered Exhibit to the Registrant’s Report on Form 10-Q filed on November 9, 1998.
(7)   Filed as same numbered Exhibit to the Registrant’s Report on Form 8-K filed on January 27,1999.
(8)   Filed as same numbered Exhibit to the Registrant’s Registration Statement on Form S-3 (File No. 333-72073).
(9)   Filed as same numbered Exhibit to the Registrant’s Report on Form 10-Q filed on August 11, 1999.
(10)   Filed as same numbered Exhibit to the Registrant’s Report on Form 10-Q filed on November 5, 1999.
(11)   Filed as same numbered Exhibit to the Registrant’s Report on Form 10-Q filed May 15, 2000
(12)   Filed as same numbered Exhibit to the Registrant’s Report on Form 8-K filed April 6, 2000.
(13)   Filed as same numbered Exhibit to the Registrant’s Report on Form 10-Q filed November 14, 2002.
(14)   Filed as Exhibit 99.1 to the Registrant’s Report on Form 8-K filed October 17, 2002.
(15)   Filed as same numbered Exhibit to the Registrant’s Report on Form 10-K filed on March 10, 1997.

 

27   Financial Disclosure Schedule

 

   *   Constitutes a compensatory plan, contract or arrangement.

 

 

67

EX-3.1 3 dex31.htm AMENDED AND RESTATED ARTICLES OF INCORPORATION Amended and Restated Articles of Incorporation

Exhibit 3.1

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

NOVOSTE CORPORATION

Pursuant to Section 607.1007 of the Florida Business Corporation Act, Novoste Corporation, a Florida corporation (the “Corporation”), certifies that:

1.        The original Articles of Incorporation of the Corporation were filed with the Department of State on January 8, 1987, were amended by the Articles of Amendment to the Articles of Incorporation filed on May 8, 1992, were further amended by Articles of Amendment to the Articles of Incorporation filed on January 25, 1995, were again amended by Articles of Amendment to the Articles of Incorporation filed on July 27, 1995 and were then amended by Articles of Amendment to the Articles of Incorporation filed on December 19, 1995;

2.        In accordance with the provisions of Sections 607.0821 and 607.0704 of the Florida Business Corporation Act, these Amended and Restated Articles of Incorporation were duly adopted by the Board of Directors of the Corporation pursuant to an unanimous written consent dated as of March 29, 1996, and by the holders of outstanding stock of the Corporation having no less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, pursuant to a written consent dated as of March 29, 1996, with notice to those shareholders who have not consented in writing;

3.        The Articles of Incorporation of the Corporation are amended as follows:

a.         The first two sentences of the opening paragraph of Article III of the Articles of Incorporation are amended to authorize 30,000,000 shares of capital stock, of which 25,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $0.01 per share;

b.        Article III of the Articles of Incorporation is further amended to authorize the issuance by the Board of Directors of the Corporation of shares of Preferred Stock from time to time in one or more series and for such consideration (and with such voting powers, designations, preferences and rights) as the Board may determine;

c.         Article III of the Articles of Incorporation is further amended to reflect the elimination of a previously authorized and issued series of Common Stock designated as Class B Common Stock, as well as the voting powers, designations, preferences and rights thereof;

d.        Article IV of the Articles of Incorporation is deleted and a new Article IV is added relating to the number and terms of office of Directors of the Corporation;

e.         Article V of the Articles of Incorporation is deleted and a new Article V is added which provides for limitation of the liability of directors of the Corporation;


1


f.         Article VI of the Articles of Incorporation is deleted and a new Article VI is added which provides for indemnification by the Corporation of persons, including directors, officers, employees and agents of the Corporation;

g.        Article VII of the Articles of Incorporation is deleted and a new Article VII is added which eliminates the right of the shareholders to take action without a meeting;

h.        A new Article VIII is added to the Articles of Incorporation relating to the name and address of the registered agent and of the Corporation; and

i.          A new Article IX is added to the Articles of Incorporation relating to the principal office and mailing address of the Corporation.

4.        The foregoing amendments to the Articles of Incorporation were duly adopted by the shareholders of the Corporation; and

5.        There are no discrepancies between the provisions of the Articles of Incorporation, as amended, and the provisions of these Amended and Restated Articles of Incorporation other than the inclusion of the foregoing amendments which were adopted pursuant to Sections 607.1003 and 607.1004 of the Florida Business Corporation Act, and the omission of matters of historical interest.

The text of the Articles of Incorporation of the Corporation is restated with the amendments described above, effective as of the date of filing with the Department of State, to read as follows:

ARTICLE I NAME

The name of the corporation is Novoste Corporation (the “Corporation”).

ARTICLE II PURPOSE

The Corporation is organized for the purpose of transacting any and all lawful business for which corporations may be incorporated under the Florida Business Corporation Act.

ARTICLE III CAPITAL STOCK

1.        Authorized Capital Stock. The number of shares of capital stock which this Corporation shall be authorized to have outstanding at any time is 30,000,000, of which 25,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $0.01 per share, all of which shares shall be issued fully paid and nonassessable.

2.        Preferred Stock. The Board of Directors of the Corporation is authorized to issue shares of Preferred Stock from time to time in one or more series for such consideration as it may determine; to fix or alter the voting powers, designations, preferences and rights, including but not limited to dividend rights, dividend rate conversion rights, and terms of redemption (including sinking fund provisions), redemption price or prices and liquidation preferences, or any of them, as to wholly unissued series of shares of Preferred Stock; and to fix the number of shares


2


constituting any such series and designation thereof, or any of them, and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of such series be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

3.        Common Stock. None of the shares of the Common Stock shall be entitled to any preference over any other shares of such stock. The Common Stock is subject to all of the powers, rights and preferences of the respective series of the Preferred Stock as such may, from time to time, be established by resolution for the Board of Directors. Subject to the foregoing provisions of this Article III with respect to the Preferred Stock, such dividends, payable in cash, stock or otherwise, as may be determined by the Board of Directors, may be declared and paid on the Common Stock from time to time out of funds lawfully available therefore. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after such preferential rights, if any, upon liquidation as are possessed by holders of shares of any series of Preferred Stock shall have been satisfied, the remaining net assets of this Corporation shall be distributed pro rata to the holders of shares of the Common stock and the holders of shares of any series of the Preferred Stock that do not possess preferential rights upon such liquidation, dissolution or winding up.

4.        No preemptive rights shall exist for holders of Common stock or other securities of the Corporation with respect to the issuance, distribution, or sale of additional shares of Common Stock or other securities of the Corporation.

ARTICLE IV DIRECTORS

1.        The number of directors of the Corporation constituting the entire Board of Directors shall be not less than six or more than twelve. The Board of Directors shall determine from time to time the number of directors who shall constitute the entire Board of Directors. Any such determination made by the Board of Directors shall continue in effect unless and until changed by the Board of Directors, but no such changes shall affect the term of any directors then in office.

2.        The Board of Directors shall be divided into three classes, Class I, Class II and Class III, the number of and class for each director to be determined by the Board of Directors (with the number of directors in each class being as nearly equal as possible). No class shall include less than two nor more than four directors. Any vacancy on the Board of Directors that results from an increase in the number of directors and any other vacancy on the Board may be filled by the affirmative vote of a majority of the remaining directors then in office whether or not a quorum is present, or by the affirmative vote of the holders of a majority of the shares of capital stock present in person or represented by proxy at a duly convened meeting of shareholders (excluding for purposes of calculating the number of votes cast, broker non-votes and abstentions). Any increase or decrease in the number of directors shall be so apportioned among the classes as to make all classes as nearly equal in number as possible. Directors elected to fill a newly created directorship or other vacancies shall be classified and hold office as provided by statute.

3.        The terms of office of the representative classes of directors initially classified shall be as follows: (1) Class I shall expire at the Annual Meeting of Shareholders to be held in 1997; (2) Class II shall expire at the Annual Meeting of Shareholders to be held in 1998; and (3)


3


Class III shall expire at the Annual Meeting of Shareholders to be held in 1999. At each Annual Meeting of Shareholders after the aforementioned initial classification, the successors to directors whose terms shall then expire shall be elected to serve from the time of election and qualification until the third Annual Meeting following election and until a successor shall have been duly elected and shall have qualified.

ARTICLE V LIMITATION OF DIRECTOR LIABILITY

1.        No director shall be personally liable for monetary damages to the Corporation or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy, by a director, unless: (a) the director breached or failed to perform his duties as a director; and (b) the director’s breach of, or failure to perform, those duties constitutes (i) a violation of the criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (ii) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (iii) a circumstances under which the liability provisions of section 607.0834 of the Florida Business Corporation Act are applicable, (iv) in a proceeding by or in the right of the Corporation to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the Corporation, or willful misconduct, or (v) in a proceeding by or in the right of someone other than the Corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.

2.        For purposes of this Article V, the term “recklessness” means the action, or omission to act, in conscious disregard of a risk: (a) known, or so obvious that it should have been known, to the director; and (b) known to the director, or so obvious that it should have been known, to be so great as to make it highly probable that harm would follow from such action or omission.

ARTICLE VI INDEMNIFICATION

1.        Each person (including here and hereinafter, the heirs, executors, administrators, or estate of such person) (a) who is or was a director or officer of the Corporation, (b) who is or was an agent or employee of the Corporation other than an officer and as to whom the Corporation has agreed to grant such indemnity, or (c) who is or was serving at the request of the Corporation as its representative in the position of a director, officer, agent or employee of another corporation, partnership, joint venture, trust or other enterprise and as to whom the Corporation has agreed to grant such indemnity, shall be indemnified by the Corporation as of right to the fullest extent permitted or authorized by current or future legislation or by current or future judicial or administrative decision (but, in the case of any such future legislation or decision, only to the extent that it permits the Corporation to provide broader indemnification rights than permitted prior to such legislation or decision), against any fine, liability, cost or expense, including attorney’s fees asserted against him or incurred by him in his capacity as such


4


director, officer, agent, employee, or representative, or arising out of his status as such director, which indemnification shall not be exclusive of other rights to which those seeking an indemnification may be entitled. The Corporation may maintain insurance, at its expense, to protect itself and any such person against any such fine, liability, cost or expense, whether or not the Corporation would have the legal power to directly indemnify him against such liability.

2.        Costs, charges and expenses (including attorney’s fees) incurred by a person referred to in Section 1 of this Article VI in defending a civil or criminal suit, action or proceeding shall be paid by the Corporation in advance of the final disposition thereof upon receipt, in the case of an officer or director, of an undertaking to repay all amounts so advanced in the event it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized by this Article VI, and upon satisfaction of such other conditions as are required by current or future legislation (but, with respect to future legislation, only to the extent that it provides conditions less burdensome than those previously provided). Such costs, charges and expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors may deem appropriate.

3.        If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person described in Section 1 of this Article VI to the fullest extent permitted by any applicable portion and to the fullest extent permitted by law.

ARTICLE VII SHAREHOLDER ACTION

No action required or permitted by the Florida Business Corporation Act to be taken at an annual or special meeting of shareholders may be taken by the shareholders of the Corporation without such a meeting.

ARTICLE VIII REGISTERED AGENT AND OFFICE

The street address of the registered office of the Corporation is 1201 Hays Street, Tallahassee, Florida 32301; and the name of the registered agent of the Corporation at that address is The Prentice Hall Corporation System Inc.

ARTICLE IX PRINCIPAL OFFICE AND MAILING ADDRESS

The address of the principal office and mailing address of the Corporation is 4350-C International Blvd., Norcross, Georgia 30093.


5


IN WITNESS WHEREOF, the undersigned have made, subscribed and acknowledged these Amended and Restated Articles of Incorporation this 28th day of May, 1996.

 

 

 

 

 



 

 



 

 

 


 

 

 

Thomas D. Weldon
President

 

 

 

 

 



 

 



 

 

 


 

 

 

Cheryl R. Johnson
Secretary

 


6


CERTIFICATE OF DESIGNATION OF

REGISTERED AGENT/REGISTERED OFFICE

PURSUANT TO THE PROVISIONS OF SECTION 607.0501 OR 617.0501, FLORIDA STATUTES, THE UNDERSIGNED CORPORATION, ORGANIZED UNDER THE LAWS OF THE STATE OF FLORIDA, SUBMITS THE FOLLOWING STATEMENT IN DESIGNATING THE REGISTERED OFFICE/REGISTERED AGENT, IN THE STATE OF FLORIDA.

1.        The name of the corporation is: Novoste Corporation

2.        The name and address of the registered agent and office is:

 

The Prentice Hall Corporation System, Inc.

(Name)

 

1201 Hays Street

(P.O.Box not acceptable)

 

Tallahassee, FL 32301

(City/State/Zip)


Having been named as registered agent and to accept service of process for the above stated corporation at the place designated in this certificate, I hereby accept the appointment as registered agent and agree to act in this capacity. I further agree to comply with the provisions of all statues relating to the proper and complete performance of my duties, and I am familiar with and accept the obligations of my position as registered agent.

 

 

 

 



 

 




 

 


(Signature)

 

 

 

 

 

 

 

Judith S. Blancett, Asst. Secy.

 

 

 

DIVISION OF CORPORATIONS, P. O. BOX 6327, TALLAHASSEE, FL


7


 

EX-3.3(B) 4 dex33b.htm FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED BY-LAWS First Amendment to the Second Amended and Restated By-Laws

Exhibit 3.3 (b)

FIRST AMENDMENT TO THE
SECOND AMENDED AND RESTATED BY LAWS

OF

NOVOSTE CORPORATION

ARTICLE I

ARTICLES OF INCORPORATION AND PROVISIONS OF LAW

These By-Laws, the powers of the Corporation and of its directors and shareholders and all matters concerning the conduct and regulation of the business of the Corporation shall be subject to such provisions in regard thereto, if any, as are provided by law or set forth in the Amended and Restated Articles of Incorporation (“Articles of Incorporation”). All references herein to the Articles of Incorporation shall be construed to mean the Articles of Incorporation of the Corporation as from time to time amended.

ARTICLE II

OFFICES

SECTION 2.01.       Principle Office. The principle office of the Corporation shall be located in the City of Norcross in the State of Georgia or such other place within or without the State of Georgia as may be determined by the Board of Directors from time to time.

SECTION 2.02.       Other Offices. The Corporation may also have an office or offices at such other place or places either within or without the State of Florida as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE III

MEETINGS OF SHAREHOLDERS

SECTION 3.01.       Place of Meetings. All meetings of the shareholders of the Corporation shall be held at the principal office of the Corporation or at such other place, within or without the State of Florida, as shall be fixed by the Board of Directors and specified in the respective notices or waivers of notice of said meetings.


 


SECTION 3.02.       Annual Meetings. The annual meeting of the shareholders (the “Annual Meeting”) for the election of directors and for the transaction of such other business as may come before the meeting shall be held at 10:00 o’clock in the forenoon, local time, on the first Wednesday in May of each year, if not a legal holiday, and, if a legal holiday, then on the next succeeding business day not a legal holiday. If the Annual Meeting is not held on the day herein provided therefor, the Board of Directors in its discretion may fix another date thereafter for the holding of such Annual Meeting. The purposes for which an Annual Meeting is to be held, in addition to those prescribed by law or these By-Laws, may be specified by a majority of the Board of Directors, the Chairman, the President or a shareholder or shareholders holding of record at least ten percent (10%) in voting power of the outstanding shares of the Corporation entitled to vote at such meeting.

SECTION 3.03.       Special Meetings.

a.         A special meeting of the shareholders for any purpose or purposes, unless otherwise prescribed by statute, may be called at any time by the President, the Chairman, by order of the Board of Directors or by a shareholder or shareholders holding of record at least ten percent (10%) in voting power of the outstanding shares of the Corporation entitled to vote at such meeting. Business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice of meeting thereof.

b.        Any shareholder(s) wishing to call a special meeting pursuant to subparagraph (a) of this Section 3.03 shall provide notice thereof in writing to the Secretary of the Corporation at the principal executive offices of the Corporation. Such shareholder’s notice shall set forth: (1) a brief description of the business that the shareholder proposes to bring before the special meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the By-laws of the Corporation, the language of the proposed amendment), the reasons for conducting such business at the special meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; (2) if the matters to be considered at the special meeting include the election of directors, such shareholder notice shall set forth as to each person whom the shareholder proposes to nominate for election as a director (A) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (B) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (3) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (A) the name and address of such shareholder, as they appear on the Corporation’s books, and of such beneficial owner, (B) the class and number of shares of capital stock of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner, and (C) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such special meeting and intends to appear in


2


person or by proxy at the special meeting to propose such business or nomination; and (4) a request that the Board of Directors fix a record date and a meeting date for such special meeting.

Upon receipt of such notice, the Secretary of the Corporation shall make a determination as to whether such notice is in accordance with the informational requirements of this subsection (b). If the Secretary determines that the notice is not in accordance with the informational requirements of this subsection (b), the Secretary shall notify the shareholder(s) in writing of such determination and the reasons therefore. If the Secretary determines that the notice is in accordance with the informational requirements of this subsection (b), the Secretary shall notify the Board of Directors of such determination. Upon notice by the Secretary that such notice has been received and is in accordance with the informational requirements of this subsection (b), the Board of Directors shall meet (or take action by written consent) within 10 days therefrom to fix (x) a record date in order that the Corporation may determine the shareholders entitled to notice of and to vote at the special meeting and (y) a meeting date and location for such special meeting. Such record date shall not precede the date upon which such Board of Directors’ meeting occurs or written consent is executed and shall not be more than ten (10) days after the date upon which such Board of Director’s meeting occurs or written consent is executed. Such meeting date shall be no earlier than [45] days and no later than [70] days after the record date.

SECTION 3.04.       Notice of Meetings. Notice of each meeting of the shareholders shall be given to each shareholder of record entitled to vote at such meeting at least ten (10) days but not more than seventy (70) days before the day on which meeting is to be held. Such notice shall be given by delivering a written or printed notice thereof personally or by mail. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at the post office address of such shareholder as it appears upon the stock record books of the Corporation, or at such other address as such shareholder shall have provided to the Corporation for such purpose. No publication of any notice of a meeting of shareholders shall be required. Every such notice shall state the time and place of the meeting, and, in case of a special meeting, shall state the purpose or purposes thereof. Notice of any meeting of shareholders shall not be required to be given to any shareholder who shall attend such meeting in person or by proxy or who shall waive notice thereof in the manner hereinafter provided. Notice of any adjourned meeting of the shareholders shall not be required to be given.

SECTION 3.05.       Quorum. At each meeting of the shareholders, a majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the shares so represented at such meeting, or, in the absence of all the shareholders entitled to vote, any officer entitled to preside or to act as a secretary at such meeting, may adjourn the meeting from time to time without further notice. At any such adjourned meeting at which a quorum shall be presented or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The absence from any meeting of shareholders holding a


3


sufficient number of shares required for action on any given matter shall not prevent action at such meeting upon any other matter or matters which properly come before the meeting, if shareholders holding a sufficient number of shares required for action on such other matter or matters shall be present. The shareholders present or presented at any duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

SECTION 3.06.       Voting. Each shareholder of the Corporation shall, whether the voting is by one or more classes voting separately or by two or more classes voting as one class, be entitled to one vote in person or by proxy for each share of the Corporation registered in the name of the shareholder on the books of the Corporation. The Corporation shall not vote directly or indirectly any shares held in its own name. Any vote of shares may be give by the shareholder entitled to vote such shares in person or by proxy appointed by an instrument in writing. At all meetings of the shareholders at which a quorum is present, all matters (except where other provision is made by law or by these By-Laws) shall be decided by the affirmative vote of holders of a majority of the shares present in person or represented by proxy and entitled to vote thereat.

SECTION 3.07.       Notice of Shareholder Business and Nominations.

a.         Annual Meetings of Shareholders.

(1)       Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders only (A) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (B) by or at the direction of the Board of Directors or (C) by any shareholder of the Corporation who was a shareholder of record of the Corporation at the time the notice provided for in this Section 3.07 is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 3.07.

(2)       For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (C) of paragraph (a)(1) of this Section 3.07, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and any such proposed business other than nominations of persons for election to the Board of Directors must constitute a proper matter for shareholder action. To be timely, a shareholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth day nor earlier than the close of business on the one hundred twentieth day prior to the first anniversary of the preceding year’s annual meeting (provided, however, that in the event that no annual meeting was held in the prior year or the date of the annual meeting is more than thirty days before or more than sixty days after such anniversary date, notice by the shareholder must be so delivered not later than the tenth day following the earlier of (A) the day on which public announcement of the date of such meeting is first made by the Corporation or (B) the date notice of the meeting was mailed to shareholders). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a shareholder’s notice as described above. Such shareholder’s notice shall set forth: (A) as to each person whom the shareholder proposes to nominate for election as a director (i)


4


all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act and (ii) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (B) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the By-Laws of the Corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting, any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made and all information relating to such business that is required to be disclosed in solicitations of proxies for such business, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act; and (C) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Corporation’s books, and of such beneficial owner, (ii) the class and number of shares of capital stock of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner, (iii) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, and (iv) a representation whether the shareholder or the beneficial owner, if any, intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (y) otherwise to solicit proxies from shareholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a shareholder if the shareholder has notified the Corporation of his or her intention to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any successor thereof) promulgated under the Exchange Act and such shareholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation.

Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 3.07 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation at an annual meeting is increased and a public announcement by the Corporation at an annual meeting is increased and a public announcement by the Corporation naming the nominees for the additional directorships is not made at least one hundred days prior to the first anniversary of the preceding year’s annual meeting, then a shareholder’s notice required by this Section 3.07 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary in writing at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.


5


ARTICLE IV

BOARD OF DIRECTORS

SECTION 4.01.       General Powers. The property, affairs and business of the Corporation shall be managed by the Board of Directors, and the Board shall have, an may exercise, all of the powers of the Corporation, except such as are conferred by these By-Laws upon the shareholders.

SECTION 4.02.       Number, Classes, Vacancies and Terms of Office.

a.         The number of directors of the Corporation constituting the entire Board of Directors shall be not less than six or more than twelve. The Board of Directors shall determine from time to time the number of directors who shall constitute the entire Board of Directors. Any such determination made by the Board of Directors shall continue in effect unless and until changed by the Board of Directors, but no such changes shall affect the term of any directors then in office. No director need be a shareholder.

b.        The Board of Directors shall be divided into three classes, Class I, Class II and Class III, the number of and class for each director to be determined by the Board of Directors (with the number of directors in each class being as nearly equal as possible). No class shall include less than two nor more than four directors. Any vacancy on the Board of Directors that results from an increase in the number of directors and any other vacancy on the Board may be filled by the affirmative vote of a majority of the remaining directors then in office whether or not a quorum is present, or by the affirmative vote of the holders of a majority of the shares of capital stock present in person or represented by proxy at a duly convened meeting of shareholders (excluding for purposes of calculating the number of votes cast, broker non-votes and abstentions). Any increase or decrease in the number of directors shall be so apportioned among the classes as to make all classes as nearly equal in number as possible.

         Directors elected to fill a newly created directorship or other vacancies shall be classified and hold office as provided by statute.

c.         The terms of office of the respective classes of directors initially classified shall be as follows: (1) Class I shall expire at the Annual Meeting of Shareholders to be held in 1997; (2) Class II shall expire at the Annual Meeting of shareholders to be held in 1998; and (3) Class III shall expire at the Annual Meeting of shareholders to be held in 1999. At each Annual Meeting of shareholders after the aforementioned initial classification, the successors to directors whose terms shall then expire shall be elected to serve from the time of election and qualification until the third Annual Meeting following election and until a successor shall have been duly elected and shall have qualified.

SECTION 4.03.       Election of Directors. Subject to any provisions in the Articles of Incorporation providing for cumulative voting, at each meeting of the shareholders for the election of directors at which a quorum is present, the persons


6


receiving the greatest number of votes shall be the directors, and each shareholder entitled to vote at such election shall have a right to vote, in person or represented by proxy, for as many nominees as the number of directors in such class as determined by the Board of Directors and to cast for each such nominee as many votes as the number of shares which such shareholder is entitled to vote, without the right to cumulate such votes.

SECTION 4.04.       Quorum and Manner of Acting. A majority of the total of the number of directors at the time in office shall constitute a quorum for the transaction of business at any meeting, and except as otherwise provided by these By-Laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time without further notice until a quorum be had. The directors shall act only as a Board, and the individual directors shall have no power as such.

SECTION 4.05.       Place of Meetings. The Board of Directors may hold its meetings at any place within or without the State of Florida as it may from time to time determine or shall be specified or fixed in the respective notices or waivers or notice thereof.

SECTION 4.06.       Annual Meetings. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual election of directors on the same day and at the same place at which such election of directors was held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors or in a consent and waiver of notice thereof signed by all the directors.

SECTION 4.07.       Regular Meetings. Regular meetings of the Board of Directors shall be held at such places and at such times as the Board shall from time to time by vote determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day not a legal holiday. Notice of regular meetings need not be given.

SECTION 4.08.       Special Meetings; Notice.Special meetings of the Board of Directors shall be held whenever called by the President or Chairman or by not less than twenty-five percent (25%) of the member of the Board of Directors. Notice of each such meeting shall be given by, or at the order of, the Secretary or the person calling the meeting to each director by mailing the same addressed to the director’s residence or usual place of business, or personally by delivery or by telegraph, cable or telephone, at least two (2) days before the day on which the meeting is to be held. Every such notice shall state the time and place of the meting but need not state the purpose thereof except as otherwise in these By-Laws expressly provided.


7


SECTION 4.09.       Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

SECTION 4.10.       Telephone Meetings. Meetings of the Board of Directors, regular or special, may be held by means of a telephone conference circuit and connection to such circuit shall constitute presence at such meeting.

SECTION 4.11.       Removal of Directors. Any director may be removed, either with or without cause, at any time, by the affirmative vote of the holders of record of a majority of the issued and outstanding shares entitled to vote for the election of directors of the Corporation given at a special meeting of the shareholders called and held for the purpose.

SECTION 4.12.       Resignation. Any director of the Corporation may resign at any time by giving written notice to the Board of Directors or to the Chairman of the Board or to the Secretary of the Corporation. The resignation of any director shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 4.13.       Limitation of Director Liability.

a.         No director shall be personally liable for monetary damages to the Corporation or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy, by a director, unless: (a) the director breached or failed to perform his duties as a director; and (b) the director’s breach of, or failure to perform, those duties constitutes i) a violation of the criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, ii) a transaction from which the director derived an improper personal benefit, either directly or indirectly, iii) a circumstances under which the liability provisions of Section 607.0834 of the Florida Business Corporation Act are applicable, iv) in a proceeding by or in the right of the Corporation to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the Corporation, or willful misconduct, or v) in a proceeding by or in the right of someone other than the Corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.


8


b.        For purposes of this Section 4.13, the term “recklessness” means the action, or omission to act, in conscious disregard of a risk: (c) known, or so obvious that it should have been known, to the director; and (d) known to the director, or so obvious that it should have been known, to be so great as to make it highly probable that harm would follow from such action or omission.

ARTICLE V

COMMITTEES

SECTION 5.01.       Appointment. A majority of the full Board of Directors by resolution may designate two or more of its members to constitute an Executive Committee and one or more other committees to serve at the pleasure of the Board of Directors. The designation of such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law.

SECTION 5.02.       Authority. A committee shall have and may exercise all of the authority of the Board of Directors except to (a) the extent, if any, that such authority shall be limited by the resolution of the Board of Directors constituting such committee, (b) approve or recommend to shareholders actions or proposals required by the Florida Business Corporation Act to be approved by shareholders, (c) fill vacancies on the Board of Directors or any committee thereof, (d) adopt, amend or repeal these By-Laws, (e) authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the Board of Directors, or (f) authorize or approve the issuance or sale or contract for the sale of shares or determine the designation and relative rights, preferences, and limitations of a voting group of shareholders except that the Board of Directors may authorize a committee (or a senior executive officer of the Corporation) to do so within limits specifically prescribed by the Board of Directors.

SECTION 5.03.       Tenure and Qualifications. Each member of a committee shall hold office until the next regular annual meeting of the Board of Directors following designation and until a successor is designated as a member of such committee and is elected and qualified or until the death or resignation or removal of such member in the manner herein provided.

SECTION 5.04.       Meetings. Regular meetings of a committee may be held without notice at such times and places as such committee may fix from time to time by resolution. Special meetings of a committee may be called by any member thereof upon not less than two (2) days’ notice stating the place, date and hour of the meeting, which notice may be written or oral, and if mailed, shall be deemed to be delivered when deposited in the United States mail addressed to the member of such committee at such member’s business address. Any member of a committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of a committee need not state the business proposed to


9


be transacted at the meeting. A majority of the full Board of Directors by resolution may designate one or more directors as alternate members of any such committee who may act in the place and stead of any absent member or members at any meeting of such committee.

SECTION 5.05.       Telephone Meetings. Meetings of a committee may be held by means of a telephone conference circuit and connection to such circuit shall constitute attendance at such meeting.

SECTION 5.06.       Quorum. A majority of the members of a committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of a committee shall be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present.

SECTION 5.07.       Vacancies. Any vacancy in a committee may be filled by a resolution adopted by a majority of the full Board of Directors.

SECTION 5.08.       Resignations and Removal. Any member of a committee may be removed at any time with or without cause by the affirmative vote of a majority of the directors present at any meeting at which a quorum is present. Any member of a committee may resign from a committee at any time by giving written notice to the Board of Directors or to the Chairman of the Board or to the Secretary of the Corporation. The resignation of any member of a committee shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 5.09.       Procedure. A committee may elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these By-Laws. It shall keep regular minutes of its proceedings and report the same to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have been taken.

ARTICLE VI

WAIVER OF NOTICE; WRITTEN CONSENT

SECTION 6.01.       Waiver of Notice. Notice of the time, place and purpose of any meeting of the shareholders, Board of Directors or a committee may be waived in writing by any shareholder or director either before or after such meeting. Attendance in person, or in case of a meeting of the shareholders, by proxy, at a meeting of the shareholders, Board of Directors or a committee shall be deemed to constitute a waiver of notice thereof.

SECTION 6.02.       Written Consent of Directors. Unless otherwise restricted by the Articles of Incorporation or these By-Laws, any action required or


10


permitted to be taken at any meeting of the Board of Directors or a committee may be taken without a meeting if a consent in writing, setting forth the action so to be taken, shall be signed before or after such action by all of the directors, or all of the members of such committee, as the case may be. Such written consent shall be filed with the records of the Corporation.

ARTICLES VII

OFFICERS

SECTION 7.01.       Number. The officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, and such other officers as the Board of Directors may from time to time appoint, including additional Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers. One person may hold the offices and perform the duties of any two or more said officers.

SECTION 7.02.       Election, Qualification and Term of Office. Each officer shall be elected annually by the Board of Directors, or from time to time to fill any vacancy, and shall hold office until a successor shall have been duly elected and qualified, or until the death, resignation or removal of such officer in the manner hereinafter provided.

SECTION 7.03.       Removal. Any officer may be removed by the vote of a majority of the whole Board of Directors at a special meeting called for the purpose, whenever in the judgment of the Board of Directors the best interest of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the officer so removed. Election or appointment of an officer or agent shall not of itself create contract status.

SECTION 7.04.       Resignation. Any officer may resign at any time by giving written notice to the Board of Directors or to the Chairman, the President or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein; and unless otherwise specified therein the acceptance of such resignation shall not be necessary to make it effective.

SECTION 7.05.       Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.

SECTION 7.06.       Chairman of the Board. The Chairman of the Board shall be a director and shall preside at all meetings of the Board of Directors and shareholders. Subject to determination by the Board of Directors, the Chairman shall have general executive powers and such specific powers and duties as from time to time may be conferred or assigned by the Board of Directors.


11


SECTION 7.07.       The President. The President shall be the chief executive officer of the Corporation and shall have general direction of the affairs of the Corporation. In addition, the President shall perform such other duties and have such other responsibilities as the Board of Directors may from time to time determine. In the absence of the Chairman of the Board, the President shall preside at all meetings of the shareholders.

SECTION 7.08.       The Vice Presidents. The Vice Presidents in the order determined by the Board of Directors, shall in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

SECTION 7.09.       The Vice President/Finance. The Vice President/Finance shall have charge and custody of, and be responsible for, all funds and securities of the Corporation, and deposit all such funds to the credit of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of these By-Laws; disburse the funds of the Corporation under the general control of the Board of Directors, based upon proper vouchers for such disbursements; receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever, render a statement of the condition of the finances of the Corporation at all regular meetings of the Board of Directors, and a full financial report at the Annual Meeting of shareholders, if called upon to do so; and render such further statements to the Board of Directors, the Chairman and the President as they may respectively require concerning all transactions as Vice President/Finance or the financial condition of the Corporation. The Vice President/Finance shall also have charge of the books and records of account of the Corporation, which shall be kept at such office or offices of the Corporation as the Board of Directors shall from time to time designate; be responsible for the keeping of correct and adequate records of the assets, liabilities, business and transactions of the Corporation; at all reasonable times exhibit the books and records of account to any of the directors of the Corporation upon application at the office of the Corporation where such books and records are kept; be responsible for the preparation and filing of all reports and returns relating to or based upon the books and records of the Corporation kept under the direction of the Vice President/Finance; and, in general, perform all the duties incident to the office of Vice President/Finance and such other duties as from time to time may be assigned by the Board of Director, the Chairman, or the President.

SECTION 7.10.       The Secretary. The Secretary shall record or cause to be recorded in books provided for the purpose all the proceedings of the meetings of the Corporation, including the shareholders, the Board of Directors and all committees of which a secretary shall not have been appointed; shall see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; shall be custodian of the records (other than financial) and of the seal of the Corporation; and in general, shall perform all duties incident as may, from time to time, be assigned by the Board of Directors, the Chairman or the President.


12


SECTION 7.11.        The Assistant Secretaries. At the request, or in the absence or disability of the Secretary, the Assistant Secretary designated by the Secretary or the Board of Directors shall perform all the duties of the Secretary and, when so acting, shall have all the powers of the Secretary. The Assistant Secretaries shall perform such other duties as may, from time to time, be assigned by the Board of Directors, the Chairman, the President or the Secretary.

SECTION 7.12.       The Treasurer and Assistant Treasurers. At the request, or in the absence or disability of the Vice President/Finance, the Treasurer designated by the Vice President/Finance or the Board of Directors shall perform all the duties of the Vice President/Finance, and when so acting, shall have all the powers of the Vice President/Finance. The Assistant Treasurers shall perform such other duties as may, from time to time, be assigned by the Board of Directors, the Chairman, the President or the Vice President/Finance.

SECTION 7.13.       General Powers. Each officer shall, subject to these By-Laws, have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to the respective office, and such duties and powers as the Board of Directors shall from time to time designate.

SECTION 7.14.       Bonding. Any officer, employee, agent or factor shall give such bond with such surety or sureties for the faithful performance of his or her durites as the Board of Directors may, from time to time, require.

ARTICLE VIII

INDEMNIFICATION

a.         Each person (including here and hereinafter, the heirs, executors, administrators, or estate of such person) (a) who is or was a director or officer of the Corporation, (b) who is or was an agent or employee of the Corporation other than an officer and as to whom the Corporation has agreed to grant such indemnity, or (c) who is or was serving at the request of the Corporation as its representative in the position of a director, officer, agent or employee of another corporation, partnership, joint venture, trust or other enterprise and as to whom the Corporation has agreed to grant such indemnity, shall be indemnified by the Corporation as of right to the fullest extent permitted or authorized by current or future legislation or by current or future judicial or administrative decision (but, in the case of any such future legislation or decision, only to the extent that it permits the Corporation to provide broader indemnification rights than permitted prior to such legislation or decision), against any fine, liability, cost or expense, including attorneys’ fees, asserted against him or incurred by him in his capacity as such director, officer, agent, employee, or representative, or arising out of his status as such director, which indemnification shall not be exclusive of other rights to which those seeking an indemnification may be entitled. The Corporation may maintain insurance, at


13


its expense, to protect itself and any such person against any such fine, liability, cost or expense, whether or not the Corporation would have the legal power to directly indemnify him against such liability.

b.        Costs, charges and expenses (including attorneys’ fees) incurred by a person referred to in a. of this Article VIII in defending a civil or criminal suit, action or proceeding shall be paid by the Corporation in advance of the final disposition thereof upon receipt, in the case of an officer or director, of an undertaking to repay all amounts so advanced in the event it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized by this Article VIII, and upon satisfaction of such other conditions as are required by current or future legislation (but, with respect to future legislation, only to the extent that it provides conditions less burdensome than those previously provided). Such costs, charges and expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors may deem appropriate.

c.         If this Article VIII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person described in a. of this Article VIII to the fullest extent permitted by any applicable portion and to the fullest extent permitted by law.

ARTICLE IX

EXECUTION OF DOCUMENTS

SECTION 9.01.       Contract, etc., How Executed. Unless the Board of Directors shall otherwise determine, the (i) Chairman of the Board, President, or any Vice President, and (ii) any other officer of the Corporation, acting jointly, may enter into any contract or execute any contract or other instrument, the execution of which is not otherwise specifically provided for, in the name and on behalf of the Corporation. The Board of Directors, except as in these By-Laws otherwise provided, may authorize any other or additional officer or officers, agent or agents, of the Corporation to enter into any contract or execute and deliver any contract or other instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances. Unless authorized so to do by these By-Laws or by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement, or to pledge its credit, or to render it liable pecuniarily for any purpose or to any amount.

SECTION 9.02.       Checks, Drafts, etc. All checks, drafts, bill of exchange or other orders for the payment of money, obligations, notes, or other evidences of indebtedness, bill of lading, warehouse receipts and insurance certificates of the Corporation, shall be signed or endorsed by such officer or officers, employee or employees, of the Corporation as shall from time to time be determined by resolution of the Board of Directors.


14


ARTICLE X

BOOKS AND RECORDS

SECTION 10.01.     Place. The books and records of the Corporation, including the stock record books, shall be kept at such places within or without the State of Florida, as may from time to time be determined by the Board of Directors.

SECTION 10.02.     Addresses of Shareholders. Each shareholder shall designate to the Secretary of the Corporation an address at which notices of meetings and all other corporate notices may be served upon or mailed, and if any shareholder shall fail to designate such address, corporate notices may be served by mail directed to the shareholder’s last known post office address, or by transmitting a notice thereof to such address by telegraph, cable, or telephone.

ARTICLE XI

SHARES AND THEIR TRANSFER

SECTION 11.01.     Certificates for Shares. Every owner of shares of the Corporation shall be entitled to have a certificate certifying the number of shares owned by such owner in the Corporation and designating the class of shares to which such shares belong, which shall otherwise be in such form, in conformity to law, as the Board of Directors shall prescribe. Each such certificate shall be signed by the President or a Vice President and the Secretary or an Assistant Secretary of the Corporation.

SECTION 11.02.     Record. A record shall be kept of the name of the person, firm or corporation owning the shares of the Corporation issues, the number of shares represented by each certificate, and the date thereof, and, in the case of cancellation, the date of cancellation. The person in whose name shares stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation.

SECTION 11.03.     Transfer of Shares. Transfers of shares of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by such holder’s attorney thereunto authorized, and on the surrender of the certificate or certificates for such shares properly endorsed or accompanied by a properly executed stock power.

SECTION 11.04.     Closing of Transfer Books; Record Dates. Insofar as permitted by law, the Board of Directors may direct that the stock transfer books of the Corporation be closed for a period not exceeding seventy (70) days preceding the date of any meeting of shareholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of shares of the Corporation shall go into effect, or for a period not exceeding seventy (70) days in connection with obtaining the consent of shareholders for any purpose; provided,


15


however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may, insofar as permitted by law, fix in advance a date, not exceeding seventy (70) days preceding the date of any meeting of shareholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of shares of the Corporation shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting or any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any change, conversion or exchange of shares of the Corporation, or to give such consent, and in each such case shareholders and only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights or to give such consent, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any such record date fixed as aforesaid.

SECTION 11.05.     Lost, Destroyed or Mutilated Certificates. In case of the alleged loss or destruction or the mutilation of a certificate representing shares of the Corporation, a new certificate may be issued in place thereof, in the manner and upon such terms as the Board of Directors may prescribe.

ARTICLE XII

SEAL

The Board of Directors may provide for a corporate seal which shall be in the form of a circle and shall bear the name of the Corporation and the state and year of incorporation.

ARTICLE XIII

FISCAL YEAR

Except as from time to time otherwise provided by the Board of Directors, the fiscal year of the Corporation shall be the year or other fiscal period ending on the last day of December of each year.

ARTICLE XIV

AMENDMENTS

All By-Laws of the Corporation shall be subject to alteration or repeal, and new By-Laws may be adopted either by the vote of a majority of the outstanding shares of the Corporation entitled to vote in respect thereof, or by the vote of the Board of Directors, provided that in each case notice of the proposed alteration or repeal or of the proposed new By-Laws be included in the notice of the meeting at which such alteration,


16


repeal or adoption is acted upon, and provided further that any such action by the Board of Directors may be changed by the shareholders, except that no such change shall affect the validity of any actions theretofore taken pursuant to the By-Laws as altered, repealed or adopted by the Board of Directors.


17


 

EX-10.34 5 dex1034.htm EMPLOYMENT AGREEMENT WITH ALFRED NOVAK Employment Agreement with Alfred Novak

Exhibit 10.34

October 8, 2002

Mr. Alfred J. Novak
9375 S.W. 60th Avenue
Miami, FL 33156

Dear Al:

We are delighted to welcome you as you join Novoste Corporation (“Novoste”) as its new President and Chief Executive Officer (CEO). This letter sets forth the agreement between you and Novoste as to the terms and conditions of your employment by Novoste.

1.        Duties and Responsibilities. In your capacity as CEO of Novoste you will report to Novoste’s Board of Directors (the “Board”) and perform such duties and responsibilities as are from time to time directed by Novoste’s Board consistent with your positions as CEO. You will, upon joining Novoste as CEO, also be appointed to the Board of Directors to fill one of the currently existing vacancies on the Board, and will be proposed to the shareholders, at the proper time, for election to the Board.

2.        Related Agreements. Simultaneously herewith, you are entering into the Confidentiality and Arbitration Agreement, Business Conduct Agreement, Conflict of Interest Agreement, Patent Agreement, Unfair Competition Agreement, and Termination Agreement, in the forms for Exhibits A, B, C, D, E and F hereto, respectively (the “Related Agreements”), all of which agreements are incorporated herein by reference thereto and made a part hereof. Your employment is also subject to the successful completion of a pre-employment drug screening.

3.        Term. The term of your employment will commence on October 15, 2002, or on such earlier date when you have accepted the terms and conditions set forth herein and the Board has formally elected you to the positions of CEO (your “Employment Date”), and continues until terminated under the provisions of Paragraph 7 below. By accepting this Agreement, you accept such employment as a full-time employee of Novoste and agree to devote substantially all of your business and professional time, energy and skills to the affairs of Novoste and to serve faithfully and to the best of your ability; provided, however, that nothing in this Agreement or the Related Agreements precludes you continuing the affiliations and associations set forth in Paragraph 7 of the Conflict of Interest Agreement and any similar professional


 


Mr. Alfred J. Novak
October 8, 2002
Page 2 of 8

affiliations, or any civic, charitable or other non-professional activities that do not significantly interfere with your performance of services to Novoste.

4.        Compensation. As compensation for the services to be rendered by you hereunder, following the commencement of your employment, Novoste will:

(a)       pay you a base salary of at least $350,000 per annum, payable in installments in accordance with Novoste’s regular payroll practices. Your performance will be reviewed annually by Novoste’s Board of Directors, in conjunction with which goals and possible increases in your base salary for the future will be discussed, it being understood that any such increases shall be within the discretion of the Board.

(b)       grant you, effective as of your Employment Date, a ten-year non-incentive stock option to purchase an aggregate of 400,000 shares of Novoste’s Common Stock, at an exercise price equal to the fair market value, per share, of the stock at the close of trading on the day of the grant, upon the terms and conditions as shall be set forth in a Stock Option Agreement between you and Novoste (the “Stock Option Agreement”). Such options shall become exercisable as follows: 100,000 shares vesting on the effective date of the grant, and 100,000 shares thereof vesting thereafter on each of the following dates, October 16, 2003, October 16, 2004, and October 16, 2005. Such options shall become exercisable in full upon a Change of Control.

(c)       grant you effective as of your Employment Date an additional ten-year non-incentive stock option to purchase an aggregate of 300,000 shares of Novoste’s Common Stock, at an exercise price equal to the fair market value, per share, of the stock at the close of trading on the day of the grant subject to the provisions of the Stock Option Agreement and vesting on the following basis:

(i)        The said grant shall fully vest, if not sooner vested pursuant to the following terms, on October 16, 2007, however;

(ii)       When the Novoste common stock achieves a closing price of $8.00 per share and maintains that closing price for twenty out of thirty consecutive trading days, 100,000 shares shall vest;

(iii)     When the Novoste common stock achieves a closing price of $12.00 per share and maintains that price for twenty out of thirty consecutive trading days, an additional 100,000 shares shall vest; and

(iv)     When the Novoste common stock achieves a closing price of $15.00 per share and maintains that


 


Mr. Alfred J. Novak
October 8, 2002
Page 3 of 8

            closing price for twenty out of thirty consecutive days, the remaining 100,000 shares shall vest.

In the event of a Change of Control, all unvested shares shall vest that would have vested at the price per share set forth in paragraphs (c) (i), (ii) and (iii) above, which equals the fair market value per share at the close of trading on the date immediately preceding the Change of Control, whether or not such share price has been at the level for twenty out of thirty consecutive days prior to the Change of Control.

(d)       entitle you to participate in Novoste’s discretionary annual incentive cash bonus plan for executive officers, established to reward participating individuals for their contribution to the achievement of key annual corporate objectives. You will be eligible for participation in the 2002 Bonus Incentive Plan, prorated to your date of hire. For 2003, your bonus eligibility will be 40% of your base salary, based upon the successful completion of Novoste’s Corporate Goals. These company-wide goals will be determined by the Senior Management team and are subject to Board approval.

(e)       provide a company-paid apartment for your use and will pay all expenses related to the apartment including rent, utilities, furniture rental, etc. up to $3,500 per month. Airfare for weekly visits to your family will be paid by Novoste, provided tickets are purchased with 14-day advance notice.

(f)       entitle you to participate in any and all health, life, disability or other insurance plans, retirement plans, 401(k) plans, stock purchase plans, and all other employee benefit plans that are now, or may in the future be offered by Novoste, subject to the terms and conditions of those plans.

5.        Vacation. You will be entitled to take up to an aggregate of four weeks of vacation each calendar year as business conditions permit. In accordance with company policy, you will be allowed to carry over up to 10 unused vacation days to the following year.

6.        Reimbursement of Expenses. Novoste will reimburse you for all reasonable and documented business expenses incurred by you on behalf of Novoste during the term of your employment hereunder consistent with Novoste’s expense reporting policy, as the same may be modified from time to time.

7.        Events of Termination.

(a)       By Novoste for Cause. Your employment hereunder may be terminated at any time by Novoste for “Cause.” “Cause” shall mean termination due to


 


Mr. Alfred J. Novak
October 8, 2002
Page 4 of 8

any one or more of the following: (i) if you are indicted for committing a felony or a decision or determination is rendered by any court or governmental authority that you have committed any act involving fraud, dishonesty, breach of trust or moral turpitude, or if you enter a plea of guilty or nolo contendere to any of the foregoing: (ii) if you willfully breach your duty of loyalty to, or commit an act of fraud or dishonesty upon, Novoste; (iii) if you demonstrate gross negligence or willful misconduct, (iv) if, in the reasonable, good faith opinion of a majority of Novoste’s Board of Directors (excluding yourself if you shall then be a director of Novoste), you engage in personal misconduct of such a material nature as to render your presence as CEO detrimental to Novoste or its reputation and you fail to cure the same (if curable) within five days after written notice thereof from Novoste; or (v) if you commit a material breach of, or a default under any of the terms or conditions of this Agreement (including the Related Agreements) and you fail to cure such breach or default (if curable) within ten days after written notice thereof from Novoste.

(b)       By Novoste for Unsatisfactory Performance. Your employment may be terminated at any time by Novoste if a majority of Novoste’s Board of Directors (excluding yourself if you shall then be a director of Novoste), shall have given you a vote of no confidence based upon the nature or manner of the performance of your duties hereunder (“Unsatisfactory Performance”).

(c)       By Novoste without Cause or without Unsatisfactory Performance. Your employment hereunder may be terminated at any time by Novoste, upon 30 days’ prior written notice to you, without “Cause” or without “Unsatisfactory Performance.”

(d)       Upon Death or Permanent Disability. Your employment hereunder shall additionally terminate immediately upon your Death or “Permanent Disability.” Shall have the meaning set forth in the long-term disability policy or policies then maintained by Novoste for the benefit of its employees, or if no such policy shall then be in effect, or if more than one such policy shall then be in effect in which the term “Permanent Disability” shall be assigned different definitions, then the term “Permanent Disability” shall be defined for purposes of this Agreement and the Related Agreements to mean any physical or mental disability or incapacity which renders you incapable of performing the services normally required of you as the CEO in substantially the same manner and with the same degree of competence that you performed them prior to the occurrence of the physical or mental disability.

(e)       By You without Good Reason. Your employment hereunder may be terminated at any time by you, upon 90 days’ prior written notice to Novoste, without Good Reason.


 


Mr. Alfred J. Novak
October 8, 2002
Page 5 of 8

(f)       By You for Good Reason. Your employment hereunder may be terminated at any time by you for “Good Reason.” “Good Reason” shall mean one or more of the following events: (i) a material breach of or default under this Agreement by Novoste which is not cured by Novoste within thirty days after its receipt of prior written notice thereof from you; or (ii) a material reduction in your duties or a material interference with the exercise of your authority by Novoste’s Board of Directors (not arising from any disabling physical or mental disability you may sustain) which would be inconsistent with your position as CEO of Novoste and the same shall not have been remedied by Novoste’s Board of Directors within thirty days after its receipt of prior written notice thereof from you. A termination by you of your employment pursuant to this Paragraph 7(f) shall not be deemed for purposes hereof to constitute a termination of your employment by you for Good Reason if, at the time of such termination by you, Novoste shall be entitled to terminate this Agreement by reason of your Permanent Disability (subject to the passage of any remaining time necessary to render any disability you may sustain a Permanent Disability under Paragraph 7(d) above), or for Cause (subject to the passage of any applicable cure period) and Novoste shall have sent prior to Novoste’s receipt of your notice of termination, a notice of termination by Novoste specifying the Cause or notice by Novoste of such pending Permanent Disability.

8.        Consequences of Termination.

(a)       By Novoste for Cause. If your employment is terminated for Cause, this Agreement shall terminate immediately upon the date fixed for the cessation of your employment and you shall be entitled to be paid any accrued, but unpaid, salary earned by you through the date of such termination.

(b)       By Novoste for Unsatisfactory Performance. In the event your employment is terminated by Novoste for Unsatisfactory Performance, this Agreement shall terminate immediately on the date fixed for the cessation of your employment and you shall be entitled to receive all accrued, but unpaid, salary earned by you through the date of such termination.

(c)       By Novoste without Cause or without Unsatisfactory Performance. In the event your employment is terminated by Novoste without Cause or without Unsatisfactory Performance (other than by reason of your death or Permanent Disability), this Agreement shall terminate immediately on the date fixed for cessation of your employment and you shall be entitled to receive: (i) all accrued but unpaid salary earned by you through the date of such termination; and (ii) a lump sum, cash severance payment on the date of termination of employment equal to two times your Annualized Includable Compensation, as defined in the Termination Agreement, taking as a Base


 


Mr. Alfred J. Novak
October 8, 2002
Page 6 of 8

Period the two most recent taxable years ending before the date of your termination of employment.

(d)       Upon your Death or Permanent Disability. In the event your employment terminates by reason of your Death or Permanent Disability, this Agreement shall terminate immediately upon such occurrence and you, your estate or your personal representative, as the case may be, shall be entitled to be paid any accrued but unpaid salary earned by you through the date of such termination.

(e)       By You without Good Reason. In the event your employment is terminated by you without Good Reason, this Agreement shall terminate immediately upon the date of your resignation, consistent with the notice requirements set forth in Paragraph 7(e) and you shall be entitled to be paid any accrued but unpaid salary earned by you through the date of such termination.

(f)       By You for Good Reason. In the event your employment is terminated by you for Good Reason, this Agreement shall terminate on the date set forth in your notice of termination consistent with Paragraph 7(f) and you shall be entitled to receive: (i) all accrued but unpaid salary earned by you through the date of such termination; and (ii) a lump sum, cash severance payment on the date of termination of employment equal to two times your Annualized Includable Compensation, as defined in the Termination Agreement, taking as a Base Period the two most recent taxable years ending before the date of your termination of employment.

(g)       Effect on Stock Options. In the event of the termination of your employment, pursuant to paragraphs 7(c) or 7(f) above, any unvested options from the initial 400,000 share grant set forth in paragraph 4(b) above shall become fully vested and exercisable on the date of such termination.

9.        Key Man Life Insurance. You agree that Novoste may, in its discretion, apply for and take out in its name and at its own expense, and solely for its benefit, key man life insurance on you in any amount deemed necessary or advisable by Novoste to protect its interests, and you agree that you shall have no right, title or interest therein and further agree to submit to any medical or other examination and to execute and deliver any application or other instruments or information reasonably necessary to effectuate such insurance.

10.      Your Representations and Warranties. You    represent and warrant that you are not under any obligation, restriction or limitation, contractual or otherwise, to any other individual or entity which would prohibit or impede you from performing your


 


Mr. Alfred J. Novak
October 8, 2002
Page 7 of 8

duties and responsibilities hereunder, and that you are free to enter into and perform the terms and provisions of this Agreement, such representation and warranty to survive the execution, delivery and termination hereof; provided, hereunder, that you shall not be required to disclose to Novoste any information that you are obligated to keep confidential under any agreement with a third party.

11.      Notices. Any notice required hereunder shall be delivered by hand, sent by telecopy, or sent registered or certified mail, addressed to the other party hereto at its address set forth above or at such other address thereof shall have been given in accordance with the provisions of this Paragraph 11. Any such notice shall become effective (a) when mailed, three days after having been deposited in the mail, postage prepaid, and (b) in the case of delivery by hand or telecopy, upon delivery.

12.      Entire Agreement. This Agreement, together with the Related Agreements, contains the entire agreement and understanding between the parties hereto relating to the subject matter hereof and thereof and supersedes any and all prior understandings, agreements and representations, written or oral, expressed or implied, with respect thereto. In the event of a conflict between the terms of this Agreement and any of the Related Agreements, this Agreement shall govern.

13.      Amendments. This Agreement may not be amended, modified, altered or terminated except by an instrument in writing signed by the parties.

14.      Successors and Assigns. This Agreement is personal in nature and neither this Agreement nor any rights or obligations hereunder may be assigned or transferred by you without the prior written consent of Novoste. This Agreement may not be assigned or transferred by Novoste without your prior written consent, which shall not be unreasonably withheld. Subject to the foregoing, this Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and Novoste’s successors and permitted assigns and your executors, administrators, personal representatives, heirs and distributees.

15.      Severability. In case any one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be effected thereby.

16.      Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Georgia applicable to contracts made and to be performed entirely therein (without giving effect to the conflicts of law rules thereof).


 


Mr. Alfred J. Novak
October 8, 2002
Page 8 of 8

17.      Effectiveness. Of course, notwithstanding anything herein to the contrary, the effectiveness of this Agreement and your employment pursuant hereto is contingent upon the mutual execution and delivery of this Agreement by you and Novoste.

We would appreciate it if you would kindly indicate your agreement with the foregoing by countersigning the enclosed duplicate copy of this letter agreement and returning it to me on behalf of Novoste.

On behalf of Novoste, we look forward to a long and mutually rewarding relationship.

 

 

 

Sincerely,

NOVOSTE CORPORATION



 

By: 



 

 

 


 

 

 

Daniel G. Hall
Vice President, Secretary and General Counsel

 

Attachments:

 

Confidentiality and Arbitration Agreement
Business Conduct Agreement
Conflict of Interest Agreement
Patent Agreement
Unfair Competition Agreement
Termination Agreement
Novoste Proxy Statement dated April 25, 2001
Novoste Proxy Statement dated April 26, 2002

 

Accepted and Agreed to this _____ day of October 2002.

______________________________________________


 


 

EX-10.35 6 dex1035.htm NON-QUALIFIED STOCK OPTION AGREEMENT WITH CEO Non-Qualified Stock Option Agreement with CEO

Exhibit 10.35

NOVOSTE CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT (the “Agreement”), is dated as of October 16, 2002, by and between NOVOSTE CORPORATION, a Florida corporation (the “Company”), and Alfred J. Novak (the “Optionee”), pursuant to the Company’s 2002 Chief Executive Officer Stock Option Plan (the “Plan”).

For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and Optionee hereby agree as follows:

1.        Grant of Option.

The Company hereby grants to Optionee, effective as of the date set forth above (the “Grant Date”), the right and option (hereinafter called the “Option”) to purchase up to an aggregate of 400,000 shares of common stock, par value $0.01 per share (the “Common Stock”), of the Company at a price of $4.20 per share, on the terms and conditions set forth in this Agreement and in the Plan. This Option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option shall terminate at the close of business on the day ten (10) years from the Grant Date, or such shorter period as is prescribed herein. Optionee shall not have any of the rights of a shareholder with respect to the shares of Common Stock subject to the Option until such shares shall be issued to Optionee upon the proper exercise of the Option.

2.        Duration and Exercisability.

(a)       Subject to the terms and conditions set forth herein, this Option shall become exercisable by the Optionee for the following installments of shares of Common Stock in accordance with the following schedule. The Optionee must be employed by the Company on the relevant anniversary date set forth below in order for the corresponding installment to become exercisable. As the Option becomes exercisable for such installment, those installments shall accumulate and the Option shall remain exercisable for the accumulated installments until the Option expires pursuant to Section 1 or terminates pursuant to Section 3 or Section 4.

  

on or after each of
the following dates:

 

Cumulative Percentage of Shares as
to which Option is exercisable:

 

October 16, 2002

 

  25%

 

October 16, 2003

 

  50%

 

October 16, 2004

 

  75%

 

October 16, 2005

 

100%

 


(b)       In the event of a Change of Control (as defined herein), the Option shall become immediately fully exercisable. A “Change of Control” shall mean:


 


(i)        the sale or other disposition to a person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), entity or group (as such term is defined in Rule 13d-5 under the Exchange Act) of 50% or more of the Company’s assets;

(ii)       any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or group (as defined in Rule 13d-5 of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities;

(iii)     the Continuing Directors cease to constitute a majority of the Company’s Board of Directors; or

(iv)     the majority of the Continuing Directors determine in their sole and absolute discretion that there has been a change in control of the Company.

For purposes of clauses (iii) and (iv) above, “Continuing Director” shall mean any person who is a member of the Board of Directors of the Company, while such person is a member of the Board of Directors, who is not an Acquiring Person (as defined below) or an Affiliate or Associate (as defined below) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (1) was a member of the Board of Directors on the date of this Agreement as first written above or (2) subsequently becomes a member of the Board of Directors, if such person’s initial nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. For purposes of this paragraph, “Acquiring Person” shall mean any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all Affiliates and Associates of such person, is the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act) of 15% or more of the shares of Common Stock then outstanding, but shall not include the Company, any subsidiary of the Company or any executive benefit plan of the Company or of any subsidiary of the Company or any entity holding shares of common stock organized, appointed or established for, or pursuant to the terms of, any such plan; and “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the Exchange Act.

(c)       During the lifetime of Optionee, the Option shall be exercisable only by Optionee or Optionee’s agent pursuant to a Rule 10b5-1 Plan and shall not be assignable or transferable by Optionee, other than as provided for in accordance with the provisions of Section 4(c) of this Agreement or to a Family Member. A “Rule 10b5-1 Plan” shall mean a trading plan adopted by a person or an entity that is intended to comply with the requirements of Rule 10b5-1 promulgated by the Securities and Exchange Commission under the Exchange Act or any successor rule or regulation. A “Family Member” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the employee’s household, (other than a tenant or employee), a


2


trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or employee) control the management assets, and any other entity in which these persons (or employee) own more than fifty percent of the voting interests.

3.        Adjustment of Shares.

(a)       The exercise price and the number of shares purchasable upon exercise of the Options may be adjusted by the Compensation Committee (the “Compensation Committee”) of the Board of Directors of the Company (the “Board”) in accordance with Section 4(c) of the Plan upon the occurrence of certain corporate actions that may affect the Common Stock.

(b)       In the event that the Company is a party to a merger or consolidation, the Option shall be subject to the agreement of merger or consolidation. Subject to Section 2(b), such agreement, without the Optionee’s consent, may provide for:

(i)        The continuation of the Option by the Company (if the Company is the surviving corporation);

(ii)       The assumption of the Plan and the Option by the surviving corporation or its parent;

(iii)     The substitution by the surviving corporation or its parent of options with substantially the same terms for the Option as contemplated by Section 4(c) of the Plan; or

(iv)     The cancellation of the Option provided that the Optionee shall have the right immediately prior to such merger or consolidation to exercise the Option in whole or in part, whether or not the Optionee’s right to exercise the Option has otherwise vested pursuant to Section 2 of this Agreement.

4.        Effect of Termination of Employment.

(a)       In the event that Optionee shall cease to be employed by the Company or its subsidiaries, if any, for any reason other than termination for cause (as defined in Section 4(b) hereof) or Optionee’s death or disability (as such term is defined in Section 4(c) hereof), Optionee shall have the right to exercise the Option at any time within six (6) months after such termination of employment to the extent of the full number of shares Optionee was entitled to purchase under the Option on the date of termination; provided, however, that this Option shall not be exercisable after the expiration of the term of the Option if earlier.

(b)       In the event that Optionee shall cease to be employed by the Company or its subsidiaries, if any, upon termination for cause, the Option shall be terminated as of the date of the act giving rise to such termination. Termination for “cause” shall have the meaning ascribed to such term in that certain Letter of Employment Agreement, dated October 8, 2002, between the Optionee and the Company.


3


(c)       If Optionee shall die while this Option is still exercisable according to its terms, or if Optionee’s employment with the Company is terminated because Optionee has become disabled (within the meaning of Code Section 22(e)(3)) while this Option is still exercisable according to its terms, and Optionee shall not have fully exercised the Option, such Option may be exercised at any time within twelve (12) months after Optionee’s death or date of termination of employment by Optionee, personal representatives or administrators, or guardians of Optionee, as applicable, or by any person or persons to whom the Option is transferred by will or the applicable laws of descent and distribution, to the extent of the full number of shares Optionee was entitled to purchase under the Option on the date of Optionee’s death, the date of termination of Optionee’s employment with the Company, if earlier, or the date of termination of Optionee’s employment with the Company for such disability, and subject in all cases to the condition that no Option shall be exercisable after the expiration of the term of the Option.

5.        Manner of Exercise.

(a)       The Option may be exercised only by Optionee or other proper party, as provided herein, by delivering within the period during which the Option is exercisable hereunder written notice to the Company at its principal office. The notice shall state the number of shares as to which the Option is being exercised and be accompanied by payment in full of the Option price for all shares designated in the notice.

(b)       Optionee may pay the Option price in cash, by check (bank check, certified check or personal check), by money order, or with the approval of the Compensation Committee (i) by delivering to the Company for cancellation shares of Common Stock with a fair market value as of the date of exercise equal to the exercise price of the Option or the portion thereof being paid by tendering such shares; provided, however, no Shares may be surrendered in payment of the exercise price if acquired by the Participant from the Company within six months of the date of the current exercise or (ii) by delivering to the Company a combination of cash and Common Stock with an aggregate fair market value equal to the exercise price of the Option. Any broker-assisted cashless exercise by the Optionee of the Option shall be performed in compliance with the requirements of the Sarbanes-Oxley Act of 2002 and approved by the Compensation Committee. For these purposes, the fair market value of the shares of Common Stock, as of any date, shall be as reasonably determined by the Compensation Committee pursuant to the Plan.

6.        Notices.

All notices or other communications which are required or permitted hereunder shall be deemed to be sufficient if contained in a written instrument given by personal delivery, air courier or registered or certified mail, postage prepaid, return receipt requested, addressed to such party at the address set forth below or such other address as may thereafter be designated in a written notice from such party to the other party:


4


if to the Company, to:

Attention: Corporate Secretary
Novoste Corporation
3890 Steve Reynolds Boulevard
Norcross, Georgia 30093

if to the Optionee, to:

Alfred J. Novak
9375 S.W. 60th Avenue
Miami, Florida 33156

All such notices, advances, and communications shall be deemed to have been delivered and received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of air courier, on the business day after the date when sent and (c) in the case of mailing, on the third business day following such mailing.

7.        Miscellaneous.

(a)       This Option is issued pursuant to the Plan and is subject to its terms. The terms of the Plan are available for inspection during business hours at the principal offices of the Company.

(b)       This Agreement shall not confer on Optionee any right with respect to continuance of employment by the Company or any of its subsidiaries, nor will it interfere in any way with the right of the Company to terminate such employment at any time. Optionee shall have none of the rights of a stockholder with respect to shares subject to this Option until such shares shall have been issued to Optionee upon exercise of this Option.

(c)       The exercise of all or any part of this Option shall only be effective at such time as the sale of Common Stock pursuant to such exercise will not violate any state or federal securities or other laws. If the Committee administering the Plan determines that such conditions have not been met at the time the Option is otherwise properly exercised, the Company may either (i) defer effectiveness of the exercise (with notice to Employee) until such reasonable date as the conditions have been met, or (ii) refund or return to Employee the consideration given to the Company for the exercise, with an explanation that the exercise cannot then be given effect.

(d)       The Company shall at all times during the term of the Option reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this Agreement.

(e)       No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.


5


(f)       The Optionee shall take whatever additional actions and execute whatever additional documents the Company may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Agreement. The certificates for shares issued upon exercise of the Option may bear legends and notices of transfer restrictions as the Committee administering the Plan deems appropriate in the circumstances.

(g)       This Agreement shall be governed by and construed in accordance with, the laws of the State of Florida without regard to choice law provisions thereof.

(h)       This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

(i)        This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and thereof, merging any and all prior agreements.

(j)        In order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it upon the exercise of the Option and in order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to insure that, if necessary, all applicable federal or state payroll, withholding, income or other taxes are withheld or collected from Optionee. With the Company’s concurrence, Optionee may elect to satisfy his or her federal and state income tax withholding obligations upon exercise of this Option by (i) having the Company withhold a portion of the shares of Common Stock otherwise to be delivered upon exercise of such Option having a fair market value equal to the amount of federal and state income tax required to be withheld upon such exercise, in accordance with such rules as the Company may from time to time establish, or (ii) delivering to the Company shares of its Common Stock (other than the shares issuable upon exercise of such Option or acquired from the Company within six months prior to the current exercise of such Option) with a fair market value equal to such taxes, in accordance with such rules.

(k)       This Agreement does not obligate the Company to register the Option or the shares subject to the Option under applicable securities laws, to maintain any such registration or to list such shares on any securities exchange.

*     *     *     *     *


6


IN WITNESS WHEREOF, the parties hereto have caused this Agreement as of the date set forth above.

No. of Shares Subject to Option: 400,000
Exercise Price per Share: $4.20
Date of Grant: October 16, 2002

 

 

NOVOSTE CORPORATION

 

 

 

By: 



 

 

 

 

 


 

 

 

 

 

Name: 

 

 

 

 

 

Title: 

 

 

 

 

 

 

 

 



 

 




 

 

 

 

Alfred J. Novak

 

 

 


7


 

EX-10.36 7 dex1036.htm NON-QUALIFIED STOCK OPTION AGREEMENT WITH CEO Non-Qualified Stock Option Agreement with CEO

Exhibit 10.36

NOVOSTE CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT (the “Agreement”), is dated as of October 16, 2002, by and between NOVOSTE CORPORATION, a Florida corporation (the “Company”), and Alfred J. Novak (the “Optionee”), pursuant to the Company’s 2002 Chief Executive Officer Stock Option Plan (the “Plan”).

For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and Optionee hereby agree as follows:

1.        Grant of Option.

The Company hereby grants to Optionee, effective as of the date set forth above (the “Grant Date”), the right and option (hereinafter called the “Option”) to purchase up to an aggregate of 300,000 shares of common stock, par value $0.01 per share (the “Common Stock”), of the Company at a price of $4.20 per share, on the terms and conditions set forth in this Agreement and in the Plan. This Option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option shall terminate at the close of business on the day ten (10) years from the Grant Date, or such shorter period as is prescribed herein. Optionee shall not have any of the rights of a shareholder with respect to the shares of Common Stock subject to the Option until such shares shall be issued to Optionee upon the proper exercise of the Option.

2.        Duration and Exercisability.

(a)       Subject to the terms and conditions set forth herein, this Option shall become exercisable on October 16, 2007, except that portions of the Option may become exercisable before October 16, 2007 under the following circumstances:

(i)        the Option to purchase 100,000 shares of Common Stock shall become exercisable at such time as the Closing Sale Price of the Common Stock equals or exceeds $8.00 per share for twenty (20) out of thirty (30) consecutive Trading Days;

(ii)       the Option to purchase an additional 100,000 shares of Common Stock shall become exercisable at such time as the Closing Sale Price of the Common Stock equals or exceeds $12.00 per share for twenty (20) out of thirty (30) consecutive Trading Days; and

(iii)     the Option to purchase the remaining 100,000 shares of Common Stock shall become exercisable at such time as the Closing Sale Price of the Common Stock equals or exceeds $15.00 per share for twenty (20) out of thirty (30) consecutive Trading Days.

For purposes of this Section 2(a), the “Closing Sale Price” of the Common Stock on any applicable day shall be the price per share listed by the Nasdaq Stock Market as the closing price of the Common Stock on such day as reported in The Wall Street Journal. A


 


“Trading Day” shall mean any day that the Nasdaq Stock Market is open for business and shares of the Common Stock are traded thereon.

The Optionee must be employed by the Company at such times set forth above in order for the corresponding portion of the Option to become exercisable. Once the Option becomes exercisable as described above, the Option shall remain exercisable until the Option expires pursuant to Section 1 or terminates pursuant to Section 3 or Section 4.

(b)       In the event of a Change of Control (as defined herein), the portions of the Option that have not otherwise become exercisable shall become exercisable as set forth in Sections 2(a)(i), (ii) or (iii), if either (A) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the Change of Control, or if such day is not a Trading Day then the first Trading Day thereafter, or (B) the fair market value of the consideration to be provided for each share of Common Stock in the transaction constituting the Change of Control, equals or exceeds the share price set forth in Sections 2(a)(i), (ii) or (iii), whether or not such share price has been at the applicable level for twenty (20) days of thirty (30) consecutive Trading Days prior to the Change of Control. A “Change of Control” shall mean:

(i)        the sale or other disposition to a person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), entity or group (as such term is defined in Rule 13d-5 under the Exchange Act) of 50% or more of the Company’s assets;

(ii)       any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or group (as defined in Rule 13d-5 of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities;

(iii)     the Continuing Directors cease to constitute a majority of the Company’s Board of Directors; or

(iv)     the majority of the Continuing Directors determine in their sole and absolute discretion that there has been a change in control of the Company.

For purposes of clauses (iii) and (iv) above, “Continuing Director” shall mean any person who is a member of the Board of Directors of the Company, while such person is a member of the Board of Directors, who is not an Acquiring Person (as defined below) or an Affiliate or Associate (as defined below) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (1) was a member of the Board of Directors on the date of this Agreement as first written above or (2) subsequently becomes a member of the Board of Directors, if such person’s initial nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. For purposes of this paragraph, “Acquiring Person” shall mean any “person” (as such


2


term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all Affiliates and Associates of such person, is the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act) of 15% or more of the shares of Common Stock then outstanding, but shall not include the Company, any subsidiary of the Company or any executive benefit plan of the Company or of any subsidiary of the Company or any entity holding shares of common stock organized, appointed or established for, or pursuant to the terms of, any such plan; and “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the Exchange Act.

(c)       During the lifetime of Optionee, the Option shall be exercisable only by Optionee or Optionee’s agent pursuant to a Rule 10b5-1 Plan and shall not be assignable or transferable by Optionee, other than as provided for in accordance with the provisions of Section 4(c) of this Agreement or to a Family Member. A “Rule 10b5-1 Plan” shall mean a trading plan adopted by a person or an entity that is intended to comply with the requirements of Rule 10b5-1 promulgated by the Securities and Exchange Commission under the Exchange Act or any successor rule or regulation. A “Family Member” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the employee’s household, (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or employee) control the management assets, and any other entity in which these persons (or employee) own more than fifty percent of the voting interests.

3.        Adjustment of Shares.

(a)       The exercise price and the number of shares purchasable upon exercise of the Options may be adjusted by the Compensation Committee (the “Compensation Committee”) of the Board of Directors of the Company (the “Board”) in accordance with Section 4(c) of the Plan upon the occurrence of certain corporate actions that may affect the Common Stock.

(b)       In the event that the Company is a party to a merger or consolidation, the Option shall be subject to the agreement of merger or consolidation. Subject to Section 2(b), such agreement, without the Optionee’s consent, may provide for:

(i)        The continuation of the Option by the Company (if the Company is the surviving corporation);

(ii)       The assumption of the Plan and the Option by the surviving corporation or its parent;

(iii)     The substitution by the surviving corporation or its parent of options with substantially the same terms for the Option as contemplated by Section 4(c) of the Plan; or


3


(iv)     The cancellation of the Option provided that the Optionee shall have the right immediately prior to such merger or consolidation to exercise the Option in whole or in part, whether or not the Optionee’s right to exercise the Option has otherwise vested pursuant to Section 2 of this Agreement.

4.        Effect of Termination of Employment.

(a)       In the event that Optionee shall cease to be employed by the Company or its subsidiaries, if any, for any reason other than termination for cause (as defined in Section 4(b) hereof) or Optionee’s death or disability (as such term is defined in Section 4(c) hereof), Optionee shall have the right to exercise the Option at any time within six (6) months after such termination of employment to the extent of the full number of shares Optionee was entitled to purchase under the Option on the date of termination; provided, however, that this Option shall not be exercisable after the expiration of the term of the Option if earlier.

(b)       In the event that Optionee shall cease to be employed by the Company or its subsidiaries, if any, upon termination for cause, the Option shall be terminated as of the date of the act giving rise to such termination. Termination for “cause” shall have the meaning ascribed to such term in that certain Letter of Employment Agreement, dated October 8, 2002, between the Optionee and the Company.

(c)       If Optionee shall die while this Option is still exercisable according to its terms, or if Optionee’s employment with the Company is terminated because Optionee has become disabled (within the meaning of Code Section 22(e)(3)) while this Option is still exercisable according to its terms, and Optionee shall not have fully exercised the Option, such Option may be exercised at any time within twelve (12) months after Optionee’s death or date of termination of employment by Optionee, personal representatives or administrators, or guardians of Optionee, as applicable, or by any person or persons to whom the Option is transferred by will or the applicable laws of descent and distribution, to the extent of the full number of shares Optionee was entitled to purchase under the Option on the date of Optionee’s death, the date of termination of Optionee’s employment with the Company, if earlier, or the date of termination of Optionee’s employment with the Company for such disability, and subject in all cases to the condition that no Option shall be exercisable after the expiration of the term of the Option.

5.        Manner of Exercise.

(a)       The Option may be exercised only by Optionee or other proper party, as provided herein, by delivering within the period during which the Option is exercisable hereunder written notice to the Company at its principal office. The notice shall state the number of shares as to which the Option is being exercised and be accompanied by payment in full of the Option price for all shares designated in the notice.

(b)       Optionee may pay the Option price in cash, by check (bank check, certified check or personal check), by money order, or with the approval of the Compensation Committee (i) by delivering to the Company for cancellation shares of Common Stock with a


4


fair market value as of the date of exercise equal to the exercise price of the Option or the portion thereof being paid by tendering such shares; provided, however, no Shares may be surrendered in payment of the exercise price if acquired by the Participant from the Company within six months of the date of the current exercise or (ii) by delivering to the Company a combination of cash and Common Stock with an aggregate fair market value equal to the exercise price of the Option. Any broker-assisted cashless exercise by the Optionee of the Option shall be performed in compliance with the requirements of the Sarbanes-Oxley Act of 2002 and approved by the Compensation Committee. For these purposes, the fair market value of the shares of Common Stock, as of any date, shall be as reasonably determined by the Compensation Committee pursuant to the Plan.

6.        Notices.

All notices or other communications which are required or permitted hereunder shall be deemed to be sufficient if contained in a written instrument given by personal delivery, air courier or registered or certified mail, postage prepaid, return receipt requested, addressed to such party at the address set forth below or such other address as may thereafter be designated in a written notice from such party to the other party:

if to the Company, to:

Attention: Corporate Secretary
Novoste Corporation
3890 Steve Reynolds Boulevard
Norcross, Georgia 30093

if to the Optionee, to:

Alfred J. Novak
9375 S.W. 60th Avenue
Miami, Florida 33156

All such notices, advances, and communications shall be deemed to have been delivered and received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of air courier, on the business day after the date when sent and (c) in the case of mailing, on the third business day following such mailing.

7.        Miscellaneous.

(a)       This Option is issued pursuant to the Plan and is subject to its terms. The terms of the Plan are available for inspection during business hours at the principal offices of the Company.

(b)       This Agreement shall not confer on Optionee any right with respect to continuance of employment by the Company or any of its subsidiaries, nor will it interfere in any


5


way with the right of the Company to terminate such employment at any time. Optionee shall have none of the rights of a stockholder with respect to shares subject to this Option until such shares shall have been issued to Optionee upon exercise of this Option.

(c)       The exercise of all or any part of this Option shall only be effective at such time as the sale of Common Stock pursuant to such exercise will not violate any state or federal securities or other laws. If the Committee administering the Plan determines that such conditions have not been met at the time the Option is otherwise properly exercised, the Company may either (i) defer effectiveness of the exercise (with notice to Employee) until such reasonable date as the conditions have been met, or (ii) refund or return to Employee the consideration given to the Company for the exercise, with an explanation that the exercise cannot then be given effect.

(d)       The Company shall at all times during the term of the Option reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this Agreement.

(e)       No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.

(f)       The Optionee shall take whatever additional actions and execute whatever additional documents the Company may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Agreement. The certificates for shares issued upon exercise of the Option may bear legends and notices of transfer restrictions as the Committee administering the Plan deems appropriate in the circumstances.

(g)       This Agreement shall be governed by and construed in accordance with, the laws of the State of Florida, without regard to choice law provisions thereof.

(h)       This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

(i)        This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and thereof, merging any and all prior agreements.

(j)        In order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it upon the exercise of the Option and in order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to insure that, if necessary, all applicable federal or state payroll, withholding, income or other taxes are withheld or collected from Optionee. With the Company’s concurrence, Optionee may elect to satisfy his or her federal and state income tax withholding obligations upon exercise of this Option by (i) having the Company withhold a portion of the shares of Common Stock otherwise to be delivered upon exercise of such Option having a fair market value equal to the amount of federal and state income tax required to be withheld upon such exercise, in accordance with such rules as the Company may from time to


6


time establish, or (ii) delivering to the Company shares of its Common Stock (other than the shares issuable upon exercise of such Option or acquired from the Company within six months prior to the current exercise of such Option) with a fair market value equal to such taxes, in accordance with such rules.

(k)       This Agreement does not obligate the Company to register the Option or the shares subject to the Option under applicable securities laws, to maintain any such registration or to list such shares on any securities exchange.

*     *     *     *     *


7


IN WITNESS WHEREOF, the parties hereto have caused this Agreement as of the date set forth above.

No. of Shares Subject to Option: 300,000
Exercise Price per Share: $4.20
Date of Grant: October 16, 2002

 

NOVOSTE CORPORATION

 

 

By: 



 

 

 

 


 

 

 

 

     Name: 

 

 

 

 

 

     Title: 

 

 

 

 


 

 

 

 

 



 

 




 

 

 

                Alfred J. Novak

 

 

 


8


 

EX-10.37 8 dex1037.htm 2002 CHIEF EXECUTIVE OFFICER STOCK OPTION PLAN 2002 Chief Executive Officer Stock Option Plan

Exhibit 10.37

NOVOSTE CORPORATION

2002 CHIEF EXECUTIVE OFFICER STOCK OPTION PLAN

Section 1. Purpose.

The purpose of the Plan is to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining a Chief Executive Officer capable of contributing to the future success of the Company, to offer such person incentives to put forth maximum efforts for the success of the Company’s business and to afford such person an opportunity to acquire a proprietary interest in the Company.

Section 2. Definitions.

As used in the Plan, the following terms shall have the meanings set forth below:

(a)       “Affiliate” shall mean (i) any person or entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any person or entity in which the Company has a significant equity interest, in each case as determined by the Committee.

(b)      “Award” shall mean any Option granted under the Plan.

(c)       “Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan.

(d)      “Board” shall mean the Board of Directors of the Company.

(e)       “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.

(f)       “Committee” shall mean a committee of Directors designated by the Board to administer the Plan. The Committee shall be comprised of not less than such number of Directors as shall be required to permit Awards granted under the Plan to qualify under Rule 16b-3, and each member of the Committee shall be a “Non-Employee Director” within the meaning of Rule 16b-3.

(g)      “Company” shall mean Novoste Corporation, a Florida corporation, and any successor corporation.

(h)      “Director” shall mean a member of the Board.

(i)       “Fair Market Value” shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee.


1


Notwithstanding the foregoing, unless otherwise determined by the Committee, the Fair Market Value of Shares as of a given date shall be, if the Shares are then quoted on the Nasdaq Stock Market, the closing sale price on the immediately preceding trading date as reported on the Nasdaq Stock Market; provided, however, that if no closing sale price shall have been made within ten business days preceding such relevant date, or if deemed appropriate by the Committee for any reason, the Fair Market Value of such Shares shall be determined by the Committee. In no event shall the Fair Market Value of any Share be less than its par value.

(j)       “Incentive Stock Option” shall mean an option intended to meet the requirements of Section 422 of the Code or any successor provision.

(k)      “Non-Qualified Stock Option” shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.

(l)       “Option” shall mean Non-Qualified Stock Option.

(m)     “Participant” shall mean Alfred J. Novak, the current Chief Executive Officer of the Company.

(n)      “Person” shall mean any individual, corporation, partnership, association or trust.

(o)      “Plan” shall mean the Novoste Corporation 2002 Chief Executive Officer Stock Option Plan, as amended from time to time, the provisions of which are set forth herein.

(p)      “Rule 10b5-1 Plan” shall mean a trading plan adopted by a Person that is intended to comply with the requirements of Rule 10b5-1 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation.

(q)      “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation.

(r)       “Shares” shall mean shares of Common Stock, $.01 par value per share, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan.

Section 3. Administration.

(a)       Power and Authority of the Committee. The Plan shall be administered by the Committee. Subject to the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to: (i) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) each Award; (ii) determine the terms and conditions of any Award or Award Agreement; (iii) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of Options; (iv) determine whether, to what extent and under what circumstances Awards may be canceled, forfeited or suspended; (v) interpret and administer the Plan and any instrument or agreement, including an Award Agreement, relating to the Plan; (vi) appoint such


2


agents and establish, amend, suspend or waive such rules and regulations as it shall deem appropriate for the proper administration of the Plan; and (vii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon the Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate.

(b)      Delegation. The Committee may delegate its powers and duties under the Plan to one or more Directors or a committee of Directors, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion.

(c)       Power and Authority of the Board of Directors. Notwithstanding anything to the contrary contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan.

Section 4. Shares Available for Awards.

(a)       Shares Available. Subject to adjustment as provided in Section 4(c) of the Plan, the aggregate number of Shares that may be issued under all Awards under the Plan shall be 700,000 and shall be subject to adjustment as provided herein. Shares to be issued under the Plan may be either authorized but unissued Shares or Shares acquired in the open market or otherwise.

(b)      Accounting for Awards. For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan.

(c)       Adjustments.

(i)        In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, issuance of warrants or other rights to purchase Shares or other securities of the Company to all holders of common stock pro rata whether as a dividend or otherwise or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (A) the number and type of Shares (or other securities or other property) that thereafter may be made the subject of Awards, (B) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (C) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number.


3


(ii)       In the event that the Company is a party to a merger or consolidation, the Option granted under this Plan shall be subject to the agreement of merger or consolidation. Such agreement, without the Participant’s consent, may provide for:

(A)  The continuation of the Option by the Company (if the Company is the surviving corporation);

(B)  The assumption of the Plan and the Option by the surviving corporation or its parent;

(C)  The substitution by the surviving corporation or its parent of options with substantially the same terms for the Option as contemplated by this Section 4(c)(i) of the Plan; or

(D)  The cancellation of the Option provided that the Participant shall have the right immediately prior to such merger or consolidation to exercise the Option in whole or in part, whether or not the Participant’s right to exercise the Option has otherwise vested pursuant to the Participant’s Award Agreement.

Section 5. Eligibility.

Only the Participant shall be eligible for an Award under the Plan and the only grant is the new-hire grant.

Section 6. Awards.

(a)       Options. The Committee is hereby authorized to grant Options to the Participant with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:

(i)        Exercise Price. The purchase price per Share purchasable under an Option shall be 100% of the Fair Market Value of a Share on the date of grant of such Option.

(ii)       Option Term. The term of each Option shall be fixed by the Committee.

(iii)     Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made; provided, however, that no Shares may be surrendered in payment of the exercise price if originally acquired by the Participant from the Company within six months of the date of the current exercise.

(b)      General.

(i)        No Cash Consideration for Awards. Awards shall be granted for no cash consideration.


4


(ii)       Forms of Payment under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee.

(iii)     Limits on Transfer of Awards. No Award shall be transferable by the Participant otherwise than by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, the Participant may, in the manner established by the Committee, (a) transfer Awards to family members by gift, (b) transfer any Award by domestic order to a family member or (c) designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant. Each Award shall be exercisable during the Participant’s lifetime only by the Participant or, if permissible under applicable law, by the Participant’s agent pursuant to a Rule 10b5-1 Plan, guardian or legal representative. No Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.

(iv)     Restrictions; Securities Exchange Listing. All Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such restrictions as the Committee may deem advisable under the Plan, applicable federal or state securities laws and regulatory requirements, and the Committee may cause appropriate entries to be made or legends to be affixed to reflect such restrictions. If any securities of the Company are traded on a securities exchange (including the Nasdaq Stock Market, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange.

Section 7. Amendment and Termination; Adjustments.

(a)       Amendments to the Plan. The Committee may amend, alter, suspend, discontinue or terminate the Plan at any time; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the shareholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval:

(i)        would violate the rules or regulations of the Nasdaq Stock Market or any securities exchange that are applicable to the Company; or

(ii)       decrease the grant or exercise price of any Option to less than Fair Market Value on the date of the grant; or

(iii)     increase the total number of Shares that may be issued under the Plan.

(b)      Amendments to Awards. The Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. Except as otherwise provided herein or in the Award Agreement, the Committee may not amend, alter,


5


suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, if such action would adversely affect the rights of the holder of such Award, without the consent of the Participant or holder or beneficiary thereof.

(c)       Correction of Defects, Omissions and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect.

Section 8. Income Tax Withholding; Tax Bonuses.

(a)       Withholding. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of the Participant, are withheld or collected from the Participant. In order to assist the Participant in paying all or a portion of the federal and state taxes to be withheld or collected upon exercise or receipt of an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of such Award with a Fair Market Value equal to the amount of such taxes or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined.

(b)      Tax Bonuses. The Committee, in its discretion, shall have the authority, at the time of grant of any Award under this Plan or at any time thereafter, to approve cash bonuses to the Participant to be paid upon his exercise or receipt of Awards in order to provide funds to pay all or a portion of federal and state taxes due as a result of such exercise or receipt. The Committee shall have full authority in its discretion to determine the amount of any such tax bonus.

Section 9. General Provisions.

(a)       No Rights to Awards. The Participant shall not have any claim to be granted any Award under the Plan.

(b)      No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.

(c)       No Right to Employment. The grant of an Award shall not be construed as giving the Participant the right to be retained in the employment of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment at any time, with or without cause. In addition, the Company may at any time dismiss the Participant from employment free from any liability or any claim under the Plan or any Award, unless otherwise expressly provided in the Plan, in any Award Agreement or in an employment agreement.


6


(d)      Governing Law. The validity, construction and effect of the Plan or any Award, and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the laws of the State of Florida without regard to choice law provisions thereof.

(e)       Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect.

(f)       No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and the Participant or any other Person. To the extent that the any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.

(g)      No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

(h)      Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

Section 10. Effective Date of the Plan.

The Plan shall be effective as of October 16, 2002.

Section 11. Term of the Plan.

No Award shall be granted under the Plan after October 16, 2012 or any earlier date of discontinuation or termination established pursuant to Section 7(a) of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date.

*     *     *     *     *     *


7


 

EX-21 9 dex21.htm SUBSIDIARIES OF THE COMPANY Subsidiaries of the Company

Exhibit 21

 

SUBSIDIARIES OF THE REGISTRANT

 

NAME (ALL 100% OWNED)


  

STATE OR JURISDICTION OF

INCORPORATION OR ORGANIZATION


Novoste Sales Corporation

  

Florida

Novoste GmbH

  

Germany

Novoste SANV

  

Belgium

Novoste SA

  

France

Novoste BV

  

Netherlands

      
      

 

EX-23.1 10 dex231.htm CONSENT OF ERNST & YOUNG LLP Consent of Ernst & Young LLP

 

EXHIBIT 23.1

 

CONSENT OF INDEPENDENT AUDITORS

 

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-10660, 333-10662, 333-74498 and 333-74508) pertaining to the Novoste Corporation Stock Option Plan, the Non-Employee Director Stock Option Plan, the Novoste 2001 Stock Plan, as amended, and the Employee Stock Purchase Plan, as amended, of our report dated February 4, 2003, except for Notes 4 and 13, as to which the date is March 4, 2003, with respect to the consolidated financial statements of Novoste Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 2002.

 

/s/ Ernst & Young LLP

 

Atlanta, Georgia

March 31, 2003

EX-99.1 11 dex991.htm CERTIFICATIONS Certifications

Exhibit 99.1

 

Written Statement of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

 

The undersigned, the Chief Executive Officer and the Chief Financial Officer of Novoste Corporation (the “Company”), each hereby certifies that, to the best of his knowledge on the date hereof:

 

1.   the Annual Report on Form 10-K of the Company for the period ended December 31, 2002 filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.   information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:    March 31, 2003

         

/s/    Alfred J. Novak


               

Alfred J. Novak,

Chief Executive Officer of Novoste Corporation

 

Date:    March 31, 2003

         

/s/    Edwin B. Cordell, Jr.


               

Edwin B. Cordell, Jr.,

Chief Financial Officer of Novoste Corporation

 

-----END PRIVACY-ENHANCED MESSAGE-----