<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 23, 1999
--------------------------------
CARDIAC PATHWAYS CORPORATION
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(Exact Name of the Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
<TABLE>
<S> <C>
000-28372 77-0278793
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(Commission File Number) (I.R.S. Employer Identification No.)
995 Benecia Avenue, Sunnyvale, California 94086
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(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(408) 737-0505
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
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Item 1. Changes in Control of Registrant.
On July 23, 1999, Cardiac Pathways Corporation (the "Company") completed a
$32.0 million Series B Preferred Stock financing. The 32,000 shares of Series B
Preferred Stock are convertible at the option of the holders into 6.4 million
shares of the Company's Common Stock.
(a) Information Regarding the Change in Control
On May 21, 1999 we signed a definitive agreement with BankAmerica Ventures,
Morgan Stanley Dean Witter Venture Partners and certain other investors
(including Thomas J. Fogarty, M.D., one of our current directors, and the State
of Wisconsin Investment Board, a current stockholder) for the sale of
$31,500,000 of our series B convertible preferred stock. On July 20, 1999, our
stockholders approved the financing at a special meeting of stockholders. We
closed the financing on July 23, 1999. We issued 32,000 shares of series B
convertible preferred stock (pre-reverse split) at a purchase price of $1,000
per share and raised $32,000,000.
Dilutive impact of the financing on our existing stockholders
The financing was severely dilutive to our existing stockholders. The
following table summarizes the potential dilutive effect, for percentage
ownership purposes, of the financing on the Cardiac Pathways stockholders based
on outstanding share information as of June 4, 1999:
<TABLE>
<CAPTION>
Shares Percentage
---------- ----------
<S> <C> <C>
Outstanding common stock as of June 4, 1999........... 10,038,578 23.9%
New common stock issuable upon conversion of
the series B convertible preferred stock.......... 32,000,000 76.1
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Total......................................... 42,038,578 100.0%
========== ======
</TABLE>
This table does not give effect to the issuance of warrants to purchase 300
shares of series B convertible preferred stock (convertible into 300,000 shares
of common stock pre-reverse split) in connection with the interim funding
described below.
Board of directors after the financing
Our board of directors other than Thomas M. Prescott resigned effective
upon the closing of the financing. The remaining director, Mr. Prescott,
appointed Mark J. Brooks, Anchie Y. Kuo, M.D. and Fazle Husain, nominees of the
series B convertible preferred stockholders, and former director, chief
executive officer and president, William N. Starling, to fill the vacancies. Mr.
Starling was also appointed chairman of the board of directors. The consent of
the directors nominated by the series B convertible preferred stock will be
required to increase the number of directors above the number currently in
office.
Significant rights, preferences and privileges of the series B convertible
preferred stock
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The holders of series B convertible preferred stock are entitled to
significant rights, preferences and privileges as a result of their investment.
Each share of Series B convertible preferred stock is convertible into 200
shares (post-reverse split) of common stock. The conversion ratio of the series
B convertible stock are subject to adjustment for price based antidilution.
The series B convertible preferred stock are entitled to an 11% cumulative
dividend per year. The series B convertible preferred stock have a liquidation
preference equal to the initial purchase price plus accrued dividends upon the
occurrence of a liquidation, a merger or the sale of all or substantially all of
our stock or our assets. As a result of the liquidation preference, in the event
of a liquidation, merger or the sale of substantially all of our stock or
assets, the holders of series B convertible preferred stock will receive their
original purchase price plus any accrued dividends prior to any distribution to
the holders of common stock.
The series B convertible preferred stock is redeemable after May 31, 2004
at the request of a majority of the holders, subject to the approval of Cardiac
Pathways. If a redemption request is received but not approved by Cardiac
Pathways, the cumulative dividend rate payable on the series B convertible
preferred stock will increase by six percentage points for each year a
redemption does not occur.
The holders of the series B convertible preferred stock vote on all matters
presented to Cardiac Pathways stockholders on an as-converted to common stock
basis. In addition, the affirmative vote of holders of a majority of the series
B convertible preferred stock, voting as a separate class, will be required to:
1. Amend or repeal any provision, or add any provision to the Cardiac
Pathways' certificate of incorporation or bylaws which change the
rights of the series B convertible preferred stock;
2. Increase or decrease (other than by redemption or conversion) the
total number of authorized shares of preferred stock or common stock;
3. Authorize or issue, or obligate itself to issue, any other security,
including any other security convertible into or exercisable for any
security having a preference over, or being on a parity with, the
series B convertible preferred stock with respect to voting,
dividends, redemption or upon liquidation;
4. Issue any shares of common stock, other than
(a) shares of common stock issuable or issued to employees,
consultants or directors of Cardiac Pathways directly or pursuant
to a stock option plan or restricted stock plan approved by the
board of directors, including the representatives of the series B
convertible preferred stock;
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(b) shares of common stock issuable or issued upon conversion of the
series A participating preferred stock or series B convertible
preferred stock or as dividends or distributions on the series A
participating preferred stock or series B convertible preferred
stock;
(c) shares of common stock issuable or issued upon exercise of
warrants issued to banks, equipment lessors or other vendors,
where such common stock or warrants were approved by the board of
directors, including the representatives of the series B
convertible preferred stock; or
(d) shares of common stock issuable or issued as consideration for
business combinations or corporate partnering agreements approved
by the board of directors, including the representatives of the
series B convertible preferred stock.
5. Declare or pay any dividends on its common stock or redeem, purchase
or otherwise acquire (or pay into or set aside for a sinking fund for
such purpose) any share or shares of common stock; provided, however,
that this restriction shall not apply to the repurchase of shares of
common stock from employees, officers, directors, consultants or other
persons performing services for Cardiac Pathways or any subsidiary
pursuant to agreements under which Cardiac Pathways has the option to
repurchase such shares at cost or at cost upon the occurrence of
certain events, such as the termination of employment;
6. Sell, convey, or otherwise dispose of all or substantially all of its
property or business or merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of this corporation is
disposed of;
7. Repurchase any series of preferred stock; or
8. Increase or decrease the size of the Cardiac Pathways board of
directors.
The holders of the series B convertible preferred stock have a right of
first offer with respect to future financings by Cardiac Pathways.
The holders of 45% of the then outstanding series B convertible preferred
stock will have the right to request that we register the shares of Cardiac
Pathways common stock into which the series B convertible preferred stock are
convertible after May 21, 2000. In addition, if we otherwise register shares of
Cardiac Pathways common stock, the holders of the series B convertible preferred
stock will be entitled to participate in the registration.
Interests of our officers, directors and stockholders in the financing
In connection with the financing, William N. Starling, Cardiac Pathways'
chairman, resigned as our president and chief executive officer. Mr. Starling,
unlike our other directors, was appointed to the Cardiac Pathways' board of
directors after the closing of the financing. Mr. Starling was also reappointed
as chairman of the post-financing board of directors. Cardiac Pathways, the
proposed
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holders of the series B convertible preferred stock and Mr. Starling have agreed
that for as long as Mr. Starling continues as a member of Cardiac Pathways'
board of directors, the options to purchase Cardiac Pathways common stock held
by Mr. Starling will continue to vest.
Thomas M. Prescott was appointed as Cardiac Pathways' president and chief
executive officer as of May 24, 1999. Mr. Prescott was appointed as a director
on July 20, 1999 pursuant to an agreement between Cardiac Pathways and the
investors in the financing. In addition, Mr. Prescott entered into an employment
agreement with Cardiac Pathways that among other things provides that Mr.
Prescott is entitled to an annual base salary of $225,000 and was granted
options to purchase 1,236,532 shares of Cardiac Pathways common stock at an
exercise price of $1.00 per share. One-fourth of Mr. Prescott's options will
vest on each anniversary of his employment over the new four years. In the event
Mr. Prescott is terminated without justifiable cause (as defined in the
employment agreement) during the first year of his employment, Mr. Prescott will
be entitled to acceleration of vesting as to 1/48th of such options for each
full month of employment. Mr. Prescott is also entitled to immediate vesting of
100% of his shares if a merger or other sale of Cardiac Pathways results in a
change in control of its voting stock and Mr. Prescott is involuntarily
terminated.
In addition to options to purchase Cardiac Pathways' common stock, Mr.
Prescott is entitled to the following:
o a $250,000 loan from Cardiac Pathways at a 7% interest rate to
purchase shares of the series B convertible preferred stock that is
payable in 12 quarterly installments commencing on the third
anniversary of the loan;
o relocation expenses;
o a one-time bonus of $75,000 payable by June 25, 1999;
o severance of 12 months of his then current monthly salary in the event
Mr. Prescott is terminated without justifiable cause (as such term is
defined in the employment agreement); and
o a bonus of up to 25% of his then current salary upon the attainment of
goals set by the board of directors for each fiscal year during which
Mr. Prescott remains Cardiac Pathways' chief executive officer.
Thomas J. Fogarty, M.D., a current director, purchased 500 shares of our
series B convertible preferred stock in the financing. The State of Wisconsin
Investment Board, our largest stockholder before the financing, purchased 6,000
shares of series B convertible preferred in the financing. The State of
Wisconsin Investment Board also provided a $600,000 bridge loan to Cardiac
Pathways that was secured, jointly with the other bridge loans, by substantially
all of our assets. We granted the State of Wisconsin Investment Board warrants
to purchase 60 shares of series B convertible preferred stock at a per share
exercise price that is initially $1,000 per share.
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(b) Information required by Item 403 of Regulation S-K--Security
Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial
ownership of common stock of Cardiac Pathways as of June 4, 1999 as to (i) each
person or entity who is known by Cardiac Pathways to own beneficially more than
5% of the outstanding shares of common stock; (ii) each director of Cardiac
Pathways; (iii) each of the executive officers listed in the Summary
Compensation Table included in Cardiac Pathways' definitive proxy statement
dated June 23, 1999 and (iv) all directors and executive officers of Cardiac
Pathways as a group. Except as otherwise noted, the stockholders named in the
table have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to applicable community
property laws.
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<TABLE>
<CAPTION>
Principal Stockholders
Common Stock Approximate Common Stock Approximate
Beneficially Percentage Beneficially Percentage
Owned Before Owned Before Owned After Owned After
Beneficial Owner Financing Financing(1) Financing Financing(2)
- ------------------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
State of Wisconsin Investment Board(3).... 2,415,000 22.6% 7,815,000 18.8%
P.O. Box 7842
Madison, WI 53707
BankAmerica Ventures(4)................... 1,540,000 13.3 10,140,000 24.3
950 Tower Lane, Suite 700
Foster City, CA 94404
Entities affiliated with Morgan Stanley
Venture Partners(5)..................
221 Avenue of the Americas 1,100,000 9.9 10,100,000 24.3
New York, NY 10020
Nicholas Fund NV(6)....................... 834,000 8.3 834,000 2.0
P.O. Box 837
Curacao
Netherlands Antilles
Entities affiliated with Institutional
Venture Partners (7)................... 831,539 8.3 831,539 2.0
3000 Sand Hill Road, 2-290
Menlo Park, CA 94025
Capital Guardian Trust Company(8)......... 686,100 6.8 686,100 1.7
111000 Santa Monica Boulevard
Suite 1500
Los Angeles, CA 90025
Arrow International, Inc.(9).............. 614,334 6.1 614,334 1.5
P.O. Box 12888
3000 Bernville Road
Reading, PA 19612
Entities affiliated with Van Wagoner...... -- -- 5,000,000 12.0
Capital Management, Inc.
One Bush Street, Suite 1150
San Francisco, CA 94104
William N. Starling(10)................... 436,520 4.3 436,520 1.0
Thomas J. Fogarty, M.D.(11)............... 240,017 2.4 740,017 1.8
Joseph P. Ilvento, M.D.(12)............... 36,185 * 36,185 *
Michael L. Eagle(13)...................... 18,479 * 18,479 *
Glendon E. French......................... 4,721 * 4,721 *
Louis G. Lange, M.D....................... 4,450 * 4,450 *
Thomas M. Prescott........................ -- * -- *
G. Michael Latta(14)...................... 24,228 * 24,228 *
David W. Gryska........................... 33,264 * 33,264 *
Mark L. Pomeranz.......................... 78,003 * 78,003 *
Earle L. Canty............................ 66,667 * 66,667 *
Richard E. Riley(15)...................... 121,691 1.2 121,691 *
Debra S. Echt(16)......................... 86,811 * 86,811 *
All directors and current executive
officers as a group (12 persons)(17)... 1,028,793 9.8% 1,528,793 3.6%
</TABLE>
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*Less than 1%
(1) Applicable percentage ownership is based on 10,038,578 shares of common
stock outstanding as of June 4, 1999 and 41,538,578 shares of common stock
(assuming the sale of 31,500,000 shares on an as-converted basis)
outstanding after giving effect to the financing, together with applicable
options or warrants for such stockholder. Beneficial ownership is
determined in accordance with the rules of the Securities and
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Exchange Commission, based on factors including voting and investment power
with respect to shares subject to the applicable community property laws.
Shares of common stock subject to options or warrants currently exercisable
or exercisable within 60 days after June 4, 1999 are deemed outstanding for
computing the percentage ownership of the person holding such options, but
are not deemed outstanding for computing the percentage of any other
person.
(2) Applicable percentage ownership is based on the beneficial ownership as
defined in (1) above together with the shares of common stock issuable on
an as-converted basis in connection with the issuance of 31,500 shares of
series B convertible preferred stock.
(3) The State of Wisconsin Investment Board (the "SWIB"). The SWIB is a
government agency, which manages public pension funds and has sole
dispositive and voting power over 1,755,000 shares of Cardiac Pathways'
common stock. Also includes 600,000 shares of common stock issuable upon
conversion of series B preferred stock that is issuable upon conversion of
a $600,000 bridge loan (assuming approval of the issuance of the series B
preferred stock by the Cardiac Pathways stockholders). Also includes the
exercise of warrants to purchase 60 shares of Series B preferred and the
conversion of such shares into 60,000 shares of common stock.
(4) Includes 1,400,000 shares of common stock issuable upon conversion of
series B convertible preferred stock (assuming approval of the issuance of
the series B preferred by the Cardiac Pathways stockholders). Such series B
convertible preferred stock is issuable upon the conversion of a $1,400,000
bridge loan. Also includes warrants convertible into 140,000 shares of
common stock.
(5) Includes 1,000,000 shares of common stock issuable upon conversion of
series B convertible preferred stock (assuming approval of the issuance of
the series B preferred by the Cardiac Pathways stockholders). Such series B
convertible preferred stock is issuable upon the conversion of a $1,000,000
bridge loan. Also includes warrants convertible into 100,000 shares of
common stock.
(6) Reflects ownership as reported on Schedule 13G dated March 26, 1999 with
the Commission by Nicholas Fund NV. Nicholas Fund NV and Atlantic Capital
Management Limited, its investment advisor, have shared voting and
dispositive power over 834,000 shares of Cardiac Pathways' common stock.
(7) Reflects ownership as reported on Schedule 13G dated June 23, 1997 filed
with the Commission by Institutional Venture Partners V ("IVP V"), a
venture capital fund; Institutional Venture Management V ("IVPM V"); the
general partner of IVP V, Institutional Venture Partners VII ("IVP VII"), a
venture capital fund; Institutional Venture Management VII ("IVPM VII"),
the general partner of IVP VII; IVP Founders Fund I ("Founders"), a venture
capital fund; Institutional Venture Management VI ("IVPM VI"); Founders'
general partner, Samuel D. Colella; Reid W. Dennis; Mary Jane Elmore;
Norman A. Fogelsong; Ruthann Quindlen; L. James Strand; T. Peter Thomas and
Geoffrey Y. Yang. Mr. Strand and Ms. Quindlen are general partners of IVPM
VII. Messrs. Colella, Dennis, Fogelsong, Thomas and Yang and Ms. Elmore are
general partners of IVPM VII and IVPM V. Mr. Colella is also a general
partner of IVPM VI. IVP VII and IVPM VII have shared voting and dispositive
power over 400,000 shares of Cardiac Pathways' common stock. Founders also
has shared voting and dispositive power over 400,000 shares of Cardiac
Pathways' common stock. IVP V and IVPM V have shared voting and dispositive
power over 425,539 shares of Cardiac Pathways' common stock. Mr. Collella
has shared voting and dispositive power over 827,539 shares of Cardiac
Pathways' common stock. Each of Messrs. Dennis, Fogelsong, Thomas, and Mr.
Yang and Ms. Elmore has shared voting and dispositive power over 825,539
shares of Cardiac Pathways' common stock. Each of Ms. Quindlen and Mr.
Strand has shared voting and dispositive power over 400,000 shares of
Cardiac Pathways' common stock.
(8) Reflects ownership as reported on Schedule 13F dated March 13, 1999 filed
with the Commission by Capital Guardian Trust Co. ("CGT"). CGT is a bank
that serves as the investment manager of various institutional accounts.
CGT has sole dispositive power over all of the shares, sole voting power
over 662,000 of the shares and disclaims beneficial ownership over all of
the shares.
(9) Reflects ownership as reported on Schedule 13G dated February 2, 1997 filed
with the Commission by Arrow International, Inc. ("Arrow"). Arrow is a
medical device manufacturer with whom Cardiac Pathways has a strategic
relationship. Arrow has sole dispositive and voting power over 614,334
shares of Cardiac Pathways' common stock.
(10) Consists of 293,319 shares of common stock held by the Starling Family
Trust, 8,867 shares of common stock held by the Starling Irrevocable Trust
and 134,334 shares of common stock which may be acquired upon exercise of
stock options exercisable within 60 days after June 4, 1999. Mr. Starling
holds voting and dispositive control over all of such shares.
(11) Includes 238,445 shares of common stock and 667 shares of common stock
which may be acquired upon exercise of a warrant exercisable within 60 days
after June 4, 1999 held by the Fogarty Family Revocable Trust, over which
Dr. Fogarty holds voting and dispositive control. Also includes 905 shares
of common stock that may be acquired upon exercise of stock options
exercisable within 60 days after June 4, 1999.
(12) Includes 8,682 shares of common stock that may be acquired upon exercise of
stock options exercisable within 60 days after June 4, 1999.
(13) Includes 18,479 shares of common stock that may be acquired upon exercise
of stock options exercisable within 60 days after June 4, 1999.
(14) Includes 18,929 shares of common stock that may be acquired upon exercise
of stock options exercisable within 60 days after June 4, 1999.
(15) Includes 80,412 shares of common stock that may be acquired upon exercise
of stock options exercisable within 60 days after June 4, 1999.
(16) Includes 85,388 shares of common stock that may be acquired upon exercise
of stock options exercisable within 60 days after June 4, 1999.
(17) Includes 408,054 and 667 shares of common stock that may be acquired upon
exercise of stock options and warrants, respectively, exercisable within 60
days after June 4, 1999.
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Item 5. Other Events.
A. On July 20, 1999, at a special meeting of stockholders of Cardiac Pathways
the stockholders of Cardiac Pathways took the following actions:
1. Approval of one-for-five reverse split of the common stock of Cardiac
Pathways:
<TABLE>
<S> <C>
For: 5,465,167
Against: 180,818
Abstain: 5,245
</TABLE>
2. Approval of increase in number of authorized shares of common stock to
75,000,000:
<TABLE>
<S> <C>
For: 5,275,179
Against: 364,156
Abstain: 11,895
</TABLE>
3. Approval of the sale of up to 40,000 shares of series B convertible
preferred stock:
<TABLE>
<S> <C>
For 4,777,433
Against: 175,547
Abstain: 10,045
</TABLE>
4. Approval of amendment of 1991 Stock Plan to (i) increase the number of
shares reserved for issuance thereunder by 4,000,000 shares
(pre-reserve split) and (ii) increase the share limitations for
purposes of Section 162(m) of the Internal Revenue Code:
<TABLE>
<S> <C>
For: 4,374,727
Against: 550,253
Abstain: 38,045
</TABLE>
B. On July 26, 1999, Cardiac Pathways announced the completion of the series B
convertible preferred stock financing. A copy of the Company's press
release is attached as Exhibit 99.1.
C. On July 27, 1999, Cardiac Pathways effected a one-for-five reverse split of
its outstanding common stock.
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Item 7. Financial Statements and Exhibits.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
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<S> <C>
2.1 Series B Convertible Preferred Stock Purchase Agreement
2.1.1 Form of Voting Agreement
3.3 Certificate of Designation of Series B Preferred Stock
4.2 Registration Rights Agreement
99.1 Press release dated July 26, 1999 of Cardiac Pathways Corporation
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 3, 1999 CARDIAC PATHWAYS CORPORATION
By: /s/ G Michael Latta
-----------------------------
G. Michael Latta
Chief Financial Officer and
Vice President, Finance
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CARDIAC PATHWAYS CORPORATION
FORM 8-K
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
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<S> <C>
2.1 Series B Convertible Preferred Stock Purchase Agreement
2.1.1 Form of Voting Agreement
3.3 Certificate of Designation of Series B Preferred Stock
4.2 Registration Rights Agreement
99.1 Press release dated July 26, 1999 of Cardiac Pathways Corporation
</TABLE>
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EXHIBIT 2.1
CARDIAC PATHWAYS CORPORATION
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
MAY 20, 1999
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TABLE OF CONTENTS
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<CAPTION>
PAGE
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<C> <S> <C> <C>
1. Sale of Stock...................................................... 1
2. Closing Date....................................................... 1
3. Delivery........................................................... 2
4. Representations and Warranties of the Company...................... 2
(a) Corporate Power............................................. 2
(b) Authorization............................................... 2
(c) Capital Structure........................................... 3
(d) Valid Issuance of Stock..................................... 3
(e) No Conflict; Required Filings and Consents.................. 4
(f) Litigation.................................................. 4
(g) Charter Documents; Subsidiaries............................. 4
(h) Absence of Certain Developments............................. 4
(i) Absence of Undisclosed Liabilities.......................... 5
(j) Non-Contravention........................................... 5
(k) Filings..................................................... 5
(l) Employee Matters and Benefit Plans.......................... 6
(m) Labor Matters............................................... 8
(n) Title to Property........................................... 8
(o) Taxes....................................................... 8
(p) Compliance with Laws........................................ 9
(q) Environmental Matters....................................... 9
(r) Intellectual Property....................................... 10
(s) Personnel................................................... 10
(t) Year 2000 Compliance........................................ 10
(u) No Brokers.................................................. 10
(v) Chief Executive Officer..................................... 10
(w) Registration Rights......................................... 10
(x) Permits..................................................... 11
(y) Royalties................................................... 11
(z) Real Property Holding Corporation........................... 11
(aa) Investment Company Act...................................... 11
(bb) Qualified Small Business.................................... 11
(cc) Small Business Concern...................................... 11
(dd) Broker's or Finder's Fee.................................... 11
(ee) Vote Required............................................... 11
5. Representations and Warranties of the Purchasers................... 11
(a) Corporate Power............................................. 11
(b) Authorization............................................... 11
(c) Governmental Approvals...................................... 12
(d) Non-Contravention........................................... 12
(e) Risk Factors................................................ 12
(f) No Brokers.................................................. 12
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<C> <S> <C> <C>
Compliance with Securities Laws and Restrictions on Transfer of
6. Securities......................................................... 13
Additional Representations and Warranties and Agreements of
(a) Each Purchaser.............................................. 13
(b) Agreement Not to Transfer................................... 14
(c) Stop Transfer Orders........................................ 14
(d) Compliance with Section 6................................... 14
7. Additional Covenants of the Purchasers Regarding Securities........ 14
(a) Forms 13D or 13G............................................ 14
(b) Insider Trading Policy; Short Sales......................... 14
(c) Material Confidential Information........................... 15
(d) Reporting Obligations Pursuant to Section 16................ 15
8. Additional Covenants of the Company................................ 16
(a) Inspection.................................................. 16
(b) Board of Directors.......................................... 16
(c) Right of First Offer........................................ 16
(d) Sonometrics License......................................... 18
(e) Chief Executive Officer..................................... 18
(f) Reverse Stock Split; Bylaws................................. 18
(g) Reservation of Common Stock................................. 18
(h) Proprietary Information and Inventions Agreement............ 18
(i) Qualified Small Business.................................... 18
(j) Small Business Administration Matters....................... 18
(k) Regulatory Compliance Cooperation........................... 19
(l) Proxy Statement............................................. 19
(m) Stockholder Approvals; Recommendations...................... 20
(n) Notices of Certain Events................................... 20
(o) Efforts..................................................... 21
(p) No Solicitation............................................. 21
9. Closing Conditions................................................. 22
(a) Conditions to Purchaser's Obligations at the Closing........ 22
(b) Conditions to Company's Obligations at the Closing.......... 24
10. General Provisions................................................. 24
(a) Notices..................................................... 24
(b) Governing Law............................................... 25
(c) Amendments.................................................. 25
(d) Assignment.................................................. 26
(e) Expenses.................................................... 26
(f) Counterparts................................................ 26
(g) Entire Agreement............................................ 26
(h) Titles...................................................... 26
(i) Termination................................................. 26
(j) Effect of Termination....................................... 27
EXHIBITS
A. CERTIFICATE OF DESIGNATION..................................
C. REGISTRATION RIGHTS AGREEMENT...............................
D. VOTING AGREEMENT............................................
</TABLE>
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CARDIAC PATHWAYS CORPORATION
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
made as of May 20, 1999 between Cardiac Pathways Corporation, a Delaware
corporation having its principal executive office at 995 Benecia Avenue,
Sunnyvale, California 94086 (the "Company"), and the purchasers listed on
Schedule A hereto, each of which is herein referred to as a "PURCHASER" and
collectively, the "PURCHASERS".
RECITALS
A. The parties desire that the Purchasers make an equity investment of
between $25,000,000 and $40,000,000 in the Company pursuant to the terms and
conditions of this Agreement.
B. The shares of Series B Convertible Preferred Stock issued to the
Purchasers pursuant to this Agreement shall have registration rights and other
rights as evidenced by the Registration Rights Agreement in the form attached
hereto as Exhibit C (the "RIGHTS AGREEMENT").
C. In order to induce the Purchasers to enter into this Agreement, certain
directors, certain officers, and certain stockholders of the Company have
entered into a voting agreement in the form attached hereto as Exhibit D (the
"VOTING AGREEMENT") with the Company, pursuant to which they have agreed to vote
to approve the transaction contemplated hereunder.
D. In partial consideration of the Purchasers' investment in the Company,
three nominees of the Purchasers shall be elected to the Board of Directors of
the Company pursuant to the terms and conditions set forth in the Rights
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and promises set forth in this Agreement, the parties agree as follows:
1. Sale of Stock.
(a) The Company hereby agrees to sell to the Purchasers or their designees,
and the Purchasers or their designees hereby agree to purchase from the Company
in the amounts listed on Schedule A hereto, which are inclusive of any Shares
(as defined below) issued upon cancellation of notes issued by the Company to
the Purchasers, for aggregate consideration of between $25.0 and $40.0 million,
up to 40,000 shares of the Company's Series B Convertible Preferred Stock (the
"SHARES") at the per share purchase price (the "PER SHARE PURCHASE PRICE") equal
to 1,000 times the lower of (i) $1.00 or (ii) average trading price of the
Company's common stock (the "COMMON STOCK") on the five (5) trading days
immediately prior to the date of the public announcement of this private
placement, as reported on the Nasdaq National Market. Additional Purchasers may
be added to Schedule A after the date of this Agreement at the sole discretion
of the majority in interest of the Purchasers as set forth on Schedule A.
(b) The Shares shall have the respective rights, preferences and privileges
set forth in a certificate of designation attached hereto as Exhibit A (the
"CERTIFICATE OF DESIGNATION"), which shall be approved by the Purchasers and
filed on or prior to the Closing Date (as defined below) by the Company with the
Secretary of State of Delaware.
2. Closing Date. The closing of the purchase and sale of the Shares
hereunder (the "CLOSING") will take place, upon the satisfaction of the
conditions to closing set forth in Section 9 hereof, at the offices of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California, as soon as practicable but in any event, subject to applicable
law, no later than the earlier to occur of five (5) business days after the last
of the conditions set forth in Section 9 hereof have been satisfied or October
31, 1999. The date of the Closing is hereinafter referred to as the "Closing
Date."
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<PAGE> 5
3. Delivery. At the Closing, the Company will deliver a certificate
registered in each Purchaser's name representing the Shares to be purchased by
such Purchaser. Such delivery shall be against payment of the purchase price
therefor or by cancellation of notes delivered by the Purchasers to the Company,
or a combination of each of the foregoing, in an amount equal to the product of
the number of Shares and the Per Share Purchase Price (the "PURCHASE PRICE") by
wire transfer to the Company's bank account at:
<TABLE>
<S> <C>
Bank Name: Citibank
Bank Address: 111 Wall Street
New York, NY 10005
Contact: David L. Hayes (415-576-2148)
ABA#: 021000089
Account Name: Morgan Stanley
Account Number: #3889-0774
FBO CPC #14-78247
</TABLE>
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers as follows, except as set forth on a
Disclosure Schedule (the "DISCLOSURE SCHEDULE") attached hereto as Exhibit B and
furnished to each Purchaser, which exceptions shall be deemed to be
representations and warranties as if made hereunder
(a) Corporate Power. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
qualified to do business as a foreign corporation in each jurisdiction where
failure to qualify would not, individually or in the aggregate, (i) adversely
affect the legality, validity or enforceability of this Agreement, the Voting
Agreement or the Rights Agreement in any material respect, (ii) have or result
in a Material Adverse Effect on the results of operations, assets, prospects or
financial condition of the Company, taken as a whole or (iii) adversely impair
the Company's ability to perform fully on a timely basis its obligations under
this Agreement, the Voting Agreement or the Rights Agreement (any of (i), (ii)
or (iii), being a "MATERIAL ADVERSE EFFECT"). The Company has full corporate
power and authority to own its property, to carry on its business as presently
conducted and to carry out the transactions contemplated hereby.
(b) Authorization. The Company has full corporate power to execute, deliver
and perform this Agreement, the Voting Agreement and the Rights Agreement, and
each such agreement has been duly executed and delivered by the Company and is
the legal, valid and, assuming due execution by the Purchaser, binding
obligation of the Company, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally, and to general equitable principles. The
execution, delivery and performance by the Company of this Agreement, the Voting
Agreement and the Rights Agreement, including the issuance (or reservation for
issuance), sale and delivery of the Shares contemplated by Section 1 hereof and
the Common Stock issuable upon conversion thereof, have been duly authorized by
all necessary corporate action on the part of the Company, its officers,
directors and stockholders; provided, however, that the Company makes no
representation or warranty as to the enforceability of the indemnification and
contribution provisions of Section 5 of the Rights Agreement to the extent that
the provisions thereof may be subject to limitations of public policy and the
effect of applicable statutes and judicial decisions. The Board of Directors of
the Company (at a meeting duly called and held) has (a) determined that the sale
of the Shares is advisable and fair and in the best interests of the Company and
its stockholders, and (b) recommended the approval and adoption of this
Agreement and approval of the sale of the Shares by the stockholders and
directed that this Agreement and the sale of the Shares by submitted for
consideration by the Company's stockholders. The Board of Directors of the
Company has taken all action necessary to render inapplicable, as it relates to
Purchasers, the provisions of Section 203 of the Delaware General Corporation
Law (the "DGCL"). No other corporate action on the part of the Company is
necessary to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby (other than, in the
case of this Agreement, the approval of the sale of the Shares by the holders of
at least a majority of the Common Stock voting at the meeting held to consider
sale of the Shares).
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<PAGE> 6
(c) Capital Structure.
(i) The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, $.001 par value per share, and 5,000,000 shares of
Preferred Stock, $.001 par value per share, of which 30,000 shares have
been designated Series A Participating Preferred Stock, 50,000 shares have
been designated Series B Convertible Preferred Stock and 4,920,000 are
undesignated. As of the date hereof, (i) 10,038,578 shares of Common Stock,
all of which are validly issued, fully paid and nonassessable, no shares of
Series A Participating Preferred Stock and no shares of Series B
Convertible Preferred Stock were issued and outstanding; (ii) no shares
were held in treasury by the Company or by any subsidiaries of the Company;
(iii) 2,866,629 shares of Common Stock were reserved for issuance under the
Company's stock plans (including (A) 1,442,440 shares of Common Stock
reserved for issuance under the 1991 Stock Option Plan, 1,067,591 shares of
which were subject to outstanding options and 374,849 of which were
reserved for future grants, (B) 60,000 shares of Common Stock were reserved
for issuance under the 1996 Director Option Plan, 33,000 shares of which
were subject to outstanding options and 27,000 of which were reserved for
future grants, (C) 400,000 shares of Common Stock were reserved for
issuance under the 1998 Non-Statutory Stock Option Plan, 143,818 of which
were subject to outstanding options and 256,182 shares of which were
available for future grants, (D) 920,506 shares of Common Stock were
reserved for issuance under the 1998 Employee Stock Purchase Plan, 40,506
shares of which were available for future purchase in fiscal 1999 and
880,000 of which may be purchased in maximum amounts of 200,000 shares per
fiscal year commencing July 1, 1999 and (E) 43,683 shares were subject to
an outstanding nonstatutory option granted outside of the plans);
collectively the Company's "STOCK PLANS;" and (iv) 143,141 shares of Common
Stock and related Preferred Stock Purchase Rights were subject to
outstanding warrants to purchase such shares. All shares of the Company's
Common Stock subject to issuance as specified above, on the terms and
conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of the Company's capital stock or the capital stock of
any of the Company's subsidiaries or make any investment (in the form of a
loan, capital contribution or otherwise) in any such subsidiary or any
other entity other than as contemplated by this Agreement. All of the
outstanding shares of capital stock of each subsidiary of the Company are
duly authorized, validly issued, fully paid and nonassessable, and all such
shares (other than directors' qualifying shares) are owned by the Company
or another subsidiary of the Company free and clear of all security
interests, liens, claims, pledges, agreements, limitations on the Company's
voting rights, charges or other encumbrances of any nature. The Common
Stock is quoted on the Nasdaq National Market.
(ii) Except as set forth in Section 4(c)(i), there are no equity
securities of any class of capital stock of the Company, or any security
exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as set forth in Section
4(c)(i), there are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which the Company or any of
its subsidiaries is a party or by which it is bound obligating the Company
or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of the
Company or any of its subsidiaries to grant or enter into any such warrant,
equity security, call, right, commitment or agreement, and except for the
transactions contemplated by this Agreement, the Voting Agreement and the
Rights Agreement, there are no voting trusts, proxies or other agreements
or understandings with respect to the shares of capital stock of the
Company to which the Company is a party.
(d) Valid Issuance of Stock. The Shares will be duly authorized, validly
issued, fully paid and non-assessable and, based in part upon the
representations of the Purchaser in this Agreement, will be issued in compliance
with all applicable federal and state securities laws. The Common Stock issuable
upon conversion of the Shares (the "CONVERSION SHARES") has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Certificate of Designation, will be duly and validly issued and fully paid
and nonassessable. The Shares and the Conversion Shares will be free of
restrictions on transfer other than the restrictions in this Agreement and the
Rights Agreement and under applicable state and/or federal securities
3
<PAGE> 7
laws, and will not be subject to any preemptive or other similar rights or any
liens or encumbrances (other than any liens or encumbrances created by the
Purchasers).
(e) No Conflict; Required Filings and Consents.
(i) The execution and delivery of this Agreement, the Voting Agreement
and the Rights Agreement by the Company do not, and the performance of this
Agreement, the Voting Agreement and the Rights Agreement by the Company
shall not, (i) conflict with or violate the Amended and Restated
Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION"), the
Certificate of Designation, the Company's Bylaws, as amended (the "BYLAWS")
or equivalent organizational documents of the Company or any of its
subsidiaries, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its
subsidiaries or by which it or their respective properties are bound or
affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default)
under, or impair the Company's or any such subsidiary's rights or alter the
rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of the Company or any of its subsidiaries pursuant to, any material
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are bound or
affected, except for any such breaches, defaults or other occurrences that
do not have or result in, individually or in the aggregate, a Material
Adverse Effect.
(ii) The execution and delivery of this Agreement, the Voting
Agreement and the Rights Agreement by the Company do not, and the
performance of this Agreement, the Voting Agreement and the Rights
Agreement by the Company shall not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental entity except for applicable requirements, if any, of the
Securities Act, the Exchange Act, state securities laws, the rules and
regulations of the Nasdaq National Market and the consent of a majority of
the holders of the Common Stock of the Company subject to that certain
Shareholder Rights Agreement dated as of June 13, 1995.
(f) Litigation. There is no litigation or governmental proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company that either (i) adversely affects or challenges the legality,
validity or enforceability of this Agreement, the Voting Agreement or the Rights
Agreement or (ii) could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.
(g) Charter Documents; Subsidiaries. Except for Cardiac Pathways B.V., a
corporation organized under the laws of the Netherlands, and Cardiac Pathways
G.m.b.H., a corporation organized under the laws of Germany, the Company has no
active subsidiaries and does not otherwise directly or indirectly control any
other business entity. The Company has furnished counsel to the Purchasers with
true, correct and complete copies of its Amended and Restated Certificate of
Incorporation and Bylaws, together with any amendments thereto as of the date
hereof and the charter documents of each of its subsidiaries. Each of the
Company's subsidiaries is duly organized and existing under the laws of its
jurisdiction of organization and is in good standing under such laws. None of
the Company's subsidiaries owns or leases property or engages in any activity in
any jurisdiction that might require its qualification to do business as a
foreign corporation and in which the failure so to qualify would have a Material
Adverse Effect.
(h) Absence of Certain Developments. Since the date of its most recent
report filed with the Commission pursuant to the Securities and Exchange Act of
1934, as amended from time to time (such act, together with the rules and
regulations promulgated thereunder, the "EXCHANGE ACT," and such report, the
"CURRENT SEC FILING"), except as disclosed therein, there has been no (i) change
in the condition, financial or otherwise, of the Company or its assets,
liabilities, properties, business, operations, intellectual property rights
owned or controlled by it, or prospects generally that would, individually or in
the aggregate, have a Material Adverse Effect; (ii) declaration, setting aside
or payment of any dividend or other distribution with respect to the capital
stock of the Company, or (iii) loss, destruction or damage to any property of
the Company, whether or not insured, which has or may have a Material Adverse
Effect.
4
<PAGE> 8
(i) Absence of Undisclosed Liabilities. Except as and to the extent
reflected or stated in the Current SEC Filing, there has been no:
(i) Material accrued or contingent liability of a type required to be
reflected on a balance sheet in accordance with generally accepted
accounting principles or described in the footnotes thereto.
(ii) Resignation or termination of any key officers in the Company;
and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(iii) Material change, except in the ordinary course of business, in
the contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(iv) Damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, business or prospects or
financial condition of the Company;
(v) Waiver by the Company of a valuable right or of a material debt
owed to it;
(vi) Direct or indirect loans made by the Company to any stockholder,
employee, officer or director of the Company, other than advances made in
the ordinary course of business;
(vii) Material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(viii) Declaration or payment of any dividend or other distribution of
the assets of the Company;
(ix) Labor organization activity;
(x) Debt, obligation or liability incurred, assumed or guaranteed by
the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(xi) Sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(xii) Change in any material agreement to which the Company is a party
or by which it is bound which has had a Material Adverse Effect; or
(xiii) Any other event or condition of any character that, either
individually or cumulatively, has had a Material Adverse Effect.
(j) Non-Contravention. The execution, delivery and performance by the
Company of this Agreement, the Voting Agreement and the Rights Agreement do not
and will not (i) contravene or conflict with the Amended and Restated
Certificate of Incorporation, the Certificate of Designation or Bylaws of the
Company, or (ii) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Company or its property, or result in a breach of or
constitute a default under any material agreement of the Company (whether upon
notice or passage of time) binding upon or applicable to it or its property, in
any manner which would materially and adversely affect the Purchasers' rights or
their ability to realize the intended benefits under this Agreement, the Voting
Agreement or the Rights Agreement.
(k) Filings.
(i) The Company has filed in a timely manner, and has delivered to the
Purchasers copies of, the following reports required to be filed with the
Commission under the Exchange Act: (1) the Company's quarterly report on
Form 10-Q for the quarter ended December 31, 1998 filed with the Commission
on February 16, 1999 and (2) the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 filed with Commission on September 25,
1998 (collectively the "SEC REPORTS"). As of its filing date, (i) each such
report complied in all material respects with the applicable requirements
of the Securities Act and the Exchange Act, as the case may be, (ii) no
such report or statement filed pursuant to the Exchange Act contained any
untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under
5
<PAGE> 9
which they were made, not misleading. None of the Company's subsidiaries is
required to file any forms, reports or other documents with the Commission.
(ii) Each of the consolidated financial statements (including in each
case any related notes) contained in the SEC Reports complied as to form in
all material respects with the applicable published rules and regulations
of the Commission with respect thereto, was prepared in accordance with
U.S. generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to
such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q and the rules and regulations promulgated by the
Commission), and fairly presented the consolidated financial position of
the Company and its subsidiaries as of the respective dates and the
consolidated results of operations and statements of cash flows for the
periods indicated, except that the unaudited interim financial statements
were subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
(l) Employee Matters and Benefit Plans.
(i) Definitions. The following terms shall have the meanings set forth
below:
(1) "Affiliate," as used in this section shall mean any other
person or entity under common control with the Company within the
meaning of Section 414(b), (c), (m) or (o) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and regulations thereunder;
(2) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or
unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1978, as amended ("ERISA"), which is or has been
maintained, contributed to, or required to be contributed to, by the
Company or any Affiliate for the benefit of any "Company Employee" (as
defined below), and pursuant to which the Company or any Affiliate has
or may have any material liability contingent or otherwise;
(3) "Company Employee" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(4) "Company Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation,
expatriation, visa, work permit or similar agreement or contact between
the Company or any Affiliates and any Company Employee or consultant;
and
(5) "Company Pension Plan" shall refer to each Company Employee
Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(ii) Schedule. The Company does not have any plan or commitment to
establish any new Company Employee Plan or Company Employee Agreement, to
modify any Company Employee Plan or Company Employee Agreement (except to
the extent required by law or to conform any such Company Employee Plan or
Company Employee Agreement to the requirements of any applicable law, in
each case as previously disclosed to the Purchasers in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Company Employee Agreement, nor does it have any intention or commitment to
do any of the foregoing.
(iii) Documents. The Company has provided to the Purchasers (i)
correct and complete copies of all documents embodying or relating to each
Company Employee Plan and each Company Employee Agreement including all
amendments thereto and written interpretations thereof, (ii) the most
recent annual actuarial valuations, if any, prepared for each Company
Employee Plan; (iii) the three most recent annual reports (Series 5500 and
all schedules thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan or related trust; (iv) if any
Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary
plan description together with the most recent summary of material
modifications, if
6
<PAGE> 10
any, required under ERISA with respect to each Company Employee Plan; (vi)
all IRS determination letters and rulings relating to Company Employee
Plans and copies of all applications and correspondence to or from the
Internal Revenue Service (the "IRS") or the Department of Labor (the "DOL")
with respect to any Company Employee Plan; (vii) all communications
material to any Company Employee or Company Employees relating to any
Company Employee Plan and any proposed Company Employee Plans, in each
case, relating to any amendments, terminations, establishments, increases
or decreases in benefits, acceleration of payments or vesting schedules or
other events which would result in any material liability to the Company;
and (viii) all registration statements and prospectuses prepared in
connection with each Company Employee Plan.
(iv) Company Employee Plan Compliance. (i) The Company has performed
in all material respects all obligations required to be performed by it
under each Company Employee Plan and each Company Employee Plan has been
established and maintained in all material respects in accordance with its
terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including but not limited to ERISA or the Code; (ii) to
the Company's knowledge no "prohibited transaction," within the meaning of
Section 4975 of the Code or Section 406 of ERISA, has occurred with respect
to any Company Employee Plan; (iii) there are no actions, suits or claims
pending, or, to the knowledge of the Company, threatened or anticipated
(other than routine claims for benefits) against any Company Employee Plan
or against the assets of any Company Employee Plan; (iv) each Company
Employee Plan can be amended, terminated or otherwise discontinued after
the closing in accordance with its terms, without liability to the Company
or any Affiliates (other than ordinary administration expenses typically
incurred in a termination event); (v) there are no inquiries or proceedings
pending or, to the knowledge of the Company or any Affiliates, threatened
by the IRS or DOL with respect to any Company Employee Plan; and (vi) to
the Company's knowledge neither the Company nor any Affiliate is subject to
any penalty or tax with respect to any Company Employee Plan under Section
402(i) of ERISA or Section 4975 through 4980 of the Code.
(v) Company Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Company Pension Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(vi) Multiemployer Plans. At no time has the Company contributed to or
been requested to contribute to any Multiemployer Plan.
(vii) No Post-Employment Obligations. No Company Employee Plan
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Company Employee upon his or her retirement or
termination of employment for any reason, except as may be required by
statute, and the Company has never represented, promised or contracted
(whether in oral or written form) to any Company Employee (either
individually or to Company Employees as a group) that such Company
Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of
employment, except to the extent required by statute.
(viii) Effect of Transaction.
(1) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Company Employee Agreement, trust or
loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any Company Employee.
(ix) Employment Matters. The Company and each of its subsidiaries (i)
is in compliance in all material respects with all applicable foreign,
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours, in each case, in each location in which the Company or any of its
subsidiaries employs persons; (ii) has withheld all amounts required by law
or by agreement to be withheld from the wages, salaries and other payments
7
<PAGE> 11
to Company Employees; (iii) is not liable for any material arrears of wages
or any material taxes or any material penalty for failure to comply with
any of the foregoing; and (iv) is not liable for any material payment to
any trust or other fund or to any governmental or administrative authority,
with respect to unemployment compensation benefits, social security or
other benefits or obligations for Company Employees (other than routine
payments to be made in the normal course of business and consistent with
past practice).
(x) Violations. To the Company's knowledge, no employee of the Company
has violated any employment contract, patent disclosure agreement or non
competition agreement between such employee and any former employer of such
employee due to such employee being employed by the Company and disclosing
to the Company trade secrets or proprietary information of such employer.
The Company is not, and has never been, a party to any collective
bargaining agreement. The Company and its subsidiaries are in compliance in
all material respects with all applicable laws regarding employment
practices, terms and conditions of employment, and wages and hours
(including, without limitation, ERISA, the Worker Adjustment and Retaining
Notification Act or any similar state or local law).
(m) Labor Matters. (i) There are no controversies pending or, to the best
knowledge of each of the Company and its respective subsidiaries, threatened,
between the Company or any of its subsidiaries and any of their respective
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect; (ii) as of the date of this Agreement, neither the
Company nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or its subsidiaries nor does the Company or its subsidiaries know of any
activities or proceedings of any labor union to organize any such employees (A)
as of the date of this Agreement and (B) which, as of the Closing, have or could
reasonably be expected to have a Material Adverse Effect; and (iii) as of the
date of this Agreement, neither the Company nor any of its subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages or lockouts, or threats
thereof, by or with respect to any employees of the Company or any of its
subsidiaries (A) as of the date of this Agreement and (B) which, as of the
closing, have or could reasonably be expected to have a Material Adverse Effect.
(n) Title to Property. The Company owns no material real property. The
Company and each of its subsidiaries have good and defensible title to all of
their material properties and assets, free and clear of all liens, charges and
encumbrances except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect; and all leases pursuant to which the Company or
any of its subsidiaries lease from others material amounts of real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
material default or event of default (or any event which with notice or lapse of
time, or both, would constitute a material default and in respect of which the
Company or its subsidiary has not taken adequate steps to prevent such default
from occurring) except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. All the plants, structures and equipment of the Company and its
subsidiaries, except such as may be under construction, are in good operating
condition and repair, except where the failure of such plants, structures and
equipment to be in such good operating condition and repair could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(o) Taxes. The Company and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for tax purposes of which the Company or
any of its subsidiaries is or has been a member, have timely filed all tax
returns required to be filed by them and have paid all taxes shown thereon to be
due. These returns and reports are true and complete in all material respects.
The Company has paid all taxes and other assessments due. The Company has
provided adequate accruals in accordance with generally accepted accounting
principles in its financial statements for any taxes that have not been paid,
whether or not shown as being due on any tax returns. There is (i) no material
claim for taxes that is a lien against the property of the Company or any of its
subsidiaries or is being asserted against the Company or any of its subsidiaries
other than liens for taxes not yet due and payable, (ii) no audit of any tax
return of the Company or any of its
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subsidiaries being conducted by a tax authority, (iii) no extension of the
statute of limitations on the assessment of any taxes granted by the Company or
any of its subsidiaries and currently in effect, and (iv) no agreement, contract
or arrangement to which the Company or any of its subsidiaries is a party that
may result in the payment of any amount that would not be deductible by reason
of Sections 162(m), 280G or 404 of the Code. Neither the Company nor any of its
subsidiaries has ever been a member of any combined, controlled, consolidated or
affiliated group (other than the group of which the Company is the parent) for
tax purposes. Neither the Company nor any of its subsidiaries is a party to any
tax sharing or tax allocation agreement nor does the Company or any of its
subsidiaries owe any amount under any such agreement. Neither the Company nor
any of its subsidiaries has been at any time, a "United States real property
holding corporation" with the meaning of Section 897(c)(2) of the Code.
(p) Compliance with Laws. Except with respect to environmental matters
(which are covered by Section 4(q) below), the Company and its Subsidiaries are,
and at all times since January 1, 1996 have been, in compliance with all
applicable laws, regulations, orders, judgments and decrees, except where the
failure to so comply would not have a Material Adverse Effect on the condition
of the Company and its Subsidiaries taken as a whole. Neither the Company nor
any of its subsidiaries has received any notice or other communication from any
governmental entity or other person regarding any actual or possible material
violation of, or material failure to comply with, any law, regulation, order,
judgment or decree.
(q) Environmental Matters.
(i) Hazardous Material. Except as would result in any material
liability to the Company under Environmental Laws (as defined below), no
underground storage tanks and no amount of any substance that has been
designated by any Governmental Entity or by applicable Environmental Laws
to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant
to the Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to Environmental Laws, but excluding
office and janitorial supplies maintained in accordance with Environmental
Laws (a "HAZARDOUS MATERIAL") are present, as a result of the actions of
the Company or any of its subsidiaries or any affiliate of the Company, or,
to the Company's knowledge, as a result of any action of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company or
any of its subsidiaries has at any time owned, operated, occupied or
leased. For the purposes of this Agreement, "ENVIRONMENTAL LAWS" shall mean
all federal, state, local and foreign laws, ordinances, treaties, rules,
regulations, guidelines and permit conditions relating to contamination,
pollution or the environment (including ambient air, surface water, ground
water, land surface or subsurface strata) or the protection of human health
and worker safety, including, without limitation, laws and regulations
relating to Hazardous Materials Activities (as hereinafter defined) or
emissions, discharges, releases or threatened releases of Hazardous
Materials.
(ii) Hazardous Materials Activities. Neither the Company nor any of
its subsidiaries has (i) transported, stored, used, manufactured, disposed
of, released or exposed its employees or others to Hazardous Materials in
violation of Environmental Laws, or (ii) disposed of, transported, sold,
used, released, exposed its employees or others to or manufactured any
product contained a Hazardous Material (collectively "HAZARDOUS MATERIALS
ACTIVITIES") in violation of any Environmental Laws in effect prior to or
as of the date hereof except for which violation has not heretofore been
cured or for which there is any remaining liability.
(iii) Permits. The Company and its subsidiaries hold all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's and its subsidiaries'
Hazardous Material Activities and other businesses of the Company and its
subsidiaries as such activities and businesses are currently being
conducted. The Company and its subsidiaries are and at all times have been
in compliance in all material respects with the terms of the
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<PAGE> 13
Environmental Permits except for which noncompliance has heretofore been
cured or for which there is any remaining liability.
(iv) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, claim or injunction is pending, and
to the Company's knowledge, no action, proceeding, revocation proceeding,
amendment procedure, writ, claim or injunction has been threatened by any
governmental entity against the Company or any of its subsidiaries
concerning any Environmental Permit, Hazardous Material or any Hazardous
Materials Activities of the Company or any of its subsidiaries.
(r) Intellectual Property. The Company or its subsidiaries owns each of the
patents and patent applications referred to in the SEC Reports and, except as
disclosed in the SEC Reports, (i) the Company owns or possesses adequate and
enforceable rights to use all other patent applications, patents, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how and other similar rights and proprietary
knowledge (collectively with the patents and patent applications described in
the SEC Reports, the "INTANGIBLES") necessary for the conduct of the Company's
current, former and anticipated activities and (ii) neither the Company nor any
subsidiary, to its knowledge, has infringed, is infringing, or has received any
notice of infringement of any Intangible of any other person that, if the
subject of an unfavorable decision, ruling or finding, could reasonably be
expected to have a Material Adverse Effect and the Company knows of no basis
therefor. The expiration of any Intangibles would not have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole. Except as set forth
in the SEC Reports, the Company has received no notice of potential indemnity
claims from customers based upon a notice of infringement any such customer has
received from a patent owner relating to an assertion of infringement of a
patent other than potential indemnity claims which individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect on
the Company.
(s) Personnel. All personnel, including employees, agents, consultants and
contractors, who have contributed to or participated in the conception and
development of the Intangibles on behalf of the Company have executed
nondisclosure agreements in the form set forth on the Disclosure Schedule and
either (i) have been a party to a "work-for-hire" arrangement or agreements with
the Company in accordance with applicable national and state law that has
accorded the Company full, effective, exclusive and original ownership of all
tangible and intangible property thereby arising, or (ii) have executed
appropriate instruments of assignment in favor of the Company as assignee that
have conveyed to the Company effective and exclusive ownership of all tangible
and intangible property thereby arising.
(t) Year 2000 Compliance. Except as would not reasonably be expected to
have a Material Adverse Effect on the Company, all of the Company's Information
Technology (as defined below) effectively addresses the Year 2000 issue, and
will not cause an interruption in the ongoing operations of the Company's
business on or after January 1, 2000. For purposes of the foregoing, the term
"INFORMATION TECHNOLOGY" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services that are owned or used by the Company
in the conduct of its business, or purchased by the Company from third party
suppliers.
(u) No Brokers. The Company has not directly or indirectly employed any
broker, finder or other person (including any employee) that might be entitled
to a fee, commission or other compensation upon the execution of this Agreement,
the Voting Agreement or the Rights Agreement or the consummation of the
transactions contemplated by this Agreement, the Voting Agreement or the Rights
Agreement for which the Purchasers or the Company is or may be liable.
(v) Chief Executive Officer. The Company has entered into an employment
agreement with a new Chief Executive Officer acceptable to the Purchasers.
(w) Registration Rights. Except as provided in the Rights Agreement, the
Company is presently not under any obligation and has not granted any rights to
register under the Securities Act any of its presently outstanding securities or
any of its securities that may subsequently be issued.
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(x) Permits. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could have a Material Adverse Effect on the
business, properties, prospects, or financial condition of the Company, and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as presently planned to be conducted. The
Company is not in default in any material respect under any such franchises,
permits, licenses or other similar authority.
(y) Royalties. Except as set forth in the Disclosure Schedule, there are no
royalties, fees, honoraria or other payments payable by the Company to any
person or entity by reason of the ownership, development, use, license, sale or
disposition of the Intangibles, other than salaries and sales commissions paid
to employees and sales agents in the ordinary course of business.
(z) Real Property Holding Corporation. The Company is not a real property
holding corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code of 1986, as amended (the "Code") and any regulations promulgated
thereunder.
(aa) Investment Company Act. The Company is not an "investment company", or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
(bb) Qualified Small Business. The Company is a "qualified small business"
within the meaning of Section 1202(d) of the Code as of the date hereof and the
Series B Preferred should qualify as "qualified small business stock" as defined
in Section 1202(c) of the Code as of the date hereof. The Company further
represents and warrants that, as of the date hereof, it meets the "active
business requirement" of Section 1202(e) of the Code and it has made no
"significant redemptions" within the meaning of Section 1202(c)(3)(B) of the
Code.
(cc) Small Business Concern. The Company, together with its "affiliates"
(as that term is defined in Section 121.103 of Title 13 of the Code of Federal
Regulations (the "FEDERAL REGULATIONS")), is a "small business concern" within
the meaning of the Small Business Investment Act of 1958, as amended (the "SMALL
BUSINESS ACT"), and Part 121 of Title 13 of the Federal Regulations. The
information delivered by the Company to Purchaser on SBA Forms 480, 652 and 1031
of the Small Business Administration (the "SBA") delivered in connection
herewith is accurate and complete. The Company is not ineligible for financing
by any SBIC Investor pursuant to Section 107.720 of Title 13 of the Federal
Regulations. The Company acknowledges that BankAmerica Ventures is a Federal
licensee under the Small Business Act.
(dd) Broker's or Finder's Fee. No agent, broker, person or firm acting on
behalf of the Company or any of its subsidiaries is, or will be, entitled to any
fee, commission or brokers or finder's fees from any of the parties hereto, or
from any person controlling, controlled by, or under common control with any of
the parties hereto, in connection with this Agreement or any of the transactions
contemplated hereby.
(ee) Vote Required. The approval of the sale of the Shares by the
affirmative vote of a majority of the shares of Common Stock voting is the only
vote of the holders of any class or series of the Company's capital stock
necessary to approve the transactions contemplated hereby. Holders of Common
Stock will not have any appraisal rights or similar rights in connection with
the sale of the Shares or any of the other transactions contemplated hereby.
5. Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) Corporate Power. Each Purchaser is a corporation duly incorporated
or a limited partnership duly formed, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation with
the requisite power and authority, corporate or otherwise, to enter into
and to consummate the transactions contemplated hereby and otherwise to
carry out its obligations hereunder and thereunder.
(b) Authorization. Each Purchaser has full power to execute, deliver
and perform this Agreement, the Voting Agreement and the Rights Agreement,
and each such agreement has been duly executed and delivered by such
Purchaser and is the legal, valid and, assuming due execution by the
Company, binding
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<PAGE> 15
obligation of such Purchaser, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting creditors' rights generally, and to general
equitable principles. The execution, delivery and performance by such
Purchaser of this Agreement, the Voting Agreement and the Rights Agreement,
including the payment of the Purchase Price, have been duly authorized by
all necessary corporate action of such Purchaser.
(c) Governmental Approvals. No authorization, consent, approval,
license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, under any applicable laws, rules or
regulations presently in effect, other than a Control Certificate to be
filed with the SBA by BankAmerica Ventures within thirty (30) days of the
Closing Date, is or will be necessary to be made or obtained by such
Purchaser or any of its Affiliates (as such term is defined below) for, or
in connection with, the execution and delivery of this Agreement, the
Voting Agreement or the Rights Agreement, the consummation of the
transactions contemplated hereby or thereby or performance by such
Purchaser of its obligations hereunder or thereunder. For purposes of this
Agreement, the term "AFFILIATE" means, when used with respect to any
specified person, any other person directly or indirectly controlling or
controlled by or under direct or indirect common control with such
specified person. For the purposes of this definition, "control," when used
with respect to any person, means the power to direct the management and
policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to
the foregoing.
(d) Non-Contravention. The execution, delivery and performance by the
Company of this Agreement, the Voting Agreement and the Rights Agreement do
not and will not (i) contravene or conflict with the charter documents or
bylaws of such Purchaser, or (ii) contravene or conflict with or constitute
a violation of any provision of any law, regulation, judgment, injunction,
order or decree binding upon or applicable to such Purchaser, or result in
a breach of or constitute a default under any material agreement of such
Purchaser.
(e) Risk Factors. Each such Purchaser acknowledges that an investment
in the Company involves known and unknown risks, uncertainties and other
factors which may result in such Purchaser's loss of its entire investment.
The Company is an early stage medical device company that develops and
intends to commercialize medical devices for the treatment of certain
cardiovascular and circulatory disorders. The Company's product candidates
are at an early stage of development and have not been approved for
marketing by any regulatory agencies. In addition, significant investment
in research and development, preclinical and clinical testing, regulatory
and sales and marketing activity will be necessary for the Company to
commercialize its product candidates. There can be no assurance that any of
the Company's product candidates can be successfully developed. If
successfully developed, there can be no assurance that the Company's
product candidates will be approved for marketing by regulatory agencies,
will result in any meaningful benefits to patients, will be accepted by the
medical community for use in treatment or will generate sufficient or
sustainable revenues to enable the Company to be profitable.
Each Purchaser acknowledges that such Purchaser has received a copy of
the SEC Reports and reviewed the section captioned "Factors Affecting
Future Operation Results" contained therein, which such factors are deemed
incorporated by reference into this Agreement.
(f) No Brokers. The Purchasers have not directly or indirectly
employed any broker, finder or other person (including any employee) that
might be entitled to a fee, commission or other compensation upon the
execution of this Agreement, the Voting Agreement or the Rights Agreement
or the consummation of the transactions contemplated by this Agreement, the
Voting Agreement or the Rights Agreement for which the Purchasers or the
Company is or may be liable.
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6. Compliance with Securities Laws and Restrictions on Transfer of
Securities.
(a) Additional Representations and Warranties and Agreements of Each
Purchaser. Each Purchaser, severally and not jointly, hereby represents and
warrants to, and agrees with, the Company as follows:
(i) The Purchaser (A) is purchasing the Shares for its own account for
investment only and not with a view to any resale or distribution thereof,
except pursuant to an effective registration statement under the Securities
Act of 1933, as amended from time to time (such act, together with the
rules and regulations promulgated thereunder, herein the "Securities Act"),
covering the sale, assignment or transfer or an opinion of counsel
reasonably satisfactory to the Company, concurred in by counsel to the
Company, that such registration is not required; provided, however, that
BankAmerica Ventures shall be permitted to transfer its Shares to Bank of
America Ventures, L.P. without such requirements.
(ii) Such Purchaser has received and carefully reviewed the Current
SEC Filing, and has had the opportunity to obtain and receive such other
information as it deems necessary to understand the business and financial
condition of the Company and to make the investment decision to purchase
the Shares.
(iii) As an investor in companies in the medical device industry, such
Purchaser has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the
investment represented by the Shares, and it is able to bear the economic
risk of such investment.
(iv) Such Purchaser is an "accredited investor" as such term is
defined in Rule 501(a) of Regulation D under the Securities Act. If other
than an individual, the Purchaser also represents it has not been organized
for the purpose of acquiring the Shares.
(v) Such Purchaser understands that the Shares are being issued in a
transaction which is exempt from the registration requirements of the
Securities Act by reason of the provisions of Section 4(2) of the
Securities Act and that the Shares will be subject to transfer restrictions
and must be held indefinitely unless subsequently registered under the
Securities Act or an exemption from such registration is available.
The certificate representing the Shares will be affixed with the
following legends:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT COVERING
THE TRANSFER OR AN OPINION OF COUNSEL OR OTHER EVIDENCE IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED."
The restrictions on sale, assignment and transfer of the Shares
contained in this Section 6(a)(v) shall terminate at such time as there
shall be delivered to the Company and such Purchaser an opinion of counsel
to such Purchaser, in form and substance reasonably satisfactory to the
Company, to the effect that, due to the lapse of time or otherwise, no
registration of such securities is required under the Securities Act in
connection with any distribution of such securities to the public in the
United States. In addition, at any time after (A) the delivery of such
opinion; or (B) such securities are sold pursuant to and in accordance with
an effective registration statement under the Securities Act covering such
sale, the Purchaser shall be entitled to exchange its certificate
representing such securities (or any portion thereof as to which (A) or (B)
above applies) for a new certificate not bearing the first legend set forth
in Section 6(a)(v).
(vi) Such Purchaser understands that the Shares constitute "restricted
securities" within the meaning of Rule 144, promulgated under the
Securities Act. Purchaser is aware that Rule 144, in substance, except as
otherwise provided in subsection (k) of such rule, permits limited public
resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions, including,
among other
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<PAGE> 17
things: (A) the availability of certain public information about the
Company; (B) the resale occurring not earlier than the expiration of the
applicable holding period stated therein; (C) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Exchange Act) and
(D) the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein. Such Purchaser also
understands that the holding period under Rule 144 will commence on the
Closing Date.
(vii) Such Purchaser further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rule 144 is not exclusive, the staff of the Commission has expressed
its opinion that persons proposing to sell private placement securities
other than in a registered offering and otherwise than pursuant to Rule 144
will have a substantial burden of proof in establishing that an exemption
from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions
do so at their own risk.
(b) Agreement Not to Transfer.
(i) Prior to twelve months after the Closing, the Purchasers shall
not, directly or indirectly, Transfer or offer to Transfer any Shares,
unless the Company consents to such Transfer and the transferee agrees to
be bound by this Agreement; provided however, that BankAmerica Ventures
shall be permitted to transfer its Shares to Bank of America Ventures, L.P.
without such requirements.
(ii) As used in this Section 6(b), the term "TRANSFER" shall mean any
sale, transfer, assignment, hypothecation, encumbrance or other
disposition, whether voluntary or involuntary, of Shares. In the case of a
hypothecation, the Transfer shall be deemed to occur both at the time of
the initial pledge and at any pledgee's sale or a sale by any secured
creditor or a retention by the secured creditor of the pledged Shares in
complete or partial satisfaction of the indebtedness for which the Shares
are security.
(c) Stop Transfer Orders. Such Purchaser understands that notations
restricting the transfer of the Shares will be made on the transfer records of
the Company and that a stop transfer order will be entered with the Company's
transfer agent.
(d) Compliance with Section 6. None of the Shares (nor any interest
therein) shall be sold, assigned or offered except in accordance with the
provisions of this Section 6.
7. Additional Covenants of the Purchasers Regarding Securities.
(a) Forms 13D or 13G. Promptly following the Closing, the Purchasers shall
file with the Commission any reports regarding their ownership of the Company's
Common Stock as required by Section 13(d) of the Exchange Act and the rules and
regulations.
(b) Insider Trading Policy; Short Sales.
(i) For so long as a representative of the Purchasers is a member of
the Board of Directors of the Company, the Purchasers and their Affiliates
who have access to Material Confidential Information (as defined below) of
the Company shall agree to comply with the Insider Trading Compliance
Program of the Company including, but not limited to, trade pre-clearance
requirements and trading blackout periods as may be in effect from time to
time. In addition, the Purchasers hereby acknowledge that each Purchaser is
aware, and that each Purchaser will advise such directors, officers,
employees, representatives, agents and advisors who are informed as to the
matters concerning the Company or who have access to the Company's Material
Confidential Information, that United States securities laws prohibit any
person who has received from an issuer material nonpublic information
concerning the issuer from communicating such information to any other
person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell the securities of such issuer, make
investment recommendations based on such material nonpublic information or
otherwise affect the trading price of such issuer's securities. The
limitations set forth in the immediately preceding sentence are not
intended to preclude the brokerage, investment advisory, financial
advisory, financing, money management,
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<PAGE> 18
trading, arbitrage or other similar activities conducted on the Purchasers'
behalf by only those directors, officers, representatives and agents and
advisors who do not have access to the Company's Material Confidential
Information or are not aware of the content of such Material Confidential
Information.
(ii) The Purchasers and their Affiliates shall not make any short sale
of, loan, or grant any option for the purchase of, any equity securities of
the Company held by the Purchasers at any time.
(c) Material Confidential Information.
(i) In connection with the Purchasers' decision-making with respect to
their acquisition of the Shares, the Company has furnished to the
Purchasers and their officers, directors, employees and agents
(collectively referred to as "PURCHASERS AND AGENTS") financial and other
information which has not theretofore been made available to the public
("MATERIAL CONFIDENTIAL INFORMATION"). The Purchasers and Agents may also
receive Material Confidential Information of the Company in the future.
Pursuant to a Nondisclosure Agreement dated March 5, 1999, the Purchasers
have agreed to refrain from disclosing such information pursuant to the
terms and conditions of such agreement. The Company and the Purchasers wish
to replace the confidentiality obligations of the parties set forth in such
agreement with those provided herein. Therefore, the Purchasers and Agents
shall treat all such Material Confidential Information in accordance with
the provisions of this agreement and to take or abstain from taking certain
other actions herein set forth. The term "Material Confidential
Information" does not include information which (i) was already in the
Purchasers' or Agents' possession prior to the disclosure by the Company of
the Material Confidential Information, provided that such information is
not known by the Purchasers and Agents to be subject to another
confidentiality agreement with or other obligation of secrecy to the
Company or another party, (ii) becomes generally available to the public
other than as a result of disclosure by the Purchasers or Agents or (iii)
becomes available to you on a non-confidential basis from a source other
than the Company or its advisors, provided that such source is not known to
the Purchasers or Agents to be bound by a confidentiality agreement with or
other obligation of secrecy to the Company or another party. The Purchasers
agree that the Company's Material Confidential Information will be used
solely for the purpose of monitoring the Purchasers' holdings of the
Shares. The Purchasers also agree that the Purchasers and Agents will not
disclose any of the Company's Material Confidential Information now or
hereafter received or obtained from the Company or its representatives to
any third party or otherwise use or permit the use of the Material
Confidential Information, except as required by applicable law or legal
process, without the prior written consent of the Company; provided,
however, that any such Material Confidential Information of the Company may
be disclosed to such of the Purchasers' representatives who need to know
such information for the purpose of monitoring the Purchasers' investment
in the Shares; in which case it is understood that the Purchasers'
representatives, directors, officers, employees, agents and advisors shall
be informed by the Purchasers of the confidential nature of such
information and shall be directed by the Purchasers to treat such
information confidentially. In the event that the Purchasers and Agents or
any of their representatives becomes legally compelled (by deposition,
interrogatory, request for documents, subpoena, civil investigative demand,
other demand or rules and regulations under the federal securities laws or
similar process, but not pursuant to laws and regulations which Purchasers
and Agents are subject to as a result of being an affiliate of a national
bank) to disclose any of the Material Confidential Information, the
Purchasers and Agents shall provide the Company with prompt prior written
notice of such requirement prior to such disclosure. In the event that a
protective order or other remedy is not obtained, or that the Company
waives compliance with the provisions hereof, each Purchaser agrees to
furnish only that portion of the Material Confidential Information which
such Purchaser is legally required to furnish and, where appropriate, to
exercise the Purchasers' and Agents' reasonable efforts to obtain
assurances that confidential treatment will be accorded such Material
Confidential Information.
(d) Reporting Obligations Pursuant to Section 16. The Purchasers agree to
file with the Commission any reports required to be filed pursuant to Section
16(a) of the Exchange Act and the rules and regulations promulgated thereunder
by such Purchasers, their officers, directors, employees or affiliates or by
such Purchasers' nominee to the Company's Board of Directors within the time
such filings are required to be made and to provide the Company with a copy of
all such filings promptly thereafter.
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8. Additional Covenants of the Company.
(a) Inspection. For so long as a Purchaser holds at least 500 shares of
Series B Convertible Preferred Stock (or the Common Stock issuable or issued
upon conversion of 500 shares of Series B Convertible Preferred Stock), the
Company shall permit each the Purchaser, at such Purchaser's expense, to visit
and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 8(a) to provide access to any information that it reasonably considers
to be a competitively sensitive information unless such Purchaser has executed a
non-disclosure agreement in a form reasonably acceptable to the Company.
(b) Board of Directors. The following actions will be taken with respect to
the Company's Board of Directors.
(i) The existing Board of Directors will resign effective as of the
Closing Date.
(ii) At or prior to the Closing the Company shall amend its Bylaws, if
required, to fix the number of directors to five (5) members with a
provision that the number of directors may be increased to seven (7)
members with the consent of the directors who are representatives of the
Purchasers.
(iii) The holders of the Series B Convertible Preferred shall have the
right to nominate three (3) members of the Company's Board of Directors,
two (2) of which shall be representatives of BankAmerica Ventures and one
(1) of which shall be a representative of Morgan Stanley Dean Witter
Venture Partners ("MSDW"). In the event that the number of the Company's
directors exceeds five (5), the holders of Series B Convertible Preferred
shall have the right to nominate one (1) additional director. All members
of the Company's Board of Directors nominated by holders of Series B
Convertible Preferred shall have the right to be members of all committees
of the Board of Directors. The Company shall not file any proxy or other
materials with the SEC opposed to the re-election of such persons as
directors of the Company unless such director has committed any actions
giving the stockholders of the Company the right to remove such director
for cause and shall use all reasonable efforts to secure the election of
such persons as directors.
(iv) The remaining directors will include (i) one (1) representative
of the Company's management, who shall be the Company's Chief Executive
Officer and (ii) one (1) outside representative appointed by a majority of
the Board of Directors.
(v) As of the execution of this Agreement and in the event that
BankAmerica Ventures, the State of Wisconsin Investment Board ("SWIB") or
MSDW do not have a representative on the Company's Board of Directors, or
any committee thereof then the Company shall invite a representative of
BankAmerica Ventures, SWIB or MSDW, as the case may be, to attend all
meetings of its Board of Directors or any committee thereof in a nonvoting
observer capacity and, in this respect, shall give such representative
copies of all notices, minutes, consents, and other materials (the "BOARD
MATERIALS") that it provides to its directors at the same time as such
Board Materials are provided to any of its directors; provided, however,
that the Company reserves the right to withhold any information and to
exclude such representative of BankAmerica Ventures, SWIB or MSDW from any
meeting or portion thereof if the disclosure of such material or
discussion, in the opinion of counsel to the Company, would jeopardize the
Company's attorney client privilege. The right granted to BankAmerica
Ventures, SWIB and MSDW to attend meetings of the Company's Board of
Directors and to receive Board Materials shall not be assignable.
(c) Right of First Offer. Subject to the terms and conditions specified in
this Section 8(c), the Company hereby grants to each Purchaser a right of first
offer to purchase its Pro Rata Share (as hereinafter defined) (in whole or in
part) with respect to future sales by the Company of its Future Shares (as
hereinafter defined). Each Purchaser shall be entitled to assign or apportion
the right of first offer hereby granted it among itself and its partners and
affiliates (including in the case of a venture capital fund other venture
capital funds affiliated with such fund) in such proportions as it deems
appropriate. For purposes of this Section 8(c), a Purchaser's "PRO RATA SHARE"
of Future Shares shall mean that number of Future Shares that equals the
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<PAGE> 20
proportion that (x) the number of shares of Common Stock issued and held, or
issuable upon conversion of the Shares then held, by such Purchaser bears to (y)
the total number of shares of Common Stock of the Company then outstanding
(assuming full conversion of all convertible securities).
(i) Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of
its capital stock, including any debt securities convertible into equity
(collectively, "FUTURE SHARES"), the Company shall first make an offering
of such Future Shares to each Purchaser in accordance with the following
provisions:
(ii) The Company shall deliver a notice by confirmed facsimile
transmission, certified mail or a nationally recognized overnight courier
service ("NOTICE") to each of the Purchasers stating (i) its bona fide
intention to offer such Future Shares, (ii) the number of such Future
Shares to be offered, and (iii) the price and a summary of the terms, if
any, upon which it proposes to offer such Future Shares.
(iii) By written notification to the Company within ten (10) calendar
days after receipt of the Notice, each Purchaser may elect to purchase or
obtain, at the price and on the terms specified in the Notice, up to its
Pro Rata Share of such Future Shares. The Company shall promptly, in
writing, inform each Purchaser that elects to purchase all the shares
available to it (a "FULLY-EXERCISING PURCHASER") of any other Purchaser's
failure to do likewise. During the ten (10) day period commencing after
such information is given, each Fully-Exercising Purchaser may elect to
purchase that portion of the Future Shares for which Purchasers were
entitled to subscribe but that were not subscribed for by the Purchasers
that is equal to the proportion that the number of shares of Common Stock
issued and held, or issuable upon conversion of Shares then held, by such
Fully-Exercising Purchaser bears to the total number of shares of Common
Stock issued and held, or issuable upon conversion of the Shares then held,
by all Fully-Exercising Purchasers who wish to purchase some of the
unsubscribed Future Shares.
(iv) If all Future Shares that the Purchasers are entitled to obtain
pursuant to Section 8(c) are not elected to be obtained as provided herein,
the Company may, during the sixty (60) day period following the expiration
of the period provided in Section 8(c)(iii) hereof, offer the remaining
unsubscribed portion of such Future Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an
agreement for the sale of the Future Shares within such period, or if such
agreement is not consummated within sixty (60) days of the execution
thereof, the right provided hereunder shall be deemed to be revived and
such Future Shares shall not be offered unless first reoffered to the
Purchasers in accordance herewith.
(v) The right of first offer in this Section 8(c) shall not be
applicable (i) to any shares of Common Stock (including shares issued upon
exercise of stock options outstanding as of the date of this Agreement)
issuable or issued to employees, consultants or directors directly or
pursuant to stock option plans or arrangements approved by the Board of
Directors, including each board representative of the Purchasers, (ii) to
shares of Common Stock issued or issuable in a firm commitment underwritten
public offering, (iii) to shares of Common Stock issued or issuable upon
conversion of shares of Series A Participating Preferred Stock or Series B
Convertible Preferred Stock or as a dividend or distribution on the shares
of Series A Participating Preferred Stock or Series B Convertible Preferred
Stock, (iv) to securities issued or issuable to banks or equipment lessors,
provided such issuances are for other than primarily equity financing
purposes and provided such issuances are approved by the Board of
Directors, including each board representative of the Purchasers, (v) to
securities issued in connection with business combinations or corporate
partnering agreements approved by the Board of Directors, including each
board representative of the Purchasers, or (vi) to securities issued in
strategic financings accompanies by commercial development, joint ventures
or other related agreements approved by the Board of Directors, including
each board representative of the Purchasers.
(vi) The rights granted to the Purchasers under Section 8(c) hereof
may be assigned to any transferee or assignee who is (a) a subsidiary,
parent, general partner, limited partner, retired partner, member or
retired member of a Purchaser, (b) a Purchaser's ancestors, descendants or
spouse or to trusts for the benefit of such persons or such Purchaser or
(c) a client, employee or member of a Purchaser,
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<PAGE> 21
provided that (i) such transfer may otherwise be effected in accordance
with applicable securities laws, (ii) the Company is given written notice
of any such transfer five (5) Business Days prior to the date of said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights
are being assigned and (iii) the transferee or assignee of such rights is
not deemed by the Board of Directors of the Company, in its reasonable
judgment, to be a competitor of the Company and provided further that the
transferee or assignee of such rights assumes in writing in a form
reasonably acceptable to the Company the obligations of the Purchasers
under this Agreement.
(d) Sonometrics License. The Company will use its best efforts to execute
an agreement to exclusively license or acquire, for an aggregate purchase price
no greater than $1,500,000, Sonometric's patent portfolio relating to technology
and methods for three dimensional digital ultrasound tracking. The Patent
Portfolio will include, but not be limited to the following: Patent Numbers
5,515,853, 5,779,638, 5,795,298, 5,797,849, 5,817,022 and 5,868,673 and all
currently active applications that are continuations, continuations-in-part, or
divisional properties, and all corresponding foreign-filed patents and patent
applications.
(e) Chief Executive Officer. In the event that a new Chief Executive
Officer, (who shall be acceptable to the Purchasers) shall have commenced
employment with the Company prior to the Closing, the Company shall use it best
efforts to retain such Chief Executive Officer through the Closing Date.
(f) Reverse Stock Split; Bylaws. The Company shall use its best efforts to
obtain stockholder approval to amend (i) the Certificate of Incorporation to
effect a five for one reverse stock split of the Company's Common Stock; and
(ii) the Bylaws to require the affirmative vote of the holders of at least a
majority of the voting power of all of the then outstanding shares entitled to
vote, voting together as a single class, to (I) increase the number of shares
reserved for issuance under the Company's Stock Plans, such that the quotient of
(A) the shares outstanding issued pursuant to the Company's Stock Plans plus the
shares available for issuance under the Company's Stock Plans plus additional
shares proposed to be issued under the Company's Stock Plans; divided by (B) the
total outstanding capital stock of the Company, including any outstanding
convertible preferred stock, on an as converted basis, is not greater than
thirty percent (30%); and (II) reprice any options granted after May 20, 1999 to
purchase shares of Common Stock under the Company's Stock Plans, provided that
the Company shall only reprice each options outstanding prior to May 20, 1999
one time.
(g) Reservation of Common Stock. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the conversion of the
Shares and all Common Stock issuable from time to time upon such conversion.
(h) Proprietary Information and Inventions Agreement. The Company shall
require all employees and consultants to execute and deliver a Proprietary
Information and Inventions Agreement in a form which is acceptable to the
Purchasers.
(i) Qualified Small Business. The Company will use its best efforts to
comply with the reporting and recordkeeping requirements of Section 1202 of the
Code, any regulations promulgated thereunder and any similar state laws and
regulations, and agrees not to repurchase any stock of the Company if such
repurchase would cause the Shares not to so qualify as "Qualified Small Business
Stock." The Company further covenants to submit to its shareholders and to state
and federal taxation authorities such form and filings as may be required to
document such compliance, including the California Franchise Tax Board Form
3565, Small Business Stock Questionnaire, with its franchise or income tax
return for the current income year.
(j) Small Business Administration Matters.
(i) The proceeds from the issuance and sale of the Shares will be
used by the Company for working capital and other general corporate
purposes. The Company will provide to each Purchaser identified as a
licensed Small Business Investment Company on Schedule A hereto (each an
"SBIC INVESTOR"), and to the Small Business Administration (the "SBA"),
reasonable access to the Company's books and records for the purpose of
confirming the use of proceeds by the Company.
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(ii) For a period of one (1) year following the Closing (as defined
in the Purchase Agreement), the Company will not change the nature of its
business activity if such change would render the Company "ineligible" as
provided in Section 107.720 of Title 13 of the Federal Regulations.
(iii) So long as any SBIC Investor holds any securities of the
Company, the Company will at all times comply with the non-discrimination
requirements of Sections 112, 113 and 117 of Title 13 of the Federal
Regulations.
(iv) Within forty-five (45) days after the end of each fiscal year of
the Company, and at such other times as an SBIC Investor may reasonably
request in writing to the Company, the Company will deliver to such SBIC
Investor a written assessment in form and substance reasonably satisfactory
to such SBIC Investor, as to the economic impact of such SBIC Investor's
financing of the Company, specifying the full-time equivalent jobs created
or retained in connection with such investment, and the impact of such
financing on the Company's business in terms of profits and with respect to
taxes paid by the Company and its employees. The Company will promptly
provide each SBIC Investor who so requests in writing to the Company,
specifying in such written request the nature of such required information
in reasonable detail, such information as such SBIC Investor requests, in
order to permit such SBIC Investor to comply with such SBIC Investor's
obligations under the Small Business Act of 1958, as amended (the "SMALL
BUSINESS ACT"), and the regulations promulgated thereunder and related
thereto. Any submission of financial information pursuant to this Section
8(j) shall be under cover of a certificate executed by the Company's
President, Chief Executive Officer Chief Financial Officer or Treasurer,
certifying that such information (i) relates to the Company, (ii) to the
best of the Company's knowledge is accurate and (iii) if applicable, has
been audited by the Company's independent auditors.
(k) Regulatory Compliance Cooperation. In the event that any SBIC Investor
determines that it has a Regulatory Problem (as defined below), it shall have
the right to transfer its Shares in compliance with applicable state and federal
securities laws, but without regard to any other restrictions on transfer set
forth in this Agreement or the Rights Agreement (provided that the transferee
agrees to become a party to each such agreement), and the Company shall take all
such actions as are reasonably requested by such SBIC Investor in order to (i)
effectuate and facilitate any transfer by it of any securities of the Company
then held by it to any person designated by such SBIC Investor, (ii) permit such
SBIC Investor (or any of its affiliates) to exchange all or any portion of any
voting security then held by it on a share-for-share basis for shares of a
nonvoting security of the Company, which nonvoting security shall be identical
in all respects to the voting security exchanged for it, except that it shall be
nonvoting and shall be convertible into a voting security on such terms as are
requested by it in light of regulatory considerations then prevailing, and (iii)
amend this Agreement, as amended from time to time, to effectuate and reflect
the foregoing. The parties to this Agreement agree to vote all of the Company's
securities held by them in favor of such amendments and actions. For purposes of
this Agreement, a "REGULATORY PROBLEM" means any set of facts or circumstances
wherein it has been asserted by any governmental regulatory agency that an SBIC
Investor is not entitled to hold, or exercise any significant right with respect
to, the underlying securities into which the Shares are convertible.
(l) Proxy Statement. As promptly as practicable after the execution of this
Agreement, the Company shall prepare and file with the Commission preliminary
proxy materials which shall constitute the preliminary Proxy Statement in
connection with the sale of the Shares. As promptly as practicable after
comments are received from the Commission with respect to the preliminary proxy
materials, the Company shall file with the Commission the definitive Proxy
Statement, which Proxy Statement shall comply in all material respects with the
applicable requirements of the Exchange Act and Securities Act, respectively,
and the applicable rules and regulations of the Commission thereunder.
(i) The Company shall cause the Proxy Statement to be mailed to its
stockholders and, if necessary, after the Proxy Statement shall have been
so mailed, promptly circulate amended, supplemental or supplemented proxy
material and, if required in connection therewith, resolicit proxies.
(ii) The Company warrants that the information provided (or
incorporated by reference to filings made with the Commission by the
Company) in the Proxy Statement, on the date the Proxy Statement is
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<PAGE> 23
filed with the Commission and on the date it is first mailed to the
Company's stockholders, shall not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company shall notify Purchasers promptly of the
receipt of any comments by the Commission and of any request by the
Commission for amendments or supplements to the Proxy Statement, or for
additional information, and shall supply one another with copies of all
correspondence with the Commission with respect to any of the foregoing. If
at any time prior to the meeting of Stockholders to consider sale of the
Shares, any event should occur relating to the Company, its subsidiaries or
any of their respective affiliates, directors or officers which should be
described in an amendment or supplement to the Proxy Statement, the Company
shall promptly inform Purchasers. Whenever any event occurs which should be
described in an amendment or supplement to the Proxy Statement, the Company
shall, upon learning of such event, cooperate promptly to file and clear
with the Commission and, if applicable, mail such amendment or supplement
to the stockholders of the Company.
(iii) The Company shall use its best efforts to obtain approval for
quotation on the Nasdaq National Market, upon official notice of issuance,
of the Common Stock to be issued upon conversion of the Shares.
(iv) The Company shall make all necessary filings with respect to the
sale of Shares under the Securities Act and the Exchange Act and the rules
and regulations thereunder and under applicable blue sky or similar laws
and shall use their reasonable efforts to obtain required approvals and
clearances with respect thereto.
(m) Stockholder Approvals; Recommendations. The Company, acting through its
Board of Directors, shall (i) call, give notice of, convene and hold a special
meeting of the holders of Company Common Stock for the purpose of voting upon
the sale of the Shares (the "SPECIAL MEETING") and (ii) include in the Proxy
Statement the recommendation of its Board of Directors that holders of Common
Stock approve the sale of Shares at the Special Meeting. The Special Meeting
will be held as promptly as practicable. The Company shall ensure that the
Special Meeting is called, noticed, convened, held and conducted, and that all
proxies solicited, in connection with the Special Meeting are solicited in
compliance with all applicable laws, regulations, orders, judgments and decrees.
The Company shall not be permitted to delay, adjourn, postpone or reschedule the
Special Meeting, or delay the vote of the Company's stockholders on the sale of
Shares, without Purchasers' prior written consent (which consent will not be
unreasonably withheld or delayed if the need for the delay, adjournment,
postponement or rescheduling of the Special Meeting or the delay in such vote is
attributable solely to factors outside the Company's control). Notwithstanding
anything to the contrary contained in this Section 8(m), the Company's Board of
Directors shall not be permitted to withdraw or modify its recommendation in
favor of the sale of Shares.
(n) Notices of Certain Events. The Company hereto shall promptly notify
Purchasers of:
(i) the receipt by the Company of any notice or other communication
from any person alleging that the consent of such person is or may be
required in connection with the transactions contemplated by this
agreement;
(ii) the receipt by the Company of any notice or other communication
from any governmental entity in connection with the transactions
contemplated by this agreement;
(iii) the Company obtaining knowledge of any actions, suits, claims
investigations or proceedings commenced or threatened against, relating to
or involving or otherwise affecting the Company or Purchasers, as the case
may be, or any of their respective subsidiaries which relate to the
consummation of the transactions contemplated by this agreement; and
(iv) the Company obtaining knowledge of the occurrence, or failure to
occur, of any event which occurrence or failure to occur will be likely to
cause (A) any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect, or (B) any material failure
of any party to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under
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this Agreement; provided, however, that no such notification shall affect
the representations, warranties or obligations of the parties or the
conditions to the obligations of the parties hereunder.
(o) Efforts. The Company shall, and shall cause its respective subsidiaries
to, cooperate and use their reasonable efforts to take, or cause to be taken,
all appropriate action, and to make, or cause to be made, all filings necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, their reasonable efforts to (i) obtain, prior to the Closing Date,
all licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts with the Company and
its subsidiaries and (ii) defend against and respond to any action, suit,
proceeding or investigation relating to the transactions contemplated by this
Agreement, in each case as are necessary for consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the sale of
Shares.
(p) No Solicitation.
(i) The Company agrees that until the Closing Date, the Company shall
not, directly or indirectly, and the Company shall ensure that its
Representatives (as defined below) do not, directly or indirectly: (i)
solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition (as defined below) or take any action that
could reasonably be expected to lead to an Acquisition Proposal (as defined
below); (ii) furnish any information regarding the Company or any direct or
indirect subsidiary of the Company to any Person in connection with or in
response to an Acquisition Proposal or potential Acquisition Proposal; or
(iii) engage in discussions with any Person (as defined below) with respect
to any Acquisition Proposal. The Company shall immediately cease and
discontinue, and the Company shall ensure that its Representatives
immediately cease and discontinue, any existing discussions with any Person
that relate to any Acquisition Proposal. For purposes of this Section 8(p):
(1) "ACQUISITION PROPOSAL" shall mean any offer, proposal or
inquiry contemplating or otherwise relating to any Acquisition
Transaction.
(2) "ACQUISITION TRANSACTION" shall mean any transaction (other
than as contemplated by the Purchase Agreement) involving:
(a) any merger, consolidation, amalgamation, share exchange,
business combination, issuance of securities, acquisition of
securities, tender offer, exchange offer or other similar transaction
(i) in which the Company is a constituent company, (ii) in which a
person or "group" (as defined in the Exchange Act of 1934, as amended
and the rules promulgated thereunder) of persons directly or
indirectly acquires the Company or more than 15% of the Company's
business or directly or indirectly acquires beneficial or record
ownership of securities representing, or exchangeable for or
convertible into, more than 15% of the outstanding securities of any
class of voting securities of the Company, or (iii) in which the
Company issues securities representing more than 15% of the
outstanding securities of any class of voting securities of the
Company;
(b) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 15% of the assets of the Company; or
(c) any liquidation or dissolution of the Company.
(3) "PERSON" shall mean any (i) individual, (ii) corporation,
limited liability company, partnership or other entity, or (iii)
governmental authority.
(4) "REPRESENTATIVES" shall mean officers, directors, employees,
agents, attorneys, accountants, advisors and representatives.
(ii) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose or resolve to withdraw or
modify, in a manner adverse to Purchasers, the approval or recommendation
by such Board of Directors or any such committee of this Agreement or the
sale of
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<PAGE> 25
Shares, (ii) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal or (iii) enter into any agreement or letter of intent
with respect to any Acquisition Proposal.
(iii) In addition to the obligations of the Company set forth in
Sections 8(p)(i) and 8(p)(ii) above, the Company shall promptly advise
Purchasers orally and in writing of any request for information or of any
Acquisition Proposal, or any inquiry with respect to or which could
reasonably be expected to lead to any Acquisition Proposal, the material
terms and conditions of such request, Acquisition Proposal or inquiry, and
the identify of the person making any such Acquisition Proposal or inquiry.
The Company shall use its best efforts to keep Purchasers fully informed of
the status and details of any such request, Acquisition Proposal or
inquiry.
(iv) Notwithstanding the foregoing, if the Company receives a bona
fide, written, unsolicited offer to acquire all of the equity of the
Company or substantially all of the assets of the Company at a higher
valuation than that implied for the Company by this Agreement (a "HIGHER
OFFER") the Company may enter into a confidentiality agreement with,
provide non-public information to, or enter into discussions with, such
offeror. The Company shall inform the Purchasers immediately upon receipt
of the Higher Offer in writing of the identity of the offeror and the terms
and conditions of the Higher Offer. In the event that the Company shall
receive a Higher Offer prior to the Closing Date and consummate a sale of
securities or material assets to, or merge with or be acquired by, any
Person other than the Purchasers, then the Company shall pay to the
Purchasers, in proportion to the Purchaser's participation in the Bridge
Financing (as defined in Section 9(xvi) below, $1 million in cash upon the
closing of such transaction.
9. Closing Conditions.
(a) Conditions to Purchaser's Obligations at the Closing. The Purchaser's
obligation to purchase the Shares at the Closing is subject to the fulfillment
on or prior to the Closing of the following conditions, any one or more of which
may be waived in whole or in part by the Purchaser:
(i) Compliance with Laws. At the Closing, the sale and issuance of the
Shares shall be legally permitted by all laws and regulations to which the
Purchaser or the Company is subject.
(ii) Representations and Warranties. Each of the representations and
warranties of the Company set forth in Section 4 shall be true and correct
as if made on the Closing Date.
(iii) Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the
Closing Date.
(iv) Compliance Certificate. The Chief Executive Officer of the
Company shall deliver to the Purchaser on the Closing Date a certificate
certifying that the conditions set forth in clauses (ii), (iii), (v) -
(vii), (x) - (xiii), (xiv), (xv) and (xviii) of this Section 9(a) have been
fulfilled.
(v) Stockholder Approval. The Company shall have satisfied the
stockholder approval requirement provisions of the Nasdaq Stock Market, or
any other exchange or market on which the Common Stock is then listed or
traded, with respect to the issuance of 20% or more of a company's capital
stock.
(vi) Increased Option Pool. The Company shall have received
stockholder approval to reserve an additional 4,000,0000 shares of Common
Stock to be available for grant to management and employees under the
Company's 1991 Stock Option Plan.
(vii) Certificate of Designation. The Certificate of Designation shall
have been duly filed with the Secretary of State of Delaware, and the
Company shall have delivered a copy thereof to the Purchasers certified as
filed by the office of the Secretary of State of Delaware.
(viii) Rights Agreement. The Company shall have executed and delivered
to the Purchasers the Rights Agreement.
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(ix) Voting Agreement. The Company and certain officers, directors,
and holders of the Company's outstanding Common Stock holding a minimum of
40% of the outstanding Common Stock shall have executed and delivered to
the Purchasers the Voting Agreement.
(x) Shareholders Rights Agreement. The Company shall have terminated
the existing Shareholders Rights Agreement dated June 13, 1995.
(xi) Preferred Shares Rights Agreement. Prior to the earlier of thirty
(30) days from the date hereof or the Closing Date, the Company shall have
taken all actions required under the Preferred Shares Rights Agreement
between the Company and Norwest Bank Minnesota, N.A. dated as of April 22,
1997 (the "RIGHTS PLAN") to permit the issuance of the Shares and the
consummation of the transactions contemplated by this Agreement, the
Certificate of Designation, the Voting Agreement and the Rights Agreement,
without the triggering of any rights thereunder. In addition the Company
shall have amended the Rights Plan to provide that the Shares held by the
Purchasers shall receive upon issuance of the Shares the same rights as the
holders of Common Stock under the Rights Plan.
(xii) Adverse Change. Since the date of the financial statements
included in the Company's Quarterly Report on Form 10-Q last filed prior to
the date of this Agreement, no event which had a Material Adverse Effect
and no material adverse change in the financial condition or prospects of
the Company shall have occurred.
(xiii) Absence of Litigation. There shall be no action, suit,
investigation or proceeding pending or threatened in any court or before an
arbitrator or governmental authority that could have a Material Adverse
Effect on the Company or the purchase of the Shares.
(xiv) Opinion of Counsel. The Company shall have delivered to the
Purchasers an opinion of counsel for the Company, dated as of the Closing
Date, in form and substance reasonably acceptable to the Purchasers.
(xv) Consents. The Company and the Purchasers shall have obtained all
consents (including all governmental and regulatory consents, approvals, or
authorizations required in connection with the valid execution and delivery
of this Agreement, the Voting Agreement and the Rights Agreement), permits
and waivers necessary or required to be obtained on or prior to the Closing
Date for consummation of the transactions contemplated hereby.
(xvi) Bridge Financing. The Company shall have obtained interim
financing of $3 million to fund its operations by May 21, 1999 (the "BRIDGE
FINANCING").
(xvii) Chief Executive Officer. The new Chief Executive Officer
acceptable to the Purchasers remains employed by the Company in such
capacity on the Closing Date.
(xviii) SBA Matters. The Company shall have executed and delivered to
the BankAmerica Ventures a Size Status Declaration on SBA Form 480 and an
Assurance of Compliance on SBA Form 652, and shall have provided to
BankAmerica Ventures, the information requested by BankAmerica Ventures
necessary for the preparation by BankAmerica Ventures of a Portfolio
Financing Report on SBA Form 1031.
(xix) Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated in connection with each
Purchaser's purchase of the Shares and all documents incident thereto shall
be reasonably satisfactory in form and substance to the Purchasers and the
Purchasers' counsel, and they shall have received all such counterpart
original and certified or other copies of such documents as they may
reasonably request.
(xx) Delivery of Stock Certificate. The Company shall have caused the
delivery to the Purchasers of a stock certificate representing the
Purchasers' ownership of the Shares.
23
<PAGE> 27
(b) Conditions to Company's Obligations at the Closing. The Company's
obligation to sell and issue the Shares at the Closing is subject to the
fulfillment on or prior to the Closing of the following conditions, any one or
more of which may be waived in whole or in part by the Company:
(i) Compliance with Laws. At the Closing, sale and issuance of the
Shares shall be legally permitted by all laws and regulations to which the
Purchasers or the Company are subject.
(ii) Representations and Warranties. Each of the representations and
warranties of the Purchasers set forth in Sections 5 and 6 shall be true
and correct as if made on the Closing Date.
(iii) The Purchase Price. The Purchasers shall have delivered to the
Company the Purchase Price in accordance with Section 3 hereof.
(iv) Performance. The Purchasers shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with on or before the Closing
Date.
(v) Other Agreements. The Purchasers shall have executed and delivered
to the Company the Rights Agreement.
(vi) Consents. The Company and the Purchasers shall have obtained all
consents (including all governmental and regulatory consents, approvals, or
authorizations required in connection with the valid execution and delivery
of this Agreement, the Voting Agreement and the Rights Agreement), permits
and waivers necessary or required to be obtained on or prior to the Closing
Date for consummation of the transactions contemplated hereby.
(vii) Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated in connection with the
sale and issuance of the Shares and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company and the
Company's counsel, and they shall have received all such counterpart
original and certified or other copies of such documents as they may
reasonably request.
10. General Provisions.
(a) Notices. All notices and other communication required or appropriate to
be given hereunder shall be in writing and shall be delivered by hand or mailed
by certified mail, return receipt requested, or sent by telex or facsimile (in
which case a confirming copy shall also be sent by certified mail or courier),
to the following respective addresses or to such other addresses as may be
specified in any notice delivered or mailed as above provided:
(i) If to the Purchasers, to:
BankAmerica Ventures
950 Tower Lane, Suite 700
Foster City, California 94404
Telephone: (650) 378-6000
Facsimile: (650) 378-6040
Attention: Mark Brooks and Robert S. Fore
and
Morgan Stanley Dean Witter Venture Partners
1221 Avenue of America, 33rd floor
New York, NY 10020
Phone: 212-762-8683
Fax: 212-762-8424
Attention: Fazle Husain
24
<PAGE> 28
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306-2155
Telephone: (650) 843-5000
Facsimile: (650) 857-0663
Attention: Julia L. Davidson, Esq.
and
Davis, Polk, Wardwell
450 Lexington Ave.
New York, NY 10017
Telephone 212-450-4350
Facsimile: 212-450-5515
Attention: John Bick, Esq.
(ii) If to the Company to:
Cardiac Pathways Corporation
995 Benecia Avenue
Sunnyvale, California 94086
Telephone: (408) 737-0505
Facsimile: (408) 737-1700
Attention: G. Michael Latta, Chief Financial Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone: (650) 493-9300
Facsimile: (650) 845-5000
Attention: Chris F. Fennell, Esq.
Any notice or other communication delivered by hand or mailed shall be deemed to
have been delivered on the date on which such notice or communication is
delivered by hand, or in the case of certified mail deposited with the
appropriate postal authorities on the date when such notice or communication is
actually received, and in any other case shall be deemed to have been delivered
on the date on which such notice or communication is actually received.
(b) Governing Law. The parties have agreed that this Agreement will be
governed by and construed in accordance with the laws of the State of
California.
(c) Amendments. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Shares and
Conversion Shares then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
25
<PAGE> 29
(d) Assignment.
(i) Except as set forth in this Section 10(d), none of the rights or
obligations of the Company and each Purchaser may be assigned or
transferred without the prior written consent of the other party hereto.
(ii) The Company and each Purchaser may assign all of its rights and
obligations under this Agreement in connection with a merger or similar
reorganization or the sale of all or substantially all of its assets. This
Agreement shall survive any such merger or reorganization of the Company or
a Purchaser with or into, or such sale of assets to, another party and no
consent for such merger, reorganization or sale shall be required
hereunder.
(iii) Each Purchaser may assign its rights and obligations to a
subsidiary, parent, LLC, general partner, limited partner, retired partner,
member or retired member of a Purchaser, provided the assignee is not
deemed by the Board of Directors of the Company, in its reasonable
judgment, to be a competitor of the Company and provided further such
assignee agrees, prior to the transfer, in writing with the Company to
comply with all the provisions of this Agreement applicable to such
Purchaser.
(iv) This Agreement shall be binding upon and inure to the benefit of
the successors and permitted assigns of the parties. Any assignment not in
accordance with this Agreement shall be void.
(e) Expenses. The Company shall reimburse the Purchasers for all reasonable
legal, accounting and due diligence expenses incurred in connection with this
Agreement and the transactions contemplated hereby, regardless of whether or not
the Closing occurs.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) Entire Agreement. This Agreement, the Voting Agreement and the Rights
Agreement, together with the Exhibits and other documents attached hereto and
thereto, constitute the entire contract between the parties with respect to the
subject matter hereof and thereof, and no party will be liable or bound to the
other in any manner by any representations, warranties or covenants except as
specifically set forth herein and therein.
(h) Titles. The titles of the Sections of this Agreement are inserted for
reference only, and are not to be considered as part of this Agreement in
construing this Agreement.
(i) Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned, at any time prior to the Closing, whether
before or after approval of the sale of Shares by the stockholders of the
Company:
(i) by mutual consent of the Company and of a majority in interest of
Purchasers as set forth on Schedule A;
(ii) by either a majority in interest of Purchasers as set forth on
Schedule A or the Company, if the Closing shall not have occurred by
October 31, 1999 (unless the failure to consummate the sale of Shares is
attributable to a failure on the part of the party seeking to terminate
this Agreement to perform any material obligation required to be performed
by such party at or prior to the Closing);
(iii) by a majority in interest of Purchasers as set forth on Schedule
A, if the required approval of the Company's stockholders shall not have
been obtained by reason of the failure to obtain the required vote at a
duly held meeting of stockholders or at any adjournment thereof;
(iv) by either a majority in interest of Purchasers as set forth on
Schedule A or the Company, if there shall be any law or regulation of any
Governmental Entity that makes consummation of the purchase of the Shares
illegal or otherwise prohibited or if any judgment, injunction, order or
decree of any governmental entity prohibiting such transaction is entered
and such judgment, injunction, order or decree shall have become final and
nonappealable;
(v) by a majority in interest of Purchasers as set forth on Schedule
A, if there has been a breach of any covenant or a breach of any
representation or warranty on the part of the Company, such that the
26
<PAGE> 30
closing conditions set forth in Section 9 would not be satisfied or if the
Company has not secured interim financing as specified in Section 9(xvi) by
May 21, 1999.
(j) Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10(i) hereof by the Company, or a majority in
interest of Purchasers, written notice thereof shall forthwith be given to the
other party or parties specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall become void and have no effect,
and there shall be no liability hereunder on the part of Purchasers. Nothing in
this Section 10(j) shall relieve any party to this Agreement of liability for
breach of this Agreement or for representations which were incorrect when made.
27
<PAGE> 31
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first set forth above.
"COMPANY"
CARDIAC PATHWAYS CORPORATION
By: /s/ WILLIAM N. STARLING
------------------------------------
William N. Starling
President and Chief Executive
Officer
"PURCHASERS"
BANKAMERICA VENTURES
By: /s/ ANCHIE Y. KUO
------------------------------------
Title: President and Managing
Director
MORGAN STANLEY VENTURE PARTNERS III,
L.P.
By: Morgan Stanley Venture Partners
III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital
III, Inc.,
its Institutional Managing Member
By: /s/ FAZLE HUSAIN
------------------------------------
Name: Fazle Husain
Title: General Partner
Address: 1221 Avenue of the Americas
New York, New York 10020
Fax: (212) 762-8424
MORGAN STANLEY VENTURE INVESTORS III,
L.P.
By: Morgan Stanley Venture Partners
III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital
III, Inc.,
its Institutional Managing Member
By: /s/ FAZLE HUSAIN
------------------------------------
Name: Fazle Husain
Title: General Partner
Address: 1221 Avenue of the Americas
New York, New York 10020
Fax: (212) 762-8424
28
<PAGE> 32
MORGAN STANLEY VENTURE PARTNERS
ENTREPRENEUR FUND, L.P.
By: Morgan Stanley Venture Partners
III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital
III, Inc.,
its Institutional Managing Member
By: /s/ FAZLE HUSAIN
------------------------------------
Name: Fazle Husain
Title: General Partner
Address: 1221 Avenue of the Americas
New York, New York 10020
Fax: (212) 762-8424
VAN WAGONER CAPITAL MANAGEMENT
By: /s/ GARRETT R. VAN WAGONER
------------------------------------
Name: Garrett R. Van Wagoner
Title: President
Address: 345 California Street
San Francisco, CA
Fax: (415) 835-5050
STATE OF WISCONSIN INVESTMENT BOARD
By: /s/ JOHN F. NELSON
------------------------------------
Name: John Nelson
Title: Investment Director
Address:
Fax:
/s/ THOMAS FOGARTY
--------------------------------------
THOMAS FOGARTY
29
<PAGE> 33
SCHEDULE A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF
PURCHASERS SHARES
---------- ---------
<S> <C>
BankAmerica Ventures........................................ 10,000
Morgan Stanley Venture Partners III, L.P.................... 8,773
Morgan Stanley Venture Investors III, L.P................... 842
Morgan Stanley Venture Partners Entrepreneurs Fund, L.P..... 385
Van Wagoner Capital Management.............................. 5,000
State of Wisconsin Investment Board......................... 6,000
Thomas Fogarty.............................................. 500
</TABLE>
-30-
<PAGE> 34
Exhibit A
Certificate of Designation
[See Exhibit 3.3]
<PAGE> 35
Exhibit C
Registration Rights Agreement
[See Exhibit 4.2]
<PAGE> 36
Exhibit D
Voting Agreement
[See Exhibit 2.1.1]
<PAGE> 1
EXHIBIT 2.1.1
VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of May 11,
1999 between Cardiac Pathways Corporation, a Delaware corporation ("COMPANY"),
and the undersigned stockholder ("STOCKHOLDER") of the Company, a Delaware
corporation.
RECITALS
A. Concurrently with the execution of this Agreement, the Company and
BankAmerica Ventures ("BAV") have entered into a Series B Convertible Preferred
Stock Purchase Agreement of even date herewith (the "PURCHASE AGREEMENT") which
provides for the purchase of the Company's Series B Convertible Preferred Stock
(the "FINANCING").
B. The Stockholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")) of such number of shares of the outstanding Common Stock of the Company
as is indicated on the final page of this Agreement.
C. Company desires the Stockholder to agree, and the Stockholder is willing
to agree to vote the Shares and any other such shares of capital stock of the
Company so as to facilitate consummation of the Financing.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, the parties agree as follows:
1. Certain Definitions
For purposes of this Voting Agreement:
(a) "ACQUISITION PROPOSAL" shall mean any offer, proposal or inquiry
contemplating or otherwise relating to any Acquisition Transaction.
(b) "ACQUISITION TRANSACTION" shall mean any transaction (other than
as contemplated by the Purchase Agreement) involving:
(1) any merger, consolidation, amalgamation, share exchange,
business combination, issuance of securities, acquisition of securities,
tender offer, exchange offer or other similar transaction (i) in which
the Company is a constituent company, (ii) in which a person or "group"
(as defined in the Exchange Act of 1934, as amended and the rules
promulgated thereunder) of persons directly or indirectly acquires the
Company or more than 20% of the Company's business or directly or
indirectly acquires beneficial or record ownership of securities
representing, or exchangeable for or convertible into, more than 20% of
the outstanding securities of any class of voting securities of the
Company, or (iii) in which the Company issues securities representing
more than 20% of the outstanding securities of any class of voting
securities of the Company;
(2) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 20% of the assets of the Company; or
(3) any liquidation or dissolution of the Company.
(c) "COMPANY COMMON STOCK" shall mean the common stock, par value
$. per share, of the Company.
(d) "EXPIRATION DATE" shall mean the earlier of (i) the date upon
which the Purchase Agreement is validly terminated, or (ii) the date upon
which the closing (as defined in the Purchase Agreement, hereinafter, the
"Closing") occurs.
(e) Stockholder shall be deemed to "OWN" or to have acquired
"OWNERSHIP" of a security if Stockholder: (i) is the record owner of such
security; or (ii) is the "beneficial owner" (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934) of such security.
1
<PAGE> 2
(f) "PERSON" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(g) "REPRESENTATIVES" shall mean officers, directors, employees,
agents, attorneys, accountants, advisors and representatives.
(h) "SHARES" shall mean: (i) all securities of the Company (including
all shares of Company Common Stock and all options, warrants and other
rights to acquire shares of Company Common Stock) Owned by Stockholder as
of the date of this Agreement; and (ii) all additional securities of the
Company (including all additional shares of Company Common Stock and all
additional options, warrants and other rights to acquire shares of Company
Common Stock) of which Stockholder acquires Ownership during the period
from the date of this Agreement through the Expiration Date.
(i) A Person shall be deemed to have a effected a "TRANSFER" of a
security if such Person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement
or commitment contemplating the possible sale of, pledge of, encumbrance
of, grant of an option with respect to, transfer of or disposition of such
security or any interest therein.
2. Agreement to Vote Shares. From the date of this Agreement to the
Expiration Date, at every meeting of the stockholders of the Company called with
respect to any of the following, and at every adjournment thereof, and on every
action or approval by written consent of the Stockholders of the Company with
respect to any of the following, Stockholder shall vote the Shares: (i) in favor
of approval of the Purchase Agreement and the Financing and any matter that
could reasonably be expected to facilitate the Financing; and (ii) against (a)
approval of any proposal made in opposition to or competition with consummation
of the Financing; (b) any liquidation or winding up of the Company; and (c) any
action that would make consummation of the financing unfeasible (each of the
foregoing is hereinafter referred to as an "OPPOSING PROPOSAL"). Stockholder
agrees not to take any actions contrary to Stockholder's obligations under this
Agreement.
3. Irrevocable Proxy. Contemporaneously with the execution of this Voting
Agreement: (i) Stockholder shall deliver to the Company a proxy in the form
attached to this Voting Agreement as EXHIBIT A, which shall be irrevocable to
the fullest extent permitted by law, with respect to the shares referred to
therein (the "PROXY"); and (ii) Stockholder shall cause to be delivered to the
Company an additional proxy (in the form attached hereto as Exhibit A) executed
on behalf of the record owner of any outstanding shares of Company Common Stock
that are owned beneficially (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934), but not of record, by Stockholder.
4. Transfer of Shares.
4.1 Transferee of Shares to be Bound by this Agreement. Stockholder agrees
that, during the period from the date of this Voting Agreement through the
Expiration Date, Stockholder shall not cause or permit any Transfer of any of
the Shares to be effected unless each Person to which any of such Shares, or any
interest in any of such Shares, is or may be transferred shall have: (a)
executed a counterpart of this Voting Agreement and a proxy in the form attached
hereto as Exhibit A; and (b) agreed to hold such Shares (or interest in such
Shares) subject to all of the terms and provisions of this Voting Agreement.
4.2 Transfer of Voting Rights. Stockholder agrees that, during the period
from the date of this Voting Agreement through the Expiration Date, Stockholder
shall ensure that: (a) none of the Shares is deposited into a voting trust; and
(b) no proxy is granted, and no voting agreement or similar agreement is entered
into, with respect to any of the Shares.
5. No Solicitation. Stockholder agrees that, during the period from the
date of this Voting Agreement through the Expiration Date, Stockholder shall
not, directly or indirectly, and Stockholder shall ensure that his
Representatives do not, directly or indirectly: (i) solicit, initiate, encourage
or induce the making, submission or announcement of any Acquisition or take any
action that could reasonably be expected to lead to an Acquisition Proposal;
(ii) furnish any information regarding the Company or any direct or indirect
subsidiary
2
<PAGE> 3
of the Company to any Person in connection with or in response to an Acquisition
Proposal or potential Acquisition Proposal; or (iii) engage in discussions with
any Person with respect to any Acquisition Proposal. Stockholder shall
immediately cease and discontinue, and Stockholder shall ensure that his
Representatives immediately cease and discontinue, any existing discussions with
any Person that relate to any Acquisition Proposal.
6. Representations, Warranties and Covenants of the
Stockholder. Stockholder hereby represents, warrants and covenants to Parent as
follows:
6.1 Ownership of Shares. Stockholder (i) is the beneficial owner of the
Shares, which at the date hereof and at all times up until the Expiration Date
will be free and clear of any liens, claims, options, charges or other
encumbrances; (ii) does not beneficially own any shares of capital stock of the
Company other than the Shares (excluding shares as to which Stockholder
currently disclaims beneficial ownership in accordance with applicable law); and
(iii) has full power and authority to make, enter into and carry out the terms
of this Agreement and the Proxy. This Voting Agreement and the Proxy have been
duly executed and delivered by Stockholder and constitute legal, valid and
binding obligations of Stockholder, enforceable against Stockholder in
accordance with their terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
6.2 No Conflicts of Consents.
(a) The execution and delivery of this Voting Agreement and the Proxy by
Stockholder do not, and the performance of this Voting Agreement and the Proxy
by Stockholder will not: (i) conflict with or violate any law, rule, regulation,
order, decree or judgment applicable to Stockholder or by which he or any of his
properties is or may be bound or affected; or (ii) result in or constitute (with
or without notice or lapse of time) any breach of or default under, or give to
any other Person (with or without notice or lapse of time) any right of
termination, amendment, acceleration or cancellation of, or result (with or
without notice or lapse of time) in the creation of any encumbrance or
restriction on any of the Shares pursuant to, any contract to which Stockholder
is a party or by which Stockholder or any of his affiliates or properties is or
may be bound or affected.
(b) The execution and delivery of this Voting Agreement and the Proxy by
Stockholder do not, and the performance of this Voting Agreement and the Proxy
by Stockholder will not, require any consent or approval of any Person.
6.3 Accuracy of Representations. The representations and warranties
contained in this Voting Agreement are accurate in all respects as of the date
of this Voting Agreement, will be accurate in all respects at all times through
the Expiration Date and will be accurate in all respects as of the date of the
Closing as if made on that date.
6.4 No Proxy Solicitations. Stockholder will not, and will not permit any
entity under Stockholder's control to: (i) solicit proxies or become a
"participant" in a "solicitation" (as such terms are defined in Regulation 14A
under the Exchange Act) with respect to an Opposing Proposal or otherwise
encourage or assist any party in taking or planning any action that would
compete with, restrain or otherwise serve to interfere with or inhibit the
timely consummation of the Financing; (ii) initiate a Stockholders' vote or
action by written consent of the Company Stockholders with respect to an
Opposing Proposal; or (iii) become a member of a "group" (as such term is used
in Section 13(d) of the Exchange Act) with respect to any voting securities of
the Company with respect to an Opposing Proposal.
7. Additional Documents. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent and Stockholder, as the case may be, to carry out
the intent of this Agreement.
8. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Closing Date of the Financing (as defined in the Purchase Agreement.
3
<PAGE> 4
9. Legend. Immediately after the execution of this Voting Agreement (and
from time to time upon the acquisition by Stockholder of Ownership of any shares
of Company Common Stock prior to the Expiration Date), Stockholder shall ensure
that each certificate evidencing any outstanding shares of Company Common Stock
or other securities of the Company Owned by Stockholder bears a legend in the
following form:
THE SECURITY OR SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH
THE TERMS AND PROVISIONS OF THE VOTING AGREEMENT DATED AS OF MAY 12, 1999
BETWEEN THE ISSUER AND THE STOCKHOLDER, AS IT MAY BE AMENDED, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER.
10. Miscellaneous.
10.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then 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.
10.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, either this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other. Without limiting any
of the restrictions set forth in Section 4 or elsewhere in this Voting
Agreement, this Voting Agreement shall be binding upon any Person to whom any
Shares are transferred. Nothing in this Voting Agreement is intended to confer
on any Person (other than the Company and its successors and assigns) any rights
or remedies of any nature.
10.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
10.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
10.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, facsimile, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight courier
(prepaid) to the respective parties as follows:
If to the Company to:
Cardiac Pathways Corporation
995 Benecia Avenue
Sunnyvale, California 94086
Telephone: (408) 737-0505
Facsimile: (408) 737-1700
Attention: G. Michael Latta, Chief Financial Officer
4
<PAGE> 5
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone: (650) 493-9300
Facsimile: (650) 845-5000
Attention: Chris F. Fennell, Esq.
If to the Stockholder:
At the address provided on Signature Page
or to such other address or facsimile numbers as any party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address or facsimile number shall only be effective upon receipt.
10.6 Governing Law; Venue.
(a) This Agreement shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of California.
(b) Any legal action or other legal proceeding relating to this Voting
Agreement or the Proxy or the enforcement of any provision of this Voting
Agreement or the Proxy may be brought or otherwise commenced in any state or
federal court located in the County of Santa Clara, California. Stockholder:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of Santa
Clara, California (and each appellate court located in the State of
California), in connection with any such legal proceeding;
(ii) agrees that service of any process, summons, notice or document
by U.S. mail addressed to him at the address set forth on the signature
page attached hereto shall constitute effective service of such process,
summons, notice or document for purposes of any such legal proceeding;
(iii) agrees that each state and federal court located in the County
of Santa Clara, California, shall be deemed to be a convenient forum; and
(iv) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in the County of Santa Clara, California, any claim that
Stockholder is not subject personally to the jurisdiction of such court,
that such legal proceeding has been brought in an inconvenient forum, that
the venue of such proceeding is improper or that this Voting Agreement or
the subject matter of this Voting Agreement may not be enforced in or by
such court.
Nothing contained in this Section 10.6 shall be deemed to limit or otherwise
affect the right of the Company to commence any legal proceeding or otherwise
proceed against Stockholder in any other forum or jurisdiction.
(c) STOCKHOLDER IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN CONNECTION
WITH ANY LEGAL PROCEEDING RELATING TO THIS VOTING AGREEMENT OR THE PROXY OR THE
ENFORCEMENT OF ANY PROVISION OF THIS VOTING AGREEMENT OR THE PROXY.
10.7 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
10.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
5
<PAGE> 6
10.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction of interpretation of this Agreement.
10.10 Attorneys' Fees. If any legal action or other legal proceeding
relating to this Voting Agreement or the enforcement of any provision of this
Voting Agreement is brought against Stockholder, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
10.11 Waiver. No failure on the part of the Company to exercise any power,
right, privilege or remedy under this Voting Agreement, and no delay on the part
of the Company in exercising any power, right, privilege or remedy under this
Voting Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege or
remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy. The Company shall not be deemed to have
waived any claim available to the Company arising out of this Voting Agreement,
or any power, right, privilege or remedy of the Company under this Voting
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of the Company; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
CARDIAC PATHWAYS CORPORATION
By:
--------------------------------------
Name: William Starling
Title: President and Chief Executive
Officer
STOCKHOLDER
--------------------------------------
Name:
Stockholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
Facsimile Number:
Shares beneficially owned:
________________ shares of Common
Stock
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EXHIBIT A
IRREVOCABLE PROXY
The undersigned Stockholder of Cardiac Pathways Corporation, a Delaware
corporation ("COMPANY"), hereby irrevocably appoints the William Starling and G.
Michael Latta, and each of them, as the sole and exclusive attorneys and proxies
of the undersigned, with full power of substitution and resubstitution, to the
full extent of the undersigned's rights with respect to (i) the shares of
capital stock of Company beneficially owned by the undersigned, which shares are
listed on the final page of this Proxy, (ii) any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
and (iii) any and all other shares of capital stock of the Company which the
undersigned may acquire on or after the date hereof, until such time as that
certain Series B Convertible Preferred Stock Purchase Agreement (the "PURCHASE
AGREEMENT"), among the Company and BankAmerica Ventures ("BAV"), which provides
for the purchase of the Company's Series B Convertible Preferred Stock (the
"FINANCING"), shall be terminated in accordance with its terms or the Closing
(as defined in the Purchase Agreement) occurs (the "EXPIRATION DATE"). (The
shares of capital stock of Company referred to in clauses (i), (ii) and (iii)
above are collectively referred to as the "Shares"). Upon the execution hereof,
all prior proxies given by the undersigned with respect to the Shares are hereby
revoked and no subsequent proxies will be given.
This Proxy is irrevocable, is coupled with an interest, is granted pursuant
to the Voting Agreement dated as of May 11, 1999 between Company and the
undersigned Stockholder (the "VOTING AGREEMENT"), and is granted in
consideration of BAV entering into the Purchase Agreement. The attorneys and
proxies named above will be empowered at any time prior to the Expiration Date
to exercise all voting and other rights (including, without limitation, the
power to execute and deliver written consents with respect to the Shares) of the
undersigned at every annual, special or adjourned meeting of Company
stockholders, and in every written consent in lieu of such a meeting, or
otherwise, (i) in favor of approval of the Purchase Agreement and the Financing
and any matter that could reasonably be expected to facilitate the Financing,
and (ii) against (a) approval of any proposal made in opposition to or
competition with the consummation of the Financing, (b) any liquidation or
winding up of the Company and (c) any action that would make the consummation of
the Financing unfeasible.
The attorneys and proxies named above may only exercise this Proxy to vote
the Shares subject hereto at any time prior to the Expiration Date at every
annual, special or adjourned meeting of the Stockholders of Company and in every
written consent in lieu of such meeting or otherwise, (i) in favor of approval
of the Purchase Agreement and the Financing and any matter that could reasonably
be expected to facilitate the Financing, and (ii) against (a) approval of any
proposal made in opposition to or competition with consummation of the
Financing, (b) any liquidation or winding up of the Company, and (c) any action
that would make the consummation of the Financing unfeasible, and may not
exercise this Proxy on any other matter. The undersigned Stockholder may vote
the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
heirs, estates, executors, personal representatives, successors and assigns of
the undersigned (including any transferee of any shares).
This Proxy is irrevocable.
If any provision of this proxy or any part of any such provision is held
under any circumstances to be invalid or unenforceable in any jurisdiction, then
(a) such provision or part thereof shall, with respect to such circumstances and
in such jurisdiction, be deemed amended to conform to applicable laws so as to
be valid and enforceable to the fullest possible extent, (b) the invalidity or
unenforceability of such provision or part thereof under such circumstances and
in such jurisdiction shall not affect the validity or enforceability of such
provision or part thereof under any other circumstances or in any other
jurisdiction, and (c) the invalidity or unenforceability of such provision or
part thereof shall not affect the validity or enforceability of the remainder of
such provision or the validity or enforceability of any other provision of this
proxy. Each provision of this proxy is separable from every other provision of
this proxy, and each part of each provision of this proxy is separable from
every other part of such provision.
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<PAGE> 8
This proxy shall terminate upon the earlier of the valid termination of the
Purchase Agreement or the closing of the Financing.
Dated: May 11, 1999
Signature of Stockholder:
Print Name of Stockholder:
Shares beneficially owned: shares of Common Stock
8
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF CARDIAC PATHWAYS CORPORATION
The undersigned, William N. Starling and Chris F. Fennell do hereby
certify:
1. That they are the duly elected and acting President and Secretary,
respectively, of Cardiac Pathways Corporation, a Delaware corporation (the
"CORPORATION").
2. That pursuant to the authority conferred upon the Board of Directors by
the Restated Certificate of Incorporation of the said Corporation, the said
Board of Directors on May 16, 1999 adopted the following resolution creating a
series of 50,000 shares of Preferred Stock designated as Series B Convertible
Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the corporation by the Restated Certificate of Incorporation, the Board of
Directors does hereby provide for the issue of a series of Preferred Stock of
the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:
1. Designation and Amount. The shares of such series shall be designated as
"SERIES B CONVERTIBLE PREFERRED STOCK." The Series B Convertible Preferred Stock
shall have a par value of $.001 per share, and the number of shares constituting
such series shall be 50,000.
2. Proportional Adjustment. In the event the Corporation shall at any time
after the issuance of any share or shares of Series B Convertible Preferred
Stock (i) declare any dividend on the Common Stock of the Corporation ("COMMON
STOCK") payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the Corporation shall simultaneously effect a
proportional adjustment to the number of outstanding shares of Series B
Convertible Preferred Stock.
3. Dividends and Distributions.
(a) Subject to the prior and superior right of the holders of any shares of
any series of Preferred Stock ranking prior and superior to the shares of Series
B Convertible Preferred Stock with respect to dividends, the holders of shares
of Series B Convertible 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, cumulative dividends payable in cash, in an amount per share (rounded
to the nearest cent) equal to 11% of the original Series B Convertible Preferred
Stock Purchase price, per annum.
(b) Dividend Rate Adjustment if Company Redemption Does Not Occur. If, upon
the request of the holders of a majority of the then outstanding shares of
Series B Convertible Preferred Stock, the Company does not redeem the Series B
Convertible Preferred Stock pursuant to Section 7 hereof, the cumulative
dividend payable on the Series B Convertible Preferred Stock shall be subject to
adjustment as follows:
(i) If this corporation has not conducted a Company Redemption prior
to May 31, 2004, at the beginning of each year after such date in which a
Company Redemption does not occur the dividend rate for the Series B
Convertible Preferred Stock shall forthwith be increased by six percentage
points.
(c) The holder of Series B Convertible Preferred Stock shall also be
entitled to participate pro rata in any dividends paid on the Common Stock on an
as-converted basis.
4. Voting Rights. The holders of shares of Series B Convertible Preferred
Stock shall have the following voting rights:
(a) Each share of Series B Convertible Preferred Stock shall entitle
the holder thereof to that number of votes on all matters submitted to a
vote of the stockholders of the Corporation equal to the
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<PAGE> 2
number of shares of Common Stock into which the Series B Convertible
Preferred Stock can be converted.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series B Convertible Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(c) Except as otherwise provided herein or by law, holders of Series B
Convertible 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.
5. Reacquired Shares. Any shares of Series B Convertible 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
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein and, in the
Restated Certificate of Incorporation, as then amended.
6. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, the holders of Series B Convertible Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any assets to the holders of Series A Participating Preferred Stock or Common
Stock or any other class of capital stock of the corporation by reason of their
ownership thereof, an amount per share equal to the sum of (i) the price
originally paid for each outstanding share of Series B Convertible Preferred
Stock (the "ORIGINAL SERIES B ISSUE PRICE") and (ii) an amount equal to accrued
but unpaid dividends on such shares. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series B Convertible
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets and funds of
this corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Convertible Preferred Stock in proportion to
the preferential amount each such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by subparagraph (a) of
this Section 6, the holders of Series A Participating Preferred Stock shall be
entitled to receive, an aggregate amount per share 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 on such shares of
Series A Participating Preferred Stock.
(c) Upon the completion of the distribution required by subparagraphs (a)
and (b) of this Section 6, the remaining assets of this corporation available
for distribution to stockholders shall be distributed among the holders of
Common Stock and the Series B Convertible Preferred Stock, pro rata based on the
number of shares of Common Stock (on an as-converted basis) held by each.
(d) For purposes of this Section 6, a liquidation, dissolution or winding
up of this corporation shall be deemed to be occasioned by, or to include, (A)
the acquisition of this corporation by another entity by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger or consolidation) that results in the transfer of
fifty percent (50%) or more of the outstanding voting power of this corporation;
(B) a sale of all or substantially all of the assets of this corporation, or (C)
a sale or any transaction or series of transactions that result in a sale or
transfer of 50% or more of the outstanding voting power of the corporation.
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<PAGE> 3
(i) In any of such events, if the consideration received by this
corporation is other than cash, the value of such consideration will be
deemed its fair market value. Any securities shall be valued as follows:
(1) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (B) below:
(a) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of the
closing prices of the securities on such quotation system over the
thirty (30) day period ending three (3) days prior to the closing;
(b) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(c) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined by this Corporation
and the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of all then outstanding shares of
Series B Convertible Preferred Stock.
(2) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount
from the market value determined as above in (1) (a), (b) or (c) to
reflect the approximate fair market value thereof, as mutually
determined by this corporation and the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all then outstanding
shares of Series B Convertible Preferred Stock.
(3) In the event the requirements of this subsection 6(d) are not
complied with, this corporation shall forthwith either:
(a) cause such closing to be postponed until such time as the
requirements of this Section 6 have been complied with; or
(b)cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series B Convertible
Preferred Stock shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date of
the first notice referred to in subsection 6(d)(4) hereof.
(4) This Corporation shall give each holder of record of Series B
Convertible Preferred Stock written notice of such impending transaction
not later than twenty (20) days prior to the stockholders' meeting
called to approve such transaction, if any, or twenty (20) days prior to
the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms
and conditions of the impending transaction and the provisions of this
Section 6, and this Corporation shall thereafter give such holders
prompt notice of any material changes. The transaction shall in no event
take place sooner than twenty (20) days after this Corporation has given
the first notice provided for herein or sooner than ten (10) days after
this Corporation has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened upon the
written consent of the holders of Series B Convertible Preferred Stock
that are entitled to such notice rights or similar notice rights and
that represent at least sixty-six and two-thirds percent (66 2/3%) of
the voting power of all then outstanding shares of such Series B
Convertible Preferred Stock.
7. Redemption. The shares of Series B Convertible Preferred Stock shall be
redeemable.
(a) Optional Redemption. At any time after May 31, 2004, the holders of a
majority of the then outstanding shares of Series B Convertible Preferred Stock,
voting as a single class, may request that the Corporation redeem the
outstanding shares of Series B Convertible Preferred Stock. After receiving such
request, the Corporation, to the extent it then lawfully is able to do so, and
in its sole discretion, may redeem
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<PAGE> 4
the outstanding shares of Series B Convertible Preferred Stock (an "OPTIONAL
REDEMPTION") in whole, upon payment in cash in respect of each share redeemed of
an amount equal to the Original Series B Issue Price plus accrued but unpaid
dividends on such shares. Such amount is hereinafter referred to as the
"REDEMPTION PRICE" of the Series B Convertible Preferred Stock. Upon the
election to conduct an Optional Redemption, the Corporation shall promptly give
written notice of the redemption to each holder of record of Series B
Convertible Preferred Stock, postage prepaid at the post office address last
shown on the records of the Corporation.
(b) Redemption Date. The Corporation shall redeem the shares of Series B
Convertible Preferred Stock to be redeemed hereunder in two equal annual
installments, commencing with the first calendar quarter ending ninety (90) days
after the date notice of redemption is provided to the holders of Series B
Convertible Preferred Stock. Such date shall be a "REDEMPTION DATE" for the
Preferred Stock as described herein.
(c) At least thirty (30) days prior to the Redemption Date for the Series B
Convertible Preferred Stock, written notice shall be mailed, postage prepaid, to
each holder of record of Series B Convertible Preferred Stock to be redeemed, at
such holder's post office address last shown on the records of the Corporation,
notifying such holder of the redemption of such shares to be redeemed at that
time, specifying the Redemption Date, the Redemption Price, and calling upon
such holder to surrender to the Corporation, in the manner and at the place
designated, such holder's certificate or certificate's representing the shares
to be redeemed (such notice is hereinafter referred to as the "REDEMPTION
NOTICE"). On or after the Redemption Date, each holder of Series B Convertible
Preferred Stock to be redeemed shall surrender such holder's certificate or
certificates representing shares to the Corporation, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price
for such shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner of such shares and each
surrendered certificates shall be canceled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. From and after the Redemption
Date, unless there shall have been a default in payment of the Redemption Price,
all rights of the holders of Series B Convertible Preferred Stock designated for
redemption in the Redemption Notice as holders of Series B Convertible Preferred
Stock (except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not subsequently be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) Insufficient Funds. If the funds of the Corporation legally available
for redemption of shares of Series B Convertible Preferred Stock on any
Redemption Date are insufficient to redeem the total number of shares of Series
B Convertible Preferred Stock to be redeemed on such date, those funds that are
legally available shall be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed. The shares of
Series B Convertible Preferred Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of shares of the Series B Convertible Preferred Stock, such funds
shall immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem, or elected to redeem, on any
Redemption Date but which it has not redeemed.
(e) Deposit of Redemption Price. On or prior to the Redemption Date, the
Corporation shall deposit the Redemption Price of all shares of Series B
Convertible Preferred Stock designated for redemption in the Redemption Notice
and not yet redeemed with a bank or trust company having aggregate capital and
surplus in excess of $100,000,000 as a trust fund for the benefit of the
respective holders of the shares designated for the redemption and not yet
redeemed, with irrevocable instructions and authority to the bank or trust
company to pay the Redemption Price for such shares to their respective holders
on or after the Redemption Date, upon receipt of notification from the
Corporation that such holder has surrendered such holder's share certificate to
the Corporation pursuant to Section 7(c) above. Such instructions shall also
provide that any funds deposited by the Corporation pursuant to this Section
7(e) for the redemption of shares of subsequently converted into shares of
Common Stock no later than the fifth (5th) day preceding the Redemption Date
shall be returned to the Corporation forthwith upon such conversion. The balance
of any funds deposited by the Corporation
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<PAGE> 5
pursuant to this Section 7(e) remaining unclaimed at the expiration of two (2)
years following the Redemption Date shall be returned to the Corporation upon
its request expressed in a resolution of its Board of Directors.
8. Conversion. The holders of the Series B Convertible Preferred Stock
shall have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) Right to Convert. Each share of Series B Convertible Preferred
Stock shall be convertible, at the option of the holder thereof, at any
time after the date of issuance of such share, at the office of this
Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
the Original Series B Issue Price by the Series B Conversion Price,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Series B Conversion Price per share
shall be the Original Series B Issue Price; provided, however, that the
Series B Conversion Price shall be subject to adjustment as set forth in
Section 8(d) and 8(e).
(b) Automatic Conversion. Each share of Series B Convertible Preferred
Stock, shall automatically be converted into shares of Common Stock at the
Series B Conversion Price at the time in effect upon the election of a
majority of the holders of Series B Convertible Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series B Convertible
Preferred Stock shall be entitled to convert into shares of Common Stock,
he or she shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for
the Series B Convertible Preferred Stock, and shall give written notice to
this Corporation at its principal corporate office of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued.
This Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series B Convertible Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Series B Convertible Preferred Stock to be
converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with a sale to, or a
merger with, a third party, the conversion may, at the option of any holder
tendering Series B Convertible Preferred Stock for conversion, be
conditioned upon the closing of such sale to, or merger with, such third
party (as the case may be), in which event the person(s) entitled to
receive the Common Stock upon conversion of the Series B Convertible
Preferred Stock shall not be deemed to have converted such Series B
Convertible Preferred Stock until immediately prior to the closing of such
sale or merger.
(d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuance, Stock Splits and Combinations. The Conversion Price of
the Series B Convertible Preferred Stock shall be subject to adjustment
from time to time as follows:
(i)
(1) If this corporation shall issue, after the date upon which
any shares of Series B Convertible Preferred Stock were first issued
(the "Purchase Date"), any Additional Stock (as defined below)
without consideration or for a consideration per share less than the
Conversion Price for the Series B Convertible Preferred Stock in
effect immediately prior to the issuance of such Additional Stock,
the Conversion Price for the Series B Convertible Preferred Stock in
effect immediately prior to each such issuance shall forthwith
(except as otherwise provided in this clause (i)) be adjusted to a
price determined by multiplying such Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including shares of
Common Stock deemed to be issued pursuant to Section 8(d)(i)(5)(a) or
(b)) plus the number of shares of Common Stock that
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<PAGE> 6
the aggregate consideration received by this Corporation for such
issuance would purchase at such Conversion Price; and the denominator
of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including shares of Common Stock
deemed to be issued pursuant to Section 8(d)(i)(5)(a) or (b)) plus
the number of shares of such Additional Stock.
(2) No adjustment of the Conversion Price for the Series B
Convertible Preferred Stock shall be made in an amount less than one
cent per share, provided that any adjustments that are not required
to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to
the adjustment being carried forward, or shall be made at the end of
three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent
provided for in Sections 8(d)(i)(5)(c) and (5)(d), no adjustment of
such Conversion Price of the Series B Convertible Preferred Stock
pursuant to this subsection 8(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(3) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of net cash paid
therefor (after deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this corporation for any
underwriting or otherwise in connection with the issuance and sale
thereof).
(4) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as
determined in the reasonable good faith judgement of the Board of
Directors irrespective of any accounting treatment.
(5) In the case of the issuance (whether before, on or after the
applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities,
the following provisions shall apply for all purposes of this Section
8(d)(i) and Section 8(d)(ii).
(a) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the
passage of time, but without taking into account potential
antidilution adjustments) of such options to purchase or rights
to subscribe for Common Stock shall be deemed to have been issued
at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in Sections 8(d)(i)(3) and (d)(i)(4)), if any,
received by this Corporation upon the issuance of such options or
rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(b) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of
time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to
the consideration, if any, received by this corporation for any
such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends),
plus the minimum additional consideration, if any, to be received
by this corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such
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<PAGE> 7
securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner
provided in Sections 8(d)(i)(3) and (d)(i)(4)).
(c) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to this
Corporation upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting
from the antidilution provisions thereof (unless such options or
rights or convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator for
purposes of determining the number of shares of Common Stock
outstanding for purposes of subsection 8(d)(i)(1)), the
Conversion Price of the Series B Convertible Preferred Stock, to
the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance
of Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or
exchange of such securities.
(d) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price of the Series B
Convertible Preferred Stock, to the extent in any way affected by
or computed using such options, rights or securities or options
or rights related to such securities (unless such options or
rights were merely deemed to be included in the numerator and
denominator for purposes of determining the number of shares of
Common Stock outstanding for purposes of Section 8(d)(i)(1)),
shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options
or rights related to such securities.
(e) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to Sections
8(d)(i)(5)(a) and (b) shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in
either Section 8(d)(i)(5)(c) or (d).
(ii) "ADDITIONAL STOCK" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 8(d)(i)(5)) by
this corporation after the Purchase Date other than:
(1) Common Stock issuable or issued pursuant to a transaction
described in subsection 8(d)(iii) hereof;
(2) shares of Common Stock issuable or issued to employees,
consultants or directors of this Corporation directly or pursuant to
a stock option plan or restricted stock plan approved by the Board of
Directors of this Corporation, including the representatives of the
Series B Convertible Preferred Stock, including all outstanding and
granted options;
(3) shares of Common Stock issuable or issued upon conversion of
the Series A Participating Preferred Stock or Series B Convertible
Preferred Stock or as dividends or distributions on the Series A
Participating Preferred Stock or Series B Convertible Preferred
Stock;
(4) shares of Common Stock issuable or issued upon exercise of
warrants issued to banks, equipment lessors or other venders, where
such Common Stock or warrants were approved by the Board of
Directors, including the representatives of the Series B Convertible
Preferred Stock; or
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<PAGE> 8
(5) shares of Common Stock issuable or issued as consideration
for business combinations or corporate partnering agreements approved
by the Board of Directors, including the representatives of the
Series B Convertible Preferred Stock.
(iii) In the event this Corporation should at any time or from time
to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or
the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common
Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of
Common Stock (hereinafter referred to as "COMMON STOCK EQUIVALENTS")
without payment of any consideration by such holder for the additional
shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the
Conversion Price of the Series B Convertible Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be increased
in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series B Convertible
Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of such
series shall be decreased in proportion to such decrease in outstanding
shares.
(e) Other Distributions. In the event this Corporation shall declare a
distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in Section 8(d)(iii),
then, in each such case for the purpose of this Section 8(e), the holders
of the Series B Convertible Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the
holders of the number of shares of Common Stock of this corporation into
which their shares of Series B Convertible Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common
Stock of this Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere
in this Section 8 or in Section 6), provision shall be made so that the
holders of the Series B Convertible Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series B Convertible Preferred
Stock the number of shares of stock or other securities or property of this
corporation or otherwise to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the
provisions of this Section 8 with respect to the rights of the holders of
the Series B Convertible Preferred Stock after the recapitalization to the
end that the provisions of this Section 8 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series B Convertible Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(g) No Impairment. This Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by this corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 8(h)
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series B
Convertible Preferred Stock against impairment.
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<PAGE> 9
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of any
share or shares of the Series B Convertible Preferred Stock, and the
number of shares of Common Stock to be issued shall be determined by
rounding to the nearest whole share. Such conversion shall be determined
on the basis of the total number of shares of Series B Convertible
Preferred Stock the holder is at the time converting into Common Stock
and such rounding shall apply to the number of shares of Common Stock
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of the Series B Convertible Preferred Stock pursuant to
this Section 8, this Corporation, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series B Convertible Preferred
Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment
is based. This Corporation shall, upon the written request at any time
of any holder of Series B Convertible Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price for the Series B
Convertible Preferred Stock at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property that at
the time would be received upon the conversion of a share of Series B
Convertible Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
this corporation shall mail to each holder of Series B Convertible
Preferred Stock, at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Convertible Preferred Stock, such
number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series
B Convertible Preferred Stock; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series B Convertible
Preferred Stock, in addition to such other remedies as shall be available
to the holder of such Series B Convertible Preferred Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain
the requisite stockholder approval of any necessary amendment to the
Corporation's Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this Section 8
to be given to the holders of shares of Series B Convertible Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on
the books of this corporation.
9. Protective Provisions. This Corporation shall not take any of the
following actions without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series B Convertible Preferred Stock:
(a) Amend or repeal any provision, or add any provision to the
Corporation's Certificate of Incorporation or Bylaws which change the
rights of the Series B Convertible Preferred Stock;
(b) Increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Preferred Stock or Common Stock;
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<PAGE> 10
(c) Authorize or issue, or obligate itself to issue, any other
security, including any other security convertible into or exercisable for
any security having a preference over, or being on a parity with, the
Series B Convertible Preferred Stock with respect to voting, dividends,
redemption or upon liquidation;
(d) Issue any shares of Common Stock, other than
(i) shares of Common Stock issuable or issued to employees,
consultants or directors of this Corporation directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of
Directors of this Corporation, including the representatives of the
Series B Convertible Preferred Stock;
(ii) shares of Common Stock issuable or issued upon conversion of
the Series A Participating Preferred Stock or Series B Convertible
Preferred Stock or as dividends or distributions on the Series A
Participating Preferred Stock or Series B Convertible Preferred Stock;
(iii) shares of Common Stock issuable or issued upon exercise of
warrants issued to banks, equipment lessors or other venders, where such
Common Stock or warrants were approved by the Board of Directors,
including the representatives of the Series B Convertible Preferred
Stock; or
(iv) shares of Common Stock issuable or issued as consideration for
business combinations or corporate partnering agreements approved by the
Board of Directors, including the representatives of the Series B
Convertible Preferred Stock.
(e) Declare or pay any dividends on its Common Stock or redeem,
purchase or otherwise acquire (or pay into or set aside for a sinking fund
for such purpose) any share or shares of Common Stock; provided, however,
that this restriction shall not apply to the repurchase of shares of Common
stock from employees, officers, directors, consultants or other persons
performing services for this Corporation or any subsidiary pursuant to
agreements under which this Corporation has the option to repurchase such
shares at cost or at cost upon the occurrence of certain events, such as
the termination of employment;
(f) Sell, convey, or otherwise dispose of all or substantially all of
its property or business or merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary corporation) or effect
any transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of this corporation is disposed of;
(g) Repurchase any series of Preferred Stock, other than a repurchase
pursuant to Section 7 hereof; or
(h) Increase or decrease the size of the Corporation's Board of
Directors.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
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We further declare under penalty of perjury that the matters set forth in
the foregoing Certificate of Designation are true and correct of our own
knowledge.
Executed at Sunnyvale, California on May 20, 1999
/s/ WILLIAM N. STARLING
--------------------------------------
William N. Starling
President and Chief Executive Officer
/s/ CHRIS F. FENNELL
--------------------------------------
Chris F. Fennell, Secretary
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CERTIFICATE OF CORRECTION OF CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES AND PRIVILEGES OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF CARDIAC PATHWAYS CORPORATION
Cardiac Pathways Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, hereby
certifies as follows:
A. The name of this corporation is Cardiac Pathways Corporation.
B. That a Certificate of Designation of Rights, Preferences and Privileges
of Series B Convertible Preferred Stock (the "Certificate") was filed by the
Secretary of State of Delaware on May 20, 1999 and that said Certificate
requires correction as permitted by Section 103(f) of the General Corporation
Law of the State of Delaware.
C. The inaccuracy or defect of said Certificate to be corrected is as
follows: The words "multiplied by 1000" were omitted from the first sentence of
Section 8(a) of the Certificate.
D. The text of Section 8(a) of the Certificate is hereby amended and
restated in its entirety to read as follows:
"(a) Right to Convert. Each share of Series B Convertible Preferred
Stock shall be convertible, at the option of the holder thereof, at any
time after the date of issuance of such share, at the office of this
Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
the Original Series B Issue Price multiplied by 1000, by the Series B
Conversion Price, determined as hereafter provided, in effect on the date
the certificate is surrendered for conversion. The initial Series B
Conversion Price per share shall be the Original Series B Issue Price;
provided, however, that the Series B Conversion Price shall be subject to
adjustment as set forth in Section 8(d) and 8(e)."
The undersigned officer of the corporation hereby acknowledges that the
above Certificate of Correction of Certificate of Designation of Rights,
Preferences and Privileges of Series B Convertible Preferred Stock is his act
and deed and that the facts stated therein are true.
/s/ CHRIS F. FENNELL
--------------------------------------
Chris F. Fennell, Secretary
Dated: May 27, 1999
<PAGE> 1
EXHIBIT 4.2
CARDIAC PATHWAYS CORPORATION
REGISTRATION RIGHTS AGREEMENT
This Agreement is made as of May 20, 1999 by and between Cardiac Pathways
Corporation, a Delaware corporation (the "COMPANY"), and the persons and
entities listed on the Schedule of Holders attached hereto as Schedule 1 (the
"HOLDERS").
WHEREAS, pursuant to a Stock Purchase Agreement (the "STOCK PURCHASE
AGREEMENT") of even date herewith between the Company, and the Holders, the
Company is selling up to 40,000 shares of Series B Convertible Preferred Stock
convertible into shares of the Company's Common Stock, as set forth in the Stock
Purchase Agreement (the "SHARES") to the Holders for the aggregate consideration
of between $25,000,000 and $40,000,000; and
WHEREAS, to induce the Holders to enter into the Stock Purchase Agreement,
the Company has agreed to provide the Holders with certain registration rights
with respect to the Shares pursuant to the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth in this Agreement, the Company and the Holders agree as
follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) Business Day. Each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York are authorized
or obligated by law or executive order to close.
(b) Exchange Act. The Securities Exchange Act of 1934, as amended, or
any similar federal statute and the rules and regulations of the SEC
promulgated thereunder.
(c) Losses. See Section 5(a) hereof.
(d) Prospectus. The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
including, without limitation, with respect to the terms of the offering of
any portion of the Registrable Securities covered by such Registration
Statement and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
Such Prospectus and any amendments or supplements shall comply with the
Securities Act.
(e) Register. The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such registration statement by the SEC.
(f) Registrable Securities. The Shares or other securities issued or
issuable with respect to the Shares as a result of any conversion, stock
split, stock dividend, recapitalization, exchange, combination, merger,
consolidation, distribution or similar event.
(g) Registration Expenses. See Section 4 hereof.
(h) Registration Statement. Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to
such registration statement, including post-effective amendments, all
exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement. Such Registration
Statement and any amendments or supplements thereto shall comply with the
Securities Act.
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(i) Rule 144. Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
(j) SEC. The Securities and Exchange Commission.
(k) Securities Act. The Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
(l) Special Counsel. Cooley Godward LLP or such other successor
counsel as shall be specified by the BankAmerica Ventures on behalf of the
Holders as special counsel to the Holders, the fees and expenses of which
will be paid by the Company pursuant to Section 4 hereof.
2. Registration.
(a) Demand Registration.
(i) Request from Holders. If the Company shall receive at any time
after May 31, 2000 a written request from the Holders of forty five percent
(45%) of the Registrable Securities then outstanding that the Company file
a registration statement under the Securities Act covering the registration
of at least twenty percent (20%) of the Registrable Securities then
outstanding and having an aggregate offering price, net of underwriting
discounts and commissions, of at least $7,500,000, then the Company shall:
(1) within ten (10) days of the receipt thereof, give written
notice of such request to all Holders; and
(2) effect as soon as practicable, and in any event within sixty
(60) days of the receipt of such request, the registration under the
Securities Act of all Registrable Securities that the Holders request to
be registered, subject to the limitations of subsections 2(a)(ii),
2(a)(iii) and 2(a(iv), within twenty (20) days of the mailing of such
notice by the Company in accordance with Section 9(d).
(ii) Underwriting. If the Holders initiating the registration request
hereunder ("INITIATING HOLDERS") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to
subsection 2(a)(i) and the Company shall include such information in the
written notice referred to in subsection 2(a)(i)(1). The underwriter will
be selected by the Company and shall be reasonably acceptable to a majority
in interest of the Initiating Holders. In such event, the right of any
Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding
any other provision of this Section 2(a), if the underwriter advises the
Initiating Holders in writing that marketing factors require a limitation
of the number of shares to be underwritten, then the Initiating Holders
shall so advise all Holders of Registrable Securities that would otherwise
be underwritten pursuant hereto, and the number of shares of Registrable
Securities that may be included in the underwriting shall be allocated
among all Holders electing to include shares in the offering, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount
of Registrable Securities of the Company owned by each Holder; provided,
however, that for purposes of making any such reduction, each Holder which
is an LLC or a partnership, together with the affiliates, partners and
retired partners of such Holder, the estates and family members of any such
partners and retired partners and their spouses, and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single
Holder of Registrable Securities and any pro-rata reduction with respect to
such Holder shall be based upon the aggregate amount of Registrable
Securities owned by all entities and individuals included in such Holder,
as defined in this proviso (and the aggregate amount so allocated to such
Holder shall be allocated among the entities and individuals included in
such Holder in such manner as such LLC or partnership shall
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<PAGE> 3
reasonably determined. No Registrable Securities shall be excluded from the
underwriting until all other securities proposed to be included by the
Company and its stockholder have been excluded.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the managing underwriter and the Initiating Holders.
The Registrable Securities and/or other securities so withdrawn shall also
be withdrawn from registration, and such Registrable Securities shall not
be transferred in a public distribution prior to 180 days after the
effective date of such registration, or such other shorter period of time
as the underwriters may permit. If by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders
may be included in such registration (up to the maximum of any limitation
then imposed by the underwriters), then the Company shall offer to all
Holders, if any, whose shares have been excluded from the registration by
the terms of the preceding paragraph, the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 2(a) up to the limitation then
imposed by the underwriters.
(iii) Deferral. Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
Section 2(a), a certificate from the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of
such registration statement, the Company shall have the right to defer
taking action with respect to such filing for a period of not more than
ninety (90) days after receipt of the request of the Initiating Holders;
provided, however, that the Company may not utilize this right more than
once in any twelve (12) month period.
(iv) Exceptions. In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 2(a):
(1) After the Company has effected two registrations pursuant to
this Section 2(a) and such registrations have been declared or ordered
effective;
(2) During the period starting with the date sixty (60) days prior
to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date
of, a registration subject to Section 2(b) hereof; provided that the
Company is actively employing in good faith all reasonable efforts to
cause such registration statement to be effective; or
(3) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 2(c) below.
(b) Company Registration.
(i) Notice of Registration. If at any time or from time to time, the
Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
statement on Form S-4 relating to a merger or acquisition by or of the
Company or (iii) a registration relating solely to a Commission Rule 145
transaction, the Company will:
(1) promptly give to each Holder written notice thereof; and
(2) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved in such registration, all the Registrable Securities specified
in a written request or requests made within twenty (20) days after
receipt of such written notice from the Company by any Holder, but only
to the extent that such inclusion will not diminish the number of
securities included by the Company or by holders of the Company's
securities who have demanded such registration.
(ii) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice
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given pursuant to Section 2(b)(i). In such event, the right of any Holder
to registration pursuant to Section 2(b) shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company (or by the holders who have
demanded such registration). Notwithstanding any other provision of this
Section 2(b), if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the number
of shares that may be included in the underwriting will be allocated,
first, to the Company; and second, to each of the Holders requesting
inclusion of their Registrable Securities in such registration statement on
a pro rata basis based on the total number of Registrable Securities held
by each such Holder; provided, however, that a minimum of twenty five
percent (25%) of the shares to be underwritten will be allocated to the
Holders requesting inclusion in such offering, on a pro rata basis and
provided further, that in the event of such limitation, no third party
other than a Holder invoking the right to register shares under this
Section 2(b) shall be entitled to sell shares in such offering. To
facilitate the allocation of shares in accordance with the above
provisions, the Company or the underwriters may round the number of shares
allocated to any Holder or other holder to the nearest 100 shares. For
purposes of making any pro rata reduction pursuant to the preceding
sentence, each Holder which is an LLC or a partnership together with the
affiliates, partners and retired partners of such Holder of Registrable
Securities and any pro-rata reduction with respect to such Holder shall be
based upon the aggregate amount of Registrable Securities owned by all
entities and individuals included in such Holder, as defined in this
sentence (and the aggregate amount so allocated to such Holder shall be
allocated among the entities and individuals included in such Holder in
such manner as such partnership shall reasonably determine).
The Company shall advise all Holders and other holders distributing
their securities through such underwriting of any such limitation, and the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated among all
Holders and such other holders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders and
such other holders at the time of filing the registration statement. If any
Holder or holder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 180 days after the effective
date of the registration statement relating thereto, or such other shorter
period of time as the underwriters may require. If by the withdrawal of
such Registrable Securities a greater number of Registrable Securities held
by other Holders may be included in such registration (up to the maximum of
any limitation then imposed by the underwriters), then the Company shall
offer to all Holders, if any, whose shares have been excluded from the
registration by the terms of the preceding paragraph, the right to include
additional Registrable Securities in the same proportion used in
determining the underwriter limitation in this Section 2(b)(ii) up to the
limitation then imposed by the underwriters.
(iii) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2(b) prior to the effectiveness of such registration, whether or
not any Holder has elected to include securities in such registration.
(iv) Other Registration Rights. No Stockholder of the Company shall be
granted rights to participate in a Company registration that would reduce
the number of shares permitted to be included by the Holders of Registrable
Securities in such registration without the consent of holders of at least
sixty six and two thirds percent (66 2/3%) of the Registrable Securities.
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(c) Form S-3 Registration. If the Company shall receive at any time after
May 31, 2000 a written request or requests from the Holders of forty five
percent (45%) of the Registrable Securities then outstanding that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(i) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(ii) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such
written notice from the Company; provided, however, that the Company shall
not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 2(c): (1) if Form S-3 is not available
for such offering by the Holders; (2) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $2,000,000; (3) if the
Company shall furnish to the Holders a certificate stating that in the good
faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall
have the right to defer the filing of the Form S-3 registration statement
for a period of not more than one hundred twenty (120) days after receipt
of the request of the Holder or Holders under this Section 2(c); provided,
however, that the Company shall not utilize this right more than once in
any twelve (12) month period; (4) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected one
(1) registration on Form S-3 for the Holders pursuant to this Section 2(c);
or (5) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or
compliance.
(d) "Market Stand-Off" Agreement. Each Holder of more than one percent (1%)
of the Company's outstanding securities hereby agrees that, during the period of
duration (not to exceed ninety (90) days) specified by the Company and an
underwriter of common stock or other securities of the Company, following the
effective date of a registration statement of the Company's securities filed
under the Securities Act, it shall not, to the extent requested by the Company
and such underwriter, directly or indirectly sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who agree to
be similarly bound) any securities of the Company held by it at any time during
such period, except common stock included in such registration; provided,
however, that all officers, directors and employees of the Company enter into
similar agreements. In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the securities of each Holder
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
3. Registration Procedures. In connection with the Company's registration
obligations under Section 2 hereof, the Company shall effect such registrations
to permit the sale of the Registrable Securities in accordance with the intended
method or methods of disposition thereof and pursuant thereto the Company shall
as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the Holders in
accordance with the intended method or methods of distribution thereof, and
cause each such Registration Statement to become effective and remain
effective as provided herein; provided, that before filing any such
Registration Statement or Prospectus or any amendments or supplements
thereto (other than documents that would be incorporated or deemed to be
incorporated therein by reference and that the Company is required by
applicable securities laws or stock exchange requirements to file) the
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<PAGE> 6
Company shall furnish to the Special Counsel copies of all such documents
proposed to be filed, which documents will be subject to the review of the
Special Counsel.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable period
specified in Section 2; cause the related Prospectus to be timely
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 (or any similar provisions then in force)
under the Securities Act; and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders set forth in such
Registration Statement as so amended or such Prospectus as so supplemented.
(c) Notify the Holders and the Special Counsel promptly, and (if
requested by any such person) confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for
amendments or supplements to a Registration Statement or related Prospectus
or for additional information, (iii) of the issuance by the SEC or any
other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, (v) of the happening of any event which makes any statement
made in such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or which requires the making of any changes in the
Registration Statement or Prospectus so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, and (vi) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement
would be appropriate.
(d) Use every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of
any suspension of the qualification (or exemption from qualification) of
any of the Registrable Securities for sale in any jurisdiction, at the
earliest possible moment.
(e) Subject to the last paragraph of this Section 3, if reasonably
requested by the Holders (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the Holders
agrees should be included therein as required by applicable law, (ii) make
all required filings of such Prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment, and (iii) supplement or make
amendments to any Registration Statement consistent with clause (i) or (ii)
above; provided, that the Company shall not be required to take any actions
under this Section 3(e) that are not, in the opinion of counsel for the
Company, necessary or advisable to comply with applicable law.
(f) Furnish to the Holders and the Special Counsel, without charge, at
least one conformed copy of the Registration Statement or Registration
Statements and any post-effective amendment thereto, including financial
statements, but excluding schedules, all documents incorporated or deemed
to be incorporated therein by reference and all exhibits (unless requested
in writing by the Holders or Special Counsel).
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<PAGE> 7
(g) Promptly deliver to the Holders and the Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses relating to such
Registrable Securities (including each preliminary prospectus) and any
amendment or supplement thereto as such persons may reasonably request; and
the Company hereby consents to the use of such Prospectus or each amendment
or supplement thereto by the Holders in connection with the offering and
sale of the Registrable Securities covered by such Prospectus or any
amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the Holders and the Special Counsel
in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for
offer and sale under the securities or Blue Sky laws of such jurisdictions
within the United States as the Holders reasonably request in writing; keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept
effective and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable Registration Statement; provided, that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified or (ii) take any action that
would subject it to general service of process in suits or to taxation in
any such jurisdiction where it is not then so subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as
may be required solely as a consequence of the nature of a Holder, in which
case the Company will cooperate in all reasonable respects with the filing
of such Registration Statement and the granting of such approvals, as may
be necessary to enable the Holders or to consummate the disposition of such
Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(v)
or 3(c)(vi) above, prepare a supplement or post-effective amendment to each
Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(k) Notwithstanding anything in this Agreement to the contrary, a
Holder shall not be entitled to sell any of such Registrable Securities
pursuant to a Registration Statement or to receive a Prospectus relating
thereto unless such Holder (A) has at such time a current intent to sell
such Registrable Securities, and confirms such intent in writing, and (B)
has furnished the Company promptly after the Company's request, such
information regarding the Holder and the distribution of such Registrable
Securities as the Company may from time to time reasonably request. The
Company may refrain from filing a registration for any Holder's Registrable
Securities if it does not furnish such information provided above. Each of
the Holders agrees promptly to furnish to the Company all information
required to be disclosed in order to make the information previously
furnished to the Company by Holders not misleading with respect to such
Holder.
The Holders agree by acquisition of the Registrable Securities that,
upon receipt of any notice from the Company of (A) the happening of any
event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi) hereof or (B) that, in the reasonable judgment of the
Company, it is advisable to suspend use of the Prospectus for a discrete
period of time due to pending corporate developments, public filings with
the SEC or similar events, the Holders will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement or Prospectus until the Holders' receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(j) hereof, or
until it is advised in writing (the "Advice") by the Company that the use
of the applicable Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are
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<PAGE> 8
incorporated or deemed to be incorporated by reference in such Prospectus.
The Company shall use its reasonable efforts to insure that the use of the
Prospectus may be resumed as soon as practicable.
(l) Use its best efforts to furnish, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities
are being sold through underwriters, (i) an opinion, dated as of such date,
of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering, addressed to the Holders participating
in the offering, and (ii) a letter dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering addressed to
the Holder participating in the offering.
4. Registration Expenses. All fees and expenses incident to the Company's
performance of or compliance with this Agreement shall be borne by the Company
whether or not any of the Registration Statements become effective. Such fees
and expenses shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (x) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and (y) of compliance with federal securities or Blue Sky laws, (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities in a form eligible for deposit with The
Depository Trust Company), (iii) fees and disbursements of counsel for the
Company and the Special Counsel, and (iv) Securities Act liability insurance
obtained by the Company in its sole discretion. In addition, the Company shall
pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange
on which similar securities issued by the Company are then listed and rating
agency fees and the fees and expenses of any person, including special experts,
retained by the Company. Notwithstanding the provisions of this Section 4, the
Holders shall pay all registration expenses to the extent that the Company is
prohibited by applicable Blue Sky laws from paying for or on behalf of the
Holders.
All underwriting discounts, selling commissions and stock transfer taxes
applicable to the sale of the Registrable Securities if any, shall be paid by
the Holders.
5. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify and hold
harmless, to the fullest extent permitted by law, BankAmerica Ventures ("BAV")
each of its officers, directors, partners and members and each selling Holder
and each person, if any, who controls such Holder (within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act) from and against
all losses, liabilities, claims, damages and expenses (including but not limited
to reasonable attorney fees and any and all reasonable expenses whatsoever
incurred in investigating, preparing or defending against litigation, commenced
or threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation) (collectively, "LOSSES"), arising out of
or based upon any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or form of Prospectus or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as the same are based solely upon information
furnished in writing to the Company by BAV or any Holder expressly for use
therein; provided, that the Company shall not be liable to BAV or any Holder (or
any person controlling any of the Holders) to the extent that any such Losses
arise out of or are based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any prospectus if either (A) (i) BAV or
any of the Holders failed to send or deliver a copy of the Prospectus with or
prior to the delivery of written confirmation of the sale by the Holders of a
Registrable Security to the person asserting the claim from which such Losses
arise and (ii) the Prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (B) (x) such
untrue statement or alleged untrue statement, omission or alleged omission is
corrected in an amendment or supplement to the Prospectus and (y) having
8
<PAGE> 9
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, the Holders thereafter fail to deliver
such Prospectus as so amended or supplemented, with or prior to the delivery of
written confirmation of the sale of a Registrable Security to the person
asserting the claim from which such Losses arise. The Company shall also
indemnify each underwriter and each person who controls such person (within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act) to the same extent as provided above with respect to the indemnification of
the Holder.
(b) Indemnification by Holder. In connection with any Registration
Statement in which the Holders are participating, BAV or the Holders shall
furnish to the Company in writing such information as the Company reasonably
requests for use in connection with any Registration Statement or Prospectus and
each Holder agrees to indemnify, to the fullest extent permitted by law, the
Company, its directors and officers and each other person who controls the
Company (within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), from and against all Losses in each case arising out of or
based upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or arising out of or based upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
BAV or the Holders to the Company expressly for use in such Registration
Statement, Prospectus or preliminary prospectus. In no event shall the liability
of BAV or any of the Holders hereunder exceed the net proceeds received from
sales of its Registrable Securities. The Company shall be entitled to receive
indemnities from underwriters participating in the distribution to the same
extent as provided above with respect to information so furnished in writing by
such persons expressly for use in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. If any person shall be entitled
to indemnity hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party shall
give prompt notice to the party from which such indemnity is sought (the
"INDEMNIFYING PARTY") of any claim or of the commencement of any proceeding with
respect to which such Indemnified Party seeks indemnification or contribution
pursuant hereto; provided, that the failure to so notify the Indemnifying Party
shall not relieve the Indemnified Party from any obligation or liability except
to the extent that the Indemnified Party has been prejudiced materially by such
failure. All such fees and expenses (including any fees and expenses incurred in
connection with investigating or preparing to defend such action or proceeding)
shall be paid to the Indemnified Party on a quarterly basis following written
notice thereof to the Indemnified Party (notwithstanding the absence of judicial
determination as to the propriety and enforceability of the Indemnified Party's
obligation to reimburse the Indemnified Party for such expense and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction). In case any such action is brought against an
Indemnified Party, the Indemnified Party shall be entitled to participate
therein and it may elect by written notice delivered to the Indemnified Party
within a reasonable period of time after receiving the aforesaid notice from
such Indemnified Party, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant for
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section 5 is
unavailable to an Indemnified Party under Section 5(a) or 5(b) hereof in respect
of any Losses or is insufficient to hold such Indemnified Party harmless, then
each applicable Indemnified Party, in lieu of indemnifying such Indemnified
Party, shall, jointly and severally, contribute to the amount paid or payable by
such Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnified Party or
indemnifying parties, on the one hand, and such Indemnified Party, on the other
hand, in connection with the actions, statements or omissions that resulted in
such Losses as well as any other relevant equitable considerations. The relative
fault of such Indemnified Party or indemnifying parties, on the one hand, and
such Indemnified Party, on the other hand, shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged
9
<PAGE> 10
omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnified Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
reasonable legal or other reasonable fees or expenses incurred by such party in
connection with any proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method or allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding this Section 5(d), if any of the Holders are the Indemnifying
Party, such Holders shall not be required to contribute any amount in excess of
the amount by which the net proceeds exceeds the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of the
Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 5 shall
survive so long as Registrable Securities remain outstanding, notwithstanding
any termination of this Agreement.
6. Rule 144 Information Requirements. For so long as any Registrable
Securities are "restricted securities" under Rule 144, the Company agrees to
timely file the reports required to be filed by it under the Securities Act and
the Exchange Act.
7. Sale without Registration. The Holders agree to comply in all respects
with the provisions of this Section 7 so long as each certificate representing
the Shares is required to bear the legend in substantially the form set forth in
the Stock Purchase Agreement among the Holders and the Company (or any similar
legend). Prior to any proposed transfer of any Registrable Securities by the
Holders which shall not be registered under the Securities Act, the Holders
shall give written notice to the Company of its intention to effect such
transfer, accompanied by: (a) such information as is reasonably necessary in
order to establish that such transfer may be made without registration under the
Securities Act; and (b) at the expense of such Holder or such Holder's
transferee, an unqualified written opinion of legal counsel, satisfactory in
form and substance to the Company, to the effect that such transfer may be made
without registration under the Securities Act; provided that nothing contained
in this Section 7 shall relieve the Company from complying with its obligations
pursuant to Section 2 of this Agreement.
8. Transfer of Rights. The rights granted to the Holders under Section 2
hereof may be assigned to any transferee or assignee who is (a) a subsidiary,
parent, LLC, general partner, limited partner, retired partner, member or
retired member of a Holder, (b) a Holder's ancestors, descendants or spouse or
to trusts for the benefit of such persons or such Holder or (c) a client,
employee or member of BAV, provided that (i) such transfer may otherwise be
effected in accordance with applicable securities laws, (ii) the Company is
given written notice of any such transfer five (5) Business Days prior to the
date of said transfer, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
rights are being assigned and (iii) the transferee or assignee of such rights is
not deemed by the Board of Directors of the Company, in its reasonable judgment,
to be a competitor of the Company and provided further that the transferee or
assignee of such rights assumes in writing in a form reasonably acceptable to
the Company the obligations of the Holders under this Agreement. Notwithstanding
the above, BAV shall be permitted to transfer or assign its rights to Bank of
America Ventures, L.P. without the requirements set forth in Section 8.
9. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of its obligations
under this Agreement, the Holders, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of their rights under this Agreement. The Company agrees
that monetary
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<PAGE> 11
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of
such breach, it shall waive the defense that a remedy at law would be adequate.
(b) No Conflicting Agreements. The Company has not, as of the date hereof,
and shall not, on or after the date of this Agreement, enter into any agreement
with respect to its securities which materially conflicts with the rights
granted to the Holders in this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of a majority of the
Holders.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing and shall be deemed given (i) when made, if
made by hand delivery, (ii) upon confirmation, if made by telecopier or (iii)
one business day after being deposited with a reputable next-day courier,
postage prepaid, to the parties as follows:
(i) if to the Holders, c/o BankAmerica Ventures, 950 Tower Lane, Suite
700, Foster City, California 94404, Attention: Mark Brooks and Robert S.
Fore, or to such other address as a Holder may hereafter furnish to the
Company in writing in accordance herewith, with a copy to Julia Davidson,
Cooley Godward LLP, Five Palo Alto Square, Palo Alto, CA 94306-2155.
(ii) if to the Company, to Cardiac Pathways Corporation, 995 Benecia
Avenue, Sunnyvale, California 94086, Attention: G. Michael Latta, Chief
Financial Officer, or to such other address as the Company may hereafter
furnish to BAV in writing in accordance herewith, with a copy to Chris F.
Fennell, Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California 94304-1050.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS.
(i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(j) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and the registration rights granted by the
Company with respect to the Shares. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with
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<PAGE> 12
respect to the Shares. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such registration rights.
(k) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(l) Further Assurances. Each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all appropriate action, do or cause to be
done all things reasonably necessary, proper or advisable under applicable law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and the other documents contemplated
hereby and consummate and make effective the transactions contemplated hereby.
(m) Termination. This Agreement and the obligations of the parties
hereunder shall terminate upon the earlier of (i) May 20, 2004, or (ii) or when
all of the Registrable Securities have been sold or cease to be Registrable
Securities.
(n) Actions by the Holders. Any action to be taken by the Holders pursuant
to the Agreement may be taken by the Holders of a majority of the Registrable
Securities.
The foregoing Registration Rights Agreement is hereby executed as of the
date first above written.
"COMPANY"
CARDIAC PATHWAYS CORPORATION
By:
/s/ WILLIAM N. STARLING
------------------------------------
William N. Starling
President and Chief Executive Officer
"HOLDERS"
BANKAMERICA VENTURES
By:
/s/ ANCHIE Y. KUO
------------------------------------
Title:
President and Managing Director
-----------------------------------
MORGAN STANLEY VENTURE PARTNERS III,
L.P.
By: Morgan Stanley Venture Partners
III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital
III, Inc.,
its Institutional Managing Member
By:
/s/ FAZLE HUSAIN
------------------------------------
Name: Fazle Husain
Title: General Partner
Address: 1221 Avenue of the Americas
New York, New York 10020
Fax: (212) 762-8424
12
<PAGE> 13
MORGAN STANLEY VENTURE INVESTORS III,
L.P.
By: Morgan Stanley Venture Partners
III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital
III, Inc.,
its Institutional Managing Member
By:
/s/ FAZLE HUSAIN
------------------------------------
Name: Fazle Husain
Title: General Partner
Address: 1221 Avenue of the Americas
New York, New York 10020
Fax: (212) 762-8424
MORGAN STANLEY VENTURE PARTNERS
ENTREPRENEUR FUND, L.P.
By: Morgan Stanley Venture Partners
III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital
III, Inc.,
its Institutional Managing Member
By:
/s/ FAZLE HUSAIN
------------------------------------
Name: Fazle Husain
Title: General Partner
Address: 1221 Avenue of the Americas
New York, New York 10020
Fax: (212) 762-8424
VAN WAGONER CAPITAL MANAGEMENT
By:
/s/ GARRETT R. VAN WAGONER
------------------------------------
Name: Garrett R. Van Wagoner
Title: President
Address: 345 California Street
San Francisco, CA
Fax: (415) 835-5050
STATE OF WISCONSIN INVESTMENT BOARD
By:
/s/ JOHN F. NELSON
------------------------------------
Name: John Nelson
Title: Investment Director
Address:
Fax:
/s/ THOMAS FOGARTY
--------------------------------------
THOMAS FOGARTY
13
<PAGE> 14
SCHEDULE 1
SCHEDULE OF HOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF REGISTRABLE
HOLDER AND BENEFICIAL OWNER NOMINEE AND RECORD HOLDER SECURITIES
--------------------------- ------------------------- ----------------
<S> <C> <C>
BankAmerica Ventures................................... 10,000
Morgan Stanley Venture Partners III, L.P............... 8,773
Morgan Stanley Venture Investors III, L.P.............. 842
Morgan Stanley Venture Partners Entrepreneurs Fund,
L.P. ................................................ 385
Van Wagoner Capital Management......................... 5,000
State of Wisconsin Investment Board.................... 6,000
Thomas Fogarty......................................... 500
</TABLE>
14
<PAGE> 1
EXHIBIT 99.1
For further information, contact:
Thomas M. Prescott, Chief Executive Officer
G. Michael Latta, Chief Financial Officer
Cardiac Pathways Corporation
408-737-0505 (phone)
408-737-1700 (fax)
FOR IMMEDIATE RELEASE
Cardiac Pathways Announces Closing of Convertible Preferred Stock Financing
SUNNYVALE, Calif.: July 26, 1999--Cardiac Pathways Corporation (Nasdaq:
CPWY), today announced that it has closed a $32.0 million convertible preferred
stock financing (the "Financing").
The Financing was led by BankAmerica Ventures and Morgan Stanley Venture
Partners, and included Van Wagoner Capital Management, The State of Wisconsin
Investment Board and other accredited investors. The Company issued 32,000
shares of Series B Preferred Stock at a purchase price of $1,000 per share
raising $32.0 million. Each share of Series B Preferred Stock will initially be
convertible into 200 shares of the Company's common stock (after the reverse
stock split described below). The conversion ratio of the Series B Preferred
Stock will be subject to adjustment for price based anti-dilution. The Series B
Preferred Stock will be entitled to a cumulative dividend of 11% of the purchase
price per share per annum, and will have a liquidation preference in certain
circumstances equal to the initial purchase price plus accrued but unpaid
dividends. The holders of Series B Preferred Stock will vote on all matters
presented to the stockholders on an as-converted to Common Stock basis. In
addition, certain matters, including a merger or acquisition of the Company,
will require the approval of 50% of the holders of Series B Preferred Stock
voting as a separate class.
Proceeds from the financing will be used to support expansion of the
Company's sales and marketing organization, to ramp up manufacturing operations,
to complete essential research and development programs, and to address ongoing
working capital needs.
"Completing this financing gives us the resource base to make the
transition from a development stage company to commercial viability," said
Thomas M. Prescott, President and CEO. "We have earned a reputation in the EP
market for great technology with products we are marketing like the Chilli
cooled ablation system, and innovative programs in the R&D pipeline; like the
Tracking System, a rapid assessment and mapping platform recently demonstrated
as works-in-process at NASPE. We believe these new products will help us build
the best, most cost-effective system for rapid assessment, 3-D mapping and
real-time navigation fully integrated with cooled ablation. If we are
successful, clinicians will win from faster exam times, hospitals will win from
greater EP Lab productivity and patients will benefit from integrated assessment
and therapy. As we create this value for our customers, Cardiac Pathways
stockholders will benefit as we establish a valuable franchise in the EP
market."
<PAGE> 2
In addition, the Company intends to file a Certificate of Amendment to its
Certificate of Incorporation to effect a one-for-five reverse stock split. The
Company's transfer agent will be contacting stockholders shortly and requesting
that stockholders tender their certificates in exchange for certificates
reflecting the post-split shares. No fractional shares or cash payments will be
issued. The number of post-split shares will be rounded up or down to the
nearest whole share, as the case may be. Once the reverse split is effected, the
Company's shares will trade under the symbol "CPWYD" for 30 days to indicate
that a split has occurred.
The holders of the Series B Preferred Stock will have a right of first
offer with respect to future financing by the Company, and will be entitled to
certain registration rights.
Statements included in this release that are not historical or current
facts and which relate to the Financing, are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and are subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated. These
forward-looking statements include the statements in the fourth paragraph
relating to (i) the transition from a development stage company to commercial
viability, (ii) the cost-effectiveness of the Tracking System, and (iii) the
potential benefits received by clinicians, hospitals, patients and stockholders.
The risks and uncertainties which could cause actual results to differ
materially from those anticipated in these forward-looking statements include,
but are not limited to, the adequacy of the Company's cash resources to support
its operations through commercial viability, the Company's ability to complete
the development of the Tracking System, market acceptance of the Company's
products, the Company's ability to successfully obtain regulatory clearance or
approvals to market its products, the ability of the Company to cost effectively
manufacture and distribute products in commercial quantities, and the Company's
ability to effectively compete in the field of electrophysiology against its
competitors, many of which have substantially greater financial and other
resources.
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OF THE COMPANY. THE SECURITIES DESCRIBED IN THIS NOTICE HAVE
NOT BEEN REGISTERED FOR SALE BY THE COMPANY UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SO OFFERED OR
SOLD ABSENT SUCH REGISTRATION AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF.
-2-
