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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, 1996
------------ Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number: 0-27540
ENDOVASCULAR TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 94-3096794
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1360 O'BRIEN DRIVE
MENLO PARK, CALIFORNIA 94025
(415) 325-1600
(Address, including Zip Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.00001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-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. ( )
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing price of Common stock on March 25, 1997 as
reported on the Nasdaq National Market, was approximately $82,900,000. Shares of
Common Stock held by each officer and director and by certain persons who own 5%
or more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of March 25, 1997, registrant had outstanding 8,481,868 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1997 Annual Meeting of
Stockholders to be held July 17, 1997 are incorporated by reference in Part III
of this Form 10-K Report.
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PART I
This report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Risk Factors."
ITEM 1. BUSINESS
GENERAL
EndoVascular Technologies, Inc. (the "Company") designs, develops and
manufactures minimally invasive endovascular systems to repair diseased or
damaged vascular structures. The Company's Endovascular Grafting System, or
EGS(R) system, provides catheter-based delivery and implantation of a
specialized sutureless prosthesis, or implant, to repair abdominal aortic
aneurysms ("AAAs"). The EGS system offers a minimally invasive alternative to
the open surgical procedure performed today. The EGS system is approved for
marketing in Australia and Italy, and clinical trials are ongoing in the United
States and throughout Europe. The Company believes that its endovascular
procedure for AAA repair offers significant advantages over conventional AAA
surgery.
To the Company's knowledge, it was the first company to receive
Investigational Device Exemption ("IDE") approval from the United States Food
and Drug Administration ("FDA") to conduct human clinical trials in the United
States with an endovascular system to treat AAAs. The Company is currently
conducting Phase II clinical trials of its three products: the Tube EGS system;
the Bifurcated EGS system; and the Aortoiliac EGS system. Upon completing
clinical trials, the Company intends to seek marketing clearances through filing
of premarket approval applications ("PMAs") with the FDA. The Company has
received ISO 9001/EN 46001 certification and submitted required clinical and
technical data in an application for CE Mark approval to market its products
throughout the European Community. The application is currently under review by
a sanctioned notified agency.
The Company's business entails a variety of risks. See "Risk Factors"
at page 17.
OVERVIEW
An abdominal aortic aneurysm is a balloon-like enlargement of the
aorta, resulting from weakened arterial walls. Once AAAs develop, they continue
to enlarge and, if left untreated, become increasingly susceptible to rupture,
usually resulting in death. Even unruptured AAAs can cause serious clinical
problems, including blood clot formation that can lead to aortic occlusions or
embolism. Although AAA is one of the most serious cardiovascular diseases, most
AAAs are never detected. Approximately 70% to 80% of AAA patients are
asymptomatic at the time of initial diagnosis, and AAAs are generally discovered
during procedures to diagnose unrelated medical conditions.
In the United States, an estimated 1.5 million people have AAAs,
including those not yet clinically diagnosed. The Company estimates that each
year approximately 190,000 AAAs are diagnosed and 45,000 patients undergo AAA
surgery. AAAs are generally more prevalent in people over 60 and are more common
in men than in women.
The conventional treatment for AAA is a complicated open surgical
procedure requiring a significant incision of the patient's abdomen, withdrawal
of the patient's intestines to provide access to the aneurysm and cross-clamping
of the aorta to stop blood flow. The aneurysm is repaired by means of
implantation and suture attachment of a vascular graft into the aorta inside the
aneurysmal sac. This procedure typically lasts two to four hours and is
performed under general anesthesia.
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As a result of its invasiveness, open surgical AAA repair has high
mortality and complication rates. The mortality rate for emergency surgery to
repair a ruptured AAA approaches 50%, while the mortality rate for elective
surgical AAA repair is estimated to range from 4% to 10%. Complication rates
vary significantly depending upon whether the surgery is to repair ruptured or
unruptured AAAs. Complication rates for elective AAA surgery vary depending upon
patient risk classification, ranging from 15% for low-risk patients to 40% for
high-risk patients. The most significant complications include myocardial
infarction, acute renal failure, pulmonary impairment, bowel ischemia,
paraplegia and impotence.
Conventional open surgical AAA repair is expensive and requires an
extended recovery period. The average cost of AAA surgery is approximately
$28,000, excluding physicians' fees. The typical recovery period includes
approximately 10 to 15 days in the hospital and up to two months of home
convalescence.
Many patients diagnosed with AAAs do not undergo elective AAA surgical
repair because they are high risk candidates for open surgery or because the
size of their aneurysm is below the threshold at which the risks associated with
open surgery outweigh the risk of aneurysm rupture. This non-surgery patient
group is generally monitored for aneurysm expansion.
Because of the high mortality and complication rates associated with
open surgical repair and the high cost and extended recovery time for AAA
surgery, there is a significant need for an alternative to today's conventional
surgical treatment of AAAs.
THE EVT SOLUTION
The Company has developed a minimally invasive procedure for the repair
of unruptured AAAs. The Company's EGS system provides catheter-based delivery
and implantation of the EndoGraft(R) endovascular prosthesis inside and through
the AAA. This specialized prosthesis is similar to the graft used in the open
surgical procedure except that it is implanted by means of a proprietary,
sutureless attachment system. The EGS system is designed to offer a less
expensive and less debilitating AAA repair compared to open surgery.
The Company's procedure requires a small groin incision, called a
"cut-down," to access the femoral artery. The EndoGraft prosthesis is delivered
to the aneurysm site in a collapsed state by means of a catheter that is
introduced through the cut down and then navigated into the aorta using
fluoroscopic visualization. Once properly positioned through the AAA, the
EndoGraft prosthesis is released and implanted in the aorta by a balloon
inflation. The EndoGraft prosthesis is composed of a vascular graft with
proprietary attachment systems that consist of self expanding wire frames and a
number of anchoring hooks. The attachment systems are designed to create a
circumferential seal and anchor the prosthesis to the vessel wall by means of
the hooks, much like a line of sutures. The Company believes that the resulting
repair is quite similar to open AAA surgery.
Based on the results of clinical trials to date, the Company believes
that its endovascular AAA repair procedure should provide the following
advantages over conventional AAA surgery:
o Lower Mortality and Complication Rates. The Company's endovascular
approach should result in lower mortality and complication rates because it is
significantly less invasive.
o Shorter Hospital Stay. The Company's endovascular approach should
significantly reduce hospital stays and the need for post-procedure recovery in
an intensive care unit. In a recent comparative clinical trial, hospital stays
averaged 2.4 days for patients undergoing the Company's procedure compared to
8.2 days for patients undergoing open surgical repair.
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o Faster Recovery and Reduced Convalescence Time. The Company's
endovascular procedure should permit faster recovery and reduced convalescence
time because it involves significantly less tissue trauma and hemodynamic
stress.
o Lower Cost. The Company's endovascular procedure should result in
significantly lower costs primarily as a result of shorter hospital stays.
As a result of these significant advantages, the Company believes that its
endovascular procedure will be considered for patients currently treated
surgically as well as some patients who elect not to undergo open surgery or who
are deemed not to be candidates for open surgery.
THE EVT STRATEGY
The Company's objective is to become the premier supplier of
endovascular surgery products to repair diseased or damaged vascular structures
through less invasive endovascular techniques as an alternative to open surgery.
Important elements of the Company's strategy include:
o Achieve First to Market Position. The Company's strategy is to be
first to market with endovascular systems to treat AAAs. To the Company's
knowledge, it was the first company to receive IDE approval from the FDA to
conduct human clinical trials in the United States with such systems. The
Company's three products are currently in Phase II clinical trials. Clinical
trials are also ongoing in Europe. The Company has received ISO 9001/EN 46001
certification and has submitted an application for a CE mark to allow marketing
of its products throughout the European Union. The Company's products are
approved for marketing in Australia and Italy.
o Establish the Endovascular Grafting System as the Standard of Care
for AAA Repair. The Company's intent is to establish its products as the
standard of care for elective treatment of AAAs. The Company plans to coordinate
market rollout by selectively targeting top tier medical institutions and
conducting intensive physician training seminars. Through this effort, the
Company aims to train well-respected clinical supporters for its procedure and
leverage their reputation in the clinical community to generate wider demand.
The Company will promote its products at major medical conventions and through
advertising and educational support materials.
o Expand Treatable AAA Patient Population. If it receives regulatory
approval of the EGS systems, the Company intends to promote its endovascular
procedure for those patients diagnosed but not currently treated for their AAAs.
In addition, the Company will endeavor to increase the rate of diagnosis of
asymptomatic AAAs by creating public awareness of AAA disease and by supporting
the merits of early detection and endovascular treatment.
o Leverage Core Technology. The Company intends to leverage its core
endovascular technology to expand its product offerings for endovascular
interventions. The Company intends to focus on increasing the applicability of
products for the treatment of AAA and addressing other clinical needs in the
field of vascular surgery.
o Protect and Enhance Proprietary Technology. The Company believes that
its patent portfolio may offer a significant competitive advantage. The Company
currently has 13 issued United States patents and nine issued foreign patents,
and has over 45 pending United States and foreign patent applications. The
Company intends to continue its aggressive patent filing strategy and to
vigorously defend its intellectual property rights against any infringement.
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THE ENDOVASCULAR GRAFTING SYSTEM
The Endovascular Grafting System comprises the EndoGraft endovascular
prosthesis and its delivery catheter. In addition, the Company manufactures
certain peripheral devices used before and during the endovascular AAA repair
procedure, including the EVT Expandable Sheath and the AngioScale(TM)
angiography catheter.
EndoGraft Endovascular Prosthesis
The EndoGraft endovascular prosthesis is composed of a vascular graft,
similar to a surgical graft, with proprietary attachment systems that consist of
self-expanding wire frames and a number of anchoring hooks. The attachment
systems are designed to create a circumferential seal and anchor the prosthesis
to the vessel wall by means of the hooks, much like a line of sutures.
Radiological markers, sutured to the outside wall of the graft, facilitate
fluoroscopic visualization of the prosthesis during implantation and x-ray
evaluation of the prosthesis after implantation.
The EndoGraft prosthesis is available in three designs and in a range
of sizes to conform to patient anatomy. The Tube EndoGraft prosthesis is
designed for the treatment of discrete AAAs with anatomy that allows for
attachment below the aneurysm and above the aortic bifurcation. The Bifurcated
EndoGraft prosthesis is designed to treat AAAs with insufficient vasculature
above the aortic bifurcation to permit attachment and seal of the Tube EndoGraft
prosthesis. This prosthesis divides into two limbs that are attached to the
iliac arteries below the aortic bifurcation. The Aortoiliac EndoGraft prosthesis
is designed to treat vascular anatomy in which one iliac artery is narrowed or
extremely tortuous, making it unsuitable for implantation of the limb of a
Bifurcated prosthesis. This implant has an aortic trunk and one iliac limb
instead of two limbs. Once implanted, blood flow is re-established to the other
leg by means of a minimally invasive surgical grafting procedure, which is
accomplished through two small groin incisions.
Delivery Catheter
The EndoGraft prosthesis is pre-loaded into a delivery catheter that is
designed to transport the prosthesis to the aorta and facilitate a controlled,
accurate implantation across the aneurysm. This over-the-wire delivery catheter
consists of capsules that contain the compressed EndoGraft prosthesis attachment
systems, a jacket covering the body of the implant, an implantation balloon that
is inflated to seat the attachment system hooks and handle assemblies with
controls for implant release and ports for guidewire insertion, contrast
injection, and balloon inflation. Given the difference in prosthesis design and
function, the Tube, Bifurcated and Aortoiliac delivery catheters differ slightly
in configuration and operation.
A similar procedure is performed for the implantation of a Tube and
Aortoiliac EndoGraft prosthesis. Following a surgical incision to expose the
femoral artery, the delivery catheter is introduced and navigated over a
guidewire into the aorta while the EndoGraft prosthesis is maintained in a
collapsed state. Using fluoroscopic visualization, the EndoGraft prosthesis is
properly positioned relative to the AAA. The top attachment system is exposed
and the hooks are driven into the aortic wall by means of balloon inflations.
The bottom attachment system is then exposed and implanted in a similar manner.
The delivery catheter is removed from the patient leaving the EndoGraft
prosthesis in place. Implantation of a Bifurcated EndoGraft prosthesis involves
access through both femoral arteries in order to position the limbs of the
implant in the iliac arteries.
Peripheral Devices
The EVT Expandable Sheath is designed to facilitate catheter insertions
into the femoral artery and provide a conduit for passage of delivery catheters
through the peripheral vasculature and into the abdominal aorta. The
AngioScale(TM) angiography catheter is used to measure aneurysm anatomy for the
purpose of accurately sizing
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the EndoGraft prosthesis. The Company also manufactures an iliac artery
occlusion implant and delivery catheter that is used in conjunction with the
Aortoiliac EGS system.
ATTACHMENT SYSTEM FRACTURES AND PRODUCT REDESIGN
In January 1995, the Company discovered fractures in the attachment
system component of the Tube EndoGraft prosthesis during routine follow-up
tests. Based on this discovery, the Company suspended its clinical trials
worldwide. As of December 31, 1996, a total of 37 patients, representing
approximately 41% of 91 patients in whom the Tube EndoGraft prosthesis was
implanted prior to February 1995, have experienced attachment system fractures.
In eight patients with fractures, including seven patients who also had
Perigraft Flow, the Tube EndoGraft prosthesis was removed and the AAA was
treated by conversion to open surgical repair. See "Clinical Trials-Tube EGS
System." Three patients with fractures have died for reasons unrelated to the
attachment system fractures. The remaining patients are closely monitored for
fractures or the onset of adverse clinical consequences by their physicians and
the Company. Except for the seven patients converted to open surgery, no major
adverse clinical consequences have resulted from known fractures to date. There
can be no assurance, however, that adverse clinical consequences will not occur
in the future, the result of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Following suspension of clinical trials in January 1995, the Company
determined that the fractures were caused by metal fatigue resulting from higher
than anticipated forces acting on the attachment systems. As a result, the
Company implemented a number of significant enhancements to the attachment
systems and subjected the redesigned attachment systems to accelerated fatigue
testing. There can be no assurance, however, that the accelerated fatigue
testing accurately simulates the actual forces present in the human body. The
Company is currently conducting Phase II clinical trials of its Tube,
Bifurcated, and Aortoiliac EGS systems. International clinical trials are also
ongoing. See "-Clinical Trials." Since re-initiating clinical trials,
approximately 300 implantation procedures have been performed worldwide with
longest patient follow-up now over 15 months.
The Company expects additional fractures to occur in the non-modified
attachment systems. The Company believes, based on tests it has conducted and
clinical experience to date, that the redesigned attachment systems should
prevent fractures in future implants. However, there can be no assurance that
fractures will not occur in the redesigned attachment system, which may not be
apparent for a substantial time, or that the Company will not experience
additional problems with the redesigned attachment system. Any attachment system
fractures that might occur in the redesigned attachment system could result in
another suspension or termination of clinical trials which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors - Attachment System Fractures; Suspension of
Clinical Trials."
CLINICAL TRIALS
In the United States the Company is conducting Phase II clinical trials
of the Tube, Bifurcated, and Aortoiliac EGS systems. In addition, the Company is
conducting clinical trials of its EGS systems in the United Kingdom, Germany,
France, The Netherlands, and Sweden. The Company has received ISO 9001/EN 46001
certification and submitted required clinical and technical data in an
application for CE mark approval to market of its products throughout the
European Community. The application is currently under review by a sanctioned
Notified Body. The Company's products are approved for marketing in Australia
and Italy.
Tube EGS System
The Company submitted an IDE to the FDA for the original Tube EGS
system in October 1991. The IDE was approved by the FDA in April 1992, and Phase
I clinical trials began in February 1993. A total of 17 human cases using the
original version of the Tube EGS system were performed.
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Early experience with the Tube EGS system resulted in a decision by the
Company to develop a lower profile delivery catheter (i.e., a delivery catheter
with a smaller diameter) and a wider range of implant sizes before continuing
clinical trials. After making these revisions and receiving FDA clearance, the
Company continued human trials with this revised Tube EGS system in November
1993. The Company received FDA approval to initiate U.S. Phase II clinical
trials with this system in February 1994. This Phase II comparative trial was
partially completed before suspension in January 1995. A total of 19 patients
were treated with the Tube EGS system and 13 patients underwent open surgery in
the control group. The mean hospital stay for a patient treated with the Tube
EGS system was 3.0 days compared to 10.3 days for the patients treated in the
surgical control group.
A total of 85 procedures were performed worldwide with the revised Tube
EGS system before suspension of clinical trials in January 1995, including the
19 procedures performed with the Tube EGS system in the U.S. Phase II clinical
trial. In 81, or 95% of these 85 procedures, the Tube EndoGraft prosthesis was
successfully delivered and implanted. In 35 of 81 successful Tube EndoGraft
prosthesis implantations using the revised Tube EGS system, blood flow outside
of the implant ("Perigraft Flow"), either from leakage around the attachment
site ("Leaks") or back-bleeding from branching arteries ("Branch Flow"), was
observed immediately following the procedure. Over time this Perigraft Flow
ceased in 17 of the patients, but in the remaining 18 patients, representing 22%
of the 81 patients, the Perigraft Flow did not spontaneously resolve. Nine of
these patients with persistent Perigraft Flow have been converted to open
surgical repair, including seven patients whose implants also had attachment
system fractures. Eight of the patients with continuing Perigraft Flow are being
monitored by their physicians and the Company for signs of aneurysm enlargement,
which would be a clear indication for conversion to standard surgery. One of the
patients with continuing Perigraft Flow had aneurysm enlargement and
subsequently died from AAA rupture after delays in scheduling conversion to
standard surgery because of other health problems.
In January 1995, the Company voluntarily suspended clinical trials of
the Tube EGS system worldwide after discovering fractures in the attachment
system component of the Tube EndoGraft prosthesis. After obtaining FDA approval
of a redesigned attachment system in October 1995, the Company re-initiated U.S.
Phase II clinical trials of the Tube EGS system in November 1995. See
"-Attachment System Fractures and Product Redesign."
In January 1997 the Company reported completion of patient enrollment
in the Phase II trial of the Tube EGS system. The trial is designed to directly
compare mortality, complications and length of hospital stay in a group of
patients treated with the Tube EGS(R) system to a group of control patients
undergoing standard AAA surgery. A total of 178 patients, 88 enrolled in the
Tube EGS group and 90 surgical control patients, were treated at twenty
participating investigative sites, including the University of California at Los
Angeles, Northwestern University, New York University, St. Thomas Hospital and
the Miami Vascular Institute. In the EGS patient group, the Tube EndoGraft(R)
prosthesis was successfully delivered and implanted in 83 or 94% of the 88
attempted procedures. There was no 30 day mortality in the EGS group, compared
to a 4.4% mortality rate in the surgical control group. There were no serious
complications, defined as the occurrence of myocardial infarction, stroke, renal
failure requiring dialysis, or bowel ischemia, reported in the EGS patient
group. Three surgical patients or 3.3% of the surgical control group experienced
myocardial infarction. There were no other serious complications reported in the
surgical control group. The mean hospital stay for patients in the EGS group was
2.4 days compared to 8.2 days for patients who underwent standard AAA surgery.
Late complications and implant performance will be monitored during a
one year follow-up period. All radiological examinations, performed at discharge
and throughout the follow-up period, are independently evaluated by a core
laboratory at the Cleveland Clinic Foundation. As of December 31, 1996,
discharge evaluations had been completed by the core laboratory on 56, or 64% of
patients successfully treated in the EGS group. Leaks were noted in 13, or 23%
of these patients, and Branch Flow was present in 11, or 20% of patients at
discharge. Earlier studies indicate that in nearly 50% of patients, Leaks and
Branch Flow spontaneously close.
The clinical significance of Leaks and Branch Flow is unknown. There
can be no assurance that Leaks and Branch Flow or other technical difficulties
will not occur in future procedures using the Company's EGS
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systems or that their existence will not have a material adverse effect on the
safety and efficacy of the Tube EGS system, Bifurcated EGS system, Aortoiliac
EGS system or any follow-on devices and thereby prevent the Company from
obtaining PMA approval from the FDA. The longest follow-up for any Tube EGS
system patient is approaching four years.
As of March 17, 1997, a total of 125 tube procedures have been
performed worldwide with the Company's redesigned attachment system.
Bifurcated EGS System
Following FDA approval of the Company's IDE submission, the Company
began Phase I clinical trials of the Bifurcated EGS system in September 1994.
Although no fractures were evident in patients treated, worldwide clinical
trials of the Bifurcated EGS system were also suspended in January 1995. A total
of 12 cases were completed prior to suspension. Upon FDA approval to re-initiate
clinical trials using a modified Bifurcated EndoGraft prosthesis incorporating
attachment system enhancements similar to those made to the Tube EndoGraft
prosthesis, the Company re-started the Phase I clinical trial of the Bifurcated
EGS system in December 1995. In June 1995, the Company completed the Phase I
trial. A total of 24 patients were treated at five U.S. and two international
investigative sites. Six week follow-up data from each patient treated was
submitted to the FDA for review.
Following FDA approval, the Company initiated Phase II clinical trials
of the Bifurcated EGS system in August 1996. This trial is similar in design to
the Phase II trial of the Company's Tube EGS system, and will utilize data from
the surgical control group enrolled in that trial for comparison purposes. As of
December 31, 1996, 38 patients had been enrolled in the Bifurcated EGS group.
The Company intends to release acute clinical results of the trial after the
enrollment phase is complete.
As of March 17, 1997, a total of 154 bifurcated procedures have been
performed worldwide with the Company's redesigned attachment system. While
Perigraft Flow has been observed following bifurcated procedures in some
patients, preliminary results of the Bifurcated EGS system indicate a reduction
in instances of Perigraft Flow as compared to Perigraft Flow following
implantation of the Company's Tube EGS system. Although the longest follow-up of
patients treated with the Bifurcated EGS system is 30 months, human experience
with the Bifurcated EGS system is limited and clinical results are not yet
sufficient to assess efficacy.
Aortoiliac EGS System
Following FDA approval of the Company's IDE submission, and an
allowance to bypass Phase I testing, the Company initiated Phase II clinical
trials of the Aortoiliac EGS system in November 1996. As of March 17, 1997, 16
Aortoiliac implantation procedures had been performed worldwide with the
redesigned attachment system. Human experience with the Aortoiliac EGS system is
limited and current clinical results are insufficient to access efficacy and
safety.
The Company's EGS systems for treatment of AAAs are at an early stage
of clinical testing, and there can be no assurance as to their clinical safety
and efficacy. See "Risk Factors-Early Stage of Clinical Trials; No Assurance of
Safety and Efficacy."
RESEARCH AND DEVELOPMENT
The Company has substantial expertise in the design and development of
endovascular grafting devices, including specialized endovascular implants,
graft attachment mechanisms, introducer and delivery catheters, vascular graft
design and testing, balloon development, metal working and welding, finite
element analysis and the modeling of in vivo corrosion/fatigue characteristics.
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The Company is developing second generation EGS systems to enable
endovascular treatment of a larger percentage of the AAA patient population
including lower profile (i.e., delivery catheters with smaller diameters) Tube,
Bifurcated and Aortoiliac EGS systems. These systems should enhance the ability
to navigate peripheral vasculature and deliver endovascular grafts to the
abdominal aorta. The Company is developing a variety of devices to improve the
acute and long-term success of endovascular AAA procedures, including devices
designed to facilitate accurate EndoGraft prosthesis placement and to ensure a
complete seal between the implant and the underlying aortic or iliac vessel.
The Company believes that its core technologies are applicable to a
wide variety of vascular diseases. For example, the Company has prototyped a
Thoracic EGS system to repair aneurysms in the thoracic aorta (the portion of
the aorta in the chest). The initial design of this device was developed by the
Company and physicians at Stanford University, whose early clinical results of
endovascular thoracic aneurysm repair have been published in the New England
Journal of Medicine. Development of second generation EGS systems, as well as
the Thoracic device, is at an early stage and the Company has not yet submitted
IDE's for any of these products. There can be no assurance that any of these
systems can be successfully developed, receive FDA clearance, be manufactured on
a cost-effective and timely basis, be successfully introduced or achieve market
acceptance. See "Risk Factors" for additional information regarding risks
generally applicable to the development of new products.
The Company's research and development expenditures (which include
clinical trial, medical, regulatory and product development expenses) for the
years ended December 31, 1994, 1995 and 1996 were $7.4 million, $8.1 million,
and $12.1 million respectively.
PATENTS AND PROPRIETARY INFORMATION
The Company's policy is to protect its proprietary position by, among
other methods, filing United States and foreign patent applications. The Company
holds 13 issued United States patents and nine issued foreign patents. In
addition, the Company has over 45 pending United States and foreign patent
applications. The Company believes that issued patents and pending patent
applications cover fundamental aspects of its EGS systems. However, no assurance
can be given that the patent applications owned by the Company will issue as
patents or that any issued patents owned by the Company will provide competitive
advantages for the Company's products or will not be successfully challenged or
circumvented by its competitors. In addition, there can be no assurance that
competitors, many of which have substantial resources and have made substantial
investments in competing technologies, will not seek to apply for and obtain
patents that will prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the United States or in international
markets.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants and advisors
to execute appropriate confidentiality and assignment of inventions agreements
in connection with their employment, consulting or advisory relationships with
the Company. There can be no assurance, however, that these agreements will not
be breached or that the Company will have adequate remedies for any breach.
Furthermore, no assurance can be given that competitors will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology.
Patent applications in the United States are maintained in secrecy
until patents issue, and patent applications in foreign countries are maintained
in secrecy for a period after filing. Publication of discoveries in the
scientific or patent literature tend to lag behind actual discoveries and
related patent applications, and the large number of patents and applications
and the fluid state of the Company's development activities make comprehensive
patent searches and analysis impractical or not cost-effective. Although the
Company has made patent and publication searches in the United States and in
foreign countries to determine whether materials, processes or designs used by
it or its potential products infringe or will infringe third-party patents, such
searches have not been comprehensive. Patents issued and patent applications
filed relating to medical devices are
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voluminous and there can be no assurance that current and potential competitors
and other third parties have not filed or in the future will not file
applications for, or have not received or in the future will not receive,
patents and will not obtain additional proprietary rights relating to materials
or processes used or proposed to be used by the Company.
The medical device industry in general, and the industry segment that
includes products for the treatment of cardiovascular disease, in particular,
have been characterized by substantial competition and litigation regarding
patent and other intellectual property rights. It is not uncommon for medical
device companies to receive letters from competitors or potential competitors
claiming or suggesting intellectual property infringement. The Company has
received letters from two medical device companies, Cook, Inc. ("Cook") and
InnerDyne Medical, Inc. ("InnerDyne"). The Cook letter, dated July 9, 1993,
suggested potential infringement of a Cook-owned patent by future commercial
sale of the Company's attachment system component of the EndoGraft prosthesis.
The Company has reviewed the Cook matter and the Company believes that no such
infringement exists. The InnerDyne letter, dated November 2, 1994, proposed that
the Company discuss licensing an InnerDyne-owned patent that InnerDyne believed
to be pertinent to the Company's EVT Expandable Sheath. The Company has reviewed
the InnerDyne matter and the Company believes that it is not necessary to enter
into a licensing arrangement with InnerDyne. There can be no assurance, however,
that the Company's products do not infringe upon the patent rights or other
intellectual property rights of Cook, InnerDyne or other companies, that the
Company will not be required to seek licenses from these or other companies or
that these or other companies will not bring claims of infringement against the
Company. Although patent and intellectual property disputes in the medical
device industry have sometimes been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial and
could include ongoing royalties. There can be no assurance that necessary
licenses would be available to the Company on satisfactory terms or at all.
Furthermore, any litigation or administrative proceeding could result in
substantial costs to the Company and distraction of the Company's management,
even if the Company ultimately prevails in such litigation. An adverse ruling in
any litigation or administrative proceeding could have a material adverse effect
on the Company's business, financial condition and results of operations.
If any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses from the patent
owners of each of such patents or to redesign its products or processes to avoid
infringement. There can be no assurance that such licenses would be available at
all or available on terms acceptable to the Company or that the Company could
redesign its products or processes to avoid infringement. Litigation may be
necessary to defend against claims of infringement, to enforce patents issued to
the Company or to protect trade secrets and could result in substantial cost to,
and diversion of effort by, the Company.
MANUFACTURING
The Company manufactures its products at its Menlo Park, California
facility. The Company believes that its facility has sufficient capacity to meet
the Company's anticipated manufacturing needs for the next 9 months. The Company
believes that, if marketing approvals of its EGS systems are obtained, it should
be able to manufacture commercial quantities of its products at a reasonable
cost. However, the manufacture of the Company's products is a complex and costly
operation involving a number of separate processes and components. Certain
manufacturing processes of the EGS systems are labor intensive and achieving
significant cost reductions will depend in part upon reducing the time required
to complete these processes. There can be no assurance that the Company will be
able to achieve anticipated cost reductions in the manufacture of its products.
To date, the Company's manufacturing activities have consisted primarily of
producing limited quantities of products for use in clinical trials and
controlled market release, and the Company does not have experience in
manufacturing its products in commercial quantities.
The Company purchases certain components from various independent
suppliers that are either standard components or are built to the Company's
specifications. As a result of a concerted effort by the Company to
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develop multiple supplier contingency plans, most purchased components and
processes are available from more than one vendor. However, certain components
and processes are manufactured or provided by single source suppliers. The
Company utilizes raw materials manufactured by third parties, including Dow
Chemical and DuPont, in its products. In recent years, in the wake of litigation
surrounding silicone breast implants, both Dow Chemical and DuPont have ceased
supplying these materials for implantable medical devices. Although the Company
has a significant inventory of these materials, there can be no assurance that
use of these materials will not be restricted or that the Company will have
access to these raw materials in the future. The Company has and will continue
to consider, as appropriate, the internal manufacture of components and
processes currently provided by third parties, as well as the implementation of
new production processes. The Company's facility is subject to periodic
inspections by state and federal regulatory authorities. See "Risk
Factors-Dependence on Key Suppliers; Limited Manufacturing Experience" and
"-Government Regulation; Significant Time Before Submission of any PMA."
SALES AND MARKETING
The Company believes that most endovascular AAA procedures in the
United States will be performed in a small percentage of all hospitals. If
marketing approval is obtained, the Company believes that it can market its
products to these hospitals with a moderately sized direct field organization.
The Company currently has three sales and marketing employees. Once established,
the domestic sales and marketing organization will focus on the leading
institutions where aneurysm surgery is frequently performed. If regulatory
approval is obtained, the Company intends to provide clinical education and
training programs to educate practitioners regarding the capabilities and uses
of the Company's products. In addition, the Company will continue to sponsor, at
leading medical institutions, clinical trials and research programs that support
clinical and technical development and regulatory approval of its products.
Foreign markets are serviced currently by seven independent
distributors covering more than ten countries in Europe, Asia and Australia.
These independent distributors have the exclusive right to distribute the
Company's products within a defined territory. The Company's foreign
distributors generally purchase the Company's products during clinical trials at
an agreed upon contract price. If regulatory approval of the Company's products
is obtained, the Company's products will be purchased at a discount from list
price and resold to hospitals and clinics. Sales under the agreements are
denominated in U.S. dollars. Foreign sales are subject to certain risks,
including exchange rate fluctuations, international monetary conditions,
tariffs, import licenses, trade policies, domestic and foreign tax policies and
foreign medical regulations.
If FDA approval to market the device is obtained, the Company plans to
coordinate market rollout by selectively targeting top tier institutions and
conducting intensive physician training seminars. Through this effort, the
Company hopes to train well-respected clinical supporters for this procedure and
leverage their reputation in the clinical community to generate wider demand. In
addition, the Company intends to promote its products at major medical
conventions and through advertising and educational product support materials.
See "Risk Factors-Lack of Sales and Marketing Experience; Planned
Dependence on International Distributors."
COMPETITION
The Company expects that significant competition in the endovascular
grafting market will develop. There are many large companies, with significantly
greater financial, manufacturing, marketing, distribution and technical
resources and experience than the Company, focusing on the development of
endovascular technology. Many of these companies have vascular stents, as well
as vascular graft and catheter technologies that may be applicable to
endovascular repair. The Company may compete against a number of these companies
including: Boston Scientific Corporation; Medtronic Corporation; Pfizer
Corporation; Johnson & Johnson; C.R. Bard, Inc.; and United States Surgical
Corporation. Several companies have designed and developed products that compete
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directly with the Company's products. There can be no assurance that one or more
of these or other companies will not develop technologies that are more
effective or less costly than the Company's products, or that would otherwise
render the Company's products and technology non-competitive or obsolete. Such
competition could have a material, adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company's
products could be rendered obsolete as a result of future innovations in AAA
surgical techniques, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Any product developed by the Company that gains regulatory approval
will have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speeds with which the Company can develop
products, complete clinical testing and regulatory approval processes, gain
reimbursement acceptance and supply commercial quantities of the product to the
market are expected to be important competitive factors. In addition, the
Company believes that the primary competitive factors in the market for
endovascular grafting products are safety, long-term efficacy, ease of delivery,
reliability, innovation and price. The Company also believes that physician
relationships and customer support are important competitive factors. Although
the Company believes that it is the first to design, develop and initiate
clinical trials of endovascular graft products for the treatment of AAAs in the
United States, and, therefore, has a competitive advantage in the U.S. market,
there can be no assurance that this competitive position will be maintained or
that the Company will be first to market or ever market endovascular products
for the treatment of AAAs in the United States.
GOVERNMENT REGULATION
United States
The Company's EGS systems are regulated in the United States as medical
devices. As such, the Company is subject to extensive regulation by the FDA.
Pursuant to the Federal Food, Drug, and Cosmetic Act of 1976, as amended, and
the regulations promulgated thereunder (the "Act"), the FDA regulates the
clinical testing, manufacture, labeling, distribution and promotion of medical
devices. Noncompliance with applicable requirements can result in, among other
things, proceedings to detain products, fines, injunctions, civil and criminal
penalties against the Company, its officers and its employees, recall or seizure
of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing approvals and a recommendation by the FDA that the
Company not be permitted to enter into government contracts. The FDA also has
the authority to request repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.
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 efficacy. Under FDA regulations,
Class I devices are subject to general controls (for example, labeling,
premarket notification and adherence to GMPs) and Class II devices are subject
to general and special controls (for example, performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, Class III
devices are those that must receive premarket approval by the FDA to ensure
their safety and efficacy (for example, life-sustaining, life-supporting and
implantable devices, or new devices that have not been found substantially
equivalent to legally marketed devices).
Before a new device can be introduced into the market, the manufacturer
must generally obtain marketing clearance through either a 510(k) notification
or a premarket approval ("PMA") application. A 510(k) clearance will be granted
if the submitted information establishes that the proposed device is
"substantially equivalent" to a legally marketed Class I or II medical device,
or to a Class III medical device for which the FDA has not called for PMAs. A
510(k) notification must contain information to support a claim of substantial
equivalence which may include laboratory test results or the results of clinical
studies of the device in humans. Commercial distribution of a device for which a
510(k) notification is required can begin only after the FDA issues an order
finding the device
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to be "substantially equivalent" to a predicate device. The FDA has recently
been requiring a more rigorous demonstration of substantial equivalence than in
the past and is more likely to require the submission of human clinical study
data. It generally takes from four to twelve months from the date of submission
to obtain a 510(k) clearance, but it may take longer. The FDA may determine that
a proposed device is not substantially equivalent to a legally marketed device,
or that additional information is needed before a substantial equivalence
determination can be made. A "not substantially equivalent" determination, or a
request for additional information, could delay the market introduction of new
products that fall into this category.
A PMA application must be filed if a proposed device is not
substantially equivalent to a legally marketed Class I or Class II device, or if
it is a Class III device for which the FDA has called for PMAs. A PMA
application must be supported by valid scientific evidence which typically
includes extensive data, including preclinical and human clinical trial data to
demonstrate the safety and efficacy of the device. If human clinical trials of a
device are required and the device presents a "significant risk," the sponsor of
the trial (usually the manufacturer or the distributor of the device) is
required to file an IDE application with the FDA prior to commencing human
clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs, but not the FDA. Sponsors of clinical trials are
permitted to sell those devices distributed in the course of the study provided
such compensation does not exceed recovery of the costs of manufacture,
research, development and handling. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or an investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.
The PMA 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 must
include the proposed labeling, advertising literature and training methods (if
required). Upon receipt of a PMA application, the FDA makes a threshold
determination as to whether the application is sufficiently complete to permit a
substantive review. If the FDA determines that the PMA application is
sufficiently complete to permit a substantive review, the FDA will accept the
application for filing. Once the submission is accepted for filing, the FDA
begins an in-depth review of the PMA. An FDA review of a PMA application
generally takes one to two years from the date the PMA application is accepted
for filing, but may take significantly longer. The review time is often
significantly extended by the FDA asking for more information or clarification
of information already provided in the submission. During the review period, an
advisory committee, typically a panel of clinicians, will likely be convened to
review and evaluate the application and provide recommendations to the FDA as to
whether the device should be approved. The FDA is not bound by the
recommendations of the advisory panel. Toward the end of the PMA review process,
the FDA generally will conduct an inspection of the manufacturer's facilities to
ensure that the facilities are in compliance with the applicable GMP
requirements.
If the FDA's evaluations of both the PMA application and the
manufacturing facilities are favorable, the FDA will either issue an approval
letter or an "approvable letter" containing a number of conditions which must be
met in order to secure final approval of the PMA. When and if those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
approval letter, authorizing commercial marketing of the device for certain
indications. If the FDA's evaluation of the PMA application or manufacturing
facilities is not favorable, the FDA will deny approval of the PMA application
or issue a "not approvable letter." The FDA may also determine that additional
clinical trials are necessary, in which case PMA approval could be delayed for
several years while additional clinical trials are conducted and submitted in an
amendment to the PMA. The PMA process can be expensive, uncertain and lengthy,
and a number of devices for which FDA approval has been sought by other
companies have never been approved for marketing.
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Use of a medical device for applications not covered in a 510(k)
notification or a PMA, or modifications to a device that has been cleared to
market through a 510(k) notification or an approved PMA, its labeling, or its
manufacturing process, may require submission of a new 510(k) notification, a
new PMA or a PMA supplement. New 510(k) notifications, PMAs or PMA supplements
often require the submission of the same type of information required for the
original submission except that it is generally limited to that information
needed to support the proposed change from the product covered by the original
submission. There can be no assurance that the Company will be able to obtain
necessary regulatory approvals, including approval of a PMA for any of its EGS
systems or any subsequent modifications to these systems, on a timely basis, or
at all. Regulatory approvals, if granted, may include significant limitations on
the intended uses for which the product may be marketed. Delays in receipt of or
failure to receive such approvals, the loss of previously received approvals, or
failure to comply with existing or future regulatory requirements would have a
material adverse effect on the Company's business, financial condition and
results of operations and could result in cessation of the Company's business.
The Company believes that FDA approval of a PMA application is required
before any EGS system can be marketed in the United States. In January 1995, the
Company voluntarily suspended clinical trials of the Tube and Bifurcated EGS
systems, pursuant to FDA-approved IDEs, after discovering attachment system
fractures in some of the Tube EndoGraft prostheses. The Company notified the FDA
of the voluntary suspension and began redesigning attachment systems to prevent
future fractures. The Company submitted numerous IDE supplements to the FDA
describing the Company's corrective actions and the modifications made to the
attachment systems. After obtaining FDA approvals to re-initiate clinical
trials, the Company resumed clinical trials of the Tube and Bifurcated EGS
systems in November and December 1995, respectively, and is currently conducting
such trials to collect data to support PMA applications. There can be no
assurance that similar design problems necessitating suspension of clinical
trials will not occur in the future. Any such problems, if they occur, will have
a material adverse effect on the Company's business, financial condition and
results of operations, and could result in cessation of the Company's business.
See "-Attachment System Fractures and Product Redesign."
Results from clinical trials of the Company's Tube EGS system, revised
in November 1993, have indicated that blood flow outside the implant ("Perigraft
Flow") does not spontaneously resolve in 22% of patients in whom the Tube
EndoGraft prosthesis has been implanted. Perigraft Flow consists of both leakage
around the attachment site ("Leaks") and the back-bleeding from branching
arteries ("Branch Flow"). The clinical significance of Perigraft Flow is unknown
at this time. There can be no assurance that the existence of Perigraft Flow
will not have a material adverse effect on the Company's ability to demonstrate
the safety and efficacy of the Tube EGS or any follow-on devices and thereby
prevent the Company from obtaining approval of a PMA application. See
"Business-Clinical Trials." At the earliest, the Company anticipates filing PMAs
for the Tube, Bifurcated, and Aortoiliac EGS systems in 1998. There can be no
assurance as to when, or if, the Company will complete clinical trials of any of
its EGS systems or that data from such trials, if completed, will be adequate to
support approval of a PMA. Furthermore, there can be no assurance that the
Company will be able to obtain PMA approval on a timely basis, or at all, and
delays in the receipt of or failure to receive such approvals would have a
material adverse effect on the Company's business, financial condition and
results of operations, and could result in cessation of the Company's business.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA and certain state agencies, 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 certain state agencies. The Act requires devices to
be manufactured in accordance with Good Manufacturing Practices ("GMP")
regulations which impose certain procedural and documentation requirements upon
the Company with respect to manufacturing and quality assurance activities. The
FDA has proposed changes to the GMP regulations that would, among other things,
require design controls and maintenance of service records, which if finalized,
would likely increase the cost of complying with GMP requirements.
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Labeling and promotion activities are subject to scrutiny by the FDA
and in certain instances, by the Federal Trade Commission. The FDA actively
enforces regulations prohibiting marketing of products for unapproved uses. The
Company and its products are also subject to a variety of state laws and
regulations in those states or localities where its products are or will be
marketed. Any applicable state or local regulations may hinder the Company's
ability to market its products in those states or localities. The Company's
facilities have been inspected by State of California regulatory authorities
pursuant to granting a California Device Manufacturing License, but not, to
date, by the FDA. No assurance can be given that the Company's facilities will
be in compliance in all material respects with the applicable state or federal
requirements.
The Company 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. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations now or in the future or that such laws or regulations will not have
a material adverse effect upon the Company's ability to do business.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with laws and regulations in
the future or that laws or regulations will not have a material adverse effect
upon the Company's business, financial condition, or results of operations.
International
Sales of EGS systems outside of the United States are subject to
regulatory requirements that vary widely from country to country. 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. In
addition, there may be foreign regulatory barriers other than premarket
approval, and the FDA must approve exports of devices that require a PMA but are
not yet approved domestically. The current rules provide that, in order to
obtain FDA export approval, the Company must provide the FDA with documentation
from the medical device regulatory authority of the importing country stating
that the import of the device is not a violation of that country's medical
device laws. The Company has, where necessary, applied for and received such
permits for its EGS systems and is currently conducting clinical trials in the
United Kingdom, France, Germany, The Netherlands, and Sweden. The Company is in
the process of seeking approval to initiate clinical trials in Canada and Japan.
In Europe, the Company must obtain certifications necessary to enable the CE
mark to be affixed to the EGS systems, which, if obtained, would allow the
Company to market them throughout the European Union. The Company has submitted
an application for a CE Mark covering its EGS product family. Additionally, to
market products in Europe the Company is required to maintain ISO 9001/EN 46001
certification subject to periodic surveillance audits. The Company is ISO
9001/EN 4600 certified and has, to date, successfully passed three surveillance
audits.
The Company, through its Japanese distributor, intends to conduct
clinical trials in Japan that will form the basis for an application for
approval to market the EGS systems in Japan. The distributor will be responsible
for management of clinical trials and obtaining regulatory approval, and such
approval will therefore be outside of the Company's control. Accordingly, there
can no assurance as to when or whether such approval will be received. Other
countries in which the Company intends to market EGS systems may adopt
regulations in the future that could prevent the Company from marketing its EGS
systems in those countries. In addition, the Company may be required to spend
significant amounts of capital in order to respond to requests for additional
information by the FDA or foreign regulatory bodies or may otherwise be required
to spend significant amounts of capital in order to obtain FDA and foreign
regulatory approvals. Any such events could substantially delay or preclude the
Company from marketing its EGS systems in the United States or foreign
countries.
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Foreign regulatory approvals, if granted, may include significant
limitations on the indicated uses for which the product may be marketed. In
addition, certain foreign regulatory authorities may impose numerous other
requirements, including manufacturing requirements, with which medical device
manufacturers must comply. Product approvals could be withdrawn for failure to
comply with regulatory standards or the occurrence of unforeseen problems
following initial marketing. Ongoing compliance with applicable regulatory
requirements is monitored by foreign regulatory bodies. Changes in existing
rules or adoption of new rules or policies could prevent the Company from
obtaining, or affect the timing of, foreign regulatory approvals or clearances.
THIRD-PARTY REIMBURSEMENT
In the United States, the Company's products, if approved, will be
purchased primarily by medical institutions which then bill various third-party
payers such as Medicare, Medicaid and other government programs and private
insurance plans for the healthcare services provided to their patients. In
considering reimbursement for a new healthcare item or service, these payors
typically must decide whether to cover the item or service and how much to pay
if the item or service is covered.
Coverage
In general, to be covered by Medicare, a health care item or service
must be "reasonable and necessary" for the diagnosis or treatment of an illness
or injury or to improve the functioning of a malformed body part. This has been
interpreted to mean that the item or service must be safe and effective, not
experimental or investigational (except under certain limited circumstances
involving devices furnished pursuant to an FDA-approved clinical trial), and
appropriate. Medicaid, Blue Cross and Blue Shield plans, commercial insurers,
and other third-party payors generally have limitations on coverage that are
similar to those of Medicare.
Medicare traditionally has considered items or services involving
devices that have not been approved or cleared for marketing by the FDA to be
precluded from Medicare coverage. However, under a new policy effective November
1, 1995, Medicare coverage will not be precluded for items and related services
involving devices that have been classified by the FDA as
non-experimental/investigational ("Category B") devices and that are furnished
in accordance with FDA-approved protocols governing clinical trials. Even with
items or services involving Category B devices, however, Medicare coverage may
be denied if any other coverage requirements are not met, for example if the
treatment is not medically needed for the specific patient. On November 1, 1995,
the FDA indicated that it had assigned the IDE covering the current clinical
trials for the Tube EGS system and the IDE covering the current clinical trial
for the Bifurcated EGS system to Category B, and therefore Medicare
reimbursement is potentially available for these devices and related services.
The IDE covering the Company's Aortoiliac EGS system has been similarly assigned
to Category B. There can be no assurance, however, that these devices and
related services will be covered when they are used in clinical trials and, if
covered, whether the payment amounts for their use will be considered to be
adequate by hospitals and physicians. If the devices are not covered or the
payments are considered to be inadequate, the Company may need to bear
additional costs to sponsor such trials, and such costs could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Even if a device has received approval or clearance for marketing by
the FDA, there is no assurance that Medicare will cover the device and related
services, or Medicare may place certain restrictions on the circumstances in
which coverage will be available. In making such coverage determinations, the
Health Care Financing Administration ("HCFA"), which administers the Medicare
program, and HCFA's contractors, consider, among other things, peer-reviewed
articles concerning the safety and effectiveness of the device, the opinions of
medical specialty societies, and input from the FDA, the National Institutes of
Health, and other government agencies. There is no assurance that once the
Company's products are commercially available, they will be covered by Medicare
and other third-party payors. Limited coverage of the Company's products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
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Payment
Acute care hospitals are now generally reimbursed by Medicare for
inpatient operating costs under a prospective payment system ("PPS"). Under PPS,
acute care hospitals receive a prospectively determined payment amount of the
operating costs associated with each covered inpatient stay of a Medicare
beneficiary; this amount is based upon the Diagnosis-Related Group ("DRG") to
which the patient is assigned based on such factors as the patient's primary
diagnosis and procedures performed, regardless of the actual cost of the
services provided. There are currently 495 DRGs, and the DRG classification
system is designed to include in each DRG cases that generally are relatively
homogeneous with respect to clinical characteristics and resource use. Since PPS
rates are predetermined, and generally paid irrespective of a hospital's acute
costs in furnishing care, acute care hospitals have incentives to lower their
inpatient costs by purchasing equipment and supplies that will reduce the length
of inpatient stays, decrease labor costs, or otherwise lower their costs
relative to the payment they will receive for the patient's DRG. HCFA has not
made any decision concerning which DRG will be generally assigned to patients
who undergo AAA diagnosis and endovascular repair procedures in which the
Company's products are used, and there can be no assurance that the DRG to which
such patients will be assigned will result in Medicare payment levels that are
considered by hospitals to be adequate. Because the DRG system is also used by
other government and private payors, HCFA's decision concerning the DRG
assignment for these patients also may affect the amount of payment made by
other payors.
Physician services are reimbursed by Medicare based on a physician fee
schedule whereby payment is based on the number of "relative value units"
assigned to the service furnished by the physician as coded under the CPT-4
coding system. No decision has been made concerning whether existing CPT-4 codes
would be appropriate for use in coding AAA diagnosis and endovascular repair
procedures in which the Company's products are used or, if new codes are
required, how many relative units would be assigned to the new codes. There is
no assurance that the codes that will be used for submitting claims for
endovascular AAA procedures using the Company's products will result in Medicare
payment levels that physicians consider to be adequate. These codes and their
associated weights are used by many other third-party payors in addition to
Medicare.
Failure by hospitals and physicians to receive what they consider to be
adequate reimbursement for AAA diagnosis and repair procedures in which the
Company's products are used would have a material adverse effect on the
Company's business, financial condition and results of operations.
While the Company is pursuing CE mark approval to market its products
in the European Union and similar marketing approvals in non-European Union
countries such as Japan, marketing approval does not guarantee that hospitals
will be reimbursed for procedures involving the Company's products.
Reimbursement approval must be obtained from the government of each country in
which the Company's products are marketed. There can be no assurance that such
reimbursement approval will be received.
PRODUCT LIABILITY AND INSURANCE
Medical device companies are subject to a risk of product liability and
other liability claims if the use of their products results in personal injury
claims. The Company's products are used in new procedures, often in situations
where there is a high degree of risk of serious injury or death. To date, the
Company has not experienced any product liability claims. However, there can be
no assurance that such a claim will not be brought against the Company either
for injuries occurring in the past or in the future, including but not limited
to injuries due to attachment system fractures in the Tube or Bifurcated EGS
systems. A successful claim brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company maintains
liability insurance with coverage of $1 million per occurrence and an annual
aggregate maximum of $4 million. There can be no assurance that product
liability or other claims will not exceed such insurance coverage limits or that
such insurance will continue to be available on commercially acceptable terms,
or at all. See "Risk Factors-Product Liability and Availability of Insurance."
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EMPLOYEES
As of December 31, 1996, the Company had a total of 143 employees,
including 73 in manufacturing, 16 in quality and regulatory affairs, 34 in
research and development and clinical affairs, 5 in medical affairs, 12 in
administration and 3 in sales and marketing. The Company believes that its
future success will depend on its ability to attract and retain qualified
personnel. No Company employee is represented by a labor union, and the Company
has not experienced any work stoppages. The Company considers its employee
relations to be good.
SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board consisting of leading
physicians in the field of vascular surgery. Scientific Advisory Board members
consult with the engineers, physicians, and scientists at the Company and advise
the Company on the specification and design of the Company's products and
clinical trials. The members of the Scientific Advisory Board are prominent
scholars in their field and, as a result, may serve as consultants to a variety
of companies. Because the scientific advisors may have consulting or advisory
positions with companies that may be competitors of the Company, each member of
the Scientific Advisory Board has entered into a confidentiality arrangement
with the Company. The Company's Scientific Advisory Board includes:
Robert B. Rutherford, M.D., is a tenured Professor of Surgery and
Chairman Emeritus of the Section of Vascular Surgery at the University of
Colorado School of Medicine, and past President of the North American Chapter of
the International Society for Cardiovascular Surgery. Dr. Rutherford is the
Editor of Vascular Surgery, the leading textbook in the field now in its fourth
edition, and is the Senior Editor of the Journal of Vascular Surgery. He has an
international reputation as an authority in the treatment of abdominal aortic
aneurysms and arterial occlusive disease of the lower extremities.
Jerry Goldstone, M.D., is a full Professor in the Section of Vascular
Surgery at the University of California, San Francisco. Dr. Goldstone was
previously the Chairman of the Section of Vascular Surgery at that institution
as well as the University of Arizona. Dr. Goldstone was the Secretary and is
currently the President of the North American Chapter of the International
Society for Cardiovascular Surgery. Dr. Goldstone is on the editorial boards of
the Journal of Vascular Surgery and the Journal of Endovascular Surgery, and is
the editor of Perspectives in Vascular Surgery.
Richard Kempczinski, M.D., is a Professor of Surgery and past Chairman
of the Section of Vascular Surgery at the University of Cincinnati. Dr.
Kempczinski is on the editorial board of the Journal of Vascular Surgery and is
the past president of the Midwest Vascular Society. Dr. Kempczinski has
extensive background in research and prospective clinical trials and computer
applications in medicine.
John Porter, M.D., is a Professor and Chairman of the Section of
Vascular Surgery at the University of Oregon. Dr. Porter is an Associate Editor
of Annals of Vascular Surgery and is the Recorder for the Society for Vascular
Surgery.
The Scientific Advisory Board meets formally as a group on a periodic
basis. In addition, the Company meets informally with individual members on a
more frequent basis which varies from time to time depending on each member's
area of expertise and on the Company's ongoing research and development,
clinical and marketing programs. All member of the Scientific Advisory Board
receive compensation from the Company. No members of the Scientific Advisory
Board actively participates as a clinical investigator in any of the Company's
clinical trials.
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RISK FACTORS
Early Stage of Clinical Trials; No Assurance of Safety and Efficacy
The Company's EGS systems for endovascular abdominal aortic aneurysm
(AAA) repair are at an early stage of clinical testing. There can be no
assurance that the Company's products will prove to be safe and effective in
clinical trials or will ultimately be cleared for marketing by United States or
foreign regulatory authorities. The Company does not expect to submit a PMA for
any of its EGS systems until 1998, and there can be no assurance that the
Company will ever submit a PMA or that, if submitted, such PMA will be approved
by the FDA. If the Tube, Bifurcated or Aortoiliac EGS systems do not prove to be
safe and effective in clinical trials or if the Company is otherwise unable to
commercialize either system successfully, the Company's business, financial
condition and results of operations will be materially adversely effected and
cessation of the Company's business could occur.
See "Business - Clinical Trials."
During the course of its clinical trials, the Company identifies
technical difficulties and areas of improvement for its products. The clinical
trials may identify significant technical or other obstacles to be overcome
prior to obtaining necessary regulatory or reimbursement approvals. For example,
the Company continues to observe blood flow outside the implant ("Perigraft
Flow") in patients treated with the Tube and Bifurcated EGS systems. See
"Business - Clinical Trials." The clinical significance of Perigraft Flow is
unknown. There can be no assurance that Perigraft Flow or other difficulties
will not have a material adverse effect on the safety and efficacy of the
Company's EGS systems or any follow-on devices and thereby prevent the Company
from obtaining PMA approval from the FDA.
Attachment System Fractures; Suspension of Clinical Trials in January 1995
In January 1995, the Company discovered fractures in the attachment
system component of the Tube EndoGraft prosthesis during routine follow-up
tests. Based on this discovery, the Company suspended its clinical trials
worldwide. As of December 31, 1996, a total of 37 patients, representing
approximately 41% of 91 patients, implanted prior to February 1995, with the
Tube EndoGraft prosthesis in place for more than six weeks, have experienced
attachment system fractures. In eight patients with fractures, the Tube
EndoGraft prosthesis was removed and the AAA was treated by open surgery. Three
patients with fractures have died for reasons unrelated to the attachment system
fractures. The remaining patients are closely monitored by their physicians and
the Company for fractures or the onset of adverse clinical consequences. The
Company expects additional fractures to occur in these attachment systems. There
can be no assurance that additional adverse clinical consequences will not occur
in the future, which could result in the suspension of clinical trials or
otherwise have a material adverse effect on the Company's business, financial
condition and results of operations.
Following suspension of clinical trials in January 1995, the Company
determined that the fractures were caused by metal fatigue resulting from higher
than anticipated forces acting on the attachment systems. As a result, the
Company implemented a number of significant modifications to the attachment
systems and subjected the redesigned attachment systems to accelerated fatigue
testing. There can be no assurance, however, that the accelerated fatigue
testing accurately simulates the actual forces present in the human body. In
addition, there can be no assurance that fractures will not occur in the
redesigned attachment systems, which may not be apparent for a substantial
period of time, or that the Company will not experience additional problems with
the redesigned attachment systems. Any future attachment system fractures that
might occur could result in another suspension or termination of clinical
trials, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
Limited Operating History; History of Losses; Substantial Additional Losses;
Fluctuations in Operating Results
The Company has a limited history of operations. Since its inception in
June 1989, the Company has been primarily engaged in research and development of
the EGS systems. The Company has experienced significant
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operating losses since inception, and as of December 31, 1996, the Company's
accumulated deficit was approximately $37.5 million. The Company will incur
substantial additional losses until it can achieve significant commercial sales
of its EGS systems which are dependent on a number of factors, including receipt
of marketing approval. There can be no assurance that any of the EGS systems or
any other products of the Company will be approved, can be successfully
commercialized or that the Company will achieve significant revenues from either
international or domestic sales of such products. In addition, there can be no
assurance that the Company will achieve or sustain profitability in the future.
Failure to achieve significant revenues or profitability would have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, results of operations have varied and are expected to
fluctuate significantly from quarter to quarter depending upon numerous factors,
including the results of clinical trials, the introduction and market acceptance
of products by the Company or competitors, the results of regulatory and
reimbursement actions, the timing of orders by distributors, the expenditures
incurred in the research and development of new products, competitive pricing
and the expansion of manufacturing capacity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Government Regulation; Significant Time Before Submission of any PMA
The Company's EGS systems are subject to extensive regulation by the
FDA and most foreign governments. The Company does not anticipate filing a PMA
for any of the EGS systems until 1998 and does not anticipate receiving approval
for at least one or two years after a PMA is accepted for filing, if at all.
There can be no assurance as to when, or if, the Company will complete clinical
trials of any of its EGS systems or that data from such trials, if completed,
will be adequate to support approval of a PMA. See "-Early Stage of Clinical
Trials; No Assurance of Safety and Efficacy" and "-Attachment System Fractures;
Suspension of Clinical Trials." Furthermore, there can be no assurance that the
Company will be able to obtain PMA approval on a timely basis, or at all, and
delays in the receipt of or failure to receive such approvals would have a
material adverse effect on the Company's business, financial condition and
results of operations and could result in cessation of the Company's business.
Sales of EGS systems outside of the United States are subject to
regulatory requirements that vary widely from country to country. 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. In
addition, there may be foreign regulatory barriers other than premarket
approval, and the FDA must approve exports of devices that require a PMA but are
not yet approved domestically. Countries in which the Company intends to market
EGS systems may adopt regulations in the future that could prevent the Company
from marketing its EGS systems in those countries. In addition, the Company may
be required to spend significant amounts of capital in order to respond to
requests for additional information by the FDA or foreign regulatory bodies or
may otherwise be required to spend significant amounts of capital in order to
obtain FDA and foreign regulatory approvals. Any such events could substantially
delay or preclude the Company from marketing its EGS systems in the United
States or foreign countries.
Any devices manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA and certain state agencies. Foreign and domestic regulatory approvals,
if granted, may include significant limitations on the indicated uses for which
the product may be marketed. In addition, the FDA and certain foreign regulatory
authorities impose numerous other requirements with which medical device
manufacturers must comply. Product approvals could be withdrawn for failure to
comply with regulatory standards or the occurrence of unforeseen problems
following initial marketing. The Company will also be required to adhere to
applicable FDA regulations setting forth current Good Manufacturing Practices
("GMP") requirements, which include testing, control and documentation
requirements. Ongoing compliance with GMP and other applicable regulatory
requirements are monitored through periodic inspections by state and federal
agencies, including the FDA, and by comparable agencies in other countries.
Changes in existing regulations or adoption of new regulations or policies could
prevent the Company from obtaining, or affect the timing of, future regulatory
approvals or clearances.
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Substantial Dependence on Limited Product Line
The Company anticipates that for the foreseeable future it will be
substantially dependent on the successful development and commercialization of
endovascular products for AAA repair. Failure of the Company to successfully
develop and commercialize these products would have a material adverse effect on
the Company's business, financial condition and results of operations.
No Assurance of Market Acceptance
There can be no assurance that the Tube, Bifurcated or Aortoiliac EGS
systems will gain any significant degree of market acceptance among physicians,
patients or health care payors, even if necessary regulatory and reimbursement
approvals are obtained. The Company believes that recommendations by physicians
and health care payors will be essential for market acceptance of the EGS
systems, and there can be no assurance that any such recommendations will be
obtained. Physicians will not recommend the Tube, Bifurcated or Aortoiliac EGS
systems unless they conclude, based on clinical data and other factors, that the
EGS systems represent an acceptable alternative to open AAA surgical repair. In
particular, physicians may elect not to recommend the Tube, Bifurcated or
Aortoiliac EGS procedure until such time, if ever, as successful resolution of
the attachment fractures is established and the clinical significance of
unresolved Perigraft Flow is better understood. Widespread use of the Company's
EGS systems would require the training of numerous physicians, and the time
required to complete such training could result in a delay or dampening of
market acceptance. Even if the safety and efficacy of the Company's EGS systems
is established, physicians may elect not to use them for a number of reasons
including unfavorable reimbursement from health care payors. Failure of the
Company's products to achieve any significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Need for Substantial Additional Capital
The Company's development efforts have consumed substantial capital to
date. The Company's future liquidity and capital requirements will depend upon
numerous factors, including: the progress of clinical trials; the timing and
costs of filing future IDEs, PMAs and PMA supplements; the timing and costs
required to receive both domestic and international governmental approvals; the
extent to which the Company's products gain market acceptance; the timing and
costs of product introductions; the extent of the Company's ongoing research and
development programs; and the costs of developing marketing and distribution
capabilities, if regulatory approvals are received. In February 1997, the
Company entered into a credit agreement pursuant to which the Company may borrow
up to $30,000,000 (the "Funds"), subject to the terms and conditions of the
credit agreement. The Company believes that the amount of Funds available
thereunder, together with existing cash, cash equivalents and short-term
investments will allow the Company to meet capital requirements for at least the
next 12 months. However, the credit agreement requires the Company to satisfy
certain conditions, the failure of which would prevent the Company from drawing
the Funds. Furthermore, any default by the Company under the credit agreement
would result in the acceleration of the Company's obligation to repay any drawn
Funds. In the event that the Company is unable to borrow Funds under the credit
agreement or repay Funds previously borrowed on an accelerated basis, the
Company's business, financial condition and results of operations could be
materially adversely affected. Furthermore, the Company may be required to seek
additional debt or equity financing. Issuance of additional equity securities
could result in substantial dilution to stockholders. There can be no assurance
that such financing will be available on terms acceptable to the Company, or at
all. The Company's inability to fund its capital requirements would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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Uncertainty Regarding Patents and Protection of Proprietary Technology
The Company holds a number of issued United States and foreign patents
and has filed a number of United States and counterpart patent applications in
other countries. There can be no assurance that the Company's United States and
foreign issued patents or pending applications will offer any protection or that
they will not be challenged, invalidated or circumvented. In addition, there can
be no assurance that competitors will not obtain patents that will prevent,
limit or interfere with the Company's ability to make, use or sell its products
either in the United States or in international markets.
The Company typically enters into confidentiality and assignment
agreements in connection with employment, consulting or advisory relationships.
There can be no assurance, however, that these agreements will not be breached
or that the Company will have adequate remedies for any breach. Furthermore, no
assurance can be given that competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's proprietary technology, or that the Company can
meaningfully protect its rights in unpatented proprietary technology.
Patent applications in the United States are maintained in secrecy
until patents issue, and patent applications in foreign countries are maintained
in secrecy for a period after filing. In addition, patents issued and patent
applications filed relating to medical devices are voluminous. Accordingly,
there can be no assurance that current and potential competitors 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
materials or processes used or proposed to be used by the Company.
The Company has received letters from two medical device companies,
Cook, Inc. ("Cook") and InnerDyne Medical, Inc. ("InnerDyne"). The Cook letter,
dated July 9, 1993, suggested potential infringement of a Cook-owned patent by
future commercial sale of the Company's attachment system component of the
EndoGraft prosthesis. The Company has reviewed the Cook matter and the Company
believes that no such infringement exists. The InnerDyne letter, dated November
2, 1994, proposed that the Company discuss licensing an InnerDyne-owned patent
that InnerDyne believed to be pertinent to the Company's EVT Expandable Sheath.
The Company has reviewed the InnerDyne matter and the Company believes that it
is not necessary to enter into a licensing arrangement with InnerDyne. There can
be no assurance, however, that the Company's products do not infringe upon the
patent rights or other intellectual property rights of Cook, InnerDyne or other
companies, that the Company will not be required to seek licenses from these or
other companies or that these or other companies will not bring claims of
infringement against the Company. Although patent and intellectual property
disputes in the medical device industry have sometimes been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. There can be no assurance
that necessary licenses would be available to the Company on satisfactory terms
or at all. Furthermore, any litigation or administrative proceeding could result
in substantial costs to the Company and distraction of the Company's management,
even if the Company ultimately prevails in such litigation. An adverse ruling in
any litigation or administrative proceeding could have a material adverse effect
on the Company's business, financial condition and results of operations.
If any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses or to redesign
its products or processes to avoid infringement. There can be no assurance that
such licenses would be available at all or on terms acceptable to the Company or
that the Company could redesign its products or processes to avoid infringement.
Litigation may be necessary to defend against claims of infringement, to enforce
patents issued to the Company or to protect trade secrets and could result in
substantial cost to, and diversion of effort by, the Company.
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Volatility of Stock Price
The market price for the Company's Common Stock has been subject to
significant fluctuations and may be volatile in the future. The Company believes
that factors such as announcements of developments related to the Company's
business, announcements of clinical results, regulatory approvals, technological
innovations or new products or enhancements by the Company or its competitors,
developments in the Company's relationships with its customers, partners,
distributors, and suppliers, changes in analysts' estimates, regulatory
developments, political and economic instability, fluctuations in results of
operations and general conditions in the Company's market or the markets served
by the Company's customers or the economy could cause the price of the Company's
Common Stock to fluctuate, perhaps substantially. The Company may be
particularly vulnerable to fluctuations in the market price of its Common Stock
given the substantial amount of time before it may achieve significant revenues
from commercial sales of its products. In addition, in recent years the stock
market in general, and the market for shares of small capitalization health care
stocks in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. Such
fluctuations could adversely affect the market price of the Company's Common
Stock. There can be no assurance that the market price of the Company's Common
Stock will not continue to experience significant fluctuations in the future,
including fluctuations that are unrelated to the Company's performance.
Dependence on Key Suppliers; Limited Manufacturing Experience
The Company uses or relies on sole source suppliers for certain
components and services used to manufacture its EGS systems. The Company
utilizes materials supplied by third parties, including raw material
manufactured by Dow Chemical Co. ("Dow Chemical") and DuPont, in its products.
In recent years, in the wake of litigation surrounding silicone breast implants,
both Dow Chemical and DuPont have ceased supplying chemical raw materials for
use in implantable medical devices, including DuPont raw material used to
produce the graft material utilized in the Company's EndoGraft prostheses. There
can be no assurance that use of such graft material by the Company will not be
restricted or that the Company will be able to obtain additional quantities of
such graft material in the future. Moreover, the continued use by the Company of
graft material based on chemical raw materials manufactured by third parties
could subject the Company to liability exposure. The Company believes that the
cessation of the supply of components and materials for implantable medical
devices may be addressed through legislative action. There can be no assurance
that such legislative action will occur on a timely basis, if at all. The
establishment of additional or replacement suppliers for certain of these
components of raw materials cannot be accomplished quickly, particularly because
of the time and effort required to obtain FDA approval to use materials from
alternative suppliers. Although the Company routinely attempts to identify
primary and alternative vendors, the qualification of additional or replacement
vendors for certain components or services is a lengthy process. Any significant
supply interruption would have a material adverse effect on the Company's
ability to manufacture its products and, therefore, a material adverse effect on
its business, financial condition and results of operations.
The Company manufactures its products at its Menlo Park, California
facility. To date, the Company's manufacturing activities have consisted
primarily of producing limited quantities of products for use in clinical trials
and controlled market release. The manufacture of the Company's products is a
complex and costly operation involving a number of separate processes and
components. Certain manufacturing processes of the EGS systems are labor
intensive and achieving significant cost reductions will depend in part upon
reducing the time required to complete these processes. There can be no
assurance that the Company will be able to achieve cost reductions in the
manufacture of its products. The Company does not have experience in
manufacturing its products in the commercial quantities that might be required
if the Company receives PMA approval. Manufacturers often encounter difficulties
in scaling up manufacturing of new products, including problems involving
product yields, quality control and assurance, component and service
availability, adequacy of control policies and procedures and lack of qualified
personnel. The Company has and will continue to consider as appropriate the
internal manufacture of components currently provided by third parties, as well
as the implementation of new production processes. There can be no assurance
that manufacturing yields or costs will not be adversely affected by the
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transition to in-house production or to new production processes when and if
such efforts are undertaken, and thereby materially and adversely affect the
Company's business, financial condition and results of operations.
Limitations on Third-Party Reimbursement
In the United States, the Company's products will be purchased
primarily by medical institutions which then bill various third-party payors,
such as Medicare, Medicaid and other government programs and private insurance
plans, for the health care services provided to their patients. Medicare
traditionally has considered items or services involving devices that have not
been approved or cleared for marketing by the FDA to be precluded from Medicare
coverage. There can be no assurance, however, that any of the EGS systems and
related services will be covered when they are used in clinical trials and, if
covered, whether the payment amounts for their use will be considered to be
adequate by hospitals and physicians. If the devices are not covered or the
payments are considered to be inadequate, the Company may need to bear
additional costs to sponsor such trials, and such costs could have a material
adverse effect on the Company's business, financial condition and results of
operations. Even if a device has received approval or clearance for marketing by
the FDA, there can be no assurance that Medicare will cover the device and
related services. Furthermore, Medicare may place certain restrictions on the
circumstances in which coverage will be available. Limited or no coverage of the
Company's products would have a material adverse effect on the Company's
business, financial condition and results of operations.
Acute care hospitals are now generally reimbursed by Medicare for
inpatient operating costs under a prospective payment system ("PPS"). Under PPS,
acute care hospitals receive a prospectively determined payment amount for each
covered inpatient based upon the Diagnosis-Related Group ("DRG") to which the
patient is assigned, regardless of the actual cost of the services provided. The
Health Care Financing Administration ("HCFA") has not made any decision
concerning which DRG will be generally assigned to patients who undergo AAA
diagnosis and endovascular repair procedures in which the Company's products are
used, and there can be no assurance that the DRG to which such patients will be
assigned will result in Medicare payment levels that are considered by hospitals
to be adequate. Because the DRG system is also used by other government and
private payors, HCFA's decision concerning the DRG assignment for these patients
also may affect the amount of payment made by other payors.
Physician services are reimbursed by Medicare based on a physician fee
schedule which has not been determined for AAA diagnosis and endovascular repair
procedures in which the Company's products are used. There can be no assurance
that the physicians fee schedule for endovascular AAA procedures using the
Company's products will result in Medicare payment levels that physicians
consider to be adequate. In addition, Medicare payment levels are used by many
other third-party payors in addition to Medicare. Failure by hospitals and
physicians to receive what they consider to be adequate reimbursement for AAA
diagnosis and repair procedures in which the Company's products are used would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business-Government Regulation."
Competition
The Company expects that significant competition in the endovascular
grafting market will develop. There are many large companies, with significantly
greater financial, manufacturing, marketing, distribution and technical
resources and experience than the Company, focusing on the development of
endovascular technology. Many of these companies have vascular stents, as well
as vascular graft and catheter technologies that may be applicable to
endovascular repair. The Company may compete against a number of these companies
including: Boston Scientific Corporation; Medtronic Corporation; Pfizer
Corporation; Johnson & Johnson; C.R. Bard, Inc.; and United States Surgical
Corporation. Several companies have designed and developed products that compete
directly with the Company's products. There can be no assurance that one or more
of these or other companies will not develop technologies that are more
effective or less costly than the Company's products, or that would otherwise
render the Company's products and technology non-competitive or obsolete. Such
competition could have a material, adverse effect on the Company's business,
financial condition and results of operations. In
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addition, the Company's products could be rendered obsolete as a result of
future innovations in AAA surgical techniques, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Any product developed by the Company that gains regulatory approval
will have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speeds with which the Company can develop
products, complete clinical testing and regulatory approval processes, gain
reimbursement acceptance and supply commercial quantities of the product to the
market are expected to be important competitive factors. In addition, the
Company believes that the primary competitive factors in the market for
endovascular grafting products are safety, long-term efficacy, ease of delivery,
reliability, innovation and price. The Company also believes that physician
relationships and customer support are important competitive factors. There can
be no assurance that the Company's competitive position will be maintained or
that the Company will be first to market endovascular products for the treatment
of AAA's in the United States.
Risk of Technological Obsolescence
The medical device industry is characterized by rapid and significant
technological change. There can be no assurance that third parties will not
succeed in developing or marketing technologies and products that are more
effective than those developed or marketed by the Company or that would render
the Company's technology and products obsolete or noncompetitive. Additionally,
new less invasive surgical procedures and medications could be developed that
replace or reduce the importance of current procedures that use the Company's
products. Accordingly, the Company's success will depend in part on its ability
to respond quickly to medical and technological changes through the development
and introduction of new products. Product development involves a high degree of
risk and there can be no assurance that the Company's new product development
efforts will result in any commercially successful products.
Risk of Federal Reform of Health Care
There are widespread efforts to control health care costs in the United
States on the federal, state and local levels. For example, the U.S. Congress is
currently considering various legislative proposals to reform the Medicare and
Medicaid programs. Current proposals call for reductions in the annual updates
for hospital PPS rates and physician reimbursement rates, reductions in the
amount of added payments made to teaching hospitals and hospitals that serve a
disproportionate share of low-income persons, increased incentives and
opportunities for Medicare beneficiaries to obtain their benefits through
managed care plans, and the establishment of a "block grant" program that would
give states greater discretion in designing and administering state Medicaid
programs. If enacted into law, any of these proposals could affect the amount of
Medicare and Medicaid payment that is made to hospitals and physicians and, in
turn, demand for the Company's products. Lower demand for the Company's products
resulting from federal healthcare reform could have a material adverse effect on
the Company's business, financial condition and results of operations.
Lack of Sales and Marketing Experience; Planned Dependence on International
Distributors
The Company currently has a small sales and marketing function and has
no experience in marketing and selling its EGS systems. There can be no
assurance that the Company will be able to recruit and train adequate sales and
marketing personnel. The Company plans to rely on distributors for substantially
all of its international sales. Any foreign sales by the Company may be subject
to certain risks, including exchange rate fluctuations, international monetary
conditions, tariffs, import licenses, trade policies, domestic and foreign tax
policies and foreign medical regulations. The loss of major international
distributors could have a material adverse effect on the Company's business,
financial condition and results of operations.
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Product Liability and Availability of Insurance
The clinical use and sale of the Company's products involve significant
risk of product liability claims. There can be no assurance that the coverage
limits of the Company's insurance policies will be adequate. Product liability
insurance is expensive and in the future may not be available to the Company on
acceptable terms or at all. While there have been no product liability claims to
date, there can be no assurance that a product liability claim will not be
brought against the Company either for injuries occurring in the past or in the
future, including, but not limited to, injuries due to fractures in the
attachment system of the Tube EndoGraft prosthesis. A successful claim brought
against the Company in excess of its insurance coverage could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-Attachment System Fractures."
Dependence on Key Personnel
The Company's future business and operating results depend in
significant part upon the continued contributions of its key technical personnel
and senior management, many of whom would be difficult to replace. None of such
persons is subject to a noncompetition agreement. The Company's business and
future operating results also depend in significant part upon its ability to
attract and retain qualified management, manufacturing, technical, marketing and
sales and support personnel for its operations. Competition for such personnel
is intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The loss of key employees, the failure
of any key employee to perform or the Company's inability to attract and retain
skilled employees, as needed, could materially adversely affect the Company's
business, financial condition and results of operations.
Control by Officers, Directors and Principal Stockholders
The Company's officers, directors and principal stockholders
beneficially own a significant portion of the Company's Common Stock (assuming
exercise of immediately exercisable options held by such directors and
officers). As a result, such persons may have the ability effectively to control
the Company and direct its affairs and business. Such concentration of ownership
may also have the effect of delaying, deferring or preventing a change in
control of the Company.
Anti-takeover Effects of Certain Charter Provisions, Delaware Law and Rights
Plan
Under the Company's Certificate of Incorporation, the Board of
Directors has the power to authorize the issuance of up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without further vote or
action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, may have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price of the Common Stock and
may adversely affect the market price of and the voting or other rights of the
holders of the Common Stock. The Company has no present plans to issue shares of
Preferred Stock. In addition, the Company's Certificate of Incorporation
provides for a classified Board of Directors such that approximately only
one-third of the members of the Board are elected at each annual meeting of
stockholders. Classified Boards may have the effect of delaying, deferring or
discouraging changes in control of the Company. Further, certain provisions of
the Company's Bylaws and of Delaware law could discourage, delay or prevent a
merger, tender offer or proxy contest involving the Company. Furthermore, the
Company has adopted a stockholder rights plan that, in conjunction with certain
provisions of the Company's charter documents and Delaware law, could delay or
make more difficult a merger, tender offer, or proxy contest involving the
Company.
25
<PAGE> 27
Absence of Dividends
The Company has never paid cash dividends and does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. In
addition, the Company entered into a credit agreement in February, 1997,
pursuant to which the Company the Company has agreed not to make or declare any
dividends on the Common Stock for so long as it is indebted under such credit
agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
ITEM 2. PROPERTIES
The Company leases approximately 40,000 square feet in Menlo Park,
California. This facility contains approximately 10,000 square feet of
manufacturing space, 27,000 square feet used for research and development and
3,000 square feet devoted to administrative offices. This facility is leased
through May 1999. The Company believes that this facility is adequate to meet
its current and anticipated requirements for the next 9 months. The Company
intends to lease additional space when it becomes necessary to expand its
facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and key employees of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
W. James Fitzsimmons........... 40 President and Chief Executive Officer
G. Bradley Cole................ 41 Vice President, Finance and Chief Financial Officer
Elizabeth A. McDermott......... 38 Vice President, Research and Development
Jeffrey W. Jarvela............. 39 Vice President, Manufacturing
Lori E. Adels, Ph.D............ 38 Vice President, Regulatory Affairs and Quality
Assurance
Victor M. Bernhard, M.D........ 69 Vice President, Medical Affairs
Ronald R. Giannotti............ 36 Vice President, Sales and Marketing
</TABLE>
- -------------------------
Mr. Fitzsimmons has served as President, Chief Executive Officer and a
member of the Board of Directors since October 1991. From December 1989 to
September 1991, Mr. Fitzsimmons was Director of the Electro-cardiography
division of Physio-Control Corporation, then a wholly owned subsidiary of Eli
Lilly and Company ("Eli Lilly"). From December 1987 to November 1989, Mr.
Fitzsimmons was engaged in merger and acquisition activities for the Medical
Device and Diagnostics division of Eli Lilly, where he initiated the acquisition
of Devices for Vascular Intervention. Mr. Fitzsimmons is a director of VNUS
Medical Technologies, Inc., a privately held medical device company. Mr.
Fitzsimmons holds a B.S. in Biology-Premedical and an M.B.A. from Seattle
University.
Mr. Cole joined the Company in July 1994 as Vice President, Finance and
Chief Financial Officer. From December 1988 to February 1994, Mr. Cole served as
Vice President and Chief Financial Officer of Applied
26
<PAGE> 28
Biosystems Incorporated, a publicly traded life science systems company acquired
by Perkin-Elmer Corporation in February 1993. Mr. Cole holds a B.S. in Business
Administration from Biola University and an M.B.A. from San Jose State
University.
Ms. McDermott joined the Company in October 1996 as Vice President,
Research and Development. From February 1994 to September 1996, Ms. McDermott
served as Vice President, Research and Development of Pilkington Barnes Hind.
From January 1984 to February 1994, Ms. McDermott was employed by Advanced
Cardiovascular Systems, Inc., then a wholly owned subsidiary of Eli Lilly, where
she held various positions including Director of Research and Development and
Director of Regulatory and Clinical Affairs. Ms. McDermott holds a B.S. and an
M.S. in Biomedical Engineering from Case Western Reserve University.
Mr. Jarvela joined the Company in April 1992 as Vice President,
Manufacturing. From January 1986 to March 1992, Mr. Jarvela was an employee at
Advanced Cardiovascular Systems, Inc., then a wholly owned subsidiary of Eli
Lilly, where he held various positions in industrial engineering, facilities,
research and development and manufacturing, including Director of Pilot
Operations, where he managed clinical product manufacturing. Mr. Jarvela holds a
B.S. in Industrial Engineering from the General Motors Institute.
Dr. Adels has served as Vice President, Regulatory Affairs and Quality
Assurance since March 1995. From July 1992 to March 1995, Dr. Adels served as
Director of Regulatory Affairs and Quality Assurance. From November 1989 to July
1992, Dr. Adels was Manager of Clinical and Regulatory Affairs for
Pfizer/Shiley. Dr. Adels holds a Ph.D. in Psychobiology from the University of
California at Irvine and a B.A. in the Biological Basis of Behavior from the
University of Pennsylvania.
Dr. Bernhard joined the Company in August 1994 as Vice President,
Medical Affairs. From July 1984 to July 1994, Dr. Bernhard was Professor of
Surgery and Chairman of the Vascular Surgery Section at the University of
Arizona College of Medicine. Dr. Bernhard is a member of the Society for
Vascular Surgery and past president of the Western Vascular Society. Dr.
Bernhard was on the Editorial Board of the Journal of Vascular Surgery and has
authored one textbook, 42 chapters in textbooks and scholarly books, and over
140 scientific publications in the field of vascular surgery. Dr. Bernhard holds
a B.S. in Science from Northwestern University and an M.D. from the Northwestern
University School of Medicine.
Mr. Giannotti joined the Company in March 1996 as Vice President, Sales
and Marketing. From September 1991 to September 1995, Mr. Giannotti was Vice
President of Sales and Marketing for the Edwards Critical Care Division of
Baxter Healthcare Corporation. Prior to September 1991, Mr. Giannotti was
Director of Sales and Product Manager for Applied Medical Resources, Inc. Mr.
Giannotti holds a B.A. in Finance from the University of Southern California.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock trades on the Nasdaq Stock Market under the
symbol "EVTI." The high and low closing prices of the Company's common stock
since the initial public offering on February 6, 1996 for the period ending
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 HIGH LOW
- ---------------------------- ---- ---
<S> <C> <C>
First Quarter $11.75 $9.50
Second Quarter 15.25 9.50
Third Quarter 12.88 9.25
Fourth Quarter 12.75 8.50
</TABLE>
27
<PAGE> 29
At December 31, 1996, there were 128 stockholders of record, excluding
the number of beneficial owners whose shares were held in street name.
To date, the Company has not paid any cash dividends on shares of its
capital stock. The Company does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company entered into a credit agreement in
February 1997, pursuant to which the Company has agreed not to make or declare
any dividends on the Common Stock for so long as it is indebted under such
credit agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
28
<PAGE> 30
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL INFORMATION
The selected financial information set forth below should be read in
conjunction with the Company's Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Report. The selected financial data
presented below have been derived from the Company's financial statements that
have been audited by Arthur Andersen LLP independent public accountants, as
indicated in their report included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net product sales .............................. $ -- $ -- $ -- $ -- $ 1,159
Cost of goods sold ............................. -- -- -- -- (1,345)
----------- ----------- ----------- ----------- -----------
Gross margin (deficit) .................... $ -- $ -- $ -- $ -- (186)
Operating costs and expenses:
Research and development ......... $ 1,557 $ 3,517 $ 7,379 $ 8,094 12,084
General and administrative ....... 516 724 961 1,004 2,427
----------- ----------- ----------- ----------- -----------
Total operating costs and expenses ............. 2,073 4,241 8,340 9,098 14,511
----------- ----------- ----------- ----------- -----------
Loss from operations ........................... (2,073) (4,241) (8,340) (9,098) (14,697)
Interest income (expense) ........ 139 185 460 836 1,160
----------- ----------- ----------- ----------- -----------
Net loss ....................................... $ (1,934) $ (4,056) $ (7,880) $ (8,262) $ (13,537)
----------- ----------- ----------- ----------- -----------
Pro forma net loss per share(1) ................ $ (0.51) $ (0.90) $ (1.40) $ (1.31) $ (1.66)
Shares used in computing pro forma
net loss per share (1) ........... 3,831,000 4,504,000 5,633,000 6,323,000 8,179,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and securities
available-for-sale........................ $ 2,589 $ 10,685 $ 17,493 $ 10,149 $ 17,859
Working capital ................................ 2,547 10,570 17,328 9,384 16,695
Total assets ................................... 3,273 11,777 18,932 11,727 20,952
Total liabilities .............................. 100 484 731 1,466 2,278
Accumulated deficit ............................ (3,807) (7,863) (15,743) (24,005) (37,542)
Total stockholders' equity ..................... 3,173 11,293 18,201 10,261 18,675
</TABLE>
- -----------------
(1) See Note 2 of Notes to Financial Statements.
29
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Risk Factors."
OVERVIEW
Since its inception in June 1989, the Company has been engaged in the
research and development of its EGS systems and related technology for the
endovascular repair of abdominal aortic aneurysms. To date, the Company has
generated limited revenues and has been unprofitable since inception. For the
period from incorporation to December 31, 1996, the Company has an accumulated
deficit of approximately $37.5 million. The Company does not expect to begin
generating significant revenues from sales of its products and will continue to
incur substantial losses for the next several years. Furthermore, the Company
expects its expenses in all categories to increase as its clinical trials and
other business activities expand.
The research, manufacture, sale and distribution of medical devices
such as the Company's EGS systems are subject to numerous regulations imposed by
governmental authorities, principally the FDA and corresponding state and
foreign agencies. The regulatory process is lengthy, expensive and uncertain.
FDA approval of a PMA application is required before any EGS system can be
marketed in the United States. Securing FDA approvals and clearances will
require submission to the FDA of extensive clinical data and technical
information. Many foreign governments and the European Union also have a review
process for medical devices.
The Company commenced clinical trials of its original Tube EGS system
in February 1993 and its Bifurcated EGS system in September 1994. Following
suspension of all clinical trials in January 1995 due to attachment system
fractures, and after receiving FDA clearance to reinitiate clinical trials, the
Company re-initiated Phase II clinical trials of the Tube EGS system in November
1995 and re-initiated Phase I clinical trials of the Bifurcated EGS system in
December 1995. In July, 1996, the Phase I clinical trial of the Bifurcated EGS
system was completed, and the Phase II clinical trial of that device was
approved and initiated in August. Substantial additional clinical testing of the
Tube and Bifurcated EGS systems is required and the Company does not believe it
will be able to complete clinical trials of, obtain regulatory approval for, and
begin commercial sales of its EGS systems in the United States before mid-1999,
if ever.
In October 1996, the Company received approval from the FDA to begin
Phase II clinical trials of the Aortoiliac EGS system, bypassing the Phase I
trial. The Aortoiliac EGS system utilizes an endovascular prosthesis that is a
hybrid between the Company's Tube EndoGraft and Bifurcated EndoGraft. The device
is designed to address aneurysms in which one iliac artery is unsuitable for
endovascular attachment of an implant.
In June 1995, the Company became ISO 9001/EN 46001 certified and has
submitted required clinical and technical data in an application for CE Mark
approval to market its products throughout the European Community. The
application is currently under review by a sanctioned Notified Body. The Company
anticipates that substantially all of its revenues from product sales over the
next several years will be derived from international sales through its
distributor network. Any such international sales will be subject to a number of
risks, including exchange rate fluctuations, international monetary conditions,
tariffs, import licenses, trade policies, domestic and foreign tax policies and
foreign medical regulations.
There can be no assurance that the Company's research and development
efforts will be successfully completed. Given that clinical testing is at an
early stage, there can be no assurance that the Company's EGS systems will be
shown to be safe and effective. Accordingly, the Company is unable to predict
the likelihood that its products will be approved for marketing by the FDA or
any foreign government agency, and there can be no
30
<PAGE> 32
assurance that the Company will ever achieve either significant revenues from
sales of its EGS systems or profitable operations.
Results of operations will fluctuate significantly from quarter to
quarter and will depend upon, among other factors: actions relating to foreign
and domestic regulatory and reimbursement matters; the extent to which the
Company's products gain market acceptance; the rate at which the Company
establishes its international distributor network; the progress of clinical
trials; and introduction of competing products or alternative treatments for
AAA. See "Risk Factors - Limited Operating History; History of Losses;
Substantial Additional Losses; Fluctuations in Operating Results."
RESULTS OF OPERATIONS
Years ended December 31, 1996 and 1995
In 1996, the Company began recognizing revenue on sales of EGS systems
used in clinical trials. During the year, the Company recognized approximately
$1,159,000 in sales, 30% of which were international sales. The international
sales price to its European distributors may increase if marketing approval is
achieved in Europe through the approval of a CE Mark, but currently ranges from
approximately 55% to 60% of the U.S. price. During the year, sales of the Tube
EGS system accounted for approximately 50% of total sales and sales of the
Bifurcated EGS system accounted for approximately 49% of total sales. The
Aortoiliac EGS system, which began sales in October, 1996, accounted for 1% of
total sales for the year. Revenue is recognized only upon successful
implantation of an EndoGraft prosthesis.
Negative gross margin for the year was approximately $186,000, or 16%
of product sales. Cost of goods sold exceeds product sales primarily due to the
Company's early stage of manufacturing and due to prices charged by the Company
during its pre-marketing stage. The Company expects the negative gross margin to
continue unless the Company is able to significantly increase its product sales
volume.
Research and development expenses include research, development,
clinical and regulatory expenses and certain manufacturing expenses. Research
and development in 1996 increased to $12.1 million from $8.1 million in 1995.
The increase in spending was due primarily to an increase in personnel, with the
balance due to increases in materials and clinical costs related to expanded
clinical trials and increased costs related to a recent facility expansion.
Increases in clinical costs were primarily due to a greater number of patients
being entered into the U.S. clinical trials and monitored under standard
follow-up protocol in 1996 as compared to 1995. Costs resulting from the
suspension of clinical trials in January 1995 are included in research and
development. These include costs incurred to redesign the attachment system of
the Tube and Bifurcated EGS systems and increased costs of monitoring patients
implanted with the Tube EndoGraft prosthesis before the suspension of clinical
trials as a result of more frequent follow-up examinations of those patients.
Sales, general and administrative expenses increased in 1996 to $2.4
million as compared to $1.0 million in 1995. This increase was due to an
increase in personnel and the creation of a sales and marketing organization
during the second quarter of 1996, as well as from increased expenses related to
being a publicly held company.
Interest income in 1996 increased to approximately $1,160,000 from
approximately $836,000 in 1995 as a result of the Company's increased average
cash balance in 1996, following the Company initial public offering in February
1996.
Net loss for 1996 increased to approximately $13.5 million from $8.3
million in 1995.
31
<PAGE> 33
Years ended December 31, 1995 and 1994
Research and development expenses increased to $8.1 million in 1995
from $7.4 million in 1994. The increase in spending was due to an increase in
personnel and clinical costs offset by lower manufacturing material costs due to
the suspension of clinical trials in January 1995. Increases in clinical costs
were primarily due to a greater number of patients being monitored under
standard follow-up protocol in 1995, as compared to 1994.
General and administrative expenses increased in 1995 to approximately
$1,004,000 as compared to approximately $961,000 for 1994. This increase was
primarily due to additions to management of the Company.
Income Taxes
The Company accounts for income taxes using the liability method. The
Company has incurred losses since inception. As of December 31, 1996, the
Company had net operating loss carryforwards of approximately $33.7 million and
$5.7 million for federal and state income tax purposes, respectively. The
Federal carryforwards expire in 2005 through 2011, and the state carryforwards
expire in 1997 through 2001. The principal differences between financial
reporting losses and losses for tax purposes are the result of capitalizing
research and development expenses and start-up costs for tax purposes. The
Company also has research and development credits available to reduce future
Federal and state income taxes, if any, of approximately $1.3 million and
$682,000, respectively.
The Company believes that, based on a number of factors, there is
sufficient uncertainty regarding the realizability of carryforwards and credits
that a full valuation allowance has been recorded against the deferred tax
asset.
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company completed an initial public offering of
two million shares of Common Stock with net proceeds to the Company of
approximately $21.6 million after deducting the underwriters discount,
commissions and offering expenses. Through December 31, 1995, the Company had
raised net proceeds of $33.7 million from the sale of Preferred Stock including
$14.7 million in 1994. Cash, cash equivalents and available for sale securities
were approximately $17.9 million at December 31, 1996.
Cash used to fund operating activities has increased to $12.7 million
in 1996 from $7.4 million in 1995 and from $7.3 million in 1994, reflecting an
increase in activity principally related to increased research and development
and sales and marketing expenditures. The Company expects that substantial
additional cash will be used to fund operating activities until it achieves
significant commercial sales of its EGS systems which is dependent on a number
of factors including significant regulatory requirements as well as market
acceptance of the product.
Cash used for purchases of property and equipment was approximately
$1,493,000 in 1996, $231,000 in 1995 and $662,000 in 1994. The significant
increase in 1996 was due to the facilities expansion related to research and
development and manufacturing. The Company anticipates that capital expenditures
will significantly increase in the future.
The Company expects to continue to incur substantial expense in support
of additional research and development activities, including costs of clinical
studies, manufacturing costs, the continued development of a sales and marketing
organization and ongoing administrative activities. The Company anticipates that
existing cash, cash equivalents and short-term investments, will be sufficient
to fund its operations and planned new product development, including increased
working capital expenditures, through the next 9 months.
32
<PAGE> 34
In February 1997, the Company secured a credit facility of $30 million
which, together with the existing cash, cash equivalents, and short-term
investments, the Company believes will allow it to meet its capital requirements
for at least the next 12 months. However, the credit agreement requires the
Company to satisfy certain conditions, the failure of which would prevent the
Company from drawing the Funds. Furthermore, any default by the Company under
the credit agreement would result in the acceleration of the Company's
obligation to repay any drawn Funds. In the event that the Company is unable to
borrow Funds or repay Funds previously borrowed on an accelerated basis, the
Company's business, financial condition and results of operations could be
materially adversely affected. Furthermore, the Company may be required to seek
additional debt or equity financing. Issuance of additional equity securities
could result in substantial dilution to stockholders. There can be no assurance
that such financing will be available on terms acceptable to the Company, or at
all. Pursuant to the credit agreement the Company has agreed not to make or
declare any dividends on the Common Stock for so long as it is indebted under
such agreement.
The Company's cash requirements may vary materially from those now
planned because of results of research, development, and clinical testing, the
development of regulatory submissions and the FDA regulatory process, the
development of commercial-scale manufacturing capability, the development of
sales, distribution and marketing capabilities, and other factors. The Company
may be required to seek additional funds through debt or equity financing.
Issuance of additional equity securities could result in substantial dilution to
stockholders. There can be no assurance that such financing will be available on
terms acceptable to the Company, or at all. The Company's inability to fund its
capital requirements would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may also
enter into collaborative arrangements with corporate partners that could provide
the Company with additional funding.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the financial statements and
supplementary financial information which are attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report
because the Registrant plans to file a definitive Proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's executive officers required by
this Item is incorporated by reference from the section in Part 4a hereof
entitled "Executive Officers of the Registrant." The information concerning the
Company's directors required by this Item is incorporated by reference from the
Proxy Statement under the heading "Election of Directors." The information
concerning compliance with Section 16(a) of the Securities Exchange Act of 1934,
as amended, required by this Item is incorporated by reference from the Proxy
Statement under the heading "Compliance with Section 16(a) of the Securities
Exchange Act of 1934."
33
<PAGE> 35
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Proxy Statement under the heading "Executive Compensation and Related
Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will be set forth under the captions "Information Concerning
Voting and Proxy solicitation - Record Date and Stock Ownership" in the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN TRANSACTIONS
The information required by this item is incorporated by reference from
the Proxy Statement under the heading "Certain Transactions".
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
1. Financial Statements. The following
financial statements of the Company are
filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants....................... 37
Balance Sheets................................................. 38
Statements of Operations....................................... 39
Statements of Changes in Stockholders' Equity.................. 40
Statements of Cash Flows....................................... 41
Notes to Financial Statements.................................. 42
</TABLE>
2. Financial Statement Schedules. None
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
*3.1 - Restated Certificate of Incorporation of the Company.
3.2 - Bylaws of the Company.
4.1 - Reference is made to Exhibits 3.1 and 3.2.
*4.2 - Specimen Common Stock certificate.
*4.3 - Fourth Amended and Restated Investor Rights Agreement, dated
August 15, 1994, among the Company and the investors and the
founders named therein.
4.4 - Credit Agreement between the Company and Guidant Corporation,
dated February 28, 1997.
*10.1 - Form of Indemnification Agreement.
*10.2 - 1989 Stock Option Plan.
*10.3 - 1995 Stock Option Plan.
*10.4 - Employee Stock Purchase Plan.
*10.5 - 1996 Incentive Compensation Plan.
*10.6 - Employment agreement between the Company and W. James Fitzsimmons.
*10.7 - Employment agreement between the Company and Victor M. Bernhard.
</TABLE>
34
<PAGE> 36
<TABLE>
<S> <C>
**10.8 - Employment agreement between the Company and Ronald R. Giannotti.
***10.9 - Employment agreement between the Company and Elizabeth A. McDermott.
**10.10 - Lease by and between Menlo Business Park and Patrician
Associates, Inc. and the Company, as amended by First
Amendment to Lease Agreement, dated February 26, 1996.
10.11 - Rights Agreement between the Company and ChaseMellon Shareholder
Services dated February 5, 1997.
10.12 - Promissory Note Secured by Second Deed of Trust between the
Company and Ronald R. Giannotti dated February 9, 1997.
10.13 - Officer Severance Plan and Summary Plan Description effective
September 24, 1996.
10.14 - Multimedia Development Agreement between the Company and
Engineering Animation, Inc. dated March 19, 1997.
11.1 - Computation of Net Loss Per Share.
27.1 - Financial Data Schedule.
</TABLE>
- -----------
* Incorporated by reference from an exhibit to the Company's Registration
Statement on Form S-1, as amended, (File No. 33-80557) declared
effective by the Commission on February 6, 1996.
** Incorporated by reference from an exhibit to the Company Annual Report
on Form 10-K filed with the Commission on March 29, 1996.
*** Incorporated by reference from an exhibit to the Company Report on Form
10-Q filed with the Commission on November 12, 1996.
35
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ENDOVASCULAR TECHNOLOGIES, INC.
By: /s/ W. James Fitzsimmons
---------------------------------------------
W. James Fitzsimmons
President and Chief Executive Officer
Dated: March 22, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints W. James Fitzsimmons and G.
Bradley Cole, and each of them acting individually, as his true and lawful
attorney-in-fact, each with full power of substitution and resubstitution, for
him in any and all capacities, to sign any and all amendments to this Report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ W. James Fitzsimmons President, Chief Executive Officer (Principal March 22, 1997
- ------------------------------------ Executive Officer) and Director
W. James Fitzsimmons
/s/ G. Bradley Cole Vice President, Finance and Chief Financial Officer March 22, 1997
- -------------------------------------- (Principal Financial and Accounting Officer)
G. Bradley Cole
/s/ H. DuBose Montgomery Chairman of the Board of Directors March 22, 1997
- -----------------------------------
H. DuBose Montgomery
/s/ Vaughn D. Bryson Director March 22, 1997
- -----------------------------------
Vaughn D. Bryson
/s/ Tony R. Brown Director March 22, 1997
- -------------------------------------
Tony R. Brown
</TABLE>
36
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of EndoVascular Technologies, Inc.:
We have audited the accompanying balance sheets of EndoVascular
Technologies, Inc. as of December 31, 1996 and 1995, and the related statements
of operations, changes in stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of EndoVascular
Technologies, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
March 27, 1997
37
<PAGE> 39
ENDOVASCULAR TECHNOLOGIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,530,792 $ 2,203,937
Securities available-for-sale 15,328,545 7,944,782
Accounts receivable, net of allowance for doubtful accounts of $50,500 505,440 --
Interest receivable 269,329 154,768
Prepaids and other 306,837 434,082
Notes receivable from employees 31,501 112,750
-------------- --------------
Total current assets 18,972,444 10,850,319
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $931,067 and
$523,820, respectively 1,905,579 819,921
OTHER ASSETS 74,361 57,156
============== ==============
Total assets $ 20,952,384 $ 11,727,396
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital lease $ -- $ 15,131
Accounts payable 714,323 146,388
Accrued and other liabilities 1,563,384 1,304,383
-------------- --------------
Total current liabilities 2,277,707 1,465,902
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.00001 par value:
Authorized--5,000,000 shares and 40,000,000 shares at
December 31, 1996 and 1995, respectively;
Issued and outstanding--5,118,264 shares at December 31, 1995 -- 51
Common stock, $0.00001 par value:
Authorized--30,000,000 shares and 35,000,000 shares at December 31, 1996
and 1995, respectively;
Issued and outstanding--8,402,371 shares and 1,160,869 shares at
December 31, 1996 and 1995, respectively 84 12
Additional paid-in capital 56,298,754 34,375,515
Deferred compensation (81,934) (109,242)
Accumulated deficit (37,542,227) (24,004,842)
-------------- --------------
Total stockholders' equity 18,674,677 10,261,494
============== ==============
Total liabilities and stockholders' equity $ 20,952,384 $ $11,727,396
============== ==============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
38
<PAGE> 40
ENDOVASCULAR TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
NET PRODUCT SALES $ 1,159,250 $ -- $ --
COST OF GOODS SOLD (1,345,133) -- --
-------------- -------------- --------------
Gross margin (deficit) (185,883) -- --
OPERATING COSTS AND EXPENSES:
Research and development 12,083,732 8,093,698 7,378,981
Selling, general and administrative 2,427,375 1,004,250 960,917
Total operating costs and expenses 14,511,107 9,097,948 8,339,898
-------------- -------------- --------------
Loss from operations (14,696,990) (9,097,948) (8,339,898)
INTEREST INCOME 1,159,605 835,788 460,447
NET LOSS $ (13,537,385) $ (8,262,160) $ (7,879,451)
============== ============== ==============
NET LOSS PER SHARE $ (1.66) -- --
============== ============== ==============
SHARES USED IN COMPUTING NET LOSS PER SHARE 8,179,293 -- --
============== ============== ==============
PRO FORMA NET LOSS PER SHARE -- $ (1.31) $ (1.40)
============== ============== ==============
SHARES USED IN COMPUTING PRO FORMA NET LOSS PER SHARE
-- 6,322,998 5,632,933
============== ============== ==============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
39
<PAGE> 41
ENDOVASCULAR TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 31, 1993 TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993 4,239,757 $ 42 812,773 $ 8
Issuance of common stock under
stock option plan -- -- 161,803 2
Repurchase of common stock on
June 30, 1994 for $1.01 per
share -- -- (4,197) --
Issuance of preferred stock in
August 1994 for cash for
$16.80 per share, net of
issuance costs of $40,862 878,507 9 -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
BALANCE, December 31, 1994 5,118,264 51 970,379 10
Issuance of common stock under
stock option plan -- -- 193,197 2
Repurchase of common stock for
$0.04 to $1.01 per share -- -- (2,707) --
Deferred compensation -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
BALANCE, December 31, 1995 5,118,264 51 1,160,869 12
Conversion of preferred stock to
common stock (5,118,264) (51) 5,118,264 51
Issuance of common stock on
February 12, 1996 for cash,
$12.00 per share, net of
offering costs of $2,405,314 -- -- 2,000,000 20
Issuance of common stock under
stock option plan -- -- 107,990 1
Issuance of common stock under
employee stock purchase plan -- -- 15,248 --
Amortization of deferred
compensation -- -- -- --
Net loss -- -- -- --
============ ============ ============ ============
BALANCE, December 31, 1996 -- $ -- $ 8,402,371 $ 84
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Deferred Accumulated Stockholders'
Capital Compensation Deficit Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ 19,155,820 $-- $ (7,863,231) $ 11,292,639
------------ ------------ ------------ ------------
Issuance of common stock under
stock option plan 72,867 -- -- 72,869
Repurchase of common stock on
June 30, 1994 for $1.01 per
share (4,231) -- -- (4,231)
Issuance of preferred stock in
August 1994 for cash for
$16.80 per share, net of
issuance costs of $40,862 14,718,929 -- -- 14,718,938
Net loss -- -- (7,879,451) (7,879,451)
------------ ------------ ------------ ------------
BALANCE, December 31, 1994 33,943,385 -- (15,742,682) 18,200,764
Issuance of common stock under
stock option plan 325,522 -- -- 325,524
Repurchase of common stock for
$0.04 to $1.01 per share (2,634) -- -- (2,634)
Deferred compensation 109,242 (109,242) -- --
Net loss -- -- (8,262,160) (8,262,160)
------------ ------------ ------------ ------------
BALANCE, December 31, 1995 34,375,515 (109,242) (24,004,842) 10,261,494
Conversion of preferred stock to
common stock -- -- -- --
Issuance of common stock on
February 12, 1996 for cash,
$12.00 per share, net of
offering costs of $2,405,314 21,594,666 -- -- 21,594,686
Issuance of common stock under
stock option plan 173,043 -- -- 173,044
Issuance of common stock under
employee stock purchase plan 155,530 -- -- 155,530
Amortization of deferred
compensation -- 27,308 -- 27,308
Net loss -- -- (13,537,385) (13,537,385)
============ ============ ============ ============
BALANCE, December 31, 1996 $ 56,298,754 $ (81,934) $(37,542,227) $ 18,674,677
============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
40
<PAGE> 42
ENDOVASCULAR TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,537,385) $ (8,262,160) $ (7,879,451)
-------------- -------------- --------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 410,247 239,314 184,398
Amortization of deferred compensation 27,308 -- --
Write-off of other assets -- -- 358,110
Changes in current assets and liabilities:
Accounts receivable (505,440) -- --
Interest receivable (114,561) 14,160 (25,993)
Prepaid expenses and other 127,245 (281,030) (67,226)
Note receivable from employees 81,249 116,250 (108,750)
Deposits and other assets (20,205) 3,000 --
Accounts payable 567,935 53,722 (141,158)
Accrued and other liabilities 259,001 705,703 377,370
-------------- -------------- --------------
Total adjustments 832,779 851,119 576,751
-------------- -------------- --------------
Net cash used in operating activities (12,704,606) (7,411,041) (7,302,700)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale (32,042,727) (25,366,859) (27,918,983)
Sale/maturity of securities available for sale 24,658,964 32,760,370 18,657,729
Purchases of property and equipment (1,492,905) (231,288) (662,049)
-------------- -------------- --------------
Net cash provided by (used in)
investing activities (8,876,668) 7,162,223 (9,923,303)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (15,131) (24,952) (14,652)
Proceeds from exercise of stock options 173,044 325,524 72,869
Proceeds from employee stock purchase plan 155,530 -- --
Repurchase of common stock options -- (2,634) (4,231)
Proceeds from sale of preferred stock -- -- 14,759,800
Proceeds from sale of common stock 24,000,000 -- --
Stock issuance costs (2,405,314) -- (40,862)
-------------- -------------- --------------
Net cash provided by financing activities 21,908,129 297,938 14,772,924
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 326,855 49,120 (2,453,079)
CASH AND CASH EQUIVALENTS, beginning of year 2,203,937 2,154,817 4,607,896
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of year $ 2,530,792 $ 2,203,937 $ 2,154,817
============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING TRANSACTIONS:
Purchase of equipment under capital
lease obligations $ -- $ -- $ 25,075
============== ============== ==============
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
41
<PAGE> 43
ENDOVASCULAR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. OPERATIONS:
EndoVascular Technologies, Inc. (the "Company") was incorporated in the
state of Delaware on June 30, 1989 and commenced operations on July 1, 1989 to
develop the Endovascular Grafting System, or "EGS(R) system," for repair of
abdominal aortic aneurysms. Since inception, the Company has devoted
substantially all of its efforts to product research and development.
The Company's products are in early stage clinical trials. There can be
no assurance that the Company's research and development efforts will be
successfully completed. Given that clinical testing is at an early stage, there
can be no assurance that the EGS systems will be shown to be safe and effective.
There can be no assurance that its products will be approved for marketing by
the FDA or any foreign government agency or that the EGS systems or any other
products will be approved for marketing by the FDA or any foreign government
agency or that the EGS systems or any other product developed by the Company
will be successfully introduced or achieve any significant degree of market
acceptance. There can be no assurance that the Company will achieve significant
revenues from sales of its EGS systems, or achieve profitable operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires certain estimates be made by management.
Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash investments and
short-term investments. The Company has investment policies that limit such
investments to short-term, low risk investments.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or less
to be cash equivalents. Cash and cash equivalents are stated at cost, which
approximates market, and consist of short-term, highly liquid investments with
original maturities of less than 90 days.
PROPERTY AND EQUIPMENT
Property and equipment consists of laboratory, production and office
equipment; leasehold improvements and software. Equipment and software are
recorded at cost and are depreciated using the straight-line method based upon
the estimated useful lives of three to five years. Leasehold improvements are
recorded at cost and are amortized over the estimated lives of the improvements
or the term of the lease, whichever is shorter. The cost of assets retired or
otherwise disposed of and the related accumulated depreciation are removed from
the accounts, and any gain or loss is included in the results of operations.
Maintenance and repairs that do not improve or extend the life of the related
asset are expensed as incurred.
42
<PAGE> 44
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This pronouncement requires that long-lived assets and certain identifiable
intangible assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted SFAS No. 121 effective January 1, 1996; such
adoption had no impact on the Company's results of operations or financial
condition.
REVENUE RECOGNITION
Revenue from product sales is related to the sale of the Company's EGS
systems consisting of an endovascular prosthesis and delivery catheter. As the
Company's products are in clinical trials, the Company recognizes revenue once
the EGS system has been used in a surgical procedure. Costs of goods sold
include costs attributable to the manufacture of the products.
RESEARCH AND DEVELOPMENT
Research and development costs include product development, clinical,
medical, quality and regulatory costs and are expensed as incurred.
NET LOSS PER SHARE
Net loss per share and pro forma net loss per share are computed using
the weighted average number of common shares outstanding. Common equivalent
shares from stock options are excluded from the computation as their effect is
anti-dilutive, except that, pursuant to the Securities and Exchange Commission's
(the "Commission") Staff Accounting Bulletins, common and common equivalents
(stock options and preferred stock) issued during the 12-month period prior to
the initial public offering of the Company's common stock at prices below the
initial public offering price have been included in the net loss per share
calculation as if they were outstanding for all periods prior to and including
the quarter in which the Company's initial public offering was completed (using
the treasury stock method for stock options).
Net loss per share and pro forma net loss per share have been computed
as described above and also include, pursuant to Commission staff policy, common
equivalent shares from convertible preferred shares issued more than 12 months
from the initial public offering of the Company's common stock that
automatically converted upon completion of the Company's initial public offering
(using the if-converted method) from the original date of issuance.
3. SECURITIES AVAILABLE-FOR-SALE:
The Company classifies its short-term investment securities as
available-for-sale. Such investments mature within one year and are carried at
amortized cost which approximates market. Available-for-sale securities at
December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
U.S. government securities $ 3,208,457 $ 3,580,900
Corporate debt securities and other 12,120,088 4,363,882
============== ==============
Total $ 15,328,545 $ 7,944,782
============== ==============
</TABLE>
43
<PAGE> 45
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Machinery and equipment $ 854,329 $ 474,341
Computers and software 746,016 433,616
Furniture and fixtures 347,306 119,088
Leasehold improvements 888,995 316,696
-------------- --------------
2,836,646 1,343,741
Accumulated depreciation and amortization (931,067) (523,820)
============== ==============
$ 1,905,579 $ 819,921
============== ==============
</TABLE>
5. NOTES RECEIVABLE:
At December 31, 1996 and 1995, the Company had employee notes
receivable balances of $31,501 and $112,750, respectively. These non-interest
bearing notes are secured by employee stock options and real estate and are due
on demand.
6. ACCRUED AND OTHER LIABILITIES:
Accrued and other liabilities consist of the following at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Clinical trial services $ 667,020 $ 548,323
Accrued payroll and related expenses 644,584 215,599
Legal, accounting and other 251,780 540,461
============ ============
$ 1,563,384 $ 1,304,383
============ ============
</TABLE>
7. INCOME TAXES:
The significant components of net deferred tax assets and liabilities
as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Capitalized R&D expenses $ 1,476,000 $ 994,000
Net operating loss carryforwards 11,816,000 6,662,000
R&D and other credit carryforwards 1,944,000 1,379,000
Other 1,278,000 1,631,000
Valuation allowance (16,514,000) (10,666,000)
------------ ------------
Total deferred tax asset $ -- $ --
============ ============
</TABLE>
44
<PAGE> 46
As of December 31, 1996, the Company had net operating loss
carryforwards of approximately $33,717,000 and $5,728,000 for federal and state
income tax purposes, respectively. The Federal carryforwards expire in 2005
through 2011, and the state carryforwards expire in 1997 through 2001. The
principal differences between financial reporting losses and losses for tax
purposes are the result of capitalizing research and development expenses and
start-up costs for tax purposes. The Company also has research and development
credits available to reduce future Federal and state income taxes, if any, of
approximately $1,262,000 and $682,000, respectively.
The Company believes that, based on a number of factors, there is
sufficient uncertainty regarding the realizability of carryforwards and credits
that a full valuation allowance has been recorded against the deferred tax
asset.
8. STOCKHOLDERS' EQUITY:
On December 22, 1995, the Company effected a 1-for 4.2 reverse common
and preferred stock split. All stock data in the accompanying financial
statements has been retroactively adjusted to reflect the reverse stock split.
CONVERTIBLE PREFERRED STOCK
Prior to the Company's initial public offering of common stock in
February 1996, the Company had authorized 40,000,000 shares of convertible
preferred stock. In connection with the initial public offering, all outstanding
preferred stock was converted to common stock. In addition, the Company amended
its certificate of incorporation and authorized 5,000,000 shares of undesignated
preferred stock.
COMMON STOCK
On February 12, 1996, the Company completed an initial public offering
of two million shares of its common stock at $12.00 per share. Net proceeds to
the Company, after deducting underwriting discounts and commissions and expenses
were $21,594,686. In connection with the offering, all of the Company's
outstanding preferred stock was converted to an equivalent number of shares of
common stock. At December 31, 1996, 30,000,000 shares of common stock were
authorized of which 8,402,371 shares were outstanding.
STOCK OPTION PLANS
The Company has two stock option plans: the 1989 Stock Option Plan (the
"1989 Plan") and the 1995 Stock Option Plan (the "1995 Plan") (collectively, the
"Plans"). The stock options granted under the Plans may be either incentive
stock options ("ISO's") or nonstatutory stock options. The Board of Directors
may set the rate at which the options become exercisable and determine when the
options expire, subject to the following limitations: no options shall be
exercisable after the tenth anniversary of the date of grant; an individual
option will become exercisable in the event the Company is sold or has other
significant changes in its ownership and the employee's job is eliminated within
12 months following a change in ownership.
ISO's may not be granted at an exercise price of less than the fair
market value of the common stock at the date of grant and the exercise price of
a nonstatutory option cannot be less than eighty-five percent (85%) of the fair
market value of the common stock on the grant date.
45
<PAGE> 47
Activity under the Plans is as follows:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
OPTIONS PRICE AVERAGE
OUTSTANDING PER SHARE EXERCISE PRICE
---------------- ------------------- -----------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 547,321 $ .04 - $1.47 $1.17
Granted 452,214 1.47 - 6.30 2.72
Exercised (161,809) .04 - 1.47 .45
Canceled (13,283) 1.01 - 4.20 1.51
---------------- ------------------- -----------------
Outstanding at December 31, 1994 824,443 .04 - 6.30 1.97
Granted 358,284 4.20 - 7.35 5.17
Exercised (193,197) 1.01 - 4.20 1.68
Canceled (130,040) .04 - 7.35 4.97
---------------- ------------------- -----------------
Outstanding at December 31, 1995 859,490 .04 - 7.35 2.86
Granted 551,410 9.13 - 14.13 9.63
Exercised (107,990) .08 - 7.35 1.60
Canceled (81,453) 1.01 - 10.38 3.26
---------------- ------------------- -----------------
Outstanding at December 31, 1996 1,221,457 $1.01 - $14.13 $6.00
================ =================== =================
</TABLE>
There are 469,843 and 176,900 options available for grant at December
31, 1996 and 1995, respectively.
The Company accounts for the Plans under APB Opinion No. 25, under
which compensation cost has only been recognized to the extent required under
the Commission's Staff Accounting Bulletins. Had compensation cost for these
plans been determined based on the fair value at the date of grant consistent
with SFAS No. 123 "Accounting for Stock Based Compensation", the Company's net
loss and net loss per share would have been increased to the following pro forma
amounts:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Net loss As reported $ (13,537,385) $ (8,262,160)
============== ==============
Pro forma $ (13,942,337) $ (8,280,788)
============== ==============
Loss per share As Reported $ (1.66) $ (1.31)
============== ==============
Pro forma $ (1.70) $ (1.31)
============== ==============
</TABLE>
46
<PAGE> 48
Because the Statement 123 method of accounting is not required to be
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years. The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------- ----------------------------------------
NUMBER WEIGHTED- NUMBER
RANGE OF OUTSTANDING AT AVERAGE WEIGHTED- EXERCISABLE
EXERCISE DECEMBER 31, REMAINING AVERAGE DECEMBER 31, WEIGHTED-AVERAGE
PRICES 1996 CONTRACTUAL LIFE EXERCISE PRICE 1996 EXERCISE PRICE
- -------------- ---------------- ------------------ ------------------ ------------------- -----------------
<C> <C> <C> <C> <C> <C>
$1.01 - $1.47 375,654 7 $ 1.23 248,240 $ 1.14
$4.20 - $7.35 294,393 9 $ 5.30 83,125 $ 5.17
$9.00 - $14.13 551,410 10 $ 9.65 13,705 $ 11.26
---------------- -----------------
1,221,457 345,070
================ =================
</TABLE>
The weighted average fair value of options granted was $5.60 in 1996
and $3.29 in 1995. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995, respectively:
risk-free interest rates ranging from 3.4 percent to 7.55 percent; expected
dividend yields of zero percent; expected lives of 5 years; and expected
volatility of 65 percent.
EMPLOYEE STOCK PURCHASE PLAN
The Company has authorized 125,000 shares of common stock for issuance
under the 1996 Employee Stock Purchase Plan. Employees may elect to withhold up
to 15% of their compensation for the purchase of the Company's common stock. The
amounts withheld are used to purchase the Company's common stock at a price
equal to 85% of the fair market value of the stock on the first or last day of a
six-month offering period, whichever is lower. The Company issued 15,248 shares
pursuant to this plan at an average price of $10.20 per share in 1996.
9. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases its facilities under noncancelable operating lease
agreements. As of December 31, 1996, the minimum future lease payments under
these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------------- -----------------
<S> <C>
1997 $ 488,632
1998 513,070
1999 215,490
</TABLE>
Total rent expense was approximately $451,000 for 1996, $241,000 for 1995 and
$220,000 for 1994.
47
<PAGE> 49
PURCHASE COMMITMENT
In January 1997, the Company entered into an agreement to acquire
certain imaging software from a third party. The Company expects to pay the
following minimum amounts related to the purchase agreement as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------------- --------------
<S> <C>
1997 850,000
1998 450,000
1999 200,000
</TABLE>
CONTINGENCIES
In January 1995, the Company discovered breaks in the attachment system
component of its Tube Endograft prosthesis. Based on the discovery, the Company
voluntarily decided to suspend clinical trials worldwide. To date, 37 patients
have experienced attachment system fractures, of which 8 patients have had open
surgery to remove the implant. As a result of the breakages, the Company made
significant enhancements to attachment systems and obtained FDA approval to
reinitiate clinical trials in late 1995. The Company has recorded a reserve
(included in accrued liabilities) amounting to $145,000 and $350,000 at December
31, 1996 and 1995, respectively, to monitor such patients from the original
trials. After considering this reserve, the Company believes the ultimate
outcome of this matter will not have a material impact on the financial
statements taken as a whole.
10. CREDIT AGREEMENT:
In February 1997, the Company entered into a $30 million credit
agreement. Borrowings under the agreement bear interest at 16.5% to 19%.
Interest accruing during the first thirty months in which loans are outstanding
is payable in full thirty months after the date the first loan is made. Interest
accruing thereafter is due quarterly. Principal payments are due in full on
March 31, 2002. Balances owed under the agreement may be prepaid subject to a
prepayment fee, which is initially set at 5% of the prepayment amount and is
reduced on each anniversary date of the agreement by 1%. Further, all principal
outstanding will be due upon the occurrence of certain asset sales and issuances
of equity securities, and will be due at the lender's discretion upon a change
in control of the Company. Among other requirements, the agreement prohibits the
Company from paying dividends and incurring additional indebtedness.
48
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
*3.1 - Restated Certificate of Incorporation of the Company.
3.2 - Bylaws of the Company.
4.1 - Reference is made to Exhibits 3.1 and 3.2.
*4.2 - Specimen Common Stock certificate.
*4.3 - Fourth Amended and Restated Investor Rights Agreement, dated
August 15, 1994, among the Company and the investors and the
founders named therein.
4.4 - Credit Agreement between the Company and Guidant Corporation,
dated February 28, 1997.
*10.1 - Form of Indemnification Agreement.
*10.2 - 1989 Stock Option Plan.
*10.3 - 1995 Stock Option Plan.
*10.4 - Employee Stock Purchase Plan.
*10.5 - 1996 Incentive Compensation Plan.
*10.6 - Employment agreement between the Company and W. James Fitzsimmons.
*10.7 - Employment agreement between the Company and Victor M. Bernhard.
**10.8 - Employment agreement between the Company and Ronald R. Giannotti.
***10.9 - Employment agreement between the Company and Elizabeth A. McDermott.
**10.10 - Lease by and between Menlo Business Park and Patrician
Associates, Inc. and the Company, as amended by First
Amendment to Lease Agreement, dated February 26, 1996.
10.11 - Rights Agreement between the Company and ChaseMellon Shareholder
Services dated February 5, 1997.
10.12 - Promissory Note Secured by Second Deed of Trust between the
Company and Ronald R. Giannotti dated February 9, 1997.
10.13 - Officer Severance Plan and Summary Plan Description effective
September 24, 1996.
10.14 - Multimedia Development Agreement between the Company and
Engineering Animation, Inc. dated March 19, 1997.
11.1 - Computation of Net Loss Per Share.
27.1 - Financial Data Schedule.
</TABLE>
- -----------
* Incorporated by reference from an exhibit to the Company's Registration
Statement on Form S-1, as amended, (File No. 33-80557) declared
effective by the Commission on February 6, 1996.
** Incorporated by reference from an exhibit to the Company Annual Report
on Form 10-K filed with the Commission on March 29, 1996.
*** Incorporated by reference from an exhibit to the Company Report on Form
10-Q filed with the Commission on November 12, 1996.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
ENDOVASCULAR TECHNOLOGIES, INC.
EFFECTIVE AS OF FEBRUARY 4, 1997
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election
of directors shall be held at such time and place, within or without the State
of Delaware, as may be fixed from time to time by the Board of Directors, and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with
the year 1996, shall be held at such date and time as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting,
at which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be
<PAGE> 2
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any
purpose or purposes, may only be called by the Board of Directors and shall be
called by the president or secretary at the request in writing of a majority of
the Board of Directors. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not fewer than twenty (20) nor more than sixty
(60) days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Nominations for election to the Board of Directors
must be made by the Board of Directors or by any stockholder of any outstanding
class of capital stock of the corporation entitled to vote for the election of
directors. Nominations, other than those made by the Board of Directors of the
corporation, must be preceded by notification in writing in fact
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<PAGE> 3
received by the Secretary of the corporation not less than thirty (30) days nor
more than sixty (60) days prior to any meeting of stockholders called for the
election of directors. Such notification shall contain the written consent of
each proposed nominee to serve as a director if so elected and the following
information as to each proposed nominee and as to each person, acting alone or
in conjunction with one or more other persons as a partnership, limited
partnership, syndicate or other group, who participates or is expected to
participate in making such nomination or in organizing, directing or financing
such nomination or solicitation of proxies to vote for the nominee:
(a) the name, age, residence, address, and business
address of each proposed nominee and of each such person;
(b) the principal occupation or employment, the
name, type of business and address of the corporation or other organization in
which such employment is carried on of each proposed nominee and of each such
person;
(c) the amount of stock of the corporation owned
beneficially, either directly or indirectly, by each proposed nominee and each
such person; and
(d) a description of any arrangement or
understanding of each proposed nominee and of each such person with each other
or any other person regarding future employment or any future transaction to
which the corporation will or may be a party.
The presiding officer of the meeting shall have the authority
to determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 12. At any meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (a)
pursuant to the corporation's notice of meeting, (b) by or at the direction of
the Board of Directors or (c) by any stockholder of the corporation who is a
stockholder of record at the time of giving of the notice provided for in this
Bylaw, who shall be entitled to vote at such meeting and who complies with the
notice procedures set forth in this Bylaw.
For business to be properly brought before any meeting by a
stockholder pursuant to clause (c) of this Section 12, the stockholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than thirty (30)
days nor more than sixty (60) days prior to the date of the meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf of the proposal is made and (d) any material
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<PAGE> 4
interest of such stockholder of record and the beneficial owner, if any, on
whose behalf the proposal is made in such business.
Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in this Section 12. The presiding officer of the meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance with the
procedures prescribed by this Section 12, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. Notwithstanding the foregoing
provisions of this Section 12, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Section 12.
ARTICLE III
DIRECTORS
Section 1. The number of directors that shall constitute the
whole board shall be determined by resolution of the Board of Directors or by
the stockholders at the annual meeting of the stockholders, except as provided
in Section 2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by
or under the direction of its board of directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice
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<PAGE> 5
given as hereinafter provided for special meetings of the Board of Directors, or
as shall be specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telephone, telegram or
facsimile; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two (2) directors
unless the board consists of only one director, in which case special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of the sole director.
Section 8. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed
by a majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or
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<PAGE> 6
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation; and, unless the resolution or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, for cause only, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or
of the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram, telephone or facsimile.
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<PAGE> 7
Section 2. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by
the Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or more
vice-presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose a president, a treasurer, and a
secretary, and may choose vice presidents, assistant secretaries and assistant
treasurers.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he shall
be present. He shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the
Vice Chairman of the Board, if any, shall preside at all meetings of the Board
of Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
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<PAGE> 8
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer
of the corporation; and in the absence of the Chairman and Vice Chairman of the
Board he shall preside at all meetings of the stockholders and the Board of
Directors; he shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. The president shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of
his inability or refusal to act, the vice-president, if any, (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 12. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
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<PAGE> 9
TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. Unless otherwise appointed, the chief financial officer shall be the
treasurer.
Section 14. The treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 15. If required by the Board of Directors, the
treasurer shall give the corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
Section 16. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full
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<PAGE> 10
or summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may
be facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or
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to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal,
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Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent
authorized under the laws of the State of Delaware, as those laws may be amended
and supplemented from time to time, indemnify any director made, or threatened
to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being an agent of the corporation
or a predecessor corporation or, at the corporation's request, a director of
another corporation, provided, however, that the corporation shall indemnify any
such agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he is or was a director of the corporation (or was serving at the
corporation's request as a director or officer of another corporation) shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation that alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to
be a contract between the corporation and each director who serves in such
capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
The Board of Directors in its discretion shall have power on
behalf of the corporation to indemnify any person, other than a director, made a
party to any action, suit or
12
<PAGE> 13
proceeding by reason of the fact that he, his testator or intestate, is or was
an officer or employee of the corporation.
To assure indemnification under this Section 6 of all
directors, officers and employees who are determined by the corporation or
otherwise to be or to have been "fiduciaries" of any employee benefit plan of
the corporation that may exist from time to time, Section 145 of the General
Corporation Law of Delaware shall, for the purposes of this Section 6, be
interpreted as follows: an "other enterprise" shall be deemed to include such an
employee benefit plan, including without limitation, any plan of the corporation
that is governed by the Act of Congress entitled "Employee Retirement Income
Security Act of 1974," as amended from time to time; the corporation shall be
deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the corporation also imposes duties
on, or otherwise involves services by, such person to the plan or participants
or beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to such Act of Congress shall be deemed
"fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or
new bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
13
<PAGE> 14
CERTIFICATE OF ADOPTION BY THE SECRETARY OF
ENDOVASCULAR TECHNOLOGIES, INC.
The undersigned, Robert V. Gunderson, Jr., hereby certifies
that he is the duly elected and acting Secretary of EndoVascular Technologies,
Inc., a Delaware corporation (the "Corporation"), and that the Bylaws attached
hereto constitute the Bylaws of said Corporation in effect as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
his name this 4th day of February, 1997.
Robert V. Gunderson, Jr.
----------------------------------------
Robert V. Gunderson, Jr.
Secretary
14
<PAGE> 1
EXHIBIT 4.4
CREDIT AGREEMENT
By and Between
ENDOVASCULAR TECHNOLOGIES, INC.
Borrower,
and
GUIDANT CORPORATION
Lender,
Dated as of February 27, 1997
------------------------
$30,000,000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 Definitions................................................... 1
ARTICLE 2 Loan.......................................................... 7
2.1 Loan ......................................................... 7
2.2 Interest ..................................................... 8
2.3 Payments ..................................................... 9
ARTICLE 3 Conditions Precedent ......................................... 11
3.1 Conditions to First Disbursement ............................. 11
3.2 Conditions to Subsequent Disbursements ....................... 12
3.3 Conditions for the Benefit of the Lender ..................... 13
3.4 Failure of Conditions ........................................ 13
ARTICLE 4 Representations and Warranties of the Borrower ............... 13
4.1 Due Organization ............................................. 14
4.2 Capitalization ............................................... 14
4.3 Requisite Power .............................................. 14
4.4 Authorization ................................................ 14
4.5 Officer Authorization ........................................ 14
4.6 Binding Nature ............................................... 14
4.7 No Conflict .................................................. 15
4.8 No Event of Default .......................................... 15
4.9 Financial Statements ......................................... 15
4.10 Tax Returns and Tax Matters .................................. 15
4.11 Compliance with Laws ......................................... 15
4.12 Full Disclosure .............................................. 16
4.13 Title to Assets .............................................. 16
4.14 Environmental Matters ........................................ 16
4.15 Employee Benefits ............................................ 17
ARTICLE 5 Affirmative Covenants ........................................ 17
5.1 Financial Statements and Notices ............................. 17
5.2 Access ....................................................... 19
5.3 Maintenance of Existence ..................................... 19
5.4 Facilities ................................................... 19
5.5 Compliance with Laws ......................................... 19
5.6 Material Agreements .......................................... 20
5.7 Insurance .................................................... 20
5.8 Taxes and Other Liabilities .................................. 20
5.9 Governmental Approvals ....................................... 20
ARTICLE 6 Negative Covenants ........................................... 20
6.1 Distributions ................................................ 20
6.2 Change of Business ........................................... 21
6.3 Liens ........................................................ 21
6.4 Indebtedness ................................................. 21
6.5 Sale - Leasebacks ............................................ 21
6.6 Transactions With Affiliates ................................. 21
6.7 Investments .................................................. 21
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 7 Events of Default ............................................ 22
7.1 Events of Default ............................................ 22
7.2 Acceleration ................................................. 24
ARTICLE 8 Representations and Warranties of the Lender ................. 24
8.1 Due Organization ............................................. 24
8.2 Requisite Power .............................................. 24
8.3 Authorization ................................................ 25
8.4 Officer Authorization ........................................ 25
8.5 Binding Nature ............................................... 25
8.6 No Conflict .................................................. 25
ARTICLE 9 Miscellaneous ................................................ 25
9.1 Successors and Assigns and Sale of Interests ................. 25
9.2 No Implied Waiver ............................................ 25
9.3 Amendments and Waivers ....................................... 26
9.4 Remedies Cumulative .......................................... 26
9.5 Severability ................................................. 26
9.6 Costs, Expenses and Attorneys' Fees .......................... 26
9.7 General Indemnification ...................................... 27
9.8 Confidentiality .............................................. 27
9.9 Notices ...................................................... 28
9.10 Entire Agreement ............................................. 28
9.11 Governing Law and Consent to Jurisdiction .................... 28
9.12 Publicity .................................................... 29
9.13 Counterparts ................................................. 29
9.14 Headings ..................................................... 29
</TABLE>
EXHIBITS AND SCHEDULES
No. Description
- --- -----------
Exhibit 2.1(b) Form of Note
Schedule 4.14 Environmental Disclosure
- ii -
<PAGE> 4
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is entered into as of February
27, 1997, between ENDOVASCULAR TECHNOLOGIES, INC., a Delaware corporation (the
"Borrower"), and GUIDANT CORPORATION, an Indiana corporation (the "Lender").
W I T N E S S E T H:
In consideration of the premises and mutual agreements herein contained,
the parties hereto agree as follows:
ARTICLE 1
Definitions
In addition to any terms defined elsewhere in this Agreement, the
following terms have the meanings indicated for purposes of this Agreement
(such definitions being equally applicable to the singular and plural forms of
the defined term):
"Acceleration" means that the Loan (i) shall not have been paid at the
Maturity Date, or (ii) shall have become due and payable prior to its stated
maturity pursuant to Section 7.2 hereof.
"Agreement" or "Credit Agreement" means this Credit Agreement, as from
time to time amended, modified or supplemented.
"Banking Day" means a day other than a Saturday or a Sunday when
commercial banks are open for business in San Francisco, California.
"Borrower" shall have the meaning specified in the heading to this
Agreement.
"Business" means the development, manufacture and sale (alone or with
others) of medical devices and related products that Business shall not mean the
development, manufacture or sale of coronary stents or other stents not used in
conjunction with the implementation of an endovascular graft and related
products and services.
"Cash Equivalents" means the net current cash value of (i) obligations
issued or guaranteed by the United States of America; (ii) certificates of
deposit, bankers' acceptances and other "money market instruments" issued by any
bank or trust company organized under the laws of the United States of America
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<PAGE> 5
or any state thereof and having capital and surplus of an aggregate amount not
less than $500,000,000; (iii) open market commercial paper bearing the highest
credit rating issued by Standard & Poor's Corp. or by another nationally
recognized credit rating firm; (iv) repurchase agreements entered into with any
bank or trust company organized under the laws of the United States of America
having capital and surplus in an aggregate amount not less than $500,000,000;
and (v) shares of "money market funds," each having net assets of not less than
$500,000,000.
"Cash Interest Payment Date" shall mean the earlier of the date that is
thirty (30) months after the First Disbursement Date (but in no event later
than the Maturity Date) or a date which is the last day of a calendar quarter
and is designated in a written notice from the Borrower to the Lender which
notice is received at least five (5) Banking Days prior to such date.
"Change of Control" means the occurrence of any of the following events:
(a) the Borrower is merged or consolidated with or into another corporation with
the effect that the common stockholders immediately prior to such merger or
consolidation hold less than fifty percent (50%) of the ordinary voting power of
the outstanding securities of the surviving corporation of such merger or the
corporation resulting from such consolidation; (b) a change in the composition
of the board of directors of the Borrower after the date hereof as a result of
which fewer than a majority of the incumbent directors are directors who either
(i) had been directors of the Borrower 12 months prior to such change, or (ii)
were elected, or nominated for election, to the board of directors with the
affirmative votes of a majority of the directors who had been directors of the
Borrower 12 months prior to such change and who were still in office at the time
of the election or nomination; or (c) a Person or group (as such term is used in
rule 13d-5 under the Securities Exchange Act of 1934) of Persons shall, as a
result of a tender or exchange offer, open market purchases, merger, privately
negotiated purchases or otherwise, have become, directly or indirectly, the
beneficial owner (within the meaning of rule 13d-3 under the Securities Exchange
Act of 1934) of securities having twenty percent (20%) or more of the ordinary
voting power of then outstanding securities of Borrower (provided that no Change
of Control shall occur as a result of any outstanding securities owned by any
such Person or group on the day hereof).
"Code" means the Internal Revenue Code of 1986, as amended.
"Disbursement Date" means any date after the First disbursement Date but
prior to August 31, 1999 on which a disbursement of the Loan is made. Each
Disbursement Date shall be on the date designated in a written notice from the
Borrower to the Lender; provided, however, that (a) the Lender shall not be
required to make any disbursement if the conditions thereto
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<PAGE> 6
are not satisfied, and (b) the Lender shall in no event be required to make any
disbursement after August 31, 1999.
"Dollars" and "$" mean United States Dollars.
"Effective Date" means the date of this Agreement.
"Environmental Claim" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief.
"Environmental Laws" means any Governmental Requirement pertaining to
land use, air, soil, surface water, groundwater (including the protection,
cleanup, removal, remediation or damage thereof), public or employee health or
safety or any other environmental matter; including without limitation, the
following laws as the same may be amended from time to time:
(1) Clean Air Act (42 U.S.C. Section 7401, et seq.);
(2) Clean Water Act (33 U.S.C. Section 1251, et seq.);
(3) Resource Conservation and Recovery Act (42 U.S.C.
Section 6901, et seq.);
(4) Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601, et seq.);
(5) Safe Drinking Water Act (42 U.S.C. Section 300f, et
seq.);
(6) Toxic Substances Control Act (15 U.S.C. Section 2601,
et seq.);
(7) Rivers and Harbors Act (33 U.S.C. Section 401, et seq.);
(8) Endangered Species Act (16 U.S.C. Section 1531, et
seq.);
(9) Occupational Safety and Health Act (29 U.S.C. Section
651, et seq.).
"Event of Default" shall have the meaning set forth in Article 7 hereof.
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<PAGE> 7
"First Disbursement Date" means the date on which the first
disbursement of the Loan occurs. The First Disbursement Date shall be on the
date designated in a written notice from the Borrower to the Lender; provided,
however, that (a) the Lender shall not be required to make any disbursement if
the conditions thereto are not satisfied, and (b) the Lender shall in no event
be required to make any disbursement after August 31, 1999.
"Fully Diluted Common Equity" means the number of shares of the
Borrower's common stock that would be outstanding assuming the exercise or
conversion of all outstanding options, warrants, convertible securities and any
other rights to acquire common stock.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination. Each accounting term not defined herein and each accounting term
partly defined herein to the extent not defined shall have the meaning given to
it under GAAP.
"Governmental Approvals" means any consent, right, exemption,
concession, permit, license, authorization, certificate, order, franchise,
determination or approval of any federal, state, provincial, municipal or
governmental department, commission, board, bureau, agency or instrumentality
required for the ownership of, or activities of the Borrower or any other
Person in connection with the business of the Borrower.
"Governmental Authority" means any nation or government, any state,
province or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Governmental Requirements" means all legal requirements in effect from
time to time including all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, certificates, orders, franchises, determinations, approvals,
notices, demand letters, directions and requirements of all governments,
departments, commissions, boards, courts, authorities, agencies, officials and
officers, and all instruments of record, foreseen or unforeseen, ordinary or
extraordinary, including but not limited to any change in any law, regulation
or the interpretation thereof by any foreign or domestic governmental or other
authority (whether or not having the force of law), relating now or at any time
heretofore or hereafter to the business or operations of the Borrower or to any
of the property owned, leased or
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<PAGE> 8
used by the Borrower, including, without limitation, the development, design,
construction, acquisition, start-up, ownership and operation and maintenance of
property.
"Hazardous Substance" means any pollutant, contaminant, toxic or
hazardous substance, material, constituent or waste as such terms are defined
in or pursuant to any Environmental Law.
"Incipient Default" shall have the meaning set forth in Section 3.1(c)
hereof.
"Indebtedness" means (a) any obligation for borrowed money; (b) any
obligation evidenced by bonds, debentures, notes or other similar instruments;
(c) any obligation to pay the deferred purchase price of property or for
services (other than in the ordinary course of business); (d) any capitalized
lease obligation; (e) any obligation or liability secured by a lien on any
asset of the Borrower, whether or not such obligation or liability is assumed;
and (f) any other long-term obligation or liability which is required by GAAP
to be shown as part of the liabilities on a balance sheet; provided, however,
that Indebtedness shall not mean obligations incurred in connection with (x)
the acquisition of equipment which is less than or equal to two million Dollars
($2,000,000) in the aggregate at any time outstanding or (y) any judgment,
order or decree that does not constitute an Event of Default pursuant to
Section 7.1(e) hereof.
"Insolvency Proceeding" means (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors; and (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors or other, similar
arrangement.
"Investment," as applied to any party, means any direct or indirect
ownership or purchase or other acquisition by that party of any capital stock,
equity interest, obligations or other securities, or a beneficial interest in
any capital stock, equity interest, obligations, or all or substantially all
assets used to conduct a business or a line of business, or any direct or
indirect loan, or capital contribution by that party to any other party, or any
joint venture or other arrangement involving the sharing of profits or losses
from joint business activities.
"Lender" shall have the meaning specified in the heading of this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
those created
-5-
<PAGE> 9
by, arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease obligation, any
financing lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the UCC or any comparable
law) and any contingent or other agreement to provide any of the foregoing;
provided, however, that Lien shall not mean liens created in connection with
the acquisition of equipment which secure obligations less than or equal to two
million Dollars ($2,000,000) in the aggregate at any time outstanding.
"Loan" shall have the meaning set forth in Section 2.1(a) hereof.
"Loan Documents" means this Agreement and the Note and all agreements,
instruments and documents (including, without limitation, if any, security
agreements, loan agreements, notes, fee agreements, guaranties, mortgages, deeds
of trust, subordination agreements, pledges, assignments of intellectual
property, powers of attorney, consents, assignments, contracts, notices,
leases, financing statements, letter of credit applications, reimbursement
agreements, certificates, statements, reports and notices and all other
writings) heretofore, now or hereafter executed by, on behalf of or for the
benefit of the Borrower and delivered to the Lender pursuant to or in
connection with this Agreement or the transactions contemplated hereby,
together with all amendments, modifications and supplements thereto.
"Material Adverse Change" means a material adverse change in the
business, assets, operations, or financial condition of the Borrower and its
subsidiaries considered as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, assets, operations, or financial condition of the Borrower and its
subsidiaries considered as a whole.
"Maturity" means the date on which the Loan or any portion thereof
becomes due and payable whether as stated, by virtue of mandatory prepayment,
by acceleration or otherwise.
"Maturity Date" means March 31, 2002.
"Note" has the meaning specified in Section 2.1(b).
"Obligations" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing, to the Lender by the Borrower of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, arising under any Loan Document, whether or not
for the payment of money, arising by reason of an extension of credit, absolute
or contingent, due or to become due, now existing or hereafter arising,
including all principal, interest, charges, expenses,
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<PAGE> 10
fees, attorneys' fees and disbursements and any other sum chargeable to the
Borrower under this Agreement or any other Loan Document.
"Permitted Encumbrances" means: (a) liens arising in connection with
worker's compensation and unemployment insurance; (b) any lien existing or
arising by operation of law in the ordinary course of business, such as a
"banker's lien" or similar right of offset; (c) liens for taxes, fees,
assessments or other government charges or levies, either not delinquent or
being contested in good faith by appropriate proceedings; (d) liens arising
from judgments, decrees or attachments in circumstances not constituting an
Event of Default hereunder; (e) easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title or similar encumbrances
affecting real property not interfering in any material respect with the
ordinary conduct of business; (f) liens in favor of customs and revenue
authorities arising in the ordinary course of business; (g) liens (including a
lien consisting of the rights of a lessor under a sale-leaseback transaction)
created in connection with the acquisition of equipment, which liens secure
obligations not in excess of two million Dollars ($2,000,000) in the aggregate
at any time outstanding; and (h) liens securing Indebtedness not in excess of
one million two hundred thousand Dollars ($1,200,000) in the aggregate at any
time outstanding.
"Person" means any individual, corporation, partnership, trust,
association or other entity or organization, including any government,
political subdivision, agency or instrumentality thereof.
"Prepayment Fee" means a fee owing from the Borrower to the Lender upon
exercise of the Borrower's right to pay principal and interest prior to
Maturity under Section 2.3(c), or obligation to pay principal and interest
prior to Maturity under Section 2.3(d), based on a percentage of the amount
prepaid. The initial Prepayment Fee shall be five percent (5%) of the prepaid
principal and such fee shall decrease by one percent (1%) each year on the
anniversary of the Effective Date. Notwithstanding the foregoing, the
Prepayment Fee shall be one percent (1%) of the outstanding principal amount of
the Loan if the Borrower's obligation to pay the Prepayment Fee occurs as a
result of a Change of Control.
ARTICLE 2
Loan
2.1 Loan.
(a) Loan. Subject to all of the terms and conditions of this
Agreement, Lender agrees to make a loan (the "Loan") to the
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<PAGE> 11
Borrower in the amount of thirty million Dollars ($30,000,000) to be governed
by the terms and conditions of, and repaid in accordance with, this Agreement.
The Borrower shall provide the Lender with at least five (5) Banking Days'
written notice of a requested disbursement. Disbursement amounts shall be in
multiples of one hundred thousand dollars ($100,000). Subject to the
satisfaction of applicable conditions set forth in Article 3 hereof, the Loan
shall be disbursed to the Borrower as follows: up to seven million Dollars
($7,000,000) shall be disbursed on the First Disbursement Date and any
subsequent Disbursement Date. In no event shall the Lender be obligated to
disburse to the Borrower more than seven million dollars ($7,000,000) in any
calendar quarter, or more than twenty million dollars ($20,000,000) during any
one year period measured from the anniversary date of the First Disbursement
Date, or more than thirty million dollars ($30,000,000) in total. In addition,
no more than two Disbursement Dates shall occur in any calendar quarter. The
Borrower shall use the proceeds of the Loan solely for the general corporate
purposes of the Business. Amounts prepaid in respect of the Loan (whether
repaid when due or prepaid) may not be reborrowed.
(b) Note. The Borrower's obligation to the Lender to repay the
Loan shall be evidenced by a promissory note of the Borrower (the "Note") in
the form attached hereto as Exhibit 2.1(b).
(c) Disbursement. Upon the prior or contemporaneous satisfaction of
all the applicable conditions precedent set forth in Article 3 hereof, or
waiver by the Lender of any conditions not so satisfied, the Lender shall
disburse the proceeds of each disbursement of the Loan to the Borrower (or to
such other Person as the Borrower may designate in writing) by wire transfer of
immediately available funds to such bank account as is specified in writing by
Borrower to Lender.
2.2 Interest.
(a) Interest. The outstanding principal amount of the Loan shall
bear interest at a rate per annum initially equal to sixteen and one-half
percent (16.5%). Unless the Borrower gives the Lender notice to cause the
occurrence of the Cash Interest Payment Date (in which event interest hereunder
shall be fixed at the rate of interest in effect on the Cash Interest Payment
Date), such rate of interest shall increase by one-quarter of one percent
(0.25%, or 25 "basis points") on the first day of the first calendar quarter
following the First Disbursement Date and thereafter on the first day of each
calendar quarter; provided, however, that (except upon the occurrence and
during the continuation of an Incipient Default or an Event of Default) the
rate of interest hereunder shall not exceed nineteen percent (19%) per annum.
Upon the occurrence and during the continuation of an Incipient Default or an
Event of Default, the outstanding principal amount of the Loan shall, to the
extent
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<PAGE> 12
permitted by applicable law, bear interest at a rate equal to the applicable
rate provided above plus two percent (2%) per annum. Interest shall be payable
as set forth in Section 2.3(a) below.
(b) Computation of Interest. Interest shall be computed for the
actual number of days elapsed on the basis of a year consisting of 360 days.
2.3 Payments.
(a) Interest Payments. Prior to the Cash Interest Payment Date,
interest accrued in respect of the Loan shall be added to the outstanding
principal amount thereof as of the last day of each calendar quarter. The
Lender and the Borrower acknowledge that the outstanding principal amount of
the Loan may thereby exceed thirty million dollars ($30,000,000) by an amount
equal to the aggregate amount of accrued interest that is added to outstanding
principal. On the Cash Interest Payment Date and on the last day of each
calendar quarter after the Cash Interest Payment Date until the Maturity Date,
and on the Maturity Date, the Borrower shall pay the Lender all interest then
accrued. Amounts added to principal pursuant to the first sentence of this
Section shall be treated as principal rather than interest and shall not be due
and payable by the Borrower on the Cash Interest Repayment Date.
(b) Loan Payment. The borrower shall repay the entire outstanding
principal amount of the Loan in full on the Maturity Date.
(c) Optional Prepayment. Upon not less than five (5) Banking Days'
prior written notice to the Lender, the Borrower may at any time prepay the
entire outstanding principal amount of the Loan or any portion thereof,
provided that (a) all accrued interest on the amount so prepaid shall be paid
in full, (b) the Borrower shall also pay to the Lender on the date the
Prepayment Fee, and (c) in the case of a prepayment of less than the entire
outstanding principal amount of the Loan, the principal amount outstanding
after such prepayment shall be an integral multiple of one hundred thousand
dollars ($100,000). If the Borrower gives the Lender notice of the Borrower's
intent to prepay the outstanding principal amount of the Loan in full, the
Lender shall not be obligated to make any further disbursements under this
Agreement.
(d) Prepayment for Sale of Assets. The Borrower shall repay the
outstanding principal amount of the Loan in its entirety, plus all interest
accrued to the date of prepayment, plus the Prepayment Fee, immediately upon the
occurrence of a sale, lease, exchange or transfer of all or substantially all
of the assets of the Borrower, and in such event the Lender shall have no
further obligation to make any further disbursements under this Agreement.
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<PAGE> 13
(e) Prepayment for Sale of Securities. In the event of a sale or
other issuance by the Borrower of any of its securities or any rights to
purchase or otherwise acquire any of its securities (except (A) for the
issuance or sale to officers, directors and employees of and consultants to
Borrower for the primary purpose of retaining the services of such persons
pursuant to option plans approved by the Borrower's shareholders, and (B) in
connection with a bona fide acquisition, joint venture or other business
relationship, provided such sale or other issuance is in furtherance of the
Business and does not result in the issuance of securities representing more
than twenty percent (20%) of Fully Diluted Common Equity immediately prior to
such sale or other issuance) or a sale, exchange or transfer by the Borrower or
any of its subsidiaries of any securities or rights to purchase or otherwise
acquire securities of any subsidiary of the Borrower, the Borrower shall
immediately upon the occurrence of any of such events repay to the Lender the
entire net proceeds thereof, up to the entire amount of the Obligations.
(f) Change of Control-Repayment. Upon the occurrence of a Change of
Control, the Borrower shall immediately notify the Lender in writing of such
occurrence and offer to pay to the Lender the outstanding principal amount of
the Loan, plus all interest accrued to date, plus the Prepayment Fee. The
Lender, shall have the option of requiring the Borrower to repay the Loan in
accordance with this Section 2.3(f) by giving the Borrower written notice to
such effect. The Borrower shall repay such amounts within ten (10) days after
the Lender's notice.
(g) Payments by the Borrower. All payments (including prepayments)
to be made by the Borrower on account of Principal and interest shall be made
without set-off or counterclaim and shall be made to the Lender by wire
transfer in Dollars and in immediately available funds to Lender's Account No.
102-7141, at Mellon Bank, located in Pittsburgh, Pennsylvania, A.B.A. No.
0430-0026-1 no later than 12:00 noon (Eastern Standard Time) of the Banking Day
on which payment is due. Any payment which is received by the Lender later than
12:00 noon (Eastern Standard Time) shall be deemed to have been received on the
immediately succeeding Banking Day. Whenever any payment hereunder shall be
stated to be due on a day other than a Banking Day, such payment shall be made
on the next succeeding Banking Day, and such extension of time shall in such
case be included in the computation of interest.
(h) Offset. In addition to and not in limitation of all rights of
offset that the Lender may have under applicable law, Lender, upon the
occurrence and during the continuance of an Acceleration, shall have the right
to appropriate and apply to the payment of all Obligations any and all amounts
that Lender may owe Borrower for any reason. Lender agrees promptly to notify
the Borrower after any such offset and application;
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provided, however, that the failure to give such notice shall not affect the
validity of such offset and application. The rights of Lender under this
Section 2.3(g) are in addition to the other rights and remedies which the
Lender may have.
ARTICLE 3
Conditions Precedent
3.1 Conditions to First Disbursement. The obligation of the Lender
to make the first disbursement of the Loan shall be subject to the prior or
contemporaneous satisfaction of each of the following conditions:
(a) Delivery of Documents. The Note shall have been duly
executed and delivered to the Lender on the First Disbursement Date;
(b) Reports, Certificates and Other Information. The Lender
shall have received the following, dated and in full force and
effect on the First Disbursement Date:
(i) a certificate of the Secretary or an Assistant
Secretary of the Borrower as to authorization of the execution,
delivery and performance of this Agreement and all of the other
Loan Documents by the Borrower;
(ii) a certificate, signed by an authorized officer
of the Borrower, stating (A) that the representations and
warranties contained in Article 4 hereof are then accurate and
complete in all material respects as though made on and as of
such date and (B) that there has then occurred no Event of
Default or Incipient Default which is continuing; and
(iii) such other instruments or documents as the
lender may reasonably request relating to the existence and good
standing of the Borrower or to the corporate authorization by
the Borrower for execution, delivery and performance of this
Agreement or any of the other Loan Documents.
(c) No Existing Default. No Event of Default or event which,
upon the lapse of time or the giving of notice or both, would constitute
an Event of Default (an "Incipient Default") shall exist on the First
Disbursement Date or after giving effect to the transactions
contemplated to take place hereunder on such date;
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(d) REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties set forth in Article 4 hereof shall be true and correct
in all material respects on and as of the First Disbursement Date, and
after giving effect to the transactions contemplated to occur on such
date;
(e) CASH BALANCES. The Lender shall have received a certificate
of the Chief Financial Officer of the Borrower in form and substance
satisfactory to the Lender stating that as of the close of the second
Banking Day prior to the First Disbursement Date, the aggregate amount
of cash and Cash Equivalents of the Borrower and its subsidiaries on a
consolidated basis does not exceed $10,000,000;
(f) LEGAL OPINION. The Lender shall have received an opinion of
counsel to the Borrower, in form and substance satisfactory to the
Lender and its counsel, as to the enforceability of this Agreement and
the other Loan Documents and as to such other matters as the Lender and
its counsel may reasonably request; and
(g) OTHER DOCUMENTS. The Lender shall have received any other
document, instrument, undertaking or certificate stated in any of the
Loan Documents to be delivered on the First Disbursement Date or as the
Lender may reasonably request.
3.2 CONDITIONS TO SUBSEQUENT DISBURSEMENTS. The obligation of the
Lender to make each disbursement of the Loan after the first disbursement
thereof shall be subject to the prior or contemporaneous satisfaction of each
of the following conditions:
(a) FIRST DISBURSEMENT. The first disbursement of the loan shall
have occurred.
(b) REPORTS, CERTIFICATES AND OTHER INFORMATION. The Lender
shall have received the following, dated and in full force and effect on
the respective Disbursement Date:
(i) a certificate, signed by an authorized officer of the
Borrower, stating (A) that the representations and warranties contained
in Article 4 hereof are then accurate and complete in all material
respects as though made on and as of such date and (B) that there has
then occurred no Event of Default or Incipient Default which is
continuing; and
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(ii) such other instruments or documents as the Lender
may reasonably request relating to the existence and good
standing of the Borrower or to the corporate authorization by
the Borrower for execution, delivery and performance of this
Agreement or any of the other Loan Documents.
(c) No Existing Default. No Event of Default or Incipient
Default shall exist on the respective Disbursement Date or after giving
effect to the transactions contemplated to take place hereunder on such
date;
(d) Representations and Warranties Correct. The
representations and warranties set forth in Article 4 hereof shall be
true and correct in all material respects on and as of the respective
Disbursement Date, and after giving effect to the transactions
contemplated to occur on such date;
(e) Cash Balances. The Lender shall have received a
certificate of the Chief Financial Officer of the Borrower in form and
substance satisfactory to the Lender stating that as of the close of the
second Banking Day prior to the respective Disbursement Date, the
aggregate amount of cash and cash equivalents of the Borrower and its
subsidiaries on a consolidated basis does not exceed $10,000,000; and
(f) Other Documents. The Lender shall have received any
other document, instrument, undertaking or certificate stated in any of
the Loan Documents to be delivered on the Disbursement Date or as the
Lender may reasonably request.
3.3 Conditions for the Benefit of the Lender. The conditions set
forth in this Article 3 are for the exclusive benefit of the Lender and may be
waived, for purposes of this Agreement, only by a written waiver declaration
signed by the Lender.
3.4 Failure of Conditions. Lender's obligations hereunder shall
terminate, and the Lender shall have no further obligation to disburse the
Loan, if the first Disbursement Date shall not have occurred by August 31, 1999.
ARTICLE 4
Representations and Warranties of the Borrower
In order to induce Lender to enter into or become party to this
Agreement and to make the Loan, the Borrower makes the following representations
and warranties to the Lender:
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<PAGE> 17
4.1 Due Organization. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Borrower is duly licensed or qualified to conduct business and
in good standing in each jurisdiction wherein the character of the property
owned or the nature of the business transacted by it makes such licensing or
qualifications necessary, except as to jurisdictions where the failure to be so
licensed or qualified would not have a Material Adverse Effect.
4.2 Capitalization.
(a) The corporate charter or certificate of incorporation and all
amendments thereto for the Borrower have been duly filed and are in proper
order. All of the outstanding capital stock of the Borrower has been validly
issued in compliance with all federal and state securities laws and is fully
paid and nonassessable.
(b) As of the First Disbursement Date and each Disbursement Date
the Borrower is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock.
4.3 Requisite Power. The Borrower has all requisite corporate or
other legal power and all governmental licenses, permits, authorizations,
consents and approvals necessary to own and operate its properties and to carry
on its business as now conducted and as proposed to be conducted. The Borrower
has all requisite power to borrow the sums provided for in this Agreement and
to execute, deliver, issue and perform this Agreement and the Note.
4.4 Authorization. All corporate action on the part of the
Borrower and its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement and the Note and the
other Loan Documents has been duly taken and is in full force and effect.
4.5 Officer Authorization. Each authorized officer of the Borrower
executing this Agreement or any of the other Loan Documents is (as of the date
of such execution) duly and properly in office and fully authorized to execute
and deliver the same.
4.6 Binding Nature. This Agreement, the Note and each of the other
Loan Documents is, or upon the execution and delivery thereof will be, a
legal, valid and binding obligation of the Borrower, and in full force and
effect and enforceable in accordance with its respective terms, except for the
effect of applicable laws regarding bankruptcy or insolvency or similar laws
affecting creditors' rights generally and by general principles of equity
relating to enforceability.
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<PAGE> 18
4.7 No Conflict. Neither the execution nor delivery of this
Agreement, the Note or any of the other Loan Documents nor fulfillment of nor
compliance with the terms and provisions hereof or thereof will (a) conflict
with or result in a breach of any Governmental Requirement, or of any agreement
or instrument binding upon the Borrower, where such conflict or breach is
reasonably likely to have a Material Adverse Effect, or conflict with or result
in a breach of any provision of the corporate charter or by-laws of the
Borrower, or (b) result in the creation or imposition of any Lien (other than a
Permitted Lien) upon any property of the Borrower pursuant to any such agreement
or instrument, except pursuant to or as contemplated by this Agreement or any
other Loan Documents. No authorization, consent or approval or other action by,
and no notice to or filing with, any Governmental Authority or any other Person
is required to be obtained or made by the Borrower, for the due execution,
delivery and performance by the Borrower of this Agreement, the Note or any of
the other Loan Documents or for the validity or enforceability thereof.
4.8 No Event of Default. No Event of Default or Incipient Default
has occurred and is continuing or would result from the execution of this
Agreement.
4.9 Financial Statements. The financial statements of the Borrower
and its subsidiaries on a consolidated basis dated as of December 31, 1996, and
for the period then ended, copies of which have been furnished to the Lender,
or the financial statements furnished by the Borrower to the Lender pursuant to
Section 5.1 hereof, fairly present the financial condition and results of
operations of the Borrower and its subsidiaries taken as a whole. All such
financial statements were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein. Neither the Borrower nor any of its subsidiaries is subject to any
material liability, direct or contingent, including but not limited to,
liabilities for taxes, long-term leases or long-term commitments, except as
disclosed in such financial statements.
4.10 Tax Returns and Tax Matters. Borrower has filed all federal and
state income tax returns which are required to be filed, and has paid all taxes
as shown on said returns and on all assessments received by it to the extent
that such taxes have become due. There is no proposed, asserted or assessed
tax deficiency against the Borrower where any such deficiency or all such
deficiencies, considered in the aggregate, could have a Material Adverse Effect.
4.11 Compliance with Laws. The Borrower is in compliance with all
Governmental Requirements applicable to its properties, assets and business,
except where the failure to so comply would not in the aggregate have a
Material Adverse Effect. There are no proceedings pending or, to its
knowledge, threatened, to terminate or modify any Government Approvals;
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<PAGE> 19
which termination or modification would have a Material Adverse Effect.
4.12 Full Disclosure. None of the representations or warranties made
by the Borrower in the Loan Documents as of the date of such representations and
warranties contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they are made, not
misleading.
4.13 Title to Assets. The Borrower and its subsidiaries have good
and marketable title, free and clear of all Liens other than Permitted Liens, to
such properties and assets as are reasonably necessary for the conduct of their
business, taken as a whole.
4.14 Environmental Matters. Except as disclosed in Schedule 4.14
attached hereto, (i) to the knowledge of the Borrower, the Borrower complies in
all respects with all applicable Environmental Laws; (ii) to the knowledge of
the Borrower, none of the properties or operations of the Borrower is subject to
any judicial or administrative proceeding alleging the violation of any
Environmental Law; (iii) to the knowledge of the Borrower, none of the
properties or operations of the Borrower is the subject of any federal or state
investigation concerning any use or release of any Hazardous Substance; (iv)
neither the Borrower, nor, to the knowledge of the borrower, any predecessor of
the Borrower, has filed any notice under any federal or state law indicating
past or present treatment, storage or disposal of a hazardous waste or reporting
a spill or release of a Hazardous Substance into the environment; (v) to the
knowledge of the Borrower, the Borrower does not have any contingent liability
in connection with any release of any Hazardous Substance into the environment
by Borrower, and no release which could require remediation has occurred; (vi)
none of the Borrower's operations involve the generation, transportation,
treatment, storage or disposal of Hazardous Substances (other than in the normal
course of and incidental to the ordinary conduct of its business); (vii) the
Borrower has not disposed of any material amount of any Hazardous Substance in,
on or about any premises owned, leased or used by the Borrower and, to the
Borrower's knowledge, neither has any lessee, prior owner, or other Person;
(viii) no surface impoundments or, to the Borrower's knowledge, underground
storage tanks are located in, on or about any of the premises owned, leased or
used by the Borrower or any of its subsidiaries; and (ix) to the knowledge of
Borrower, no Lien in favor of any Governmental Authority exists for (A) any
liability under environmental Laws, or (B) damages arising from or costs
incurred by such Governmental Authority in response to a release of any
Hazardous Substance into the environment has been filed or attached to any of
the premises owned, leased or used by the Borrower or any of its subsidiaries.
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4.15 Employee Benefits. Neither the Borrower nor any other
corporation, trade or business which, together with the Borrower, would be
treated as a single "employer" under Sections 414(b), (c), (m) or (o) of the
Internal Revenue Code ("controlled group member") is now or has at any time
during the last five years been a "contributing sponsor" (as defined in Section
4001(a)(13) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) with respect to any defined benefit pension plan covered by Title IV
of ERISA by reason of Section 4021 of ERISA. Neither the Borrower no any
controlled group member is now or has at any time during the last five years
been obligated to contribute to any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA. Other than "continuation coverage" required under
Section 601 of ERISA the Borrower does not pay or provide for any
post-retirement Welfare benefits for its retired employees.
ARTICLE 5
Affirmative Covenants
The Borrower covenants and agrees that so long as any Obligation is
outstanding it will comply with and, if applicable, cause any of its
subsidiaries to comply with the following provisions:
5.1 Financial Statements and Notices. The Borrower shall furnish to
the Lender the following financial statements, information and notices:
(a) Within forty-five (45) days after the close of the first
three quarters of Borrower's fiscal year, commencing with the fiscal
quarter ending March 31, 1997: (i) a statement of stockholders' equity
for such quarter; (ii) a statement of cash flows for such quarter; (iii)
an income statement for such quarter; and (iv) a balance sheet as of the
end of such quarter. All such statements shall be prepared on a
consolidated and consolidating basis for the Borrower and its
subsidiaries, in reasonable detail, subject to year-end audit
adjustments and without footnotes, shall include appropriate comparisons
to the same period for the prior year, and shall be certified by the
Chief financial Officer of the Borrower to have been prepared in
accordance with GAAP consistently applied, subject to year-end audit
adjustments;
(b) Within ninety (90) days after the close of Borrower's
fiscal year, commencing with the fiscal year ending December 31, 1996 a
copy of the annual audit report for such year for the Borrower,
including for the Borrower and its Subsidiaries on a consolidated basis
(i) a statement of stockholders'
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equity for such fiscal year; (ii) a statement of cash flows for such
fiscal year, (iii) an income statement for such fiscal year, and (iv) a
balance sheet as of the end of such fiscal year, together with like
internal unaudited consolidating financial statements for the Borrower
and its Subsidiaries. All statements required by this Section 5.1(b)
shall include appropriate comparisons to the prior year. Such
consolidated financial statements shall be audited by an independent
certified public accounting firm and shall include a report of such
accounting firm, which report shall be unqualified as to the Borrower's
status as a going concern and as to the scope of the audit performed by
such accounting firm and shall state that such financial statements
fairly present the financial position of the Borrower and its
subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity
with GAAP, consistently applied;
(c) Promptly after they are sent, made available or filed,
copies of all material reports, proxy statements and financial
statements that the Borrower sends or makes available to its
stockholders and all registration statements and reports that the
Borrower may file with the Securities and Exchange Commission;
(d) Promptly but in no event later than five (5) Banking Days
after the Chief Financial Officer of the Borrower obtains knowledge of
the occurrence of an Event of Default or an Incipient Default and,
within ten (10) calendar days after obtaining such knowledge, provide
the Lender with a statement of an authorized officer of the Borrower
setting forth details of such Event of Default or Incipient Default and
the action which the Borrower proposes to take with respect thereto;
(e) Promptly but in no event later than ten (10) calendar days
after the Chief Financial Officer of the Borrower learns thereof,
written notice of any actual or threatened claims, litigation, suits,
investigations, or proceedings against or affecting the Borrower,
including, without limitation: (i) any claim, litigation, suit,
investigation, proceeding or dispute involving a monetary amount,
whether or not covered by insurance, in excess of two million dollars
($2,000,000), (ii) any denial, suspension, or revocation of any material
Governmental Approval; (iii) any investigation or proceeding before or
by any administrative or governmental agency which is reasonably likely
to have a Material Adverse Effect; (iv) any environmental Claim from any
person concerning any
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<PAGE> 22
alleged violation of any Environmental Law by the Borrower or any of its
predecessors which is reasonably likely to either (x) have a Material
Adverse Effect or (y) result in a liability to the Borrower, whether or
not insured, in excess of two million Dollars ($2,000,000); or (v) the
commencement of any investigation by any Government Authority, or the
receipt by the Borrower of written request by any Government Authority
for information, relating to the handling, storage or disposal of any
Hazardous Substance, or the release thereof into the environment, by the
Borrower, or any of its predecessors, or any other Person, which
investigation or request is other than routine; and
(f) Within a reasonable time after a request therefor, such
other information as the Lender may reasonably request.
Each notice pursuant to this Section 5.1 (d), (e) or (f) shall be
accompanied by a written statement by an authorized officer of the Borrower
setting forth details of the occurrence referred to therein known to such
officer and stating what action the Borrower proposes to take with respect
thereto.
5.2 Access. The Borrower shall permit the Lender, at such reasonable
times and intervals as the Lender may designate upon reasonable notice, at its
own expense by and through the representatives and agents of the Lender, to
inspect, audit and examine its books and records, to make copies thereof, to
discuss its affairs, finances and accounts with its officers and independent
public accountants, and to visit and inspect its properties.
5.3 Maintenance of Existence. The Borrower, each of its subsidiaries
shall preserve and maintain their respective corporate existences and all of
their licenses, privileges and franchises and other rights necessary or
desirable in the normal course of their businesses.
5.4 Facilities. The Borrower and its subsidiaries shall use
commercially reasonable efforts to keep the properties used in their respective
businesses in good repair, working order and condition, and from time to time
shall use commercially reasonable efforts to make necessary repairs or
replacements thereto so that their property shall be maintained adequately for
its intended use. The foregoing notwithstanding, the Borrower may dispose of
obsolete and unneeded property.
5.5 Compliance with Laws. The Borrower and its subsidiaries shall
use commercially reasonable efforts to comply in all respects with all
Governmental Requirements, except where the failure to do so could not in the
aggregate have a Material Adverse Effect.
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5.6 Material Agreements. The Borrower and its subsidiaries shall use
commercially reasonable efforts to comply in all material respects with the
terms of each agreement to which any of them is a party.
5.7 Insurance. The Borrower and its subsidiaries shall maintain in
full force and effect insurance of such types and in such amounts as are
customarily carried in their respective lines of business, including, but not
limited to, fire, public liability, property damage, hazard insurance, products
liability and workers' compensation insurance.
5.8 Taxes and Other Liabilities. The Borrower and its subsidiaries
shall pay and discharge when due any and all indebtedness, obligations,
liabilities, assessments and real and personal property taxes, including, but
not limited to, federal and state income and personal and real property taxes,
except as may be subject to good faith contest or as to which a bona fide
dispute may arise; provided, however, that an adequate reserve therefor is made
in accordance with GAAP.
5.9 Governmental Approvals. The Borrower and its subsidiaries shall
use commercially reasonable efforts to apply for, diligently pursue, and obtain
or cause to be obtained, and shall thereafter maintain in full force and effect
all material Governmental Approvals that shall now or hereafter be necessary
under any Governmental Requirement (i) for land use, public and employee health
and safety, pollution or protection of the environment and (ii) for the
operation of the business of the Borrower and the subsidiaries, except where the
failure to obtain or maintain such Governmental Approval would not have a
Material Adverse Effect.
ARTICLE 6
Negative Covenants
The Borrower covenants and agrees that so long as any Obligation is
outstanding and the Lender has not failed to make a disbursement of the Loan
which Lender was required to make, the Borrower will comply with and, if
applicable, cause any of its subsidiaries to comply with, the following
provisions:
6.1 Distributions. The Borrower shall not, directly or indirectly,
make or declare any dividend (in cash, securities or any other form of property)
on, or other payment or distribution on account of, or set aside assets for a
sinking or other similar fund for purchase, or redeem, purchase, retire or
otherwise acquire, any capital stock of the Borrower, or make any other
distribution in respect thereof, whether in cash or other property (provided,
however, that the Borrower may repurchase shares of its capital stock at cost
from officers, directors, employees and consultants following termination of
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their services pursuant to option plans approved by the Borrower's shareholders.
The Borrower shall not permit any subsidiary of the Borrower to make or declare
any dividend (in cash, securities or any other form of property) on, or other
payment or distribution on account of, or set aside assets for a sinking or
other similar fund for purchase, or redeem, purchase, retire or otherwise
acquire, any capital stock of the Borrower or any subsidiary of the Borrower,
except that a wholly owned subsidiary of the Borrower may declare and pay cash
dividends or otherwise distribute capital to the Borrower.
6.2 Change of Business. The Borrower shall not engage in any
business other than the Business.
6.3 Liens and Encumbrances. The Borrower shall not, and shall not
allow any of its subsidiaries to, create, incur, assume, or permit to exist any
Lien of any kind upon any of the property or assets of the Borrower or such
subsidiary now owned or hereafter acquired, other than Permitted Encumbrances.
6.4 Indebtedness. Neither the Borrower nor any of its subsidiaries
shall incur, create, assume or permit to exist any Indebtedness except: (a) the
Obligations; (b) trade Indebtedness incurred in the ordinary course of business;
(c) taxes, assessments and governmental charges or levies which are not
delinquent or which are being contested in good faith and for which adequate
reserves have been set aside on the books of the Borrower or the affected
Subsidiary of the Borrower; and (d) current liabilities incurred in connection
with the obtaining of goods or services in the ordinary course of business.
6.5 Sale - Leasebacks. Neither the Borrower nor any of its
subsidiaries shall enter into or become liable in connection with any
sale-leaseback transaction, except for a sale-leaseback in connection with which
the property subject thereto is subject to a Permitted Encumbrance.
6.6 Transactions With Affiliates. Except on terms no less favorable
to the Borrower than would be obtainable if no such relationship existed,
Borrower shall not purchase, acquire or lease any property from, or sell,
transfer or lease any property to, or loan or advance money to, or otherwise
deal with any affiliate or subsidiary.
6.7 Investments. Neither the Borrower nor any of its subsidiaries
shall make or permit to remain outstanding any Investment, except (a)
Investments by the Borrower in its subsidiaries; (b) investment-grade debt
securities having a term not longer than one (1) year; (c) Investments received
in the settlement of any debt owing to the Borrower or any of its subsidiaries,
where such debt was incurred in the ordinary course of business; (d) other
Investments not to exceed three million Dollars ($3,000,000) in the aggregate at
any time outstanding;
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and (e) other Investments in connection with a bona fide acquisition, joint
venture or other business relationship, provided such sale or other issuance is
in furtherance of the Business and does not result in the issuance of securities
representing twenty percent (20%) or more of Fully Diluted Common Equity
immediately prior to such sale or other issuance.
ARTICLE 7
Events of Default
7.1 Events of Default. Each of the following shall constitute an
Event of Default under this Agreement:
(a) Principal Payments. The Borrower shall fail to pay when due
(whether due when scheduled or as a result of a mandatory prepayment)
any payment of principal in respect of the Loan;
(b) Interest and Other Payments. The Borrower shall fail to pay
when due any payment of interest or other sum payable hereunder or under
any of the other Loan Documents and continuance of such default for
fifteen (15) Banking Days after notice thereof to the Borrower from the
Lender;
(c) Other Covenants and Loan Agreements. The Borrower shall
default in the performance of any of its respective agreements set forth
in any provision herein or in any of the other Loan Documents (and not
constituting an Event of Default under any of the other clauses of this
Section 7.1) and such default shall continue for thirty (30) days after
notice thereof to the Borrower from the Lender;
(d) Representations and Warranties. Any representation or
warranty contained in Section 4 hereof or certification pursuant to
Section 3.2(b)(i) or 5.1 made by the Borrower or any officer of the
Borrower, shall be untrue in any material and adverse respect and shall
have a Material Adverse Effect, in any case on any date as of which the
facts set forth are stated or certified;
(e) Judgments. Any final judgment, order or decree shall be
rendered against the Borrower in an amount equal to or greater than four
million Dollars ($4,000,000), and either (i) enforcement proceedings
shall have been commenced by any Person upon such judgment or order or
(ii) there shall be any period of thirty (30) consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect,
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unless such judgment, order or decree shall, within such 30-day period,
be vacated or discharged (other than by satisfaction thereof);
(f) Cross-Default. The Borrower shall (i) fail to pay when due,
whether by stated maturity, acceleration or otherwise, any Indebtedness
for borrowed money of, or any guaranty of Indebtedness for borrowed
money by, the Borrower (not arising hereunder or under any of the other
Loan Documents) outstanding in aggregate principal amount greater than
(A) two million Dollars ($2,000,000), and such failure continues after
the applicable grace period, if any, specified in the document relating
thereto, or (ii) fail to perform or observe (subject to any applicable
grace period) any agreement, covenant or condition with respect to any
such Indebtedness or guaranty if the effect of such failure is to
accelerate the maturity of any such Indebtedness or to permit the holder
or holders of any such Indebtedness or guaranty, or any trustee or agent
for such holders, to cause such Indebtedness to become due and payable
prior to its expressed maturity or to call upon such guaranty in advance
of nonpayment of the guaranteed Indebtedness;
(g) Insolvency. An Insolvency Proceeding (whether voluntary or
involuntary) shall be commended against the Borrower or any subsidiary
of the Borrower; or the Borrower or any subsidiary of the Borrower shall
file a petition initiating or shall otherwise institute any similar
Insolvency Proceeding under any other applicable federal or state law,
or shall consent thereto; or the Borrower or any subsidiary of the
Borrower shall apply for, or by consent or acquiescence there shall be
an appointment of, a receiver, liquidator, sequestrator, trustee or
other officer with similar powers, or the Borrower or any subsidiary of
the Borrower shall make an assignment for the benefit of creditors; or
the Borrower or any subsidiary of the Borrower shall admit in writing
its inability to pay its debts generally as they become due; or, if an
involuntary case shall be commenced seeking the liquidation or
reorganization of the Borrower or any subsidiary of the Borrower under
Chapter 7 or Chapter 11, respectively, of the United States Bankruptcy
Code, or any similar proceeding shall be commenced against the Borrower
or any subsidiary of the Borrower under any other applicable federal or
state law, and (i) the petition commencing the involuntary case is not
timely controverted; or (ii) the petition commencing the involuntary
case is not dismissed within forty-five (45) days of its filing; or
(iii) an interim trustee is appointed to take possession of all or a
portion of the property
-23-
<PAGE> 27
and/or to operate all or any part of the business of the debtor; or (iv)
an order for relief shall have been issued or entered therein; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee or other
officer having similar powers over the debtor, or of all or any part of
the property of any of the foregoing, shall have been entered; or any
other similar relief shall be granted against the Borrower or any
subsidiary of the Borrower, under any applicable federal or state law;
or
(h) Invalidity of Loan Documents. Any of the Loan Documents
shall cease for any reason to be in full force and effect and the Lender
shall be substantially deprived of any of its rights under the Loan
Documents or any party thereto (other than Lender) shall purport to
disavow its obligations thereunder, shall declare that it does not have
any further obligation thereunder or shall contest the validity or
enforceability thereof.
7.2 Acceleration. If any Event of Default described in Section
7.1(g) hereof shall occur, the Note and all other Obligations shall become
immediately due and payable, all without notice of any kind, and the Lender
shall have no further obligation to make any disbursement of the Loan which has
not then been made. Notwithstanding any other provision in this Agreement, if
any other Event of Default shall occur, the Lender shall have no further
obligation to make any disbursement of the Loan which has not then been made
and may declare, at any time after the occurrence of an Event of Default, the
Note and all other Obligations to be due and payable, whereupon the Note and all
other Obligations shall immediately become due and payable, all as so declared
by the Lender and without presentment, demand, protest or other notice of any
kind. Any such declaration made pursuant to this Section 7.2 may be rescinded
by the Lender.
ARTICLE 8
Representations and Warranties of the Lender
The Lender makes the following representations and warranties to the
Borrower:
8.1 Due Organization. The Lender is a corporation duly organized,
validly existing and in good standing under the laws of the State of Indiana.
8.2 Requisite Power. The Lender has all requisite corporate or
other legal power and all governmental licenses, per-
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<PAGE> 28
mits, authorizations, consents and approvals necessary to enter into and
perform its obligations under this Agreement.
8.3 Authorization. All corporate action on the part of the Lender
and its directors and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement and the other Loan Documents has
been duly taken and is in full force and effect.
8.4 Officer Authorization. Each authorized officer of the Lender
executing this Agreement or any of the other Loan Documents is (as of the date
of such execution) duly and properly in office and fully authorized to execute
and deliver the same.
8.5 Binding Nature. This Agreement is a legal, valid and binding
obligation of the Lender, and in full force and effect and enforceable in
accordance with its terms, except for the effect of applicable laws regarding
bankruptcy or insolvency or similar laws affecting creditors' rights generally
and by general principles of equity relating to enforceability.
8.6 No Conflict. Neither the execution nor delivery of this
Agreement or any of the other Loan Documents nor fulfillment of nor compliance
with the terms and provisions hereof or thereof will (a) conflict with or
result in a breach of any Governmental Requirement, or of any agreement or
instrument binding upon the Lender, or conflict with or result in a breach of
any provision of the articles of incorporation or by-laws of the Lender. No
authorization, consent or approval or other action by, and no notice to or
filing with, any Governmental Authority or any other Person is required to be
obtained or made by the Lender, for the due execution, delivery and performance
by the Lender of this Agreement or any of the other Loan Documents or for the
validity or enforceability thereof.
ARTICLE 9
Miscellaneous
9.1 Successors and Assigns and Sale of Interests. The terms and
provisions of this Agreement shall be binding upon, and, subject to the
provisions of this Section 9.1, the benefits thereof shall inure to, the
parties hereto and their respective successors and assigns; provided, however,
that the Borrower shall not assign this Agreement or any of its rights, duties
or obligations hereunder without the prior written consent of the Lender; and
the Lender shall not delegate its obligations or duties hereunder without the
prior written consent of the Borrower.
9.2 No Implied Waiver. No delay or omission to exercise any right,
power or remedy accruing to the Lender upon any
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<PAGE> 29
breach or default of the Borrower under this Agreement or under any of the
other Loan Documents shall impair any such right, power or remedy of the
Lender, nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of or in any similar breach or default occurring
thereafter, nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default occurring theretofore or thereafter.
9.3 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document and no consent with
respect to any departure by the Borrower therefrom, shall be effective unless
the same shall be in writing and signed by the Lender, and then any such waiver
shall be effective only in the specific instance and for the specific purpose
for which given.
9.4 Remedies Cumulative. All rights and remedies, either under
this Agreement, by law or otherwise afforded to the Lender shall be cumulative
and not exclusive, and any single or partial exercise of any power or right
hereunder or thereunder does not preclude other or further exercise thereof, or
the exercise of any other power or right. In no event shall either party hereto
be liable for consequential damages for breach hereof, even if foreseeable.
9.5 Severability. Any provision of this Agreement, the Note or any
of the other Loan Documents which is prohibited or unenforceable in any
jurisdiction, shall be, only as to such jurisdiction, ineffective to the extent
of such prohibition or unenforceability, but all the remaining provisions of
this Agreement, the Note and the other Loan Documents shall remain valid.
9.6 Costs, Expenses and Attorneys' Fees. Each party shall pay all
of its fees and expenses associated with the negotiation, preparation,
execution and closing of this Agreement and the first disbursement of the Loan,
including, but not limited to, reasonable attorneys' fees and expenses. The
Borrower shall pay all costs and expenses, including, but not limited to,
reasonable attorneys' fees and expenses (including the allocated cost of
in-house counsel), expended or incurred by the Lender in collecting any sum
which becomes due under the Note or under this Agreement, any of the other Loan
documents, or in the protection, perfection, preservation and enforcement of
any and all rights of the Lender in connection with the Loan Documents
including, without limitation, the fees and costs incurred in any out-of-court
work-out or a bankruptcy or reorganization proceeding. This obligation on the
part of the Borrower shall survive the expiration or termination of this
Agreement, without occurrence of the Closing Date and shall survive repayment
of the Loan in full.
-26-
<PAGE> 30
9.7 General Indemnification. The Borrower shall indemnify and hold
the Lender and each of its directors, officers, employees, affiliates,
attorneys and agents (collectively referred to herein as the "Lender
Indemnitees") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature whatsoever (including without
limitation, any expenses (including attorneys' fees and the allocated cost of
in-house counsel) incurred by any such Lender Indemnitee in connection with any
investigation in connection with any such matter, whether or not any such
Lender Indemnitee shall be designated a party thereto) which may be imposed on,
incurred by or asserted against such Lender Indemnities by any Person other
than the Lender with which such Lender Indemnitee is affiliated (whether direct,
indirect or consequential and whether based on any federal or state laws or
other statutory regulations, including, without limitation, securities,
environmental and commercial laws and regulations, under common law or at
equitable cause, or on contract or otherwise) in any manner relating to or
arising out of this Agreement and any other Loan Documents, or any act, event
or transaction related or attendant thereto; the making of the Loan hereunder,
the management of the Loan (including any liability under federal, state or
local environmental laws or regulations), the use or intended use of the
proceeds of the Loan (collectively, the "Indemnified Matters"); provided,
however, that the Borrower shall have no obligation to any Lender Indemnitee
under this Section 9.7 with respect to Indemnified Matters to the extent such
Indemnified Matters were caused by or resulted from the gross negligence or
willful misconduct of a Lender Indemnitee. To the extent that the undertaking
to indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Borrower
shall contribute to the payment and satisfaction of all Indemnified Matters
incurred by the Lender Indemnities the maximum portion which the Borrower is
permitted to pay and satisfy under applicable law. This indemnification shall
survive repayment by the Borrower of the Loan made under this Agreement, and
the termination of this Agreement without occurrence of the Closing Date.
9.8 Confidentiality. Lender agrees that all information furnished to
Lender by Borrower pursuant to this Agreement will be held under the Lender's
obligations pursuant to the Mutual Confidentiality Agreement dated October 1,
1996 by and between Lender and Borrower. Borrower agrees that, notwithstanding
the terms of said Mutual Confidentiality Agreement, all such information may be
used by Lender in connection with this Agreement and that Lender need not
comply with the provisions of the next-to-last paragraph of the Mutual
Confidentiality Agreement until all Obligations hereunder have been paid or
otherwise satisfied in full and the Lender has no further obligation to make
the Loan.
-27-
<PAGE> 31
9.9 Notices. Any notice which the Borrower or the Lender may be
required or may desire to give to the other party under any provision of this
Agreement shall be in writing by electronic facsimile transmission and shall be
deemed to have been given or made when transmitted to the Lender or the
Borrower as follows:
To the Borrower: EndoVascular Technologies, Inc.
1360 O'Brien Drive
Menlo Park, CA 94025
Attention: Chief Executive Officer
Facsimile: (415) 325-4196
To the Lender: Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, IN 46204-5129
Attention: Treasurer
Facsimile: (317) 971-2050
Any party may change the address to which all notices, requests and other
communications are to be sent to it by giving written notice of such address
change to the other parties in conformity with this paragraph, but such change
shall not be effective until notice of such change has been received by the
other parties.
9.10 Entire Agreement. This Agreement, together with the exhibits to
this Agreement and all of the other Loan Documents, is intended by the Borrower
and the Lender as a final expression of their agreement and, together with all
of the other Loan Documents, is intended as a complete statement of the terms
and conditions of their agreement. This Agreement and the other Loan Documents
contain all of the agreements and understandings between the Borrower and the
Lender concerning the Loan and the other transactions contemplated hereby.
9.11 Governing Law and Consent to Jurisdiction. The validity,
construction and effect of this Agreement, the Note and all of the other Loan
Documents shall be governed by the laws of the State of California, without
regard to its laws regarding choice of applicable law. All judicial proceedings
brought against the Borrower with respect to this Agreement, the Note or any of
the other Loan Documents may be brought in any state or federal court of
competent jurisdiction in the State of California, and the Borrower accepts for
itself and its assets and properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts. The Borrower waives, to the
fullest extent permitted by applicable law, any objection (including, without
limitation, any objection to the laying of venue or based on the grounds of
forum non conveniens) which it
-28-
<PAGE> 32
may now or hereafter have to the bringing of any such action or proceeding in
any such jurisdiction. Nothing herein shall limit the right of Lender to bring
proceedings against the Borrower in the court of any other jurisdiction. TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER WAIVES COMPLETELY ANY
RIGHT WHICH IT MIGHT OTHERWISE HAVE TO TRIAL BY JURY.
9.12 Publicity. Neither party may disclose the existence or content
of this Agreement without the prior written consent of the other party, unless
such disclosure is in the judgment of the disclosing party reasonably necessary
to comply with applicable law. Each party shall have the opportunity to review
and approve any press releases with respect to this Agreement and/or the
transaction contemplated hereunder prior to disclosure. In the case of any
disclosure required by law, the parties shall consult with each other for the
purpose of limiting disclosure to such matters as are required by law.
9.13 Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
-29-
<PAGE> 33
9.14 Headings. Captions, headings and the table of contents in this
Agreement are for convenience only, and are not to be deemed part of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
its duly authorized officers as of the date and year first above written.
ENDOVASCULAR TECHNOLOGIES, INC.
By /s/ William J. Fitzsimmons
----------------------------------
Title President and CEO
-------------------------------
GUIDANT CORPORATION
By
----------------------------------
Title
-------------------------------
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<PAGE> 34
9.14 Headings. Captions, headings and the table of contents in this
Agreement are for convenience only, and are not to be deemed part of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
its duly authorized officers as of the date and year first above written.
ENDOVASCULAR TECHNOLOGIES, INC.
By
----------------------------------
Title
-------------------------------
GUIDANT CORPORATION
By /s/ Ronald W. Dallena
----------------------------------
Title President and Chief Executive Officer
-------------------------------
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<PAGE> 35
Exhibit 2.1(b)
Form of Note
PROMISSORY NOTE
$30,000,000 Menlo Park, California
___________, 199_
On or before March 31, 2002, the undersigned, for value received,
promises to pay to the order of Guidant Corporation ("Payee"), at 111 Monument
Circle, 29th Floor, Indianapolis, Indiana 46204-5129, the principal sum of
thirty million dollars ($30,000,000) plus interest added to such principal sum
or, if less, the aggregate unpaid principal amount of all disbursements of
the Loan made by the Payee to the undersigned pursuant to the Credit Agreement
(as hereinafter defined) plus interest added to such principal amount, as shown
in the records of the Payee. Prior to the Cash Interest Payment Date, interest
accrued hereunder shall be added to the outstanding principal amount hereof as
of the last day of each calendar quarter.
The unpaid principal amount hereof from time to time outstanding shall
bear interest from the First Disbursement Date at a rate per annum initially
equal to sixteen and one-half percent (16.5%). Unless the undersigned gives
Payee notice to cause the occurrence of the Cash Interest Payment Date (in
which event interest hereunder shall be fixed at the rate of interest in effect
on the Cash Interest Payment Date), such rate of interest shall increase by
one-quarter of one percent (0.25%, or 25 "basis points") on the first day of
the first calendar quarter following the First Disbursement Date and thereafter
on the first day of each calendar quarter; provided, however, that (except upon
the occurrence and during the continuation of an Incipient Default or an Event
of Default) the rate of interest hereunder shall not exceed nineteen percent
(19%) per annum. Upon the occurrence and during the continuation of an
Incipient Default or an Event of Default, the outstanding principal amount of
the Loan shall, to the extent permitted by applicable law, bear interest at a
rate equal to the applicable rate provided above plus two percent (2%) per
annum. Interest on the Loan shall be payable in arrears on the last Banking Day
of each calendar quarter, commencing with the Cash Interest Payment Date and
ending on the Maturity Date.
Payments of both principal and interest shall be made in immediately
available funds in lawful money of the United States of America.
This Note evidences indebtedness incurred under, and is subject to the
terms and provisions of that certain Credit
<PAGE> 36
Agreement dated as of February 27, 1997 (as from time to time amended, modified
or supplemented) between the undersigned and the Payee (said Credit Agreement,
as so amended, modified or supplemented being herein referred to as the "Credit
Agreement"), to which Credit Agreement reference is hereby made for a statement
of said terms and provisions, including those under which this Note may be paid
prior to its due date or under which its due date may be accelerated.
Capitalized terms used in this Note and not otherwise defined shall have the
meaning set forth in the Credit Agreement.
This Note is made under and governed by the internal laws of the State
of California.
ENDOVASCULAR TECHNOLOGIES, INC., a
Delaware corporation
By
------------------------------------
Its
---------------------------------
Address:
EndoVascular Technologies, Inc.
1360 O'Brien Drive
Menlo Park, CA 94025
<PAGE> 37
Schedule 4.14
ENVIRONMENTAL DISCLOSURE
None
<PAGE> 1
EXHIBIT 10.11
--------------------------------
EndoVascular Technologies, Inc.
and
ChaseMellon Shareholder Services
Rights Agreement
Dated as of February 5, 1997.
--------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Certain Definitions............................................ 1
Section 2. Appointment of Rights Agent.................................... 4
Section 3. Issue of Right Certificates.................................... 4
Section 4. Form of Right Certificates..................................... 6
Section 5. Countersignature and Registration.............................. 6
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates............................................... 6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.. 7
Section 8. Cancellation and Destruction of Right Certificates............. 8
Section 9. Status and Availability of Preferred Shares.................... 8
Section 10. Preferred Shares Record Date................................... 9
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights.................................................... 9
Section 12. Certificate of Adjustment...................................... 15
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power..................................................... 15
Section 14. Fractional Rights and Fractional Shares........................ 16
Section 15. Rights of Action............................................... 17
Section 16. Agreement of Right Holders..................................... 18
Section 17. Right Certificate Holder Not Deemed a Stockholder.............. 18
Section 18. Concerning the Rights Agent.................................... 18
Section 19. Merger or Consolidation or Change of Name of Rights Agent...... 19
Section 20. Duties of Rights Agent......................................... 19
Section 21. Change of Rights Agent......................................... 21
Section 22. Issuance of New Right Certificates............................. 22
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 23. Redemption..................................................... 22
Section 24. Exchange....................................................... 22
Section 25. Notice of Certain Events....................................... 24
Section 26. Notices........................................................ 24
Section 27. Supplements and Amendments..................................... 25
Section 28. Successors..................................................... 25
Section 29. Benefits of this Agreement..................................... 25
Section 30. Severability................................................... 25
Section 31. Governing Law.................................................. 26
Section 32. Counterparts................................................... 26
Section 33. Descriptive Headings........................................... 26
Section 34. Administration................................................. 26
Exhibit A Certificate of Designations of Series A Junior Participating
Preferred Stock................................................ A-1
Exhibit B Form of Right Certificate...................................... B-1
Exhibit C Summary of Rights to Purchase Preferred Shares................. C-1
</TABLE>
<PAGE> 4
RIGHTS AGREEMENT
Agreement, dated as of February 5, 1997, between EndoVascular
Technologies, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services (the "Rights Agent").
The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
share of Common Stock, par value $0.00001 per share, of the Company (a "Common
Share") outstanding on the close of business on March 4, 1997 (the "Record
Date") and has authorized the issuance of one Right with respect to each
additional Common Share that shall become outstanding between the Record Date
and the earlier of the Distribution Date, the Expiration Date or the Final
Expiration Date (as such terms are defined in Sections 3 and 7 hereof), each
Right representing the right to purchase one one-thousandth of a Preferred
Share, as hereinafter defined, or such different amount and/or kind of
securities as shall be hereinafter provided.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
"Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or, in the case of (i) a Grandfathered Stockholder other
than a Second Tier Grandfathered Stockholder, 30%, or (ii) a Second Tier
Grandfathered Stockholder, such percentage as is beneficially owned by each
Menlo Holder plus 1%, or more of the Common Shares of the Company then
outstanding but shall not include (i) the Company, (ii) any Subsidiary of the
Company, (iii) any employee benefit plan of the Company or any Subsidiary of the
Company, or (iv) any entity holding Common Shares for or pursuant to the terms
of any such employee benefit plan. Notwithstanding the foregoing, (1) no Person
shall become an "Acquiring Person" as the result of an acquisition of Common
Shares by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 15% or, in the case of (i) a Grandfathered Stockholder other than a Second
Tier Grandfathered Stockholder, 30%, or (ii) a Second Tier Grandfathered
Stockholder, such percentage as is beneficially owned by each Menlo Holder plus
1%, or more of the Common Shares of the Company then outstanding; provided,
however, that if a Person shall so become the Beneficial Owner of 15%, or in the
case of (i) a Grandfathered Stockholder other than a Second Tier Grandfathered
Stockholder, 30%, or (ii) a Second Tier Grandfathered Stockholder, such
percentage as is beneficially owned by each Menlo Holder plus 1%, or more of the
Common Shares of the Company then outstanding by reason of an acquisition of
Common Shares by the Company and shall, after such share purchases by the
Company, become the Beneficial Owner of an additional 1% of the outstanding
Common Shares of the Company, then such Person shall be deemed to be an
"Acquiring Person"; and (2) if the Board of Directors of the Company determines
in good faith that a Person who would otherwise be an "Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph, has become such
inadvertently, and such Person divests
<PAGE> 5
as promptly as practicable a sufficient number of Common Shares so that such
Person would no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph, then such Person shall not be deemed to
have become an "Acquiring Person" for any purposes of this Agreement.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule l2b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on the date of this Agreement.
A Person shall be deemed the "Beneficial Owner" of and shall
be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (other than customary agreements with
and between underwriters and selling group members with respect to a bona fide
public offering of securities), written or otherwise, or upon the exercise of
conversion rights, exchange rights, rights (other than the Rights), warrants or
options, or otherwise; provided, however, that a Person shall not be deemed to
be the Beneficial Owner of, or to beneficially own, securities tendered pursuant
to a tender or exchange offer made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act by or on
behalf of such Person or any of such Person's Affiliates or Associates until
such tendered securities are accepted for purchase or exchange; or (B) the right
to vote pursuant to any agreement, arrangement or understanding; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security if the agreement, arrangement or understanding to
vote such security (1) arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations promulgated
under the Exchange Act and (2) is not also then reportable on Schedule 13D under
the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), written or
otherwise, for the purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to section (B) of the immediately preceding
paragraph (ii)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.
<PAGE> 6
"Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of California are
authorized or obligated by law or executive order to close.
"Close of Business" on any given date shall mean 5:00 P.M.,
California time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., California time, on the next succeeding
Business Day.
"Common Shares" when used with reference to the Company shall
mean the shares of Common Stock, par value $0.00001 per share, of the Company.
"Common Shares" when used with reference to any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of another Person,
the Person or Persons which ultimately control such firstmentioned Person.
"common stock equivalents" shall have the meaning set forth in
section 11(a)(iii)(B)(3).
"Current Value" shall have the meaning set forth in Section
11(a)(iii)(A)(1) hereof.
"Distribution Date" shall have the meaning set forth in
Section 3 hereof.
"Equivalent preferred shares" shall have the meaning set forth
in Section 11(b).
"Exchange Ratio" shall have the meaning set forth in Section
24(a).
"Final Expiration Date" shall mean March 3, 2007.
"Grandfathered Stockholder" shall mean (i) Menlo Ventures IV,
L.P. and Menlo Evergreen V, L.P. and the Affiliates and Associates of each (each
a "Menlo Holder"), other than any Person who or which is not such an Affiliate
or Associate on the date of this Agreement and who or which subsequently
acquires direct or indirect control of Menlo Ventures IV, L.P. or Menlo
Evergreen V, L.P. without the prior written approval of the board of directors
of the Company (such Person a "Non-grandfathered Stockholder"); and (ii) any
Person not covered by (i), above, except a Non-grandfathered Stockholder, who or
which is the Beneficial Owner of Common Shares beneficially owned by a Menlo
Holder (each such Person a "Second Tier Grandfathered Stockholder").
"Person" shall mean any individual, firm, corporation,
partnership, limited partnership, limited liability partnership, business trust,
limited liability company, unincorporated association or other entity, and shall
include any successor (by merger or otherwise) of such entity.
"Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $0.00001 per share, of the Company.
"Purchase Price" shall have the meaning set forth in Section
7(b).
<PAGE> 7
"Redemption Date" shall mean the date on which the Rights are
redeemed as provided in Section 23 hereof.
"Right Certificate" shall mean a certificate evidencing a
Right in substantially the form of Exhibit B hereto.
"Section 11(a)(ii) Trigger Date" shall have the meaning set
forth in Section 11(a)(iii) hereof.
"Shares Acquisition Date" shall mean the earlier of the date
of (i) the public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such or (ii) the public disclosure of facts by the
Company or an Acquiring Person indicating that an Acquiring Person has become
such.
"Spread" shall have the meaning set forth in Section
11(a)(iii)(A)(2) hereof.
"Subsidiary" of any Person shall mean any Person of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
"Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
"Summary of Rights" shall mean the Summary of Rights to
Purchase Preferred Shares in substantially the form of Exhibit C hereto.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth day after the Shares
Acquisition Date or (ii) the tenth Business Day (or such later date as may be
determined by action of the Board of Directors prior to such time as any Person
becomes an Acquiring Person) after the date of the commencement by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company or any entity holding
Common Shares for or pursuant to the terms of any such plan) of, or of the first
public announcement of the intention of any Person (other than any of the
Persons referred to in the preceding parenthetical) to commence, a tender or
exchange offer the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares aggregating 15% or, in the case of (i) a
Grandfathered Stockholder other than a Second Tier Grandfathered Stockholder,
30%, or (ii) a Second Tier Grandfathered Stockholder, such percentage as is
beneficially owned by each Menlo Holder plus 1%, or more of the then outstanding
Common Shares (such date being herein referred to as the "Distribution Date"),
(x) the Rights will be evidenced (subject to the provisions of Section 3(b)
hereof) by the certificates for Common Shares registered in the names of the
holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to
receive Right
<PAGE> 8
Certificates will be transferable only in connection with the transfer of Common
Shares. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate evidencing
one Right for each Common Share so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter,
the Company will send a copy of the Summary of Rights by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Record Date, at the address of such holder shown on the records
of the Company. With respect to certificates for Common Shares outstanding as of
the Record Date, until the Distribution Date, the Rights will be evidenced by
such certificates registered in the names of the holders thereof together with a
copy of the Summary of Rights attached thereto. Until the Distribution Date (or
the earlier of the Redemption Date or the Final Expiration Date), the surrender
for transfer of any certificate for Common Shares outstanding on the Record
Date, with or without a copy of the Summary of Rights attached thereto, shall
also constitute the transfer of the Rights associated with the Common Shares
evidenced thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between EndoVascular
Technologies, Inc. and ChaseMellon Shareholder Services, as Rights
Agent, dated as of February 5, 1997 (the "Rights Agreement"), the terms
of which are hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of EndoVascular
Technologies, Inc. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate.
EndoVascular Technologies, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt
of a written request therefor. Under certain circumstances, Rights that
are or were acquired or beneficially owned by Acquiring Persons (as
defined in the Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
certificates shall be evidenced by such certificates alone, and the surrender
for transfer of any such certificate shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby. In the event that
the Company purchases or acquires any Common Shares after the Record Date but
prior to the Distribution Date, any Rights associated with such Common Shares
shall be deemed
<PAGE> 9
canceled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the other provisions of this Agreement, the Right Certificates
shall entitle the holders thereof to purchase such number of one one-thousandths
of a Preferred Share as shall be set forth therein at the Purchase Price, but
the number of one one-thousandths of a Preferred Share and the Purchase Price
shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or any Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be countersigned by the Rights
Agent and shall not be valid for any purpose unless so countersigned, either
manually or by facsimile. In case any officer of the Company who shall have
signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Company; and any Right Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Right Certificate, shall be a proper officer of the Company to sign such
Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration of the
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 14 hereof, at any time after the Close of
Business on the Distribution Date, and at or prior to the Close of Business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one
<PAGE> 10
one-thousandths of a Preferred Share as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient for
any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights.
(a) The registered holder of any Right Certificate (other than
a holder whose Rights have become void pursuant to Section 11(a)(ii) hereof or
have been exchanged pursuant to Section 24 hereof) may exercise the Rights
evidenced thereby in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent at its principal
office, together with payment of the Purchase Price for each one one-thousandth
of a Preferred Share as to which the Rights are exercised, at or prior to the
earliest of (i) the Close of Business on the Final Expiration Date, (ii) the
Redemption Date, or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.
(b) The purchase price for each one one-thousandth of a
Preferred Share to be purchased upon the exercise of a Right shall initially be
Sixty Dollars ($60.00) (the "Purchase Price"), shall be subject to adjustment
from time to time as provided in Sections 11 and 13 hereof and shall be payable
in lawful money of the United States of America in accordance with paragraph (c)
below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase and certificate duly
executed, accompanied by payment of the Purchase Price for the number of one
one-thousandths of a Preferred Share to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by cash, certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares certificates for the number of one one-thousandths of a
Preferred Share to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) requisition from any
<PAGE> 11
depositary agent for the Preferred Shares depositary receipts representing such
number of one one-thousandths of a Preferred Share as are to be purchased (in
which case certificates for the Preferred Shares represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company hereby directs the depositary agent to comply with such request, (ii)
when appropriate, requisition from the Company the amount of cash to be paid in
lieu of issuance of fractional Preferred Shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate following the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Status and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares delivered
upon exercise of Rights shall, at the time of delivery of the certificates for
such Preferred Shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and non-assessable shares.
(b) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect
<PAGE> 12
of the issuance or delivery of the Right Certificates or of any Preferred Shares
upon the exercise of Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates or
depositary receipts for Preferred Shares upon the exercise of any Rights until
any such tax shall have been paid (any such tax being payable by the holder of
such Right Certificate at the time of surrender) or until it has been
established to the Company's reasonable satisfaction that no such tax is due.
(c) The Company covenants and agrees that it will cause to be
reserved and kept available, out of its authorized and unissued Preferred
Shares or any Preferred Shares held in its treasury, the number of Preferred
Shares that will be sufficient to permit the exercise in full of all outstanding
Rights in accordance with Section 7 hereof.
Section 10. Preferred Shares Record Date. Each person in
whose name any certificate for Preferred Shares is issued upon the exercise of
Rights shall for all purposes be deemed to have become the holder of record of
the Preferred Shares represented thereby on, and such certificate shall be
dated, the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in
effect at the time of the record date for such dividend or of the effective date
of such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.
<PAGE> 13
(ii) Subject to the following paragraph of this
subparagraph (ii) and to Section 24 of this Agreement, in the event any Person
shall become an Acquiring Person, each holder of a Right shall thereafter have a
right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-thousandths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-thousandths of a Preferred Share
for which a Right is then exercisable and dividing that product by (y) 50% of
the then current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date such Person became an
Acquiring Person. In the event that any Person shall become an Acquiring Person
and the Rights shall then be outstanding, the Company shall not take any action
that would eliminate or diminish the benefits intended to be afforded by the
Rights.
From and after the occurrence of such an event, any
Rights that are or were acquired or beneficially owned by such Acquiring Person
(or any Associate or Affiliate of such Acquiring Person) on or after the earlier
of (x) the date of such event and (y) the Distribution Date shall be void and
any holder of such Rights shall thereafter have no right to exercise such Rights
under any provision of this Agreement. No Right Certificate shall be issued
pursuant to Section 3 that represents Rights beneficially owned by an Acquiring
Person whose Rights would be void pursuant to the preceding sentence or any
Associate or Affiliate thereof; no Right Certificate shall be issued at any time
upon the transfer of any Rights to an Acquiring Person whose Rights would be
void pursuant to the preceding sentence or any Associate or Affiliate thereof or
to any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence or any Associate
or Affiliate thereof shall be canceled.
(iii) In the event that the number of Common Shares
which are authorized by the Company's certificate of incorporation and not
outstanding or subscribed for, or reserved or otherwise committed for issuance
for purposes other than upon exercise of the Rights, are not sufficient to
permit the holder of each Right to purchase the number of Common Shares to which
he would be entitled upon the exercise in full of the Rights in accordance with
the foregoing subparagraph (ii) of paragraph (a) of this Section 11, or should
the Board of Directors so elect, the Company shall: (A) determine the excess of
(1) the value of the Common Shares issuable upon the exercise of a Right
(calculated as provided in the last sentence of this subparagraph (iii))
pursuant to Section 11(a)(ii) hereof (the "Current Value") over (2) the Purchase
Price (such excess, the "Spread"), and (B) with respect to each Right, make
adequate provision to substitute for such Common Shares, upon payment of the
applicable Purchase Price, any one or more of the following having an aggregate
value determined by the Board of Directors to be equal to the Current Value:
(1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or other
equity securities of the Company (including, without limitation, shares, or
units of shares, of preferred stock which the Board of Directors of the Company
has determined to have the same value as shares of Common Stock (such shares of
preferred stock, "common stock equivalents")), (4) debt securities of the
Company, or (5) other assets; provided, however, if the Company shall not have
made adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the first occurrence of an event triggering the
<PAGE> 14
rights to purchase Common Shares described in Section 11(a)(ii) the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon
the surrender for exercise of a Right and without requiring payment of the
Purchase Price, shares of Common Stock (to the extent available) and then, if
necessary, cash, which shares and cash have an aggregate value equal to the
Spread. If the Board of Directors of the Company shall determine in good faith
that it is likely that sufficient additional Common Shares could be authorized
for issuance upon exercise in full of the Rights, the thirty (30) day period set
forth above may be extended to the extent necessary, but not more than ninety
(90) days after the Section 11(a)(ii) Trigger Date, in order that the Company
may seek stockholder approval for the authorization of such additional shares
(such period, as it may be extended, the "Substitution Period"). To the extent
that the Company determines that some action need be taken pursuant to the first
and/or second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e) hereof and the last paragraph of Section
11(a)(ii) hereof, that such action shall apply uniformly to all outstanding
Rights, and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value thereof. In the
event of any such suspension, the Company shall make a public announcement, and
shall deliver to the Rights Agent a statement, stating that the exercisability
of the Rights has been temporarily suspended. At such time as the suspension is
no longer in effect, the Company shall make another public announcement, and
deliver to the Rights Agent a statement, so stating. For purposes of this
Section 11(a)(iii), the value of the Common Shares shall be the current per
share market price (as determined pursuant to Section 11(d)(i) hereof) of the
Common Shares on the Section 11(a)(ii) Trigger Date and the value of any common
stock equivalent shall be deemed to have the same value as the Common Shares on
such date.
(b) In case the Company shall fix a record date for
the issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in
Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be adjusted by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company,
<PAGE> 15
whose determination shall be described in a statement filed with the Rights
Agent. Preferred Shares owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share market price of
the Security is determined during a period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such Security and
prior to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the American Stock Exchange or,
if the Security is not listed or admitted to trading on the American Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high
<PAGE> 16
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Company. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or admitted to trading
on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder,
the "current per share market price" of the Preferred Shares shall be determined
in accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by 1000. If neither the
Common Shares nor the Preferred Shares are publicly held or so listed or traded,
"current per share market price" shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one
ten-millionth of a Preferred Share or one ten-thousandth of any other share or
security as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
three years from the date of the transaction which requires such adjustment.
(f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, the number of such other shares so receivable upon exercise of any Right
shall thereafter be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such
<PAGE> 17
adjustment shall thereafter evidence the right to purchase, at the adjusted
Purchase Price, that number of one one-thousandths of a Preferred Share
(calculated to the nearest one ten-millionth of a Preferred Share) obtained by
(i) multiplying (x) the number of one one-thousandths of a share covered by a
Right immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights in substitution
for any adjustment in the number of one one-thousandths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one hundred-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Right Certificates have been distributed, shall be at least 10 days later
than the date of the public announcement. If Right Certificates have been
distributed, upon each adjustment of the number of Rights pursuant to this
Section 11 (i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such holders of record
in substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates to be so distributed
shall be issued, executed and countersigned in the manner provided for herein
and shall be registered in the names of the holders of record of Right
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-thousandths of a Preferred Share issuable upon
the exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-thousandths of a Preferred Share which were expressed in the initial Right
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-thousandth of the then par value of
the Preferred Shares issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
non-assessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may
<PAGE> 18
elect to defer until the occurrence of such event the issuing to the holder of
any Right exercised after such record date of the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
over and above the Preferred Shares and other capital stock or securities of
the Company, if any, issuable upon such exercise on the basis of the Purchase
Price in effect prior to such adjustment; provided, however, that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any (i) consolidation or subdivision of the
Preferred Shares, (ii) issuance wholly for cash of any Preferred Shares at less
than the current market price, (iii) issuance wholly for cash of Preferred
Shares or securities which by their terms are convertible into or exchangeable
for Preferred Shares, (iv) dividends on Preferred Shares payable in Preferred
Shares or (v) issuance of any rights, options or warrants referred to
hereinabove in Section 11(b), hereafter made by the Company to holders of its
Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise other than by payment of dividends in Common
Shares) into a greater or lesser number of Common Shares, then in any such case
(i) the number of one one-thousandths of a Preferred Share purchasable after
such event upon proper exercise of each Right shall be determined by multiplying
the number of one one-thousandths of a Preferred Share so purchasable
immediately prior to such event by a fraction, the numerator of which is the
number of Common Shares outstanding immediately before such event and the
denominator of which is the number of Common Shares outstanding immediately
after such event, and (ii) each Common Share outstanding immediately after such
event shall have issued with respect to it that number of Rights which each
Common Share outstanding immediately prior to such event had issued with respect
to it. The adjustments provided for in this Section 11(n) shall be made
successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected.
Section 12. Certificate of Adjustment. Whenever an adjustment
is made as provided in Sections 11 and 13 hereof, the Company shall promptly (a)
prepare a certificate setting forth such adjustment, and a brief statement of
the facts accounting for such adjustment, (b) file with the Rights Agent and
with each transfer agent for the Common Shares or the Preferred Shares a copy of
such certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 25 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. In the event that, at any time after a Person becomes
an Acquiring Person, directly or indirectly, (i) the Company shall consolidate
with, or merge with and into, any other Person, (ii) any Person shall
consolidate with the Company, or merge with and into the Company and the
<PAGE> 19
Company shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Shares shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person other than the Company or one or more of
its wholly-owned Subsidiaries, then, and in each such case, proper provision
shall be made so that (A) each holder of a Right (except as otherwise provided
herein) shall thereafter have the right to receive, upon the exercise thereof at
a price equal to the then current Purchase Price multiplied by the number of one
one-thousandths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the number of one
one-thousandths of a Preferred Share for which a Right is then exercisable and
dividing that product by (y) 50% of the then current per share market price of
the Common Shares of such other Person (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (B) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (C) the
term "Company" shall thereafter be deemed to refer to such issuer; and (D) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights. The Company covenants and agrees that it shall not consummate any
such consolidation, merger, sale or transfer unless prior thereto the Company
and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing. The Company shall not enter into any
transaction of the kind referred to in this Section 13 if at the time of such
transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or sales or
other transfers. For purposes hereof, the "earning power" of the Company and its
Subsidiaries shall be determined in good faith by the Company's Board of
Directors on the basis of the operating earnings of each business operated by
the Company and its Subsidiaries during the three fiscal years preceding the
date of such determination (or, in the case of any business not operated by the
Company or any Subsidiary during three full fiscal years preceding such date,
during the period such business was operated by the Company or any Subsidiary).
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Right Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current
<PAGE> 20
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the American Stock Exchange or,
if the Rights are not listed or admitted to trading on the American Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights arc not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions which are integral multiples of one one-thousandth of a Preferred
Share). Fractions of Preferred Shares in integral multiples of one
one-thousandth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it; provided that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one
one-thousandth of a Preferred Share, the Company shall pay to each registered
holder of Right Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of one Preferred Share as the fraction of one Preferred Share that such
holder would otherwise receive upon the exercise of the aggregate number of
rights exercised by such holder. For the purposes of this Section 14(b), the
current market value of a Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives any right to receive fractional Rights or fractional shares
upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares) may, without the consent
of the Rights Agent or of the holder of any other Right Certificate (or, prior
to the Distribution Date, of the
<PAGE> 21
Common Shares), on his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books maintained by the Rights Agent if
surrendered at the principal office of the Rights Agent, duly endorsed or
accompanied by a proper instrument of transfer with a completed form of
certification; and
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
<PAGE> 22
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim or liability in connection therewith. In no case
shall the Rights Agent be liable for special, indirect, incidental or
consequential loss of any kind whatsoever, even if the Rights Agent has been
advised of the likelihood of such loss.
The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Right
Certificate or certificate for Preferred Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper person or persons.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21 hereof. In case
at the time such successor Rights Agent shall succeed to the agency created by
this Agreement, any of the Right Certificates shall have been countersigned but
not delivered, any such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not
have been countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not
have been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name; and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations expressly set forth in this Agreement and
no implied duties or obligations shall be read into this Agreement against the
Rights Agent. The Rights Agent shall perform those duties and obligations upon
the following terms and conditions, by all of which the Company and the holders
of Right Certificates, by their acceptance thereof, shall be bound:
<PAGE> 23
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, a Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its
own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except as to its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Sections 11 or 13 hereof or responsible for the manner, method or amount of any
such adjustment or the ascertaining of the existence of facts that would require
any such adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after actual notice of any such adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Preferred Stock to be issued
pursuant to this Agreement or any Right Certificate or as to whether any shares
of Preferred Stock will, when so issued, be validly authorized and issued, fully
paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, a Vice President, the Secretary or the Treasurer of the Company, and
to apply to such officers for advice or instructions in connection
<PAGE> 24
with its duties, and it shall not be liable for any action taken or suffered to
be taken by it in good faith in accordance with instructions of any such
officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares and the Preferred Stock by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares and
the Preferred Stock by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be either (1) a corporation organized and doing business under the laws of
the United States or of any state of the United States, in good standing, having
an office in the State of California which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $100 million, or (2) an
affiliate of such a corporation. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares and the Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall
<PAGE> 25
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at its option,
at any time prior to such time as any Person becomes an Acquiring Person, redeem
all but not less than all the then outstanding Rights at a redemption price of
$0.01 per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price"). The redemption
of the Rights by the Board of Directors may be made effective at such time, on
such basis and subject to such conditions as the Board of Directors in its sole
discretion may establish.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights pursuant to paragraph (a), the Company
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. If the payment of the Redemption Price is not included with such notice,
each such notice shall state the method by which the payment of the Redemption
Price will be made. Neither the Company nor any of its Affiliates or Associates
may redeem, acquire or purchase for value any Rights at any time in any manner
other than that specifically set forth in this Section 23 or in Section 24
hereof, other than in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option,
at any time after any Person becomes an Acquiring Person, exchange all or part
of the then outstanding and exercisable Rights (which shall not include Rights
that have become void pursuant to the provisions of Section 11(a)(ii) hereof)
for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be
<PAGE> 26
empowered to effect such exchange at any time after any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or any such Subsidiary, or any entity holding Common Shares for or pursuant to
the terms of any such plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of a majority of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company,
at its option, may substitute Preferred Shares or common stock equivalents for
Common Shares exchangeable for Rights, at the initial rate of one one-thousandth
of a Preferred Share (or an appropriate number of common stock equivalents) for
each Common Share, as appropriately adjusted to reflect adjustments in the
voting rights of the Preferred Shares pursuant to the terms thereof, so that the
fraction of a Preferred Share delivered in lieu of each Common Share shall have
the same voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common
Shares, Preferred Shares or common stock equivalents authorized by the Company's
certificate of incorporation and not outstanding or subscribed for, or reserved
or otherwise committed for issuance for purposes other than upon exercise of
Rights, to permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company shall take all such action as may be necessary to
authorize additional Common Shares, Preferred Shares or common stock equivalents
for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current per share market value of a whole Common Share.
For the purposes of this paragraph (e), the current per share market value of a
whole Common Share shall be the closing price of a Common Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.
<PAGE> 27
Section 25. Notice of Certain Events.
(a) In case the Company shall after the Distribution Date
propose (i) to pay any dividend payable in stock of any class to the holders of
its Preferred Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case any event set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
EndoVascular Technologies, Inc.
1360 O'Brien Drive
Menlo Park, CA 94025
Attention: W. James Fitzsimmons
Copy to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
<PAGE> 28
Menlo Park, CA 94025
Attention: Bennett L. Yee, Esq.
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
ChaseMellon Services
50 California Street, 10th Floor
San Francisco, CA 94111
Attention: Joseph Thatcher
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from
time to time, and the Rights Agent shall, if the Company so directs, supplement
or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any change to or delete any provision hereof or to
adopt any other provisions with respect to the Rights which the Company may deem
necessary or desirable; provided, however, that from and after such time as any
Person becomes an Acquiring Person, this Agreement shall not be amended or
supplemented in any manner which would adversely affect the interests of the
holders of Rights (other than an Acquiring Person and its Affiliates and
Associates). Any supplement or amendment authorized by this Section 27 will be
evidenced by a writing signed by the Company and the Rights Agent.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
<PAGE> 29
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Section 34. Administration. The Board of Directors of the
Company shall have the exclusive power and authority to administer and interpret
the provisions of this Agreement and to exercise all rights and powers
specifically granted to the Board of Directors or the Company or as may be
necessary or advisable in the administration of this Agreement. All such
actions, calculations, determinations and interpretations which are done or
made by the Board of Directors in good faith shall be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties and shall not subject the Board of Directors to any liability to
the holders of the Rights.
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed and their respective corporate seals to be
hereunder affixed and attested, all as of the day and year first above written.
Attest: ENDOVASCULAR TECHNOLOGIES, INC.
By: WILLIAM J. FITZ??????????????
- ------------------------------ -----------------------------------------
Its: CEO
-----------------------------------------
Attest: CHASEMELLON SHAREHOLDER SERVICES
By:
- ------------------------------ -----------------------------------------
Its:
-----------------------------------------
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed and their respective corporate seals to be
hereunder affixed and attested, all as of the day and year first above written.
Attest: ENDOVASCULAR TECHNOLOGIES, INC.
By:
- ------------------------------ -----------------------------------------
Its:
-----------------------------------------
Attest: CHASEMELLON SHAREHOLDER SERVICES
By: JOSEPH W. THATCHER
- ------------------------------ -----------------------------------------
Its: ASSISTANT VICE PRESIDENT
-----------------------------------------
<PAGE> 32
Exhibit A
FORM
of
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
ENDOVASCULAR TECHNOLOGIES, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
-------------------------------
EndoVascular Technologies, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 151
of the General Corporation Law at a meeting duly called and held on February 4,
1997:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Eighth
Amended and Restated Certificate of Incorporation of the Corporation (the
"Restated Certificate of Incorporation), the Board of Directors hereby creates a
series of Preferred Stock, par value $0.00001 per share (the "Preferred Stock"),
of the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, preferences, and limitations thereof as follows:
Section 1. Designation and Amount. The shares of this series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 30,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any
shares of any series of Preferred Stock (or any other stock) ranking prior and
superior to the Series A Preferred
A-1
<PAGE> 33
Stock with respect to dividends, the holders of shares of Series A Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the last day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in an
amount (if any) per share (rounded to the nearest cent), subject to the
provision for adjustment hereinafter set forth, equal to 1000 times the
aggregate per share amount of all cash dividends, and 1000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock, par
value $0.00001 per share (the "Common Stock"), of the Corporation or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in paragraph (A) of
this Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends due pursuant to paragraph (A) of this
Section shall begin to accrue and be cumulative on outstanding shares of Series
A Preferred Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
A-2
<PAGE> 34
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Preferred Stock shall entitle the
holder thereof to 1000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the number of votes per share
to which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided by the Restated
Certificate of Incorporation, including any other Certificate of Designations
creating a series of Preferred Stock or any similar stock, or by law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise
required by law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends
or distributions payable on the Series A Preferred Stock as provided in Section
2 are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up)
A-3
<PAGE> 35
to the Series A Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior (as to
dividends and upon dissolution, liquidation or winding up) to the Series A
Preferred Stock.
(B) The Corporation shall not permit any
subsidiary of the Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such shares at
such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set
forth herein or in the Restated Certificate of Incorporation, including any
Certificate of Designations creating a series of Preferred Stock or any similar
stock, or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation the holders of shares
of Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
1000 times the aggregate amount to be distributed per share to holders of shares
of Common Stock plus an amount equal to any accrued and unpaid dividends. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred
A-4
<PAGE> 36
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. Amendment. The Restated Certificate of
Incorporation shall not be amended in any manner, including in a merger or
consolidation, which would alter, change, or repeal the powers, preferences or
special rights of the Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock, voting together as a single
class.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and upon liquidation, dissolution and
winding up, junior to all series of Preferred Stock.
A-5
<PAGE> 37
IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation by its President and Chief Executive
Officer this 4th day of February, 1997.
ENDOVASCULAR TECHNOLOGIES, INC.
By:
-------------------------------------
W. James Fitzsimmons
President and Chief Executive Officer
<PAGE> 38
Exhibit B
Form of Right Certificate
Certificate No. R- __________ Rights
NOT EXERCISABLE AFTER MARCH 3, 2007 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS THAT ARE OR WERE ACQUIRED OR
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR ANY ASSOCIATES OR
AFFILIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL
AND VOID.
Right Certificate
ENDOVASCULAR TECHNOLOGIES, INC.
This certifies that ____________, or registered assigns, is the registered owner
of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of _________________, 1997 (the "Rights Agreement"), between
EndoVascular Technologies, Inc., a Delaware corporation (the "Company"), and
ChaseMellon Shareholder Services (the "Rights Agent"), to purchase from the
Company at any time after the Distribution Date (as such term is defined in the
Rights Agreement) and prior to 5:00 P.M., California time, on March 2, 2007, at
the principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-thousandth of a fully paid non-assessable share of Series
A Junior Participating Preferred Stock, par value $0.00001 per share (the
"Preferred Shares"), of the Company, at a purchase price of $60.00 per one
one-thousandth of a Preferred Share (the "Purchase Price"), upon presentation
and surrender of this Right Certificate with the certification and the Form of
Election to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-thousandths of a Preferred Share which
may be purchased upon exercise hereof) set forth above, and the Purchase Price
set forth above, are the number and Purchase Price as of _______________ 199_,
based on the Preferred Shares as constituted at such date. As provided in the
Rights Agreement, the Purchase Price and the number of one one-thousandths of a
Preferred Share which may be purchased upon the exercise of the Rights evidenced
by this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
From and after the occurrence of an event described in Section
11(a)(ii) of the Rights Agreement, if the Rights evidenced by this Right
Certificate are or were at any time on or after the earlier of (x) the date of
such event and (y) the Distribution Date (as such term is defined in the Rights
Agreement) acquired or beneficially owned by an Acquiring Person or an Associate
or Affiliate of an Acquiring Person (as such terms are defined in the Rights
Agreement), such Rights shall become void, and any holder of such Rights shall
thereafter have no right to exercise such Rights.
B-1
<PAGE> 39
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the offices of the Rights Agent.
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, at the
Company's option, the Rights evidenced by this Certificate (i) may be redeemed
by the Company at a redemption price of $0.01 per Right or (ii) may be exchanged
in whole or in part for shares of the Company's Common Stock, par value $0.00001
per share, or Preferred Shares.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-thousandth of a Preferred Share, which may, at the
election of the Company, be evidenced by depository receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
B-2
<PAGE> 40
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of 1997.
Attest: ENDOVASCULAR TECHNOLOGIES, INC.
By:
- ---------------------------------- -------------------------------------
Its:
-------------------------------------
Countersigned:
- ----------------------------------
Rights Agent
By:
-------------------------------
Authorized Signature
<PAGE> 41
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _______________________________ hereby
sells, assigns and transfers unto ______________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _____________________________,
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _____________________, ______
_____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
_____________________________________
Signature
- --------------------------------------------------------------------------------
<PAGE> 42
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Right Certificate.)
To ENDOVASCULAR TECHNOLOGIES, INC.:
The undersigned hereby irrevocably elects to exercise
____________________ Rights represented by this Right Certificate to purchase
the Preferred Shares issuable upon the exercise of such Rights and requests
that certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: _____________________, ______
_____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
<PAGE> 43
Form of Reverse Side of Right Certificate -- continued
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
_____________________________________
Signature
- --------------------------------------------------------------------------------
NOTICE
The signature in the foregoing Forms of Assignment and
Election must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
<PAGE> 44
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On February 4, 1997, the Board of Directors of EndoVascular
Technologies, Inc. (the "Company") declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock, par value
$0.00001 per share (the "Common Shares") outstanding on March 4, 1997 (the
"Record Date") to the stockholders of record on that date. Each Right entitles
the registered holder to purchase from the Company one one-thousandth of a share
of Series A Junior Participating Preferred Stock, par value $0.00001 per share
(the "Preferred Shares"), of the Company, at a price of $60.00 per one
one-thousandth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and ChaseMellon
Shareholders Services, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 15% (or, in the case of
a Grandfathered Stockholder, 30%, or for a Second Tier Grandfathered
Stockholder, such greater or lesser amount determined in accordance with the
Agreement) or more of the outstanding Common Shares or (ii) 10 business days (or
such later date as may be determined by action of the Board of Directors prior
to such time as any Person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% (or, in the case of a Grandfathered
Stockholder, 30%, or for a Second Tier Grandfathered Stockholder, such greater
or lesser amount determined in accordance with the Agreement) or more of such
outstanding Common Shares (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Share certificates outstanding as of the Record Date, by such Common
Share certificate with a copy of this Summary of Rights attached thereto.
The Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date or upon transfer or new
issuance of Common Shares will contain a notation incorporating the Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate. As
soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Shares as of the Close of Business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
C-1
<PAGE> 45
The Rights are not exercisable until the Distribution Date.
The Rights will expire on March 3, 2007 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one
one-thousandths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Shares or
a stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will
not be redeemable. Each Preferred Share will be entitled to a quarterly dividend
payment of 1000 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to an
aggregate payment of 1000 times the aggregate payment made per Common Share.
Each Preferred Share will have 1000 votes, voting together with the Common
Shares. In the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
1000 times the amount received per Common Share. These rights are protected by
customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-thousandth interest in a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share.
From and after the occurrence of an event described in Section
11(a)(ii) of the Rights Agreement, if the Rights are or were at any time on or
after the earlier of (x) the date of such event and (y) the Distribution Date
(as such term is defined in the Rights Agreement) acquired or beneficially owned
by an Acquiring Person or an Associate or Affiliate of an Acquiring Person (as
such terms are defined in the Rights Agreement), such Rights shall become void,
and any holder of such Rights shall thereafter have no right to exercise such
Rights.
In the event that, at any time after a Person becomes an
Acquiring Person, the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of
C-2
<PAGE> 46
the Right. In the event that any person becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person and its Affiliates and Associates
(which will thereafter be void), will thereafter have the right to receive upon
exercise that number of Common Shares having a market value of two times the
exercise price of the Right. If the Company does not have sufficient Common
Shares to satisfy such obligation to issue Common Shares, or if the Board of
Directors so elects, the Company shall deliver upon payment of the exercise
price of a Right an amount of cash or securities equivalent in value to the
Common Shares issuable upon exercise of a Right; provided that, if the Company
fails to meet such obligation within 30 days following the later of (x) the
first occurrence of an event triggering the right to purchase Common Shares and
(y) the date on which the Company's right to redeem the Rights expires, the
Company must deliver, upon exercise of a Right but without requiring payment of
the exercise price then in effect, Common Shares (to the extent available) and
cash equal in value to the difference between the value of the Common Shares
otherwise issuable upon the exercise of a Right and the exercise price then in
effect. The Board of Directors may extend the 30-day period described above for
up to an additional 60 days to permit the taking of action that may be necessary
to authorize sufficient additional Common Shares to permit the issuance of
Common Shares upon the exercise in full of the Rights.
At any time after any Person becomes an Acquiring Person and
prior to the acquisition by any person or group of a majority of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which have become void), in
whole or in part, at an exchange ratio of one Common Share per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. No fractional Preferred Shares will be issued (other
than fractions which are integral multiples of one one-thousandth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the time any Person becomes an Acquiring
Person, the Board of Directors of the Company may redeem the Rights in whole,
but not in part, at a price of $0.01 per Right (the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
The terms of the Rights, may be amended by the Board of
Directors of the Company without the consent of the holders of the Rights,
except that from and after such time as any person becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of the
Rights (other than the Acquiring Person and its Affiliates and Associates).
C-3
<PAGE> 47
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
A copy of the Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Agreement, which is
incorporated herein by reference.
C-4
<PAGE> 1
EXHIBIT 10.12
PROMISSORY NOTE SECURED BY SECOND DEED OF TRUST
$250,000 February 9, 1997
Menlo Park, California
FOR VALUE RECEIVED, the undersigned Borrower promises to pay
to EndoVascular Technologies, Inc. (the "Company"), at its principal offices at
1360 O'Brien Drive, Menlo Park, CA 94025, the principal sum of two hundred fifty
thousand ($250,000), together with interest from the date of this Note on the
unpaid principal balance upon the terms and conditions specified below.
1. Principal and Interest. The principal balance of this Note
shall be due and payable on the fifth anniversary of this Note.
2. Rate of Interest. No interest shall accrue under the Note.
On the fifth anniversary, the interest rate will be prime plus 2%.
3. Prepayment. Prepayment of principal may be made at any time
without penalty.
4. Events of Acceleration. The entire unpaid principal sum of
this Note shall become immediately due and payable upon one or more of the
following events:
A. the date that Borrower shall cease to be
employed by EndoVascular Technologies;
B. the failure of the Borrower to pay when due the
principal balance on this Note and the continuation of such default for more
than thirty (30) days; or
C. the insolvency of the Borrower, the commission
of an act of bankruptcy by the Borrower, the execution by the Borrower of a
general assignment for the benefit of creditors, the filing by or against the
Borrower of a petition in bankruptcy or a petition for relief under the
provisions of the federal bankruptcy act or another state or federal law for the
relief of debtors and the continuation of such petition without dismissal for a
period of ninety (90) days or more; or
D. the failure of the Maker to execute a second
deed of trust on his principal residence in California within five (5) days of a
request from the Company; or
E. the sale, transfer, mortgage, assignment,
encumbrance or lease, whether voluntarily or involuntarily or by operation of
law or otherwise of the property covered by the Second Deed of Trust, or any
portion thereof or interest therein without the prior written consent of the
Company; or
1
<PAGE> 2
F. the occurrence of a material event of default
under the Second Deed of Trust securing this Note or any obligation secured
thereby.
5. Security. The proceeds of the loan evidenced by this Note
shall be applied solely to the purchase of the Borrower's principal residence in
California. Payment of this Note shall be secured by a Second Deed of Trust on
such principal residence, as more particularly described in Exhibit A to the
Second Deed of Trust executed this date by Borrower. Borrower, however, shall
remain personally liable for payment of this Note, and assets of the Borrower,
in addition to the collateral under the Second Deed of Trust, may be applied to
the satisfaction of the Borrower's obligations hereunder.
6. Collection. If action is instituted to collect this Note,
the Borrower promises to pay all reasonable costs and expenses (including
reasonable attorney fees) incurred in connection with such action.
7. Waiver. No previous waiver and no failure or delay by the
Company or Borrower in acting with respect to the terms of this Note or the
Second Deed of Trust shall constitute a waiver of any breach, default, or
failure of condition under this Note, the Second Deed of Trust, or the
obligations secured thereby. A waiver of any term of this Note, the Second Deed
of Trust, or of any of the obligations secured thereby must be made in writing
and signed by a duly authorized officer of the Company and shall be limited to
the express terms of such waiver.
Borrower hereby expressly waives presentment and demand for
payment at such time as any payments are due under this Note.
8. Conflicting Agreements. In the event of any inconsistencies
between the terms of this Note and the terms of any other document related to
the loan evidenced by the Note, the terms of this Note shall prevail.
9. Governing Law. This Note shall be construed in accordance
with the laws of the State of California.
/s/ RON GIANNOTTI
- --------------------------------------
Signature of Borrower
Ron Giannotti
- --------------------------------------
Print Name of Borrower
Address: 1400 Carlos Avenue
Burlingame, CA 94010
2
<PAGE> 3
ADDENDUM A TO DEED OF TRUST
The following are additional terms and provisions of the
Second Deed of Trust to which this Addendum is attached:
1. In the event the property described in this Deed of Trust
or any part thereof, or any interest therein is sold, agreed to be sold,
conveyed or alienated by Trustor, or by the operation of law or otherwise, all
obligations secured by this instrument, irrespective of the maturity dates
expressed therein, at the option of the holder thereof and without demand or
notice, shall immediately become due and payable.
2. This Deed of Trust is subordinate to a first lien deed of
trust securing a loan in the amount of Two Hundred Fifty Thousand Dollars
($250,000) from Mortgage Corporation to Trustor, which Deed of Trust is dated
_________________ and was recorded in the official records of ________________
County, California on ______________.
3
<PAGE> 1
Exhibit 10.13
ENDOVASCULAR TECHNOLOGIES, INC.
OFFICERS SEVERANCE PLAN
AND
SUMMARY PLAN DESCRIPTION
Plan Effective Date: September 24, 1996
<PAGE> 2
ENDOVASCULAR TECHNOLOGIES, INC.
OFFICERS SEVERANCE PLAN
AND
SUMMARY PLAN DESCRIPTION
The EndoVascular Technologies, Inc. Officers Severance Plan (the "Plan") is
primarily designed to provide eligible officers of EndoVascular Technologies,
Inc. (the "Company") whose employment is terminated on or after September 24,
1996 with separation pay and other benefits in the event of an involuntary
termination.
This Plan is designed to be an "employee welfare benefit plan," as defined in
Section 3(l) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). This Plan is governed by ERISA and, to the extent applicable, the
laws of the State of California. This document constitutes both the official
plan document and the required summary plan description under ERISA.
I. ELIGIBILITY
You will be eligible for severance benefits under the Plan if:
o you are an officer of the Company and are named on Schedule A;
o your active employment is terminated following your discharge
or dismissal other than for Cause or your active employment is
Involuntarily Terminated within the twenty-four (24) month
period following a Change in Control;
o you execute the General Release of All Claims, a copy of which
is attached, within the prescribed number of days following
your date of termination, as set forth in the attached General
Release of All Claims; and
o you are not in one of the excluded categories listed below.
You are not eligible for severance benefits under this Plan if:
o you voluntarily terminate employment, provided that the
foregoing shall not apply in the case of an Involuntary
Termination following a Change in Control;
o you are employed with a successor employer which directly or
indirectly acquires (i) all or any portion of the assets or
operations of the Company or any subsidiary, (ii) all or any
portion of the outstanding capital stock of the Company, or
(iii) fifty percent (50%) or more of the capital stock of any
subsidiary of the Company. However, you would be eligible for
severance benefits pursuant to the terms of the plan upon a
subsequent termination within 24 months following a Change in
Control; or
<PAGE> 3
o you are dismissed for Cause, whether or not you already
received notice of a termination which would otherwise qualify
you for severance benefits.
II. HOW THE PLAN WORKS
If you are eligible for severance benefits under the Plan, the amount of your
severance pay will be determined in accordance with the guidelines set forth
below, subject to the Golden Parachute Tax limitation set forth below, on the
basis of your Salary level measured as of the date of your termination of active
employee status:
Severance Guidelines in the event of no Change in Control
---------------------------------------------------------
o Six (6) months of Salary payable in periodic installments in
accordance with the Company's payroll practice, plus 50% of
your Target Bonus for the fiscal year in which your employment
terminates payable in a lump sum within ten (10) days
following your cessation of employment.
o Your existing group health coverage (and, if applicable, the
existing group health coverage of your eligible dependents)
offered by the Company will be extended through the end of the
month in which your termination date occurs. Effective as of
the first day of the following month, you may then be eligible
to elect temporary continuation coverage under the Company's
health plan pursuant to your rights under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"). If you (and, if applicable, your dependents) elect
COBRA continuation coverage, the Company will pay the entire
cost of such coverage for the lesser of a six (6) month period
or until your COBRA eligibility ends. You and your eligible
dependents will be provided with a COBRA election form and
notice which describes your rights to continuation coverage
under COBRA.
Severance Guidelines in the event of a Change in Control
--------------------------------------------------------
o If your employment is Involuntarily Terminated within twelve
(12) months of a Change in Control: Twenty-four (24) months of
Salary, plus a bonus equal to 200% of your Target Bonus for
the fiscal year in which your employment terminates, payable
in a single lump sum within ten (10) days of your cessation of
employment. You will have the COBRA benefits set forth above,
except that if you (and, if applicable, your dependents) elect
COBRA continuation coverage, the Company will pay the entire
cost of such coverage for the lesser of an eighteen (18)
month period or until your COBRA eligibility ends.
o If your employment is Involuntarily Terminated more than
twelve (12) but less than twenty-four (24) months following a
Change in Control: Twelve (12) months of Salary, plus 100%
of your Target Bonus for the fiscal year in which your
2
<PAGE> 4
employment terminates, payable in a single lump sum within ten
(10) days of your cessation of employment. You will have the
COBRA benefits set forth above, except that if you (and, if
applicable, your dependents) elect COBRA continuation
coverage, the Company will pay the entire cost of such
coverage for the lesser of a twelve (12) month period or
until your COBRA eligibility ends.
Salary generally means your base salary at your date of termination and does not
include, for example, bonuses, overtime compensation, incentive pay, sales
commissions or expense allowances.
Target Bonus means 100% of the bonus potential established for you by the
Company for the applicable fiscal year.
Cause means your willful breach of duty unless waived by the Company (which
willful breach is limited to your deliberate and consistent refusal to perform
your duties or the deliberate and consistent refusal to conform to or follow any
reasonable policy adopted by the Company provided you have had prior written
notice of such refusal), your unauthorized use or disclosure of the confidential
information or trade secrets of the Company, your conviction of a felony under
the laws of the United States or any state thereof, or your gross negligence.
Change in Control shall mean the occurrence of one or more of the following
transactions:
a) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are
transferred to a person or persons different from the
persons holding those securities immediately prior to
such transaction, or
b) the sale, transfer or other disposition of all or
substantially all of the Company's assets, or
c) any person (or entity) directly or indirectly acquires
50% or more of the combined voting power of outstanding
shares of Company stock.
Involuntary Termination shall mean the termination of your employment with the
Company:
(A) involuntarily upon your discharge or dismissal
other than for Cause, or
(B) voluntarily or involuntarily following (I) a
change in your position with the Company which materially
reduces your level of responsibility, (II) a reduction in your
level of cash compensation (including base salary and bonuses)
or (III) a change in your place of employment which is more
than 25 miles from your place of employment prior to the
change, provided and only if such change or
3
<PAGE> 5
reduction is effected without your written concurrence.
Golden Parachute Tax Limitation
The Internal Revenue Code imposes a 20% excise tax on certain payments and other
benefits received by certain officers and shareholders in connection with a
change of control involving the Company. Such payments can include severance pay
and acceleration of option vesting. In the event that the cash severance payment
you would receive under this Plan, when added to any other payments or benefits
received by you, would (i) constitute "parachute payments" within the meaning of
Section 280G of the Internal Revenue Code ("Code") and (ii) be subject to the
20% excise tax imposed by Section 4999 of the Code, then your cash severance
payments shall be either
payable in full or
payable as to such lesser amount which would result in no
portion of the compensation payable to you being subject to
excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable Federal,
state and local income taxes and the 20% excise tax imposed by Code Section
4999, results in your receipt, on an after-tax basis, of the greatest amount. If
a reduction is to be effected, your bonus severance payment shall be reduced
first and your salary continuation severance payments next. No payments due you
outside of this Plan shall be reduced by reason of this paragraph. Unless you
and the Company agree otherwise in writing, any determination required to make
this adjustment shall be made in writing by the Company's independent public
accountants or other outside auditors selected by the Company immediately prior
to the change of control triggering the parachute payments, whose determination
shall be binding upon you and the Company. You and the Company are obligated to
furnish to the accountants such information and documents as the accountants may
reasonably request. The Company shall bear all costs of engaging the accountants
in connection with these calculations.
III. OTHER IMPORTANT INFORMATION
Plan Administration. As the Plan Administrator, the Company has full
discretionary authority to administer and interpret the Plan, including
discretionary authority to determine eligibility for benefits under the Plan and
the amount of benefits (if any) payable per participant. Any determination by
the Plan Administrator will be final and conclusive upon all persons.
Benefits. When benefits are due, they will be paid from the general assets of
the Company. The Company is not required to establish a trust to fund the Plan.
The benefits provided under this Plan are not assignable and may be conditioned
upon your compliance with any confidentiality agreement you have entered into
with the Company or upon your compliance with any Company policy or program
communicated to you in writing.
Claims Procedure. If you believe you are incorrectly denied a benefit or are
entitled to a greater
4
<PAGE> 6
benefit than the benefit you receive under the Plan, you may submit a signed,
written application to the Plan Administrator within ninety (90) days of your
termination. You will be notified of the approval or denial of this claim within
ninety (90) days of the date that the Plan Administrator receives the claim,
unless special circumstances require an extension of time for processing the
claim. If your claim is denied, the notification will state specific reasons for
the denial and you will have sixty (60) days from receipt of the written
notification of the denial of your claim to file a signed, written request for a
review of the denial with the Plan Administrator. This request should include
the reasons you are requesting a review, facts supporting your request and any
other relevant comments. Pursuant to its discretionary authority to administer
and interpret the Plan and to determine eligibility for benefits under the Plan,
the Plan Administrator will generally make a final, written determination of
your eligibility for benefits within sixty (60) days of receipt of your request
for review.
Plan Terms. This Plan supersedes any and all prior separation, severance and
salary continuation arrangements, programs and plans which were previously
offered by the Company, including pursuant to employment agreement or offer
letter, except as otherwise set forth herein.
Plan Amendment or Termination. The Company reserves the right to terminate or
amend the Plan at any time upon the vote of a two-thirds majority of the Board
of Directors; provided, however, that no amendment may be made after the
occurrence of a Change in Control and any amendment made within the 60 day
period ending on the date of the Change in Control shall be deemed to have been
made after the occurrence of a Change in Control. Any termination or amendment
of the Plan may be made effective immediately with respect to any benefits not
yet paid, whether or not prior notice of such amendment or termination has been
given to affected employees.
Taxes. The Company will withhold all applicable taxes and other payroll
deductions from any severance payment.
No Right To Employment. This Plan does not provide you with any right to
continue employment with the Company or affect the Company's right, which right
is hereby expressly reserved, to terminate the employment of any individual at
any time for any reason with or without cause.
IV. STATEMENT OF ERISA RIGHTS
As a participant in the Plan, you are entitled to certain rights and protections
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
ERISA provides that all Plan participants shall be entitled to:
1. Examine, without charge, at the Plan Administrator's office,
all Plan documents, including all documents filed by the Plan
with the U.S. Department of Labor.
2. Obtain copies of all Plan documents and other Plan information
upon written request to the Plan Administrator. The Plan
Administrator may make a reasonable charge for the copies.
5
<PAGE> 7
3. File suit in a federal court, if you, as a participant,
request materials and do not receive them within thirty (30)
days of your request. In such a case, the court may require
the Plan Administrator to provide the materials and to pay you
a fine of up to $100 for each day's delay until the materials
are received, unless the materials were not sent because of
reasons beyond the control of the Plan Administrator.
In addition to creating rights for certain employees of the Company under the
Plan, ERISA imposes obligations upon the people who are responsible for the
operation of the Plan. The people who operate the Plan (called "fiduciaries")
have a duty to do so prudently and in the interest of the Company's employees
who are covered by the Plan.
No one, including your employer or any other person, may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a benefit to
which you are entitled under the Plan or from exercising your rights under
ERISA.
If your claim for a severance benefit is denied or ignored, in whole or in part,
you have a right to file suit in a federal or a state court. If Plan fiduciaries
are misusing the Plan's assets (if any) or if you are discriminated against for
asserting your rights, you may seek assistance from the U.S. Department of Labor
or file suit in a federal court. The court will decide who will pay court costs
and legal fees. If you are successful in your lawsuit, the court may, if it so
decides, order the party you have sued to pay your legal costs, including
attorney fees. However, if you lose, the court may order you to pay these costs
and fees, for example, if it finds that your claim or suit is frivolous.
If you have any questions about the Plan, this statement or your rights under
ERISA, you should contact the Plan Administrator or the nearest Area Office of
the U.S. Labor-Management Services Administration, Department of Labor.
6
<PAGE> 8
ADDITIONAL PLAN INFORMATION
<TABLE>
<CAPTION>
Name of Plan: EndoVascular Technologies, Inc. Officers Severance Plan
- ------------- -------------------------------------------------------
<S> <C>
Company Sponsoring EndoVascular Technologies, Inc.
Plan: 1360 O'Brien Drive
Menlo Park, CA 94025
Employer Identification 94-3096794
Number:
Plan Number: 505
Plan Year: The calendar year; the first plan year shall end
December 31, 1996
Plan Administrator: EndoVascular Technologies, Inc.
1360 O'Brien Drive
Menlo Park, CA 94025
(415) 325-1600
Agent for Service of Plan Administrator
Legal Process:
Type of Plan: Severance Plan/Employee Welfare Benefit Plan
Plan Costs: The cost of the Plan is paid by EndoVascular Technologies, Inc.
</TABLE>
7
<PAGE> 9
SCHEDULE A
List of Participants
--------------------
W. James Fitzsimmons
G. Bradley Cole
Elizabeth McDermott
Ronald R. Giannotti
Lori A. Adels
Dr. Victor Bernhard
Jeffery W. Jarvela
8
<PAGE> 10
GENERAL RELEASE OF ALL CLAIMS
In consideration of the severance benefits to be paid to me by
EndoVascular Technologies, Inc. in accordance with the terms of the EndoVascular
Technologies, Inc. Officers Severance Plan, a copy of which has been given to
me, I hereby fully and forever release and discharge EndoVascular Technologies,
Inc., its officers, directors, agents, employees, successors, predecessors,
subsidiaries and assigns (hereinafter, collectively called "EVT") from all
claims and causes of action arising out of or relating in any way to my
employment with EVT including the termination of my employment.
1. I understand and agree that this RELEASE is a full and
complete waiver of all claims, including, but not limited to, claims of wrongful
discharge, breach of contract, breach of the covenant of good faith and fair
dealing, violation of public policy, defamation, personal injury, emotional
distress, claims under Title VII of the Civil Rights Act of 1964, as amended,
the Fair Labor Standards Act, the California Fair Employment and Housing Act,
the Equal Pay Act of 1963, the Americans With Disabilities Act, California Labor
Code Section 1197.5, the Civil Rights Act of 1866, [the Age Discrimination in
Employment Act of 1967, as amended], the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and any other state and federal laws and
regulations relating to employment or employment discrimination. I further
understand that by this RELEASE I agree not to assist, encourage, institute or
cause to be instituted the filing of any administrative charge or legal
proceeding against EVT relating to employment discrimination.
2. I also hereby agree that nothing contained in this RELEASE
shall constitute or be treated as an admission of liability or wrongdoing by me
or EVT.
3. In addition, and in further consideration of the foregoing,
I hereby expressly waive any and all rights and benefits conferred upon me by
the provisions of Section 1542 of the Civil Code of the State of California,
which states as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
4. I hereby acknowledge that I have read and understand the
foregoing RELEASE and that I sign it voluntarily and without coercion. I further
acknowledge that I was given an opportunity to consider and review this RELEASE
and to consult with an attorney of my own choosing concerning the waivers
contained in this RELEASE, that I have done so and that the waivers made herein
are knowing, conscious and with full appreciation that I am forever foreclosed
from pursing any of the rights so waived.
Executed this _____ day of ______________ 199__.
____________________________________________
Employee
<PAGE> 1
Exhibit 10.14
MULTIMEDIA DEVELOPMENT AGREEMENT
This Agreement dated as of March 19, 1997 ("Effective Date") is between
Engineering Animation, Inc. ("EAI") with an address for purposes of this
Agreement at 2321 North Loop Drive, Ames, IA 50010, and EndoVascular
Technologies, Inc. ("EVT") with an address for purposes of this Agreement at
1360 O'Brien Drive, Menlo Park, CA 94029. Under this Agreement, EAI develops and
delivers to EVT multimedia deliverables, the final deliverable known as EGS
Decision Support Software. The terms of the Agreement apply to each multimedia
deliverable.
By signing below, the parties agree to the terms of this Agreement. The complete
Agreement between the parties regarding this transaction consists of this
Multimedia Development Agreement and the following Attachments:
1. Maintenance and Support Attachment
2. Software Requirement Specification Attachment
3. Deliverables Attachment
4. Software Development Quality Assurance Plan Attachment
5. Software Validation Procedure Attachment
This Agreement replaces all prior oral or written communications between the
parties relating to the subject matter. Once signed, any reproduction of this
Agreement made by reliable means (for example, photocopy or facsimile) is
considered an original, unless prohibited by local law.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
ENDOVASCULAR TECHNOLOGIES, INC. (EVT) ENGINEERING ANIMATION, INC. (EAI)
By: WILLIAM J. FITZSIMMONS By: ADRIAN SANNIER
Name: WILLIAM J. FITZSIMMONS Name: ADRIAN SANNIER
Title: PRESIDENT AND CEO Title: VICE PRESIDENT - INTERACTIVE
Date: 3/19/97 Date: 3/20/97
PAGE 1 OF 12 EAI CONFIDENTIAL
<PAGE> 2
1.0 DEFINITIONS. Capitalized terms of the Agreement have the following
meanings.
1.1. BACKGROUND MATERIALS are items created prior to the signing of the
Letter of Agreement on December 13, 1996 and: (i) in which the
copyrights are owned by a third party; or (ii) that EAI prepared or had
prepared outside the scope of this Agreement, including but not limited
to, DICOM Data Interface Modules and the Standard Visualization
Modules. Background Materials are contained within a Deliverable.
1.2 CODE is computer programming code including both Executable Image and
Source Code.
a. EXECUTABLE IMAGE is Code substantially in binary form, that is
directly executable by a computer.
b. SOURCE CODE is Code in a form which, when printed out or
displayed, is readable and understandable by a programmer of
ordinary skills. It includes related source code level system
documentation, comments and procedural code. Source Code does
not include Object Code.
1.3 DELIVERABLE is any item that EAI provides according to the Deliverables
Attachment to this Agreement.
1.4 DERIVATIVE WORK is a work that is based on an underlying work and that
would be a copyright infringement if prepared without the authorization
of the copyright owners of the underlying work. Derivative Works are
subject to the ownership rights and licenses of a party or of others in
the underlying work.
1.5 DISTRIBUTORS are those authorized or licensed by EVT, EVT Subsidiaries
or EVT Distributors to license or distribute Products.
1.6 ERROR CORRECTIONS are revisions that correct errors and deficiencies
(collectively referred to as "errors" in the EVT Materials and
Background Materials).
1.7 EXTERNALS are programming interfaces, languages, or protocols
implemented in Code to enable interaction with other computer programs
or the end user. Externals do not include the Code that implements
them.
1.8 EVT MATERIALS are any, all and some of the following (including, all
intellectual property and associated rights throughout the world
related to the items described below):
a. all materials composing the Product;
b. all materials conforming to the description in the Software
Requirement Specification Attachment;
c. all Deliverables and any related documentation;
d. all Externals;
e. all Error Corrections; and
f. any text scripts, pictorial, graphics, and audiovisual works
(such as icons, screens, sounds, animation, and visual
representations and related materials),
developed by EAI under this Agreement or after the signing of the Letter
of Agreement on December 13, 1996, except all Background Materials.
1.9 INVENTION is an idea, know-how, technique, invention, discovery or
improvement whether or not patentable which is conceived or reduced to
practice by EAI or EVT (or both of them) or their respective personnel,
contractors, or consultants in performance of work required under this
Agreement.
PAGE 2 OF 12 EAI CONFIDENTIAL
<PAGE> 3
1.10 MORAL RIGHTS are personal rights associated with authorship of a work
under applicable law. They may include the rights commonly known as the
rights of paternity, integrity, disclosure and withdrawal, and the
rights to approve modifications and to require authorship
identification.
1.11 PRODUCT is the final Deliverable developed by EAI according to this
Agreement which is accepted by EVT and includes, without limitation,
all improvements made to and all Derivative Works thereof. Product is
also known as "EGS Decision Support Software."
1.12 SUBSIDIARY is an entity during the time that more than 50% of its
voting stock is owned or controlled, directly or indirectly, by another
entity. If there is no voting stock, a Subsidiary is an entity during
the time that more than 50% of its decision-making power is controlled,
directly or indirectly, by another entity.
1.13 TOOLS include devices, compilers, programming, documentation, media and
other items required for the development, maintenance or implementation
of a Deliverable that are not commercially available.
1.14 FIELD is the field of diagnostic assessments for therapeutic
applications in the human circulatory system, except for applications
addressing human intracardiac and intracranial circulatory systems.
2.0 EAI RESPONSIBILITIES. The following responsibilities supplement those
found elsewhere in this Agreement:
2.1 EAI will provide the following Deliverables according to the schedule
set forth in the Deliverables Attachment:
a. one complete set of the EVT Materials and Background Materials
(with deliverables to EVT in Executable Image form); and
b. Tools. The Tools for the EVT Materials and Background
Materials are identified below:
<TABLE>
<CAPTION> PART NUMBER/
DESCRIPTION MODEL NUMBER FORM OWNER
----------- ------------ ---- ------
<S> <C> <C> <C>
DICOM file Input/Output EAI DICOM library Object Code EAI
formatting modules
</TABLE>
2.2 EAI will use its reasonable commercial efforts to provide support and
maintenance services for EVT materials, Background Materials and
Product as provided in the Maintenance and Support Attachment for the
term of this Agreement, and continuing for, whichever is the greater,
five (5) years thereafter or the length of time the Product is in use
by EVT. Corrections and updates to Product provided under this
Agreement will be considered Products. The fee for the first six (6)
months of support and maintenance is included in the price of the
Development Fee. Thereafter, EVT will pay EAI an annual support fee of
15,000 dollars. Either party may terminate support services at the end
of the original term or at the end of any renewal term by giving
written notice to the other party at least forty-five (45) days prior
to the end of such term. EAI may suspend or cancel Support Services if
EVT fails to make annual support payment pursuant to this section and
such breach is not remedied within thirty (30) days after EVT receives
notice of the breach. If EAI fails to provide such services and such
failure continues for more than thirty (30) days, EVT shall be entitled
to receive from EAI (or the escrow agent, as set forth below) a copy of
all Source Code and related documentation, Error Corrections, manuals,
tools, or other materials used by EAI in the development, maintenance
or support of such Product (collectively "Maintenance Materials"). EVT
is hereby granted a currently effective, non-exclusive and
non-sublicenseable license to use the foregoing, to and only to,
support, maintain, and evolve such Product. In support of the
foregoing, and promptly after acceptance by EVT of the final
Deliverable, EAI will place in escrow, with a third party escrow agent
(reasonably acceptable to EVT), the Source Code and any related
Maintenance Materials as they exist at the time of the acceptance of
the final Deliverable. EAI
PAGE 3 OF 12 EAI CONFIDENTIAL
<PAGE> 4
warrants that it will update the escrow with any new or modified Source
Code and Maintenance Materials promptly as they become available and
will notify EVT when it does so.
2.3 EAI will:
a. provide weekly status reports via electronic mail and will
participate in progress reviews as requested by EVT, to
demonstrate EAI's performance of its obligations;
b. implement a process designed to help prevent contamination by
harmful code and EAI will provide EVT notice if contamination
is suspected;
c. have agreements with its personnel and third parties who
perform obligations hereunder to grant or assign rights
(including all Moral Rights) to EAI as required by this
Agreement, and on request, EAI will provide EVT with evidence
of these agreements;
d. not assert any Moral Rights in the EVT Materials;
e. obtain all necessary consents of individuals or entities
required for the use of names, licenses, voices, likenesses,
copyrights, trademarks, and the like in the EVT Materials and
Background Materials;
f. maintain records to verify authorship of the EVT Materials and
Background Materials for three (3) years after the termination
or expiration of this Agreement and on request, EAI will
deliver a copy of or otherwise make available this information
in a form specified by EVT;
g. provide EVT with relevant financial information about EAI
business on request; and
h. not assign or transfer this Agreement or any rights under it,
or delegate or subcontract any obligations without EVT's prior
written approval and EAI agrees that any attempt to do so is
void.
2.4 If EAI fails to perform or fulfill any of its obligations hereunder,
EVT may either reduce any amounts due hereunder by an amount equal to
the value not received, or have EAI reimburse EVT for the value not
received. EAI acknowledges that if it does not deliver the EVT
Materials, final Deliverable, and Background Materials, EVT will suffer
irreparable harm and will be entitled to all equitable remedies,
including specific performance for the delivery of such EVT Materials
and Background Materials.
2.5 On EVT's request and EAI's agreement, EAI will participate in
demonstrations of Products at trade shows, conferences and sales
meetings. EVT will be responsible for EAI's expenses and will
compensate EAI for the time of its employees at a rate to be determined
in advance of each participation.
3.0 INTELLECTUAL PROPERTY.
3.1 EVT shall own all right, title and interest (including patent rights,
copyrights, trade secret rights, mask work rights and other rights
throughout the world) in any inventions, works of authorship, mask
works, ideas or information made or conceived or reduced to practice by
EAI in the course of performance under this Agreement, including but
not limited to all EVT Materials and Derivative Works thereof. However,
EVT shall have no ownership or license to Background Materials, except
as expressly provided in sections 3.2 and 3.5 below. EAI does and
hereby makes all assignments necessary to accomplish the foregoing
ownership provision. Any assignment of copyrights hereunder includes
all Moral Rights. To the extent such Moral Rights cannot be assigned
under applicable law and to the extent the following is allowed by the
laws in the various countries where Moral Rights exist, the assigning
party hereby waives such Moral Rights and consents to any action
consistent with the terms of this Agreement that would violate such
Moral Rights in the absence of such consent. The assigning party will
confirm any such waivers and consents from time to time as requested by
the other party.
3.2 EAI grants EVT a nonexclusive, worldwide, perpetual, irrevocable
license to exploit (including, but not limited to, the rights to use,
execute, reproduce, exhibit, display, perform, transfer, distribute
(including by electronic transmission) and sublicense) the Background
Materials (and all related
PAGE 4 OF 12 EAI CONFIDENTIAL
<PAGE> 5
intellectual property rights throughout the world) in any medium or
distribution technology whatsoever, whether known or unknown, for the
purpose of developing, implementing, marketing and maintaining the
Product. For a period of five (5) years following EVT's acceptance of
the final Deliverable under this Agreement, EAI also grants EVT an
exclusive, worldwide, perpetual, irrevocable license to exploit
(including but not limited to the rights to use, execute, reproduce,
exhibit, display, perform, transfer, distribute (including by
electronic transmission) and sublicense) the Background Materials, in
any medium or distribution technology whatsoever, whether known or
unknown, in connection with the Field.
3.3 EAI grants EVT a nonexclusive, worldwide, perpetual, irrevocable,
paid-up license to exploit (including, but not limited to, the rights
to use, execute, reproduce, display, perform and distribute) the Tools
(and all related intellectual property rights throughout the world) in
any medium or distribution technology whatsoever, whether known or
unknown, for the purpose of developing, implementing and marketing
Product.
3.4 The rights and licenses granted to EVT according to sections 3.2 and
3.3 above include the right of EVT to authorize and sublicense its
Subsidiaries, contractors, and consultants to exercise any of the
rights granted to EVT and the right to authorize or sublicense others
to exercise any of the rights granted to EVT in this section.
3.5 EAI grants EVT a nonexclusive, worldwide, perpetual, irrevocable,
paid-up license to use any trademarks or service marks associated with
EVT Materials and Background Materials for EVT's marketing of the EVT
Materials, Background Materials, Product and any Derivative Works. EAI
grants EVT the right to authorize or sublicense others to exercise any
of the rights granted to EVT in this section. If EVT's use of EAI's
names and trademarks is improper and EAI provides EVT notice that EAI
objects to such use, EVT will take all reasonable steps necessary to
resolve EAI's objections. EAI may reasonably monitor the quality of
products bearing EAI's trademark under this license.
3.6 EAI agrees that the following attribution when appearing on marketing,
packaging and promotional materials of Product or Derivative Works
thereof is proper:
"EGS Decision Support Software developed
by Engineering Animation, Inc. (EAI)
(C) 1997 EndoVascular Technologies, Inc.
Portions of copyright works are property of Engineering
Animation, Inc. and licensed to EndoVascular Technologies, Inc."
4.0 EXCLUSIVITY AND RIGHT OF FIRST REFUSAL.
4.1 Five (5) years after the acceptance by EVT of the final Deliverable
under this Agreement, EAI shall have the non-exclusive,
non-sublicensable, non-transferable, royalty-bearing, right to market,
distribute and license the Product directly to hospitals, physicians,
or practicing medical professionals (but not to any healthcare
companies or other competitors of EVT) anywhere in the world.
4.2 During the term of this Agreement EAI agrees not to directly or
indirectly develop, market or otherwise sell in the Field the Product,
or any product, development, discovery or any derivative, improvement
or modification of the Product.
4.3 Upon the termination of this Agreement and for three (3) years
thereafter, EAI grants to EVT the right of first refusal for any rights
in any development, discovery, or any improvement or modification of
Product, which is conceived, reduced to practice, discovered or created
in the Field ("Development"). EAI will promptly disclose to EVT in
writing all information relating to any Developments in sufficient
detail to permit EVT to value Development and evaluate the scope of the
Development ("Written Description") and EAI will also promptly propose
terms and conditions
PAGE 5 OF 12 EAI CONFIDENTIAL
<PAGE> 6
for an agreement with respect to the exploitation of such Development
("Proposal"). If EVT determines in good faith that the Written
Description is not sufficiently detailed for evaluation of Development,
EVT will so notify EAI within fifteen (15) days of the receipt of the
Written Description so that EAI may provide EVT with further details.
Within thirty (30) days of the receipt and acceptance of the Written
Description and the receipt of Proposal, EVT will notify EAI in writing
of its intention to negotiate an agreement with EAI with respect to the
Proposal. In the event that EVT elects to negotiate an agreement with
EAI, both parties will in good faith negotiate the terms and conditions
of the Proposal. In the event that the parties are unable to reach an
agreement in ninety (90) days or if EVT elects not to negotiate an
agreement with EAI (a failure to notify within such ninety (90) day
period being deemed an election not to negotiate), then EAI will be
free to disclose the Proposal to third parties and enter into an
agreement with other such third parties; provided, however, that if EAI
intends to accept a third party offer, which in EVT's opinion is more
favorable to the third party than the Proposal, EVT shall have thirty
(30) days to enter into an agreement with EAI on the terms and
conditions of such third party offer.
4.4 Notwithstanding anything to the contrary, during the term of this
Agreement and for three (3) years following the termination of this
Agreement, EAI agrees not to develop, market or otherwise sell (for
itself or any third party) any product in the field of guiding or
treatment of abdominal aortic aneurysms.
4.5 EVT may waive in writing its exclusivity for particular transactions. A
waiver will state the duration and extent and will be signed. All
rights not expressly waived will continue in full force and effect.
5.0 PAYMENT.
5.1 Subject to the terms of this Agreement, EVT will pay EAI as follows:
a. EVT will pay EAI development fees ("Development Fees") of
$1,500,000 to be paid in installments as follows:
1. $300,000, which was invoiced to EVT at the time of
the signing of the Letter of Agreement on December
13, 1996, either thirty (30) days from the invoice
date or at the signing of the definitive contract,
whichever is later.
2. $350,000, which was invoiced on December 30, 1996,
either ninety (90) days from the invoice date or
forty-five (45) days after the signing of the
definitive contract, whichever is later.
3. $200,000 to be invoiced on the date that EAI delivers
"Alpha Software" (the interum deliverable recited in
the Deliverables Attachment), with terms for payment
one-hundred and twenty (120) days after the invoice
date.
4. $450,000 to be invoiced six (6) months after EVT
accepts the final Deliverable with terms for payment
within thirty (30) days.
5. $200,000 to be invoiced one (1) year after the date
that EVT is invoiced under section 5.1(a)(4) above
with terms for payment within thirty (30) days.
b. In addition to the above Development Fees, and subject to the
terms of this Agreement, EVT agrees to pay EAI a semi-annual
license fee ("Semi-Annual License Fee") for the years 1997
through 2000 which will be determined by multiplying the
number of patient studies performed in a given year, in excess
of a stated minimum number of patient studies, by a stated
rate for such year as follows:
<TABLE>
<CAPTION>
MINIMUM NUMBER RATE PER PATIENT STUDY IN
YEAR OF PATIENT STUDIES EXCESS OF YEARLY MINIMUM
---- ------------------ ------------------------
<S> <C> <C> <C>
1997 870 $230
1998 3,000 $150
1999 1,740 $115
2000 0 $ 80
</TABLE>
PAGE 6 OF 12 EAI CONFIDENTIAL
<PAGE> 7
The Semi-Annual License Fees for the years 1997 through 2000 shall be
payable on February 15th and August 15th of each year.
6.0 ACCEPTANCE.
6.1 When EAI believes it has appropriately completed a Deliverable (both
the interim deliverables and the final deliverable as described in the
Deliverables Attachment), EAI will deliver it to EVT. EVT will accept
or reject the Deliverable within forty-five (45) calendar days after
delivery; failure to give notice of acceptance or rejection within that
period will constitute acceptance. A rejection notice will be
accompanied by a reasonably detailed description of any such failures.
6.2 If EVT rejects the Deliverable, EAI will use all diligent efforts to
promptly correct the failures specified in the rejection notice within
forty-five (45) calendar days of the rejection notice. When EAI
believes that it has made the necessary corrections, EAI will again
deliver the Deliverable to the Company and the
acceptance/rejection/correction provisions above shall be reapplied
until the Deliverable is accepted by EVT.
6.3 EAI will deliver to EVT all Deliverables necessary for EVT to test for
satisfactory compliance with the provisions of the Software Requirement
Specification Attachment. EAI will perform testing of the EVT Materials
or Background Materials before each delivery to EVT according to the
Software Development Quality Assurance Plan Attachment. EAI will also
successfully complete the software validation procedure outlined in the
Software Validation Procedure Attachment for the final Deliverable and
provide documentation to EVT of the completion thereof.
7.0 REPRESENTATIONS AND WARRANTIES.
7.1 EAI makes the following ongoing representations and warranties:
a. EAI has full legal rights to grant the rights granted herein,
including but not limited to, the right to grant the licenses
and make assignments hereunder;
b. EAI is not under, and will not assume, any contractual
obligation, that prevents it from performing its obligations,
or that conflicts with the rights and licenses granted or
assignments made in this Agreement;
c. there are no liens, encumbrances or claims pending or
threatened against EAI or to its knowledge, anyone else, that
relate to the rights and licenses granted or assignments made
in this Agreement;
d. the EVT Materials, Background Materials, and Tools do not
directly or indirectly infringe any publicity, privacy or
intellectual property rights of a third party and are not
misappropriated from any third party;
e. The EVT Materials, Background Materials, and the Tools will
perform in accordance with the requirements set forth in this
Agreement, including the Software Requirement Specification
Attachment, and will conform to user documentation provided by
EVT;
f. the Executable Image that EAI will provide to EVT will
correspond to the current release or version of the EVT
Materials and Background Materials provided under this
Agreement;
g. the EVT Materials and Background Materials support the Year
2000, are capable of correctly processing, providing and
receiving date data, as well as properly exchanging accurate
date data with all products (for example, hardware, software
and firmware) with which they are designed to be used;
h. the EVT Materials, Background Materials and Tools are not
contaminated by harmful code;
i. all authors have waived their Moral Rights in the EVT
Materials and Background Materials to the extent permitted by
law;
j. all of EAI's obligations will be performed in compliance with
applicable law;
k. EAI has and/or will obtain agreements with its employees,
contractors and other third parties sufficient to allow it to
provide EVT with the assignments and licenses to
PAGE 7 OF 12 EAI CONFIDENTIAL
<PAGE> 8
intellectual property rights developed by it for EVT and
sufficient to assign all Moral Rights related thereto; and
l. for a period of sixty (60) days from the date of the
acceptance of the final Deliverable, that Product is free from
media defects and that Product substantially conforms to the
specifications recited in the Software Requirement
Specification Attachment. EAI's entire liability and EVT's
exclusive remedy for breach of this warranty (recited in this
section l) shall be, at EAI's option and expense: (1) repair
of Product, (2) replacement of Product or (3) refund of
Development Fees (if EAI determines that repair or replacement
is impractical).
7.2 EVT makes the following ongoing representations and warranties:
a. EVT has full legal rights to enter into this Agreement and to
provide the information and materials to EAI as contemplated
herein.
b. The materials and information provided to EAI for inclusion in
the EGS Decision Support Software do not directly or
indirectly infringe any intellectual property rights or other
rights of any other party.
c. The materials and information provided to EAI for inclusion in
the EGS Decision Support Software are accurate in all material
respects.
7.3 EXCEPT AS PROVIDED ABOVE, ANYTHING EITHER PARTY PROVIDES TO THE OTHER
RELATED TO THIS AGREEMENT IS "AS IS," WITHOUT ANY WARRANTY OF ANY KIND.
8.0 INDEMNIFICAITON, LIABLITY LIMITATIONS, AND INSURANCE.
8.1 EAI INDEMNIFICATION.
a. EAI will defend and indemnify EVT and EVT's Subsidiaries and
customers if a third party makes or threatens to make a claim
against EVT or its Subsidiaries based on an actual or alleged:
1. failure by EAI, to the extent not caused by EVT, to
perform its obligations under this Agreement;
2. breach of EAI's representations and warranties;
3. failure by EAI to comply with government laws and
regulations; or
4. infringement or misappropriation of third party
intellectual property (or related rights) by EAI or
EVT or its Subsidiaries, relating to exploitation of
EVT Materials except those materials provided by EVT
for inclusion in the EVT Materials), the Background
Materials, Product or Tools.
b. EVT will promptly provide EAI notice of any threat or claim,
allow EAI to control the defense, negotiation and settlement
of the dispute, and reasonably cooperate with EAI in the
defense, negotiation, and settlement of the dispute (at EAI's
expense). EVT may participate in the proceedings at its option
and expense.
c. In addition, if an infringement claim appears likely, or is
made, based upon EVT Materials or Product developed by EAI or
Background Materials or Tools, EAI will either:
1. obtain the necessary rights for EVT, EVT Subsidiaries
and Distributors and their respective customers to
continue to distribute, license, otherwise transfer
and use such materials on an uninterrupted basis and
exercise all rights granted hereunder; or
2. modify the EVT Materials, Background Materials and
Tools at EAI's expense to resolve the claim. EAI
warrants that any such modified materials will comply
with the specifications set forth in the Software
Requirement Specification Attachment.
d. If EAI is not able to do either within a reasonable period of
time, EVT may terminate this Agreement for EAI's breach, in
accordance with section 9.3.
PAGE 8 OF 12 EAI CONFIDENTIAL
<PAGE> 9
8.2 EVT INDEMNIFICATION.
a. EVT will defend and indemnify EAI if a third party makes or
threatens to make a claim against EAI based on an actual or
alleged:
1. failure by EVT to perform its obligations under this
Agreement;
2. breach of EVT's representations and warranties;
3. failure to comply with government laws and
regulations;
4. infringement by EVT in materials or information
provided by EVT to EAI specifically for incorporation
into the EGS Decision Support Software; or
5. death of or bodily injury to any person arising from
the use of Product in compliance with all the
procedures set forth in the Product's operating
instructions.
b. EAI will promptly provide EVT with notice of any threat or
claim, allow EVT to control the defense, negotiation and
settlement of the dispute, and reasonably cooperate with EVT
in the defense, negotiation, and settlement of the dispute (at
EVT's expense). EAI may participate in the proceedings at its
option and expense.
8.3 In addition to any indemnities or other remedies specified in this
Agreement, EVT and EAI may pursue any other remedy either may have in
law or equity.
8.4 LIMITATION ON LIABILITY. Regardless of the type of claim, neither party
is liable to the other for indirect, incidental, special or
consequential damages, including lost profits or revenues, under any
part of this Agreement, even if informed that they may occur. This
limitation does not apply to (a) liabilities for indemnity above or (b)
any obligations of either party to make a payment which is due under
this Agreement or (c) any liability for bodily injury of a person or
(d) any breach of section 11.5.
8.5 INSURANCE.
a. Each party will maintain, at a minimum, the following
insurance coverage at its own expense:
1. Worker's Compensation, including Employer's
Liability, for the statutory required amount.
2. Commercial General Liability for two (2) years
following expiration or termination of this Agreement
in the amount of $1,000,000 per event.
3. Professional Liability (Errors and Omissions) for six
(6) years following the expiration or termination of
this Agreement in the amount of $1,000,000 per policy
year.
b. Each party will provide the other with a certificate of
insurance as proof of this minimum coverage on request.
9.0 TERM AND TERMINATION.
9.1 This Agreement begins on the Effective Date and ends five (5) years
from the date that EVT accepts the final Deliverable unless terminated
sooner under the terms of this Agreement.
9.2 Either party may terminate this Agreement for the other's material
breach by providing the breaching party with a written notice that
describes the breach. The termination will become effective forty-five
(45) days after receipt of the notice unless the breach is cured within
that forty-five (45) day period. However, if the breach by its nature,
cannot be remedied in forty-five (45) days, but can be remedied in a
reasonable time thereafter, the breaching party will take reasonable
and diligent steps to remedy it, notify the other party of the action
plan, progress towards completion, and complete such remedial action
promptly. In such event, the notice period will be suspended while the
breaching party takes these actions.
PAGE 9 OF 12 EAI CONFIDENTIAL
<PAGE> 10
9.3 In the event EVT terminates this Agreement for EAI's breach, EAI agrees
to either (a) repay all Development Fees previously paid, in addition
to other remedies EVT may have in law or equity, or at EVT's option,
(b) to transfer ownership of the Deliverables (and all related
intellectual property rights thereto) to EVT, provide EVT with the
Source Code to the latest Deliverable and all Maintenance Materials so
that EVT can continue development and/or exploitation of EVT Materials,
and EVT shall be free to complete, market and distribute Deliverables,
Product and Derivative Works thereof, and shall have no obligation to
pay EAI any payments therefore. Further, if EVT elects option (b)
above, EVT's exclusivity (stated in section 4) will be tolled the
amount of time equal to the time of delay caused by EAI's breach.
9.4 In the event EAI terminates this Agreement for EVT's breach, including
for a continuing failure by EVT to pay amounts due under this Agreement
and such failure to pay is not as a cause of a good faith dispute
between the parties, all rights granted or licensed by EAI under this
Agreement shall be rescinded and shall revert to, or remain with, EAI.
9.5 Any terms of this Agreement that by their nature extend beyond the
natural termination or expiration of this Agreement will survive in
accordance with their terms. These provisions include the Intellectual
Property (section 3), Exclusivity and Right of First Refusal (section
4), Representations and Warranties (section 7), Indemnification and
Liability Limitation (section 8.1-8.4), Term and Termination (section
9) and General (section 11). These terms will apply to either party's
successors and assigns.
10.0 COORDINATORS.
10.1 Any notice required or permitted to be made by either party to this
Agreement must be in writing. Notices are effective when received by
the appropriate coordinator as demonstrated by reliable written
confirmation (for example, certified mail receipt, courier receipt or
facsimile receipt confirmation sheet).
10.2 All notices under this Agreement shall be in writing and shall be
deemed given when delivered to the other parties Project Coordinators.
The Project Coordinators responsible to receive all notices and
administer this Agreement are:
FOR EVT: FOR EAI:
Name: Brad Cole Name: Jamie A. Wade
Title: V.P. & CFO Title: V.P. & General Counsel
Address: 1360 O'Brien Drive Address: 2321 North Loop Drive
Menlo Park, CA 94025 Ames, IA 50010
Phone: (415) 325-1600 Phone: (515) 296-9908
Fax: (415) 614-4350 Fax: (515) 296-6941
10.3 The Technical Coordinators responsible to accept all Deliverables,
coordinate all exchanges of confidential and/or Proprietary
Information, and administer and coordinate the technical matters
associated with this Agreement are:
FOR EVT: FOR EAI:
Name: Aka Gvakharia Name: John Kerr
Title: Sr. Medical Scientist Title: Project Manager
Address: 1360 O'Brian Drive Address: 2321 North Loop Drive
Menlo Park, CA 94025 Ames, IA 50010
Phone: (415) 325-1600 Phone: (515) 296-9908
Fax: (415) 614-4350 Fax: (515) 296-6833
10.4 A party will provide written notice to the other when its coordinators
change.
PAGE 10 OF 12 EAI CONFIDENTIAL
<PAGE> 11
11.0 GENERAL.
11.1 INDEPENDENT CONTRACTOR. Each party is an independent contractor.
Neither party is, nor will claim to be, a legal representative,
partner, franchisee, agent or employee of the other. Neither party will
assume or create obligations for the other. Each party is responsible
for the direction and compensation of its employees.
11.2 FREEDOM OF ACTION. Subject to section 4, each party may have similar
agreements with others and may design, develop, manufacture, acquire or
market competitive products and services, except as limited by this
Agreement, and conduct its business in whatever way it chooses.
11.3 RELIANCE. Neither party relies on any promises, inducements or
representations made by the other, except as expressly provided in this
Agreement. This Agreement accurately states the parties' agreement.
11.4 FUTURE DEALINGS. Notwithstanding the foregoing, the parties intend that
EAI will assist EVT in further developing and enhancing Product (and
Derivative Works thereof) at a mutually agreed upon price and parties
agree to make a good faith effort to negotiate an agreement for the
development of such enhancements to the Product.
11.5 COMPLIANCE WITH APPLICABLE LAWS. Each party will comply with all
applicable laws and regulations at its expense including, to the extent
applicable, Executive Order 11246 on Equal Employment Opportunity, as
amended, the Occupational Safety and Health Act of 1970, the U.S. Food
Drug and Cosmetic Act, and the Americans with Disabilities Act of 1990,
as amended. This also includes all export and import laws and
regulations.
11.6 CONFIDENTIAL INFORMATION. The parties agree that information exchanged
under this Agreement is confidential information and will be subject to
confidential treatment by the receiving party. Each party agrees that
all Code, inventions, algorithms, know-how and ideas and all other
business, technical and financial information they obtain from the
other are the confidential property of the disclosing party
("Proprietary Information" of the disclosing party). Except as
expressly and unambiguously allowed herein, the receiving party will
hold in confidence and not use or disclose any Proprietary Information
of the disclosing party and shall similarly bind its employees in
writing. The receiving party shall not be obligated under this section
11.6 with respect to information the receiving party can document:
a. is or has become readily publicly available without
restriction through no fault of the receiving party or its
employees or agents; or
b. is received without restriction from a third party lawfully in
possession of such information and lawfully empowered to
disclose such information; or
c. was rightfully in the possession of the receiving party
without restriction prior to its disclosure by the other
party; or
d. was independently developed by employees or consultants of the
receiving party without access to such Proprietary
Information.
Notwithstanding the foregoing, all Proprietary Information developed
for EVT in connection with this Agreement shall be deemed Proprietary
Information of the Company disclosed by the Company to EAI and
exceptions (c) and (d) above will not be applicable thereto.
11.7 COPYRIGHT. Any publication by EVT of the EVT Materials and Background
Materials shall contain an appropriate copyright notice as provided in
this Agreement.
11.8 HEADINGS. The headings of this Agreement are for reference only. They
will not affect the meaning or interpretation of this Agreement.
PAGE 11 OF 12 EAI CONFIDENTIAL
<PAGE> 12
11.9 COUNTERPARTS. This Agreement may be signed in one or more counterparts,
each of which will be considered an original, but all of which together
form one and the same instrument.
11.10 AMENDMENT AND WAIVERS. For a change to this Agreement to be valid, both
parties must sign it. No approval, consent or waiver will be
enforceable unless signed by the granting party. Failure to insist on
strict performance or to exercise a right when entitled, does not
prevent a party from doing so later for that breach or a future one.
11.11 SEVERABILITY AND ATTORNEY'S FEES. In the event that any provision of
this Agreement shall be determined to be illegal or unenforceable, that
provision will be limited or eliminated to the minimum extent necessary
so that this Agreement shall otherwise remain in full force and effect
and enforceable. In any action or proceeding to enforce rights under
this Agreement, the prevailing party will be entitled to recover costs
and attorneys' fees.
11.12 DISPUTE RESOLUTION. Both parties will act in good faith to resolve
disputes prior to instituting litigation. Each party waives its rights
to a jury trial in any resulting litigation.
11.13 EXPENSES. Except as set forth herein, each party will bear its own
expenses while performing work under this Agreement.
11.14 GOVERNING LAW. This Agreement will be governed by the substantive law
of the State of Iowa applicable to contracts executed in and performed
entirely within that State. The United Nations Convention on Contracts
for the International Sale of Goods does not apply.
PAGE 12 OF 12 EAI CONFIDENTIAL
<PAGE> 13
MAINTENANCE AND SUPPORT ATTACHMENT
Capitalized terms not defined in section 1 below have the same meaning
as in the Agreement. In the event that a term is defined both in this Attachment
and in the Agreement then the definition cited in this Attachment will apply.
1. DEFINITIONS.
"Error" means an error in Product which significantly degrades the
Product as compared to the EVT's specifications.
"Error Correction" means the use of reasonable commercial efforts to
correct Errors.
"Fix" means the repair or replacement of object or executable code
versions of Product to remedy an Error.
"Priority A Error" means an Error which renders Product inoperative or
causes the Product to fail catastrophically.
"Priority B Error" means an Error which substantially degrades the
performance of Product or materially restricts EVT's use of the
Product.
"Priority C Error" means an Error which causes only a minor impact on
the EVT's use of Product.
"Telephone Support" means technical support and telephone assistance
provided by EAI to EVT's Technical Support Contact.
"Workaround" means a change in the procedures followed or data supplied
by EVT to avoid an Error without substantially impairing EVT's use of
Product.
2. SUPPORT SERVICES. Support Services consist of (a) Error Correction and
Telephone Support provided to EVT only concerning the installation and
use of Product and (b) Product modifications and updates. EAI warrants
that the work done under this Agreement will be performed in a
professional and workman-like manner.
3. ERROR PRIORITY LEVELS. EAI shall use all diligent efforts to correct
any Error reported by EVT Product in accordance with the priority level
reasonably assigned to such Error by EAI.
A. Priority A Errors - EAI shall promptly commence the following
procedures:
(i) assign EAI engineers to correct the Error and
acknowledge any EVT request within two (2) business
hours of receipt thereof;
(ii) notify EVT management within six (6) business hours
that such Errors have been reported and of steps
being taken to correct such Error(s);
(iii) provide EVT with periodic reports on the status of
the corrections;
(iv) initiate work to provide EVT with a Workaround or
Fix, and develop a Workaround or Fix within two (2)
days; and
(v) EAI shall promptly, upon development of Workaround or
Fix include the same for the Error in the Product.
SRSA i EAI CONFIDENTIAL
<PAGE> 14
B. Priority B Errors - EAI shall promptly commence the following
procedures:
(i) assign EAI engineers to correct the Error and acknowledge any
EVT request within twenty four (24) hours of receipt thereof;
(ii) notify EVT management within forty-eight (48) hours that such
Errors have been reported and of steps being taken to correct
such Error(s);
(iii) provide EVT with periodic reports on the status of the
corrections;
(iv) initiate work to provide EVT with a Workaround or Fix, and
develop a Workaround or Fix within five (5) days; and
(v) EAI shall exercise commercially reasonable efforts to include
the Fix for the Error in the Product as soon as commercially
feasible.
C. Priority C Errors - EAI shall promptly commence the following
procedures:
(i) assign EAI engineers to correct the Error and acknowledge any
EVT request within five (5) business days of receipt thereof;
(ii) notify EVT management within seven (7) business days that such
Errors have been reported and of steps being taken to correct
such Error(s);
(iii) provide EVT with periodic reports on the status of the
corrections;
(iv) initiate work to provide EVT with a Workaround or Fix, and
develop a Workaround or Fix within thirty (30) days; and
(v) EAI shall exercise commercially reasonable efforts to include
the Fix for the Error in the next upgrade of Product.
D. EAI believes that a problem reported by EVT may not be due to an Error in the
Product, EAI will so notify EVT. At that time, EVT may (i) instruct EAI to
proceed with problem determination at its possible expense or (ii) instruct EAI
that EVT does not wish the problem pursued at its possible expense. If EVT
requests that EAI proceed with problem determination at its possible expense and
EAI determines that the error was not due to an Error in the Product, EVT shall
pay EAI, at EAI's then-current and standard consulting rates, for all work
performed in connection with such determination, plus reasonable related
expenses incurred therewith. EVT shall not be liable for (i) problem
determination or repair to the extent problems are due to Errors in the Product
or (ii) work performed under this paragraph in excess of its instructions or
(iii) work performed after EVT has notified EN that it no longer wishes work on
the problem determination to be continued at its possible expense (such notice
shall be deemed given when actually received by EAI).
SRSA ii EAI CONFIDENTIAL
<PAGE> 15
SOFTWARE REQUIREMENT SPECIFICATION ATTACHMENT
EAI CONFIDENTIAL
<PAGE> 16
Software Requirements Specification
EndoGraft(R) Delivery System Software
REVISION 1.1
20 February 1997
<PAGE> 17
Table of Contents
<TABLE>
<S> <C>
1. Scope of the Project..................................................... 1
2. Objectives of the Requirements Specification............................. 1
3. Software Requirements.................................................... 1
3.1 User Interface Requirements.......................................... 1
3.1.1 Login security................................................. 2
3.1.2 Patient data importing......................................... 2
3.1.3 Patient record management...................................... 2
3.1.4 CT image viewing............................................... 2
3.1.5 Image manipulation tools....................................... 3
3.1.6 3D model viewing............................................... 3
3.1.7 Measurement viewing............................................ 3
3.1.8 Report management.............................................. 4
3.2 Core Functionality Requirements...................................... 4
3.2.1 Voxel Manager.................................................. 5
3.2.2 Layer Manager.................................................. 5
3.2.3 Image Manager.................................................. 5
3.2.4 Data I/O....................................................... 5
3.2.5 Report Editor.................................................. 5
3.2.6 Record Manager................................................. 5
3.2.7 Login Manager.................................................. 5
3.2.8 Help Wizard.................................................... 6
3.2.9 Screen Capture................................................. 6
3.2.10 Surface Browser............................................... 6
3.2.11 Contact Sheet Viewer.......................................... 6
3.2.12 Measurement Viewer............................................ 6
</TABLE>
i
EVT-1 SOFTWARE REQUIREMENTS SPECIFICATION REVISION 1.1 20 FEBRUARY 1997
<PAGE> 18
1. SCOPE OF THE PROJECT
Before a prospective patient can be fitted with an EndoGraft(R) prosthesis, the
patient needs to be evaluated, first as a candidate for the prosthesis, and
second as to the specific size and type of the prosthesis. A series of
measurements made based on a patients CT image data, enables an Endovascular
Technologies, Inc. (EVT) physician to recommend the appropriate graft size and
the appropriate graft type. The EndoGraft(R) Delivery System Software enables
the EVT physician to accurately and efficiently make the key measurements needed
to determine the appropriated prosthesis.
2. OBJECTIVES OF THE REQUIREMENTS SPECIFICATION
This specification represents the initial phase of Engineering Animation, Inc.'s
(EAI's) software life cycle, as outlined in the Software Development Quality
Assurance Plan: EndoGraft(R) Delivery System Software. This plan is based on the
recommendations contained within ANSI/IEEE, Standard 730-1984. Per the quality
assurance plan, this specification has been formalized based on the Software
Requirements Review held between EVT and EAI.
The objective of the Software Requirements Specification document is to identify
the functionality necessary in the final product for it to be deemed adequate
and complete. The specification outlines the minimum functionality requirements
of the end-product. If it is determined to be necessary by all parties, the
requirements may be modified. Modifications to the specification will be
identified in approved addenda to this document.
3. SOFTWARE REQUIREMENTS
The software requirements can be classified into two broad components; user
interface requirements and core functionality requirements. User interface
requirements identify the graphical user interface (GUI) functionality necessary
for the software operator to accomplish the task detailed in the Scope of the
Project section. Core functionality requirements cover the data processing and
data management functions that the software performs. These functions are
controlled through user interactions via the GUI.
3.1 USER INTERFACE REQUIREMENTS
The requirements of the GUI are categorized under the following functional
divisions.
- Login security
- CT data importing
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EVT-1 SOFTWARE REQUIREMENTS SPECIFICATION REVISION 1.1 20 FEBRUARY 1997
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- Patient record management
- CT image viewing
- Image manipulation tools
- 3D model viewing
- Measurement viewing
- Report management
3.1.1 Login security
User identification name and password will be required to gain access to the
patient records. At least two levels of authorization will be available. This
will allow a technician to perform some of the standard functions, such as
adding a patient record, viewing CT data, and creating 3D models, but not to
make any graft type and size decisions, or to print a final report.
An administrator mode will exist that will allow the systems administrator to
add and delete access codes, and to modify authorization levels.
3.1.2 Patient data importing
New patient CT data can be imported from three types of spiral CT scanners. This
includes the DICOM 3 open standard, which is supported by all three scanners.
The data can be read in from a variety of physical media, such as optical disk.
The GUI will provide a import interface through which the new patient CT data
can be interpreted and added to the patient record list.
3.1.3 Patient record management
The user interface will provide the operator a mechanism to access patient
records imported via the Patient data importing method, of Section 3.1.2. This
mechanism will enable the operator to quickly access information or data
specific to that patient which has been stored with the patient record, either
in the present software session, or in previous software sessions. This
information can be exported to a predefined report format, as detailed in
Section 3.1.8 Report management.
In addition, a mechanism will be provided to enable the operator to
automatically sort the patient records based on date of the record, site of CT
data collection, or region of CT data collection.
3.1.4 CT image viewing
Two modes of display will be provided for the CT image sets. The first is a
contact sheet viewer that displays sets of CT images in a side-by-side form.
This allows the operator to view the entire set of images quickly, and at
various predetermined sizes, and determine the images important in the graft
measurement and identification process. These images can be marked and imported
into the second type of image viewer, referred to here as the image browser.
From either viewer the displayed images can be exported to a standard printer,
or to a TIFF format image file.
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EVT-1 Software Requirements Specification Revision 1.1 20 February 1997
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The image browser enables the images to be displayed at full resolution, or to
be scaled to a fixed set of resolutions. In addition, the image browser provides
interface devices by which the CT images can be animated (played like a video
sequence), or manually scanned by the operator. The image browser will also be
the interface used to display and edit seed point data, segmentation contours,
measurements, and annotations.
3.1.5 Image manipulation tools
The image manipulation tools will be accessible via the image browser GUL. The
tools include seed point placement, contour editing with circumference
measuring, distance measuring, angle measuring, and text, or annotation,
insertion. Each type of tool function will reside in a unique overlay layer.
This allows layers to be turned on or off, or shown exclusively over the image.
The colors used for the layer data can be defined by the operator. This allows
each operator to customize the overlay colors and store that information as a
part of that operator's session preference profile. As a results, these
preferences are automatically loaded each time the operator starts a session.
3.1.6 3D model viewing
One of the core functions is to generate 3D models of the aortic and iliac blood
flow, the aneurysm, and the arterial wall calcium deposits. The models will be
rendered and can be interactively manipulated by the operator via a 3D model
viewer, or surface browser. The surface browser enables the operator to evaluate
the patient data based on 3D models, in addition to the conventional 2D CT image
evaluation method.
The operator can pick and translate markers in the 3D viewer and import the
associated centroidal CT image view into the image browser tool. In addition,
distance measuring markers can be located on the models which enable distance
measurements to be calculated along the centroid of the blood flow model.
The models will be rendered at the highest, most accurate, level of detail (LOD)
by default. However, the operator will have the option to select two lower LODs
which can be rendered more rapidly. In addition, a wire frame mode will be
available to allow the operator to render any of the LODs as wire frame models.
Note that all measurements are based on the CT voxel data and not on the models.
3.1.7 Measurement viewing
A measurement graph tool will also be available that allows the operator to view
all the minimum and maximum diameters of the aorta and iliac arteries. This
measurement information enables the operator to quickly determine if irregular
diameter measurements exist that may render the patient ineligible for the
prosthesis. The minimum and maximum diameters are based on multiplanar
reconstructions (MPRs) generated perpendicular to the centroidal flow lines of
the aorta, left iliac, and right iliac. For each
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EVT-1 Software Requirements Specification Revision 1.1 20 February 1997
<PAGE> 21
of the three sets of MPRs, the minimum and maximum diameter measurements are of
the lumen of the arterial structures.
The operator can quickly import CT images with particular measurements into the
image browser, to determine if the minimum and maximum diameter measurements
limit the use of the prosthesis. The location of the markers in the surface
browser are also shown in the measurement viewer. The markers can be moved by
the operator in either viewer, and reflected in the other viewer.
Note that all measurements are based on the patient CT voxel data, and
determined as outlined in Section 3.2.12 Measurement Viewer.
3.1.8 Report management
A template-based report generator is also required in the interface. The report
generator allows the operator to select the information generated during the
sessions to be incorporated into a preliminary or final report template. The
operator can then review the report and has the option to either save or print
that report.
The templates can be customized and the proper information from the patient
records defined for each report field. As a result, EAI will provide EVT with a
detailed description of the fields in the patient record format.
3.2 CORE FUNCTIONALITY REQUIREMENTS
The core functionality is initiated by the user through the GUI. The key
components of the core functionality are grouped, and a brief description of the
functionality is given for each group component. As with the user interface,
these components represent the fundamental functionality of the software. These
groupings are made here for descriptive purposes only. How the core functions
are ultimately modularized will be detailed in the Software Design
Specification.
- Voxel Manager
- Layer Manager
- Image Browser
- Data I/O
- Report Editor
- Record Manager
- Login Manager
- Help Wizard
- Screen Capture
- Surface Browser
- Contact Sheet Viewer
- Measurement Viewer
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EVT-1 Software Requirements Specification Revision 1.1 20 February 1997
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3.2.1 Voxel Manager
The Voxel manager performs all the processing and data management of the
original CT data images, and any reconstructed CT image sets. The voxel
processes are: autosegmentation of aortic and iliac blood flow, aneurysm, and
arterial wall calcifications; interpolation of a contour through the segmented
perimeters of structures; creation of 3D surface models based on the
segmentation data; generation of multiplanar reconstructions along the 3D model
centroid lines. Note that the autosegmentation processes are assisted by
user-defined seed points for the structures to be segmented from the voxel data
set.
3.2.2 Layer Manager
The layer manager will manage all of the overlay information (seed data,
contours, annotations, angles, and measurements) for the active CT image set.
This includes the addition and deletion of data on a layer, and the attachment
of editors to layer information to allow the modification of that data.
3.2.3 Image Manager
The Image Manager controls the display and updates to the Image Browser. It
essentially coordinates the processes of the Voxel Manager and Layer Manager,
and ensures that user-defined operations are handled by the proper component,
and the results are updated to the Image Browser interface.
3.2.4 Data I/O
The Data I/O component imports and interprets new CT data from physical media
devices. It also inserts the new record into the patient record list, so that
all operators can access that information.
3.2.5 Report Editor
The Report Editor tracks all the information generated for a patient record and
enables the operator to select the information to be incorporated into a print
report template. The editor also allows the review, annotation, saving, and
printing of reports.
3.2.6 Record Manager
During each session a patient is selected and all previous session information
is loaded into the Record Manager. The Record Manager maintains and updates
patient record information for the active session. The manager also writes
updates into the patient record if information is changed during the session.
The Record Manager can also manage multiple patient information. This will allow
the operator to compare information between patients during a single session.
3.2.7 Login Manager
A security access system will be installed to ensure authorized entry into the
software. The Login Manager maintains login account information, provides an
administrator mode to edit and update login accounts, and verifies each login
session.
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3.2.8 Help Wizard
The Help Wizard provides an interface for the operator to determine the present
state and the next step in the session process. The Wizard will also include
direct access to operation pages, that the operator can access during a session,
to assist in the function of the GUI.
3.2.9 Screen Capture
Screen captures enable "snapshots" of the various GUI windows to be taken and
annotations added. These captures can be sent directly to a standard printer or
file, or accessed and added by the Report Editor to any preliminary or final
reports.
The operator will be provided a control which will render a series of frames of
the 3D models. A mechanism will be provided so that the CT images, 3D viewer
frames, and MPRs can be exported to a movie format. The movie format will be
mutually agreed upon by EVT and EAI, so as to best support EVT's customer needs.
3.2.10 Surface Browser
The surface browser contains the engine that drives the 3D rendering of all
models. It performs all the interface commands on the set of 3D models, which
include turning on or off models, moving distance markers, or sliding a
cross-sectioning plane through the models. In addition, it handles all the
translate, rotate, and zoom callbacks from operator initiated manipulations of
the model.
3.2.11 Contact Sheet Viewer
Two modes of CT image display are supported by the Image Browser. The Contact
Sheet Viewer allows the operator to display sets of CT images in a side-by-side
form. It also enables the operator to see which images in the set contain
overlay information, which images are in the active list, and to add and remove
images from the active list.
3.2.12 Measurement Viewer
The Measurement Viewer maintains and updates minimum and maximum diameter
measurement information generated during the model building process. The
operator can manipulate markers associated with the operators graft decision
process, and load images into the Image Browser by selecting a marker in the
Measurement Viewer. In addition, the markers in the Surface Browser are linked
to the Measurement Viewer, and reflect location changes made to the markers.
All distance and diameter measurements are performed on the original CT data or
on MPRs of the original CT data. The minimum and maximum diameter calculations
will be determined based on non-uniform rational b-spline (NURBS) contours
interpolated through the segmentation data with an error tolerance below one
pixel dimension. This will guarantee that the contours accurately delineate the
segmentation. A detailed description of the algorithm used to calculate the
minimum and maximum diameters of the contours will be provided to EVT. Note that
all minimum and maximum
6
EVT-1 Software Requirements Specification Revision 1.1 20 February 1997
<PAGE> 24
measurements can be modified by an EVT "expert" operator, if determined to be
improperly placed.
7
EVT-1 Software Requirements Specification Revision 1.1 20 February 1997
<PAGE> 25
DELIVERABLES ATTACHMENT
<TABLE>
<CAPTION>
SCHEDULE OF DELIVERABLES DATE
------------------------ ----
<S> <C>
INTERIM DELIVERABLES:
INTERFACE PROTOTYPE -
Functional mockup of the user-interface. 2/04/97
SOFTWARE REQUIREMENTS SPECIFICATION -
Detailed list of functional requirements of the software. 2/20/97
QUALITY ASSURANCE PLAN -
Outline of the software development process. 3/04/97
ALPHA SOFTWARE -
First functional software for Software Design Review. 3/28/97
SOFTWARE DESIGN SPECIFICATION -
Final detailed description of the software functionality. 5/02/97
BETA SOFTWARE -
Functional software for EVT evaluation and verification testing. 5/30/97
USER MANUALS -
Instructions on the functions of the user-interface controls. 6/20/97
FINAL DELIVERABLE:
FINAL SOFTWARE -
Installation of fully functional software. 6/27/97
</TABLE>
EAI CONFIDENTIAL
<PAGE> 26
SOFTWARE DEVELOPMENT QUALITY ASSURANCE PLAN ATTACHMENT
EAI CONFIDENTIAL
<PAGE> 27
Software Development Quality Assurance Plan
EndoGraft(R) Delivery System Software
REVISION 1.0
12 February 1997
<PAGE> 28
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Scope of the Project ............................................ 1
2. Objectives of the Quality Assurance Plan ........................ 1
3. Quality Assurance Plan .......................................... 1
3.1 Software Requirements Review ............................... 1
3.2 Design Review .............................................. 2
3.3 Software Verification and Validation Review................. 2
3.4 Functional Audit ........................................... 2
3.5 Managerial Audit ........................................... 2
3.6 Physical Audit ............................................. 2
</TABLE>
i
<PAGE> 29
1. SCOPE OF THE PROJECT
Before a prospective patient can be fitted with an EndoGraft(R) prosthesis, the
patient needs to be evaluated, first as a candidate for the prosthesis, and
second as to the specific size and type of the prosthesis. A series of
measurements made based on a patients CT image data enables an Endovascular
Technologies, Inc. (EVT) physician to recommend the appropriate graft size and
the appropriate graft type. The EndoGraft(R) Delivery System Software enables
the EVT physician to accurately and efficiently make the key measurements
needed to determine the appropriated prosthesis.
2. OBJECTIVES OF THE QUALITY ASSURANCE PLAN
The Software Development Quality Assurance Plan is based on the recommendations
contained within ANSI/IEEE Standard 730-1984. This plan has been developed for
the EndoGraft(R) Delivery System Software being developed for EVT by Engineering
Animation, Inc. (EAI).
The objective of the plan is to ensure that sound and reliable product is
designed, and that EVT and EAI can incrementally evaluate the progress of the
software development at various stages in the software life cycle. In addition,
the Software Development Quality Assurance Plan will enable a complete audit
path to be documented during the course of the software life cycle, which will
aid in EVT's registration of the software with the Food and Drug Administration
(FDA).
3. QUALITY ASSURANCE PLAN
The Quality Assurance Plan consists of a series of reviews to be held between
EVT and EAI to monitor the adherence of the product to the functional
requirements of the software requirements and design specifications, and to
ensure that good manufacturing practices are followed in the implementation of
the software.
3.1 SOFTWARE REQUIREMENTS REVIEW
The software requirements review will be held to determine the fundamental
functionality required for the end-product to be adequate and complete. These
requirements will be documented in the Software Requirements Specification for
the EndoGraft(R) Delivery System Software.
1
<PAGE> 30
3.2 DESIGN REVIEW
The purpose of the design review will be to evaluate the technical adequacy of
the preliminary design and prototype. The consequences of this review will be
reflected in the Design Requirements Specification for the EndoGraft(R)
Delivery System Software.
3.3 SOFTWARE VERIFICATION AND VALIDATION REVIEW
The verification and validation review will be used to document methods deemed
necessary by EVT and EAI to evaluate the adequacy and completeness of the final
products.
3.4 FUNCTIONAL AUDIT
Prior to installation, the software will be audited to ensure that it conforms
to the requirements outlined in the Software Requirements Specification for the
EndoGraft(R) Delivery System Software, and will follow the methods determined
in the Software Verification and Validation Review.
3.5 MANAGERIAL AUDIT
An independent group within EAI will perform a audit on a sample of the source
code and a audit of the executable software, to verify that good manufacturing
practices have been followed, and that appropriate design methods have been
employed to minimize coding errors and failures. The findings of this audit
will be documented and reported.
3.6 PHYSICAL AUDIT
The physical audit will be used to ensure that all documentation is consistent
with the actual functionality of the software product that is installed. This
audit will be performed at the time the end-product is delivered.
2
<PAGE> 31
ENGINEERING INSTRUCTION (EI) 1 of 4
EI10031 Rev.A
SOFTWARE VALIDATION PROCEDURE ATTACHMENT
1.0 TITLE: Software Validation Procedure
2.0 PURPOSE: To define the steps necessary to perform software validation.
3.0 SCOPE: This procedure applies to the validation method required for
software purchased, installed, configured, and developed for or
by EVT.
4.0 REVISION HISTORY: (for reference only, not comprehensive)
Rev ECO# Description of Change Date Number
-----------------------------------------------------------------
A 970213-4 New Release 2/13/1997
- -------------------------------------------------------------------------------
Instructions are part of a system which includes observation, hands on
building/operation and written instructional support. This document is written
for a trained individual to reference as necessary when working.
- -------------------------------------------------------------------------------
EAI CONFIDENTIAL
<PAGE> 32
ENGINEERING INSTRUCTION (EI) 2 of 4
EI10031 Rev.A
5.0 REFERENCES:
5.1 DOP 10062, Design Reviews
5.2 EI 100028, EVT Process Validation, Revalidation
5.3 Technical reference on software development activities by FDA
5.4 Glossary of computerized system and software development terminology
by FDA (published August 1995)
5.5 IEC 601-1-4
5.6 Medical Devices; Current Good Manufacturing Practice (CGMP), CFR 21,
Part 820
6.0 DEFINITIONS:
SOFTWARE VALIDATION Confirmation by examination and provision of
objective evidence that the particular requirements
for a specific intended use can be consistently
fulfilled.
SOFTWARE VERIFICATION The demonstration of consistency, completeness, and
correctness of the software at each stage and
between each stage of the development life cycle.
PROSPECTIVE VALIDATION Validation of a computer system or software product
prior to its production installation.
RETROSPECTIVE VALIDATION Validation of a computer system or software product
subsequent to its production installation based upon
documented production history, testing and control
data.
SOFTWARE The automated sequence of operations that cause the
hardware to do a specified task. Software may be a
set of disk files, EPROMs, Ladder-logics (PLM's)
programs, procedures and any associated
documentation and data pertaining to the operation
of a computer system.
DEVICE SOFTWARE Software that controls delivery of
therapy/treatment to a patient, or participates in
delivery of treatment or diagnosis to a patient.
HARDWARE The physical pieces of equipment including the
machine and any peripheral equipment used for
control/monitor activities.
EQUIPMENT A system of hardware and software. Some equipment
has hardware only.
SOURCE CODE The human readable version of the list of
instructions (program) that cause a computer to
perform a task.
- -------------------------------------------------------------------------------
Instructions are part of a system which includes observation, hands on
building/operation and written instructional support. This document is written
or a trained individual to reference as necessary when working.
- -------------------------------------------------------------------------------
EAI CONFIDENTIAL
<PAGE> 33
ENGINEERING INSTRUCTION (EI)
E110031 Rev. A
RISK A measure of the probability and severity of
undesired effects often taken as the simple
function of severity versus probability.
RISK ASSESSMENT A comprehensive evaluation of the risk and its
associated impact.
COMPUTER SYSTEM SECURITY The protection of computer hardware and software
from accidental or malicious access, use,
modification, destruction, or disclosure, virus,
etc.
SOFTWARE TESTING May include some of all of the following items
below:
A) DEMONSTRATION Showing that the software meets the written
requirements by exercising the software under
normal condition.
B) FUNCTIONAL TESTING The process of exercising or evaluating a system to
verify that software satisfies requirements and to
identify differences between expected and actual
results. Functional testing ignores the internal
mechanism or structure of a system or component and
focuses on the output generated in response to
selected inputs and execution conditions (Syn:
Black-box testing).
SOFTWARE FUNCTIONAL A document which clearly describes each of the
essential functions. Specifications and attributes
of the software. This may include: operator
interface, definition of computations, sequence of
events, error handling, etc. Each function should
be verifiable by inspection or review, or
demonstration, etc.
USER MANUAL Documentation that describes how to use the
software.
CHANGE CONTROL A management system that maintains the integrity of
the software in a controlled environment in which
changes are proposed, evaluated, and approved prior
to their implementation.
7.0 PROCEDURE:
7.1 Determine the need and level for software prospective/retrospective
validation, and revalidation by performing a hazard risk analysis (use
IEC 601-1-4 standard as a guideline for performing a Hazard/Risk
assessment). Document the decision to validate or not validate.
7.2 Define the software being validated including the revision number and
author. Where applicable, define the hardware platform on which the
software is running and any
- --------------------------------------------------------------------------------
Instructions are part of a system which includes observation, hands on
building/operation and written instructional support. This document is written
for a trained individual to reference as necessary when working.
- --------------------------------------------------------------------------------
EAI CONFIDENTIAL
<PAGE> 34
ENGINEERING INSTRUCTION (EI) 4 of 4
EI10031 Rev.A
computer system peripherals to which it interfaces. The definition
should include the machine name, number, if applicable. This
definition may include text and/or diagrams.
7.3 Write/provide a software functional specification which defines the
specific functions the software is expected to perform. This may
include text and/or diagram.
7.4 Write a test protocol which defines and verifies the scenarios for
each of the functions listed in the functional specifications. Each
test plan should include expected results, acceptance criteria, and
the entering of normal and abnormal data and/or invalid sequences.
This will verify program performance and error handling.
7.5 Perform the test protocol and record the appropriate data and results.
Any defects detected during testing shall be corrected or justified
prior to completion of software validation.
7.8 After successfully completing all of the validation documentation
outlined in the previous sections, complete the ECO accompanying the
software validation report/technical study and document the validation
results (TS) in the documentation control.
8.0 GENERAL REQUIREMENTS/GUIDELINES
8.1 A test protocol must demonstrate that all relevant requirements are
challenged by the test.
8.2 Commercial off the shelf software can be validated by reviews and
tests to demonstrate that the specific use is consistent with
published user instructions and that it observes published
limitations.
8.3 Define a plan to allow only authorized employees to modify the
software and data. The plan shall include the security measures which
have been put in place to control the access to the software and data,
how the security system will be administered, and a list of authorized
employees. The security measures may consist of physical lockouts,
password protection systems, etc.
8.4 All new softwares including the changes must be implemented via the
change control system.
8.5 All softwares that are part of a manufacturing process/equipment or
used for quality assurance/control must be validated. A justification
will be required if validation deemed unnecessary.
- -------------------------------------------------------------------------------
Instructions are part of a system which includes observation, hands on
building/operation and written instructional support. This document is written
for a trained individual to reference as necessary when working.
- -------------------------------------------------------------------------------
EAI CONFIDENTIAL
<PAGE> 35
5 of 4
ENGINEERING INSTRUCTION (EI)
E110031 Rev. A
8.6 When the software being implemented is off the shelf software,
only the specific features being used require validation (e.g.
arithmetic, macros, or other features used to customize the
software).
8.7 Black Box testing is an acceptable method for all the commercial
off the shelf softwares, and the softwares that are part of
manufacturing process/equipment or used for quality control.
8.8 The validation of a software shall be performed by a person(s)
familiar with the expected performance of the software.
8.9 Each stage of a life cycle for a device software developed by an
outside contractor (such as requirement, design, implementation,
test, installation/checkout, operation, and maintenance) must be
verified/assured by reviews/audits. In addition, contractor who
develops a device software, must follow design control
requirements of both ISO and CGMP during the development process.
- --------------------------------------------------------------------------------
Instructions are part of a system which includes observation, hands on
building/operation and written instructional support. This document is written
for a trained individual to reference as necessary when working.
- --------------------------------------------------------------------------------
EAI CONFIDENTIAL
<PAGE> 1
EXHIBIT 11.1
ENDOVASCULAR TECHNOLOGIES, INC.
COMPUTATION OF NET LOSS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net loss $ (13,537) $ (8,262) $ (7,880)
=========== =========== ===========
NET LOSS PER SHARE 8,132 -- $--
Common shares and options granted (using the
treasury stock method assuming an
initial public offering price of
$12.00) between December 15, 1994,
included pursuant to Securities and
exchange Commission rules
47 -- --
Shares used in computing net loss per share 8,179 -- --
=========== =========== ===========
Net loss per share $ (1.66) -- --
=========== =========== ===========
PRO FORMA NET LOSS PER SHARE
Weighted average common shares outstanding -- 1,018 919
Series A, B, C and D convertible preferred stock -- 5,118 4,575
Common stock options (using the treasury stock method) -- 187 139
----------- ----------- -----------
Shares used in computing pro forma net loss per share -- 6,323 5,633
----------- ----------- -----------
Pro forma net loss per share -- $ (1.31) $ (1.40)
=========== =========== ===========
</TABLE>
50
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,530,792
<SECURITIES> 15,328,545
<RECEIVABLES> 505,440
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,972,444
<PP&E> 2,836,646
<DEPRECIATION> 931,067
<TOTAL-ASSETS> 20,952,384
<CURRENT-LIABILITIES> 2,277,707
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 18,674,593
<TOTAL-LIABILITY-AND-EQUITY> 20,952,384
<SALES> 1,159,250
<TOTAL-REVENUES> 1,159,250
<CGS> 1,345,133
<TOTAL-COSTS> 1,345,133
<OTHER-EXPENSES> 14,511,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,537,385)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,537,385)
<EPS-PRIMARY> (1.66)
<EPS-DILUTED> (1.66)
</TABLE>
