<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SENDX MEDICAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3845 33-0441316
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1945 PALOMAR OAKS WAY, CARLSBAD, CALIFORNIA 92009
(619) 930-6300
(Address, including zip code and telephone number, including area code,
of registrant's principal executive offices)
DOUGLAS R. HILLIER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SENDX MEDICAL, INC.
1945 PALOMAR OAKS WAY, CARLSBAD, CALIFORNIA 92009
(619) 930-6300
(Name, address, including zip code and telephone number, including area code, of
agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
Lawrence B. Cohn, Esq. David J. Segre, Esq.
Michael E. Flynn, Esq. Nevan C. Elam, Esq.
Jeffrey B. Coyne, Esq. Robert M. Tarkoff, Esq.
Stradling, Yocca, Carlson & Rauth Wilson Sonsini Goodrich & Rosati
a Professional Corporation Professional Corporation
660 Newport Center Drive, Suite 1600 650 Page Mill Road
Newport Beach, California 92660 Palo Alto, California 94304
(714) 725-4000 (415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (1)(2) FEE
<S> <C> <C> <C> <C>
2,760,000
Common Stock ($0.001 par value)........... shares $13.50 $37,260,000 $12,848
</TABLE>
(1) Includes 360,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SENDX MEDICAL, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION PROSPECTUS LOCATION OR CAPTION
- ---------------------------------------- -----------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................ Facing Page; Cross Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside of Front and Outside Back
Cover Pages of Prospectus......... Inside Front Page of Prospectus;
Additional Information
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds.................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.... Outside Front Cover Page of
Prospectus; Underwriting
6. Dilution........................... Dilution
7. Selling Security Holders........... Not Applicable
8. Plan of Distribution............... Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to Be
Registered........................ Prospectus Summary; Dividend
Policy; Capitalization; Description
of Capital Stock
10. Interest of Named Experts and
Counsel........................... Legal Matters
11. Information with Respect to
Registrant........................ Prospectus Summary; Risk Factors;
The Company; Use of Proceeds;
Dividend Policy; Capitalization;
Dilution; Selected Financial Data;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management; Certain
Transactions; Principal
Stockholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 9, 1996
2,400,000 Shares
[SENDX]
Common Stock
($.001 PAR VALUE)
--------------
ALL OF THE SHARES OF COMMON STOCK (THE "COMMON STOCK") OF SENDX MEDICAL, INC.
("SENDX" OR THE "COMPANY") OFFERED HEREBY (THE "OFFERING") ARE BEING SOLD BY
SENDX. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE OF
THE COMMON STOCK WILL BE BETWEEN $11.50 AND $13.50 PER SHARE. FOR
INFORMATION RELATING TO THE FACTORS CONSIDERED IN DETERMINING THE
INITIAL OFFERING PRICE TO THE PUBLIC, SEE "UNDERWRITING."
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NASDAQ STOCK MARKET
NATIONAL MARKET UNDER THE SYMBOL "SNDX."
--------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY (1)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL (2).......................................... $ $ $
</TABLE>
(1) BEFORE DEDUCTION OF EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT
$ .
(2) THE COMPANY HAS GRANTED THE UNDERWRITERS AN OPTION, EXERCISABLE FOR 30 DAYS
FROM THE DATE OF THIS PROSPECTUS, TO PURCHASE A MAXIMUM OF 360,000
ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS OF SHARES. IF THE OPTION IS
EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC WILL BE $ ,
UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE $ , AND PROCEEDS TO
COMPANY WILL BE $ .
--------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS, WHEN, AS
AND IF ISSUED BY THE COMPANY, DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND
SUBJECT TO THEIR RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT
THE SHARES WILL BE READY FOR DELIVERY ON OR ABOUT , 1996, AGAINST
PAYMENT IN IMMEDIATELY AVAILABLE FUNDS.
CS First Boston
J.P. Morgan & Co.
Needham & Company, Inc.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
Clinicians in critical care
areas, including intensive
care, operating rooms and
emergency departments,
require frequent and timely
analysis of key blood
parameters on acutely-ill
patients.
The SenDx 100 has just conducted
seven tests on a single blood sample
and then automatically flushed and
recalibrated the sensor cassette,
and recorded, displayed and printed
the results, all within 90 seconds.
It is now immediately available for
analysis of the next sample, using
the same multi-use sensor cassette.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6,
10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN
THIS PROSPECTUS. THE FOLLOWING SUMMARY AND CERTAIN PORTIONS OF THIS PROSPECTUS
INCLUDE FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS PREDICTED BY
SUCH FORWARD-LOOKING STATEMENTS DUE TO VARIOUS FACTORS, INCLUDING BUT NOT
LIMITED TO THOSE DISCUSSED IN "RISK FACTORS." EXCEPT AS OTHERWISE SPECIFIED, ALL
INFORMATION IN THIS PROSPECTUS REFLECTS (I) THE REINCORPORATION OF THE COMPANY
IN DELAWARE, (II) THE AUTOMATIC CONVERSION OF EACH OUTSTANDING SHARE OF
PREFERRED STOCK INTO COMMON STOCK UPON THE CLOSING OF THIS OFFERING, (III) NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND (IV) A ONE-FOR-THREE
REVERSE SPLIT OF THE COMMON STOCK OF THE COMPANY EFFECTED PRIOR TO THE EFFECTIVE
DATE OF THIS OFFERING.
SenDx Medical, Inc. ("SenDx" or the "Company") develops, manufactures and
markets blood analysis systems that provide cost-effective measurement of
critical diagnostic parameters at the point-of-care ("POC"). POC devices are
used by attending clinicians in the patient setting to obtain rapid test
results. The Company's SenDx 100 is a portable system which utilizes a single
multi-use disposable sensor cassette to accurately and simultaneously measure
any combination of seven blood tests frequently ordered for critical care
patients in a simple, less than 90 second procedure. The panel of tests
performed by the SenDx 100 includes blood gases (oxygen, carbon dioxide and pH),
electrolytes (sodium, potassium and ionized calcium) and hematocrit. The Company
estimates that the worldwide market for blood gas and electrolyte tests exceeds
$1 billion per year. The Company believes that the list prices of the disposable
elements for comparable test panels from POC competitors range from $4 to $18.
The Company is positioning the SenDx 100 to offer per test panel prices at or
below the low end of this range. The Company believes the combination of low per
test pricing and other beneficial features, such as ease-of-use, multi-use
disposables and extensive data management, all in a portable self-contained
unit, differentiate the SenDx 100 from competing POC blood analyzers.
Clinicians in the critical care areas, including intensive care units,
operating rooms and emergency departments, require frequent and timely analysis
of key blood parameters on acutely-ill patients to facilitate appropriate
therapeutic intervention. When the first blood gas test instruments were
introduced in the 1960's, the tests were performed exclusively in hospital
central laboratories. The clinical need for faster turnaround times resulted in
establishment during the 1970's of smaller specialized laboratories, called
satellite or "stat" laboratories, located closer to the patient. While this has
decreased turnaround times for blood analyses compared to the central
laboratory, delays can still occur. In addition, the per test cost in stat
laboratories is significantly higher than in central laboratories, due to stat
laboratories having lower testing volumes while requiring duplication of
expensive, maintenance-intensive equipment and skilled operating personnel. The
need for faster turnaround times and lower per test costs has led to commercial
introduction of specialized diagnostic equipment for use by attending clinicians
at the POC. However, these devices have had certain limitations, including
relatively high costs per test, technique-dependent operation and limited data
management capabilities.
The SenDx 100 utilizes proprietary sensor and calibration technologies that
will enable clinicians to easily perform commonly required blood chemistry
analyses on a whole blood sample of approximately 170 microliters (less than
three drops). The SenDx 100 automatically aspirates the blood sample directly
from the sampling syringe into the sensor cassette, performs the analysis,
flushes and recalibrates, and records, displays and prints the data, all in less
than 90 seconds. The SenDx 100 is comprised of a modular electronic base
instrument and multi-use disposables, consisting of a sensor cassette and
calibrant pack, both of which are easily inserted into the instrument and can be
used for up to one hundred test panels. The multi-use disposables enable a broad
measurement capability at a low per test cost. Additional beneficial features of
the SenDx 100 include ease-of-use, broad data management capability and
compliance with the Clinical Laboratory Improvement Amendments of 1988 ("CLIA
'88"), which are federal statutes regulating medical laboratory practice.
3
<PAGE>
The Company received U.S. Food and Drug Administration ("FDA") clearance for
the SenDx 100 in December 1995, 68 days from the date of submission of its
510(k) premarket notification. The notification was supported by test data
obtained at five hospitals, including nationally recognized teaching hospitals,
which compared the SenDx 100 to commonly used central laboratory instruments.
The SenDx 100 will be exhibited at the annual meeting of the American
Association of Critical Care Nurses in May 1996 and the Company currently
expects to commence commercial shipments of the SenDx 100 during the fourth
quarter of 1996.
The Company is the successor to the Medical Sensors business unit of PPG
Industries, Inc. ("PPG"). The Medical Sensors unit was founded in 1988 to
develop POC blood analysis systems for the critical care segments of the
worldwide hospital market. In 1992, Medical Sensors introduced the StatPal II,
one of the first portable instruments for measurement of blood gases at the
patient's bedside. The StatPal II, like other competing products, requires
multi-step operation, has a limited test menu and limited data management
capabilities, and has a relatively high per test cost. Due partly to these
factors, the StatPal II and its competing products have not captured a
significant share of the blood analysis market. The SenDx 100 has been designed
to address these factors. The Company has gained significant knowledge and
experience from the StatPal II with respect to sensor and other product
technology, manufacturing techniques, regulatory matters and the needs of the
blood analysis market in general, which facilitated development of the SenDx
100.
The Company's goal is to become the leading global supplier addressing POC
blood analysis needs of the critical care market with a cost-effective,
easy-to-use system. In the United States, the Company is initially targeting the
SenDx 100 for critical care departments in the 2,000 largest hospitals, which
conduct over 70% of the blood gas tests, by deploying a direct sales force of
experienced medical sales professionals. The Company is arranging to place SenDx
100 beta test units at leading medical centers in the United States and Europe
to increase market awareness of the SenDx 100. The Company also plans to seek
multi-year agreements with major proprietary hospital chains, group purchasing
organizations and managed healthcare delivery networks. Internationally, the
Company plans to market the SenDx 100 through strategic partnerships and
distributors.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.............. 2,400,000 shares
Common Stock outstanding after the
Offering......................... 8,571,329 shares (1)
Use of Proceeds................... To finance increased sales and marketing activities, to
repay debt, to fund increased research and development
activities, and for working capital and general
corporate purposes.
Proposed Nasdaq National Market
Symbol........................... SNDX
</TABLE>
- ------------------------
(1) Excludes (i) 1,348,251 shares of Common Stock issuable upon exercise of
outstanding warrants and stock options as of April 30, 1996, and (ii) up to
35,812 additional shares of Common Stock which would be issuable to CIBC
Wood Gundy Ventures, Inc. in the event the public offering price is less
than $11.81 per share. See "Capitalization," "Management -- Executive
Compensation," "Certain Transactions" and Note 7 of Notes to Financial
Statements.
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales................................. $ 29 $ 258 $ 190 $ 154 $ 1,251 $ 377 $ 826
Cost of goods sold........................ 10 146 127 76 3,320 786 902
--------- --------- --------- --------- --------- --------- ---------
Gross profit (loss)....................... 19 112 63 78 (2,069) (409) (76)
Operating expenses:.......................
Research and development................ 516 665 877 814 2,219 585 618
Write-off of acquired in-process
technology............................. -- -- -- 3,362 -- -- --
General and administrative.............. 468 691 810 962 1,615 369 361
Sales and marketing..................... 56 224 139 100 1,039 339 366
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.............. 1,040 1,580 1,826 5,238 4,873 1,293 1,345
--------- --------- --------- --------- --------- --------- ---------
Loss from operations...................... (1,021) (1,468) (1,763) (5,160) (6,941) (1,702) (1,421)
Interest expense, net..................... (20) 23 (77) (139) (871) (228) (189)
--------- --------- --------- --------- --------- --------- ---------
Net loss.................................. $ (1,041) $ (1,445) $ (1,839) $ (5,299) $ (7,813) $ (1,930) $ (1,610)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net loss per share (1).......... $ (1.59) $ (0.32)
--------- ---------
--------- ---------
Pro forma shares used in
per share computations................... 4,919 4,967
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
AS
ACTUAL ADJUSTED (2)
--------- -------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................................................... $ 9,252 $ 29,110
Working capital......................................................................... 5,960 29,062
Total assets............................................................................ 13,948 33,806
Long-term debt.......................................................................... 5,522 893
Total stockholders' equity.............................................................. 4,259 31,990
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Financial Statements for a description of the
computation of pro forma net loss per share.
(2) Adjusted to reflect the (i) sale of the 2,400,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.50 per share after deducting underwriting discounts and estimated
offering expenses, (ii) the automatic conversion of all outstanding shares
of the Company's Preferred Stock into Common Stock upon the closing of this
Offering and (iii) the repayment of short-term debt obligations of
$3,244,000 and of long-term debt obligations payable to PPG of $4,629,000
($4,348,000 after a 5% prepayment discount on amounts payable to PPG). See
"Use of Proceeds," "Capitalization" and Note 4 of Notes to Financial
Statements.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING
PRINCIPAL RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS.
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS PREDICTED BY SUCH FORWARD-LOOKING STATEMENTS DUE TO VARIOUS FACTORS,
INCLUDING BUT NOT LIMITED TO THOSE WHICH ARE DISCUSSED BELOW.
EARLY STAGE OF COMMERCIALIZATION OF THE SENDX 100; UNCERTAIN MARKET ACCEPTANCE;
PRODUCT CONCENTRATION
The Company does not expect to commence commercial sales of the SenDx 100
until the fourth quarter of fiscal 1996. The Company is arranging to place SenDx
100 beta units at leading medical centers in the United States and Europe;
however, the SenDx 100 has not yet been operated in actual clinical practice.
Successful commercialization of the SenDx 100 will depend upon the Company's
ability to demonstrate the accuracy, ease-of-use, reliability and
cost-effectiveness of the SenDx 100 in the clinical setting. There can be no
assurance that the SenDx 100 will adequately demonstrate these features or that
the Company will be able to expand the testing capabilities of the SenDx 100 to
additional analytes that may be desired by customers. In addition, the Company's
success will depend on its ability to establish its reputation for advanced
technology, product innovation, technical competence, customer support and
responsiveness to customer needs. Successful commercialization of the SenDx 100
will also require the Company to satisfactorily address the needs of various
decision makers in the hospitals that constitute the target market for the
product and to address potential resistance to change in existing laboratory
methods. Such efforts may extend the sales cycle for the SenDx 100 and delay
commercial sales and market acceptance. If the Company is unable to gain market
acceptance of the SenDx 100, the Company's business, operating results and
financial condition would be materially adversely affected.
Substantially all of the Company's net revenues will depend on the market
acceptance of the SenDx 100. No assurance can be given that the POC market will
grow or that the Company will gain market acceptance for the SenDx 100 on a
timely basis, or at all. Many hospitals have historically invested in and relied
upon complex bench top blood testing equipment in their central and stat
laboratories and may be reluctant to change blood testing methodologies or to
incur additional expenses for new blood analysis equipment such as the SenDx
100. Changes in hospital procedures, such as the use of pneumatic sample
delivery systems from the POC, may decrease turnaround times associated with
analyses in central laboratories, thereby reducing demand for POC analyzers. In
addition, continued development and acceptance of non-invasive techniques to
measure certain diagnostic parameters, including the use of pulse oximetry to
measure blood oxygen saturation and the measurement of end-expired CO(2) as a
monitor of blood CO(2) levels, may decrease demand for the tests performed by
the Company's products. See "Business -- Products" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
LIMITED OPERATING HISTORY; ABSENCE OF PROFITABILITY
From its inception in 1990 through March 31, 1996, the Company incurred
cumulative losses of approximately $19.1 million. The Medical Sensors business
unit of PPG was organized in 1988 and the Company acquired substantially all of
the assets of such unit from PPG effective December 31, 1994. To date, the
Company has generated limited revenues from sales of the StatPal II system,
introduced by Medical Sensors in 1992. The StatPal II, like other
first-generation portable instruments for measurement of blood gases, requires a
technique-dependent, multi-step operation and has a limited test menu and
limited data management capabilities. Partly as a result of these factors, the
Company did not capture a significant share of the POC blood analysis market
with the StatPal II. The Company expects to incur additional losses as it
expands its marketing, manufacturing and research and development efforts in
connection with the SenDx 100, and there can be no assurance that the Company
will ever achieve significant sales of the SenDx 100 or that such sales will
lead to profitability. There can be no assurance that the Company will not
encounter substantial delays or incur unexpected expenses related to the
introduction of the SenDx 100, or to future products, research, development,
manufacturing and marketing or other unforeseen difficulties. See "Business
- --Products" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
6
<PAGE>
INTENSE COMPETITION
The medical device industry is characterized by intense competition. The
Company competes with manufacturers of both bench top analyzers used in hospital
central and stat laboratories, and portable POC analyzers. The Company is aware
of certain other commercially available portable POC blood analysis systems,
manufactured and marketed by i-STAT Corporation ("i-STAT"), Diametrics Medical,
Inc. ("Diametrics"), and Mallinckrodt Medical Inc., ("Mallinckrodt"), among
others, one of which provides broader test capabilities than the SenDx 100. In
addition, Optical Sensors, Inc. ("Optical Sensors") recently introduced an
on-demand, patient-connected blood gas-only product. The Company expects that
manufacturers of central and stat laboratory testing equipment, including Ciba
Corning Diagnostics Corp. ("Ciba Corning"), Instrumentation Laboratory and
Radiometer, may also compete with the Company to maintain their respective
revenues and market share. Many companies in the medical device industry,
including manufacturers of POC analyzers and central and stat laboratory
equipment have substantially greater installed customer bases, capital
resources, marketing and management resources, research and development staffs
and facilities than the Company. Such entities have developed, may be developing
or could in the future attempt to develop additional products competitive with
the SenDx 100. Ciba Corning has announced that it is developing a portable POC
blood analyzer. There can be no assurance that the Company's competitors will
not succeed in developing or marketing technologies and products that will be
more effective or less expensive than those being marketed by the Company or
that would render the Company's technology and products obsolete or
noncompetitive. Although the Company believes that its products may offer
certain advantages over its competitors' currently-marketed products, earlier
entrants in the market often obtain and maintain significant market share
relative to later entrants. The Company may experience competitive pricing
pressures that may adversely affect unit prices, sales levels and profitability.
See "Business -- Competition."
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT DEVELOPMENT
The market for the Company's products is characterized by rapidly changing
technology and new product introductions and enhancements. In addition to the
risks associated with market acceptance of the SenDx 100, the Company's success
will depend in part upon its ability to enhance and expand the capabilities of
the SenDx 100 and to develop and introduce innovative new products that gain
market acceptance. There can be no assurance that new technologies or new
products developed by others will not reduce the demand for the Company's
products. The Company maintains research and development programs to improve its
product offerings, including adding additional analytes and data management
features. There can be no assurances, however, that such efforts will be
successful or that other companies will not develop and commercialize products
based on new technologies that are superior in either performance or
cost-effectiveness to the Company's products. There also can be no assurance
that the Company will be successful in developing, manufacturing and marketing
new products or enhancing its existing products on a timely or cost-effective
basis. Moreover, the Company may encounter technical problems in connection with
its product development that could delay introduction of new products or product
enhancements. Failure to develop or introduce new products or product
enhancements on a timely basis that achieve market acceptance could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Research and Development."
EXPANSION OF MANUFACTURING AND MARKETING ACTIVITIES; LACK OF DISTRIBUTION
The Company's experience in manufacturing and marketing its diagnostic
products has been primarily limited to production of relatively small numbers of
its StatPal II analyzers and related disposables for commercial sales. The
Company has manufactured only prototypes of the SenDx 100 analyzer and related
disposables. It may be necessary to expand the Company's manufacturing capacity
in the event of increased demands for the SenDx 100. In particular, the Company
will need to increase its calibrant pack manufacturing capacity. Such expansion
may require the commitment of capital resources for additional tooling and
equipment and for leasehold improvements. Several of the components of the SenDx
100 are sole-sourced or custom-manufactured by a limited number of outside
vendors. Although the Company believes such components could be obtained from
alternate vendors, certain components require substantial lead time from order
to delivery, and there can be no assurance that the Company will be able to
expand its capacity or find necessary qualified third-party manufacturers or
vendors in a timely manner to respond to increased
7
<PAGE>
demands. Any delay or inabilities to obtain the necessary components could
adversely affect the Company's manufacturing ability, financial condition and
operating results. See "Risk Factors -- Dependence on Sole Source Suppliers."
In addition, the Company has only recently begun limited marketing of the
SenDx 100, which will require substantially more marketing effort and resources
than the StatPal II. The Company's sales force consists of 10 persons, eight of
whom have been with the Company for a limited time and the Company believes it
will have to substantially increase the number of sales personnel to adequately
address its markets. There can be no assurance that the Company will be able to
attract qualified sales personnel and successfully train and motivate such sales
force. The Company intends to market and sell its products outside the United
States through distributors; however, the Company does not yet have any
international distribution agreements for the SenDx 100. The Company's ability
to market the SenDx 100 in certain areas may depend on distribution agreements
or strategic alliances with marketing partners. There can be no assurance that
the Company will be able to enter into distribution agreements on favorable
terms or at all, or that such agreements will be successful in developing the
Company's marketing capabilities. Such failure could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business -- Products -- SenDx 100 Marketing and Distribution."
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The success of the Company will depend, in part, on its ability to obtain
and maintain patent protection for its products, to preserve its trade secrets
and to operate without infringing the proprietary rights of others. The patent
position of a medical device company may involve complex legal and factual
issues. The Company has rights to certain issued U.S. patents and their foreign
counterparts with respect to the StatPal II analyzer. All of these patents are
currently exclusively licensed by the Company from PPG, pursuant to a License
Agreement (the "PPG License") and which will be assigned to the Company upon
payment by the Company of amounts due PPG. See "Use of Proceeds." Certain of the
issued and pending patents under the PPG License are subject to a covenant by
PPG not to sue Diametrics, and three current or former employees of Diametrics,
for infringement of such patent rights. This covenant was entered into in
connection with the settlement of a lawsuit by PPG against Diametrics, and such
individuals, for alleged misappropriation of trade secrets, unfair competition
and infringement of a PPG design patent. The PPG License provides for such
covenant not to sue to also be binding upon the Company. Such covenant has no
applicability to patent applications, which may be filed by the Company or any
patents that may be issued therefrom. The Company intends to file additional
patent applications on various aspects of the SenDx 100, including certain
aspects of its sensor and calibration technology. There can be no assurance that
issued patents will provide significant proprietary protection, that pending
patents will be issued, or that products incorporating the technology in issued
patents or pending applications will be free of challenge from competitors. The
Company also relies on trade secrets to protect its proprietary technology, and
no assurance can be given that others will not independently develop or
otherwise acquire equivalent technology or that the Company can maintain such
technology or trade secrets. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as the laws of
the United States. The failure of the Company to protect its intellectual
property rights could have a material adverse effect on its business, operating
results and financial condition.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. There can be no
assurance that infringement, invalidity, right to use or ownership claims by
third parties will not be asserted against the Company in the future. Although
patent and intellectual property disputes in the medical device industry have
often been settled through licensing or similar arrangements, costs associated
with such arrangements may be substantial and there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, should the Company decide to litigate such claims, such litigation
could be expensive and time
8
<PAGE>
consuming, could divert management's attention from other matters, and could
have a material adverse effect on the Company's business, operating results and
financial condition, regardless of the outcome of the litigation. See "Business
- -- Patent and Proprietary Rights."
DEPENDENCE ON SOLE SOURCE SUPPLIERS; INDEPENDENT CONTRACT MANUFACTURERS;
INVENTORY MANAGEMENT
The Company purchases certain components used in its products from third
parties, including video displays, printed circuit board assemblies and certain
calibrant chemicals. The Company's dependence on third-party suppliers involves
several risks, including limited control over pricing, availability, quality and
delivery schedules. The Company is dependent on sole-source suppliers for
certain critical components used in its products. Any delays or shortages of
such components could cause delays in the shipment of the Company's systems,
which could cause the Company's operating results to be adversely affected. The
Company's sole-sourced components are generally purchased pursuant to purchase
orders placed in the ordinary course of business and the Company has no
guaranteed supply arrangements with any of its sole-source suppliers. Because of
the Company's reliance on these vendors, the Company may also be subject to
increases in component costs which could have a material adverse effect on its
business, operating results and financial condition. There can be no assurance
that the Company will not experience quality control problems, supply shortages
or price increases with respect to one or more of these components in the
future. Any quality control problems, interruptions in supply or component price
increases with respect to one or more components could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business -- Manufacturing."
The Company relies on independent contract manufacturers for the manufacture
and/or assembly of certain of its products and components. Reliance on
independent contract manufacturers involves several risks, including the
potential inadequacy of capacity and reduced control over product quality,
delivery schedules, manufacturing yields and costs. Certain electronic
assemblies manufactured by outside vendors require substantial lead time, and
there can be no assurance that the Company will be able to accurately predict
its needs to maintain sufficient inventory of such components. In addition, the
Company's calibrant packs, used in the SenDx 100, currently have a limited shelf
life after manufacture and, as a result, the Company must manufacture the packs
near to the time of shipment and is unable to maintain substantial inventory of
furnished calibrant packs. Shortages of raw materials, production capacity
constraints or delays by the Company's contract manufacturers could negatively
affect the Company's ability to meet its production obligations and result in
increased prices for affected parts. Any such reduction, constraint or delay may
result in delays in shipments of the Company's products or increases in the
prices of components, either of which could have a material adverse effect on
the Company's business, operating results, financial condition, and customer
relations. The Company has no supply agreements with its current contract
manufacturers and orders through purchase orders which are subject to supplier
acceptance. There can be no assurance that current or future independent
contract manufacturers will be able to meet the Company's requirements for
manufactured products. The unanticipated loss of any of the Company's contract
manufacturers could cause delays in the Company's ability to deliver product
while the Company identifies and qualifies a replacement manufacturer. Such an
event would have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- Manufacturing."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
For the year ended December 31, 1995, and for the three months ended March
31, 1996, 20% and 8%, respectively, of the Company's net revenues were derived
from international sales. The Company believes that its future performance is
dependent in part upon its ability to increase net revenues through sales in
international markets. Although the perceived demand for POC blood analyzers is
lower outside the U.S., the Company intends to continue to expand its
international operations and to enter additional international markets, which
will require significant management attention and financial resources. There can
be no assurance, however, that the Company will be able to successfully maintain
or expand its international sales. The Company's success in the international
market will also depend on its ability to establish and maintain agreements with
distributors. The limited shelf life of the calibrant pack may also impair
international sales as unexpected delays in shipment could result in customers
receiving products with an insufficient shelf life.
9
<PAGE>
Furthermore, international sales in general are subject to inherent risks,
including unexpected changes in regulatory requirements, tariffs and other
barriers, fluctuating exchange rates, difficulties in staffing and managing
foreign sales and support operations, additional working capital requirements,
customs, duties, tariff regulations, export license requirements, political and
economic instability in foreign countries and potentially limited intellectual
property protection and difficulties with foreign distributors. In addition,
sales and distribution of the Company's products outside the U.S. are subject to
extensive foreign government regulation. The Company has in the past avoided
losses due to fluctuating exchange rates associated with international sales by
selling its products in U.S. dollars; however, there can be no assurance that
the Company will be able to continue to do so in the future. In addition,
increases in the value of the dollar against foreign currencies could render the
Company's products less price competitive in foreign markets. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's future international sales and, consequently, on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations."
GOVERNMENT REGULATION
The development, testing, manufacturing and marketing of the Company's
products in the United States are regulated by the U.S. Food and Drug
Administration ("FDA") as well as various state agencies. The FDA generally
requires governmental clearance of such products before they are marketed. The
process of obtaining FDA and other required regulatory clearances is lengthy,
expensive and uncertain. Moreover, regulatory clearance, if granted, may include
significant limitations on the indicated uses for which a product may be
marketed. Failure to comply with applicable regulatory requirements can result
in, among other things, fines, suspensions of approvals, product seizures,
injunctions, recalls of products, operating restrictions, and criminal
prosecutions. The Company's StatPal II and SenDx 100 required the submission of
information to the FDA in the form of a 510(k) premarket notification to
substantiate label claims and to demonstrate "substantial equivalence" to
medical devices legally marketed prior to 1976. Although the Company has
received FDA clearance for these products, there can be no assurance that the
Company will be able to obtain the necessary regulatory clearance for the
manufacture and marketing of enhancements to its existing products or future
products either in the United States or in foreign markets on a timely basis or
at all. In addition, the Company's manufacturing operations are subject to the
Good Manufacturing Practices ("GMP") regulations regarding the manufacture,
testing, labeling, record keeping, and storage of diagnostic devices. Delays in
receipt of or failure to receive clearances to market products, or loss of
previously received clearances, may materially adversely affect the marketing of
the Company's products and the Company's business, operating results and
financial condition.
The Company's products are also affected by the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA '88") and related federal and state
regulations, which set forth quality assurance, proficiency testing and
personnel standards for clinical laboratories and diagnostic products. Some
states restrict the use of blood gas and electrolyte analyzers to physicians and
certain licensed technicians. Such restrictions on use may impair the Company's
ability to market the SenDx 100 in these states.
Commercial distribution in most foreign countries also is subject to varying
government regulations which may delay or restrict marketing of the Company's
products. Any inability or delay in obtaining approvals would adversely affect
the Company's business, financial condition and results of operations. In
addition, federal, state and international government regulations regarding the
manufacture and sale of healthcare products and diagnostic devices are subject
to future change, and additional regulations may be adopted which may prevent
the Company from obtaining, or affect the timing of, future regulatory
clearances and may adversely affect the Company.
The Company's manufacturing processes are also subject to stringent federal,
state and local regulations governing the use, generation, manufacture, storage,
handling and disposal of certain materials and wastes and similar foreign
regulations, as well as GMP regulations. Although the Company believes that it
has complied in all material respects with such laws and regulations, the
Company is subject to periodic inspection to ensure its continued compliance
with such laws and regulations. There can be no assurance
10
<PAGE>
that the Company will not be required to incur significant costs in the future
in complying with manufacturing and environmental regulations, or that the
Company will not be required to cease operations in the event of its continued
failure to effect compliance. See "Business -- Government Regulation."
REIMBURSEMENT
In the United States, healthcare providers such as physicians and hospitals
that purchase medical devices such as the Company's products generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or part of the cost of therapeutic and
diagnostic procedures. With the implementation of Medicare's Prospective Payment
System for hospital inpatient care (Diagnosis Related Groups or "DRGs"), in the
1980's, public and private payors began to reimburse providers on a fixed
payment schedule for patients depending on the nature and severity of the
illness. Many tests and procedures that would have been performed under
cost-plus reimbursement formulas are subject to scrutiny and must be justified
in terms of their impact on patient outcomes. The percentage of blood gas and
electrolyte tests for which hospitals receive direct reimbursement is declining
in favor of reimbursement on a per procedure basis, including diagnosis and
treatment, or through capitated charges. As a result, the incentives are now to
test only for those parameters and on a frequency that will result in
cost-effective care. In addition, Medicare DRG reimbursement originally allowed
a pass-through of some of the capital cost of equipment. This pass-through is
now being phased out, making non-purchase acquisition of capital equipment more
attractive. Broad acceptance of the Company's products will require offering
attractive acquisition alternatives that are economically viable for the
hospitals and for the Company.
Market acceptance of the Company's products in international markets may be
dependent in part upon reimbursement within prevailing healthcare payment
systems. Healthcare payment systems in international markets vary significantly
by country. The main types of healthcare payment systems in international
markets are government sponsored healthcare and private insurance. Countries
with government sponsored healthcare, such as the United Kingdom, have a
centralized, nationalized healthcare system. New devices are brought into the
system through negotiations between departments at individual hospitals at the
time of budgeting. Although not as prevalent as in the United States, health
maintenance organizations are emerging in certain European countries.
The Company could be adversely affected by changes in reimbursement policies
of governmental or private healthcare payors to the extent any such changes
affect reimbursement for procedures in which the Company's products are used.
Adverse changes in governmental and private third party payors' policies toward
reimbursement for such procedures would have a material adverse effect on the
Company's business, financial condition and results of operations.
POSSIBLE NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company's operations to date have consumed substantial amounts of cash,
and the Company expects its capital and operating expenditures to increase in
the next few years. The Company believes that its existing capital resources and
anticipated cash flow from planned operations, together with the net proceeds of
this Offering and the interest earned thereon, should be adequate to satisfy its
capital requirements at least through 1998. There can be no assurance, however,
that the Company will not need additional capital before such time. The
Company's need for additional financing will depend upon numerous factors,
including, but not limited to, the extent and duration of the Company's future
operating losses, the level and timing of future revenues and expenditures,
market acceptance of new products, the results and scope of ongoing research and
development projects, competing technologies, and market and regulatory
developments. The Company currently has no committed external sources of funds.
To the extent that existing resources are insufficient to fund the Company's
activities, the Company will need to raise additional funds through public or
private financings. There can be no assurances that additional financing will be
available or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders may result. If adequate funds are not available, the
Company's results of operations may be adversely affected. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business."
11
<PAGE>
RISK OF PRODUCT LIABILITY CLAIMS
The nature of the Company's business exposes it to risk from product
liability claims. The Company currently maintains product liability insurance
for its diagnostic products, with limits of $1.0 million per occurrence and in
the aggregate per year, and an excess liability insurance policy with limits of
$4.0 million per occurrence and in the aggregate per year. However, such
coverage is becoming increasingly expensive and there can be no assurance that
the Company's insurance will be adequate to cover future product liability
claims, or that the Company will be successful in maintaining adequate product
liability insurance at acceptable rates. Any losses that the Company may suffer
from any liability claims, and the effect that any product liability litigation
may have upon the reputation and marketability of the Company's products, may
divert management's attention from other matters and may have a material adverse
effect on the Company's business, financial condition and results of operations.
LEGAL PROCEEDINGS
In late December 1995, the Company moved from leased facilities in La Jolla,
California, at the termination of the leased term. On January 31, 1996, the
Company's former landlord filed a complaint, against both the Company and PPG in
San Diego County Superior Court, which was amended in April, 1996. The
complaint, as amended, alleges, breach of sublease (for allegedly failing to
restore leased premises to their original condition at the termination of the
sublease); fraud (for allegedly making false representations regarding
restoration of the premises); trespass (for allegedly damaging the premises);
conversion (for allegedly damaging the premises); nuisance (for allegedly
leaving items on the premises); tortious interference with prospective economic
advantage (for allegedly interfering with the plaintiff's ability to relet the
premises); and negligence (for allegedly leaving supplies and products exposed
to possible tampering by outsiders). The landlord seeks at least $860,000 in
damages, plus exemplary and punitive damages. The Company is vigorously
defending this action. There can, however, be no assurances that such action
would not be decided against the Company, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Legal Proceedings."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon its key management and technical personnel,
and its future success will depend partially upon its ability to retain these
persons and recruit additional qualified personnel. The Company must compete
with other companies, universities, research entities and other organizations in
order to attract and retain highly qualified personnel. The loss of the services
of one or more members of the management group or the inability to hire
additional qualified personnel may have an adverse affect on the Company. See
"Management."
NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if one does develop, that it will be maintained. The initial public offering
price, which has been established by negotiations between the Company and the
Underwriters, may not be indicative of prices that will prevail in the trading
market. See "Underwriting" for information relating to the method of determining
the initial public offering price. The market price of shares of Common Stock is
likely to be volatile. Announcements of technological innovations for new
commercial products by the Company or its competitors, healthcare reforms and
developments concerning proprietary rights or governmental regulation or general
conditions in the medical device industry may have a significant effect on the
Company's business and on the market price of the Company's Common Stock. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of
particular companies. The securities of medical device companies have
experienced extreme price and volume fluctuations, which have often been
unrelated to the companies' operating performance. Sales of a substantial number
of shares of Common Stock by existing security holders could also have an
adverse effect on the market price of the Company's securities. See "Shares
Eligible for Future Sale."
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS; EFFECT OF ANTITAKEOVER
PROVISIONS
Upon consummation of this Offering, the present directors and executive
officers of the Company and their affiliates will, in the aggregate,
beneficially own 38.1% of the outstanding Common Stock (36.7%, if the
12
<PAGE>
Underwriters' over-allotment option is exercised in full). These stockholders,
acting together, will have the ability to control the election of the Company's
directors and most other stockholders' actions and, as a result, direct the
Company's affairs and business. Such concentration may have the effect of
delaying or preventing a change of control of the Company. See "Principal
Stockholders."
The Board of Directors has authority to issue up to 10,000,000 shares of
Preferred Stock, $.001 par value, and to fix the rights, preferences, privileges
and restrictions, including voting rights, of those shares without any future
vote or action by the stockholders. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company,
thereby delaying, deferring or preventing a change in control of the Company.
Furthermore, such Preferred Stock may have other rights, including economic
rights senior to the Common Stock, and, as a result, the issuance thereof could
have a material adverse effect on the market value of the Common Stock. The
Company has no present plans to issue shares of Preferred Stock.
Further, Section 203 of the General Corporation Law of Delaware prohibits
the Company from engaging in certain business combinations with interested
stockholders. These provisions may have the effect of delaying or preventing
change in control of the Company without action by the stockholders and
therefore could adversely affect the price of the Company's Common Stock. See
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE; OUTSTANDING WARRANTS; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock (including shares issued upon
the exercise of outstanding options or warrants) in the public market after this
Offering could materially adversely affect the market price of the Common Stock.
Such sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company deems appropriate. In addition to the 2,400,000 shares of Common
Stock offered hereby, upon completion of this Offering, the Company will have
6,171,329 shares of Common Stock outstanding, all of which are restricted shares
("Restricted Shares") under the Securities Act of 1933, as amended (the
"Securities Act"). The number of outstanding shares that will be available for
sale, subject in certain circumstances to volume and manner of sale
restrictions, in the public market, after giving effect to the lock-up
agreements, will be as follows (assuming no exercise after April 30, 1996 of the
approximately 1,348,251 shares issuable pursuant to outstanding options or
warrants, approximately 806,873 of which would be eligible for immediate sale if
exercised): (i) 240,073 shares of Common Stock will be eligible for sale as of
the Effective Date of this Offering, (ii) 270,906 shares of Common Stock will be
eligible for sale beginning 90 days after the Effective Date of this Offering
and (iii) 2,256,410 shares of Common Stock will be eligible for sale beginning
180 days after the Effective Date of this Offering. The approximately 3,914,919
remaining Restricted Shares will be eligible for sale pursuant to Rule 144 upon
the expiration of their respective two year holding periods. In addition,
following the closing of this Offering, the holders of Restricted Shares
(including shares issuable upon the exercise of the Company's outstanding
warrants) will be entitled to certain rights with respect to registration of
such shares for sale in the public market.
SUBSTANTIAL AND IMMEDIATE DILUTION; ABSENCE OF DIVIDENDS
Purchasers of the Shares offered hereby will incur immediate dilution of
approximately $9.00 per share in net tangible book value (assuming an initial
public offering price of $12.50). The exercise of existing options and warrants
may also have a dilutive effect on the interests of the investors in this
Offering. See "Dilution." The Company has not paid any dividends on its Common
Stock since its inception and does not contemplate or anticipate paying any
dividends upon its Common Stock in the foreseeable future. It is currently
anticipated that earnings, if any, will be used to finance the development and
expansion of the Company's business. See "Dividend Policy" and "Dilution."
13
<PAGE>
THE COMPANY
The Company was incorporated in California in December 1990 as "UniFET,
Incorporated." Effective December 31, 1994, the Company acquired the assets of
the Medical Sensors business unit of PPG, which PPG founded in 1988 to develop
point-of-care diagnostic systems for the critical care segments of the worldwide
hospital market. The Company was subsequently renamed "SenDx Medical, Inc." and
will be reincorporated in Delaware prior to the effectiveness of this Offering.
As used in this Prospectus, references to "Company" and "SenDx" refer to SenDx
Medical, Inc. after giving effect to the reincorporation and to its predecessor
entity to the extent appropriate. The principal executive offices of the Company
are located at 1945 Palomar Oaks Way, Carlsbad, California 92009, and the
Company's telephone number is (619) 930-6300.
SenDx-Registered Trademark- and StatPal-Registered Trademark- are registered
trademarks, and SenDx 100-TM- is a trademark, of SenDx Medical, Inc. This
Prospectus also includes trademarks of other companies.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,400,000 shares of
Common Stock in this Offering (2,760,000 if the Underwriters' over-allotment
option is exercised in full) at an assumed initial public offering price of
$12.50 per share, after deducting the underwriter discount and estimated
offering expenses payable by the Company, are estimated to be approximately
$27,450,000 ($31,635,000 if the Underwriters' over-allotment option is exercised
in full).
The Company expects to use the net proceeds of this Offering to increase
sales and marketing activities, to repay approximately $7.9 million of debt and
related interest, to fund increased research and development activities, and to
provide funds available for working capital and general corporate purposes.
Immediately following the closing of the Offering, the Company will utilize
approximately $2.2 million of the proceeds to repay amounts due under the
Company's promissory note issued to Instrumentation Laboratory, which is due in
July 1996, and which bears interest at the rate of 10% per annum and $100,000 to
repay a $100,000 demand note payable, which bears interest at prime plus 2%. In
addition, the Company will utilize approximately $5.4 million of the proceeds to
prepay amounts outstanding, including accrued interest, under the Company's
secured promissory note issued to PPG (after a 5% prepayment discount, see Note
4 of Notes to Financial Statements), which is due in part in December 1996 and
in full in December 1997, and which bears interest at a rate per annum equal to
the prime rate plus 2%. The Company also plans to utilize a portion of the
proceeds for capital expenditures. A portion of the net proceeds may also be
used for strategic acquisitions of businesses, products or technologies
complementary to those of the Company; however, the Company is not currently a
party to any commitments or agreements and is not currently involved in any
negotiations with respect to any acquisitions. Except as stated above, the
Company has not determined the amounts it plans to expend with respect to each
of the listed uses or the timing of such expenditures. The amounts actually
expended for each use may vary significantly depending on a number of factors,
including future revenue growth, if any, the amount of cash generated or used by
the Company's operations, the progress of the Company's product development
efforts, technological advances, the status of competitive products and
acquisition opportunities presented to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Pending such
uses, the Company intends to invest the net proceeds of this offering in
short-term, interest bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on the shares of its Common
Stock and currently intends to retain future earnings to fund the development
and growth of its business.
14
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at March 31, 1996
was $2,268,000, or $0.37 per share. "Net tangible book value per share"
represents the amount of the Company's total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding after
giving effect to the automatic conversion of each outstanding share of Preferred
Stock into Common Stock upon the closing of this Offering. Without taking into
account any other changes in net tangible book value after March 31, 1996, other
than to give effect to the sale by the Company of the 2,400,000 shares offered
hereby at an assumed initial public offering price of $12.50 per share and after
deduction of underwriting discounts and commissions and estimated offering
expenses, net tangible book value of the Company at March 31, 1996 would have
been approximately $29,999,000, or $3.50 per share of Common Stock. This
represents an immediate increase in the net tangible book value of $3.13 per
share of Common Stock to existing stockholders and an immediate dilution of
$9.00 per share to new investors, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 12.50
Net tangible book value per share before this Offering............. $ 0.37
Increase per share attributable to new investors................... 3.13
---------
Net tangible book value per share after this Offering................ 3.50
---------
Dilution per share to new investors $ 9.00
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total cash consideration paid and the average cash price per share
paid by the existing stockholders and by the investors purchasing shares of
Common Stock in this Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........................... 6,170,246 72.0% $ 23,350,054 43.8% $ 3.78
New Investors................................... 2,400,000 28.0 30,000,000 56.2 12.50
---------- ----- ------------- -----
Total....................................... 8,570,246 100.0% $ 53,350,054 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing tables and calculations assume no exercise of outstanding
options or warrants and exclude up to 35,812 additional shares of Common Stock
which would be issuable to CIBC Wood Gundy Ventures, Inc. in the event the
initial public offering price is less than $11.81 per share. At March 31, 1996,
465,973 shares of Common Stock were subject to outstanding warrants at a
weighted average exercise price of $4.08 per share and 872,161 shares of Common
Stock were subject to outstanding options at a weighted average exercise price
of $1.32 per share. To the extent options and warrants are exercised, there will
be further dilution to new investors. See "Management -- Executive
Compensation," "Certain Transactions," "Description of Capital Stock" and Note 7
of Notes to Financial Statements.
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of March 31, 1996, (ii) the pro forma capitalization of the Company, giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the closing of this Offering, (iii) the capitalization of the
Company as adjusted to give effect to the sale of the 2,400,000 shares of Common
Stock offered by the Company hereby (at an assumed initial public offering price
of $12.50 per share, after deduction of underwriting discounts and commissions
and estimated offering expenses) and (iv) the repayment of $4,629,000 of certain
long-term obligations.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, net of current portion............................... $ 5,522 $ 5,522 $ 893
Stockholders' equity:
Convertible Preferred Stock, no par value ($0.001 par value pro forma and
as adjusted), 100,000,000 shares (10,000,000 pro forma and as adjusted)
authorized; 16,690,253 shares outstanding; no shares outstanding pro
forma and as adjusted.................................................... 23,277 -- --
Common Stock, no par value ($0.001 par value pro forma and as adjusted),
50,000,000 shares authorized 606,828 shares outstanding; 6,170,246 shares
outstanding, pro forma; 8,570,246 shares outstanding, as adjusted (1).... 73 6 9
Additional paid-in capital................................................ -- 23,344 50,791
Accumulated deficit....................................................... (19,091) (19,091) (18,810)
---------- ----------- -----------
Total stockholders' equity.............................................. 4,259 4,259 31,990
---------- ----------- -----------
Total capitalization.................................................. $ 9,781 $ 9,781 $ 32,883
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
(1) Excludes 872,161 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 31, 1996, of which 339,992 were then
exercisable, and excludes 465,973 shares of Common Stock issuable upon
exercise of outstanding warrants as of March 31, 1996 at a weighted average
exercise price of $4.08 per share. Also excludes a total of 44,510
additional shares of Common Stock reserved for future issuance under the
Company's 1991 Stock Option Plan (the "1991 Plan"), and 900,000 additional
shares of Common Stock reserved for future issuance under its 1996 Stock
Incentive Plan (the "1996 Plan") and its 1996 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan"). See "Management -- 1991 Stock Option
Plan," "-- 1996 Stock Incentive Plan" and "-- Employee Stock Purchase Plan."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statement of operations data for each of the three years in the period ended
December 31, 1995, and with respect to the balance sheet data at December 31,
1993, 1994 and 1995, are derived from the financial statements and Notes thereto
that have been audited by Ernst & Young LLP, independent auditors. The financial
statements at December 31, 1994 and 1995 and for each of three years in the
period ended December 31, 1995 are included elsewhere in this Prospectus. The
selected financial data as of and for the years ended December 31, 1991 and 1992
are derived from the Company's unaudited financial statements not included in
this Prospectus. The selected financial data as of and for the three-month
periods ended March 31, 1995 and 1996 are derived from unaudited financial
statements which, in the opinion of management, reflect all adjustments (which
are of a normal recurring nature) necessary for a fair presentation of the
results of operations for such periods. The results of interim periods are not
necessarily indicative of the results of a full year. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:..........
Net sales $ 29 $ 258 $ 190 $ 154 $ 1,251 $ 377 $ 826
Cost of goods sold................... 10 146 127 76 3,320 786 902
--------- --------- --------- --------- --------- --------- ---------
Gross profit (loss).................. 19 112 63 78 (2,069) (409) (76)
Operating expenses:
Research and development........... 516 665 877 814 2,219 585 618
Write-off of acquired in-process
technology........................ -- -- -- 3,362 -- -- --
General and administrative......... 468 691 810 962 1,615 369 361
Sales and marketing................ 56 224 139 100 1,039 339 366
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses......... 1,040 1,580 1,826 5,238 4,873 1,293 1,345
--------- --------- --------- --------- --------- --------- ---------
Loss from operations................... (1,021) (1,468) (1,763) (5,160) (6,941) (1,702) (1,421)
Interest income (expense), net......... (20) 23 (77) (139) (871) (228) (189)
--------- --------- --------- --------- --------- --------- ---------
Net loss............................... $ (1,041) $ (1,445) $ (1,839) $ (5,299) $ (7,813) $ (1,930) $ (1,610)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net loss per share (1)....... $ (1.59) $ (0.32)
--------- ---------
--------- ---------
Pro forma shares used in per share
computations.......................... 4,919 4,967
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................... $ 88 $ 128 $ 137 $ 120 $ 564 $ 9,252
Working capital (deficit)........................... (27) 57 (1,043) (2,055) (3,242) 5,960
Total assets........................................ 711 734 553 4,772 4,940 13,948
Long-term debt...................................... -- -- 560 6,588 5,380 5,522
Total stockholders' equity (deficit)................ 478 503 (1,314) (4,982) (4,937) 4,259
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Financial Statements for a description of the
computation of pro forma net loss per share.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in December 1990, and has primarily been
engaged in research and development of highly advanced sensors for medical,
laboratory and industrial applications since its inception. Effective December
31, 1994, the Company acquired certain assets and liabilities of Medical
Sensors, a business unit of PPG Industries, Inc. ("PPG"), for $7.6 million and a
warrant to purchase Common Stock of the Company. Because the acquisition of
Medical Sensors was accounted for as a purchase, the financial operating results
of Medical Sensors prior to 1995 are not included in the Company's financial
results. The Medical Sensors acquisition has had a significant effect on the
Company's financial results for periods subsequent to 1994. See Note 2 of Notes
to Financial Statements.
As consideration for the net assets acquired, the Company paid PPG $500,000
in cash in both December 1994 and January 1995 and issued PPG a $1.6 million
secured promissory note and a $5.0 million secured promissory note.
Additionally, the Company issued PPG a warrant to purchase 166,667 shares of the
Company's Common Stock at a price of $4.50 per share, expiring December 31,
1999. The $1.6 million secured promissory note was paid in 1995 and the $5.0
million secured promissory note is due December 31, 1997. The Company is
required to pay principal and accrued interest of $1.0 million on December 31,
1996. The note payable is secured by substantially all of the assets of the
Company. In addition, PPG has retained title to certain patents and has granted
the Company an exclusive royalty-free license for their use. The proceeds of
this Offering will be used to prepay the note in full, as a result of which the
patents will then be transferred to the Company. See Notes 2 and 4 to Notes to
Financial Statements.
Prior to the acquisition of Medical Sensors, the Company developed pH
measurement systems for laboratory and industrial use. During 1993 and 1994, the
pH measurement systems were manufactured and marketed on a limited basis. In
1995, the Company completed development of pH measurement systems that are
currently being sold to industrial markets through an OEM agreement with Beckman
Instruments, Inc. ("Beckman").
Medical Sensors' StatPal II product, introduced in 1992, was one of the
first portable systems for measuring blood gases at the patient's bedside.
Experience gained in developing and marketing this product served as a basis for
the Company's rapid development of the SenDx 100. The Company's current
activities consist of completing development, manufacturing and market
introduction of the SenDx 100 system, continuing research and development and
supporting the StatPal II and pH measurement system products.
To date, the Company's limited revenues have consisted primarily of sales of
the pH measurement systems and the StatPal II. The Company has incurred net
operating losses since inception. As of March 31, 1996, the Company had an
accumulated deficit of $19.1 million. Through 1996, the Company expects to incur
substantial expenses in development and commercialization of the SenDx 100,
including costs relating to initial production, increasing the Company's sales
personnel, product introduction, technical seminars and ongoing administrative
activities, including regulatory and quality assurance programs and continuing
applications for patent protection for proprietary aspects of its technology.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The Company had net sales of $826,000 for the three months ended March 31,
1996 compared to $377,000 for the corresponding period in 1995. The increase was
primarily due to an increase in sales of the pH measurement systems, which
resulted from filling a temporary backlog of orders from Beckman. The Company
posted a negative gross profit of $76,000 for the three months ended March 31,
1996 and $409,000 for the corresponding period in 1995. This reduction in
negative gross profit resulted from stronger sales of the more profitable pH
measurement systems, improved pricing for StatPal II disposables, and larger
sales volumes to cover fixed manufacturing costs.
18
<PAGE>
Research and development expenses increased to $618,000 for the three months
ended March 31, 1996 from $585,000 for the corresponding period in 1995, due to
an increase in activity related to the development of the SenDx 100. General and
administrative expenses of $361,000 and sales and marketing expenses of $366,000
for the three-month period ended March 31, 1996 did not fluctuate significantly
from the corresponding period in 1995. With the commercialization of the SenDx
100, the Company anticipates increases in sales and marketing expenses. In
addition, the Company also anticipates increases in research and development
expenses related to continued development activities for the SenDx 100 and
increased general and administrative expenses related to increased financial
reporting, investor relations and other activities associated with being a
public company.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Certain categories of the Company's revenues and expenses increased
substantially in 1995 due to the acquisition of Medical Sensors in December
1994, and, as a result, year-to-year comparisons are not necessarily meaningful.
Net sales increased to $1,251,000 in 1995 compared to $154,000 in 1994, due
to the inclusion of $1,081,000 in 1995 sales of the StatPal II product acquired
with the Medical Sensors business. Gross margin
decreased to a loss of $2,069,000 in 1995 compared to a profit of $78,000 in
1994. The negative gross profit in 1995 was primarily due to low sales volumes
of the StatPal II that did not cover fixed manufacturing costs.
Research and development expenses increased to $2,219,000 in 1995 from
$814,000 in 1994, primarily reflecting the SenDx 100 product development
efforts. General and administrative expenses increased to $1,615,000 in 1995
from $962,000 in 1994, reflecting the increased level of operations and
amortization of intangibles associated with the acquisition of Medical Sensors.
Sales and marketing expenses increased to $1,039,000 in 1995 from $100,000 in
1994, reflecting sales and marketing expenses related to the StatPal II, which
were nevertheless scaled back in 1995 from previous levels in the Medical
Sensors business. In 1994, the Company wrote-off $3,362,000 for in-process
technology related to the acquisition of the Medical Sensors business. See Note
2 of Notes to Financial Statements.
Net interest expense increased to $871,000 in 1995 from $139,000 in 1994,
primarily due to debt obligations issued to PPG in connection with the Medical
Sensors acquisition.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Net sales decreased to $154,000 in 1994 compared to $190,000 in 1993, due to
lower sales of pH measurement systems, which were partially offset by contract
revenues received from Beckman for the development of products to meet Beckman's
specifications. Gross profit increased to $78,000 in 1994 compared to $63,000 in
1993, primarily due to Beckman contract revenues received in 1994.
Research and development expenses decreased to $814,000 in 1994 compared to
$877,000 in 1993, primarily due to financial resource constraints. General and
administrative expenses increased to $962,000 in 1994 compared to $810,000 in
1993, primarily due to the hiring of new management. Sales and marketing
expenses decreased slightly to $100,000 in 1994 from $139,000 in 1993, primarily
as a result of decreased sales activity and limited availability of financial
resources.
Net interest expense in 1994 increased to $139,000 compared to $77,000 in
1993, due primarily to issuance of debt obligations to private investors to meet
working capital needs.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $5,960,000. The
Company has financed its operations since inception through private sales of
equity and debt securities and short-term loans. Since 1990, the Company has
raised approximately $23,350,000 from the sale of equity securities. At March
31, 1996, the Company had short-term notes payable and current portion of
long-term debt outstanding of $3,244,000 and long-term obligations of
$5,522,000. The short-term debt obligations of $3,244,000 and the $4,629,000 of
long-term obligation due PPG, plus accrued interest, will be repaid with
proceeds from this Offering. If the Company prepays the amounts due PPG before
August 31, 1996, it will receive a 5% discount on the principal and related
accrued interest due. See Note 4 of Notes to Financial Statements.
19
<PAGE>
For the years ended December 31, 1995, 1994 and 1993 and the three months
ended March 31, 1996, the Company used cash of $5,647,000, $1,437,000,
$1,524,000, and $1,401,000, respectively, for operating activities. For the year
ended December 31, 1995 and the three months ended March 31, 1996, the Company
used cash of $453,000 and $717,000, respectively, to purchase equipment and
leasehold improvements. For the years ended December 31, 1995 and 1994 and the
three months ended March 31, 1996, cash of $5,172,000, $763,000 and $9,895,000,
respectively, was provided from the issuance of convertible preferred stock. For
the years ended December 31, 1995, 1994 and 1993, net cash of $1,853,000,
$1,161,000, $1,560,000, respectively, and $911,000 for the three months ended
March 31, 1996, was provided by the issuance of notes payable, net of principal
repayments.
The Company has had net losses since inception and therefore has not been
subject to state or federal income taxes. At December 31, 1995, the Company had
federal and California net operating tax loss carryforwards ("NOL") of
approximately $12,900,000 and $4,900,000, respectively, available to reduce
future income taxes. The difference between the federal and California NOL is
primarily attributable to the capitalization of research and development
expenses for California income tax purposes and to the fifty-percent limitation
on California loss carryforwards. The federal and California tax loss
carryforwards begin expiring in 2006 and 1998, respectively, unless previously
utilized. Pursuant to the Internal Revenue Code, use of the Company's NOL and
credit carryforwards may be limited because of cumulative changes in ownership
of more than 50%, which occurred in 1992 and 1996. Although the Company does not
believe such changes will have a material impact upon the utilization of the NOL
and credits over the respective carryforward periods, the changes will have an
impact on the timing of such utilization. See Note 5 of Notes to Financial
Statements.
The Company believes that the net proceeds from this public offering
combined with the Company's current resources will be sufficient to repay
short-term notes payable, prepay the debt obligation due PPG and fund its
operations at least through 1998. However, the Company's working capital and
capital needs may increase depending upon numerous factors, including the
success of its initial product marketing activities, the progress in product
development, technological developments and competitive conditions.
20
<PAGE>
BUSINESS
OVERVIEW
SenDx Medical, Inc. ("SenDx" or the "Company") develops, manufactures and
markets blood analysis systems that provide cost-effective measurement of
critical diagnostic parameters at the point-of-care ("POC"). POC devices are
used by attending clinicians in the patient setting to obtain rapid test
results. The Company's SenDx 100 is a portable system which utilizes a single
multi-use disposable sensor cassette to accurately and simultaneously measure
any combination of seven blood tests frequently ordered for critical care
patients in a simple, less than 90 second procedure. The panel of tests
performed by the SenDx 100 includes blood gases (oxygen, carbon dioxide and pH),
electrolytes (sodium, potassium and ionized calcium) and hematocrit. The Company
believes that the list prices of the disposable elements for comparable test
panels from POC competitors range from $4 to $18. The Company is positioning the
SenDx 100 to offer per test panel prices at or below the low end of this range.
The Company believes the combination of low per test pricing and other
beneficial features, such as ease-of-use, multi-use disposables and extensive
data management, all in a portable self-contained unit, differentiate the SenDx
100 from competing POC blood analyzers.
The Company's goal is to become the leading global supplier addressing POC
blood analysis needs of the critical care market with a cost-effective,
easy-to-use system. In the United States, the Company is initially targeting the
SenDx 100 for the critical care departments in the 2,000 largest hospitals,
which conduct over 70% of the blood gas tests, by deploying a direct sales force
of experienced medical sales professionals. The Company is arranging to place
SenDx 100 beta test units at leading medical centers in the United States and
Europe to increase market awareness of the SenDx 100. The Company also plans to
seek multi-year agreements with major proprietary hospital chains, group
purchasing organizations and managed healthcare delivery networks.
Internationally, the Company plans to market the SenDx 100 through strategic
partnerships and distributors.
BLOOD GAS AND ELECTROLYTE ANALYSIS MARKET
The analysis of blood gas and electrolyte levels is an integral part of the
diagnosis and treatment of critically ill patients, and access to timely and
accurate results is vital to effective patient care. The Company estimates that
the worldwide market for blood gas and electrolyte tests exceeds $1 billion per
year. Most blood gas and electrolyte tests are performed on patients in hospital
critical care units, operating rooms and emergency departments. Tests for blood
gas levels provide clinicians with key indices of the patient's cardio-pulmonary
status, useful for diagnosis and treatment of conditions such as congestive
heart failure, multi-system organ failure, emphysema, respiratory distress
syndrome and pulmonary edema. Blood electrolyte levels are key to the diagnosis
of conditions such as cardiac disorders, renal failure and hypertension.
Measurement of electrolyte levels is important in monitoring intravenous fluid
therapy for these conditions as well as in other applications such as surgery.
Hematocrit tests measure the volume of red blood cells and provide a key
indicator for patient conditions such as dehydration, anemia or severe blood
loss.
Historically, obtaining a blood analysis has been a time consuming process
performed by a skilled operator on complex, bulky, maintenance-intensive and
expensive bench top equipment located in the hospital central laboratory. Tests
performed at high volume central hospital laboratories are cost effective, but
may involve long delays before the blood analysis results are made available to
the clinicians, due to transport time to the central laboratory, testing backlog
and transport time for results from the central laboratory to the clinician.
Such delays may be detrimental to patients undergoing major surgeries or
suffering from critical illnesses or severe injuries. As a result of the large
throughput volume at central laboratories, the Company believes that the
fully-burdened cost per test sample, which includes labor, direct
equipment-related supplies and facilities and maintenance overhead, is typically
less than $10. To improve the turnaround time for blood analyses, many large
hospitals have established satellite laboratories ("stat laboratories") closer
to critically ill patients. While this has decreased the turnaround times
compared to the central laboratory, delays can still occur. In addition, the per
test cost in stat laboratories is significantly higher than in central
laboratories, due to stat laboratories having lower testing volumes while
requiring duplication of expensive, maintenance-intensive equipment and skilled
operating personnel.
21
<PAGE>
In addition to the clinical requirements for rapid, accurate information to
improve patient outcomes, healthcare providers are under significant pressure in
today's managed care environment to understand, track and reduce costs. In
response, healthcare providers increasingly search for techniques that control
costs and improve patient care. One such method is providing services at or near
the patient, or the "point-of-care" ("POC"). POC blood gas and electrolyte
analysis provides clinicians with rapid, accurate data that enables users to
reduce costs by streamlining the process of collecting, transporting and
processing blood samples and documenting test results. A POC blood analysis
system may allow nurses, doctors and other hospital staff to conduct various
blood tests near the patient, at the bedside, at the central nurse's station or
in the operating room, providing test turnaround times faster than or equal to
those provided by stat laboratories, while at the same time enabling hospitals
to reduce expenses by eliminating costly stat laboratories, which are labor and
capital intensive. The Company also believes that the rapid turnaround of blood
gas and electrolyte analyses will enable physicians to respond quickly with
therapeutic measures, potentially enabling faster transfer of patients out of
expensive critical care settings.
Growth of POC testing for blood gas and electrolytes has been limited, in
part, by the lack of availability of cost effective, easy-to-use systems. The
Company believes that the POC blood analysis systems currently available, while
able to meet the goal of rapid analysis, have certain limitations, including
high price per test, limited quality control and data management capabilities,
and technique-dependent operation. As a result, over 90% of blood gas and
electrolyte analyses are still performed on complex bench top systems, in stat
or central laboratories, requiring full-time, skilled operators. The Company
believes that as these limitations are overcome the proportion of blood gas and
electrolyte tests performed at the POC will increase significantly.
In the international market, the Company believes that blood gas and
electrolyte testing outside the central laboratory is less developed than in the
United States. The Company believes that this is due to less available capital,
greater cost consciousness and relatively lower reimbursement rates in many
international healthcare systems. These cost pressures have resulted in a
majority of blood analyses being performed in central laboratories at large
hospitals. Many small and mid-size hospitals have not installed expensive,
maintenance-intensive laboratory equipment, and have relied on outsourced
laboratory testing.
COMPANY STRATEGY
The Company's goal is to become the leading global supplier addressing the
POC blood analysis needs of the critical care market. To accomplish this, the
Company intends to:
PROVIDE A LOW COST POC ALTERNATIVE -- The Company will continue to emphasize
cost effectiveness in product design and manufacturing, through a multi-use
disposable sensor and calibrant set targeted at making the SenDx 100 and
future product offerings the lowest cost, POC alternative. For example, the
Company is working to increase the test capacity and to extend the shelf
life and use life of the disposable set. The Company believes that as
healthcare providers continue to face increasing pressure to control costs,
the price/value relationship will be an increasingly important competitive
factor in the blood analysis market. The Company also believes that its
multi-use disposable approach will allow it to respond to competitive market
pricing pressures.
TARGET HIGH VOLUME CRITICAL CARE CENTERS IN THE U.S. MARKET -- Initially,
the Company will target critical care departments in the 2,000 largest
hospitals in the United States, by deploying a direct sales force of
experienced medical sales professionals. These hospitals collectively
account for approximately 70% of the blood analyses performed in the United
States. The Company intends to increase its penetration of this market by
offering several flexible pricing plans that accommodate customer needs. The
Company is arranging to place SenDx 100 beta test units at several leading
medical centers to increase market awareness of the SenDx 100. The Company
also plans to seek multi-year agreements with major proprietary hospital
chains, group purchasing organizations and managed healthcare delivery
networks.
PENETRATE INTERNATIONAL MARKETS -- The Company plans to continue to develop
distribution and clinical relationships in Europe and Asia that target small
to mid-size hospitals. The Company believes that while POC testing needs are
less developed internationally, there are substantial opportunities to
22
<PAGE>
provide small to mid-size hospitals, many of which do not currently have
their own blood analysis equipment, with expanded diagnostic capabilities by
offering the SenDx 100 as a low cost, easy-to-use, low maintenance
alternative.
EXPAND PRODUCT CAPABILITIES AND DEVELOP NEW PRODUCTS -- In the near term,
the Company intends to continue to focus on further enhancements of the
SenDx 100. The modular design of the SenDx 100 allows for expansion of
diagnostic capabilities of the initial system through addition of
analyte-specific sensors and expanded data management. For example, the
Company intends to add chloride, glucose and blood urea nitrogen ("BUN")
analysis capabilities to the SenDx 100. In addition, the Company intends to
add a radio frequency link to permit wireless transfer of test data to the
central laboratory or to patient monitors, to augment current hardwire and
floppy disk transfer capabilities. Over the longer term, the Company plans
to leverage its technology and expertise in sensor development to create
additional related products for the measurement of critical blood
parameters.
PRODUCTS
The Company is the successor to the Medical Sensors business unit of PPG
Industries, Inc. ("PPG"). The Medical Sensors unit was founded in 1988 to
develop POC blood analysis systems for critical care segments of the worldwide
hospital market. In 1992, Medical Sensors introduced the StatPal II, one of the
first portable instruments for measurement of blood gases at the patient's
bedside. The StatPal II, like other competing products, requires multi-step
operation, has a limited test menu and limited data management capabilities, and
has a relatively high per test cost. Due partly to these factors, the StatPal II
and its competing products have not captured a significant share of the blood
analysis market. The SenDx 100 has been designed to address these factors. The
Company has gained significant knowledge and experience from the StatPal II with
respect to sensor and other product technology, manufacturing techniques,
regulatory matters and the needs of the blood analysis market in general, which
facilitated development of the SenDx 100.
THE SENDX 100
The SenDx 100 is designed to provide fully automated analysis of any
combination of the seven most commonly ordered critical care blood tests:
oxygen, carbon dioxide, pH, sodium, potassium, ionized calcium and hematocrit,
in a simple, less than 90 second procedure at the POC. The SenDx 100 consists of
a microprocessor-controlled analyzer, a pre-packaged disposable calibrant pack,
and a disposable, multi-use sensor cassette. The Company has demonstrated in
clinical settings that the SenDx 100 offers accuracy comparable to that of
commonly-used bench top systems. The Company believes that the SenDx 100 will
provide a reportable patient test result at a price per test lower than or equal
to currently available POC analyzers. The Company also believes that the costs
of conducting blood analyses with the SenDx 100 will be less than the costs in
stat laboratories, and competitive with the costs of central laboratory
analyses. The Company plans to expand the SenDx 100 test menu beyond the seven
initial critical tests to include chloride, glucose, BUN, and other analytes
applicable to the critical care market.
The SenDx 100 is designed for easy operation by clinical personnel with
minimal training. After obtaining a blood sample in the customary manner, the
clinician enters a user and patient ID on the touch screen, selects any
combination of the seven analytes to be measured, introduces the syringe
containing the sample of whole blood directly to the aspirating port and presses
the "Aspirate" option on the display. The instrument automatically aspirates
approximately 170 microliters (less than three drops) of blood from the sample
syringe into the sensor cassette. The blood sample is analyzed and the test
results and other identifying information are displayed, printed, stored and
available for electronic transfer to hospital billing, record keeping and
quality control centers.
The entire blood analysis process, including a one-point calibration, takes
less than 90 seconds and the SenDx 100 is then immediately ready for another
sample. Additionally, the SenDx 100 automatically performs a two minute,
two-point calibration every two hours to ensure optimum system accuracy and to
comply with federal clinical laboratory regulations.
23
<PAGE>
The sensor cassette and calibrant pack must be replaced every 15 days or 100
patient tests, whichever comes first. The sensor cassette snaps easily into
place, and the calibrant pack simply slides into the top of the unit. Following
a two minute initialization period after introduction of the new sensor and
calibrant set, the system is ready to analyze blood or quality control samples.
In addition, the system's modular design enables hospital personnel to easily
remove any portion for quick replacement.
KEY FEATURES OF THE SENDX 100 SYSTEM
The SenDx 100 is designed to provide features and benefits which, the
Company believes, will demonstrate the superiority of the SenDx 100 system over
other POC blood analysis methodologies.
LOW PRICE PER TEST PANEL -- Because the disposable elements can be used for
100 blood test panels, the price per test panel, with no additional cost for
the required quality control tests, will be less than or equal to the low
end of the current pricing range for other POC systems, which typically
utilize single-use disposables and require additional costs for quality
control. The Company believes that the cost per test sample for the SenDx
100 will be lower than costs incurred for stat laboratory analyses and
competitive with central laboratories' testing costs. The Company believes
that the list prices of the disposable elements for comparable test panels
from POC competitors range from $4 to $18.
EASY-TO-USE TESTING FORMAT -- The testing process is designed for simple
operation by clinical users. The user simply presents the sample of whole
blood in the sampling syringe to the inlet port, enters user and patient
identification, touches the "Aspirate" option on the display, and interface
with the system is complete. The sample is analyzed and the test results are
displayed, printed and stored for archiving. The SenDx 100 eliminates the
need for a specialized technician to perform the analysis. The design of the
SenDx 100 also permits easy performance of quality control tests and
replacement of disposables.
EXTENSIVE ON-BOARD DATA MANAGEMENT -- The SenDx 100 incorporates a
microprocessor which allows extensive data management within the analyzer
either in a pre-configured format or in a format that can be custom-designed
by the laboratory supervisor. The system archives, tabulates and transmits
patient data for record keeping and billing purposes, and quality control
and calibration data for regulatory compliance purposes. Unlike some
competitive products, there is no need to transport the analyzer to a base
station to download data. The Company believes the SenDx 100 will offer more
advanced data management capabilities than currently available POC products.
COMPLIANCE WITH CLIA '88 REQUIREMENTS -- The SenDx 100 is designed to meet
key requirements of the Clinical Laboratory Improvement Amendments of 1988
("CLIA '88"), which are federal statutes regulating medical laboratory
practice. The SenDx 100 facilitates compliance with CLIA '88 by providing
automatic one-point calibration with each test and automatic two-point
calibration every two hours, and by permitting quality control analyses at
prescribed intervals. Consistent with established laboratory practice, the
system is designed to perform calibration and quality control tests on the
same sensors used for patient blood tests. Compliance with such quality
control requirements is important, as failure to comply with CLIA '88 can
result in loss of reimbursement revenue, fines or certain other penalties.
ADVANCED QUALITY CONTROL CAPABILITIES -- The system software permits the
laboratory supervisor to maintain control over the performance of quality
control tests required by CLIA '88. The supervisor can set the frequency of
quality control tests and the SenDx 100 will alert the user to perform such
tests at the designated times. If such tests are not performed within the
time period set by the supervisor, the SenDx 100 can be set to automatically
"lock out" users until the required quality control tests are completed. In
addition, if such quality control tests do not produce results within the
range specified by the laboratory, the SenDx 100 can be programmed to become
inoperative and alert the user to contact the supervisor. The Company
believes that these features enable laboratory supervisors to more
effectively monitor quality control at the POC.
BROAD ARRAY OF CRITICAL ANALYTES -- The SenDx 100 system simultaneously
performs the seven most commonly ordered critical care blood tests on a
single blood sample. The user can select any subset of these seven analytes
for testing. The Company plans to expand the SenDx 100 test menu to include
chloride, glucose, BUN, and other analytes applicable to the critical care
market.
24
<PAGE>
RAPID RESULTS -- The SenDx 100 system provides results within 90 seconds of
sample introduction. Test results are then immediately displayed and printed
providing the clinician with data to facilitate rapid diagnostic and
therapeutic decisions.
SENDX 100 TECHNOLOGY
The SenDx 100 consists of the analyzer and related software and a multi-use
disposable sensor cassette and calibrant pack.
SENDX 100 ANALYZER
The SenDx 100 analyzer is a compact, lightweight, portable, modular
instrument featuring a microprocessor-based computer, color display and touch
screen control. Other components of the analyzer include: floppy disk drive,
modem card, integral thermal printer, fluidics module, serial port interface and
bar code scanner. It is line-and battery-powered, with the ability to operate on
battery power for approximately 30 tests before recharging. The complete system,
including batteries, weighs less than 14 pounds, has a nine inch by nine inch
footprint and is easily portable to the POC.
The SenDx 100 analyzer has extensive software for patient, quality control
and calibration data management. The system can be customized to meet laboratory
and user needs including user and patient ID requirements, automatic quality
control lock-out and archiving of quality control, calibration and patient data.
The analyzer can store up to 99 patient test results and 99 quality control test
results internally for later access, while a larger number of results can be
stored on a floppy disk using the integral disk drive. In addition, the system
can be programmed to alert the user in the event that test results fall outside
selected ranges. The analyzer can be interfaced to external data management
systems via serial port or modem. Software upgrades for additional analytes or
enhanced data management, which the Company intends to produce in the future,
can be easily uploaded to the analyzer from a floppy disk.
SENDX 100 MULTI-USE DISPOSABLE SENSOR AND CALIBRANT SET
The disposable components of the SenDx 100 consist of a multi-use disposable
sensor casette and calibrant pack. The disposables can be used for up to 100
tests or 15 days, are changed simultaneously, and require little effort to
install and remove. The Company is currently developing disposables with
extended shelf and use lives and is working toward increasing the number of
blood samples that can be analyzed with a disposable set.
MULTI-USE SENSOR CASSETTE
The sensor used in the SenDx 100 contains seven micro-electrodes arrayed on
a single chip with each electrode selectively sensitive to a particular blood
parameter. For example, one micro-electrode is sensitive to oxygen while a
second is sensitive to sodium. These proprietary sensors are manufactured by the
Company using thick film technology that was successfully developed and
initially used in the StatPal II instrument for oxygen, carbon dioxide and pH
measurements. Thick film technology enables the development of small, reliable,
accurate, rugged sensors with high manufacturing yields.
The Company manufactures sensors by "screening" successive layers of
materials on a ceramic substrate and depositing permeable membranes over each
electrode in the array to give the required selectivity. An electrical signal,
related to the concentration of each analyte, is produced by each electrode in
the array, and amplified and processed by the SenDx 100 analyzer for display and
storage. The seven micro-electrodes are contained in a low-volume flow-through
cell into which the blood samples, calibration fluids or quality control
materials are introduced.
CALIBRANT PACK
The analyzer also accommodates a multi-use, disposable calibrant pack that
is a companion disposable to the sensor cassette. Each proprietary pack contains
two gas-tight, polylaminate foil pouches containing solutions with different
concentrations of electrolytes and gases, which are stable at room temperature
for three months. A third bag inside the pack is a waste reservoir into which
the samples and calibrant solutions are pumped upon completion of the tests. The
self-contained calibrant pack eliminates the need for cumbersome gas tanks,
buffer bottles and separate waste containers normally used with conventional
bench
25
<PAGE>
top blood analysis systems. The appropriate calibration fluid is automatically
routed to the sensor cassette by the fluidics module in the analyzer without
operator intervention. The system automatically calibrates with each blood
sample and performs an automatic two-point calibration every two hours, in
compliance with CLIA '88. When the disposables are replaced, the sealed
calibrant pack containing the waste reservoir is removed for disposal, reducing
operator exposure to blood or other waste products. A new calibrant pack is then
slipped into the analyzer and the system is ready to use after a two minute
initiation cycle.
STATUS OF THE SENDX 100
The Company received FDA clearance for the SenDx 100 in December 1995, 68
days from the date of submission of its 510(k) premarket notification. The
notification was supported by test data obtained at five hospitals, including
nationally recognized teaching hospitals, which compared the SenDx 100 to
commonly used central laboratory instruments. The SenDx 100 will be exhibited at
the annual meeting of the American Association of Critical Care Nurses in May
1996, and the Company currently expects to commence commercial shipments of the
SenDx 100 during the fourth quarter of 1996.
In June 1996, the Company intends to apply for UL listing of the SenDx 100
by Underwriters' Laboratories, Inc. and for certification of the SenDx 100 by
TUV Product Service, a European notified body, in order to affix a CE mark to
the product, a certification required for distribution in the European Community
by mid-1998. The Company has completed all tooling necessary for full-scale
production and is currently manufacturing the SenDx 100 on a pilot scale. The
Company is arranging to place the SenDx 100 beta test units at leading medical
centers in the United States and Europe to increase market awareness of the
SenDx 100 and its features.
SENDX 100 MARKETING AND DISTRIBUTION
In the United States, the Company is initially targeting the SenDx 100 for
the critical care departments in the 2,000 largest hospitals, which conduct over
70% of the blood gas tests. Critical care departments generally include
intensive care units, operating rooms and emergency departments, where the
highest volume of stat blood tests are performed. The Company has designed the
SenDx 100 to address key issues relating to adoption of blood gas, electrolyte
and hematocrit testing with a POC analyzer. These issues include the need for
low cost per test panel, easy operation by clinical users, regulatory and
quality control compliance, extensive data management and availability of a
testing array required for diagnosis of critical care patients. The priority of
these issues varies among key individuals who influence a hospital's buying
decision, which may include hospital administrators, laboratory directors,
physicians, critical care nurses and respiratory care professionals.
The Company's longer-term marketing objective is to penetrate the complete
spectrum of blood gas and electrolyte testing sites by developing
application-specific models for use in large and small hospitals and
alternate-site markets, such as sub-acute care nursing facilities, outpatient
clinics, pulmonary physicians' offices, home healthcare agencies and emergency
medical services.
The Company is establishing its own direct sales organization to promote and
distribute the SenDx 100 in the United States. The Company currently employs a
10 person sales force, with individuals located in major cities throughout the
country. Each of these sales professionals has several years of experience in
the critical care environment and in marketing to hospital decision makers
through the committee process. The Company plans to utilize clinical education
consultants for in-service training and educating the medical community on the
potential benefits of POC blood analysis. The Company plans to expand its sales
force and clinical support to meet market demand. The Company has also engaged
an outside consulting firm to assist in securing purchase agreements with major
proprietary hospital chains and key group purchasing organizations. The Company
may consider additional distribution channels, including joint ventures and OEM
and licensing arrangements with strategically positioned corporate partners.
The Company plans to price the SenDx 100 analyzer below $10,000 and the
disposable sensor and calibrant set, usable for up to 100 patient test panels,
and related quality control tests, below $500. The actual pricing will depend
upon purchase volumes and other factors. In addition, the Company is planning to
market the SenDx 100 through a variety of innovative pricing strategies designed
to meet customer needs.
26
<PAGE>
The Company believes that the list prices of the disposable elements for
comparable test panels from POC competitors range from $4 to $18. The Company
further believes that its price per test will be at or below the low end of this
range.
The Company expects to market and distribute its products outside the United
States through third party distributors strategically positioned to access
targeted foreign markets, such as Japan and selected countries in Europe. The
Company is currently identifying and negotiating with distributors in such
markets. Internationally, the POC market is not as developed as in the United
States. Initially, the Company plans to position the SenDx 100 to meet the
diagnostic testing needs of mid-size and smaller hospitals in such countries,
many of which currently out-source blood gas analysis, by offering a low-cost,
full-featured analyzer which is easy to use and requires minimal maintenance.
Among other means, the Company will attempt to develop the POC concept
internationally through clinical education programs and the establishment of
reference centers.
STATPAL II
The Company's StatPal II product, introduced in 1992, was one of the first
commercially available portable instruments for measurement of blood gases at
the POC. The Company sells the StatPal II in Europe, Latin America and Asia
through distributors, and on a limited basis in the United States. The StatPal
II is marketed primarily to certain low volume niche markets.
INDUSTRIAL PH BUSINESS
The Company currently manufactures a pH meter and an ion-selective field
effect transistor (ISFET)-based pH measuring probe which the Company sells to
Beckman Instruments, Inc. ("Beckman"), a manufacturer of scientific and
laboratory instruments, on an OEM private label basis. Its primary application
is the measurement of acidity/alkalinity of liquids in industrial chemical
laboratories. The Company currently sells the pH meters and probes to Beckman
pursuant to an agreement whereby the Company has agreed to supply Beckman with
such products through June 2002. This agreement is subject to termination by
Beckman at any time upon 30 days prior notice, and by the Company upon six
months prior notice to Beckman, in the event Beckman fails to meet certain
minimum purchase requirements.
MANUFACTURING
The Company currently manufactures the StatPal II, including its related
disposables, and the pH meters and probes at its facility in Carlsbad,
California. The Company has manufactured prototypes of the SenDx 100 analyzer
and related disposables at this facility. Manufacture of the SenDx 100 analyzer
will involve the assembly and test of custom and commercially available
components. The Company anticipates that it may be necessary to expand its
manufacturing capacity in the event of increased demands for the SenDx 100. In
particular, the Company will need to increase its calibrant pack manufacturing
capacity. Such expansion may require the early commitment of capital resources
for additional tooling and equipment and for leasehold improvements. Several of
the components of the SenDx 100 are sole-sourced or custom-manufactured by a
limited number of outside vendors. Although the Company believes such components
could be obtained from alternate vendors, certain custom electronic components
require a substantial lead time from order to delivery. There can be no
assurance that the Company will be able to expand its capacity or find necessary
qualified third party manufacturers or vendors in a timely manner to respond to
increased demand. Any delay or inability to obtain required components could
adversely affect the Company's marketing ability, financial condition and
operating results.
The Company purchases custom components, including the sensor interface
board and portions of the fluidics module, from suppliers. Molded parts are
created using tooling designed for and owned by the Company, and are purchased
from qualified vendors with experience in medical device components. The
proprietary software for the SenDx 100 analyzer is maintained by the Company and
downloaded to the analyzer during assembly. The disposable sensors used in the
SenDx 100 utilize a technology platform similar to that of the Company's StatPal
II sensor module, incorporating equipment and processes previously developed by
the Company. Close collaboration between development and production personnel
enhances high reliability and yields, while facilitating rapid development of
new and improved sensors. Through the development and manufacture of StatPal II,
the Company has gained experience in the manufacture of
27
<PAGE>
calibration materials for POC instrumentation. Calibrant solutions are packaged
in gas tight polylaminate foil pouches using proprietary filling, sealing, and
sampling techniques. Depending upon demand and sales levels, the Company may
need to either expand calibrant manufacturing internally, requiring capital
expenditures, or out-source to third-party manufacturers. There can be no
assurance that the Company will be able to increase capacity or find suitable
sources in a timely manner.
All manufacturing and assembly is performed in the Company's 39,000 square
foot facility. This leased facility includes approximately 12,000 square feet of
environmentally controlled assembly and packaging space. The Company expects
these facilities to be sufficient to meet the anticipated demand for the
Company's products for the next several years. The Company maintains a
comprehensive quality assurance and quality control program, which includes
documentation of material specifications, operating procedures, maintenance and
equipment calibration procedures, training programs and quality control test
methods. To control the quality of its finished product, the Company utilizes
ongoing statistical process control systems during the manufacturing process and
performance testing of finished goods. The Company believes that its commercial
medical device manufacturing operations are conducted in accordance with the GMP
requirements of the FDA. The Company's manufacturing facilities and its
operations are subject to periodic inspections conducted by the FDA and similar
inspections conducted by State of California officials for compliance with
applicable manufacturing practices regulations. See "Business -- Government
Regulation."
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on expanding the
capabilities of the SenDx 100. The Company plans to expand its test menu to
include additional analytes, such as chloride, glucose and BUN, and plans to
reduce blood sample volume requirements. The planned reduction in sample volume
requirements will make the product more attractive for certain neonatal testing
procedures. Additionally, reducing the volume of the flow-through cell would
enable increased test capacity per calibrant pack. The Company is also working
to extend the shelf life, use life, and test capacity of the disposables. The
Company is working to extend the shelf life of the disposables to six months
from three months, the use life to 30 days from 15 days and the test capacity to
300 tests from 100 tests per disposable. The Company intends to add a radio
frequency link to permit wireless transfer of test data to the central
laboratory or to patient monitors, to augment current hardwire or floppy disk
transfer capabilities. Over the longer term, the Company plans to leverage its
technology and expertise in sensor development to create additional related
products for the measurement of critical blood parameters.
The Company has assembled a technical staff with experience in
electrochemistry, mechanical and electrical engineering, membrane fabrication
and software development. The Company's research and development staff consists
of 19 full-time employees, of whom five hold advanced degrees in chemistry,
engineering and related disciplines. The Company expects to utilize a portion of
the proceeds of this Offering to expand its research and development staff and
programs.
In each of the three years ended December 31, 1993, 1994 and 1995, the
Company incurred approximately $877,000, $814,000 and $2.2 million,
respectively, in research and development expenses. On a pro forma basis,
combining the Company's and Medical Sensors' research and development expenses
prior to the acquisition effective December 31, 1994, research and development
expenses would have been approximately $2.6 million and $1.8 million for the
years ended December 31, 1993 and 1994, respectively.
PATENT AND PROPRIETARY RIGHTS
The Company's policy is to pursue patent protection, both in the United
States and in foreign countries, for key technological inventions embodied in
its products.
The Company currently has rights to 11 U.S. patents and their foreign filed
counterparts with respect to several aspects of its StatPal II analyzer,
including certain sensor and calibration technologies, some of which the Company
believes to be applicable to the SenDx 100. All of these patents are currently
exclusively licensed from PPG pursuant to a License Agreement dated January 17,
1995, and were filed in connection with development of the StatPal II (the "PPG
License"). Pursuant to such License Agreement, upon
28
<PAGE>
payment of all amounts due under a promissory note to PPG, PPG will assign all
of such patent rights to SenDx. The Company will use a portion of the proceeds
from this Offering to prepay such promissory note. See "Use of Proceeds."
In addition to the patents which the Company holds relating to its StatPal
II analyzer, the Company intends to file eight U.S. patent applications on
aspects of the SenDx 100 system, including various aspects of the sensor, sensor
cartridge, method of packaging the disposable calibrants, and various algorithms
and circuit designs.
There can be no assurance that any of these patent applications will result
in patents being issued, or that, if issued, such patents will provide
significant proprietary protection, or that products incorporating the
technology in issued patents or pending applications will be free of challenge
from competitors. The issuance of a patent is not conclusive as to its validity
or enforceability, nor does it provide the patent holder with freedom to operate
without infringing the patent rights of others. A patent could be challenged by
litigation and, if the outcome of such litigation were adverse to the patent
holder, competitors could be free to use the subject matter covered by the
patent, or the patent holder may license the technology to others in settlement
of such litigation. The invalidation of key patents owned by the Company or
denial of pending patent applications could create increased competition, with
potential adverse effects on the Company and its business prospects. In
addition, there can be no assurance that any application of the Company's
technology will not infringe patents or proprietary rights of others or that, as
a result of such infringement, licenses that might be required for the Company's
processes or products would be available on commercially reasonable terms, if at
all. Certain of the issued and pending U.S. and foreign patents licensed by PPG
to SenDx are subject to a covenant by PPG not to sue Diametrics and three
current or former employees of Diametrics for infringement of such patent
rights. This covenant was entered into in connection with the settlement of a
lawsuit by PPG against Diametrics and such individuals for alleged
misappropriation of trade secrets, unfair competition and infringement of a PPG
design patent. The PPG License provides for such covenant not to sue to also be
binding upon SenDx; however, such covenant has no applicability to patent
applications filed by SenDx or any patents that may issue therefrom.
Because of the uncertainty concerning patent protection, the Company also
relies upon trade secrets, know-how and continuing technological innovation. The
Company maintains a policy requiring all employees and consultants to sign
confidentiality agreements under which they agree not to use or disclose the
Company's confidential information as long as that information remains
proprietary or, in some cases, for fixed time periods. There can be no
assurance, however, that such proprietary technology will not be independently
developed or that secrecy will not be breached. Under Company policy, all
technical employees are required to assign to the Company all rights to any
inventions made during their employment or relating to the Company's activities.
There can be no assurance that such employees will not breach such agreements.
The Company is aware that substantial research efforts in sensor technology
are taking place at universities, government laboratories and other corporations
around the world and that numerous patent applications have been filed, and that
patents have been issued, relating to fundamental technologies and to specific
biosensor products and processes. If patents that cover the technologies,
products or processes utilized by the Company are issued to third parties, the
Company may have to obtain licenses under such patents. There can be no
assurance that such licenses would be available on commercially reasonably
terms, if at all.
29
<PAGE>
COMPETITION
The key competitive factors in the blood gas and electrolyte testing market
are accuracy, cost per test, breadth of analyte menu, turnaround time for
results, ease of use, quality control compliance, data management capability and
customer support. In this market, the Company will compete against manufacturers
of bench top instruments and more recently introduced POC analyzers. The Company
believes that currently, over 90% of all blood gas and electrolyte analyses
performed in hospitals are done using bench top instruments requiring skilled
laboratory technicians. Major manufacturers of the traditional bench top systems
include Ciba Corning Diagnostics Corp. ("Ciba Corning"), Instrumentation
Laboratory and Radiometer, which collectively accounted for a majority of all
sales of blood analyzers during 1995. However, the Company believes that over
the next several years, demands of users for faster results, coupled with
continued pressures on healthcare providers to reduce costs, will result in a
significantly increased number of blood analyses being performed at the POC.
Several other companies have developed POC analyzers. i-STAT and Diametrics
both offer portable instruments, utilizing single-use disposables, with limited
data management capability. Mallinckrodt Medical offers a 30-pound,
line-powered, near-patient device, used primarily in cardiac surgery suites. AVL
Scientific recently launched an optical-based POC system, analyzing only blood
gases. Recently, Optical Sensors introduced an on-demand, patient-connected
blood gas-only product. In addition, continued development and acceptance of
non-invasive techniques to measure certain diagnostic parameters, including the
use of pulse oximetry to measure blood oxygen saturation, and the measurement of
end-expired CO(2) as a monitor of blood CO(2) levels, may decrease demand for
the tests performed by the Company's products.
Many companies in the medical diagnostics industry have substantially
greater capital resources, installed customer bases, marketing and management
resources, research and development staffs and facilities than the Company. Such
companies may be developing or could in the future attempt to develop additional
products competitive with the SenDx 100. Many of these companies also have
substantially greater experience than the Company in research and development,
obtaining regulatory approvals, manufacturing and marketing, and may therefore
represent significant competition for the Company. Ciba Corning has announced
that it is developing a portable POC blood analyzer. There can be no assurance
that the Company's competitors will not succeed in developing or marketing
technologies and products that will be more effective or less expensive than
those being marketed by the Company or that would render the Company's
technology and products obsolete or noncompetitive.
The Company's StatPal II product is marketed primarily toward certain low
volume niche markets, and also competes against the POC analyzers marketed by
companies such as Diametrics. While the StatPal II offers a multiple use
disposable as opposed to the single use disposables typically used by its
competitors, it is a blood gas-only analyzer, whereas certain of the products
with which it competes offer both blood gas and electrolyte testing.
Over the past few years, several companies have invested in the development
of optical-based sensors that would be positioned within patients' arteries and
provide continuous, real time monitoring of blood oxygen, carbon dioxide and pH.
While offering the attractiveness of continuous real time monitoring with no
blood loss, the technical hurdles, primarily stability, low cost and adverse
interaction with the body, have been formidable and most efforts have achieved
limited commercial success. Some competitors that have pursued this area have
included Pfizer, Inc., Optex Biomedical, Inc., and Puritan-Bennett, Inc.
In the industrial pH testing market, there are numerous manufacturers of pH
meters and probes that compete with Beckman for the sale of such products. The
key competitive factors in this market are price, accuracy of testing and
product quality.
GOVERNMENT REGULATION
The manufacturing, testing, labeling, distribution, marketing, advertising
and promotion of the Company's diagnostic products are subject to extensive and
rigorous regulation by the FDA and, to varying degrees of regulation, by state
and foreign regulatory agencies. The Company's products are regulated by the FDA
under the Federal Food, Drug, and Cosmetic Act. The testing for, preparation of
and subsequent FDA and foreign regulatory review of requirements could result in
civil monetary penalties or criminal sanctions,
30
<PAGE>
restrictions on or injunction against marketing of the Company's products as
well as seizure or recall of the Company's products, or other regulatory action.
There can be no assurance that the Company will be able to obtain necessary
regulatory approvals or clearances on a timely basis or at all, and delays in
receipt of or failure to receive such approvals or clearances, the loss or
limitation of previously received approvals or clearances, adoption of future
regulations which may further restrict the production or sales of the Company's
products, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's StatPal II and SenDx 100 systems received FDA clearance after
filing of 510(k) premarket notifications ("510(k) Notification"). The Company
received FDA clearance to market the StatPal II in November 1992 for POC
measurement of blood gases, and received similar FDA clearance for the SenDx 100
system in December 1995 for POC measurement of oxygen, carbon dioxide, pH,
sodium, potassium, ionized calcium and hematocrit.
Prior to marketing future products, the Company may be required to provide a
510(k) Notification to the FDA and to await the FDA's determination that the
product may be marketed. In any 510(k) Notification, the Company must, among
other things, demonstrate that the product to be marketed is of "substantial
equivalence" to another legally marketed device in terms of safety, performance,
design and intended use. Test data from clinical trials may be required to
demonstrate "substantial equivalence" and that the product is safe and
effective, which may delay the 510(k) Notification review period. Following
submission of a 510(k) Notification, a company may not market the device for
clinical use until receipt of FDA clearance. The FDA has no specific time limit
by which it must respond to a 510(k) Notification. The FDA, however, may (i)
determine that the new device is not "substantial equivalence" and require a
more extensive and time-consuming premarket approval application ("PMA") be
filed, or (ii) require further information, such as additional test data,
including data from clinical studies, before it is able to make a determination
regarding "substantial equivalence." There can be no assurance that the FDA will
act favorably or quickly in its review of the test data once submitted, and
significant difficulties or costs may be encountered by the Company in its
efforts to obtain FDA clearances. Such difficulties could delay or preclude the
Company from marketing future products.
Significant modification of the SenDx 100 system, or its components, such as
the addition of new analytes, would require filing a new 510(k) Notification and
the Company would not be able to market the modified product in the United
States until FDA clearance is obtained. There is no assurance that the FDA would
grant such clearance in a timely manner, or at all.
The FDA and comparable state agencies also require the Company to
manufacture its products in compliance with current Good Manufacturing Practices
("GMP") regulations which govern the procedures, controls and documentation used
in manufacturing medical devices, including the Company's medical products. The
Company believes its commercial medical device manufacturing is conducted in
accordance with GMP requirements, however, there can be no assurance that its
manufacturing facilities will continue to satisfy such requirements. Both the
FDA and state agencies ensure GMP compliance through periodic facility
inspections. Accordingly, the Company must commit substantial resources on an
ongoing basis to maintain a high level of compliance with GMP requirements. The
Company's prior facility in La Jolla, California was inspected once by the FDA.
The Company's present facility in Carlsbad, California has been inspected once
by the Food and Drug Branch of the California Department of Health Services.
Such agencies may reinspect the Company at any time, without notice, and if the
inspector observes conditions which might be violations of the GMP requirements,
those conditions must be corrected or satisfactorily explained, or the Company
could face regulatory action, which in extreme cases could include, among other
things, withdrawal or recall of products and cessation of operations. The
Company is also required to comply with various FDA requirements for labeling
and marketing and the FDA prohibits a device from being marketed for unapproved
clinical uses. In addition, the Company's promotional and educational activities
regarding its diagnostic products must comply with evolving FDA policies and
regulations regarding acceptable product promotion practices.
In addition, the manufacture, sale or use of the Company's products are also
subject to regulation by other federal entities, such as the Occupational Safety
and Health Agency and the Environmental Protection Agency, and by various state
agencies. The Company believes it is materially in compliance with such
31
<PAGE>
requirements. Use of the Company's products will also be subject to inspection,
quality control, quality assurance, proficiency testing, documentation and
safety reporting standards of the Joint Commission on Accreditation of
Healthcare Organizations. Various states and municipalities may also have
similar regulations. Federal and state regulations regarding the manufacture,
sale or use of the Company's products are subject to future change, which
changes could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's customers using its diagnostic devices for clinical analyses
in the United States may be subject to the Clinical Laboratories Improvement
Amendments of 1988 ("CLIA '88"), which provide for federal regulation of
laboratory testing, an activity also regulated by most states. Laboratories
either must obtain a registration certificate from the Health Care Finance
Administration or a state license in a state with a federally approved licensure
program. Laboratories that obtain state licenses will be required to comply with
state regulations and may be exempt from CLIA '88. The CLIA '88 regulations are
intended to ensure the quality and reliability of clinical laboratories testing
in the United States by mandating specific standards. CLIA '88 categorizes
diagnostic tests as "waived," "moderate complexity," or "high complexity" on the
basis of test complexity. The SenDx 100 system has been classified as being of
moderate complexity. A physician who has taken specified courses may direct
moderately complex tests, and testing may be performed by a properly trained
high school graduate. There can be no assurance that the CLIA '88 regulations
and future administrative interpretations will not have a material adverse
impact on the Company by limiting its potential markets.
In addition, under CLIA '88, a diagnostic instrument must be tested with at
least one control sample every eight hours, with a combination of control
samples that include a high and a low value each day of testing, and must also
be calibrated according to the manufacturer's specifications. The SenDx 100
provides for testing of control samples and calibration on the same sensor that
is used to measure patient blood samples. It also performs a single point
calibration with each sample and an automatic two-point calibration every two
hours.
The Company's products are also subject to various restrictions under the
laws and regulations of those states where they will be marketed by the Company.
Some states restrict use of blood gas and electrolyte analyzers to physicians
and licensed technicians such as perfusionists. These restrictions may limit the
Company's ability to market the SenDx 100 in those states.
Distribution of the Company's products outside the United States may be
subject to FDA, export and extensive foreign government regulation. These
regulations, including the requirements for approvals or clearance to market,
the time required for regulatory review and the sanctions imposed for
violations, vary from country to country. There can be no assurance that the
Company will obtain regulatory approvals in such countries on a timely basis, if
at all, or that it will not be required to incur significant costs in obtaining
or maintaining its foreign regulatory approvals. Prior to selling in Japan, the
Company is required to obtain approval of its products by the Ministry of
Health. The Company intends to seek this approval in conjunction with a Japanese
distributor. Prior to selling in Europe, the Company is required to obtain TUV
approval and then register the product for sale. The time required to obtain
needed regulatory clearance by particular foreign governments may be longer or
shorter than that required for FDA clearance, however, in general the extent of
regulation of medical devices, and therefore the time and cost involved in
obtaining such regulatory clearance, is increasing worldwide, and the Company
expects this trend to continue. There can be no assurance that the Company will
be able to obtain any required approvals in the future. Failure to obtain
necessary regulatory approvals, the restriction, suspension or revocation of
existing approvals or any failure to comply with regulatory requirements outside
the United States could have a material adverse effect on the Company's
business, financial condition and results of operations.
The European Community has promulgated rules requiring that medical products
qualify to affix the CE mark by mid-1998. The CE mark is an international symbol
of adherence to quality assurance standards and compliance with applicable
European medical device directives. In order to obtain the right to affix the CE
mark to its potential products, the Company will need to obtain certification
that its processes meet European quality standards. Failure to receive the right
to affix the CE mark will prohibit the Company from selling its products in
member countries of the European Community, and there can be no assurance that
the Company will be successful in meeting European quality standards or other
certificate requirements.
32
<PAGE>
In addition to governmental approvals, the Company is also seeking
Underwriters' Laboratories (UL) listing of the SenDx 100 in the United States.
Certain hospitals require UL listing as a prerequisite to use of equipment in
such hospitals. In addition, certain state and local governments have enacted
laws making it unlawful to sell electrical devices without UL or other
comparable approval.
REIMBURSEMENT
In the United States, healthcare providers generally rely on third-party
payors, principally federal Medicare, state Medicaid and private health
insurance plans, to reimburse all or part of the cost of therapeutic and
diagnostic procedures. With the implementation of Medicare's Prospective Payment
System for hospital inpatient care (Diagnosis Related Groups or "DRGs"), in the
1980's, public and private payors began to reimburse providers on a fixed
payment schedule depending on the nature and severity of the illness. Many tests
and procedures that would have been performed under cost-plus reimbursement
formulas are now subject to scrutiny and must be justified in terms of their
impact on patient outcomes. The percentage of blood gas and electrolyte tests
for which hospitals receive direct reimbursement is declining in favor of
reimbursement on a per procedure basis, including diagnosis and treatment, or
through capitated charges. As a result, the incentives are now to test only for
those parameters and on a frequency that will result in cost-effective care. In
addition, Medicare DRG reimbursement originally allowed a pass-through of some
of the capital cost of equipment. This pass-through is now being phased out,
making non-purchase acquisition of capital equipment more attractive. Broad
acceptance of the Company's products will require offering attractive
acquisition alternatives that are economically viable for the hospitals and for
the Company.
Market acceptance of the Company's products in international markets may be
dependent in part upon reimbursement within prevailing healthcare payment
systems. Healthcare payment systems in international markets vary significantly
by country. The main types of such payment systems in international markets are
government sponsored healthcare and private insurance. Countries with government
sponsored healthcare, such as the United Kingdom, have a centralized,
nationalized healthcare system. New devices are brought into the system through
negotiations between departments at individual hospitals at the time of
budgeting. Although not as prevalent as in the United States, health maintenance
organizations are emerging in certain European countries.
The Company could be adversely affected by changes in governmental or
private healthcare payor reimbursement policies to the extent any such changes
affect reimbursement for procedures in which the Company's products are used.
Adverse changes in governmental and private third party payors' policies toward
reimbursement for such procedures would have a material adverse effect on the
Company's business, financial condition and results of operations.
EMPLOYEES
As of April 30, 1996, the Company had a total of 90 employees, of which 80
were full-time, three were part-time permanent employees, and seven were
temporary employees. Of the full-time employees, 32 were in manufacturing
operations, 12 were in sales and marketing, 19 were in research and development
and product engineering, seven were in regulatory affairs and quality assurance
and 10 were in general and administrative. The seven temporary and the three
part-time employees performed various functions throughout the Company. The
Company expects to increase its manufacturing and marketing personnel during
1996. None of the Company's employees is covered by a collective bargaining
agreement. The Company believes that its relationship with its employees is
good.
FACILITIES
The Company currently leases 39,000 square feet of space in Carlsbad,
California, where its headquarters and manufacturing facilities are located. The
lease is for a term expiring in January 2001, subject to three additional
one-year options to renew. The Company believes such facilities are adequate for
the next several years.
INSURANCE
The Company maintains a "claims made" product liability insurance policy in
the amount of $1.0 million per occurrence and in the aggregate, and an excess
general and product liability insurance policy in
33
<PAGE>
the amount of $4.0 million per occurrence and in the aggregate, which are the
maximum payouts for all claims made during a calendar year. If the Company does
not or cannot maintain its existing or comparable liability insurance, its
ability to market its products may be significantly impaired. There can be no
assurance that the amount and scope of any insurance coverage upon which the
Company relies will be adequate to protect the Company in the event of a product
liability claim.
LEGAL PROCEEDINGS
In late December 1995, the Company moved from leased facilities in La Jolla,
California, at the termination of the lease term. On January 31, 1996, the
Company's former landlord, Medical Biology Institute, filed a complaint against
both the Company and PPG in San Diego County Superior Court, which was amended
in April 1996. The complaint, as amended, alleges: breach of sublease (for
allegedly failing to restore leased premises to their original condition at the
termination of the sublease); fraud (for allegedly making false representations
regarding restoration of the premises); trespass (for allegedly damaging the
premises); conversion (for allegedly damaging the premises); nuisance (for
allegedly leaving items on the premises); tortious interference with prospective
economic advantage (for allegedly interfering with the plaintiff's ability to
relet the premises); and negligence (for allegedly leaving supplies and products
exposed to possible tampering by outsiders). The landlord seeks at least
$860,000 in damages, plus exemplary and punitive damages. The action is in the
procedural motion and early discovery phase. The Company is vigorously defending
this action and does not anticipate that the litigation will have a material
effect on the Company's financial statements. There can be no assurances,
however, that such action would not be decided against the Company, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company is not a party to any other material legal proceedings.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Douglas R. Hillier........................ 60 President, Chief Executive Officer and Director
George Pache.............................. 47 Vice President, Finance and Administration, Chief Financial
Officer and Secretary
Michael W. Mercer......................... 42 Vice President, Sales and Marketing
Ronald Betts, Ph.D........................ 48 Vice President, Operations
Ruben Chairez, Ph.D....................... 53 Vice President, Regulatory Affairs and Quality Assurance
Matthew Leader............................ 36 Director of Research and Development
Douglas Savage............................ 38 Director of Product Engineering
Thomas O. Gephart......................... 59 Chairman of the Board of Directors
Anthony Rippo, M.D........................ 54 Director
F. Duwaine Townsen........................ 64 Director
Fredrik C. Schreuder...................... 59 Director
C. Ian Sym-Smith.......................... 66 Director
Robi Blumenstein.......................... 39 Director
</TABLE>
DOUGLAS R. HILLIER joined the Company as a Director in March 1995, following
the Medical Sensors acquisition and served as a consultant to the Company until
his appointment as President and Chief Executive Officer in August 1995. Prior
to joining the Company, Mr. Hillier was employed by PPG Industries, Inc., a
publicly held industrial conglomerate, as General Manager of the Medical Sensors
business unit from its inception in 1988 until its acquisition by the Company in
December 1994. Prior to 1988, Mr. Hillier was President of Spectramed, Inc., a
medical device manufacturer, and held various positions with Beckman
Instruments, Inc., a manufacturer of scientific and laboratory instruments, and
Varian Associates, a manufacturer of scientific and industrial instruments. Mr.
Hillier holds both a bachelors and masters degree in electrical engineering from
the University of Michigan and completed the Executive Management Program at the
University of California at Los Angeles.
GEORGE PACHE joined the Company as Vice President, Finance and
Administration, Chief Financial Officer and Secretary in March 1995. Prior to
joining the Company, Mr. Pache served from January 1994 to March 1995 as
Executive Vice President and Chief Financial Officer of Advanced Materials
Group, a publicly held high technology materials company. From February 1993 to
January 1994, Mr. Pache was an independent financial consultant. From February
1989 to February 1993, Mr. Pache was Senior Vice President and Chief Financial
Officer of PSICOR, Inc., a then publicly held cardiovascular technology company.
Prior to 1989, Mr. Pache was Vice President and Chief Financial Officer of
Kasler Corporation, a publicly held construction company, and was a practicing
certified public accountant with Arthur Young & Co. Mr. Pache holds both a
bachelors and a masters degree in business administration and accounting from
the University of Houston and is a certified public accountant.
MICHAEL W. MERCER joined the Company as Vice President, Sales and Marketing
in March 1995. Prior to joining the Company, from May 1987 to March 1995, Mr.
Mercer was employed as a sales and marketing executive with CDI/3M, a
manufacturer of blood monitoring systems. Before joining CDI/3M in 1987, Mr.
Mercer held various sales management and sales representative positions with a
medical device manufacturing division of Allegheny International,
Physio-Control, a manufacturer of cardiac monitors and
35
<PAGE>
defibrillators and Hudson Oxygen Therapy, a manufacturer of respiratory care
products. Mr. Mercer received his bachelors degree in business administration
from Ohio University and his masters degree in business administration from the
University of Southern California.
RONALD BETTS, PH.D. joined the Company as Vice President, Operations, in
December 1994 in connection with the Medical Sensors acquisition. Prior to
joining the Company, from 1978 to December 1994, Dr. Betts was employed by PPG
in various senior scientific positions and was a founder of the Medical Sensors
business unit. Dr. Betts has broad experience in blood gas immunochemical sensor
design, development and manufacturing, and was a primary inventor of the
Company's calibration technology. He also holds the position of Visiting
Investigator at the Scripps Research Institute. Dr. Betts holds a Ph.D. in
biochemistry from Iowa State University and a masters degree in medicinal
chemistry from the University of Iowa.
RUBEN CHAIREZ, PH.D. joined the Company as Vice President, Regulatory
Affairs and Quality Assurance in December 1994, in connection with the Medical
Sensors acquisition. Prior to joining SenDx, Dr. Chairez was employed by PPG
from November 1993 to December 1994. From March 1990 to November 1993, Dr.
Chairez served as Director of Regulatory Affairs for Gen-Probe Incorporated, a
medical diagnostics company. Prior to 1990, Dr. Chairez was employed by E.I.
duPont de Nemours & Co. and Abbott Laboratories in various research and
regulatory management positions. Dr. Chairez holds a Ph.D in virology from the
University of Oregon.
MATTHEW LEADER joined the Company in December 1994, in connection with the
Medical Sensors acquisition. Prior to joining the Company, Mr. Leader was
employed from October 1988 to December 1994 by PPG, where he was instrumental in
developing much of the Company's sensor technology. Prior to 1988, Mr. Leader
held various bioengineering positions with Shiley, Inc., a manufacturer of
medical devices. Mr. Leader holds a bachelors degree in engineering from the
University of California, San Diego and a masters degree in bioengineering from
the University of California, San Diego.
DOUGLAS SAVAGE joined the Company in December 1994, in connection with the
Medical Sensors acquisition. Prior to joining the Company, Mr. Savage was
employed from May 1989 to December 1994 by PPG, where he was responsible for the
electronic and mechanical engineering development of the StatPal II. Prior to
1989, Mr. Savage held various engineering positions with Spectramed, Inc. and
Gould, Inc. Mr. Savage received a bachelors degree in biomedical engineering
from the University of Illinois at Chicago.
THOMAS O. GEPHART has served as a Director of the Company since February
1995. In 1976, Mr. Gephart founded Ventana Global, Ltd., a venture capital and
private investment banking firm, and has served as its Managing General Partner
since that time. Previously, Mr. Gephart held various executive management
positions with AMP, Inc., a manufacturer of electrical connectors, Bunker-Ramo
Corporation, a manufacturer of electric components and the Radar, Missiles and
Electronics Division of Hughes Aircraft Corporation. Mr. Gephart holds a
bachelors degree in engineering from the University of Southern California.
ANTHONY RIPPO, M.D. founded the Company in December 1990 and has served as a
Director since that time. In addition, Dr. Rippo served as President and Chief
Executive Officer of the Company from December 1990 to May 1994. From 1983 to
1990, Dr. Rippo founded and served as President of Marine Medical Services of
San Diego, Inc., a healthcare management company. Prior to 1983, Dr. Rippo
founded industrial medical clinics and the California Marine Medical Service, a
provider of medical care systems to remote areas, primarily ships at sea. Dr.
Rippo holds an M.D. degree from the Loyola University Medical School.
F. DUWAINE TOWNSEN has been a Director of the Company since 1992. Since
1983, Mr. Townsen has been a managing partner of Ventana Growth Fund, L.P., a
venture capital fund. Previously, Mr. Townsen was Chairman of the Board and
Chief Executive Officer of Kay Laboratories, Inc. a manufacturer of medical
products. Mr. Townsen holds a bachelors degree in business administration and
accounting from San Diego State University and is a Certified Public Accountant.
FREDRIK C. SCHREUDER has been a Director of the Company since 1993. Since
1989, Mr. Schreuder has been President of Medical Venture Management A/S of
Norway, a venture capital management firm. Previously, Mr. Schreuder was
Executive Vice-President of Hafslund Nycomed A/S, a manufacturer of
36
<PAGE>
medical imaging contrast media. Mr. Schreuder holds a masters degree in business
administration from Harvard Business School, worked as a research associate at
the IMEDE Management Institute in Switzerland and is a former President of the
Norwegian Society of Financial Analysts. Mr. Schreuder serves as a member of the
Board of Directors of Fuisz Technologies, Limited, a manufacturer of
pharmaceutical products.
C. IAN SYM-SMITH has been a Director of the Company since February 1995.
From 1960 to 1984, Mr. Sym-Smith was a senior partner of Hay Management
Consultants, a management consulting firm. From 1988 to May 1994, Mr. Sym-Smith
was Chairman of the Board of Rural/Metro Corporation, an emergency services
company. Since May 1994, Mr. Sym-Smith has been an independent investor. Mr.
Sym-Smith holds a diploma in electrical engineering from the College of
Technology in Birmingham, England and his masters degree with honors in business
administration from the Wharton School of the University of Pennsylvania.
ROBI BLUMENSTEIN has been a Director of the Company since March 1996. Mr.
Blumenstein is a Managing Director of CIBC Wood Gundy Capital, the merchant
banking division of the Canadian Imperial Bank of Commerce, where he has been
employed since 1994. From May 1992 to December 1993, Mr. Blumenstein was a
principal of Hadley & Baxendale Limited, an investment and consulting firm. From
May 1991 to April 1992, Mr. Blumenstein was a Managing Director of Environmental
Capital Management, an investment firm. From July 1984 to April 1991, Mr.
Blumenstein was employed at First City Capital Corporation, a merchant bank. Mr.
Blumenstein serves as a member of the Board of Directors of Thermatrix Inc., a
publicly held environmental technology company. Mr. Blumenstein holds bachelors
and law degrees from the University of Toronto and a masters degree in business
administration from Harvard University.
ELECTION OF DIRECTORS AND OFFICERS
All members of the Company's Board of Directors hold office until the next
annual meeting of stockholders or until their successors are elected and
qualified. Officers serve at the discretion of the Board of Directors and are
elected annually. There are no family relationships among the directors or
officials of the Company.
Mr. Blumenstein was appointed to the Board of Directors in March 1996
pursuant to the terms and conditions of an Investors' Rights Agreement dated
March 20, 1996 among the Company, CIBC Wood Gundy Ventures, Inc. and certain
other shareholders of the Company, which provided that the holders of the Series
D Preferred Stock shall have the right to elect up to two members of the Board
of Directors. Such right terminates upon the closing of this Offering.
Following the closing of this Offering, Messrs. Townsen and Rippo intend to
resign as members of the Board of Directors, and the Company intends to appoint
two outside directors to fill the resulting vacancies.
BOARD COMMITTEES AND COMPENSATION
The Audit Committee consists of Messrs. Townsen and Sym-Smith. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors, and reviews
and evaluates the Company's internal control functions.
The Compensation Committee consists of Messrs. Sym-Smith, Gephart and Rippo.
The Compensation Committee administers the Company's 1991 Stock Option Plan,
1996 Stock Incentive Plan and 1996 Employee Stock Purchase Plan and makes
recommendations to the Board of Directors concerning compensation for executive
officers and consultants of the Company.
The Company's directors currently do not receive cash compensation for
attendance at Board of Directors or committee meetings. However, in the future,
non-employee directors may receive compensation for attendance and may be
reimbursed for certain expenses in connection with attendance at board and
committee meetings. In addition, pursuant to the Company's 1996 Stock Incentive
Plan, upon commencement of service as a director, each non-employee director is
granted a nonstatutory option to purchase 12,000 shares of the Company's Common
Stock, which option vests and becomes exercisable at the rate of 50% immediately
and 25% upon reelection as a director in each of the two years following the
date of grant.
37
<PAGE>
The exercise price of all such options shall be 100% of the fair market value of
the Common Stock on the date of grant, and all such options shall have a term of
10 years. In addition, upon the expiration of each such four-year period during
the director's term of office, such director shall receive an additional option
to purchase 3,000 shares of Common Stock, exercisable immediately, subject to
the terms and conditions of the 1996 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1995, decisions regarding
compensation of executive officers were made by the Compensation Committee of
the Board of Directors. Dr. Rippo served as the Company's President and Chief
Executive Officer from December 1990 to May 1994. Certain members of the
Compensation Committee have been party to transactions with the Company since
January 1, 1993. See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth compensation earned during the fiscal year
ended December 31, 1995, by the individuals who served as the Company's Chief
Executive Officer during such year and the four other executive officers whose
total salary and bonus during such year exceeded $100,000 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- -------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (1) OPTIONS (#) COMPENSATION
- ------------------------------------------ ---------- --------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Douglas R. Hillier........................ $ 111,576 $ 30,000 $ 5,250 108,333 --
Chief Executive Officer (2)
W. Jerry Mezger........................... 113,533 -- 4,000 -- $ 42,894
Chief Executive Officer (3)
George Pache.............................. 103,069 -- -- 40,000 --
Chief Financial Officer
Ronald Betts, Ph.D........................ 100,800 -- -- 38,333 --
Vice President, Operations
Matthew Leader............................ 102,000 -- -- 35,000 --
Director of Research and Development
</TABLE>
- ------------------------
(1) Consists of car allowances paid to such individuals.
(2) The Company paid Mr. Hillier $46,214 in consulting fees between January 1995
and August 1995, at which time Mr. Hillier was appointed President and Chief
Executive Officer of the Company, and paid Mr. Hillier $65,362 in salary
between August 1995 and December 1995.
(3) Mr. Mezger served as Chief Executive Officer of the Company from March 1994
until his resignation in August 1995.
38
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
options to each of the Named Executive Officers during the year ended December
31, 1995:
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED ANNUAL RATES OF STOCK
SECURITIES TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (3)
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED (#) YEAR (1) ($/SHARE) DATE (2) 5% ($) 10% ($)
- ------------------------------------ ----------- ------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas R. Hillier.................. 50,000 7.8% $ 1.50 02/14/2005 $ 943,000 $ 1,546,089
50,000 7.8 1.50 08/24/2005 943,000 1,546,089
8,333 1.3 1.50 10/08/2005 157,171 257,672
W. Jerry Mezger (4)................. 16,667 2.6 1.50 05/24/1996 -- --
George Pache........................ 33,333 5.2 1.50 03/05/2005 628,705 1,030,716
6,667 1.0 1.50 10/08/2005 125,747 206,155
Ronald Betts, Ph.D.................. 33,333 5.2 1.50 01/17/2005 628,705 1,030,716
5,000 0.8 1.50 10/08/2005 94,306 154,609
Matthew Leader...................... 28,333 4.4 1.50 01/17/2005 534,395 876,199
6,667 1.0 1.50 10/08/2005 125,747 206,155
</TABLE>
- ------------------------
(1) Options to purchase an aggregate of 644,317 shares of Common Stock were
granted to employees, including the Named Executive Officers, during the
year ended December 31, 1995.
(2) Options granted have a term of 10 years, subject to earlier termination in
certain events related to termination of employment. The options granted to
Mr. Mezger were granted in March 1994 and terminate in May 1996.
(3) Based on an assumed initial offering price of $12.50 per share. In
accordance with the rules and regulations of the Securities and Exchange
Commission, such gains are based on assumed rates of annual compound stock
appreciation of 5% and 10% from the date on which the options were granted
over the full term of the options. The rates do not represent the Company's
estimate or projection of future Common Stock prices, and no assurance can
be given that the rates of annual compound stock appreciation assumed for
the purposes of the table will be achieved.
(4) Options were forfeited upon termination of employment.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding option
exercises during the fiscal year ended December 31, 1995 by the Named Executive
Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas R. Hillier.......... 0 -- 8,333 100,000 $ 91,663 $ 1,100,000
W. Jerry Mezger............. 33 $ 46 67,649 0 804,318 0
George Pache................ 0 -- 0 40,000 0 440,000
Ronald Betts, Ph.D.......... 0 -- 7,000 31,333 77,000 344,663
Matthew Leader.............. 0 -- 6,000 29,000 66,000 319,000
</TABLE>
- ------------------------
(1) Based on a $1.50 per share valuation on the date of exercise.
(2) Calculated by determining the difference between the assumed initial public
offering price of $12.50 per share and the exercise price of the options.
39
<PAGE>
STOCK PLANS
1991 STOCK OPTION PLAN
The Company adopted the 1991 Stock Option Plan (the "1991 Plan") in January
1992. At March 31, 1996, of the 1,000,000 shares of Common Stock which have been
reserved for issuance under the 1991 Plan, 872,161 are subject to outstanding
options at a weighted average exercise price of $1.32 per share, 74,162 shares
had been purchased upon exercise of options and 44,510 shares were available for
future grants of options. The 1991 Plan provides for the grant to employees of
the Company of "incentive stock options," within the meaning of Section 422 of
the Internal Revenue code of 1986, as amended (the "Code") and for the grant of
nonstatutory options to employees, consultants and non-employee directors of the
Company. The purpose of the 1991 Plan is to provide participants with incentives
which will encourage them to acquire a proprietary interest in, and continue to
provide services to, the Company. The 1991 Plan may be administered either by
the Board of Directors or a committee approved by the Board of Directors in a
manner that complies with Rule 16b-3 under the Securities Exchange Act of 1934,
as amended. Currently, the 1991 Plan is administered by the Compensation
Committee, which has sole discretion and authority, consistent with the
provisions of the 1991 Plan, to determine which eligible participants will
receive options, the time when options will be granted, the terms of options
granted and the number of shares which will be subject to options granted under
the 1991 Plan.
The exercise price of incentive stock options must at least be equal to the
fair market value of a share of Common Stock on the date the option is granted
(110% with respect to optionees who own at least 10% of the Company's
outstanding voting stock). Nonstatutory options shall have an exercise price of
not less than 85% of the fair market value of a share of Common Stock on the
date such option is granted (110% with respect to optionees who own at least 10%
of the Company's outstanding voting stock). Payment of the exercise price may be
made in cash, by delivery of shares of the Company's Common Stock or,
potentially, through the delivery of a full recourse promissory note. The
Compensation Committee has the authority to determine the time or times at which
options granted under the Plan become exercisable, provided that options must
expire no later than ten years from the date of grant (five years with respect
to optionees who own at least 10% of the outstanding Common Stock). Options are
nontransferable, other than upon death by will and the laws of descent and
distribution, and generally may be exercised only by an employee while employed
by the Company or within three months after termination of employment (one year
for termination resulting from death or disability).
1996 STOCK INCENTIVE PLAN
The Company adopted the 1996 Stock Incentive Plan (the "Stock Incentive
Plan") in May 1996, covering an aggregate of 700,000 shares of Common Stock. The
Stock Incentive Plan provides for the granting of "incentive stock options,"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and nonstatutory options. The Stock Incentive Plan provides
for options to purchase shares of the Company's Common Stock and restricted
stock grants covering an aggregate of shares of the Company's Common Stock may
be granted to directors, officers, employees and consultants of the Company,
except that incentive stock options may not be granted to non-employee directors
or consultants. The purpose of the Stock Incentive Plan is to provide
participants with incentives which will encourage them to acquire a proprietary
interest in, and continue to provide services to, the Company. The Stock
Incentive Plan is administered by the Compensation Committee, which has sole
discretion and authority, consistent with the provisions of the Stock Incentive
Plan, to determine which eligible participants will receive options, the time
when options will be granted, the terms of options granted and the number of
shares which will be subject to options granted under the Stock Incentive Plan.
As of March 31, 1996, there were no options outstanding under the Stock
Incentive Plan.
In addition, the Stock Incentive Plan provides that each non-employee
director of the Company who is initially elected as a director of the Company
after the closing of this Offering during the term of the Stock Incentive Plan,
shall be granted an option consisting of 12,000 shares of Common Stock, which
option shall vest and become exercisable at the rate of 50% immediately and 25%
upon reelection as a director in each of the two years following the grant date.
The exercise price of all options granted under the 1996 Plan shall be
40
<PAGE>
100% of the fair market value of the Common Stock on the date of grant, and all
such options shall have a term of 10 years. In addition, upon the reelection of
such non-employee director in each year of such non-employee director's term of
office such non-employee director shall receive an additional option covering
3,000 shares of Common Stock, exercisable immediately, subject to the
limitations set forth in the Stock Incentive Plan.
The exercise price of incentive stock options must at least be equal to the
fair market value of a share of Common Stock on the date the option is granted
(110% with respect to optionees who own at least 10% of the outstanding Common
Stock). Nonstatutory options shall have an exercise price of not less than 85%
of the fair market value of a share of Common Stock on the date such option is
granted (110% with respect to optionees who own at least 10% of the outstanding
Common Stock). Payment of the exercise price may be made in cash, by delivery of
shares of the Company's Common Stock or, potentially, through the delivery of a
promissory note. The Compensation Committee has the authority to determine the
time or times at which options granted under the Plan become exercisable,
provided that options must expire no later than ten years from the date of grant
(five years with respect to optionees who own at least 10% of the outstanding
Common Stock). Options are nontransferable, other than upon death by will and
the laws of descent and distribution, and generally may be exercised only by an
employee while employed by the Company or within three months after termination
of employment (one year for termination resulting from death or disability).
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the Company's stockholders in
May 1996, covering an aggregate of 200,000 shares of Common Stock. The Purchase
Plan, which is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code, will be implemented by six-month
offerings with purchases occurring at six-month intervals commencing on the date
of this Prospectus. For the initial offering period, the offering period will
commence on the effective date for the Purchase Plan and conclude on December
31, 1996. The Purchase Plan will be administered by the Compensation Committee.
Employees will be eligible to participate if they are employed by the Company
for at least 20 hours per week and if they have been employed by the Company for
at least one year. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 15% of an
employee's compensation. The price of stock purchased under the Purchase Plan
will be 85% of the lower of the fair market value of the Common Stock at the
beginning of the six-month offering period or on the applicable purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment. The Board may at any time amend or terminate the Purchase Plan,
except that no such amendment or termination may adversely affect options
previously granted under the Purchase Plan. The Purchase Plan will in all events
terminate on January 1, 2006.
EMPLOYMENT AGREEMENTS
In August 1995, the Company entered into an employment agreement with
Douglas R. Hillier, which agreement remains in effect until August 25, 1997,
unless and until terminated by either the Company or Mr. Hillier at any time and
for any reason, with or without cause, upon 30 days notice to the other party.
During the fiscal year ended December 31, 1995, Mr. Hillier was paid $65,362
under such employment agreement. In the event Mr. Hillier's employment with the
Company is terminated without cause, Mr. Hillier shall receive a severance
payment equal to five months base salary, plus continuation of health insurance
benefits for a period of five months following such termination.
In January 1996, the Company entered into employment agreements with George
Pache, Michael W. Mercer, Ronald Betts, Ph.D., Ruben Chairez, Ph.D., Matthew
Leader, and Douglas Savage, which agreements remain in effect until terminated
by either the Company or such officer at any time, for any reason, with or
without cause, upon 30 days notice to the other party. In the event the
officer's employment with the Company is terminated without cause, the officer
shall receive a severance payment equal to five to six
41
<PAGE>
months base salary, plus continuation of employee benefits for a period of five
to six months following such termination, and the vesting of such officer's
stock options shall be accelerated as though such officer's employment had
terminated five to six months following the actual date of termination.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its employees and other agents to the fullest
extent permitted by law. The Company believes that indemnification under its
Bylaws covers at least negligence and gross negligence by indemnified parties,
and permits the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification. Prior to the closing of
this Offering, the Company expects to have in place liability insurance for its
officers and directors.
In addition, the Company's Certificate of Incorporation provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty as a director to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Company intends to enter into separate indemnification agreements with
its directors and officers prior to this Offering. These agreements require the
Company, among other things, to indemnify them against certain liabilities that
may arise by reason of their status or service as directors or officers (other
than liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be opposed to the best interests of the Company) to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified and to obtain directors' insurance if available
on reasonable terms. Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended, may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable. The Company believes that its Certificate of
Incorporation and Bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers.
42
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1993, the Company has issued, in private placement
transactions, shares of Series A, A-2, B and C Preferred Stock, as follows:
3,321,997 shares of Series A Preferred Stock at $1.00 per share, 861,067 of
which were subsequently exchanged for shares of Series A-2 Preferred Stock;
1,310,000 shares of Series B Preferred Stock at $1.00 per share; 7,884,337
shares of Series C Preferred Stock at $1.00 per share, 364,395 shares of Series
C Preferred Stock at $2.50 per share; and 3,809,524 shares of Series D Preferred
Stock at $2.625 per share which numbers, as well as the numbers set forth below,
do not reflect the one-for-three reverse stock split effected in May 1996. All
of such Preferred Stock will convert into an aggregate of 5,563,418 shares of
Common Stock upon the closing of the sale of the Shares offered hereby. In
addition, the Company issued warrants to purchase Common and Series A Preferred
Stock and warrants to purchase Series C Preferred Stock in connection with a
Preferred Stock financing and a convertible debt financing, respectively.
Executive officers, directors and five percent stockholders of the Company and
persons associated with them as of the date of this Prospectus participated in
such transactions as described below.
Between March 1993 and May 1994, the Company issued Demand Promissory Notes
in an aggregate principal amount of $671,500, each bearing interest at the rate
of 8.0% per annum, to Ventana Partnership III, L.P. ("Ventana III"). In April
1993, the Company issued a Promissory Note in the principal amount of $650,000,
bearing interest at the rate of 12.0% per annum and due in April 1994, to
Praktikerfinans AB. In October 1993, the Company issued a Demand Promissory Note
in the principal amount of $250,000, bearing interest at the rate of 8.0% per
annum, to Viking Medical Ventures Limited ("Viking"). Each note was issued in
exchange for cash equal to the principal amount thereof. Each of Ventana III and
Praktikerfinans AB is a beneficial owner of more than five percent of the
outstanding voting stock of the Company. Thomas O. Gephart and F. Duwaine
Townsen, both of whom are Directors of the Company, are General Partners of
various Ventana entities, and exercise investment and voting control over the
shares held by such entities. Fredrick Schreuder, a Director of the company, is
the President and Chief Executive Officer of Medical Venture Management AS, the
investment manager of Viking.
In June 1994, in connection with a recapitalization and financing of the
Company, certain of such notes held by Ventana III having an aggregate principal
amount equal to $361,500, together with accrued interest of $5,440, were
refinanced, with the notes being converted to term promissory notes due in
December 1996 and the interest rate being lowered to 8.0%. In addition, the
$650,000 note held by Praktikerfinans AB, together with accrued interest of
$88,688, were refinanced, with the notes being converted to term promissory
notes due in June 1997 and the interest rate being lowered to 9.0%. As
consideration for such extension, the Company issued to Praktikerfinans AB
warrants to purchase 130,000 shares of the Company's Series A Preferred Stock at
an exercise price of $1.00 per share. In addition, the Company repaid principal
and accrued interest on certain of such notes held by Ventana III totalling
$60,250.
In connection with such financing, Ventana III and Viking converted the
principal and accrued interest on certain of such notes into 263,981 shares and
262,221 shares, respectively, of Series A Preferred Stock at a Preferred Stock
at a price of $1.00 per share. In connection with such conversion, Ventana III
and Viking were issued warrants to purchase 52,796 shares, and 52,444
respectively, of Common Stock.
In connection with such financing, the Company also issued and sold shares
of Series A Preferred Stock to several entities, including Praktikerjanst AB (an
affiliate of Praktikerfinans AB)(150,000 shares) and K/S Nordic Healthcare
Partners (50,000 shares) at a price of $1.00 per share. In connection with such
financing, the Company also issued to such purchasers warrants to purchase
30,000 shares and 10,000 shares, respectively, of Common Stock. Fredrik
Schreuder, a Director of the Company, is the President and Chief Executive
Officer of Medical Venture Management AS, the investment manager of K/S Nordic
Healthcare Partners, and exercises investment and voting power over the shares
held by such entity.
In July 1994, the Company issued an aggregate of $310,000 in convertible
promissory notes to S-E Banken Lakemedelsfond and S-E Banken Aktiv Lakemedel,
two affiliated entities who together beneficially own more than 5% of the
Company's stock. In February 1995, such entities converted such notes into
shares of Series B Preferred Stock at a price of $1.00 per share. In connection
with such conversion, such purchasers were issued Warrants to purchase an
aggregate of 62,000 shares of Common Stock.
43
<PAGE>
In October 1994, the Company issued a Demand Promissory Note in the
principal amount of $300,000 to Ventana III, bearing interest at the rate of 8%
per annum. In December 1994 and January 1995, the Company issued Promissory
Notes in the aggregate principal amount of $600,000 to Ventana III, due in
September 1995 and bearing interest at the rate of 8% per annum. Between March
1995, and June 1995, the Company issued Demand Promissory Notes bearing interest
at the Prime rate plus 2% to several Ventana entities in the aggregate principal
amount of $705,000. Each note was issued in exchange for cash equal to the
principal amount thereof. During 1995, the Company paid an aggregate of
$1,199,843 in principal and accrued interest on such Notes.
In addition, during 1995 the Company issued Convertible Promissory Notes to
several new and existing stockholders of the Company, including C. Ian Sym-Smith
($150,000), Viking ($100,000) and S-E Banken Lakemedelsfond ($200,000), in
exchange for cash. Such notes were due in September 1995 and obligated the
Company to pay interest at the rate of 8% per annum. The Company also issued
Convertible Demand Promissory Notes, bearing interest at the prime rate plus 2%,
to several parties, including Viking ($150,000), Praktikerjanst AB ($300,000),
Canterbury Holdings, Ltd. ($200,000) and Douglas R. Hillier ($20,000). In July
1995, in connection with the Company's Series C Financing, the holders of such
notes converted them, together with accrued interest thereon, into shares of
Series C Preferred Stock at a conversion price of $1.00 per share. Thomas O.
Gephart, a Director of the Company, is a General Partner of Canterbury Holdings,
Ltd., and exercises investment and voting control over the shares held by such
entity. Mr. Hillier is an executive officer and Director of the Company, and Mr.
Sym-Smith is a Director of the Company.
In July 1995, the Company issued and sold shares of its Series C Preferred
Stock at a purchase price of $1.00 per share to several new and existing
stockholders of the Company, including certain Ventana entities and affiliates
(1,200,149 shares), FBL Ventures of South Dakota, Inc. ("FBL
Ventures")(1,000,000 shares), C. Ian Sym-Smith (300,000 shares), Thomas O.
Gephart (150,000 shares), F. Duwaine Townsen (150,000 shares), Douglas R.
Hillier (100,000 shares), George Pache (50,000 shares) and Michael R. Mercer
(7,500 shares). FBL Ventures is a beneficial owner of more than 5% of the
Company's Stock, and Messrs. Pache and Mercer are executive officers of the
Company.
In February 1996, the Company issued Convertible Promissory Notes to several
existing investors of the Company in exchange for cash. As consideration for the
extension of such financing by such investors, the Company issued to each
investor warrants to purchase Series C Preferred Stock. These investors included
Ventana, which was issued a promissory note for $21,067 and 5,267 warrants, FBL
Ventures, which was issued a Note for 500,000 and 125,000 warrants, C. Ian
Sym-Smith, who was issued a Note for $75,000 and 18,750 in warrants, F. Duwaine
Townsen, who was issued Notes for $22,293 and 5,574 warrants, Douglas R.
Hillier, who was issued a Note for $31,250 and 7,813 warrants and George Pache,
who was issued a Note for $20.000 and 5,000 warrants. In March 1996, all of the
promissory notes were converted into shares of Series C Preferred Stock at a
price of $2.50 per share.
In March 1996, the Company issued 3,809,524 shares of its Series D Preferred
Stock to CIBC Wood Gundy Ventures, Inc. ("CIBC Wood Gundy") for an aggregate
purchase price of $10,000,001, which shares represent more than 5% of the
Company's outstanding stock. Upon the closing of this Offering, such shares will
automatically convert into 1,269,841 shares of Common Stock, based on a price to
the public in excess of $11.81. Pursuant to the terms of the Series D Preferred
Stock, CIBC Wood Gundy is entitled to additional shares of Common Stock if the
public offering is $11.81 or less. Assuming an initial public offering of
$11.50, CIBC Wood Gundy will be entitled to 35,812 additional shares. In
connection with such transaction, the Company entered into an Amended and
Restated Registration Rights Agreement with the holders of Series C Preferred
Stock and certain warrants to purchase Common Stock, including certain executive
officers, directors and five percent or greater stockholders, granting certain
preferential rights to CIBC Wood Gundy, substantially all of which will expire
upon the consummation of this Offering.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common Stock
as of May 1, 1996, by (i) each person or entity known to the Company to own
beneficially 5% or more of the outstanding shares of Common Stock, (ii) each of
the Company's directors, (iii) each of the Named Executive Officers and (iv) all
directors and executive officers of the Company as a group. The information as
to each person or entity has been furnished by such person or entity.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
------------------------
BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER OF SHARES (1) OFFERING OFFERING
- ------------------------------------------------------------------------ -------------------- ----------- -----------
<S> <C> <C> <C>
CIBC Wood Gundy Ventures, Inc. ......................................... 1,269,841 20.6% 14.8%
423 Lexington Avenue
New York, NY 10017
Ventana Funds (2) ...................................................... 1,113,368 18.0 13.0
c/o Ventana
18881 Von Karman Avenue,
Suite 350
Irvine, CA 92715
FBL Ventures of South Dakota, Inc. (3) ................................. 508,333 8.2 5.9
c/o Farm Bureau Life Insurance Co.
5400 University Avenue
West Des Moines, IA 50266
S-E Banken (4) ......................................................... 493,516 8.0 5.7
Jakobsbergsgaten 17
Stockholm, Sweden STJ9
Praktikerjanst AB (5) .................................................. 371,366 6.0 4.3
Hollandargaten 10
Stockholm, Sweden S-106-63
Thomas O. Gephart (6)................................................... 1,273,108 20.6 14.8
Anthony Rippo, M.D. (7)................................................. 111,621 1.8 1.3
F. Duwaine Townsen (8).................................................. 1,214,480 19.6 14.1
Frederik C. Schreuder (9)............................................... 267,307 4.3 3.1
C. Ian Sym-Smith (10)................................................... 152,595 2.5 1.8
Robi Blumenstein (11)................................................... 1,269,841 20.6 14.8
Douglas R. Hillier (12)................................................. 75,000 1.2 *
W. Jerry Mezger (13).................................................... 67,682 1.1 *
George Pache (14)....................................................... 25,067 * *
Ronald Betts, Ph.D. (15)................................................ 14,000 * *
Matthew Leader (16)..................................................... 12,000 * *
All executive officers and directors 3,369,333 52.4 38.1
as a group (13 persons) (17)...........................................
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options or warrants currently exercisable, or exercisable within 60 days
of May 10, 1996, are deemed outstanding for computing the percentage of the
person holding such options or warrants but are not deemed outstanding for
computing the percentage of any other person. Except as indicated by
footnote and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
45
<PAGE>
(2) Includes 915,136 shares held by Ventana Partnership III, L.P., 100,000
shares held by Ventana Growth Fund II, L.P., 50,000 shares held by Ventana
Equity Expansion Partnership IV, L.P., 30,634 shares held by Ventana Growth
Capital Fund V, L.P., 6,667 shares held by Ventana Global, Ltd. and 3,500
shares held by Ventana Liquidating Trust. Also includes warrants for 17,599
shares exercisable by Ventana Partnership III, L.P. within 60 days of May 1,
1996. Voting power with respect to shares held by Ventana Growth Fund II,
L.P., Ventana Partnership III, L.P., Ventana Equity Expansion Partnership
IV, L.P. and Ventana Growth Capital Fund V, L.P. is shared by Thomas O.
Gephart and F. Duwaine Townsen. Voting power with respect to shares held by
Ventana Global, Ltd. and Ventana Liquidating Trust is held solely by Mr.
Gephart.
(3) Includes 41,667 warrants exercisable within 60 days of May 1, 1996.
(4) Includes 382,849 shares held by S-E Banken Lakemedelsfond and 90,000 shares
held by S-E Banken Aktiv Lakemedel. Also includes warrants exercisable for
16,000 shares held by S-E Banken Lakemedelsfond and warrants exercisable for
4,666 shares held by S-E Banken Aktiv Lakemedel, both of which are
exercisable within 60 days of May 1, 1996.
(5) Includes 318,033 shares held by Praktikerjanst AB. Also includes warrants
exercisable for 10,000 shares held by Praktikerjanst AB and warrants
exercisable for 43,333 shares held by Praktikerfinans AB, both of which are
exercisable within 60 days of May 1, 1996.
(6) Includes 1,123,535 shares held by Ventana entities. Also includes 73,907
shares held by Canterbury Holdings, Ltd., a company which is owned by a
Grantor Trust established by Mr. Gephart, and 6,500 shares held in trust for
The Gephart Family Trust, as to which shares Mr. Gephart exercises
investment and voting control. Also includes options exercisable for 19,167
shares within 60 days of May 1, 1996. Mr. Gephart disclaims beneficial
ownership of all shares held by Ventana entities except to the extent of his
pecuniary interest therein.
(7) Consists of 44,954 shares held in trust for The Rippo Family Trust, as to
which shares Dr. Rippo exercises investment and voting control, and options
exercisable for 66,667 shares held by Dr. Rippo within 60 days of May 1,
1996.
(8) Includes 1,113,369 shares held by Ventana entities. Also includes 37,531
shares held in trust for The Townsen Family Trust, as to which shares Mr.
Townsen exercises investment and voting control, warrants exercisable for
1,858 shares and options exercisable for 10,000 shares, both of which are
exercisable within 60 days of May 1, 1996. Mr. Townsen disclaims beneficial
ownership of all shares held by Ventana entities except to the extent of his
pecuniary interest therein.
(9) Includes 172,886 shares held by Viking Medical Ventures, Ltd. and 66,663
shares held by K/S Nordic Healthcare Partners, over which shares Mr.
Schreuder exercises investment and voting control. Also includes warrants
exercisable for 17,481 shares held by Viking Medical Ventures, Ltd.,
warrants exercisable for 3,333 shares held by K/S Nordic Healthcare
Partners, and options exercisable for 6,944 shares, all of which are
exercisable within 60 days of the date hereof. Mr. Schreuder disclaims
beneficial ownership of the shares held by such entities except to the
extent of his pecuniary interest therein.
(10) Includes warrants for 6,250 shares exercisable by Mr. Sym-Smith within 60
days of May 1, 1996.
(11) Consists of shares held by CIBC Wood Gundy Ventures, Inc., an entity of
which Mr. Blumenstein is a Managing Director. Mr. Blumenstein disclaims
beneficial ownership of such shares.
(12) Includes 4,167 shares held in trust for The Hillier Family Trust, over
which shares Mr. Hillier exercises investment and voting control. Also
includes warrants exercisable for 6,667 shares held in trust for The Hillier
Family Trust and options exercisable for 20,833 shares held by Mr. Hillier,
both of which are exercisable within 60 days of May 1, 1996.
(13) Includes options exercisable for 67,649 shares within 60 days of May 1,
1996.
(14) Includes options exercisable for 8,333 shares and warrants exercisable for
1,667 shares, both of which are exercisable within 60 days of May 1, 1996.
(15) Consists of options exercisable for 14,000 shares within 60 days of May 1,
1996.
(16) Consists of options exercisable for 12,000 shares within 60 days of May 1,
1996.
(17) Includes an aggregate of 261,109 shares subject to options and warrants
exercisable within 60 days of May 1, 1996.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $0.001 par value per share, and 10,000,000 shares of Preferred
Stock, $0.001 par value per share.
COMMON STOCK
As of March 31, 1996, there were 606,828 shares of Common Stock outstanding
held by 96 stockholders of record. There will be 8,570,246 shares of Common
Stock outstanding after giving effect to the sale of 2,400,000 shares of Common
Stock offered by the Company hereby and after giving effect to the conversion of
all of Preferred Stock into 5,563,418 shares of Common Stock.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders, including the election of
directors, and do not have cumulative voting rights. Subject to preferences that
may be applicable to the holders of outstanding shares of Preferred Stock, if
any, the holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." In the event of
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock shall be entitled to receive pro rata all of the assets of the
Company available for distribution to its stockholders. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and shares
of Common Stock to be issued pursuant to this offering shall be fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has authority to issue up to 10,000,000 shares of
Preferred Stock, $0.001 par value, and to fix the rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any future vote or action by the stockholders. The rights of the holders of the
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. The Company has no present plans to issue shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law and anti-takeover law. In general, the statute prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
either (i) prior to the date at which the person becomes an interested
stockholder, the Board of directors approves such transaction or business
combination, (ii) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
officers or held in certain employee stock plans) upon consummation of such
transaction, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent). A "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to such
interested stockholder. For purposes of Section 203, "interested stockholder" is
a person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
REGISTRATION RIGHTS
Pursuant to an Amended and Restated Registration Rights Agreement, dated
March 20, 1996, among the Company and certain stockholders of the Company
("Registration Rights Agreement"), after this offering, the holders of 6,255,166
shares of Common Stock (including shares issuable upon the exercise of the
Company's outstanding warrants) (the "Registrable Securities") will be entitled
to, subject to specific
47
<PAGE>
limitations, certain rights with respect to the registration of the Registrable
Securities under the Act. Under the Registration Rights Agreement, if the
Company proposes to register any of its securities under the Act, either for its
own account or for the account of other security holders exercising registration
rights, such holders may be entitled to notice of such registration and to
include their shares of Common Stock in such registration. These rights are
subject to certain conditions and limitations, including the right of the
underwriters to limit the number of shares included in such registration. The
stockholders benefiting from these rights may require the Company, on not more
than four occasions, to file a registration statement under the Act at the
Company's expense with respect to their shares of Common Stock, and the Company
is required to use its best efforts to effect such registration, subject to
certain conditions. Further, such holders may require the Company to file
additional registration statements on Form S-3, subject to certain conditions.
STOCK TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Company's Common Stock is
U.S. Stock Transfer Corporation, Glendale, California.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of the
Company. Therefore, future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after this Offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity in the future.
Upon completion of this Offering, the Company will have outstanding an
aggregate of 8,571,329 shares of Common Stock (i) assuming no exercise of the
Underwriters' over-allotment option, (ii) no exercise after April 30, 1996 of
the approximately 1,348,251 shares issuable pursuant to outstanding options or
warrants, approximately 806,873 of which would be eligible for immediate sale if
exercised and (iii) the conversion of all outstanding shares of Preferred Stock
into 5,563,418 shares of Common Stock. Of these outstanding shares of Common
Stock, the 2,400,000 shares sold in this Offering will be freely tradeable
without restriction or further registration under the Securities Act, unless
purchased by an "affiliate" of the Company, as that term is defined in Rule 144
under the Securities Act (an "Affiliate"). The remaining 6,171,329 shares of
Common Stock existing are "restricted securities" as that term is defined in
Rule 144 under the Act ("Restricted Shares"). Restricted Shares may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Section 4(1) or Rules 144, 144(k), 145 or 701 promulgated
under the Securities Act, which are summarized below. Sales of the Restricted
Shares in the public market, or the availability of such shares for sale, could
adversely affect the market price of the Common Stock.
Certain holders of Common Stock have agreed, pursuant to certain "lock-up"
agreements, that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of the shares of Common Stock owned by them or
that could be purchased by them through the exercise of options to purchase
Common Stock of the Company for certain designated periods. All shares owned by
holders signing such lock-ups will be restricted from sale for a minimum of 180
days following the Effective Date of this Offering, unless such holder receives
the prior written consent of CS First Boston to sell such shares. As a result of
these contractual restrictions, notwithstanding possible earlier eligibility for
sale under the provisions of Section (4)1 or Rules 144, 144(k), 145 and 701,
shares subject to lock-up agreements will not be saleable until the agreements
expire. The number of outstanding shares that will be available for sale,
subject in certain circumstances to volume and manner of sale restrictions, in
the public market, after giving effect to lock-up agreements, will be as follows
(assuming no exercise after March 31, 1996 of outstanding options or warrants):
(i) 240,073 shares of Common Stock will be eligible for sale as of the Effective
Date of this Offering, (ii) 270,906 shares of Common Stock will be eligible for
sale beginning 90 days after the Effective Date of this Offering and (iii)
2,256,410 shares of Common Stock will be eligible for sale beginning 180 days
after the Effective Date of this Offering. The approximately 3,914,919 remaining
Restricted Shares will not be eligible for sale pursuant to Rule 144 until the
expiration of their two-year holding periods.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least two years (including
the holding period of any prior owner except an Affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding; or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an Affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years (including the holding period of any prior owner except an
Affiliate), is entitled to sell such shares without complying with the manner of
sale, public information volume limitation or notice provisions of Rule 144;
therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this Offering.
49
<PAGE>
In addition, any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits an Affiliate to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the public information, volume limitation or
notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is
required to wait until 90 days after the date of this Prospectus before selling
such shares. On March 31, 1996, the Company had outstanding options to purchase
872,161 shares of Common Stock and an additional 44,510 shares of Common Stock
are available for issuance pursuant to the 1991 Plan.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issued or issuable pursuant to the
Company's 1996 Stock Incentive Plan (including options incorporated from the
1991 Plan) and Common Stock issuable pursuant to the Company's Employee Stock
Purchase Plan. Accordingly, shares registered under such registration statements
will, subject to Rule 144 volume limitations applicable to Affiliates and the
lapsing of the Company's repurchase options, be available for sale in the open
market, except to the extent that such shares are subject to vesting
restrictions with the Company or the contractual restrictions described above.
See "Management -- Stock Option Plans."
50
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated , 1996 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters") have severally but not jointly
agreed to purchase from the Company the following respective numbers of shares
of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
CS First Boston Corporation.......................................................
J.P. Morgan Securities Inc........................................................
Needham & Company, Inc............................................................
-----------
Total.....................................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of the Common Stock offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased.
The Company has granted to the Underwriters an option, exercisable by CS
First Boston, expiring at the close of business on the 30th day after the date
of this Prospectus, to purchase up to 360,000 additional shares, at the initial
public offering price less the underwriting discounts and commissions, all as
set forth on the cover page of this Prospectus. Such option may be exercised
only to cover over-allotments in the sale of the shares of Common Stock. To the
extent such option is exercised, each Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as it was obligated to purchase pursuant to
the Underwriting Agreement.
The Company has been advised by the Underwriters that they propose to offer
the shares of Common Stock to the public at the initial public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession of not in excess of $ per share, of which $ may be
reallowed to certain other dealers. After the initial public offering, the
public offering price, concession and reallowance to dealers may be changed by
the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended, or contribute to payments that the Underwriters may be required to make
in respect thereof.
Pursuant to the terms of lock-up agreements, all officers, directors and
certain stockholders have agreed that, until 180 days after the effective date
of the Registration Statement of which this Prospectus is a part (the "lock-up
period"), they will not offer, sell, contract to sell or otherwise dispose of or
grant any rights with respect to any shares of Common Stock, any options or
warrants to purchase shares of Common Stock or any securities convertible into
or exchangeable for shares of Common Stock now owned or hereafter acquired
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of CS First Boston. Approximately
shares of Common Stock subject to the lock-up agreements will become eligible
for immediate public sale following expiration of the lock-up period, subject to
the provisions of Rule 144. CS First Boston may, in its sole discretion, and at
any time without notice, release all or a portion of the securities subject to
the lock-up agreements. See "Shares Eligible for Future Sale." In addition, the
Company has agreed that until the expiration of the lock-up period, the Company
will not offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock, any options or warrants to purchase Common Stock or any securities
convertible into or exchangeable for shares of Common Stock, other than the
Company's sales of shares in this Offering, the issuance of shares of Common
Stock upon the exercise of outstanding options, the grant of options to purchase
shares or the issuance of shares of Common Stock under the Company's, 1991 Plan,
the 1996 Plan and Employee Stock Purchase Plan, without the prior written
consent of CS First Boston.
51
<PAGE>
The Underwriters have advised the Company that they expect discretionary
sales not to exceed 5% of the shares offered hereby.
Prior to this Offering, there has been no public trading market for the
Common Stock of the Company. The initial public offering price will be
determined through negotiations among the Company and the Underwriters. Among
the factors to be considered in such negotiations will be prevailing market
conditions, the net sales and results of operations of the Company in recent
periods, market valuations of publicly traded companies that the Company and the
Underwriters believe to be comparable to the Company, estimates of the business
potential of the Company, the present state of the Company's development, the
current state of the industry and the economy as a whole, and other factors
deemed relevant.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of Common Stock in Canada is being made only
on a private placement basis exempt from the requirement that the Company
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the Common Stock are effected. Accordingly, any resale
of the Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Common Stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as agent
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The Common Stock being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
Company or such persons. All or a substantial portion of the assets of the
Company and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the Company or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such Company
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Common Stock to whom the SECURITIES ACT (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Common Stock acquired by such purchaser pursuant to this Offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Company. Only
one such report must be filed in respect of the Common Stock acquired on the
same date and under the same prospectus exemption.
52
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
Newport Beach, California. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Wilson, Sonsini, Goodrich
and Rosati Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements of SenDx Medical, Inc. as of December 31, 1994 and
1995, and for each of the three years in the period ended December 31, 1995 and
the financial statements of Medical Sensors at December 31, 1993 and 1994, and
for each of the two years in the period ended December 31, 1994, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein and in the Registration Statement. Such financial statements
have been included herein in reliance on their reports given on their authority
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company intends to furnish to its stockholders annual reports containing
audited financial statements, with an opinion thereon expressed by an
independent certified public accounting firm, and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year.
The Company has filed with the Commission a Registration Statement
(including any amendments thereto) on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, omits certain of the information contained
in the Registration Statement and the exhibits and schedules thereto on file
with the Commission pursuant to the Securities Act and the rules and regulations
of the Commission thereunder. The Registration Statement, including exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained at prescribed
rates from the Public Reference Section of the Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
to the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SENDX MEDICAL, INC.
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Balance Sheets at December 31, 1994 and 1995 and at March 31, 1996 (Unaudited)....... F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and for
the three months ended March 31, 1995 (Unaudited) and March 31, 1996 (Unaudited).... F-4
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1993,
1994 and 1995 and for the three months ended March 31, 1996 (Unaudited)............. F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for
the three months ended March 31, 1995 (Unaudited) and March 31, 1996 (Unaudited).... F-6
Notes to Financial Statements........................................................ F-7
MEDICAL SENSORS
Report of Independent Auditors....................................................... F-17
Balance Sheets at December 31, 1993 and 1994......................................... F-18
Statements of Operations and Intercompany Advances for the years ended December 31,
1993 and 1994....................................................................... F-19
Statements of Cash Flows for the years ended December 31, 1993 and 1994.............. F-20
Notes to Financial Statements........................................................ F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SenDx Medical, Inc.
We have audited the accompanying balance sheets of SenDx Medical, Inc. as of
December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SenDx Medical, Inc. at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
March 1, 1996,
except for Note 8, as to which
the date is May 8, 1996
- --------------------------------------------------------------------------------
THE FOREGOING REPORT IS IN THE FORM THAT WILL BE SIGNED UPON THE COMPLETION OF
THE CHANGES IN CAPITALIZATION DESCRIBED IN NOTE 8 TO THE FINANCIAL STATEMENTS.
San Diego, California
May 9, 1996
F-2
<PAGE>
SENDX MEDICAL, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------- -------------- MARCH 31, PRO FORMA
1996 STOCKHOLDERS'
-------------- EQUITY AT
MARCH 31,
(UNAUDITED) 1996
--------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash................................................... $ 120,061 $ 563,909 $ 9,252,445
Accounts receivable, less allowance of $2,473 in 1994
and $25,206 in 1995 and 1996.......................... 352,897 203,724 420,407
Inventories............................................ 554,095 429,510 375,661
Other current assets................................... 83,483 58,285 78,869
------------- -------------- --------------
Total current assets............................... 1,110,536 1,255,428 10,127,382
Property and equipment, net.............................. 1,337,849 1,627,432 1,829,231
Intangibles, net......................................... 2,323,391 2,057,401 1,991,356
------------- -------------- --------------
$ 4,771,776 $ 4,940,261 $ 13,947,969
------------- -------------- --------------
------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 194,288 $ 153,035 $ 179,691
Accrued expenses....................................... 409,951 1,152,497 743,523
Notes payable, including accrued interest.............. 2,561,682 2,191,543 2,244,085
Current portion of long-term debt, including accrued
interest.............................................. -- 1,000,000 1,000,000
------------- -------------- --------------
Total current liabilities.......................... 3,165,921 4,497,075 4,167,299
Long-term debt, including accrued interest............... 6,588,129 5,379,967 5,521,658
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock, no par value ($0.001
unaudited pro forma):
Authorized shares -- 100,000,000 (10,000,000
unaudited pro forma)
Issued and outstanding shares -- 4,631,997,
12,516,334 and 16,690,253 in 1994, 1995 and 1996,
respectively, aggregate liquidation value --
$4,631,997, $12,516,334 and $22,880,730 in 1994,
1995 and 1996, respectively......................... 4,631,997 12,471,350 23,277,274
Common stock, no par value ($0.001 unaudited pro
forma):
Authorized shares -- 50,000,000
Issued and outstanding shares -- 559,333 in 1994 and
606,828 in 1995 and 1996 (6,170,246 shares unaudited
pro forma).......................................... 53,800 72,780 72,780 $ 6,170
Additional paid-in capital............................. -- -- -- 23,343,884
Accumulated deficit.................................... (9,668,071) (17,480,911) (19,091,042) (19,091,042)
------------- -------------- -------------- --------------
Total stockholders' equity (deficit)............... (4,982,274) (4,936,781) 4,259,012 $ 4,259,012
------------- -------------- -------------- --------------
--------------
$ 4,771,776 $ 4,940,261 $ 13,947,969
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
SENDX MEDICAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 190,178 $ 154,424 $ 1,250,945 $ 377,221 $ 825,965
Costs of goods sold................... 126,636 76,102 3,319,664 785,953 902,363
------------- ------------- ------------- ------------- -------------
Gross profit (loss)................... 63,542 78,322 (2,068,719) (408,732) (76,398)
Operating expenses:
Research and development............ 877,172 814,146 2,219,271 585,217 617,776
Write-off of acquired in-process
technology......................... -- 3,362,290 -- -- --
General and administrative.......... 810,327 962,348 1,614,663 368,951 361,024
Sales and marketing................. 138,628 99,674 1,038,750 338,850 366,340
------------- ------------- ------------- ------------- -------------
Total operating expenses.............. 1,826,127 5,238,458 4,872,684 1,293,018 1,345,140
------------- ------------- ------------- ------------- -------------
Loss from operations.................. (1,762,585) (5,160,136) (6,941,403) (1,701,750) (1,421,538)
Interest expense, net................. (76,713) (138,510) (871,437) (227,940) (188,593)
------------- ------------- ------------- ------------- -------------
Net loss.............................. $ (1,839,298) $ (5,298,646) $ (7,812,840) $ (1,929,690) $ (1,610,131)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Pro forma net loss per share.......... $ (1.59) $ (0.32)
------------- -------------
------------- -------------
Pro forma shares used in per share
computations......................... 4,919,000 4,967,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
SENDX MEDICAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK STOCKHOLDERS'
--------------------- ---------------------- ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT DEFICIT (DEFICIT)
--------- ---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992............. 3,018,638 $3,018,638 476,666 $ 14,300 $(2,530,127) $ 502,811
Issuance of common stock for services
provided.............................. -- -- 50,000 15,000 -- 15,000
Issuance of common stock upon exercise
of stock options for cash............. -- -- 25,000 7,500 -- 7,500
Net loss............................... -- -- -- -- (1,839,298) (1,839,298)
--------- ---------- --------- ----------- ------------ ------------
Balance at December 31, 1993............. 3,018,638 3,018,638 551,666 36,800 (4,369,425) (1,313,987)
Issuance of common stock for services
provided.............................. -- -- 6,000 16,500 -- 16,500
Issuance of common stock upon exercise
of stock options for cash............. -- -- 1,667 500 -- 500
Issuance of Series A convertible
preferred stock for cash of $452,500
and conversion of notes payable of
$850,859.............................. 1,303,359 1,303,359 -- -- -- 1,303,359
Issuance of Series B convertible
preferred stock for cash.............. 310,000 310,000 -- -- -- 310,000
Net loss............................... -- -- -- -- (5,298,646) (5,298,646)
--------- ---------- --------- ----------- ------------ ------------
Balance at December 31, 1994............. 4,631,997 4,631,997 559,333 53,800 (9,668,071) (4,982,274)
Issuance of common stock upon exercise
of stock options for cash............. -- -- 47,495 18,980 -- 18,980
Issuance of Series C convertible
preferred stock for cash of $5,172,125
and conversion of notes payable of
$2,667,228, net....................... 7,884,337 7,839,353 -- -- -- 7,839,353
Net loss............................... -- -- -- -- (7,812,840) (7,812,840)
--------- ---------- --------- ----------- ------------ ------------
Balance at December 31, 1995............. 12,516,334 12,471,350 606,828 72,780 (17,480,911) (4,936,781)
Conversion of notes payable to Series C
convertible preferred stock
(Unaudited)........................... 364,395 910,987 -- -- -- 910,987
Issuance of Series D convertible
preferred stock, net (Unaudited)...... 3,809,524 9,894,937 -- -- -- 9,894,937
Net loss (Unaudited)................... -- -- -- -- (1,610,131) (1,610,131)
--------- ---------- --------- ----------- ------------ ------------
Balance at March 31, 1996 (Unaudited).... 16,690,253 $23,277,274 606,828 $ 72,780 ($19,091,042) $4,259,012
--------- ---------- --------- ----------- ------------ ------------
--------- ---------- --------- ----------- ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
SENDX MEDICAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................... $(1,839,298) $(5,298,646) $(7,812,840) $(1,929,690) $(1,610,131)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization.................... 147,674 132,561 798,894 204,434 207,993
Write-off of patent.............................. 43,333 -- -- -- --
Write-off of leasehold improvements.............. -- -- 35,252 -- --
Payment for services through issuance of common
stock........................................... 15,000 16,500 -- -- --
Write-off of investment in affiliate............. -- 78,031 -- -- --
Write-off of acquired in-process technology...... -- 3,362,290 -- -- --
Changes in operating assets and liabilities, net
of effects from purchase of Medical Sensors
(NOTE 2):
Accounts receivable............................ 9,314 9,519 149,173 1,346 (216,683)
Inventories.................................... 33,551 12,093 124,585 67,687 53,849
Other current assets........................... (9,308) (7,380) 25,198 61,390 (20,584)
Accounts payable............................... (33,026) (43,621) (41,253) 312,425 26,656
Accrued expenses............................... 29,018 163,855 369,551 107,999 (35,979)
Accrued interest............................... 79,604 138,134 704,189 226,098 194,233
---------- ---------- ---------- ---------- ----------
Net cash used in operating activities.............. (1,524,138) (1,436,664) (5,647,251) (948,311) (1,400,646)
INVESTING ACTIVITIES
Payment on purchase of Medical Sensors............. -- (500,000) (500,000) -- --
Purchase of equipment and leasehold improvements... (5,616) (4,979) (452,598) (76,882) (716,742)
Investment in affiliate............................ (28,031) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities.............. (33,647) (504,979) (952,598) (76,882) (716,742)
FINANCING ACTIVITIES
Principal payments on notes payable................ -- (60,250) (2,908,723) (500,000) (190,000)
Proceeds from notes payable........................ 1,560,000 1,221,500 4,761,315 1,500,800 1,100,987
Issuance of convertible preferred stock, net....... -- 762,500 5,172,125 69,424 9,894,937
Issuance of common stock........................... 7,500 500 18,980 -- --
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities.......... 1,567,500 1,924,250 7,043,697 1,070,224 10,805,924
Net increase (decrease) in cash.................... 9,715 (17,393) 443,848 45,031 8,688,536
Cash at beginning of period........................ 127,739 137,454 120,061 120,061 563,909
---------- ---------- ---------- ---------- ----------
Cash at end of period.............................. $ 137,454 $ 120,061 $ 563,909 $ 165,092 $9,252,445
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Business acquired through issuance of debt......... $ -- $7,061,682 $ -- $ -- $ --
Notes payable, including accrued interest,
exchanged for convertible preferred stock......... $ -- $ 850,859 $2,667,228 $ -- $ 910,987
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid...................................... $ -- $ -- $ 220,684 $ -- $ 12,066
</TABLE>
See accompanying notes.
F-6
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
SenDx Medical, Inc. (the Company), formerly UniFET Incorporated, was
incorporated in California in December 1990 for the purpose of developing,
manufacturing and marketing highly advanced sensors for medical, laboratory and
industrial applications. In December 1994, the Company acquired the principal
assets of Medical Sensors, a business unit of PPG Industries, Inc. ("PPG"). The
primary operations of Medical Sensors consisted of developing, manufacturing and
marketing proprietary blood analysis systems that provide cost-effective
measurement of critical diagnostic parameters at the patient point-of-care.
Subsequent to the acquisition, the Company's primary focus has been to continue
with the activities of Medical Sensors.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. To continue to finance the planned
growth of the Company's business, management intends to raise additional debt
and/or equity through private placements and an initial public offering of its
common stock as contemplated by this Prospectus. In March 1996, the Company
issued 3,809,524 shares of Series D redeemable convertible preferred stock at
$2.625 per share for total proceeds of $10,000,001 (see Note 7). The stock
issued through the private placement will allow the Company to meet its
obligations and to continue its operations through 1996.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The financial statements at March 31, 1996 and for the three-month periods
ended March 31, 1995 and 1996 are unaudited, but include all adjustments
(consisting only of normal recurring adjustments) which management considers
necessary for a fair statement of the financial position at such dates and the
operating results and cash flows for those periods. Results for interim periods
are not necessarily indicative of results for the entire year or any future
periods.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
If the offering contemplated by this Prospectus is consummated under the
terms presently anticipated, all of the convertible preferred stock will convert
to common stock (see Note 7). Unaudited pro forma stockholders' equity as of
March 31, 1996 is adjusted for the conversion of the preferred stock into common
stock.
CONCENTRATION OF CREDIT RISK
The Company sells its products primarily to customers located throughout the
United States, Europe and Japan. Credit is extended based on an evaluation of
the customer's financial condition. The Company estimates its potential losses
on trade receivables on an ongoing basis and provides for anticipated losses in
the period in which the revenues are recognized. Actual losses may differ from
the Company's estimates.
INVENTORIES
Inventories are stated at lower of cost (using the first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets (generally 5 - 7 years) using the straight-line
method. Amortization of leasehold improvements is computed over the shorter of
the lease term or the estimated life of the related assets.
RESEARCH AND DEVELOPMENT
Costs associated with research and development are expensed as incurred.
F-7
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES
Intangible assets are recorded at cost and amortized over their estimated
useful lives, ten years for patents and trademarks and five years for
workforce-in-place. Periodically, management assesses whether there has been a
permanent impairment in the value of intangible assets and the amount of such
impairment by comparing anticipated undiscounted future cash flows from
operating activities with the carrying value of intangible assets. Management
also considers other factors such as current operating results, as well as the
effects of obsolescence, demand, competition and other economic conditions.
INCOME TAXES
The Company accounts for income taxes using the liability method as
prescribed by Statement of Financial Accounting Standards No. 109.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. Accordingly, no
compensation expense is recognized for stock options granted to the Company's
employees if the exercise price is not less than the market price of the
underlying stock on the date of grant.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), effective for
fiscal years beginning after December 15, 1995. SFAS 123 establishes the fair
value-based method of accounting for stock-based compensation arrangements,
under which compensation cost is determined using the fair value of the stock
option at the grant date and the number of options vested, and is recognized
over the periods in which the related services are rendered. The Company has
made the decision to continue with the current intrinsic value-based method, as
allowed by SFAS 123, and will be required to disclose the pro forma effect of
adopting the fair value-based method in future fiscal years beginning with the
fiscal year ending December 31, 1996.
ACCOUNTING STANDARD ON IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("SFAS 121") regarding the impairment of the long-lived assets,
identifiable intangibles and goodwill related to those assets. SFAS 121 is
effective for financial statements for fiscal years beginning after December 15,
1995. The Company does not anticipate the adoption of this standard will have a
material effect on the Company's financial position or results of operations.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized at the date of shipment.
NET LOSS PER SHARE
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
from stock options, warrants and convertible
F-8
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
preferred stock are excluded from the computation as their effect is
antidilutive except that, pursuant to the Securities and Exchange Commission
(the SEC) Staff Accounting Bulletins, common and common equivalent shares issued
during the period beginning twelve months prior to the initial filing of the
proposed public offering at prices substantially below the initial public
offering price have been included in the calculation as if they were outstanding
for all periods presented (using the treasury stock method and the assumed
public offering price).
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss per share........................... $ (0.56) $ (1.59) $ (2.35) $ (0.58) $ (0.48)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing net loss per share
(in thousands).............................. 3,308 3,328 3,330 3,330 3,378
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
PRO FORMA NET LOSS PER SHARE AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of the convertible preferred shares, which
automatically convert upon completion of the Company's initial public offering,
using the if-converted method from the original date of issuance. If the
Offering contemplated by this Prospectus is consummated, all of the convertible
preferred stock outstanding as of the closing date will automatically be
converted into 5,563,418 shares of common stock, based on the shares of
convertible preferred stock outstanding at March 31, 1996. Unaudited pro forma
stockholders' equity at March 31, 1996, as adjusted for the conversion of
preferred stock, is disclosed in the accompanying balance sheet.
2. BUSINESS ACQUISITION
Effective December 31, 1994, the Company acquired for $7,561,682 certain
assets and liabilities of Medical Sensors. The acquisition has been accounted
for as a purchase and accordingly, the purchase price has been allocated to the
tangible and intangible assets acquired and liabilities assumed based on their
respective fair values on the date of acquisition as follows:
<TABLE>
<S> <C> <C>
Trade accounts receivable............................ $ 338,325
Inventories.......................................... 476,749
Other current assets................................. 63,128
Property and equipment............................... 1,256,440
Intangibles:
Patents and trademarks............................. $2,001,363
In-process technology.............................. 3,362,290
Workforce-in-place................................. 320,218 5,683,871
--------- ---------
Total assets..................................... 7,818,513
Liabilities assumed.................................. (256,831)
---------
Net assets acquired.................................. $7,561,682
---------
---------
</TABLE>
As required by generally accepted accounting principles, the in-process
technology was charged against operations on the date of acquisition as the
technological feasibility of the in-process technology acquired had not yet been
established and had no alternative future use.
F-9
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. BUSINESS ACQUISITION (CONTINUED)
In consideration for the net assets acquired, the Company paid PPG $500,000
in both December 1994 and January 1995, issued PPG a $1,561,682 secured
promissory note and a $5,000,000 secured promissory note (see Note 4). The note
is secured by the assets of the Company; however, PPG has granted the Company
exclusive royalty-free license for the use of the patents related to the Medical
Sensors technology. Upon payment of the secured promissory notes title to the
patents and trademarks passes to the Company. Additionally, the Company issued
PPG a warrant to purchase 166,667 shares of the Company's common stock at a
price of $4.50 per share expiring December 31, 1999.
The following unaudited pro forma combined results of operations of the
Company and Medical Sensors for the years ended December 31, 1993 and 1994
assume the acquisition occurred as of the beginning of each of the respective
periods presented below and includes the write-off of in-process technology.
These pro forma results are not necessarily indicative of the results that would
have occurred nor are they indicative of future results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1993 1994
-------------- --------------
<S> <C> <C>
Revenues...................................................... $ 822,875 $ 2,301,680
Operating loss................................................ (10,838,882) (10,067,795)
Net loss...................................................... (14,985,955) (10,801,923)
Historical net loss per share................................. (4.53) (3.25)
</TABLE>
3. FINANCIAL STATEMENT INFORMATION
INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials and purchased parts........................ $ 241,526 $ 252,086 $ 154,892
Work-in-process.......................................... 234,077 134,350 194,352
Finished goods........................................... 78,492 43,074 26,417
---------- ---------- ----------
$ 554,095 $ 429,510 $ 375,661
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Machinery and equipment............................. $ 1,206,730 $ 1,324,653 $ 1,509,725
Leasehold improvements.............................. 46,501 732,594 857,915
Furniture and fixtures.............................. 153,637 160,859 194,213
------------ ------------ ------------
1,406,868 2,218,106 2,561,853
Less accumulated depreciation and amortization...... (69,019) (590,674) (732,622)
------------ ------------ ------------
$ 1,337,849 $ 1,627,432 $ 1,829,231
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-10
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
3. FINANCIAL STATEMENT INFORMATION (CONTINUED)
INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Licenses and patents................................ $ 2,001,363 $ 2,001,363 $ 2,001,363
Workforce-in-place.................................. 320,218 320,218 320,218
Other............................................... 1,810 1,810 1,810
------------ ------------ ------------
2,323,391 2,323,391 2,323,391
Less accumulated amortization....................... -- (265,990) (332,035)
------------ ------------ ------------
$ 2,323,391 $ 2,057,401 $ 1,991,356
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
INTEREST EXPENSE
Interest expense in the accompanying statement of operations is net of
interest income of $3,232 in 1993, $4,230 in 1994, and $34,423 in 1995 and
$1,805 and $19,719 for the three months ended March 31, 1995 and 1996,
respectively.
EXPORT SALES
The following information summarizes total export sales (sales to
unaffiliated customers outside the United States) by geographic area:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH ENDED MARCH
1995 31, 1995 31, 1996
---------- -------------- --------------
<S> <C> <C> <C>
Asia............................................. $ 118,479 $ 3,150 $ 40,372
Europe........................................... 92,441 30,645 2,960
Other............................................ 41,298 7,096 18,929
---------- ------- -------
$ 252,218 $ 40,891 $ 62,261
---------- ------- -------
---------- ------- -------
</TABLE>
The Company's export sales during 1993 and 1994 were not significant.
4. DEBT FINANCINGS
NOTES PAYABLE
In April 1995, the Company issued its largest stockholder an unsecured
$100,000 demand note payable. The note accrues interest at prime plus 2% (10.5%
at December 31, 1995).
In July 1995, the Company issued a single investor an unsecured $2,000,000
note payable which accrues interest at 10% per annum. The note is due on July
31, 1996. The agreement for the note contains certain restrictions and
limitations on the Company's operations, including restrictions on sale of
assets, sale of equity, mergers or other forms of business combinations. The
agreement also contains covenants which require the Company to prepay all
amounts outstanding upon receipt of proceeds of a public offering of its
securities or the incurrence of senior obligations prior to payment of the note
in full. In February 1996, a technical event of default occurred which
management believes was corrected in March 1996. Since the debt is shown as a
current liability in the accompanying balance sheet at March 31, 1996 and it
will be repaid from the proceeds of the initial public offering contemplated by
this Prospectus, management believes that this event does not have a significant
effect on the Company's financial statements.
F-11
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
4. DEBT FINANCINGS (CONTINUED)
LONG-TERM DEBT
Long-term debt obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Note payable due PPG, principal and unpaid accrued interest
due December 31, 1997, bears interest at prime plus 2%
(10.5% at December 31, 1995), $1,000,000 of accrued
interest and/or principal due December 31, 1996. Secured by
all assets of the Company.................................. $ 5,000,000 $ 5,000,000 $ 5,000,000
Unsecured notes payable due certain private investors,
accrue interest at 9%, principal and accrued interest due
June 1, 1997............................................... 852,789 738,688 738,688
Unsecured notes payable due the Company's largest
shareholder, interest at 8%, paid in 1995, including
accrued interest of $60,150................................ 666,940 -- --
Other....................................................... -- 32,146 30,153
------------ ------------- -------------
6,519,729 5,770,834 5,768,841
Accrued interest............................................ 68,400 609,133 752,817
------------ ------------- -------------
6,588,129 6,379,967 6,521,658
Less current portion of long-term debt and accrued
interest................................................... -- (1,000,000) (1,000,000)
------------ ------------- -------------
$ 6,588,129 $ 5,379,967 $ 5,521,658
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
In connection with the Company's acquisition of Medical Sensors, the Company
issued a $500,000, 8% convertible promissory note to the Company's largest
shareholder. In July 1995, the convertible promissory note, including accrued
interest of $23,342, was converted into 523,342 shares of Series C preferred
stock at $1.00 per share.
In 1995, the Company issued convertible notes payable to certain investors
totaling $2,661,315. In July 1995, the convertible notes payable, including
accrued interest of $48,571, were converted into 2,143,886 shares of Series C
preferred stock at $1.00 per share and $594,156 was paid in cash, including
accrued interest of $28,156.
In February 1996, the Company issued 8% convertible notes payable amounting
to $1,100,987. The notes were due and were repaid from the proceeds of the
Series D redeemable preferred stock issued on March 20, 1996. The notes accrued
interest at 8% and were convertible at the option of the note holder into shares
of Series C preferred stock at $2.50 per share. The note holders received
275,248 warrants to purchase shares of Series C preferred stock equal to 25% of
the amount invested. The warrants are exercisable at $1.8375 per share and
expire February, 1999. During March 1996, $910,987 of the principal amount of
the note was converted into 364,395 Series C preferred stock and the remaining
balance of $190,000 was paid in cash.
F-12
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
4. DEBT FINANCINGS (CONTINUED)
In May 1996, the Company reached an agreement with PPG that it would receive
a 5% discount on the $5,000,000 of principal due and related accrual interest
thereon in the event that these obligations are prepaid by August 31, 1996. In
accordance with generally accepted accounting principles, any discount realized
will be reported as an extraordinary gain in Company's statement of operations.
In 1994, in connection with the renegotiation of the terms of the notes
payable issued in 1993, the Company granted the note holders warrants to acquire
150,000 shares of Series A preferred stock at $1.00 per share.
In 1992, in connection with certain financings, warrants were issued to
purchase 150,000 shares of Series A preferred stock at $1.00 per share. The
warrants expire in 1997.
5. INCOME TAXES
At December 31, 1995, the Company had federal and California net operating
tax loss carryforwards of approximately $12,900,000 and $4,900,000,
respectively. The difference between the federal and California net operating
tax loss carryforwards is primarily attributable to the capitalization of
research and development expenses for California income tax purposes and to the
fifty-percent limitation on California loss carryforwards. The federal and
California tax loss carryforwards begin expiring in 2006 and 1998, respectively,
unless previously utilized. At December 31, 1995 the Company had federal and
California business credit carryforwards of approximately $233,000 and $121,800,
respectively, which will begin to expire in 2006 unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, use of the
Company's net operating loss and credit carryforwards may be limited because of
cumulative changes in ownership of more than 50% which occurred in 1992 and
1996. Although the Company does not believe such changes will have a material
impact upon the utilization of the net operating losses and credits over the
respective carryforward periods, the changes will have an impact on the timing
of such utilization.
The components of the Company's deferred tax assets are shown below. A
valuation allowance has been recognized to offset the deferred tax assets as
realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Deferred tax assets:
NOL and credit carryforwards............................................ $ 2,500,000 $ 5,050,000
Accruals and reserves................................................... 1,510,000 1,840,000
------------- -------------
Total deferred tax assets................................................. 4,010,000 6,890,000
Valuation allowance....................................................... (4,010,000) (6,890,000)
------------- -------------
Net deferred tax assets................................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of Medical Sensors, the Company assumed
assignment of the office and facilities sublease which expired December 31,
1995. In January 1996, the Company relocated its office and manufacturing
facilities and entered into a non-cancelable operating lease expiring in January
2001. At the end of the lease term, the Company has the option to renew the
lease for three years at 4% above the last year's rent. The Company has
subleased a minor portion of the new facility under terms of an operating lease
that expires June 1996.
F-13
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Annual future minimum payments for the years ended December 31, are as
follows:
<TABLE>
<S> <C>
1996.................................................... $ 275,600
1997.................................................... 386,600
1998.................................................... 440,000
1999.................................................... 448,600
2000.................................................... 453,200
---------
$2,004,000
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
$40,549, $51,443 and $857,851, respectively, and $187,136 and $98,450 for the
three months ended March 31, 1995 and 1996, respectively.
In December 1995, the Company's previous lessor filed a lawsuit against the
Company in the Superior Court of California alleging, among other things, that
the Company caused harm to the property and failed to fulfill certain
obligations. The landlord seeks at least $860,000 in damages, plus exemplary and
punitive damages. The action is in the procedural motion and early discovery
phase. The Company is vigorously defending this action and does not anticipate
that the litigation will have a material effect on the Company's financial
statements. There can be no assurances, however, that such action would not be
decided against the Company, which would have a material adverse effect of the
Company's business, financial condition and results of operations.
7. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
A summary of convertible preferred stock issued and outstanding at March 31,
1996 is as follows:
<TABLE>
<CAPTION>
SHARES
ISSUED AND LIQUIDATION
OUTSTANDING PREFERENCE
------------ -------------
<S> <C> <C>
Series A............................................... 3,321,997 $ 3,321,997
Series B............................................... 1,310,000 1,310,000
Series C............................................... 8,248,732 8,248,732
Series D............................................... 3,809,524 10,000,001
------------ -------------
16,690,253 $ 22,880,730
------------ -------------
------------ -------------
</TABLE>
In June 1994, the Company issued 452,500 Series A preferred stock and
310,000 Series B preferred stock at $1.00 per share, which resulted in proceeds
of $762,500. Warrants to purchase 50,833 shares of common stock at $3.00 per
share were issued. Simultaneously, the Company converted certain notes payable
of $850,859, including accrued interest of $40,859, into 850,859 shares of
Series A preferred stock at $1.00 per share. Additionally, the Company issued to
the note holders warrants to purchase 56,724 shares of common stock at $3.00 per
share.
In 1995, the Company issued 7,884,337 shares of Series C preferred stock in
exchange for the conversion of notes payable of $2,667,228, including accrued
interest of $71,913, that were issued in 1994 and 1995 and $5,172,125 in cash,
net of offering costs.
On March 20, 1996, the Company issued 3,809,524 shares of Series D
redeemable preferred stock to a venture capital investor for $10,000,001 ($2.625
per share). This amount was recorded net of offering costs of $105,064. The
purchase agreement provides the investor with a liquidation preference of $2.625
per share
F-14
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
and certain voting, automatic conversion and registration rights. The investor
may request redemption of the Series D shares if a qualified public offering
(equal to or greater than $18 million) is not completed prior to March 20, 1998.
Pursuant to the terms of the Series D Preferred Stock, the investor is entitled
to additional shares of common stock if the public offering price is $11.81 per
share or less.
At the option of the holder, each share of the Series A, Series B, Series C
and Series D preferred stock are convertible into one-third of one share of
common stock, which will be automatically converted into Common Stock upon the
closing of a public offering for at least $20 million for the Series A, B and C
preferred stock and in excess of $18 million for Series D preferred stock.
Holders of Series A, Series B, Series C and Series D preferred stock are
entitled to non-cumulative dividends, when and if declared, at the rate per
share equal to the dividends paid on the number of common shares issuable upon
conversion of the preferred shares into common. The Series B preferred stock has
the same rights, preferences, privileges and restrictions of Series A and Series
C preferred stock, except the Series B shares may not be voted in elections for
the Company's directors. The Series D preferred stock may elect one director;
any remaining directors are elected by holders of common stock and preferred
stockholders (other than Series D preferred stock). In the event of liquidation,
dissolution or winding up of the Company, the holders of Series D preferred
stock are entitled to receive preference to any distribution to the other
preferred and common stockholders up to an amount equal to $2.625 per share plus
unpaid dividends. If assets are insufficient to pay the Series D liquidation
preference, then the assets of the corporation, legally available for
distribution, shall be distributed ratably to the Series D preferred
stockholders.
WARRANTS
At March 31, 1996, warrants to purchase 274,224 common shares at prices
ranging from $3.00 to $4.50 per share, 300,000 Series A preferred shares at
$1.00 per share and 275,248 Series C preferred shares at $1.8375 per share were
outstanding. The warrants expire at various dates, principally in 1999. The
value of these warrants on the various dates of issuance was not considered
significant.
STOCK OPTION PLAN
In January 1995, the Board of Directors and Stockholders voted to increase
the number of shares available for grant to 1,000,000 under the 1991 Stock
Option Plan. The Plan provides for both incentive and non-qualified stock
options to be granted, with incentive stock options granted at no less than the
fair value of the Company's common stock at the date of grant. The options vest
and become exercisable over periods determined by the Board of Directors.
Options expire no more than 10 years after the date of grant, or earlier if the
employment or consulting agreement terminates.
F-15
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
The summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
AVERAGE
PRICE PER
SHARES PRICE SHARE
---------- -------------- -----------
<S> <C> <C> <C>
Balance at January 1, 1993............................ 158,288 $ 0.30 $ 0.30
Options granted....................................... 3,333 $ 0.30
Options exercised..................................... (25,000) $ 0.30
---------- -------------- -----
Outstanding at December 31, 1993...................... 136,621 $ 0.30 $ 0.30
Options granted....................................... 255,879 $ 0.30 - $1.50
Options canceled...................................... (833) $ 0.30
Options exercised..................................... (1,667) $ 0.30 - $1.50
---------- -------------- -----
Outstanding at December 31, 1994...................... 390,000 $ 0.30 - $1.50 $ 0.66
Options granted....................................... 644,317 $ 1.50
Options canceled...................................... (139,735) $ 0.30 - $1.50
Options exercised..................................... (47,495) $ 0.30 - $1.50
---------- -------------- -----
Outstanding at December 31, 1995...................... 847,087 $ 0.30 - $1.50 $ 1.26
Options granted....................................... 37,158 $ 3.00
Options canceled...................................... (12,084) $ 1.50
---------- -------------- -----
Outstanding at March 31, 1996......................... 872,161 $ 0.30 - $3.00 $ 1.32
----------
----------
</TABLE>
At March 31, 1996, 339,992 options were vested and exercisable and 44,510
were available for future grant.
SHARES RESERVED FOR FUTURE ISSUANCE
The following common stock is reserved for future issuance at March 31,
1996:
<TABLE>
<CAPTION>
Stock options:
<S> <C>
Granted and outstanding........................................ 872,161
Reserved for future grants..................................... 44,510
---------
916,671
Warrants......................................................... 274,224
---------
1,190,895
---------
---------
</TABLE>
Additionally, 5,563,418 shares of common stock are reserved for future
conversion of preferred stock and 300,000 shares of Series A preferred stock and
275,248 shares of Series C preferred stock are reserved for future issuance upon
exercise of outstanding warrants.
8. CHANGES IN CAPITALIZATION
On May 8, 1996 the Company's Board of Directors approved (subject to
shareholder ratification) that, prior to the effective date of the Offering
contemplated by this Prospectus, the Company will change the authorized shares
of preferred stock from 100,000,000 to 10,000,000, reincorporate the Company in
Delaware and effect a reverse 1 for 3 split of the common stock. The financial
statements have been retroactively restated to reflect the stock split. On May
8, 1996, the Board of Directors also approved (subject to shareholder
ratification) the adoption of the 1996 Stock Incentive Plan and the 1996
Employee Stock Purchase Plan.
F-16
<PAGE>
SENDX MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
8. CHANGES IN CAPITALIZATION (CONTINUED)
The 1996 Stock Incentive Plan provides for the granting of incentive stock
options to purchase shares of common and restricted stock to directors,
officers, employees and consultants of the Company, at the fair market value as
of the date of the grant. The purpose of the Stock Incentive Plan is to provide
participants with incentives to acquire an interest in and continue to provide
services to the Company.
The 1996 Employee Stock Purchase Plan allows employees to be eligible to
participate if they have been employed by the Company for at least one year. The
plan will allow eligible employees to purchase stock at 85% of fair market value
through payroll deductions, which may not exceed 15% of employee compensation.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SenDx Medical, Inc.
We have audited the accompanying balance sheets of Medical Sensors (Business
unit of PPG Industries, Inc.) as of December 31, 1993 and 1994, and the related
statements of operations and intercompany advances and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medical Sensors (Business
unit of PPG Industries, Inc.) at December 31, 1993 and 1994, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
March 1, 1996
F-18
<PAGE>
MEDICAL SENSORS
(BUSINESS UNIT OF PPG INDUSTRIES, INC.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1993 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash................................................................................ $ 8,630 $ --
Accounts receivable................................................................. 297,503 380,468
Inventories......................................................................... 705,758 699,267
Other current assets................................................................ 74,156 113,287
------------ ------------
1,086,047 1,193,022
Property and equipment, net........................................................... 2,132,908 1,569,480
------------ ------------
$ 3,218,955 $ 2,762,502
------------ ------------
------------ ------------
LIABILITIES AND INTERCOMPANY ADVANCES
Current liabilities:
Accounts payable.................................................................... $ 819 $ 47,846
Accrued liabilities................................................................. 128,288 72,832
------------ ------------
129,107 120,678
Intercompany advances................................................................. 3,089,848 2,641,824
------------ ------------
$ 3,218,955 $ 2,762,502
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
MEDICAL SENSORS
(BUSINESS UNIT OF PPG INDUSTRIES, INC.)
STATEMENTS OF OPERATIONS AND INTERCOMPANY ADVANCES
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
----------------------------
1993 1994
------------- -------------
<S> <C> <C>
Net sales........................................................................... $ 632,697 $ 2,147,256
Cost of goods sold.................................................................. 4,865,425 3,687,966
------------- -------------
Gross profit (loss)................................................................. (4,232,728) (1,540,710)
Operating expenses:
Research and development.......................................................... 1,772,117 963,972
Sales and marketing............................................................... 2,377,143 1,857,123
General and administration........................................................ 492,140 346,673
------------- -------------
Total operating expenses............................................................ 4,641,400 3,167,768
------------- -------------
Loss from operations................................................................ (8,874,128) (4,708,478)
Other expense, net.................................................................. (206,460) (91,019)
------------- -------------
Net loss............................................................................ (9,080,588) (4,799,497)
------------- -------------
Intercompany advances at beginning of period........................................ 2,835,010 3,089,848
Intercompany advances, net.......................................................... 9,335,426 4,351,473
------------- -------------
Intercompany advances at end of period.............................................. $ 3,089,848 $ 2,641,824
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-20
<PAGE>
MEDICAL SENSORS
(BUSINESS UNIT OF PPG INDUSTRIES, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1993 1994
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................................ $ (9,080,588) $ (4,799,497)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization..................................................... 654,915 662,482
Changes in operating assets and liabilities:
Accounts receivable............................................................. (272,503) (82,965)
Inventories..................................................................... (127,998) 6,491
Other current assets............................................................ (2,156) (39,131)
Accounts payable................................................................ 819 47,027
Accrued expenses................................................................ 73,288 (55,456)
------------- -------------
Net cash used in operating activities............................................... (8,754,223) (4,261,049)
INVESTING ACTIVITIES
Purchase of equipment............................................................... (581,703) (85,140)
Leasehold improvements.............................................................. -- (13,914)
------------- -------------
Net cash used in investing activities............................................... (581,703) (99,054)
FINANCING ACTIVITIES
Intercompany advances, net.......................................................... 9,335,426 4,351,473
------------- -------------
Net cash provided by financing activities........................................... 9,335,426 4,351,473
------------- -------------
Net decrease in cash................................................................ (500) (8,630)
Cash at beginning of period......................................................... 9,130 8,630
------------- -------------
Cash at end of period............................................................... $ 8,630 $ --
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-21
<PAGE>
MEDICAL SENSORS
(BUSINESS UNIT OF PPG, INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Medical Sensors ("Sensors"), a wholly-owned business unit of PPG Industries,
Inc. ("Parent") was formed in 1988 to develop, manufacture and market
proprietary blood chemistry testing systems that provide immediate diagnostic
results at the patient point-of-care.
On December 31, 1994, the assets and liabilities of Sensors were purchased
by SenDx Medical, Inc. from the Parent for $7,561,682 in cash and secured notes
payable.
CONCENTRATIONS OF CREDIT RISK
The Company sells its products primarily to customers located throughout the
United States, Europe and Japan. Credit is generally extended based on an
evaluation of the customer's financial condition. The Company estimates its
potential losses on trade receivables on an ongoing basis and provides for
anticipated losses in the period in which the revenues are recognized.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method.
PROPERTY AND EQUIPMENT
Furniture, equipment and leasehold improvements are recorded at cost.
Depreciation is calculated on a straight-line basis over the estimated useful
lives of the assets. Amortization of leasehold improvements is provided over the
life of the lease or the asset, whichever is less.
RESEARCH AND DEVELOPMENT
Costs associated with research and development are expensed as incurred.
REVENUE RECOGNITION
Revenue is recognized at the later of shipment or final acceptance.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1993 1994
---------- ----------
<S> <C> <C>
Raw materials and purchased parts..................................... $ 624,596 $ 544,822
Work-in-process....................................................... -- 115,661
Finished goods........................................................ 81,162 38,784
---------- ----------
$ 705,758 $ 699,267
---------- ----------
---------- ----------
</TABLE>
F-22
<PAGE>
MEDICAL SENSORS
(BUSINESS UNIT OF PPG, INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1993 1994
------------- -------------
<S> <C> <C>
Machinery and equipment......................................... $ 3,427,669 $ 3,465,785
Furniture and fixtures.......................................... 533,640 560,239
Leasehold improvements.......................................... 96,938 131,277
------------- -------------
4,058,247 4,157,301
Less accumulated depreciation and amortization.................. (1,925,339) (2,587,821)
------------- -------------
$ 2,132,908 $ 1,569,480
------------- -------------
------------- -------------
</TABLE>
4. RELATED PARTY TRANSACTIONS
For the years ended December 31, 1993 and 1994 Sensors had certain
transactions with its Parent related to its principal operations totaling
$198,000 and $271,000, respectively. The financial statements include all costs
of conducting business. Costs included by the percent on behalf of the Company
have been allocated. Management believes that the method of allocation is
reasonable.
5. COMMITMENTS
Sensors leases its office and manufacturing facilities under a
non-cancelable operating lease that expires in December 1995. Rent expense for
the years ended December 31, 1993 and 1994 was $842,307 and $794,546,
respectively. Future minimum lease payments, excluding property taxes, under the
non-cancelable operating lease is $686,580 for 1995.
6. LITIGATION SETTLEMENT
In August 1993, the Parent sued Diametrics Medical, Inc. claiming
misappropriation of trade secrets, unfair competition and infringement of a
design patent utilized by Sensors. In March 1994, the Parent reached a
settlement with Diametrics with respect to all claims of the lawsuit. The cost
of the settlement was incurred by the Parent and not charged to Sensors.
F-23
<PAGE>
[LOGO]
The SenDx 100 utilizes a single,
multi-use disposable sensor
cassette to accurately and
simultaneously measure any
combination of seven blood tests
frequently ordered for critical
care patients. The sensor cassette
can be used for up to 100 tests.
The SenDx 100 analyzer is a
compact, light weight, portable,
live- and battery-powered
instrument, weighing less than 14
pounds, with a nine inch by nine
inch foot print.
SenDx Medical, Inc. occupies a 39,000 square foot
facility located in Carlsbad, California.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 6
The Company................................... 14
Use of Proceeds............................... 14
Dividend Policy............................... 14
Dilution...................................... 15
Capitalization................................ 16
Selected Financial Data....................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 18
Business...................................... 21
Management.................................... 35
Certain Transactions.......................... 43
Principal Stockholders........................ 45
Description of Capital Stock.................. 47
Shares Eligible for Future Sale............... 49
Underwriting.................................. 51
Notice to Canadian Residents.................. 52
Legal Matters................................. 53
Experts....................................... 53
Additional Information........................ 53
Index to Financial Statements................. F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
2,400,000 Shares
Common Stock
($0.001 PAR VALUE)
P R O S P E C T U S
CS First Boston
J.P. Morgan & Co.
Needham & Company, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee, the NASD filing fee and
the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
TO BE PAID BY
THE COMPANY
-------------
<S> <C>
SEC registration fee............................................. $ 12,848
NASD filing fee.................................................. 4,226
Nasdaq National Market application fee........................... *
Printing expenses................................................ *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue sky fees and expenses....................................... 10,000
Transfer agent and registrar fees................................ *
Director and Officer liability insurance......................... *
Miscellaneous.................................................... *
-------------
Total........................................................ $
-------------
-------------
</TABLE>
- ------------------------
*To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Restated
Certificate of Incorporation of the Company (Exhibit 3.1 hereto) eliminates the
liability of directors to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a directors, except to the extent otherwise
required by the Delaware General Corporation Law.
(b) The Restated Certificate of Incorporation provides that the Company will
indemnify each person who was or is made a party to any proceeding by reason of
the fact that such person is or was a director or officer of the Company against
all expense, liability and loss reasonably incurred or suffered by such person
in connection therewith to the fullest extent authorized by the Delaware General
Corporation Law. The Company's Bylaws (Exhibit 3.3 hereto) provide for a similar
indemnity to directors and officers of the Company to the fullest extent
authorized by the Delaware General Corporation Law.
(c) The Restated Certificate of Incorporation also gives the Company the
ability to enter into indemnification agreements with each of its directors and
officers. The Company has entered into indemnification agreement with each of
its directors and officers (Exhibit 10.16 hereto), which provide for the
indemnification of directors an officers of the Company against any an all
expenses, judgments, fines, penalties and amounts paid in settlement, to the
fullest extent permitted by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Securities Act:
(1) From time to time during the three years preceding the date hereof, the
Registrant issued incentive stock options, nonqualified stock options and rights
to purchase Common Stock pursuant to the Registrant's 1991 Stock Option Plan
(the "1991 Plan") to officers, directors and employees of the Registrant. During
the period referred to above, 48,578 options and rights to purchase granted
pursuant to the 1991 Plan were exercised for an aggregate exercise price of
$19,605. Exemption from the registration provisions of the Securities Act is
claimed, with respect to the grant of options referred to above, on the basis
that the grant of
II-1
<PAGE>
options did not involve a "sale" of securities and, therefore, registration
thereof was not required, and with respect to the exercise of options and rights
to purchase referred to above, on the basis that such transactions met the
requirements of Rule 701 as promulgated under Section 3(b) of the Securities
Act.
(2) Between March 1993 and May 1994, the Registrant issued promissory notes
in an aggregate principal amount of $1,560,000 to seven accredited investors in
exchange for cash. In June 1994, as consideration for the extension of the
maturity date of certain of such notes, the Registrant issued to the holders of
such notes warrants to purchase an aggregate of 300,000 shares of the
Registrant's Series A Preferred Stock, which shares are convertible into shares
of the Registrant's Common Stock upon the consummation of this Offering. In June
1994, certain of such notes having an aggregate principal amount of $810,000,
together with accrued interest thereon aggregating $30,859, were converted into
shares of the Registrant's Series A Preferred Stock and Warrants to purchase
Common Stock, in the financing referred to in item (3) below.
(3) In June 1994, the Registrant issued an aggregate of 1,303,359 shares of
Series A Preferred Stock to 10 accredited investors at a price of $1.00 per
share. In connection with such sale, the Registrant also issued to such
purchasers warrants to purchase an aggregate of 260,672 shares of Common Stock.
In 1995, an aggregate of 861,067 of such shares elected to exchange such shares
for shares of Series A-2 Preferred Stock pursuant to an exchange offer made by
the Registrant.
(4) In June 1994, the Registrant issued convertible notes in the aggregate
principal amount of $310,000 to S-E Banken Lakemedelsfond and S-E Banken Aktiv
Lakemedel, which notes were subsequently converted into shares of Series B
Preferred Stock at $1.00 per share.
(5) Between October 1994 and June 1995, the Registrant issued promissory
notes to Ventana Partnership I, L.P. and Ventana Partnership III, L.P. in
exchange for an aggregate of $1,605,000 in cash.
(6) During 1995, the Registrant issued Convertible Promissory Notes to 12
accredited investors in exchange for cash. In July 1995, the holders of such
notes converted such notes into shares of Series C Preferred Stock in connection
with the financing referred to in item (7) below at a conversion price of $1.00
per share.
(7) In July 1995, the Registrant issued and sold shares of its Series C
Preferred Stock at a purchase price of $1.00 per share to 31 accredited
investors in addition to the purchasers referred to in item (6) above.
(8) In February 1996, the Registrant issued Convertible Promissory Notes
having an aggregate principal amount of $1,100,987 to 28 accredited investors.
As consideration for the extension of such financing by such investors, the
Registrant issued to such investors warrants to purchase an aggregate of 275,248
shares of the Registrant's Series C Preferred Stock at an exercise price of
$2.50 per share. In March 1996, all of such Convertible Promissory Notes were
converted into shares of the Registrant's Series C Preferred Stock at a
conversion price of $2.50 per share.
(9) In March 1996, the Registrant issued 3,809,524 shares of its Series D
Preferred Stock to CIBC Wood Gundy Ventures, Inc. for an aggregate purchase
price of $10,000,001.
Except as set forth in item (1) above, exemption from the registration
requirement of the Act for the transactions described above is claimed under
Section 4(2) of the Act, among others, on the basis that such transactions did
not involve any public offering and the purchasers were sophisticated with
access to the kind of information registration would provide. No underwriting
fees or broker's commissions were paid in connection with the foregoing
transactions.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- -----------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Agreement and Plan of Merger between the Company and SenDx
Medical, Inc., a California corporation*
3.1 Certificate of Incorporation of the Company
3.2 Amended and Restated Certificate of Incorporation of the Company*
3.3 Bylaws of the Company, as currently in effect
4.1 Specimen Certificate of Common Stock*
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation*
10.1 SenDx Medical, Inc. 1991 Stock Option Plan (the "1991 Plan")
10.2 Form of Incentive Stock Option Agreement pertaining to the 1991
Plan
10.3 Form of Nonqualified Stock Option Agreement pertaining to the
1991 Plan
10.4 SenDx Medical, Inc. 1996 Stock Incentive Plan (the "1996 Plan")*
10.5 Form of Incentive Stock Option Agreement pertaining to the 1996
Plan*
10.6 Form of Nonqualified Stock Option Agreement pertaining to the
1996 Plan*
10.7 SenDx Medical, Inc. Employee Stock Purchase Plan -- 1996*
10.8 Employment Agreement dated January 1, 1996 between the Company
and Douglas R. Hillier
10.9 Employment Agreement dated January 1, 1996 between the Company
and George Pache
10.10 Employment Agreement dated January 1, 1996 between the Company
and Michael W. Mercer
10.11 Employment Agreement dated January 1, 1996 between the Company
and Ronald Betts, Ph.D.
10.12 Employment Agreement dated January 1, 1996 between the Company
and Ruben Chairez, Ph.D.
10.13 Employment Agreement dated January 1, 1996 between the Company
and Matthew Leader
10.14 Employment Agreement dated January 1, 1996 between the Company
and Douglas Savage
10.15 Form of Indemnification Agreement for Officers and Directors of
the Company*
10.16 Industrial Lease Agreement dated August 29, 1995 between the
Company and M.H.P.P., Inc.
10.17 Form of Warrant to Purchase Series A Preferred Stock
10.18 Form of Warrant to Purchase Common Stock
10.19 Form of Series C Preferred Stock Purchase Agreement entered into
between the Company and purchasers of Series C Preferred Stock
10.20 Series D Preferred Stock Purchase Agreement dated March 20, 1996
between the Company and CIBC Wood Gundy Ventures, Inc.
10.21 Investors' Rights Agreement dated March 20, 1996 among the
Company, CIBC Wood Gundy Ventures, Inc. and certain other
stockholders of the Company
10.22 Amended and Restated Registration Rights Agreement dated March
20, 1996 among the Company and certain stockholders and
warrantholders of the Company
10.23 Form of Subscription Agreement between the Company and purchasers
of Convertible Promissory Notes in February 1996 ("Bridge
Financing")
10.24 Form of Warrant to purchase Series C Preferred Stock issued to
investors in the Bridge Financing
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- -----------------------------------------------------------------
<C> <S>
10.25 Agreement dated January 17, 1995 between the Company and PPG
Industries, Inc. ("PPG")
10.26 Amended License Agreement dated January 17, 1995 between the
Company and PPG (portions omitted pursuant to Rule 406)
10.27 Promissory Note dated January 17, 1995, issued by the Company to
PPG, as amended
10.28 Security Agreement dated January 17, 1995 between the Company and
PPG
10.29 Amended and Restated Common Stock Warrant dated March 20, 1996,
issued to PPG
10.30 Promissory Note dated July 31, 1995 issued by the Company to
Instrumentation Laboratory
10.31 Promissory Note dated April 12, 1993 issued by the Company to
Praktikerfinans AB*
10.32 Agreement dated June 8, 1994 between the Company and Beckman
Instruments, Inc. (portions omitted pursuant to Rule 406)
11.1 Computation of pro forma net income (loss) per share
23.1 Consent of Stradling, Yocca, Carlson & Rauth (see Exhibit 5.1)*
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page II- )
</TABLE>
- ------------------------
*To be filed by amendment.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of a Registration Statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of the Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Carlsbad, State of
California, on the 10th day of May, 1996.
SenDx Medical, Inc.
By: /s/ DOUGLAS R. HILLIER
----------------------------------------
Douglas R. Hillier
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
We, the undersigned directors and officers of SenDx Medical, Inc. do hereby
constitute and appoint Douglas R. Hillier and George Pache, or either of them,
our true and lawful attorneys and agents, to do any and all acts and things in
our name and behalf in our capacities as directors and officers and to execute
any and all instruments for us and in our names in the capacities indicated
below, which said attorneys and agents, or either of them, may deem necessary or
advisable to enable said corporation to comply with the Securities Act of 1933,
as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names and in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto or any related registration
statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended; and we do hereby ratify and confirm all that
the said attorneys and agents, or either of them, shall do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- --------------------------- ------------
<C> <S> <C>
President, Chief Executive
/s/ DOUGLAS R. HILLIER Officer and Director
------------------------------------- (Principal Executive May 10, 1996
Douglas R. Hillier Officer)
Vice President and Chief
/s/ GEORGE PACHE Financial Officer
------------------------------------- (Principal Financial and May 10, 1996
George Pache Principal Accounting
Officer)
/s/ THOMAS O. GEPHART Chairman of the Board of
------------------------------------- Directors May 10, 1996
Thomas O. Gephart
/s/ ANTHONY RIPPO
------------------------------------- Director May 10, 1996
Anthony Rippo, M.D.
/s/ F. DUWAINE TOWNSEN
------------------------------------- Director May 10, 1996
F. Duwaine Townsen
/s/ FREDRIK C. SCHREUDER
------------------------------------- Director May 10, 1996
Fredrik C. Schreuder
/s/ C. IAN SYM-SMITH
------------------------------------- Director May 10, 1996
C. Ian Sym-Smith
/s/ ROBI BLUMENSTEIN
------------------------------------- Director May 10, 1996
Robi Blumenstein
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ---------- ------------------------------------------------------------ ----
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
2.1 Agreement and Plan of Merger between the Company and SenDx
Medical, Inc., a California corporation*
3.1 Certificate of Incorporation of the Company.................
3.2 Amended and Restated Certificate of Incorporation of the
Company*
3.3 Bylaws of the Company, as currently in effect...............
4.1 Specimen Certificate of Common Stock*
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation*
10.1 SenDx Medical, Inc. 1991 Stock Option Plan (the "1991
Plan").....................................................
10.2 Form of Incentive Stock Option Agreement pertaining to the
1991 Plan..................................................
10.3 Form of Nonqualified Stock Option Agreement pertaining to
the 1991 Plan..............................................
10.4 SenDx Medical, Inc. 1996 Stock Incentive Plan (the "1996
Plan")*
10.5 Form of Incentive Stock Option Agreement pertaining to the
1996 Plan*
10.6 Form of Nonqualified Stock Option Agreement pertaining to
the 1996 Plan*
10.7 SenDx Medical, Inc. Employee Stock Purchase Plan -- 1996*
10.8 Employment Agreement dated January 1, 1996 between the
Company and Douglas R. Hillier.............................
10.9 Employment Agreement dated January 1, 1996 between the
Company and George Pache...................................
10.10 Employment Agreement dated January 1, 1996 between the
Company and Michael W. Mercer..............................
10.11 Employment Agreement dated January 1, 1996 between the
Company and Ronald Betts, Ph.D.............................
10.12 Employment Agreement dated January 1, 1996 between the
Company and Ruben Chairez, Ph.D............................
10.13 Employment Agreement dated January 1, 1996 between the
Company and Matthew Leader.................................
10.14 Employment Agreement dated January 1, 1996 between the
Company and Douglas Savage.................................
10.15 Form of Indemnification Agreement for Officers and Directors
of the Company*
10.16 Industrial Lease Agreement dated August 29, 1995 between the
Company and M.H.P.P., Inc..................................
10.17 Form of Warrant to purchase Series A Preferred Stock........
10.18 Form of Warrant to purchase Common Stock....................
10.19 Form of Series C Preferred Stock Purchase Agreement entered
into between the Company and purchasers of Series C
Preferred Stock............................................
10.20 Series D Preferred Stock Purchase Agreement dated March 20,
1996 between the Company and CIBC Wood Gundy Ventures,
Inc........................................................
10.21 Investors' Rights Agreement dated March 20, 1996 among the
Company, CIBC Wood Gundy Ventures, Inc. and certain other
stockholders of the Company................................
10.22 Amended and Restated Registration Rights Agreement dated
March 20, 1996 among the Company and certain stockholders
and warrantholders of the Company..........................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ---------- ------------------------------------------------------------ ----
<C> <S> <C>
10.23 Form of Subscription Agreement between the Company and
purchasers of Convertible Promissory Notes in February 1996
("Bridge Financing").......................................
10.24 Form of Warrant to purchase Series C Preferred Stock issued
to investors in the Bridge Financing.......................
10.25 Agreement dated January 17, 1995 between the Company and PPG
Industries, Inc. ("PPG")...................................
10.26 Amended License Agreement dated January 17, 1995 between the
Company and PPG (portions omitted pursuant to Rule 406)....
10.27 Promissory Note dated January 17, 1995, issued by the
Company to PPG, as amended.................................
10.28 Security Agreement dated January 17, 1995 between the
Company and PPG............................................
10.29 Amended and Restated Common Stock Warrant dated March 20,
1996, issued to PPG........................................
10.30 Promissory Note dated July 31, 1995 issued by the Company to
Instrumentation Laboratory.................................
10.31 Promissory Note dated April 12, 1993 issued by the Company
to Praktikerfinans AB*
10.32 Agreement dated June 8, 1994 between the Company and Beckman
Instruments, Inc. (portions omitted pursuant to Rule
406).......................................................
11.1 Computation of pro forma net income (loss) per share........
23.1 Consent of Stradling, Yocca, Carlson & Rauth (see Exhibit
5.1)*
23.2 Consent of Ernst & Young LLP, Independent Auditors..........
24.1 Power of Attorney (see page II- )..........................
</TABLE>
- ------------------------
*To be filed by amendment.
<PAGE>
_________________ Shares
SenDx Medical, Inc.
Common Stock
($0.001 par value)
UNDERWRITING AGREEMENT
_________________, 1996
CS FIRST BOSTON CORPORATION
J.P. MORGAN & CO.
NEEDHAM & COMPANY, INC.
As Representatives of the Several Underwriters
% CS First Boston Corporation,
Park Avenue Plaza,
New York, N.Y. 10055
Dear Sirs:
1. INTRODUCTORY. SenDx Medical, Inc., a Delaware corporation ("Company"),
proposes to issue and sell ____________ shares ("Firm Securities") of its
Common Stock ("Securities") and also proposes to issue and sell to the
Underwriters, at the option of the Underwriters, an aggregate of not more
than _________ additional shares ("Optional Securities") of its Securities as
set forth below. The Firm Securities and the Optional Securities are herein
collectively called the "Offered Securities." The Company hereby agrees with
the Underwriters named in Schedule A hereto ("Underwriters") as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the Underwriters that:
(a) A registration statement (No. 33-________) relating to the
Offered Securities, including a form of prospectus, has been filed with
the Securities and Exchange Commission ("Commission") and either (i) has
been declared effective under the Securities Act of 1933, as amended
("Act") and is not proposed to be amended or (ii) is proposed to be
amended by amendment or post-effective amendment. If such registration
statement (the "initial registration statement") has been declared
effective, either (i) an additional registration
<PAGE>
statement (the "additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (ii) such an additional registration statement is proposed
to be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or, if an additional registration
statement has been filed and the Company does not propose to amend it and
if any post-effective amendment to either such registration statement has
been filed with the Commission prior to the execution and delivery of
this Agreement, the most recent amendment (if any) to each such
registration statement has been declared effective by the Commission or
has become effective upon filing pursuant to Rule 462(c) ("Rule 462(c)")
under the Act or, in the case of the additional registration statement,
Rule 462(b). For purposes of this Agreement, "Effective Time" with
respect to the initial registration statement or, if filed prior to the
execution and delivery of this Agreement, the additional registration
statement means (i) if the Company has advised the Representatives that
it does not propose to amend such registration statement, the date and
time as of which such registration statement, or the most recent
post-effective amendment thereto (if any) filed prior to the execution
and delivery of this Agreement, was declared effective by the Commission
or has become effective upon filing pursuant to Rule 462(c), or (ii) if
the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the
date and time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement has
not been filed prior to the execution and delivery of this Agreement but
the Company has advised the Representatives that it proposes to file one,
"Effective Time" with respect to such additional registration statement
means the date and time as of which such registration statement is filed
and becomes effective pursuant to Rule 462(b). "Effective Date" with
respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective
Time, including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional registration
statement pursuant to the General Instructions of the Form on which it is
filed and including all information (if any) deemed to be a part of the
initial registration statement as of its Effective Time pursuant to Rule
430A(b) ("Rule 430A(b)") under the Act, is hereinafter referred to as the
"Initial Registration Statement". The additional registration statement,
as amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b),
is hereinafter referred to as the "Additional Registration Statement".
The Initial Registration Statement and the Additional Registration
Statement are hereinafter referred to collectively as the "Registration
Statements" and individually as a "Registration
-2-
<PAGE>
Statement". The form of prospectus relating to the Offered Securities, as
first filed with the Commission pursuant to and in accordance with Rule
424(b) ("Rule 424(b)") under the Act or (if no such filing is required)
as included in a Registration Statement, is hereinafter referred to as
the "Prospectus". No document has been or will be prepared or
distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement: (i) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and
the rules and regulations of the Commission ("Rules and Regulations") and
did not include 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, (ii) on the Effective Date of the
Additional Registration Statement (if any ), each Registration Statement
conformed, or will conform, in all respects to the requirements of the
Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (iii) on
the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior to
the execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus
will conform, in all respects to the requirements of the Act and the
Rules and Regulations, and neither of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit,
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. If the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all respects to the requirements of the Act
and the Rules and Regulations, neither of such documents will include any
untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and no Additional Registration Statement has been
or will be filed. The two preceding sentences do not apply to
statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein, it
being understood and agreed that the only such information is that
described as such in Section 7(b).
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus; and the Company is
duly qualified to do business as a foreign corporation in good standing
in all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification.
-3-
<PAGE>
(d) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered
Securities will have been validly issued, fully paid and nonassessable
and will conform to the description thereof contained in the Prospectus;
and the stockholders of the Company have no preemptive rights with
respect to the Securities.
(e) Except as disclosed in the Prospectus, there are no contracts,
agreements, or understandings between the Company and any person at would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to include
such securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(g) The Offered Securities have been approved for quotation on the
Nasdaq National Market ("Nasdaq") subject to notice of issuance.
(h) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required by the National Association of Securities
Dealers, Inc. or under state securities laws.
(i) The execution, delivery and performance of this Agreement and
the issuance and sale of the Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction
over the Company or any of its properties, or any agreement or instrument
to which the Company is a party or by which the Company is bound or to
which any of the properties of the Company is subject, or the charter or
bylaws of the Company and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated by this
Agreement.
(j) This Agreement has been duly authorized, executed and delivered
by the Company.
-4-
<PAGE>
(k) Except as disclosed in the Prospectus, the Company has good and
marketable title to all real properties and all other properties and
assets owned by it, in each case free from liens, encumbrances and
defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by it; and except as
disclosed in the Prospectus, the Company holds any leased real or
personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof
by it.
(l) The Company possesses adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary
to conduct the business now operated by it; and has not received any
notice of proceedings relating to the revocation or modification of any
such certificate, authority or permit that, if determined adversely to
the Company, would individually or in the aggregate have a material
adverse effect on the Company.
(m) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company, is imminent that might have a material
adverse effect on the Company.
(n) Except as disclosed in the Prospectus, the Company owns,
possesses or can acquire on reasonable terms, adequate trademarks, trade
names and other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property (collectively,
"intellectual property rights") necessary to conduct the business now
operated by it, or presently employed by it, and has not received any
notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined adversely
to the Company, would individually or in the aggregate have a material
adverse effect on the Company.
(o) Except as disclosed in the Prospectus, the Company is not in
violation of any statute, any rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human
exposure to hazardous or toxic substances (collectively, "environmental
laws"), does not own or operate any real property contaminated with any
substance that is subject to any environmental laws, is not liable for
any off-site disposal or contamination pursuant to any environmental
laws, and is not subject to any claim relating to any environmental laws,
which violation, contamination, liability or claim would individually or
in the aggregate have a material adverse effect on the Company; and the
Company is not aware of any pending investigation which might lead to
such a claim.
(p) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company or any of
its respective properties that, if determined adversely to the Company,
would individually or in the aggregate have a material adverse effect on
the condition (financial or other), business, prospects, or results of
operations of the Company, or would materially and adversely affect the
ability of the
-5-
<PAGE>
Company to perform its obligations under this Agreement, or which are
otherwise material in the context of the sale of the Offered Securities;
and no such actions, suits or proceedings are threatened or, to the
Company's knowledge, contemplated.
(q) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company
as of the dates shown and the results of operations and cash flows for
the periods shown, and such financial statements have been prepared in
conformity with the generally accepted accounting principles in the
United States applied on a consistent basis; the schedules included in
each Registration Statement present fairly the information required to be
stated therein; and the assumptions used in preparing the pro forma
financial statements included in each Registration Statement and the
Prospectus provide a reasonable basis for presenting the significant
effects directly attributable to the transactions or events described
therein, the related pro forma adjustments give appropriate effect to
those assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.
(r) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus, there has
been no material adverse change, nor any development or event that may
result in a prospective material adverse change, in the condition
(financial or other), business, prospects, or results of operations of
the Company, and, except as disclosed in or contemplated by the
Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(s) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as defined in the Investment Company Act of 1940.
(t) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes and the Company
agrees to comply with such Section if prior to the completion of the
distribution of the Offered Securities it commences doing such business.
(u) Persons holding at least 98% of the Company's outstanding
capital stock, including all officers, directors and affiliates of the
Company, have agreed that they will not, without the prior written
consent of CS First Boston Corporation ("CS First Boston"), offer, sell,
contract to sell, pledge or otherwise dispose of any shares of Common
Stock, any options or warrants to purchase shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock
(the "Restricted Shares"), other than as a gift or gifts, provided the
donee or donees thereof agree to be bound by this restriction, (i) as to
100% of the Restricted Shares, until 180 days after the date of the
initial public offering of the Offered Securities.
-6-
<PAGE>
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the
representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to
purchase from the Company, at a purchase price of $______ per share, the
respective shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, against payment of the purchase price by
certified or official bank check or checks in New York Clearing House (next
day) funds drawn to the order of the Company at the office of Stradling,
Yocca, Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach,
California 92660, at 9:00 A.M., New York time, on ____________, 1996, or at
such other time no later than seven full business days thereafter as CS First
Boston and the Company determine, such date being herein referred to as the
"First Closing Date." For purposes of Rule 15c6-1 under the Securities
Exchange Act of 1934, the First Closing Date (if later than the otherwise
applicable settlement date) shall be the settlement date for payment of funds
and delivery of securities for all the Offered Securities sold pursuant to
the offering. The certificates for the Firm Securities so to be delivered
will be in definitive form, in such denominations and registered in such
names as CS First Boston requests and will be made available for checking and
packaging at the office of CS First Boston Corporation, Park Avenue Plaza,
New York, New York 10055 at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CS First Boston given to the
Company from time to time not more than 30 days subsequent to the date of the
initial public offering of the Offered Securities, the Underwriters may
purchase all or less than all of the Optional Securities at the purchase
price per Security to be paid for the Firm Securities. The Company agrees to
sell to the Underwriters the number of Optional Securities specified in such
notice and the Underwriters agree, severally and not jointly, to purchase
such Optional Securities. Such Optional Securities shall be purchased for
the account of each Underwriter in the same proportion as the number of Firm
Securities set forth opposite such Underwriter's name bears to the total
number of Firm Securities (subject to adjustment by CS First Boston to
eliminate fractions) and may be purchased by the Underwriters only for the
purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless
the Firm Securities previously have been, or simultaneously are, sold and
delivered. The right to purchase the Optional Securities or any portion
thereof may be exercised from time to time and to the extent not previously
exercised may be surrendered and terminated at any time upon notice by CS
First Boston to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the
First Closing Date (the First Closing Date and each Optional Closing Date, if
any, being sometimes referred to as a "Closing Date") shall be determined by
CS First Boston but shall not be later than five full business days after
written notice of election to purchase Optional Securities is given. The
Company will deliver the Optional Securities being purchased on each Optional
Closing Date to the Representatives for the accounts of the several
-7-
<PAGE>
Underwriters, against payment of the purchase price therefor by certified or
official bank check or checks in New York Clearing House (next day) funds
drawn to the order of the Company, at the above office of Stradling, Yocca,
Carlson & Rauth. The certificates for the Optional Securities being
purchased on each Optional Closing Date will be in definitive form, in such
denominations and registered in such names as CS First Boston requests upon
reasonable notice prior to such Optional Closing Date and will be made
available for checking and packaging at the above office of CS First Boston
at a reasonable time in advance of such Optional Closing Date.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public
as set forth in the Prospectus.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the several
underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the commission pursuant to and in accordance
with subparagraph (1) (or, if applicable and if consented to by CS First
Boston, subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement. The Company will advise CS First
Boston promptly of any such filing pursuant to Rule 424(b). If the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement and an additional registration
statement is necessary to register a portion of the Offered Securities
under the Act but the Effective Time thereof has not occurred as of such
execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with
the Commission pursuant to and in accordance with Rule 462(b) on or prior
to 10:00 P.M., New York time, on the date of this Agreement or, if
earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later
date as shall have been consented to by CS First Boston.
(b) The Company will advise CS First Boston promptly of any proposal
to amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial Registration
Statement, the Additional Registration Statement (if any) or the
Prospectus and will not effect such amendment or supplementation without
CS First Boston's consent; and the Company will also advise CS First
Boston promptly of the effectiveness of each Registration Statement (if
the Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of each Registration
Statement or the Prospectus and of the institution by the Commission of
any stop order proceedings in respect of a Registration Statement and
will use its best efforts to prevent the issuance of any such stop order
and to obtain as soon as possible its lifting, if issued.
-8-
<PAGE>
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time
to amend the Prospectus to comply with the Act, the Company will promptly
notify CS First Boston of such event and will promptly prepare and file
with the Commission at its own expense an amendment or supplement which
will correct such statement or omission or an amendment which will effect
such compliance. Neither CS First Boston's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth
fiscal quarter.
(e) The Company will furnish to the Underwriters copies of each
Registration Statement (three of which will be signed and will include
all exhibits), each related preliminary prospectus, and, so long as
delivery of a prospectus relating to the Offered Securities is required
to be delivered under the Act in connection with sales by any Underwriter
or dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CS First Boston requests.
The Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other such documents shall be so furnished
as soon as available. The Company will pay the expenses of printing and
distributing all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CS First
Boston designates and will continue such qualifications in effect so long
as required for the distribution.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Underwriters (i) as soon as available, a copy of each
report or definitive proxy statement of the Company filed with the
commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information
concerning the company as CS First Boston may reasonably request.
-9-
<PAGE>
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement and will reimburse the Underwriters
(if and to the extent incurred by them) for any filing fees and other
expenses (including fees and disbursements of counsel) incurred by them
in connection with qualification of the Offered Securities for sale under
the laws of such jurisdictions as CS First Boston designates and the
printing of memoranda relating thereto, for the filing fee of the
National Association of Securities Dealers, Inc. relating to the Offered
Securities, for any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the Offered
Securities and for expenses incurred in distributing preliminary
prospectuses and the Prospectus (including any amendments and supplements
thereto) to the Underwriters.
(i) The Company will not offer, sell, contract to sell, pledge,
announce its intention to sell or otherwise dispose of, directly or
indirectly, or file with the commission a registration statement under
the Act relating to, any additional shares of its securities or
securities convertible or exchangeable into or exercisable for any shares
of its securities without the prior written consent of CS First Boston
for a period of one year after the date of the initial public offering of
the Offered Securities, except issuances of Securities pursuant to the
conversion or exchange of convertible or exchangeable securities or the
exercise of warrants or options, in each case outstanding on the date
hereof, grants of employee stock options pursuant to the terms of a plan
in affect on the date hereof or otherwise described therein, or issuances
of Securities pursuant to the exercise of such options.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each
Optional Closing Date will be subject to the accuracy of the representations
and warranties on the part of the Company herein, to the accuracy of the
statements of Company officers made pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder and to the following
additional conditions precedent:
(a) The Underwriters shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement
to be filed shortly prior to such Effective Time), of Ernst & Young LLP
confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect set forth in Schedule B hereto.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CS First Boston. If the Effective Time of the Additional
-10-
<PAGE>
Registration Statement (if any) is not prior to the execution and
delivery of this Agreement, such Effective Time shall have occurred not
later than 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have been
consented to by CS First Boston. If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, the Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5(a) of this
Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Underwriters shall be contemplated by the
Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company which, in
the judgment of the Underwriters, is material and adverse and makes it
impractical or inadvisable to proceed with the completion of the public
offering or the sale of and payment for the Offered Securities; (ii) any
suspension or limitation of trading in securities generally on the New
York Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company
on any exchange or in the over-the-counter market; (iii) any banking
moratorium declared by U.S. Federal or New York authorities; or (iv) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of
the Underwriters, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or sale of and payment for
the Offered Securities.
(d) The Underwriters shall have received an opinion, dated such
Closing Date, of Stradling, Yocca, Carlson & Rauth, counsel for the
Company, to the effect set forth in Schedule C hereto.
(e) The Underwriters shall have received an opinion, dated such
Closing Date, of ___________________________________, special patent
counsel for the Company, to the effect set forth in Schedule D hereto.
(f) The Underwriters shall have received an opinion, dated such
Closing Date, of __________________________, patent counsel for the
Company, to the effect set forth in Schedule E hereto.
(g) The Underwriters shall have received from Wilson, Sonsini,
Goodrich & Rosati, counsel for the Underwriters, such opinion or
opinions, dated such Closing Date, with respect to the incorporation of
the Company, the validity of the Offered Securities delivered on such
Closing Date, the Registration Statements, the Prospectus and other
related matters
-11-
<PAGE>
as the Underwriters may require, and the Company shall have furnished to
such counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(h) The Underwriters shall have received a certificate dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this
Agreement are true and correct; that the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement (if
any) satisfying the requirements of subparagraphs (1) and (3) of Rule
462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the
Act, prior to the time the Prospectus was printed and distributed to any
Underwriter; and subsequent to the date of the most recent financial
statements in the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(i) The Underwriters shall have received a letter, dated such
Closing Date, of Ernst & Young LLP which meets the requirements of
subsection (a) of this section, except that the specified date referred
to in such subsection will be a date not more than five days prior to
such Closing Date for the purposes of this subsection.
The Company will furnish the Underwriters with such conformed copies of
such opinions, certificates, letters and documents as the Underwriters
reasonably request. CS First Boston may in its sole discretion waive on
behalf of the Underwriters compliance with any conditions to the obligations
of the Underwriters hereunder, whether in respect of an Optional Closing Date
or otherwise.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in any Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related preliminary prospectus,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that
the Company will not
-12-
<PAGE>
be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the company by any Underwriter specifically for use
therein, it being understood and agreed that the only such information
furnished by any Underwriter consists of the information described as such in
subsection (b) below.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company against any losses, claims, damages or liabilities to
which the Company may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or the
alleged omission to stats therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter specifically for use therein, and will reimburse any legal
or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred, it being understood and agreed that the only
such information furnished by any Underwriter consists of the following
information in the Prospectus furnished on behalf of each Underwriter: the
last paragraph at the bottom of the cover page concerning the terms of the
offering by the Underwriters, the legends concerning over-allotments and
stabilizing on the inside front cover page, the concession and reallowance
figures appearing in the paragraph under the caption "Underwriting" and the
information contained in the fifth paragraph under the table set forth under
the caption "Underwriting."
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above. In case any such
action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any
-13-
<PAGE>
settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by
such indemnified party unless such settlement Includes an unconditional
release of such indemnified party from all liability on any claims that are
the subject matter of such action.
(d) If the indemnification provided for in this section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in subsection (a) or (b) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Underwriters
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
subsection (d) shall deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with Investigating or
defending any action or claim which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), no Underwriter shall
be required to contribute any amount In excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of section 11(f)
of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations
in this subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company under this section shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations
of the Underwriters under this Section shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon
the same terms and conditions, to each director of the Company, to each
officer of the Company
-14-
<PAGE>
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. DEFAULT OF UNDERWRITER. If any Underwriter or Underwriters default in
their obligations to purchase Securities hereunder on either the First or any
Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed
to purchase does not exceed 10% of the total number of shares of securities
that the Underwriters are obligated to purchase on such Closing Date, CS
First Boston may make arrangements satisfactory to the Company for the
purchase of such offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date the
non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Offered Securities
that such defaulting Underwriters agreed but failed to purchase on such
Closing Date. If any Underwriter or Underwriters so default and the aggregate
number of shares of Offered Securities with respect to which such default or
defaults occur exceeds 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing
Date and arrangements satisfactory to CS First Boston and the Company for the
purchase of such Offered Securities by other persons are not made within 36
hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company, except as provided
in Section 9 (provided that if such default occurs with respect to Optional
Securities after the First Closing Date, this Agreement will not terminate as
to the Firm Securities or any Optional Securities purchased prior to such
termination). As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting underwriter from liability for its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of
the Company or its officers and of the several underwriters set forth in or
made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation, or statement as to the results thereof, made
by or on behalf of any Underwriter, the Company or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Offered Securities. If this
Agreement is terminated pursuant to Section 8 or if for any reason the
purchase of the Securities by the Underwriters is not consummated the Company
shall remain responsible for the expenses to be paid or reimbursed by it
pursuant to Section 5 and the respective obligations of the Company and the
Underwriters pursuant to Section 7 shall remain in effect, and if any Offered
Securities have been purchased hereunder the representations and warranties
in Section 2 and all obligations under Section 5 shall also remain in effect.
If the purchase of the Offered Securities by the Underwriters is not
consummated for any reason other than solely because of the termination of
this Agreement pursuant to Section 8 or the occurrence of any event specified
in clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements
of counsel) reasonably incurred by them in connection with the offering of
the Offered Securities.
10. NOTICES. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Underwriters, c/o CS
-15-
<PAGE>
First Boston Corporation, Park Avenue Plaza, New
York, NY 10055, Attention: Investment Banking Department--Transactions
Advisory Group, or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 1945 Palomar Oaks Way, Carlsbad,
California 92009, Attention: Douglas R. Hillier; provided, however, that
any notice to any notice to an Underwriter pursuant to Section 7 will be
mailed, delivered or telegraphed and confirmed to such Underwriter.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and
no other person will have any right or obligation hereunder.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. APPLICABLE LAW; FORUM. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
regard to principles of conflicts of law. The Company hereby submits to the
non-exclusive jurisdiction of the Federal and state courts in the borough of
Manhattan in The City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
-16-
<PAGE>
If the foregoing is in accordance with the Underwriters' understanding of
our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and
the Underwriters in accordance with its terms.
Very truly yours,
SENDX MEDICAL, INC.
By:
-------------------------------------
Title: Douglas R. Hillier, President and
Chief Executive Officer
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
CS FIRST BOSTON CORPORATION
J.P. MORGAN & CO.
NEEDHAM & COMPANY, INC.
BY: CS FIRST BOSTON CORPORATION
On behalf of the Underwriters
By:
--------------------------------
Title:
--------------------------------
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Securities
- ----------- ---------------
<S> <C>
CS First Boston Corporation . . . . . . . . . .
J.P. Morgan & Co. . . . . . . . . . . . . . . .
Needham & Company, Inc. . . . . . . . . . . . .
----------------
Total . . . . . . . . . . . . . . . . . . . . .
----------------
----------------
</TABLE>
<PAGE>
SCHEDULE B
Letter of Independent Public Accountants
Referred to in Section 6(a)
(i) in their opinion the financial statements and schedules examined
by them and included in the Registration Statements comply in form in all
material respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations.
(ii) on the basis of inquiries of officials of the Company who have
responsibility for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them to believe
that:
(A) at the date of the latest available balance sheet read by
such accountants, or at a subsequent specified date not more than five
days prior to the date of this Agreement, there was any change in the
capital stock or any increase in short-term indebtedness or long-term
debt of the Company or, at the date of the latest available balance
sheet read by such accountants, there was any decrease in net assets, as
compared with amounts shown on the latest balance sheet included in the
Prospectus; or
(B) for the period from the closing date of the latest income
statement included in the Prospectus to the closing date of the latest
available income statement read by such accountants there were any
decreases in total revenues or increases in total operating expenses, as
compared with the corresponding period of the previous year and with the
period of corresponding length ended the data of the latest income
statement included in the Prospectus;
except in all cases set forth in clauses (A) and (B above for changes,
increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(iii) they have compared specific dollar amounts (or percentages
derived from such dollar amounts) and other financial information contained
in the Registration Statements (in each case to the extent that such dollar
amounts, percentages and other financial information are derived from the
general accounting records of the Company subject to the internal controls
of the Company's accounting system or are derived directly from such
records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with such
results, except as otherwise specified in such letter.
<PAGE>
For purposes of this schedule, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration Statement
is subsequent to such execution and delivery, "Registration Statements" shall
mean the Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the post-
effective amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
<PAGE>
SCHEDULE C
Opinion of Counsel for the Company
Referred to in Section 6(d)
(i) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its own property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in California and, to the knowledge of such
counsel, in each other jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification;
(ii) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
(iii) The shares of Common Stock outstanding prior to the issuance of the
Offered Securities to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;
(iv) The Offered Securities to be sold by the Company have been duly
authorized, and when issued and delivered in accordance with the terms of this
Agreement will be, validly issued, fully paid and non-assessable, and the
issuance of such Offered Securities will not be subject to any preemptive or
similar rights;
(v) The Company has corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Offered
Securities to be issued and sold by the Company. This Agreement has been duly
authorized, executed and delivered by the Company;
(vi) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the certificate of incorporation or bylaws of the
Company or, to such counsel's knowledge, any material agreement or other
instrument binding upon the Company or, to such counsel's knowledge, any
judgement, order or decree of any governmental body, agency or court having
jurisdiction over the Company, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states and
jurisdictions in connection with the offer and sale of the Offered Securities;
(vii) Such counsel does not know of any legal, regulatory or governmental
proceeding pending or threatened to which the Company is a party or to which any
of the properties of the Company is subject that are required to be described in
the Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
<PAGE>
(viii) The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended;
(ix) To such counsel's knowledge, there is no legal or beneficial owner of
any securities of the Company who has any rights, not effectively satisfied or
waived, to require registration of any shares of capital stock of the Company in
connection with the filing of the Registration Statement;
(x) To such counsel's knowledge: (A) the Registration Statement has
become effective under the Securities Act, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the
Securities Act and nothing has come to such counsel's attention to lead it to
believe that such proceedings are contemplated; and (B) any required filing of
the Prospectus and any supplement thereto pursuant to Rule 424(b) or the rules
and regulations has been made in the manner and within the time period required
by such Rule 424(b); and
(xi) The Offered Securities to be sold under this Agreement to the
Underwriters are duly authorized for quotation on the Nasdaq National Market.
(xii) Such counsel shall also state that (A) it believes that the
Registration Statement and Prospectus (except for financial statements and
schedules included therein as to which such counsel need not express any
opinion) comply as to form in all material respects with the Securities Act and
the rules and regulations of the Commission thereunder and (B) nothing has come
to its attention that would cause it to believe that (except for financial
statements and schedules as to which such counsel need not express any belief)
the Registration Statement and the Prospectus included therein at the time the
Registration Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that (except for
financial statements and schedules as to which such counsel need not express any
belief) the Prospectus as of its date or as of the Closing Date contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
2
<PAGE>
SCHEDULE D
Opinion of Special Patent Counsel
Referred to in Section 6(e)
(i) Such counsel represents the Company in certain matters relating
to intellectual property, including patents, trade secrets and certain
trademark matters;
(ii) Such counsel is familiar with the Company's SenDx 100 and has
read those portions of the Registration Statement and the Prospectus
entitled "Risk Factors" and "Business--Patents and Proprietary Rights" at
the final paragraph thereof, each of which relates to certain patents held
or licensed by __________________ (collectively, the "_________
Intellectual Property Portion");
(iii) Such counsel has reviewed the ___________ Intellectual Property
Portion, and based upon such review, a review of the prior art references
made known to counsel and discussions with Company scientific personnel,
such counsel is aware of no valid United States or foreign patent that is
or would be infringed by the activities of the Company in the manufacture,
use or sale of SenDx 100;
(iv) Such counsel is aware of no pending judicial or governmental
proceedings relating to issued or licensed patents or proprietary information
to which the Company is a party or of which any property of the Company is
subject and such counsel is not aware of any pending or threatened action, suit
or claim by others that the Company is infringing or otherwise violating any
patent rights of others; and
(v) Such counsel has no reason to believe that the information contained
in the ____________ Intellectual Property Portion of the Registration Statement
or the Prospectus at the time it became effective contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that, at
such Closing Date the information contained in the Intellectual Property Portion
of the Prospectus or any amendment or supplement to the _____________
Intellectual Property Portion of the Prospectus contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
<PAGE>
SCHEDULE E
Opinion of Patent Counsel Referred
to in Section 6(f)
(i) Such counsel represents the Company in certain matters relating
to intellectual property, including patents, trade secrets and certain
trademark matters;
(ii) Such counsel is familiar with the technology, and in
particular its SenDx 100 product under development and has read the
portions of the Registration Statement and the Prospectus entitled "Risk
Factors" and "Business--Patents and Proprietary Rights" exclusive of those
portions defined as the "_____________ Intellectual Property Portion" in
Schedule D (collectively, the "Intellectual Property Portion");
(iii) The Intellectual Property Portion contains accurate
descriptions of the Company's patent applications, issued and allowed
patents, and patents licensed to it and fairly summarizes the legal
matters, documents and proceedings relating thereto;
(iv) Such counsel has reviewed the Company's patent applications filed
in the U.S. and outside the U.S. (the "Applications"), which Applications
are described in the Intellectual Property Portion, and based upon such
review, a review of the prior art references made known to counsel and
discussions with Company scientific personnel, such counsel is aware of no
valid United States or foreign patent that is or would be infringed by the
activities of the Company in the manufacture, use or sale of any proposed
product, drug or other material as described in the Prospectus or made or
used according to the Applications;
(v) The Applications have been properly prepared and filed on behalf
of the Company, and are being diligently pursued by the Company; the
inventions described in the Applications are assigned or licensed to the
Company; to such counsel's knowledge, no other entity or individual has any
right or claim in any of the inventions, Applications, or any patent to be
issued therefrom and each of the Applications discloses patentable subject
matter;
(vi) Such counsel is aware of no pending or threatened judicial or
governmental proceedings relating to patents or proprietary information to
which the Company is a party or of which any property of the Company is
subject and such counsel is not aware of any pending or threatened action,
suit or claim by others that the Company is infringing or otherwise
violating any patent rights or others, nor is such counsel aware of any
rights of third parties to any of the Company's inventions described in the
Applications, issued, approved or licensed patents which could reasonably
be expected materially to affect the ability of the Company to conduct its
business as described in the Prospectus, including the commercialization of
its SenDx 100 currently under development; and
<PAGE>
(vii) Such counsel has no reason to believe that the information
contained in the Intellectual Property Portion of the Registration
Statement or the Prospectus at the time it became effective contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading or that, at such Closing Date the information contained in
the Intellectual Property Portion of the Prospectus or any amendment or
supplement to the Intellectual Property Portion of the Prospectus contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SENDX MEDICAL, INC.
ARTICLE I - NAME
The name of the Corporation is SenDx Medical, Inc.
ARTICLE II - REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of the Corporation's registered agent at that address is The
Corporation Trust Company.
ARTICLE III - PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware, as amended from time to time.
ARTICLE IV - AUTHORIZED CAPITAL
The Corporation is authorized to issue one class of shares to be designated
"Common Stock." The total number of shares of Common Stock authorized is
50,000,000, $.001 par value.
ARTICLE V - LIMITATION OF DIRECTORS' LIABILITY
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of his duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law,
(iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derives an
improper personal benefit. If the General Corporation Law of the State of
Delaware is hereafter amended to authorize corporate action further limiting
or eliminating the personal liability of directors, then the liability of the
directors of the Corporation shall be limited or eliminated to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as
so amended from time to time. Any repeal or modification of this Article 6
by the stockholders of the Corporation shall be prospective only, and shall
not adversely affect any limitation on the personal liability of a director
of the Corporation existing at the time of such repeal or modification.
<PAGE>
ARTICLE VI - INCORPORATOR
The name and address of the Incorporator of the Corporation is as follows:
Jeffrey B. Coyne, Esq.
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660-6441
I, THE UNDERSIGNED, being the Incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereunto set my hand this 9th day of May, 1996.
JEFFREY B. COYNE
---------------------------------------
Jeffrey B. Coyne, Incorporator
2
<PAGE>
BYLAWS
OF
SENDX MEDICAL, INC.
Section 1. LAW, CERTIFICATE OF INCORPORATION AND BYLAWS
1.1. These Bylaws are subject to the Certificate of Incorporation of the
Corporation. In these Bylaws, references to law, the Certificate of
Incorporation and By-laws mean the law, the provisions of the Certificate of
Incorporation and the Bylaws as from time to time in effect.
SECTION 2. STOCKHOLDERS
2.1. ANNUAL MEETING. The annual meeting of stockholders shall be held at
10:00 a.m. on the first Tuesday in June in each year, unless that day be a legal
holiday at the place where the meeting is to be held, in which case the meeting
shall be held at the same hour on the next succeeding day not a legal holiday,
or at such other date and time as shall be designated from time to time by the
board of directors and stated in the notice of the meeting, at which they shall
elect a board of directors and transact such other business as may be required
by law or these Bylaws or as may properly come before the meeting.
2.2. SPECIAL MEETINGS. A special meeting of the stockholders may be called
at any time by the chairman of the board, if any, the president or the board of
directors. A special meeting of the stockholders shall be called by the
secretary, or in the case of the death, absence, incapacity or refusal of the
secretary, by an assistant secretary or some other officer, upon application of
a majority of the directors. Any such application shall state the purpose or
purposes of the proposed meeting. Any such call shall state the place, date,
hour, and purposes of the meeting.
2.3. PLACE OF MEETING. All meetings of the stockholders for the election
of directors or for any other purpose shall be held at such place within or
without the State of Delaware as may be determined from time to time by the
chairman of the board, if any, the president or the board of directors. Any
adjourned session of any meeting of the stockholders shall be held at the place
designated in the vote of adjournment.
2.4. NOTICE OF MEETINGS. Except as otherwise provided by law, a written
notice of each meeting of stockholders stating the place, day and hour thereof
and, in the case of a special meeting, the purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
meeting, to each stockholder entitled to vote thereat, and to each stockholder
who, by law, by the Certificate of Incorporation or by these Bylaws, is entitled
to notice, by leaving such notice with him or at his residence or usual place of
business, or by depositing it in the United States mail, postage prepaid, and
addressed to such stockholder at his address as it appears in the records of the
corporation. Such notice shall be given by the secretary, or by an officer or
person designated by the board of directors, or in the case of a special meeting
by the officer calling the meeting. As to any adjourned session of any meeting
of stockholders,
<PAGE>
notice of the adjourned meeting need not be given if the time and place
thereof are announced at the meeting at which the adjournment was taken
except that if the adjournment is for more than thirty days or if after the
adjournment a new record date is set for the adjourned session, notice of any
such adjourned session of the meeting shall be given in the manner heretofore
described. No notice of any meeting of stockholders or any adjourned session
thereof need be given to a stockholder if a written waiver of notice,
executed before or after the meeting or such adjourned session by such
stockholder, is filed with the records of the meeting or if the stockholder
attends such meeting without objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the stockholders or any adjourned session thereof need be
specified in any written waiver of notice.
2.5. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders a quorum
as to any matter shall consist of a majority of the votes entitled to be cast on
the matter, except where a larger quorum is required by law, by the Certificate
of Incorporation or by these Bylaws. Any meeting may be adjourned from time to
time by a majority of the votes properly cast upon the question, whether or not
a quorum is present. If a quorum is present at an original meeting, a quorum
need not be present at an adjourned session of that meeting. Shares of its own
stock belonging to the corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of any corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
2.6. ACTION BY VOTE. When a quorum is present at any meeting, a plurality
of the votes properly cast for election to any office shall elect to such office
and a majority of the votes properly cast upon any question other than an
election to an office shall decide the question, except when a larger vote is
required by law, by the Certificate of Incorporation or by these Bylaws. No
ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
2.7. NO ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any consent
in writing by such holders.
2.8. PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, objecting to
or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and, if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. The authorization of a proxy may but
need not be limited to specified action, provided, however, that if a proxy
limits its authorization to a meeting or meetings of stockholders, unless
otherwise
2
<PAGE>
specifically provided such proxy shall entitle the holder thereof to vote at
any adjourned session but shall not be valid after the final adjournment
thereof.
2.9. NOTIFICATIONS OF NOMINATIONS AND PROPOSAL BUSINESS. Subject to the
rights of holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation, (a) nominations for the
election of directors, and (b) business proposed to be brought before any
stockholder meeting may be made by or at the direction of the Board of Directors
or by any stockholder entitled to vote in the election of directors generally.
However, any such stockholder may nominate one or more persons for election as
directors at a meeting or propose business to be brought before a meeting, or
both, only if such stockholder has given timely notice in proper written form of
his intent to make such nomination or nominations or to propose such business.
To be timely, a stockholder's notice must be delivered to or mailed and received
by the Secretary of the Corporation not later than forty-five (45) days nor more
than ninety (90) days prior to such meeting; provided, however, in the event
that less than fifty-five (55) days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth (10th) day following the date of which such notice of the date of the
meeting was mailed or such public disclosure was made. To be in proper written
form, a stockholder's notice to the Secretary shall set forth:
(i) the name and address of the stockholder who intends to make
the nominations or propose the business and, as the case may be, of
the person or persons to be nominated or of the business to be
proposed;
(ii) a representation that the stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter
of business to be proposed by such stockholder as would be required to
be included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission had the nominee been nominated,
or intended to be nominated, or the matter been proposed, or intended
to be proposed by the Board of Directors; and
(v) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
2.10. INSPECTORS. The directors or the person presiding at the meeting
may, but need not, appoint one or more inspectors of election and any substitute
inspectors to act at the meeting or any adjournment thereof. Each inspector,
before entering upon the discharge of his duties, shall take
3
<PAGE>
and sign an oath faithfully to execute the duties of inspector at such
meeting with strict impartiality and according to the best of his ability.
The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at
the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots or consents, determine the result, and do
such acts as are proper to conduct the election or vote with fairness to all
stockholders. Notwithstanding the foregoing, in the event that a stockholder
seeks to propose business to be brought before a meeting or to nominate one
or more directors pursuant to Section 2.9 of these Bylaws, the directors
shall appoint two inspectors, who shall not be affiliated with the
Corporation, to determine whether a stockholder has complied with Section 2.9
of these Bylaws. If the inspector shall determine that a stockholder has not
complied with Section 2.9 of these Bylaws, the inspectors shall direct the
person presiding over the meeting to declare to the meeting that a proposal
or nomination, as the case may be, was not made in accordance with the
procedures prescribed by the Bylaws; and the person presiding over the
meeting shall so declare to the meeting and the defective proposal or
nomination shall be disregarded. On request of the person presiding at the
meeting, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them.
2.11. LIST OF STOCKHOLDERS. The secretary shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares registered
in his name. The stock ledger shall be the only evidence as to who are
stockholders entitled to examine such list or to vote in person or by proxy at
such meeting.
SECTION 3. BOARD OF DIRECTORS
3.1. NUMBER. The number of directors which shall constitute the whole
board shall not be less than five (5) nor more than nine (9) in number. The
exact number of directors shall be fixed from time to time by a resolution
adopted by a majority of directors. Until otherwise fixed by the directors, the
number of directors constituting the entire board of directors shall be seven
(7). Within the foregoing limits, the number of directors may be increased at
any time or from time to time by the stockholders or by the directors by vote of
a majority of the directors then in office. The number of directors may be
decreased to any number permitted by the foregoing at any time either by the
stockholders or by the directors by vote of a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation or removal of one or more directors. Directors need not be
stockholders.
3.2. TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each director shall hold office until the
successors of such director's class are elected and qualified, or until he
sooner dies, resigns, is removed or becomes disqualified.
3.3. POWERS. The business and affairs of the corporation shall be managed
by or under the direction of the board of directors who shall have and may
exercise all the powers of the corporation and do all such lawful acts and
things as are not by law, the Certificate of Incorporation or these Bylaws
directed or required to be exercised or done by the stockholders.
4
<PAGE>
3.4. VACANCIES. Vacancies and any newly created directorships resulting
from any increase in the number of directors may be filled by vote of the
stockholders at a meeting called for the purpose, or by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. When one or more directors shall resign from the board, effective at
a future date, a majority of the directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies, the vote or
action by writing thereon to take effect when such resignation or resignations
shall become effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirements of law or of the Certificate of Incorporation or of
these Bylaws as to the number of directors required for a quorum or for any vote
or other actions.
3.5. COMMITTEES. The board of directors may, by vote of a majority of the
whole board, (a) designate, change the membership of or terminate the existence
of any committee or committees, each committee to consist of one or more of the
directors; (b) designate one or more directors as alternate members of any such
committee who may replace any absent or disqualified member at any meeting of
the committee; and (c) determine the extent to which each such committee shall
have and may exercise the powers of the board of directors in the management of
the business and affairs of the corporation, including the power to authorize
the seal of the corporation to be affixed to all papers which require it and the
power and authority to declare dividends or to authorize the issuance of stock;
excepting, however, such powers which by law, by the Certificate of
Incorporation or by these or by these Bylaws they are prohibited from so
delegating. In the absence or disqualification of any member of such committee
and his alternate, if any, the member or members thereof present at any meeting
and not disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Except as the
board of directors may otherwise determine, any committee may make rules for the
conduct of its business, but unless otherwise provided by the board or such
rules, its business shall be conducted as nearly as may be in the same manner as
is provided by these Bylaws for the conduct of business by the board of
directors. Each committee shall keep regular minutes of its meetings and report
the same to the board of directors upon request.
3.6. REGULAR MEETINGS. Regular meetings of the board of directors may be
held without call or notice at such places within or without the State of
Delaware and at such times as the board may from time to time determine,
provided that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting of the
directors may be held without call or notice immediately after and at the same
place as the annual meeting of the stockholders.
3.7. SPECIAL MEETINGS. Special meetings of the board of directors may be
held at any time and at any place within or without the State of Delaware
designated in the notice of the meting, when called by the chairman of the
board, if any, the president, or by one-third or more in number of the
directors, reasonable notice thereof being given to each director by the
secretary or by the chairman of the board, if any, the president or any one of
the directors calling the meeting.
3.8. NOTICE. It shall be reasonable and sufficient notice to a director to
send notice by mail at least forty-eight hours or by telegram or facsimile at
least twenty-four hours before the meeting addressed to him at his usual or last
known business or residence address or to give notice
5
<PAGE>
to him in person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any director if a written
waiver of notice, executed by him before or after the meeting, is filed with
the records of the meeting, or to any director who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. Neither notice of a meeting nor a wavier of a notice need specify the
purposes of the meeting.
3.9. QUORUM. Except as may be otherwise provided by law, by the
Certificate of Incorporation or these Bylaws, at any meeting of the directors a
majority of the directors then in office shall constitute a quorum; a quorum
shall not in any case be less than one-third of the total number of directors
constituting the whole board. Any meeting may be adjourned from time to time by
a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
3.10. ACTION BY VOTE. Except as may be otherwise provided by law, by
the Certificate of Incorporation or by these Bylaws, when a quorum is present at
any meeting the vote of a majority of the directors present shall be the act of
the board of directors.
3.11. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken at any meeting of the board of directors or a committee thereof may be
taken without a meeting if all the members of the board or of such committee, as
the case may be, consent thereto in writing, and such writing or writings are
filed with the records of the meetings of the board or of such committee. Such
consent shall be treated for all purposes as the act of the board or of such
committee, as the case may be.
3.12. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of
the board of directors, or any committee designated by such board, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meting can hear each other or by any other means permitted
by law. Such participation shall constitute presence in person at such meeting.
3.13. COMPENSATION. In the discretion of the board of directors, each
director may be paid such fees for his services as director and be reimbursed
from his reasonable expenses incurred in the performance of his duties as
director as the board of directors from time to time may determine. Nothing
contained in this section shall be construed to preclude any director from
serving the corporation in any other capacity and receiving reasonable
compensation therefor.
3.14. INTERESTED DIRECTORS AND OFFICERS.
(a) No contract or transaction between the corporation and one or
more of its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of the corporation's directors or officers are directors or officers, or
have a financial interest, shall be void or voidable, solely for this reason, or
solely because the director officer is present at or participates in the meeting
of the board or committee thereof which authorizes the contract or transaction,
or solely because his or their votes are counted for such purpose, if:
6
<PAGE>
(1) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board or committee in good faith authorizes
the contract or transaction by the affirmative votes of majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(2) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholder
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified by the board of directors, a
committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorized the contract or transaction.
SECTION 4. OFFICERS AND AGENTS.
4.1. ENUMERATION; QUALIFICATION. The officers of the corporation shall be
a president, a treasurer, a secretary and such other officers, if any, as the
board of directors from time to time may in its discretion elect or appoint
including without limitation a chairman of the board, one or more vice
presidents and a controller. The corporation may also have such agents, if any,
as the board of directors from time to time may in its discretion choose. Any
officer may be but none need be a director or stockholder. Any two or more
offices may be held by the same person. Any officer may be required by the
board of directors to secure the faithful performance of his duties to the
corporation by giving bond in such amount and with sureties or otherwise as the
board of directors may determine.
4.2. POWERS. Subject to law, to the Certificate of Incorporation and to
the other provisions of these Bylaws, each officer shall have, in addition to
the duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such additional duties and powers as the board of
directors may from time to time designate.
4.3. ELECTION. The officers may be elected by the board of directors at
their first meeting following the annual meeting of the stockholders or at any
other time. At any time or from time to time the directors may delegate to any
officer their power to elect or appoint any other officer or any agents.
4.4. TENURE. Each officer shall hold office until the first meeting of the
board of directors following the next annual meeting of the stockholders and
until his respective successor is chosen and qualified unless a shorter period
shall have been specified by the terms of his election or appointment, or in
each case until he sooner dies, resigns, is removed or becomes disqualified.
Each agent shall retain his authority at the pleasure of the directors, or the
officer by whom he was appointed or by the officer who then holds agent
appointive power.
7
<PAGE>
4.5. CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND VICE PRESIDENT. The
chairman of the board, if any, shall have such duties and powers as shall be
designated from time to time by the board of directors. Unless the board of
directors otherwise specifies, the chairman of the board, or if there is none
the chief executive officer, shall preside, or designate the person who shall
preside, at all meetings of the stockholders and of the board of directors.
Unless the board of directors otherwise specifies, the president shall be
the chief executive officer and shall have direct charge of all business
operations of the corporation and, subject to the control of the directors,
shall have general charge and supervision of the business of the corporation.
Any vice president shall have such duties and powers as shall be set forth
in these by-laws or as shall be designated from time to time by the board of
directors or by the president.
4.6. CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURERS. Unless the board of
directors otherwise specifies, the chief financial officer shall be the
treasurer of the corporation and shall be in charge of its funds and valuable
papers, and shall have such other duties and powers as may be designated from
time to time by the board of directors or by the president. If no controller is
elected, the chief financial officer shall, unless the board of directors
otherwise specifies, also have the duties and powers of the controller.
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
chief financial officer.
4.7. CONTROLLER AND ASSISTANT CONTROLLER. If a controller is elected, he
shall, unless the board of directors otherwise specifies, be the chief
accounting officer of the corporation and be in charge of its books of account
and accounting records, and of its accounting procedures. He shall have such
other duties and powers and may be designated from time to time by the board of
directors, the president or the treasurer.
Any assistant controller shall have such duties and powers as shall be
designated from time to time by the board of directors, the president, the
treasurer or the controller.
4.8. SECRETARY AND ASSISTANT SECRETARIES. The secretary shall record all
proceedings of the stockholders, of the board of directors and of committees of
the board of directors in a book or series of books to be kept therefore and
shall file therein all actions by written consent of stockholders or directors.
In the absence of the secretary from any meeting, an assistant secretary, or if
there be none or he is absent, a temporary secretary chosen at the meeting,
shall record the proceedings thereof. Unless a transfer agent has been
appointed the secretary shall keep or cause to be kept the stock and transfer
records of the corporation, which shall contain the names and record addresses
of all stockholders and the number of shares registered in the name of each
stockholder. He shall have such other duties and powers as may from time to
time be designated by the board of directors or the president.
Any assistant secretaries shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
secretary.
8
<PAGE>
SECTION 5. RESIGNATIONS AND REMOVALS.
5.1. Any director or officer may resign at any time by delivering his
resignation in writing to the chairman of the board, if any, the president, or
the secretary or to a meeting of the board of directors. Such resignation shall
be effective upon receipt unless specified to be effective at some other time,
and without in either case the necessity of its being accepted unless the
resignation shall so state. A director (including persons elected by directors
to fill vacancies in the board) may be removed from office with or without cause
by the vote of the holders of a majority of the shares issued and outstanding
and entitled to vote in the election of directors. The board of directors may
at any time remove any officer either with or without cause. The board of
directors may at any time terminate or modify the authority of any agent. No
director or officer resigning and (except where a right to receive compensation
shall be expressly provided in a duly authorized written agreement with the
corporation) no director or officer removed shall have any right to any
compensation as such director or officer for any period following his
resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise; unless, in
the case of a resignation, the directors, or, in the case of removal, the body
acting on the removal, shall in their or its discretion provide for
compensation.
SECTION 6. VACANCIES.
6.1. If the office of the president or the treasurer or the secretary
becomes vacant, the directors may elect a successor by vote of a majority of the
directors then in office. If the office of any other officer becomes vacant, any
person or body empowered to elect or appoint that officer may choose a
successor. Each such successor shall hold office for the unexpired term, and in
the case of the president, the treasurer and the secretary until his successor
is chosen and qualified or in each case he sooner dies, resigns, is removed or
becomes disqualified. Any vacancy of a directorship shall be filled as
specified in Section 3.4 of these Bylaws.
SECTION 7. CAPITAL STOCK.
7.1. STOCK CERTIFICATES. Each stockholder shall be entitled to a
certificate stating the number and the class and the designation of the series,
if any, of the shares held by him, in such form as shall, in conformity to law,
the Certificate of Incorporation and the Bylaws, be prescribed from time to time
by the board of directors. Such certificate shall be signed by the chairman or
vice chairman of the board, if any, or the president or a vice president and by
the treasurer or an assistant treasurer or by the secretary or an assistant
secretary. Any of or all the signatures on the certificate may be a facsimile.
In case an officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent, or registrar at the time of its issue.
7.2. LOSS OF CERTIFICATES. In the case of the alleged theft, loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms, including receipt of a bond
sufficient to indemnify the corporation against any claim on account thereof, as
the board of directors may prescribe.
9
<PAGE>
SECTION 8. TRANSFER OF SHARES OF STOCK.
8.1. TRANSFER ON BOOKS. Subject to the restrictions, if any, stated or
noted on the stock certificate, shares of stock may be transferred on the books
of the corporation by the surrender to the corporation or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with necessary transfer
stamps affixed, and with such proof of the authenticity of signature as the
board of directors or the transfer agent of the corporation may reasonably
require. Except as may be otherwise required by law, by the Certificate of
Incorporation or by these Bylaws, the corporation shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to receive notice and
to vote or to give any consent with respect thereto and to be held liable for
such calls and assessments, if any, as may lawfully be made thereon, regardless
of any transfer, pledge or other disposition of such stock until the shares have
been properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
8.2. RECORD DATE AND CLOSING TRANSFER BOOKS. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no such record date is fixed by the board of
directors, the record date for determining the stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders or record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
such record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
the General Corporation Law of the State of Delaware, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
Delaware by hand or certified or registered mail, return receipt requested, to
its principal place of business or to an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. If no record date has been fixed by the board of directors and prior
action by the board of directors is required by the General Corporation Law of
the State of Delaware, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the board of directors adopts the resolution
taking such prior action.
10
<PAGE>
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or to exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the board of directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty days prior to such payment, exercise or other action. If no
such record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
SECTION 9. INDEMNIFICATION.
9.1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director officer of the corporation or is or was serving at the request of the
corporation as a director or officer of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director or officer or
in any other capacity while serving as a director or officer, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than such law permitted the corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in this Section 9.1 with respect to proceedings to enforce
rights to indemnification, the corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the board of
directors of the corporation. The right to indemnification conferred in this
Section 9.1 shall be a contract right and shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including without limitation, service to an
employee benefit plan) shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is not further right to appeal that such indemnitee is not entitled
to be indemnified for such expenses under this Section 9 or otherwise
(hereinafter an "undertaking").
9.2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 9.1 of
these Bylaws is not paid in full by the corporation within forty-five (45) days
after a written claim has been received by the corporation, the indemnitee may
at any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim. If successful in whole or part in any such
11
<PAGE>
suit or in a suit brought by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit.
In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) any suit by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not
met the applicable standard of conduct set forth in the Delaware General
Corporation Law. Neither the failure of the corporation (including its board
of directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the corporation (including
its board of directors, independent legal counsel, or its stockholders) that
the indemnitee has not met such applicable standard of conduct, shall create
a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by indemnitee, be a defense to
such suit. In any suit brought by the indemnitee to enforce a right
hereunder, or by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such advancement of
expenses under this Section 9 or otherwise shall be on the corporation.
9.3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and to the
advancement of expenses conferred in this Section 9 shall not be exclusive of
any other right which any person may have or thereafter acquire under any
statue, provision of the Certificate of Incorporation, by-law agreement, vote of
stockholders or disinterested directors or otherwise and shall inure to the
benefit of the heirs and legal representatives of such person.
9.4. INSURANCE. The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
9.5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION. The
corporation may, to the extent authorized from time to time by the board of
directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the corporation to the fullest extent of the
provisions of this Section 9 with respect to the indemnification and advancement
of expenses of directors or officers of the corporation.
9.6. INDEMNIFICATION CONTRACTS. The board of directors is authorized to
enter into a contract with any director, officer, employee or agent of the
corporation, or any person serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
for indemnification rights equivalent to or, if the board of directors so
determines, greater than, those provided for in this Section 9.
12
<PAGE>
9.7. EFFECT OF AMENDMENT. Any amendment, repeal or modification of any
provision of this Section 9 by the stockholders or the directors of the
corporation shall not adversely affect any right or protection of a director or
officer of the corporation existing at the time of such amendment, repeal or
modification.
SECTION 10. CORPORATE SEAL.
10.1. Subject to alteration by the directors, the seal of the
corporation shall consist of a flat-faced circular die with the word "Delaware"
and the name of the corporation cut or engraved thereon, together with such
other words, dates or images as may be approved from time to time by the
directors.
SECTION 11. EXECUTION OF PAPERS.
11.1. Except as the board of directors may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts or other obligations made,
accepted or endorsed by the corporation shall be signed by the chairman of the
board, if any, the president, a vice president or the treasurer.
SECTION 12. FISCAL YEAR.
12.1. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SECTION 13. AMENDMENTS.
13.1. These Bylaws may be adopted, amended or repealed by vote of a
majority of the directors then in office or by vote of a majority of the stock
outstanding and entitled to vote. Any by-law, whether adopted, amended or
repealed by the stockholders or directors, may be amended or reinstated by the
stockholders or the directors.
13
<PAGE>
UNIFET, INCORPORATED
1991 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The Unifet, Incorporated 1991 Stock option Plan ("Plan") is intended to
promote the interests of Unifet, Incorporated, a California corporation
("Corporation"), by providing incentives to (i) certain employees of the
Corporation or its Subsidiary Corporations who are responsible for the
management, growth or financial success of the Corporation or its Subsidiary
Corporations and (ii) certain non-employee directors and consultants of the
Corporation who perform valuable services to the Corporation and its Subsidiary
Corporations, in order to encourage them to acquire a proprietary interest, or
increase their proprietary interest, in the Corporation and to continue to
perform services for the Corporation or its Subsidiary Corporations. For
purposes of the Plan, the terms "Parent Corporation" and "Subsidiary
Corporation" shall have the meanings set forth in subsections (e) and (f) of
Section 424 of the Internal Revenue Code.
2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Corporation's Board of
Directors ("Board") or, to the extent provided by the Board, a committee
("Committee") appointed by the Board. Members of the Committee shall serve for
such term as the Board may determine. No person serving as a member of the
Board or the Committee shall act on any matter relating solely to such person's
own interests under the Plan or any option thereunder. For purposes of the
Plan, the term "Administrator" shall mean the Board, or if the Board delegates
responsibility for any matter to the Committee, the Committee.
(b) The Administrator shall have full power and authority to (i)
determine which employees are key employees,
<PAGE>
(ii) determine which key employees shall receive option grants,
(iii) determine the number of shares to be covered by each such option
grant, (iv) determine whether each granted option is to be an incentive stock
option or a non-statutory option, (v) determine the time or times at which each
such option is to become exercisable, (vi) determine the option price for each
such option, (vii) determine the maximum term for which such option is to be
exercisable, and (viii) determine all other terms and conditions upon which such
option may be exercised. The Administrator shall have the full power and
authority (subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the Plan
and to make such determinations under, and issue such interpretations of, the
Plan and any outstanding option as it may deem necessary or advisable.
Decisions of the Administrator shall be final and binding on all parties who
have an interest in the Plan or any outstanding option.. No person acting under
this subsection shall be held liable for any action or determination made in
good faith with respect to the Plan or any option granted under the Plan.
3. ELIGIBILITY FOR OPTION GRANTS.
Key employees (whether or not they are officers and members of the Board) of the
Corporation (or its Subsidiary Corporations) and members of the Board who are
not employees of the Corporation (or a Subsidiary Corporation) shall be eligible
for selection to receive option grants under the Plan.
4. STOCK SUBJECT TO THE PLAN.
(a) The stock issuable under the Plan shall consist of shares of the
Corporation's
2
<PAGE>
authorized but unissued or reacquired common stock ("Common Stock"). The
aggregate number of issuable shares shall not exceed , subject to
adjustment as provided in subsection (b). Should an option be terminated or
cancelled without being exercised or surrendered in accordance with Section 7
(in whole or in part), the shares subject to the portion of the option not so
exercised or surrendered shall be available for subsequent option grants under
the Plan. Shares subject to an option (or portion of an option) surrendered in
accordance with Section 7 shall not be available for subsequent option grants
under the Plan.
(b) If any change is made to the Common Stock issuable under the Plan
(for whatever reason), then the Administrator may, in its discretion, adjust the
maximum number and class of shares issuable under the Plan to reflect the effect
of such change upon the Corporation's capital structure, and may make
appropriate adjustments to the number and class of shares and the option price
per share of the stock subject to each outstanding option. The adjustments
determined by the Administrator shall be final, binding and conclusive.
5. OPTIONS.
(a) Each option granted under the Plan shall be evidenced by a stock
option agreement that complies with (or incorporates) each of the terms and
conditions of this section and identifies such option as either an option that
is intended to comply with the requirements of Section 422 of the Internal
Revenue Code ("Incentive Stock Option") or as an option that is intended not to
be an Incentive Stock Option. Individuals who
3
<PAGE>
are not employees of the Corporation or its Subsidiary Corporations may only be
granted options that are not intended to qualify as Incentive Stock Options.
(b) OPTION PRICE.
(1) The option price per share shall be fixed by the
Administrator. In the case of an Incentive Stock Option, in no event shall the
option price per share be less than one hundred percent (100%) of the fair
market value of a share of Common Stock on the date of the option grant or one
hundred and ten percent (110%) of the fair market value of the Common Stock on
the date of grant if an optionee is subject to Section 6(c) an the date of
grant.
(2) The option price shall be paid upon exercise of the option
and, subject to the provisions of section 9 and the stock option agreement that
evidences the option grant, shall be payable in one of the following alternative
forms (as determined by the Administrator):
(A) Full payment in cash or cash equivalents;
(B) Full payment in shares of Common Stock having a fair
market value on the date of exercise equal to the option price;
(C) Full payment via a promissory note, which shall be with
full recourse against the maker thereof (notwithstanding the value of any
collateral securing such promissory note); or
(D) A combination of any or all of the
4
<PAGE>
foregoing, equal in the aggregate to the option price.
(3) For all valuation purposes under the Plan,
the fair market value of a share of Common Stock shall be determined in
accordance with the following provisions:
(A) if Common Stock is not at the time listed or admitted
to trading on any stock exchange but is traded in the over-the-counter market
(but not on the NASDAQ National Market System), the fair market value shall be
the mean between the reported bid price and reported asked price of one share of
common Stock on the date in question in the over-the-counter market, as such
prices are reported by the National Association of Securities Dealers through
its NASDAQ system or any successor system. If there are no reported bid and
asked prices on the date in question, then the mean between the reported bid
price and reported asked price on the last preceding date for which such
quotations exist shall be determinative of fair market value. if Common Stock is
traded over-the-counter on the NASDAQ National Market System, the fair market
value shall be the closing selling price of one share of Common Stock on the
date in question as such price is reported by the National Association of
Securities Dealers through such system or any successor system. If there is no
reported closing selling price for Common stock on the date in question, then
the closing selling price on the last preceding date for which such quotation
exists shall be determinative of fair market value.
(B) If Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the mean
between the highest and lowest quoted
5
<PAGE>
selling prices of one share of Common Stock on the date in question on the stock
exchange determined by the Administrator to be the primary market for Common
Stock, as such price is officially quoted on such exchange. If there is no
reported sale of Common Stock on such exchange on the date in question, then the
fair market value shall be the mean between the highest and lowest quoted
selling prices an the exchange on such last preceding date for which such
quotation exists.
(C) If Common Stock is at the time neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market (or, if the Administrator determines that the value as determined
pursuant to subparagraphs (A) or (B) does not reflect fair market value), then
the Administrator shall determine fair market value after taking into account
such factors as it deems appropriate.
(c) Each option granted under the Plan shall be exercisable at such
time or times and during such period as is determined by the Administrator and
set forth in the stock option agreement evidencing such option, provided that no
Incentive Stock option may have a term in excess of ten years from the date of
its grant and further subject to Section 6(c) hereof.
(d) An option by its terms shall not be assignable or transferable by
the optionee other than by will or by the laws of descent and distribution;
during the lifetime of the optionee, such option shall be exercisable only by
the optionee. options may be exercised by written notice to the Corporation (in
such terms as the Administrator may specify) and payment of the exercise price.
(e) An option granted under the Plan nay, but need not, provide that
the period during which the option may be exercised is subject to early
termination if the optionee ceases to be a
6
<PAGE>
director or officer of the Corporation.
(f) Common Stock issuable upon exercise of an option granted under
the Plan may be subject to such restrictions on transfer, repurchase rights or
other restrictions as may be determined by the Administrator, including the
right of the corporation (or its assigns), exercisable upon the optionee's
cessation of employee status, to repurchase at the original option price any or
all of the shares of Common Stock previously acquired by the optionee upon the
exercise of such option. Any such repurchase right shall be exercisable by the
Corporation (or its assigns) upon such terms and conditions (including
provisions for the expiration of such right in one or more installments) as the
Administrator may specify in the instrument evidencing such right. The
Administrator shall also have full power and authority to accelerate the
termination of the Corporation's outstanding repurchase rights, in whole or in
part, and thereby vest the optionees in one or more purchased shares, upon the
occurrence of any Corporate Transaction.
(g) If necessary or advisable to comply with applicable federal or
state securities laws, any option granted under the Plan may be granted an the
condition that the optionee agrees that the purchase of shares of Common Stock
thereunder is for investment and not with a view to the resale or distribution
of such stock and that such shares shall be disposed of only in accordance with
such laws. As a condition to issuance of any shares purchased upon the exercise
of any option granted pursuant to the Plan, the optionee, his executor,
administrator, heir or legatee (as the case may be) receiving such shares may be
required to deliver to the Corporation an instrument, in form and substance
satisfactory to the Administrator and its counsel, implementing such agreement.
Any such condition may be eliminated by the Administrator if the Administrator
determines it is no longer necessary or advisable.
7
<PAGE>
(h) No option holder shall have any of the rights of a stockholder
with respect to any shares covered by an option until such option holder has
exercised the option and been issued a stock certificate for the purchased
shares.
6. INCENTIVE STOCK OPTIONS.
(a) The terms and conditions set forth in this Section shall apply to
all Incentive Stock options granted under the Plan. options that are
specifically designated as "nonstatutory" options when issued under the Plan
shall not be subject to such terms and conditions.
(b) The aggregate fair market value (determined at the time the
option is granted) of the shares with respect to which Incentive Stock options
are exercisable for the first time by such individual during any one calendar
year (under the Plan or another stock option plan(s) of the Corporation, a
Parent or Subsidiary Corporation, or predecessor thereof) shall not exceed
$100,000 or such greater amounts as may be permitted under Section 422 of the
Internal Revenue Code. To the extent that the aggregate fair market value of
Common Stock with respect to which Incentive Stock options are exercisable for
the first time by any individual during any calendar year (under all plans of
the Corporation and its Parent and Subsidiary Corporations) exceeds $100,000,
such options shall be treated as "non-statutory" options, by taking options into
account in the order in which they were granted.
(c) If any employee to whom an Incentive Stock Option is to be
granted pursuant to the provisions of the Plan is on the date of grant an owner
of stock (as determined under subsection (d)
8
<PAGE>
of Section 424 of the Internal Revenue Code) possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation or a
Parent or Subsidiary Corporation, then the following special provisions shall
apply to the Incentive Stock Option granted to such employee:
(1) The option price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the fair market value
of one share of Common Stock on the date of grant.
(2) The option shall not have a term in excess of five years
from the date of grant.
7. STOCK APPRECIATION RIGHTS
(a) The Administrator may, in its sole discretion and upon such terms
as it may establish, grant options that provide (or modify existing options to
provide) optionees the right to surrender all or a portion of an unexercised
option (to the extent then exercisable) in exchange for a distribution from the
corporation equal in amount to the difference between (i) the fair market value
(at the date of surrender) of the shares of Common Stock with respect to which
the option is surrendered and (ii) the aggregate option price payable for such
shares. Such distribution shall be payable in either shares of Common Stock
valued at fair market value (as of the date of surrender) or cash, or partly in
cash and partly in shares of Common Stock, subject to the discretion of the
Administrator (at the time the option is granted or, if the option so provides,
at the time of surrender). An option may provide that no surrender of an option
under this Section shall be effective unless it is approved by the
Administrator.
9
<PAGE>
(b) If the optionee is at the time of the option surrender considered
an officer, director or 10% shareholder of the Corporation for purposes of
Section 16(b) of the Securities Exchange Act of 1934, or was such an officer,
director, or 10% shareholder at any time during the six-month period immediately
preceding the option surrender and made any purchase or sale of Common Stock
while an officer, director, or 10% shareholder during such six-month period, and
the option is being surrendered in whole or in part for cash, then the option
can be surrendered only in accordance with the applicable requirements of SEC
Rule 16b-3(e) or successor provisions.
S. SALE, MERGER, REORGANIZATION, ETC.
(a) In the event of one or more of the following transactions
("Corporate Transaction"):
(i) a merger or acquisition in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Corporation's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation; or
(iii)any other corporate reorganization or business combination
in which fifty percent (50%) or more of the Corporation's outstanding voting
stock is transferred to different holders in a single transaction or a series of
related transactions,
10
<PAGE>
then all options at the time outstanding under the Plan and not then otherwise
fully exercisable shall, during the five (5) business day period immediately
prior to the specified effective date for the Corporate Transaction, become
fully exercisable for up to the total number of shares of Common Stock
purchasable under such option and may be exercised for all or any portion of the
shares for which the option is so accelerated; provided, however, that the
acceleration of any Incentive Stock Options outstanding at the time (that do not
cease to be Incentive Stock options by amendment or otherwise) will be subject
to the limitations of Section 6(b); and provided further, that if the grant,
exercisability, or exercise of an option (or any portion of an option) is
determined by counsel to the Corporation to be a payment which, when added to
other payments to which Optionee IS or becomes entitled, would result in a
substantial risk of any loss of any federal income tax deduction by the
Corporation or the imposition of an excise tax on optionee under Section 280G or
Section 4999, respectively, of the Internal Revenue Code, or any successor
provision thereto, then Optionee's rights shall be limited to the extent
necessary to preclude the loss of any such deduction or imposition of any such
excise tax, and the Corporaticn shall be relieved of any liability in such
event.
In no event shall any such acceleration of the exercise dates occur if the
terms of the agreement of any Corporate Transaction require as a condition to
consummation that each such outstanding option shall either be assumed by the
successor corporation or affiliate thereof or be replaced with a comparable
option to purchase shares of capital stock of the successor corporation or
affiliate thereof. The determination of such comparability shall be made by the
Administrator, and its determination shall be final, binding and conclusive.
Upon consummation of the Corporate Transaction, all outstanding options under
the Plan shall, to the extent not previously exercised or
11
<PAGE>
assumed by the successor corporation or its parent company, terminate and cease
to be exercisable.
(b) The grant of options under the Plan shall not affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
9. CANCELLATION AND NEW GRANT OF OPTIONS.
The Administrator shall have the authority to effect, at any time and from
time to time, with the consent of the affected optionees, the cancellation of
any or all outstanding options under the Plan and to grant in substitution
therefor new options under the Plan covering the same or different numbers of
shares of Common Stock.
10. LOANS OR GUARANTEE OF LOANS.
The Administrator may, in its discretion, assist any optionee in the
exercise of one or more options under the Plan, including the satisfaction of
any federal and state income and employment tax obligations arising therefrom by
(i) authorizing the extension of a loan from the Corporation to such optionee,
(ii) permitting the optionee to pay the option price in installments over a
period of years, or (iii) authorizing a guarantee by the Corporation of a
third-party loan to the optionee. Any such assistance shall be upon such terms
as the Administrator specifies in the stock option agreement. Loans,
installment payments and guarantees may be granted with or without security,
collateral, or interest, but
12
<PAGE>
the maximum credit available to the optionee shall not exceed the sum of (i) the
aggregate option price payable for the purchased shares plus (ii) any federal
and state income and employment tax liability incurred by the optionee in
connection with the exercise of the option.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board shall have complete and exclusive power and authority
to amend the Plan and the Administrator may amend or modify outstanding options
issued under the Plan in any or all respects whatsoever not inconsistent with
the terms of the Plan; provided, however, that, except to the extent necessary
to qualify options under the Plan as Incentive Stock Options, no such amendment
shall adversely affect rights and obligations of an option holder with respect
to options at the time outstanding under the Plan unless the option holder
consents to such amendment; and provided, further, that the Board shall not,
without the approval of the Corporation's stockholders, amend the Plan to (i)
increase the maximum number of shares issuable under the Plan, (ii) materially
increase the benefits accruing to individuals who participate in the Plan, or
(iii) modify the eligibility requirements for the grant of options under the
Plan.
(b) Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and is thereafter submitted to the Corporation's stockholders
for approval and (ii) each option so granted is not to become exercisable, in
whole or in part, at any time prior to obtaining such stockholder approval.
12. EFFECTIVE DATE AND TERM OF PLAN
(a) The Plan shall become effective when adopted by the Board, but no
option granted
13
<PAGE>
under the Plan shall become exercisable unless and until the Plan has been
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within 12 months after the date of the Board's adoption of the Plan,
then any options previously granted under the Plan shall terminate and no
further options shall be granted. Subject to such limitation, options may be
granted under the Plan at any time after the effective date and before the date
fixed herein for termination of the Plan.
(b) No option may be granted under the Plan after the earlier of (i)
the tenth anniversary of the date of its adoption by the Board or (ii) the date
on which all shares available for issuance under the Plan have been issued or
cancelled pursuant to the exercise or surrender of options granted hereunder.
13. USE OF PROCEEDS.
The proceeds received by the Corporation from the sale of shares pursuant
to options granted under the Plan shall be used for general corporate purposes.
14. WITHHOLDING.
The Corporation's obligation to (i) deliver stock certificates upon the
exercise of any option or (ii) pay cash or deliver stock certificates upon the
surrender of any option granted under the Plan shall be subject to the option
holder's satisfaction of all applicable federal, state and local income and
employment tax withholding requirements.
15. REGULATORY APPROVALS.
The implementation of the Plan, the granting of any option under the Plan,
and the issuance of
14
<PAGE>
Common Stock upon the exercise of any such option shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it, and
the Common Stock issued pursuant to it.
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the ___ day of ______________, 19__, ("Grant
Date") by and between Unifet, Incorporated, a California corporation
("Corporation") and ____________________ ("Optionee").
WITNESSETH:
RECITALS
A. Optionee has been granted an option under the Unifet,
Incorporated 1991 Stock Option Plan ("Plan") to purchase shares of the
Corporation's common stock.
B. The option granted to Optionee is intended to be an incentive
stock option subject to Section 422 of the Internal Revenue Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set forth
in this Agreement and the Plan, the Corporation hereby grants to Optionee, as of
the Grant Date, an incentive stock option to purchase up to - shares of the
Corporation's COMMON stock ("Optioned Shares") from time to time during the
option term at the option price of per share.
2. OPTION TERM. This option has a maximum term of five years
measured from the Grant Date and will accordingly expire at the close of
business on ("Expiration Date"), unless sooner terminated in accordance with the
provisions of the Plan.
3. OPTION NONTRANSFERABLE. This option is not transferable Optionee
other than by will or by the laws of descent and distribution; during the
lifetime of Optionee, this option is exercisable only by Optionee.
4. DOLLAR LIMITATION. Notwithstanding any other provisions of the
Plan or this Agreement and solely to the extent required by Section 422 of [lie
Internal Revenue Code, file aggregate fair market value (determined at the time
the option is granted) of the shares with respect to which incentive stock
options granted to Optionee are exercisable for the first time by Optionee
during any one calendar year (under the Plan or any other stock option plan of
the Corporation, a parent or subsidiary corporation, or predecessor thereof)
shall not exceed $100,000 or such greater amounts as may be permitted under
Section 422 of the Internal Revenue Code.
5. DATES OF EXERCISE. Optionee may, within the specified term of
this option and pursuant to the provisions of this Agreement, purchase the
Optioned Shares as follows: One thirty-sixth of the Option Shares at any time
after one month from the Grant Date, and an additional One thirty-sixth of the
Option Shares each month thereafter. Exercisable installments may be exercised
in whole or in part, and, to the extent not exercised, will accumulate and be
exercisable at any time on or before the Expiration Date or sooner termination
of the option term. In no event,
<PAGE>
however, will this option be exercisable for any fractional shares.
6. TERMINATION OF EMPLOYMENT.
(a) Should Optionee cease to be an employee of the Corporation
or one of its subsidiaries (other than by reason of death, permanent disability
or termination for cause), this option will, solely to the extent that it is
exercisable immediately prior to such cessation of employee status, remain
exercisable during the three-month period following the date of such cessation
of employee status; provided, however, in no event will this option be
exercisable at any time after the Expiration Date.
(b) Should Optionee become permanently disabled and cease by
reason thereof to be an employee of the Corporation or one of its subsidiaries,
this option will, solely to the extent that it is exercisable immediately prior
to such cessation of employee status, remain exercisable during the one-year
period following the date of such cessation of employee status; provided,
however, in no event will this option be exercisable at any time after the
Expiration Date. Optionee will be deemed to be permanently disabled if Optionee
is, by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of not less than one
year, unable to engage in any substantial gainful employment.
(c) Should Optionee die while still an employee of the
Corporation or one of its subsidiaries (or during the three-month period
referred to in subparagraph (a) or during the one-year period referred to in
subparagraph(b), the executors or administrators of Optionee's estate or
Optionee's heirs or legatees (as the case may be) will have the right to this
option, solely to the extent that it is exercisable immediately prior to the
Optionee's death, during the one-year period following the date of Optionee's
death; provided, however, in no event will this option be exercisable at any
time after the Expiration Date.
(d) Should Optionee's employment be terminated for cause
(including, but not limited to, any act of dishonesty, unethical conduct,
willful misconduct, fraud or embezzlement, or any unauthorized disclosure of
confidential information or trade secrets), this option will immediately
terminate and cease to be exercisable when notice of termination of employment
is given.
7. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option will
have none of the rights of a shareholder with respect to the Optioned Shares
until such individual has exercised the option and has been issued a stock
certificate for the Optioned Shares.
8. MANNER OF EXERCISING OPTION. In order to exercise this option
with respect to all or any part of the Optioned Shares for which this option is
at the time exercisable, Optionee (or in the case of exercise after Optionee's
death, Optionee's executor, administrator, heir or legatee, as the case may be)
must take the following actions:
(i) Provide the Corporation's director of personnel with
written notice of such exercise in accordance with paragraph 14,
specifying the number of Optioned
2
<PAGE>
Shares with respect to which the option is being exercised;
(ii) Pay the aggregate option price for the purchased shares
in one or more of the following alternative forms: (A) full payment,
in cash or by check payable to the Corporation's order, in the amount
of the option price for the Optioned Shares being purchased; (B) full
payment in shares of common stock of the Corporation having a fair
market value on the day of exercise (as determined under the terms of
the Plan) equal to the option price for the Optioned Shares being
purchased, or (C) a combination of shares of common stock of the
Corporation valued at fair market value on the day of exercise (as
determined under the terms of the Plan) and cash or check payable to
the Corporation's order, equal in the aggregate to the option price
for the Optioned Shares being purchased; and
(iii) Furnish the Corporation with appropriate documentation
that the person or persons exercising the option, if other than
Optionee, have the right to exercise this option.
9. WITHHOLDING. Stock certificates for purchased shares will not be
issued until the option holder has made appropriate arrangements with the
Corporation for the satisfaction of all applicable federal, state and local
income and employment tax withholding requirements.
10. EFFECT OF CERTAIN CORPORATE TRANSACTIONS.
(a) In the event of one or more of the following transactions
("Corporate Transaction"):
(i) a merger or acquisition in which the Corporation is not
the surviving entity, except for a transaction the principal purpose
of which is to change the State of the Corporation's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation; or
(iii) any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Corporation's
outstanding voting stock is transferred to different holders in a
single transaction or a series of related transactions, then all
options at the time outstanding under the Plan and not then otherwise
fully exercisable shall, during the five (5) business day period
immediately prior to the specified effective date for the Corporate
Transaction, become fully exercisable for up to the total number of
shares of Common Stock purchasable under such option and may be
exercised for all or any portion of the shares for which the option is
so accelerated; provided, however, that the acceleration of this
option will be subject to Section 4 hereof and the limitations of
Section 6(b) of "the Plan; and provided further, that if the grant,
exercisability, or exercise of an option (or any portion of an option)
is determined by counsel to the Corporation to be a payment
3
<PAGE>
which, when added to other payments to which Optionee is or becomes
entitled, would result in a substantial risk of any loss of any
federal income tax deduction by the Corporation or the imposition of
an excise tax on Optionee under Section 280G or Section 4999,
respectively, of the Internal Revenue Code, or any successor provision
thereto, then Optionee's rights shall be limited to the extent
necessary to preclude the loss of any such deduction or imposition of
any such excise tax, and the Corporation shall be relieved of any
liability in such event.
In no event shall any such acceleration of the exercise dates occur if
the terms of the agreement of-any Corporate Transaction require as a condition
to consummation that each such outstanding option shall either be assumed by the
successor corporation or affiliate thereof or be replaced with a comparable
option to purchase shares of capital stock of the successor corporation or
affiliate thereof. The determination of such comparability shall be made by the
Administrator, and its determination shall be final, binding and conclusive.
Upon consummation of the Corporate Transaction, all outstanding options under
the Plan shall, to the extent not previously exercised or assumed by the
successor corporation or its parent company, terminate and cease to be
exercisable.
(b) The grant of options under the Plan shall not affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned
Shares upon such exercise is subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which shares of the
Corporation's common stock may be listed at the time of such exercise and
issuance.
(b) In connection with the exercise of this option, Optionee
will execute and deliver to the Corporation such representations in writing as
may be requested by the Corporation so that it may comply with the applicable
requirements of federal and state securities laws.
12. LIABILITY OF CORPORATION.
(a) If the Optioned Shares exceed, as of the Grant Date, the
number of shares that may without shareholder approval be issued under the Plan,
then this option will be void with respect to such excess shares unless
shareholder approval of an amendment sufficiently increasing the number of
shares issuable under the Plan is obtained in accordance with the provisions of
the Plan.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any common stock pursuant to this option will
relieve the Corporation of any liability with respect
4
<PAGE>
to the non-issuance or sale of the common stock as to which such approval is not
obtained.
13. NO EMPLOYMENT CONTRACT. Nothing in this Agreement or in the Plan
confers upon Optionee any right to continue in the employ of the Corporation (or
any subsidiary) or interferes with or restricts in any way the rights of the
Corporation (or any subsidiary), which are hereby expressly reserved, to
discharge Optionee at any time for any reason or no reason, with or without
cause. Except to the extent the terms of any employment contract between the
Corporation (or any subsidiary) and Optionee may expressly provide otherwise,
neither the Corporation nor any of its subsidiaries is under any obligation to
continue the employment of Optionee for any period of specific duration.
14. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement will be in writing and addressed
to the Corporation in care of its Secretary at its corporate offices in San
Diego, California. Any notice required to be given or delivered to Optionee
will be in writing and addressed to Optionee at the address indicated below
Optionee's signature line on this Agreement. All notices will be deemed to have
been given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to tile Plan and are in all respects limited by and
subject to tile express terms and provisions of the Plan. All decisions of the
Plan's administrator with respect to any question or issue arising under the
Plan or this Agreement will be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING LAW. The interpretation, performance, and enforcement
of this Agreement will be governed by the laws of the State of California, as
applied without regard to the principles of conflicts of law.
17. POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee
his or her true and lawful attorney in fact for him or her and in his or her
name, place and stead, and for his or her use and benefit, to agree to any
amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Optionee's spouse further gives and
grants unto Optionee as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercised any of
the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby ratifying and
confirming all that Optionee shall lawfully do and cause to be done by virtue of
this power of attorney.
5
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed in duplicate on its behalf by its duly authorized officer and Optionee
has also executed this Agreement in duplicate, all as of the day and year
indicated above.
OPTIONEE: UNIFET, INCORPORATED,
A CALIFORNIA CORPORATION:
Signed: By:
----------------------- ------------------------------------
Address: Title:
----------------------- ------------------------------------
-----------------------
SS#:
-----------------------
OPTIONEE SPOUSE:
Signed:
-----------------------
6
<PAGE>
STOCK OPTION AGREEMENT
(Non-Qualified)
THIS AGREEMENT is made as of the __day of __________, 19__ ("Grant Date")
by and between Unifet, Incorporated, a California corporation ("Corporation"),
and _________________________ ("Optionee").
WITNESSETH:
RECITALS
A. Optionee has been granted an option to purchase shares of the
Corporation's common stock outside of the Unifet, Incorporated 1991 Stock Option
Plan ("Plan"); and
B. The option granted to Optionee is intended not to be an incentive
stock option subject to Section 422A of the Internal Revenue Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set forth in
this Agreement and the Plan, the Corporation hereby grants to Optionee, as of
the Grant Date, a non-qualified option to purchase ____________________ shares
of the Corporation's common stock ("Optioned Shares") from time to time during
the option term at the option price of $________ per share.
2. OPTION TERM. This option has a maximum term of ten years measured
from the Grant Date and will accordingly expire at the close of business on
________________________, _________ ("Expiration Date"), unless sooner
terminated in accordance with the provisions of the Plan.
3. OPTION NONTRANSFERABLE. This option is not transferable or assignable
by optionee other than by will or by the laws of descent and distribution;
during the lifetime of Optionee, this option is exercisable only by optionee.
4. DATE OF EXERCISE. Optionee may, within the specified term of this
option and pursuant to the provisions of this Agreement, purchase the Optioned
Shares as follows: One fifth of the Option Shares at any time after one year
from the Grant Date, and an additional One fifth of the Option Shares each year
thereafter. Exercisable installments may be exercised in whole or in part, and,
to the extent not exercised, will accumulate and be exercisable at any time on
or before die Expiration Date or sooner termination of the option term. In no
event however, will this option be exercisable for any fractional shares.
5. TERMINATION OF DIRECTORSHIP.
(a) Should Optionee cease to be an Advisor, Director or Consultant of
the Corporation or one of its subsidiaries (other than by reason of death,
permanent disability or termination for cause), this option will, solely to the
extent that it is exercisable immediately prior to such termination, remain
exercisable during the three month period following the date of such
<PAGE>
termination; provided, however, in, no event will this option he exercisable at
any tine after the Expiration Date.
(b) Should Optionee become permanently disabled and cease by reason
thereof to be an Advisor, Director or Consultant of the Corporation or one of
its subsidiaries, this option will, solely to the extent that it is-exercisable
immediately prior to such termination, remain exercisable during the one-year
period following the date of such termination; provided, however, in no event
will this option be exercisable at any time after the Expiration Date. Optionee
will be deemed to be permanently disabled if Optionee is, by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of not less than one year, unable to engage in
any substantial gainful employment.
(c) Should Optionee die while still an Advisor, Director or
Consultant of the Corporation or one of its subsidiaries (or during the three-
month period referred to in subparagraph (a) or during the one-year period
referred to in subparagraph (b)), the executors or administrators of Optionee's
estate or Optionee's heirs or legatees (as the case may be) will have the right
to exercise this option, solely to the extent that it is exercisable immediately
prior to the Optionee's death, during (lie one-year period following the date of
Optionee's death; provided, however, in no event will this option be exercisable
at any time after the Expiration Date.
(d) Should Optionee be removed as an Advisor, Director or Consultant
for cause (including, but not limited to, any act of dishonesty, unethical
conduct willful misconduct fraud or embezzlement, or any unauthorized disclosure
of confidential information or trade secrets), this option will immediately
terminate and cease to be exercisable when notice of removal is given.
6. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option will have
none of the rights of a shareholder with respect to the Optioned Shares until
such individual has exercised the option and has been issued a stock certificate
for the Optioned Shares.
7. MANNER OF EXERCISING OPTION. In order to exercise this option with
respect to all or any part of the Optioned Shares for which this option is at
the time exercisable, Optionee (or in the case of exercise after Optionee's
death, Optionee's executor, administrator, heir or legatee, as the case may be)
must take the following actions:
(i) Provide the Corporation with written notice of such exercise in
accordance with paragraph 13, specifying the number of Optioned Shares with
respect to which the option is being exercised;
(ii) Pay the aggregate option price for the purchased shares in one
or more of the following alternative forms: (A) full payment, in cash or by
check payable to the Corporation's order, in the amount of the option price
for the Optioned Shares being purchased; (B) full payment IN shares of
common stock of the Corporation having a fair market value on the day of
exercise (as determined under the terms of the Plan) equal to the option
price for the Optioned Shares being purchased; or (C) a combination of
shares of common stock of the Corporation valued at fair market value on
the day of exercise (as determined under the terms of the Plan) and cash or
check payable to the Corporation's order, equal in the aggregate to the
option price for the Optioned Shares being purchased;
<PAGE>
and
(iii) Furnish the Corporation with appropriate documentation that the
person or persons exercising the option, if other than Optionee, have the
right to exercise this option.
8. WITHHOLDING. Stock certificates for purchased shares will not be
issued until the option holder has made appropriate arrangements with the
Corporation for the satisfaction of all applicable federal, state and local
income and employment tax withholding requirements.
9. EFFECT OF CERTAIN CORPORATE TRANSACTIONS. In the event of one or more
of the following transactions ("Corporate Transaction"):
(a) a merger or acquisition in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Corporation's incorporation;
(b) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation; or
(c) any other corporate reorganization or business combination in
which fifty percent (50%) or more of the Corporation's outstanding voting
stock is transferred to different holders in a single transaction or a series of
related transactions, then all of the Optioned Shares at the time outstanding
and not then otherwise fully exercisable shall, during the five (5) business day
period immediately prior to the specified effective date for the Corporate
Transaction, become fully exercisable for up to the total number of shares of
Common Stock purchasable under this option and may be exercised for all or any
portion of the shares for which the option is so accelerated.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned Shares
upon such exercise is subject to compliance by the Corporation and Optionee with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Corporation's common
stock may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee will
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation so that it may comply with the applicable
requirements of federal and state securities laws.
11. LIABILITY OF CORPORATION. The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any common stock pursuant to
this option will relieve the Corporation of any liability with respect to the
non-issuance or sale of the common stock as to which such approval is not
obtained.
12. NO CONSULTING SERVICES AGREEMENT. Nothing in this Agreement or in the
Plan confers upon Optionee any right to the continuation of any consulting
services arrangement between Optionee and the Corporation (or any subsidiary) or
interferes with or restricts in any way the rights
<PAGE>
of the Corporation (or any subsidiary), which are hereby expressly reserved, to
terminate any such arrangement at any time for any reason or no reason, with or
without cause. Except to the extent the terms of any consulting services
agreement between the Corporation (or any subsidiary) and Optionee may expressly
provide otherwise, neither the Corporation nor any of its subsidiaries is under
any obligation to continue any consulting services arrangement with Optionee for
any period of specific duration.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement will be in writing and addressed
to the Corporation in care of its Secretary at its corporate offices in San
Diego, California. Any notice required to be given or delivered to Optionee
will be in writing and addressed to Optionee at tile address indicated below
Optionee's signature line on this Agreement. All notices will be deemed to have
been given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
14. CONSTRUCTION. This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the express terms and provisions of the Plan. All decisions of the Plan's
administrator with respect to any question or issue arising under the Plan or
this Agreement will be conclusive and binding on all persons having an interest
in this option.
15. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement will be governed by the laws of the State of California.
16. POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee his or
her true and lawful attorney in fact for him or her and in his or her name,
place and stead, and for his or her use and benefit, to agree to any amendment
or modification of this Agreement and to execute such further instruments and
take such further actions as may reasonably be necessary to carry out the intent
of this Agreement. Optionee's spouse further gives and grants unto Optionee as
his or her attorney in fact full power and authority to do and perform every act
necessary and proper to be done in the exercise of any of the foregoing powers
as fully as he or she might or could do if personally present with full power of
substitution and revocation, hereby ratifying and confirming all that Optionee
shall lawfully do and cause to be done by virtue of this power of attorney. As
evidence of the foregoing, Optionee's spouse agrees to execute the Consent of
Spouse attached hereto as Exhibit "A".
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed in duplicate on its behalf by its duly authorized officer and Optionee
has also executed this Agreement in duplicate, all as of the day and year
indicated above.
OPTIONEE: UNIFET, INCORPORATED,
A CALIFORNIA CORPORATION:
Signed: By:
----------------------- ------------------------------------
Address: Title:
----------------------- ------------------------------------
-----------------------
SS#:
-----------------------
OPTIONEE SPOUSE:
Signed:
-----------------------
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of January 1, 1996,
between SenDx Medical, Inc., a California corporation ("Company"), and Doug
Hillier ("President and Chief Executive Officer"). In consideration of the
mutual covenants and agreements set forth herein, the parties hereto agree as
follows:
ARTICLE I
1. EMPLOYMENT
The company hereby employs Executive, and Executive accepts employment with
the Company upon the terms and conditions herein set forth.
1.1 EMPLOYMENT. The Company hereby employs Executive, and Executive
agrees to serve as the Company's President and Chief Executive officer during
the term of this Agreement, and as such shall assume, subject to the powers of
the Company's Board of Directors, general and active supervision and management
over the business of the Company and over its several officers, assistants,
agents and employees. Executive agrees to devote substantially his full
business time and attention and best efforts to the affairs of the Company
during the term of this Agreement.
1.2 TERM. The employment of Executive by the Company under the terms
and conditions of this Agreement will commence on the date hereof and will
continue for a period of two (2) years unless renewed or terminated sooner in
accordance with the provisions hereof.
1.3 SERVICE DATE. Executive shall be reinstated for seniority
purposes to his original hire date by the predecessor company, PPG Industries,
Inc., such date being June 6, 1988.
ARTICLE 11
2. COMPENSATION
2.1 ANNUAL SALARY. During the employment of Executive, the Company
shall pay to Executive a base salary at the annual rate of at least $175,000
(the "Base Salary"), payable on the Company's regular payroll dates. Salary may
be reviewed annually, at the discretion of the Board of Directors.
2.2 INCENTIVE COMPENSATION. In addition to Executive's Base Salary,
Executive shall be entitled to receive additional incentive compensation (the
"Incentive Compensation"), up to a maximum amount of $30,000 for calendar year
1995 and $80,000 for calendar year 1996, based on the achievement of certain
incentive goals established by
1/96 Hillier Final Agreement Page
<PAGE>
the Board of Directors of the Company for such calendar years as set forth on
Exhibit A.
The NON FINANCIAL incentive goals and financial incentive goals Incentive
Compensation earned by Executive during a year, if any, shall be payable to
Executive within thirty (30) and ninety (90) days, respectively, following the
end of such year.
2.3 STOCK OPTIONS. Upon the execution of this Agreement, Executive
shall be granted incentive stock options to purchase 150,000 shares (the
"Options") of the Company's Common Stock pursuant to the terms of the Company's
Stock Option Plan and Executive shall enter into the Company's standard form
Stock Option Agreement with respect thereto (the "Option Agreement"). The
Options shall be exercisable at $0.50 per share, the fair market value of the
Company's Common Stock on the date hereof, shall vest 20% a year beginning on
the first anniversary of the date of grant and each anniversary thereafter, and
shall have a maximum term of ten (10) years. Upon the successful completion of
an initial public offering of the Company's Common Stock (the "IPO") during the
term of Executive's employment with the Company, provided that the total
valuation of the Company at the time of the IPO is at least $100 million
dollars, the first 50,000 of the Options scheduled to vest, to the extent not
yet vested, shall immediately become exercisable with 50,000 of the remaining
Options similarly accelerating and vesting 25,000 on the first anniversary of
the IPO and 25,000 on the second anniversary of the IPO. The last 50,000
Options scheduled to vest accelerate and become vested upon the Company
achieving two (2) consecutive quarters of profitability.
2.4 REIMBURSEMENT OF EXPENSES. Executive shall be entitled to
receive prompt reimbursement of all reasonable and necessary expenses incurred
by Executive in performing services hereunder, (including, but not limited to,
use of a car phone) provided that such expenses are incurred and accounted for
in accordance with the policies and procedures established by the Company.
2.5 BENEFITS. Executive shall be entitled to participate in and be
covered by health, insurance, pension and other employee plans and benefits
currently established for the employers of the Company (collectively referred to
as the "Company Benefit Plans") on the same terms as other employees of the
Company, subject to meeting applicable eligibility requirements.
2.6 VACATIONS AND HOLIDAYS. During Executive's employment with the
Company, Executive shall be entitled to an annual vacation leave of two (2)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
2.7 CAR ALLOWANCE. Executive shall be reimbursed for reasonable car
lease expenses, such reimbursement to be made on a monthly basis and shall not
exceed $500.00.
1/96 Hillier Final Agreement Page
<PAGE>
ARTICLE III
3. TERMINATION
3.1 For purposes of this Article III, the following definitions
shall apply to the terms set forth below:
(a) CAUSE. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as a
refusal to execute or carry out directions from his supervisor) where
Executive has been given written notice of the acts or omissions
constituting such neglect or insubordination and Executive has failed to
cure such conduct, where susceptible to cure, within thirty (30) days
following notice;
(ii) conviction of any felony or any crime
involving moral turpitude;
(iii) participation in any proven fraud against the
Company;
(iv) willful and material breach of Executive's duties to
the Company, including but not limited to theft from the Company, failure to
fully disclose personal pecuniary interest in a transaction involving the
Company, violation of the Company's authority limits on commitments,
trading, controls and notification;
(v) intentional material damage to any property of the
Company;
(vi) conduct by Executive which in the good faith,
reasonable determination of the Board demonstrates gross unfitness to serve,
including but not limited to gross neglect, non-prescription use of
controlled substances, any abuse of controlled substances whether or not by
prescription, or habitual drunkenness, intoxication, or other impaired state
induced by consumption of any drug, including alcohol; or
(vii) material breach by the Executive of any agreement
with the Company concerning non-competition or the confidentiality of trade
secrets or proprietary or other information.
(b) DISABILITY. "Disability" shall mean a physical or mental
incapacity as a result of which Executive becomes unable to continue the proper
performance of his duties hereunder (reasonable absences because of sickness for
up to two (2) consecutive months excepted; provided, however, that any new
period of incapacity or
1/96 Hillier Final Agreement Page
<PAGE>
absences shall be deemed to be part of a prior period of incapacity or absences
if the prior period terminated within ninety (90) days of the beginning of the
new period of incapacity or absence and the incapacity or absence is determined
by the Company's Board of Directors, in good faith, to be related to the prior
incapacity or absence.) A determination of Disability shall be subject to the
certification of a qualified medical doctor agreed to by the Company and
Executive or, in the event of Executive's incapacity to designate a doctor,
Executive's legal representative. In the absence of agreement between the
Company and Executive, each party shall nominate a qualified medical doctor and
the two (2) doctors so nominated shall select a third doctor, who shall make the
determination as to Disability.
(c) CHANGE IN CONTROL . "Change in Control" shall mean the occurrence
of one or more of the following events:
(i) any corporation, partnership, person, other entity or group
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) (collectively, a "Person"), after the IPO acquires shares of
capital stock of the Company representing more than thirty percent (30%) of
the total number of shares of capital stock that may be voted for the
election directors of the Company;
(ii) a merger, consolidation or other business combination of the
Company with or into another Person is consummated, or all or substantially
all of the assets of the Company are acquired by another Person, as a result
of which the stockholders of the Company immediately prior to the
consummation of such transaction own, immediately after consummation of such
transaction, equity securities possessing less than seventy percent (70%) of
the voting power of the surviving or acquiring Person (or any Person in
control of the surviving or acquiring Person), the equity securities of
which are issued or transferred in such transaction;
(iii) as the result of or in connection with any tender or
exchange offer, any contested election of directors or any combination
thereof, the persons who were directors of the Company immediately before
such tender or exchange offer, contested election or combination thereof
cease to constitute a majority of the Board of Directors of the Company or
any successor to the Company;
(iv) the stockholders of the Company approve a plan of
complete liquidation, dissolution or winding up of the Company or an
agreement for the sale or other disposition of all, or substantially all of
the assets of the Company; or
(v) the adoption of a resolution by the affirmative vote, of not
less than two-thirds of the members of the Board of Directors who are
members immediately prior to any Change in Control, which resolution shall
state that, in the good faith determination of the Board of Directors, a
Change in Control of the Company has occurred.
1/96 Hillier Final Agreement Page
<PAGE>
Notwithstanding anything to the contrary set forth in this definition,
if a transaction that would otherwise create or result in a Change in
Control of the Company is approved by the affirmative vote of not less than
two-thirds of the members of the Board of Directors of the Company, who are
members of the Board of Directors immediately prior to any Change in
Control, then no Change in Control of the Company shall be deemed to have
occurred for the purposes of this Agreement.
3.2 TERMINATION BY COMPANY. The Company may terminate Executive's
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be the
date of notice of termination if for Cause and thirty (30) days subsequent to
written notice of termination for any reason other than Cause; however, the
Company may elect to have Executive leave the Company immediately.
3.3 TERMINATION BY EXECUTIVE. Executive may terminate this Agreement
upon thirty (30) days' written notice to the Company. The effective date of
termination ("Effective Date") shall be considered to be thirty (30) days
subsequent to written notice of termination; however, the Company may elect to
have Executive leave the Company immediately.
3.4 DEATH OR DISABILITY OF EXECUTIVE. This Agreement shall terminate
immediately upon the death or Disability of Executive (the "Effective Date").
3.5 SEVERANCE BENEFITS RECEIVED UPON TERMINATION.
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement, then the Company shall pay
Executive his Base Salary through the Effective Date of such termination plus
credit for any vacation earned but not taken and the Company shall thereafter
have no further obligations to Executive under this Agreement.
(b) Except as otherwise provided in Section 3.5(c) below, if
Executive's employment is terminated by the Company without Cause, then the
Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period of five (5) months, commencing on the
Effective Date, said sum to be paid in equal installments at the times
salary payments are usually made by the Company; and
(ii) health insurance coverage as then in effect for
Executive, his spouse and dependent children for a period of five (5)
months, subject to any employee contribution provisions as defined in the
Company Benefit Plans.
1/96 Hillier Final Agreement Page
<PAGE>
Subsequent health insurance benefits will be in accordance with COBRA.
(c) If within eighteen (18) months of a Change in Control
Executive's employment is terminated by the Company without Cause, then the
Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period of five (5) months commencing on the Effective
Date, said sum to be paid in equal installments at the times salary payments
are usually made by the Company; and
(ii) health insurance coverage as then in effect for
Executive, his spouse and dependent children for a period of five (5)
months, subject to any employee contribution provisions as defined in the
Company Benefit Plans. Subsequent health insurance benefits will be in
accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period of five (5) months, commencing on the
Effective Date, said sum to be paid in equal installments at the times
salary payments are usually made by the Company; and
(ii) health insurance coverage as then in effect for
Executive his spouse and dependent children for a period of two (2) months,
subject to any employee contribution provisions as defined in the Company
Benefit Plans. Subsequent health insurance benefits will be in accordance
with COBRA.
(e) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide, Executive's spouse or estate
health insurance coverage as then in effect for Executive, his spouse and
dependent children for a period of five (5) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans. Health
insurance benefits subsequent to the salary continuation period will be in
accordance with COBRA.
ARTICLE IV
4. GENERAL PROVISIONS
4.1 NOTICE. For purposes of this Agreement, notices and all other
communication provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
1/96 Hillier Final Agreement Page
<PAGE>
If to the Company: SenDx Medical, Inc.
1945 Palomar Oaks Way
Carlsbad, CA 92009
Attn: Chief Financial Officer
If to Executive: Doug Hillier
30582 Marbella Vista
San Juan Capistrano, CA 92675
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
4.2 PROPRIETARY INFORMATION AND INVENTIONS. Contemporaneously with
the execution of the Agreement, Employee shall execute a Proprietary Information
and Inventions Agreement in the form attached as Exhibit B hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Employee
agrees to be bound thereby.
4.3 NO WAIVERS. No provision of the Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
4.4. BENEFICIAL INTERESTS. This Agreement shall inure to the benefit
of and be enforceable by Executive's personal and legal representative,
executors, administrators, successors, heirs, distributees, devises and
legatees. If Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
4.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
4.6 SEVERABILITY OR PARTIAL INVALIDITY. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
4.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
1/96 Hillier Final Agreement Page
<PAGE>
4.8 LEGAL FEES AND EXPENSES. Should any party institute any action
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including attorneys' fees, incurred by the prevailing party in
connection with such action or proceeding.
4.9 ENTIRE AGREEMENT. This Agreement, along with the Proprietary
Information and Inventions Agreement by and between Executive and Company of
even date herewith (the "Proprietary Information Agreement"), constitutes the
entire agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement, along with
the Proprietary information Agreement, is intended by the parties as the final
expression of their agreement with respect to such terms as are included herein
and therein and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement,
along with the Proprietary Information Agreement, constitutes the complete and
exclusive statement of their terms and that no extrinsic evidence may be
introduced in any judicial proceeding involving such agreements.
4.10 ASSIGNMENT. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 4.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
4.11 ARBITRATION. Any controversy, dispute, claim or other matter in
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by mediation with the American Arbitration Association
("AAA"), then if unsuccessful, mediation with the Commercial Arbitration Rules.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof, subject to the following terms, conditions and
expectations:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 4.8 hereof, the costs
1/96 Hillier Final Agreement Page
<PAGE>
and fees of the arbitration shall be allocated by the arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
SenDx Medical, Inc., a California corporation
By:
-----------------------------------
Its:
-----------------------------------
"Executive"
/S/ DOUGLAS HILLIER
---------------------------------
Douglas Hillier
1/96 Hillier Final Agreement Page
<PAGE>
EXHIBIT A
---------
INCENTIVE COMPENSATION CALENDAR 1995
------------------------------------
In any event, the Board has the right to extend incentive goals into the
following year.
The incentive compensation goals and maximum amount of Incentive
Compensation Executive may earn for the achievement of such goals, subject to
the $30,000 limitation set forth in Section 2.2, for the 1995 calendar year are
set forth below:
MAXIMUM INCENTIVE
INCENTIVE GOALS COMPENSATION
- -----------------------------------------------------------------------------
Submissions of 510K for the StatPal III on or before $ 5,000
September 30, 1995.
FDA 510K approval of the StatPal III, to be carried into $ 5,000
first two months of 1996 if applicable.
Successful completion of an initial public offering of the $ 5,000
Company's Common Stock, to be carried over into the first two
months of 1996 if applicable.
Discretionary amount based on the overall performance of the $15,000
Executive, including the successful moving of the Company's
facilities and a strong operation plan for 1996, as determined in the
sole discretion of the Company's Board of Directors.
CALENDAR 1996
-------------
The incentive compensation goals and maximum amount of Incentive
Compensation Executive may earn for the achievement of such goals, subject to
the $80,000 limitation set forth in Section 2.2, for the 1996 calendar year
shall be defined and agreed upon prior to December 31, 1995.
1/96 Hillier Final Agreement Page
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of January 1, 1996,
between SenDx Medical Incorporated, a California corporation ("Company"), and
George Pache ("Vice President, Finance and Administration, Chief Financial
Officer" or "Employee"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
1. EMPLOYMENT
The company hereby employs Employee, and Employee accepts employment with
the Company upon the terms and conditions herein set forth.
1.1 EMPLOYMENT. The Company hereby employs Employee, and Employee
agrees to serve as the Company's Vice President, Finance and Administration,
Chief Financial Officer during the term of this Agreement, and as such shall
perform such duties as are customarily associated with his then-current title,
as required by the Company's Chief Executive Officer, or his designee. Employee
agrees to devote substantially his full business time and attention and best
efforts to the affairs of the Company during the term of this Agreement.
1.2 TERM. The employment of Employee by the Company under the terms
and conditions of this Agreement will commence on the date hereof and will
continue for a period of two (2) years unless renewed or terminated sooner in
accordance with the provisions hereof. The terms of this Agreement will be
automatically extended for an unlimited number of additional one-year terms
unless, not less than six (6) months prior to the termination of the then
current term, the Company shall deliver to Employee or Employee should deliver
to Company a written notice stating that the term will not be extended.
ARTICLE 11
2. COMPENSATION
2.1 ANNUAL SALARY. During the employment of Employee, the Company
shall pay to Employee a base salary at the annual rate of at least $125,000 (the
"Base Salary"), payable on the Company's regular payroll dates. Salary may be
reviewed in January, annually.
2.2 STOCK OPTIONS. Upon execution of this Agreement, Employee shall
be
1/96 Pache Final Agreement Page
<PAGE>
granted incentive stock options to purchase an additional 20,000 shares (the
"Options") of the Company's Common Stock pursuant to the terms of the Company's
Stock Option Plan and Employee shall enter into the Company's Stock Option
Agreement with respect thereto (the "Option Agreement"). The Options shall be
exercisable at the fair market of the Common Stock on the date of grant and have
a maximum term (10) years. A copy of the Stock Option Plan has previously been
provided to Employee.
2.3 REIMBURSEMENT OF EXPENSES. Employee shall be entitled to receive
prompt reimbursement of all reasonable and necessary expenses incurred by
Employee in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.4 BENEFITS. Employee shall be entitled to participate in and be
covered by health, insurance, pension and other employee plans and benefits
currently established for the employers of the Company (collectively referred to
as the "Company Benefit Plans") on the same terms as other employees of the
Company, subject to meeting applicable eligibility requirements.
2.5 VACATIONS AND HOLIDAYS. During Employee's employment with the
Company, Employee shall be entitled to an annual vacation leave at full pay, as
may be provided for by the Company's vacation policies applicable to senior
Employees. Employee shall be entitled to such holidays as are established by
the Company for all employees.
ARTICLE III
3. TERMINATION
3.1 For purposes of this Article III, the following definitions shall
apply to the terms set forth below:
(a) CAUSE. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined
as a refusal to execute or carry out directions from his supervisor) where
Employee has been given written notice of the acts or omissions
constituting such neglect or insubordination and Employee has failed to
cure such conduct, where susceptible to cure, within thirty (30) days
following notice;
(ii) conviction of any felony or any crime involving
moral turpitude;
(iii) participation in any fraud against the
1/96 Pache Final Agreement Page
<PAGE>
Company;
(iv) willful breach of Employee's duties to the
Company, including but not limited to theft from the Company, failure to
fully disclose personal pecuniary interest in a transaction involving the
Company, violation of the Company's authority limits on commitments,
trading, controls and notification;
(v) intentional material damage to any property of the
Company;
(vi) conduct by Employee which in the good faith,
reasonable determination of the Board demonstrates gross unfitness to
serve, including but not limited to gross neglect, non-prescription use of
controlled substances, any abuse of controlled substances whether or not by
prescription, or habitual drunkenness, intoxication, or other impaired
state induced by consumption of any drug, including alcohol; or
(vii) material breach by the Employee of any
agreement with the Company concerning non-competition or the
confidentiality of trade secrets or proprietary or other information.
(b) DISABILITY. "Disability" shall mean a physical or
mental incapacity as a result of which Employee becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to two (2) consecutive months excepted; provided, however, that
any new period of incapacity or absences shall be deemed to be part of a prior
period of incapacity or absences if the prior period terminated within ninety
(90) days of the beginning of the new period of incapacity or absence and the
incapacity or absence is determined by the Company's Board of Directors, in good
faith, to be related to the prior incapacity or absence.) A determination of
Disability shall be subject to the certification of a qualified medical doctor
agreed to by the Company and Employee or, in the event of Employee's incapacity
to designate a doctor, Employee's legal representative. In the absence of
agreement between the Company and Employee, each party shall nominate a
qualified medical doctor and the two (2) doctors so nominated shall select a
third doctor, who shall make the determination as to Disability.
3.2 TERMINATION BY COMPANY. The Company may terminate
Employee's employment hereunder immediately for Cause. Subject to the other
provisions contained in this Agreement, the Company may terminate this Agreement
for any reason other than Cause upon thirty (30) days' written notice to
Employee. The effective date of termination ("Effective Date") shall be
considered to be the date of notice of termination if for Cause and thirty (30)
days subsequent to written notice of termination for any reason other than
Cause; however, the Company may elect to have Employee leave the Company
immediately.
3.3 TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement upon thirty (30) days' written notice to the Company. The effective
date of termination
1/96 Pache Final Agreement Page
<PAGE>
("Effective Date") shall be considered to be thirty (30) days subsequent to
written notice of termination; however, the Company may elect to have Employee
leave the Company immediately.
3.4 DEATH OR DISABILITY OF EMPLOYEE. This Agreement shall
terminate immediately upon the death or Disability of Employee (the "Effective
Date").
3.5 SEVERANCE BENEFITS RECEIVED UPON TERMINATION.
(a) If Employee's employment is terminated by the Company
for Cause, or Employee terminates this Agreement, then the Company shall pay
Employee his Base Salary through the Effective Date of such termination plus
credit for any vacation earned but not taken and the Company shall thereafter
have no further obligations to Employee under this Agreement.
(b) If Employee's employment is terminated by the Company
without Cause, then the Company shall provide Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of six (6) months, commencing
on the Effective Date, said sum to be paid in equal installments at
the times salary payments are usually made by the Company;
(ii) insurance coverage (excluding automobile
insurance, if any) as then in effect for Employee, his spouse and
dependent children for a period of six (6) months, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent insurance benefits will be in accordance with
COBRA; and
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms
within six (6) months following the Effective Date shall
accelerate and become exerciseable on the Effective Date and for a
period of three (3) months thereafter.
(c) If Employee's employment is terminated by the Company
as a result of Disability, then the Company shall provide Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of six (6) months, commencing
on the Effective Date, said sum to be paid in equal installments at
the times salary payments are usually made by the Company; and
(ii) insurance coverage as then in effect for Employee
his spouse and dependent children for a period of six (6) months,
subject to any employee
1/96 Pache Final Agreement Page
<PAGE>
contribution provisions as defined in the Company Benefit Plans.
Subsequent insurance benefits will be in accordance with COBRA; and
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms
within six (6) months following the Effective Date shall
accelerate and become exerciseable on the Effective Date and for a
period of three (3) months thereafter.
(d) If Employee's employment is terminated by the Company
as a result of death, then the Company shall provide, Employee's spouse or
estate insurance coverage as then in effect for Employee, his spouse and
dependent children for a period of six (6) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans. Insurance
benefits subsequent to the salary continuation period will be in accordance with
COBRA.
(i) any options which have not vested on the Effective
Date and would otherwise vest according to their terms within six (6)
months following the Effective Date shall accelerate and become
exerciseable on the Effective Date and for a period of three (3)
months thereafter.
ARTICLE IV
4. GENERAL PROVISIONS
4.1 NOTICE. For purposes of this Agreement, notices and all other
communication provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: SenDx Medical Incorporated
1945 Palomar Oaks Way
Carlsbad, CA 92009
Attn: President and Chief Executive Officer
If to Employee: George Pache
3622 Brookside Lane
Encinitas, CA 92024
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
4.2 PROPRIETARY INFORMATION AND INVENTIONS. Contemporaneously with
the
1/96 Pache Final Agreement Page
<PAGE>
execution of the Agreement, Employee shall execute a Proprietary Information and
Inventions Agreement in the form attached as Exhibit A hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Employee
agrees to be bound thereby.
4.3 NO WAIVERS. No provision of the Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Employee and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
4.4. BENEFICIAL INTERESTS. This Agreement shall inure to the benefit
of and be enforceable by Employee's personal and legal representative,
executors, administrators, successors, heirs, distributees, devises and
legatees. If Employee should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee, or
other designee or, if there be no such designee, to Employee's estate.
4.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
4.6 SEVERABILITY OR PARTIAL INVALIDITY. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
4.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
4.8 LEGAL FEES AND EXPENSES. Should any party institute any action
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including attorneys' fees, incurred by the prevailing party in
connection with such action or proceeding.
4.9 ENTIRE AGREEMENT. This Agreement, along with the Proprietary
Information and Inventions Agreement by and between Employee and Company of even
date herewith (the "Proprietary Information Agreement"), constitutes the entire
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement, along with
the Proprietary information Agreement, is intended by the parties as the final
expression of their agreement with respect to such terms as are
1/96 Pache Final Agreement Page
<PAGE>
included herein and therein and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement,
along with the Proprietary Information Agreement, constitutes the complete and
exclusive statement of their terms and that no extrinsic evidence may be
introduced in any judicial proceeding involving such agreements.
4.10. ASSIGNMENT. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 4.10, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
4.11. ARBITRATION. Any controversy, dispute, claim or other matter
in question arising out of or relating to this Agreement shall be settled, at
the request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and expectations:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 4.8 hereof, the
costs and fees of the arbitration shall be allocated by the arbitrators.
1/96 Pache Final Agreement Page
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
SenDx Medical, Inc., a California corporation
By: /s/ D. HILLIER
----------------------------------------
Its: Chief Executive Officer, Doug Hillier
---------------------------------------
"Employee"
/s/ GEORGE PACHE
-------------------------------------
George Pache
1/96 Pache Final Agreement Page
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of January 1, 1996,
between SenDx Medical Incorporated, a California corporation ("Company"), and
Michael Mercer ("Vice President, Sales and Marketing" or "Employee"). In
consideration of the mutual covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
1. EMPLOYMENT
The company hereby employs Employee, and Employee accepts employment with
the Company upon the terms and conditions herein set forth.
1.1 EMPLOYMENT. The Company hereby employs Employee, and
Employee agrees to serve as the Company's Vice President, Sales and Marketing
during the term of this Agreement, and as such shall perform such duties as
are customarily associated with his then-current title, as required by the
Company's Chief Executive Officer, or his designee. Employee agrees to
devote substantially his full business time and attention and best efforts to
the affairs of the Company during the term of this Agreement.
1.2 TERM. The employment of Employee by the Company under the
terms and conditions of this Agreement will commence on the date hereof and will
continue for a period of two (2) years unless renewed or terminated sooner in
accordance with the provisions hereof. The terms of this Agreement will be
automatically extended for an unlimited number of additional one-year terms
unless, not less than five (5) months prior to the termination of the then
current term, the Company shall deliver to Employee or Employee should deliver
to Company a written notice stating that the term will not be extended.
ARTICLE 11
2. COMPENSATION
2.1 ANNUAL SALARY. During the employment of Employee, the
Company shall pay to Employee a base salary at the annual rate of at least
$105,000 (the "Base Salary"), payable on the Company's regular payroll dates.
Salary may be reviewed in January, annually.
2.2 STOCK OPTIONS. Upon execution of this Agreement, Employee
shall be granted incentive stock options to purchase an additional 20,000 shares
(the "Options") of the Company's Common Stock pursuant to the terms of the
Company's Stock Option Plan
1/96 Mercer Final Agreement Page
<PAGE>
and Employee shall enter into the Company's Stock Option Agreement with respect
thereto (the "Option Agreement"). The Options shall be exercisable at the fair
market of the Common Stock on the date of grant and have a maximum term (10)
years. A copy of the Stock Option Plan has previously been provided to
Employee.
2.3 REIMBURSEMENT OF EXPENSES. Employee shall be entitled to
receive prompt reimbursement of all reasonable and necessary expenses incurred
by Employee in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.4 BENEFITS. Employee shall be entitled to participate in and
be covered by health, insurance, pension and other employee plans and benefits
currently established for the employers of the Company (collectively referred to
as the "Company Benefit Plans") on the same terms as other employees of the
Company, subject to meeting applicable eligibility requirements.
2.5 VACATIONS AND HOLIDAYS. During Employee's employment with
the Company, Employee shall be entitled to an annual vacation leave at full pay,
as may be provided for by the Company's vacation policies applicable to senior
Employees. Employee shall be entitled to such holidays as are established by
the Company for all employees.
ARTICLE III
3. TERMINATION
3.1 For purposes of this Article III, the following definitions
shall apply to the terms set forth below:
(a) CAUSE. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as
a refusal to execute or carry out directions from his supervisor) where
Employee has been given written notice of the acts or omissions
constituting such neglect or insubordination and Employee has failed to
cure such conduct, where susceptible to cure, within thirty (30) days
following notice;
(ii) conviction of any felony or any crime involving
moral turpitude;
(iii) participation in any proven fraud against the
Company;
1/96 Mercer Final Agreement Page
<PAGE>
(iv) willful and material breach of Employee's duties to the
Company, including but not limited to theft from the Company, failure to
fully disclose personal pecuniary interest in a transaction involving the
Company, violation of the Company's authority limits on commitments,
trading, controls and notification;
(v) intentional material damage to any property of
the Company;
(vi) conduct by Employee which in the good faith,
reasonable determination of the Board demonstrates gross unfitness to
serve, including but not limited to gross neglect, non-prescription use
of controlled substances, any abuse of controlled substances whether or
not by prescription, or habitual drunkenness, intoxication, or other
impaired state induced by consumption of any drug, including alcohol; or
(vii) material breach by the Employee of any agreement
with the Company concerning non-competition or the confidentiality of
trade secrets or proprietary or other information.
(b) DISABILITY. "Disability" shall mean a physical or
mental incapacity as a result of which Employee becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to two (2) consecutive months excepted; provided, however, that
any new period of incapacity or absences shall be deemed to be part of a prior
period of incapacity or absences if the prior period terminated within ninety
(90) days of the beginning of the new period of incapacity or absence and the
incapacity or absence is determined by the Company's Board of Directors, in good
faith, to be related to the prior incapacity or absence.) A determination of
Disability shall be subject to the certification of a qualified medical doctor
agreed to by the Company and Employee or, in the event of Employee's incapacity
to designate a doctor, Employee's legal representative. In the absence of
agreement between the Company and Employee, each party shall nominate a
qualified medical doctor and the two (2) doctors so nominated shall select a
third doctor, who shall make the determination as to Disability.
3.2 TERMINATION BY COMPANY. The Company may terminate
Employee's employment hereunder immediately for Cause. Subject to the other
provisions contained in this Agreement, the Company may terminate this Agreement
for any reason other than Cause upon thirty (30) days' written notice to
Employee. The effective date of termination ("Effective Date") shall be
considered to be the date of notice of termination if for Cause and thirty (30)
days subsequent to written notice of termination for any reason other than
Cause; however, the Company may elect to have Employee leave the Company
immediately.
3.3 TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement upon thirty (30) days' written notice to the Company. The effective
date of termination ("Effective Date") shall be considered to be thirty (30)
days subsequent to written notice of termination; however, the Company may elect
to have Employee leave the Company
1/96 Mercer Final Agreement Page
<PAGE>
immediately.
3.4 DEATH OR DISABILITY OF EMPLOYEE. This Agreement shall
terminate immediately upon the death or Disability of Employee (the "Effective
Date").
3.5 SEVERANCE BENEFITS RECEIVED UPON TERMINATION.
(a) If Employee's employment is terminated by the Company
for Cause, or Employee terminates this Agreement, then the Company shall pay
Employee his Base Salary through the Effective Date of such termination plus
credit for any vacation earned but not taken and the Company shall thereafter
have no further obligations to Employee under this Agreement.
(b) If Employee's employment is terminated by the Company
without Cause, then the Company shall provide Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of five (5) months, commencing
on the Effective Date, said sum to be paid in equal installments at the
times salary payments are usually made by the Company;
(ii) insurance coverage (excluding automobile
insurance, if any) as then in effect for Employee, his spouse and
dependent children for a period of five (5) months, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent insurance benefits will be in accordance with
COBRA; and
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms
within five (5) months following the Effective Date shall accelerate
and become exerciseable on the Effective Date and for a period of
three (3) months thereafter.
(c) If Employee's employment is terminated by the Company
as a result of Disability, then the Company shall provide Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of five (5) months, commencing
on the Effective Date, said sum to be paid in equal installments at the
times salary payments are usually made by the Company; and
(ii) insurance coverage as then in effect for
Employee his spouse and dependent children for a period of five (5)
months, subject to any employee contribution provisions as defined in the
Company Benefit Plans. Subsequent insurance benefits will be in
accordance with COBRA; and
1/96 Mercer Final Agreement Page
<PAGE>
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms within
five (5) months following the Effective Date shall accelerate and become
exerciseable on the Effective Date and for a period of three (3) months
thereafter.
(d) If Employee's employment is terminated by the Company
as a result of death, then the Company shall provide, Employee's spouse or
estate insurance coverage as then in effect for Employee, his spouse and
dependent children for a period of five (5) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans. Insurance
benefits subsequent to the salary continuation period will be in accordance with
COBRA.
(i) any options which have not vested on the
Effective Date and would otherwise vest according to their terms
within five (5) months following the Effective Date shall accelerate
and become exerciseable on the Effective Date and for a period of
three (3) months thereafter.
ARTICLE IV
4. GENERAL PROVISIONS
4.1 NOTICE. For purposes of this Agreement, notices and all
other communication provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: SenDx Medical Incorporated
1945 Palomar Oaks Way
Carlsbad, CA 92009
Attn: President and Chief Executive
Officer
If to Employee: Michael Mercer
940 Quivera Street
Laguna Beach, CA 92651
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
4.2 PROPRIETARY INFORMATION AND INVENTIONS. Contemporaneously
with the execution of the Agreement, Employee shall execute a Proprietary
Information and Inventions Agreement in the form attached as Exhibit A hereto.
The terms of said agreement are incorporated by reference in this Agreement, and
Employee agrees to be
1/96 Mercer Final Agreement Page
<PAGE>
bound thereby.
4.3 NO WAIVERS. No provision of the Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Employee and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
4.4. BENEFICIAL INTERESTS. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representative,
executors, administrators, successors, heirs, distributees, devises and
legatees. If Employee should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee, or
other designee or, if there be no such designee, to Employee's estate.
4.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
4.6 SEVERABILITY OR PARTIAL INVALIDITY. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
4.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
4.8 LEGAL FEES AND EXPENSES. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
4.9 ENTIRE AGREEMENT. This Agreement, along with the
Proprietary Information and Inventions Agreement by and between Employee and
Company of even date herewith (the "Proprietary Information Agreement"),
constitutes the entire agreement of the parties and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings, and
negotiations between the parties with respect to the subject matter hereof.
This Agreement, along with the Proprietary information Agreement, is intended by
the parties as the final expression of their agreement with respect to such
terms as are included herein and therein and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement, along with the Proprietary Information Agreement, constitutes the
complete and exclusive statement of their
1/96 Mercer Final Agreement Page
<PAGE>
terms and that no extrinsic evidence may be introduced in any judicial
proceeding involving such agreements.
4.10. ASSIGNMENT. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 4.10, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
4.11 ARBITRATION. Any controversy, dispute, claim or other
matter in question arising out of or relating to this Agreement shall be
settled, at the request of either party, by mediation with the American
Arbitration Association ("AAA"), then if unsuccessful, mediation with the
Commercial Arbitration Rules. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof, subject to
the following terms, conditions and expectations:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 4.8 hereof, the
costs and fees of the arbitration shall be allocated by the arbitrators.
1/96 Mercer Final Agreement Page
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
SenDx Medical, Inc., a California corporation
By: /s/ DOUG HILLIER
--------------------------------------
Its: Chief Executive Officer, Doug Hillier
--------------------------------------
"Employee"
/s/ MICHAEL MERCER
------------------------------------------
Michael Mercer
1/96 Mercer Final Agreement Page
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of January 1, 1996,
between SenDx Medical Incorporated, a California corporation ("Company"), and
Ronald Betts ("Vice President, Operations" or "Employee"). In consideration of
the mutual covenants and agreements set forth herein, the parties hereto agree
as follows:
ARTICLE I
1. EMPLOYMENT
The company hereby employs Employee, and Employee accepts employment with
the Company upon the terms and conditions herein set forth.
1.1 EMPLOYMENT. The Company hereby employs Employee, and
Employee agrees to serve as the Company's Vice President, Operations during the
term of this Agreement, and as such shall perform such duties as are customarily
associated with his then-current title, as required by the Company's Chief
Executive Officer, or his designee. Employee agrees to devote substantially his
full business time and attention and best efforts to the affairs of the Company
during the term of this Agreement.
1.2 TERM. The employment of Employee by the Company under the
terms and conditions of this Agreement will commence on the date hereof and will
continue for a period of two (2) years unless renewed or terminated sooner in
accordance with the provisions hereof. The terms of this Agreement will be
automatically extended for an unlimited number of additional one-year terms
unless, not less than five (5) months prior to the termination of the then
current term, the Company shall deliver to Employee or Employee should deliver
to Company a written notice stating that the term will not be extended.
ARTICLE 11
2. COMPENSATION
2.1 ANNUAL SALARY. During the employment of Employee, the
Company shall pay to Employee a base salary at the annual rate of at least
$100,800 (the "Base Salary"), payable on the Company's regular payroll dates.
Salary may be reviewed in January, annually.
2.2 STOCK OPTIONS. Upon execution of this Agreement, Employee
shall be granted incentive stock options to purchase an additional 10,000 shares
(the "Options") of the Company's Common Stock pursuant to the terms of the
Company's Stock Option Plan
1/96 Betts Final Agreement Page
<PAGE>
and Employee shall enter into the Company's Stock Option Agreement with respect
thereto (the "Option Agreement"). The Options shall be exercisable at the fair
market of the Common Stock on the date of grant and have a maximum term (10)
years. A copy of the Stock Option Plan has previously been provided to
Employee.
2.3 REIMBURSEMENT OF EXPENSES. Employee shall be entitled to
receive prompt reimbursement of all reasonable and necessary expenses incurred
by Employee in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.4 BENEFITS. Employee shall be entitled to participate in and
be covered by health, insurance, pension and other employee plans and benefits
currently established for the employers of the Company (collectively referred to
as the "Company Benefit Plans") on the same terms as other employees of the
Company, subject to meeting applicable eligibility requirements.
2.5 VACATIONS AND HOLIDAYS. During Employee's employment with
the Company, Employee shall be entitled to an annual vacation leave at full pay,
as may be provided for by the Company's vacation policies applicable to senior
Employees. Employee shall be entitled to such holidays as are established by
the Company for all employees.
ARTICLE III
3. TERMINATION
3.1 For purposes of this Article III, the following definitions
shall apply to the terms set forth below:
(a) CAUSE. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as
a refusal to execute or carry out directions from his supervisor) where
Employee has been given written notice of the acts or omissions
constituting such neglect or insubordination and Employee has failed to
cure such conduct, where susceptible to cure, within thirty (30) days
following notice;
(ii) conviction of any felony or any crime involving
moral turpitude;
(iii) participation in any proven fraud against the
Company;
1/96 Betts Final Agreement Page
<PAGE>
(iv) willful and material breach of Employee's duties to the
Company, including but not limited to theft from the Company, failure to
fully disclose personal pecuniary interest in a transaction involving the
Company, violation of the Company's authority limits on commitments,
trading, controls and notification;
(v) intentional material damage to any property of
the Company;
(vi) conduct by Employee which in the good faith,
reasonable determination of the Board demonstrates gross unfitness to
serve, including but not limited to gross neglect, non-prescription use
of controlled substances, any abuse of controlled substances whether or
not by prescription, or habitual drunkenness, intoxication, or other
impaired state induced by consumption of any drug, including alcohol; or
(vii) material breach by the Employee of any agreement
with the Company concerning non-competition or the confidentiality of
trade secrets or proprietary or other information.
(b) DISABILITY. "Disability" shall mean a physical or
mental incapacity as a result of which Employee becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to two (2) consecutive months excepted; provided, however, that
any new period of incapacity or absences shall be deemed to be part of a prior
period of incapacity or absences if the prior period terminated within ninety
(90) days of the beginning of the new period of incapacity or absence and the
incapacity or absence is determined by the Company's Board of Directors, in good
faith, to be related to the prior incapacity or absence.) A determination of
Disability shall be subject to the certification of a qualified medical doctor
agreed to by the Company and Employee or, in the event of Employee's incapacity
to designate a doctor, Employee's legal representative. In the absence of
agreement between the Company and Employee, each party shall nominate a
qualified medical doctor and the two (2) doctors so nominated shall select a
third doctor, who shall make the determination as to Disability.
3.2 TERMINATION BY COMPANY. The Company may terminate
Employee's employment hereunder immediately for Cause. Subject to the other
provisions contained in this Agreement, the Company may terminate this Agreement
for any reason other than Cause upon thirty (30) days' written notice to
Employee. The effective date of termination ("Effective Date") shall be
considered to be the date of notice of termination if for Cause and thirty (30)
days subsequent to written notice of termination for any reason other than
Cause; however, the Company may elect to have Employee leave the Company
immediately.
3.3 TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement upon thirty (30) days' written notice to the Company. The effective
date of termination ("Effective Date") shall be considered to be thirty (30)
days subsequent to written notice of termination; however, the Company may elect
to have Employee leave the Company immediately.
1/96 Betts Final Agreement Page
<PAGE>
3.4 DEATH OR DISABILITY OF EMPLOYEE. This Agreement shall
terminate immediately upon the death or Disability of Employee (the "Effective
Date").
3.5 SEVERANCE BENEFITS RECEIVED UPON TERMINATION.
(a) If Employee's employment is terminated by the Company
for Cause, or Employee terminates this Agreement, then the Company shall pay
Employee his Base Salary through the Effective Date of such termination plus
credit for any vacation earned but not taken and the Company shall thereafter
have no further obligations to Employee under this Agreement.
(b) If Employee's employment is terminated by the Company
without Cause, then the Company shall provide Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of five (5) months,
commencing on the Effective Date, said sum to be paid in equal
installments at the times salary payments are usually made by the
Company;
(ii) insurance coverage (excluding automobile
insurance, if any) as then in effect for Employee, his spouse and
dependent children for a period of five (5) months, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent insurance benefits will be in accordance with
COBRA; and
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms
within five (5) months following the Effective Date shall accelerate
and become exerciseable on the Effective Date and for a period of
three (3) months thereafter.
(c) If Employee's employment is terminated by the Company
as a result of Disability, then the Company shall provide Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of five (5) months,
commencing on the Effective Date, said sum to be paid in equal
installments at the times salary payments are usually made by the
Company; and
(ii) insurance coverage as then in effect for
Employee his spouse and dependent children for a period of five (5)
months, subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent insurance benefits will be in
accordance with COBRA; and
1/96 Betts Final Agreement Page
<PAGE>
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms
within five (5) months following the Effective Date shall accelerate
and become exerciseable on the Effective Date and for a period of
three (3) months thereafter.
(d) If Employee's employment is terminated by the Company
as a result of death, then the Company shall provide, Employee's spouse or
estate insurance coverage as then in effect for Employee, his spouse and
dependent children for a period of five (5) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans. Insurance
benefits subsequent to the salary continuation period will be in accordance with
COBRA.
(i) any options which have not vested on the
Effective Date and would otherwise vest according to their terms
within five (5) months following the Effective Date shall accelerate
and become exerciseable on the Effective Date and for a period of
three (3) months thereafter.
ARTICLE IV
4. GENERAL PROVISIONS
4.1 NOTICE. For purposes of this Agreement, notices and all
other communication provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: SenDx Medical Incorporated
1945 Palomar Oaks Way
Carlsbad, CA 92009
Attn: President and Chief Executive
Officer
If to Employee: Ronald Betts
6627 Aranda Avenue
La Jolla, CA 92037
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
4.2 PROPRIETARY INFORMATION AND INVENTIONS. Contemporaneously
with the execution of the Agreement, Employee shall execute a Proprietary
Information and Inventions Agreement in the form attached as Exhibit A hereto.
The terms of said agreement are incorporated by reference in this Agreement, and
Employee agrees to be bound thereby.
1/96 Betts Final Agreement Page
<PAGE>
4.3 NO WAIVERS. No provision of the Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Employee and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
4.4. BENEFICIAL INTERESTS. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representative,
executors, administrators, successors, heirs, distributees, devises and
legatees. If Employee should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee, or
other designee or, if there be no such designee, to Employee's estate.
4.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
4.6 SEVERABILITY OR PARTIAL INVALIDITY. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
4.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
4.8 LEGAL FEES AND EXPENSES. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
4.9 ENTIRE AGREEMENT. This Agreement, along with the
Proprietary Information and Inventions Agreement by and between Employee and
Company of even date herewith (the "Proprietary Information Agreement"),
constitutes the entire agreement of the parties and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings, and
negotiations between the parties with respect to the subject matter hereof.
This Agreement, along with the Proprietary information Agreement, is intended by
the parties as the final expression of their agreement with respect to such
terms as are included herein and therein and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement, along with the Proprietary Information Agreement, constitutes the
complete and exclusive statement of their terms and that no extrinsic evidence
may be introduced in any judicial proceeding involving
1/96 Betts Final Agreement Page
<PAGE>
such agreements.
4.10. ASSIGNMENT. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without
the prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no
effect. Notwithstanding the foregoing provisions of this Section 4.9, the
Company may assign or delegate its rights, duties, and obligations hereunder
to any Affiliate or to any person or entity which succeeds to all or
substantially all of the business of the Company through merger,
consolidation, reorganization or other business combination or by acquisition
of all or substantially all of the assets of the Company.
4.11 ARBITRATION. Any controversy, dispute, claim or other
matter in question arising out of or relating to this Agreement shall be
settled, at the request of either party, by mediation with the American
Arbitration Association ("AAA"), then if unsuccessful, mediation with the
Commercial Arbitration Rules. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof, subject to
the following terms, conditions and expectations:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 4.8 hereof, the
costs and fees of the arbitration shall be allocated by the arbitrators.
1/96 Betts Final Agreement Page
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
SenDx Medical, Inc., a California corporation
By: /s/ D. HILLIER
--------------------------------------
Its: Chief Executive Officer, Doug Hillier
--------------------------------------
"Employee"
/s/ RONALD BETTS
------------------------------------------
Ronald Betts
1/96 Betts Final Agreement Page
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of January 1, 1996,
between SenDx Medical Incorporated, a California corporation ("Company"), and
Ruben Chairez ("Vice President, Regulatory Affairs and Quality Assurance" or
"Employee"). In consideration of the mutual covenants and agreements set forth
herein, the parties hereto agree as follows:
ARTICLE I
1. EMPLOYMENT
The company hereby employs Employee, and Employee accepts employment with
the Company upon the terms and conditions herein set forth.
1.1 EMPLOYMENT. The Company hereby employs Employee, and
Employee agrees to serve as the Company's Vice President, Regulatory Affairs and
Quality Assurance during the term of this Agreement, and as such shall perform
such duties as are customarily associated with his then-current title, as
required by the Company's Chief Executive Officer, or his designee. Employee
agrees to devote substantially his full business time and attention and best
efforts to the affairs of the Company during the term of this Agreement.
1.2 TERM. The employment of Employee by the Company under the
terms and conditions of this Agreement will commence on the date hereof and will
continue for a period of two (2) years unless renewed or terminated sooner in
accordance with the provisions hereof. The terms of this Agreement will be
automatically extended for an unlimited number of additional one-year terms
unless, not less than five (5) months prior to the termination of the then
current term, the Company shall deliver to Employee or Employee should deliver
to Company a written notice stating that the term will not be extended.
ARTICLE 11
2. COMPENSATION
2.1 ANNUAL SALARY. During the employment of Employee, the
Company shall pay to Employee a base salary at the annual rate of at least
$87,418 (the "Base Salary"), payable on the Company's regular payroll dates.
Salary may be reviewed in January, annually.
2.2 STOCK OPTIONS. On execution of this document, Employee
shall be granted incentive stock options to purchase an additional 15,000
shares (the "Options") of
1/96 Chairez Final Agreement Page
<PAGE>
the Company's Common Stock pursuant to the terms of the Company's Stock Option
Plan and Employee shall enter into the Company's Stock Option Agreement with
respect thereto (the "Option Agreement"). The Options shall be exercisable at
the fair market of the Common Stock on the date of grant and have a maximum term
(10) years. A copy of the Stock Option Plan has previously been provided to
Employee.
2.3 REIMBURSEMENT OF EXPENSES. Employee shall be entitled to
receive prompt reimbursement of all reasonable and necessary expenses incurred
by Employee in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.4 BENEFITS. Employee shall be entitled to participate in
and be covered by health, insurance, pension and other employee plans and
benefits currently established for the employers of the Company (collectively
referred to as the "Company Benefit Plans") on the same terms as other employees
of the Company, subject to meeting applicable eligibility requirements.
2.5 VACATIONS AND HOLIDAYS. During Employee's employment with
the Company, Employee shall be entitled to an annual vacation leave at full pay,
as may be provided for by the Company's vacation policies applicable to senior
Employees. Employee shall be entitled to such holidays as are established by
the Company for all employees.
ARTICLE III
3. TERMINATION
3.1 For purposes of this Article III, the following
definitions shall apply to the terms set forth below:
(a) CAUSE. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as
a refusal to execute or carry out directions from his supervisor) where
Employee has been given written notice of the acts or omissions
constituting such neglect or insubordination and Employee has failed to
cure such conduct, where susceptible to cure, within thirty (30) days
following notice;
(ii) conviction of any felony or any crime involving
moral turpitude;
(iii) participation in any proven fraud against the
Company;
1/96 Chairez Final Agreement Page
<PAGE>
(iv) willful and material breach of Employee's duties
to the Company, including but not limited to theft from the Company,
failure to fully disclose personal pecuniary interest in a transaction
involving the Company, violation of the Company's authority limits on
commitments, trading, controls and notification;
(v) intentional material damage to any property of
the Company;
(vi) conduct by Employee which in the good faith,
reasonable determination of the Board demonstrates gross unfitness to
serve, including but not limited to gross neglect, non-prescription use
of controlled substances, any abuse of controlled substances whether or
not by prescription, or habitual drunkenness, intoxication, or other
impaired state induced by consumption of any drug, including alcohol; or
(vii) material breach by the Employee of any agreement
with the Company concerning non-competition or the confidentiality of
trade secrets or proprietary or other information.
(b) DISABILITY. "Disability" shall mean a physical or
mental incapacity as a result of which Employee becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to two (2) consecutive months excepted; provided, however, that
any new period of incapacity or absences shall be deemed to be part of a prior
period of incapacity or absences if the prior period terminated within ninety
(90) days of the beginning of the new period of incapacity or absence and the
incapacity or absence is determined by the Company's Board of Directors, in good
faith, to be related to the prior incapacity or absence.) A determination of
Disability shall be subject to the certification of a qualified medical doctor
agreed to by the Company and Employee or, in the event of Employee's incapacity
to designate a doctor, Employee's legal representative. In the absence of
agreement between the Company and Employee, each party shall nominate a
qualified medical doctor and the two (2) doctors so nominated shall select a
third doctor, who shall make the determination as to Disability.
3.2 TERMINATION BY COMPANY. The Company may terminate
Employee's employment hereunder immediately for Cause. Subject to the other
provisions contained in this Agreement, the Company may terminate this Agreement
for any reason other than Cause upon thirty (30) days' written notice to
Employee. The effective date of termination ("Effective Date") shall be
considered to be the date of notice of termination if for Cause and thirty (30)
days subsequent to written notice of termination for any reason other than
Cause; however, the Company may elect to have Employee leave the Company
immediately.
3.3 TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement upon thirty (30) days' written notice to the Company. The effective
date of termination ("Effective Date") shall be considered to be thirty (30)
days subsequent to written notice of termination; however, the Company may elect
to have Employee leave the Company
1/96 Chairez Final Agreement Page
<PAGE>
immediately.
3.4 DEATH OR DISABILITY OF EMPLOYEE. This Agreement shall
terminate immediately upon the death or Disability of Employee (the "Effective
Date").
3.5 SEVERANCE BENEFITS RECEIVED UPON TERMINATION.
(a) If Employee's employment is terminated by the Company
for Cause, or Employee terminates this Agreement, then the Company shall pay
Employee his Base Salary through the Effective Date of such termination plus
credit for any vacation earned but not taken and the Company shall thereafter
have no further obligations to Employee under this Agreement.
(b) If Employee's employment is terminated by the Company
without Cause, then the Company shall provide Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of five (5) months, commencing
on the Effective Date, said sum to be paid in equal installments at the
times salary payments are usually made by the Company;
(ii) insurance coverage (excluding automobile
insurance, if any) as then in effect for Employee, his spouse and
dependent children for a period of five (5) months, subject to any
employee contribution provisions as defined in the Company Benefit Plans.
Subsequent insurance benefits will be in accordance with COBRA; and
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms within
five (5) months following the Effective Date shall accelerate and become
exerciseable on the Effective Date and for a period of three (3) months
thereafter.
(c) If Employee's employment is terminated by the
Company as a result of Disability, then the Company shall provide
Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of five (5) months, commencing
on the Effective Date, said sum to be paid in equal installments at the
times salary payments are usually made by the Company; and
(ii) insurance coverage as then in effect for
Employee his spouse and dependent children for a period of five (5)
months, subject to any employee contribution provisions as defined in the
Company Benefit Plans. Subsequent insurance benefits will be in
accordance with COBRA; and
1/96 Chairez Final Agreement Page
<PAGE>
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms within
five (5) months following the Effective Date shall accelerate and become
exerciseable on the Effective Date and for a period of three (3) months
thereafter.
(d) If Employee's employment is terminated by the
Company as a result of death, then the Company shall provide, Employee's spouse
or estate insurance coverage as then in effect for Employee, his spouse and
dependent children for a period of five (5) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans. Insurance
benefits subsequent to the salary continuation period will be in accordance with
COBRA.
(i) any options which have not vested on the
Effective Date and would otherwise vest according to their terms within
five (5) months following the Effective Date shall accelerate and become
exerciseable on the Effective Date and for a period of three (3) months
thereafter.
ARTICLE IV
4. GENERAL PROVISIONS
4.1 NOTICE. For purposes of this Agreement, notices and all
other communication provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: SenDx Medical Incorporated
1945 Palomar Oaks Way
Carlsbad, CA 92009
Attn: President and Chief Executive
Officer
If to Employee: Ruben Chairez
17892 Aguamel Road
San Diego, CA 92127
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
4.2 PROPRIETARY INFORMATION AND INVENTIONS. Contemporaneously
with the execution of the Agreement, Employee shall execute a Proprietary
Information and Inventions Agreement in the form attached as Exhibit A hereto.
The terms of said agreement are incorporated by reference in this Agreement,
and Employee agrees to be
1/96 Chairez Final Agreement Page
<PAGE>
bound thereby.
4.3 NO WAIVERS. No provision of the Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Employee and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
4.4. BENEFICIAL INTERESTS. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representative,
executors, administrators, successors, heirs, distributees, devises and
legatees. If Employee should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee, or
other designee or, if there be no such designee, to Employee's estate.
4.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
4.6 SEVERABILITY OR PARTIAL INVALIDITY. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
4.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
4.8 LEGAL FEES AND EXPENSES. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
4.9 ENTIRE AGREEMENT. This Agreement, along with the
Proprietary Information and Inventions Agreement by and between Employee and
Company of even date herewith (the "Proprietary Information Agreement"),
constitutes the entire agreement of the parties and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings, and
negotiations between the parties with respect to the subject matter hereof.
This Agreement, along with the Proprietary information Agreement, is intended by
the parties as the final expression of their agreement with respect to such
terms as are included herein and therein and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement, along with the Proprietary Information Agreement, constitutes the
complete and exclusive statement of their
1/96 Chairez Final Agreement Page
<PAGE>
terms and that no extrinsic evidence may be introduced in any judicial
proceeding involving such agreements.
4.10. ASSIGNMENT. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 4.10, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
4.11 ARBITRATION. Any controversy, dispute, claim or other
matter in question arising out of or relating to this Agreement shall be
settled, at the request of either party, by mediation with the American
Arbitration Association ("AAA"), then if unsuccessful, mediation with the
Commercial Arbitration Rules. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof, subject to
the following terms, conditions and expectations:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 4.8 hereof, the
costs and fees of the arbitration shall be allocated by the arbitrators.
1/96 Chairez Final Agreement Page
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
SenDx Medical, Inc., a California corporation
By: /s/ DOUG HILLIER
-----------------------------------------
Its: Chief Executive Officer, Doug Hillier
-----------------------------------------
"Employee"
/s/ RUBEN CHAIREZ
---------------------------------------------
Ruben Chairez
1/96 Chairez Final Agreement Page
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of January 1, 1996,
between SenDx Medical Incorporated, a California corporation ("Company"), and
Matthew Leader ("Director of Research and Development" or "Employee"). In
consideration of the mutual covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
1. EMPLOYMENT
The company hereby employs Employee, and Employee accepts employment with
the Company upon the terms and conditions herein set forth.
1.1 EMPLOYMENT. The Company hereby employs Employee, and
Employee agrees to serve as the Company's Director of Sensor Development during
the term of this Agreement, and as such shall perform such duties as are
customarily associated with his then-current title, as required by the Company's
Chief Executive Officer, or his designee. Employee agrees to devote
substantially his full business time and attention and best efforts to the
affairs of the Company during the term of this Agreement.
1.2 TERM. The employment of Employee by the Company under the
terms and conditions of this Agreement will commence on the date hereof and will
continue for a period of two (2) years unless renewed or terminated sooner in
accordance with the provisions hereof. The terms of this Agreement will be
automatically extended for an unlimited number of additional one-year terms
unless, not less than five (5) months prior to the termination of the then
current term, the Company shall deliver to Employee or Employee should deliver
to Company a written notice stating that the term will not be extended.
ARTICLE 11
2. COMPENSATION
2.1 ANNUAL SALARY. During the employment of Employee, the
Company shall pay to Employee a base salary at the annual rate of at least
$102,000 (the "Base Salary"), payable on the Company's regular payroll dates.
Salary may be reviewed in January, annually.
2.2 STOCK OPTIONS. Upon execution of this Agreement, Employee
shall be granted incentive stock options to purchase an additional 15,000 shares
(the "Options") of the Company's Common Stock pursuant to the terms of the
Company's Stock Option Plan
1/96 Leader Final Agreement Page
<PAGE>
and Employee shall enter into the Company's Stock Option Agreement with respect
thereto (the "Option Agreement"). The Options shall be exercisable at the fair
market of the Common Stock on the date of grant and have a maximum term (10)
years. A copy of the Stock Option Plan has previously been provided to
Employee.
2.3 REIMBURSEMENT OF EXPENSES. Employee shall be entitled to
receive prompt reimbursement of all reasonable and necessary expenses incurred
by Employee in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.4 BENEFITS. Employee shall be entitled to participate in
and be covered by health, insurance, pension and other employee plans and
benefits currently established for the employers of the Company (collectively
referred to as the "Company Benefit Plans") on the same terms as other employees
of the Company, subject to meeting applicable eligibility requirements.
2.5 VACATIONS AND HOLIDAYS. During Employee's employment with
the Company, Employee shall be entitled to an annual vacation leave at full pay,
as may be provided for by the Company's vacation policies applicable to senior
Employees. Employee shall be entitled to such holidays as are established by
the Company for all employees.
ARTICLE III
3. TERMINATION
3.1 For purposes of this Article III, the following
definitions shall apply to the terms set forth below:
(a) CAUSE. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as
a refusal to execute or carry out directions from his supervisor) where
Employee has been given written notice of the acts or omissions
constituting such neglect or insubordination and Employee has failed to
cure such conduct, where susceptible to cure, within thirty (30) days
following notice;
(ii) conviction of any felony or any crime involving
moral turpitude;
(iii) participation in any proven fraud against the
Company;
1/96 Leader Final Agreement Page
<PAGE>
(iv) willful and material breach of Employee's duties to the
Company, including but not limited to theft from the Company, failure to
fully disclose personal pecuniary interest in a transaction involving the
Company, violation of the Company's authority limits on commitments,
trading, controls and notification;
(v) intentional material damage to any property of
the Company;
(vi) conduct by Employee which in the good faith,
reasonable determination of the Board demonstrates gross unfitness to
serve, including but not limited to gross neglect, non-prescription use
of controlled substances, any abuse of controlled substances whether or
not by prescription, or habitual drunkenness, intoxication, or other
impaired state induced by consumption of any drug, including alcohol; or
(vii) material breach by the Employee of any agreement
with the Company concerning non-competition or the confidentiality of
trade secrets or proprietary or other information.
(b) DISABILITY. "Disability" shall mean a physical or
mental incapacity as a result of which Employee becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to two (2) consecutive months excepted; provided, however, that
any new period of incapacity or absences shall be deemed to be part of a prior
period of incapacity or absences if the prior period terminated within ninety
(90) days of the beginning of the new period of incapacity or absence and the
incapacity or absence is determined by the Company's Board of Directors, in good
faith, to be related to the prior incapacity or absence.) A determination of
Disability shall be subject to the certification of a qualified medical doctor
agreed to by the Company and Employee or, in the event of Employee's incapacity
to designate a doctor, Employee's legal representative. In the absence of
agreement between the Company and Employee, each party shall nominate a
qualified medical doctor and the two (2) doctors so nominated shall select a
third doctor, who shall make the determination as to Disability.
3.2 TERMINATION BY COMPANY. The Company may terminate
Employee's employment hereunder immediately for Cause. Subject to the other
provisions contained in this Agreement, the Company may terminate this Agreement
for any reason other than Cause upon thirty (30) days' written notice to
Employee. The effective date of termination ("Effective Date") shall be
considered to be the date of notice of termination if for Cause and thirty (30)
days subsequent to written notice of termination for any reason other than
Cause; however, the Company may elect to have Employee leave the Company
immediately.
3.3 TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement upon thirty (30) days' written notice to the Company. The effective
date of termination ("Effective Date") shall be considered to be thirty (30)
days subsequent to written notice of termination; however, the Company may elect
to have Employee leave the Company
1/96 Leader Final Agreement Page
<PAGE>
immediately.
3.4 DEATH OR DISABILITY OF EMPLOYEE. This Agreement
shall terminate immediately upon the death or Disability of Employee (the
"Effective Date").
3.5 SEVERANCE BENEFITS RECEIVED UPON TERMINATION.
(a) If Employee's employment is terminated by the
Company for Cause, or Employee terminates this Agreement, then the Company shall
pay Employee his Base Salary through the Effective Date of such termination plus
credit for any vacation earned but not taken and the Company shall thereafter
have no further obligations to Employee under this Agreement.
(b) If Employee's employment is terminated by the
Company without Cause, then the Company shall provide Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of five (5) months, commencing
on the Effective Date, said sum to be paid in equal installments at the
times salary payments are usually made by the Company;
(ii) insurance coverage (excluding automobile
insurance, if any) as then in effect for Employee, his spouse and
dependent children for a period of five (5) months, subject to any
employee contribution provisions as defined in the Company Benefit Plans.
Subsequent insurance benefits will be in accordance with COBRA; and
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms within
five (5) months following the Effective Date shall accelerate and become
exerciseable on the Effective Date and for a period of three (3) months
thereafter.
(c) If Employee's employment is terminated by the
Company as a result of Disability, then the Company shall provide Employee:
(i) salary continuation in an amount equal to
Employee's then Base Salary for a period of five (5) months, commencing
on the Effective Date, said sum to be paid in equal installments at the
times salary payments are usually made by the Company; and
(ii) insurance coverage as then in effect for
Employee his spouse and dependent children for a period of five (5)
months, subject to any employee contribution provisions as defined in the
Company Benefit Plans.
1/96 Leader Final Agreement Page
<PAGE>
Subsequent insurance benefits will be in accordance with COBRA; and
(iii) any options which have not vested on the
Effective Date and would otherwise vest according to their terms within
five (5) months following the Effective Date shall accelerate and become
exerciseable on the Effective Date and for a period of three (3) months
thereafter.
(d) If Employee's employment is terminated by the
Company as a result of death, then the Company shall provide, Employee's spouse
or estate insurance coverage as then in effect for Employee, his spouse and
dependent children for a period of five (5) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans. Insurance
benefits subsequent to the salary continuation period will be in accordance with
COBRA.
(i) any options which have not vested on the
Effective Date and would otherwise vest according to their terms within
five (5) months following the Effective Date shall accelerate and become
exerciseable on the Effective Date and for a period of three (3) months
thereafter.
ARTICLE IV
4. GENERAL PROVISIONS
4.1 NOTICE. For purposes of this Agreement, notices and all
other communication provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: SenDx Medical Incorporated
1945 Palomar Oaks Way
Carlsbad, CA 92009
Attn: President and Chief Executive
Officer
If to Employee: Matthew Leader
48 Oakcliff
Laguna Niguel, CA 92677
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
4.2 PROPRIETARY INFORMATION AND INVENTIONS.
Contemporaneously with the execution of the Agreement, Employee shall execute a
Proprietary Information and
1/96 Leader Final Agreement Page
<PAGE>
Inventions Agreement in the form attached as Exhibit A hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Employee
agrees to be bound thereby.
4.3 NO WAIVERS. No provision of the Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Employee and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
4.4. BENEFICIAL INTERESTS. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representative,
executors, administrators, successors, heirs, distributees, devises and
legatees. If Employee should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee, or
other designee or, if there be no such designee, to Employee's estate.
4.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
4.6 SEVERABILITY OR PARTIAL INVALIDITY. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
4.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
4.8 LEGAL FEES AND EXPENSES. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
4.9 ENTIRE AGREEMENT. This Agreement, along with the
Proprietary Information and Inventions Agreement by and between Employee and
Company of even date herewith (the "Proprietary Information Agreement"),
constitutes the entire agreement of the parties and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings, and
negotiations between the parties with respect to the subject matter hereof.
This Agreement, along with the Proprietary information Agreement, is intended by
the parties as the final expression of their agreement with respect to such
terms as are included herein and therein and may not be contradicted by evidence
of any prior or
1/96 Leader Final Agreement Page
<PAGE>
contemporaneous agreement. The parties further intend that this Agreement,
along with the Proprietary Information Agreement, constitutes the complete and
exclusive statement of their terms and that no extrinsic evidence may be
introduced in any judicial proceeding involving such agreements.
4.10. ASSIGNMENT. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 4.10, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
4.11 ARBITRATION. Any controversy, dispute, claim or other
matter in question arising out of or relating to this Agreement shall be
settled, at the request of either party, by mediation with the American
Arbitration Association ("AAA"), then if unsuccessful, mediation with the
Commercial Arbitration Rules. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof, subject to
the following terms, conditions and expectations:
(a) Notice of the demand for arbitration shall be
filed in writing with the other party and with the AAA. There shall be a panel
of three (3) arbitrators whose selection shall be made in accordance with the
procedures then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in
arbitration.
(c) Except as otherwise provided in Section 4.8
hereof, the costs and fees of the arbitration shall be allocated by the
arbitrators.
1/96 Leader Final Agreement Page
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
SenDx Medical, Inc., a California corporation
By: /s/ D. Hillier
------------------------------------------
Its: Chief Executive Officer, Doug Hillier
"Employee"
/s/ Matthew Leader
------------------------------------------
Matthew Leader
1/96 Leader Final Agreement Page
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of January 1, 1996,
between SenDx Medical Incorporated, a California corporation ("Company"), and
Douglas Savage ("Director of Product Engineering" or "Employee"). In
consideration of the mutual covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
1. EMPLOYMENT
The company hereby employs Employee, and Employee accepts employment with
the Company upon the terms and conditions herein set forth.
1.1 EMPLOYMENT. The Company hereby employs Employee, and Employee
agrees to serve as the Company's Director of Product Engineering during the term
of this Agreement, and as such shall perform such duties as are customarily
associated with his then-current title, as required by the Company's Chief
Executive Officer, or his designee. Employee agrees to devote substantially his
full business time and attention and best efforts to the affairs of the Company
during the term of this Agreement.
1.2 TERM. The employment of Employee by the Company under the terms
and conditions of this Agreement will commence on the date hereof and will
continue for a period of two (2) years unless renewed or terminated sooner in
accordance with the provisions hereof. The terms of this Agreement will be
automatically extended for an unlimited number of additional one-year terms
unless, not less than five (5) months prior to the termination of the then
current term, the Company shall deliver to Employee or Employee should deliver
to Company a written notice stating that the term will not be extended.
ARTICLE 11
2. COMPENSATION
2.1 ANNUAL SALARY. During the employment of Employee, the Company
shall pay to Employee a base salary at the annual rate of at least $80,400 (the
"Base Salary"), payable on the Company's regular payroll dates. Salary may be
reviewed in January, annually.
2.2 STOCK OPTIONS. Upon execution of this Agreement, Employee shall
be granted incentive stock options to purchase an additional 15,000 shares (the
"Options") of the Company's Common Stock pursuant to the terms of the Company's
Stock Option Plan
1/96 Savage Final Agreement Page
<PAGE>
and Employee shall enter into the Company's Stock Option Agreement with respect
thereto (the "Option Agreement"). The Options shall be exercisable at the fair
market of the Common Stock on the date of grant and have a maximum term (10)
years. A copy of the Stock Option Plan has previously been provided to
Employee.
2.3 REIMBURSEMENT OF EXPENSES. Employee shall be entitled to receive
prompt reimbursement of all reasonable and necessary expenses incurred by
Employee in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.4 BENEFITS. Employee shall be entitled to participate in and be
covered by health, insurance, pension and other employee plans and benefits
currently established for the employers of the Company (collectively referred to
as the "Company Benefit Plans") on the same terms as other employees of the
Company, subject to meeting applicable eligibility requirements.
2.5 VACATIONS AND HOLIDAYS. During Employee's employment with the
Company, Employee shall be entitled to an annual vacation leave at full pay, as
may be provided for by the Company's vacation policies applicable to senior
Employees. Employee shall be entitled to such holidays as are established by
the Company for all employees.
ARTICLE III
3. TERMINATION
3.1 For purposes of this Article III, the following definitions shall
apply to the terms set forth below:
(a) CAUSE. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as a
refusal to execute or carry out directions from his supervisor) where
Employee has been given written notice of the acts or omissions
constituting such neglect or insubordination and Employee has failed to
cure such conduct, where susceptible to cure, within thirty (30) days
following notice;
(ii) conviction of any felony or any crime involving moral
turpitude;
(iii) participation in any proven fraud against the
Company;
1/96 Savage Final Agreement Page
<PAGE>
(iv) willful and material breach of Employee's duties to the
Company, including but not limited to theft from the Company, failure to fully
disclose personal pecuniary interest in a transaction involving the Company,
violation of the Company's authority limits on commitments, trading, controls
and notification;
(v) intentional material damage to any property of the
Company;
(vi) conduct by Employee which in the good faith, reasonable
determination of the Board demonstrates gross unfitness to serve, including
but not limited to gross neglect, non-prescription use of controlled
substances, any abuse of controlled substances whether or not by
prescription, or habitual drunkenness, intoxication, or other impaired
state induced by consumption of any drug, including alcohol; or
(vii) material breach by the Employee of any agreement
with the Company concerning non-competition or the confidentiality of trade
secrets or proprietary or other information.
(b) DISABILITY. "Disability" shall mean a physical or mental
incapacity as a result of which Employee becomes unable to continue the proper
performance of his duties hereunder (reasonable absences because of sickness for
up to two (2) consecutive months excepted; provided, however, that any new
period of incapacity or absences shall be deemed to be part of a prior period of
incapacity or absences if the prior period terminated within ninety (90) days of
the beginning of the new period of incapacity or absence and the incapacity or
absence is determined by the Company's Board of Directors, in good faith, to be
related to the prior incapacity or absence.) A determination of Disability
shall be subject to the certification of a qualified medical doctor agreed to by
the Company and Employee or, in the event of Employee's incapacity to designate
a doctor, Employee's legal representative. In the absence of agreement between
the Company and Employee, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall make
the determination as to Disability.
3.2 TERMINATION BY COMPANY. The Company may terminate Employee's
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Employee. The
effective date of termination ("Effective Date") shall be considered to be the
date of notice of termination if for Cause and thirty (30) days subsequent to
written notice of termination for any reason other than Cause; however, the
Company may elect to have Employee leave the Company immediately.
3.3 TERMINATION BY EMPLOYEE. Employee may terminate this Agreement upon
thirty (30) days' written notice to the Company. The effective date of
termination ("Effective Date") shall be considered to be thirty (30) days
subsequent to written notice of termination; however, the Company may elect to
have Employee leave the Company immediately.
1/96 Savage Final Agreement Page
<PAGE>
3.4 DEATH OR DISABILITY OF EMPLOYEE. This Agreement shall terminate
immediately upon the death or Disability of Employee (the "Effective Date").
3.5 SEVERANCE BENEFITS RECEIVED UPON TERMINATION.
(a) If Employee's employment is terminated by the Company for Cause,
or Employee terminates this Agreement, then the Company shall pay Employee his
Base Salary through the Effective Date of such termination plus credit for any
vacation earned but not taken and the Company shall thereafter have no further
obligations to Employee under this Agreement.
(b) If Employee's employment is terminated by the Company without
Cause, then the Company shall provide Employee:
(i) salary continuation in an amount equal to Employee's then
Base Salary for a period of five (5) months, commencing on the Effective Date,
said sum to be paid in equal installments at the times salary payments are
usually made by the Company;
(ii) insurance coverage (excluding automobile insurance, if any)
as then in effect for Employee, his spouse and dependent children for a period
of five (5) months, subject to any employee contribution provisions as defined
in the Company Benefit Plans. Subsequent insurance benefits will be in
accordance with COBRA; and
(iii) any options which have not vested on the Effective Date
and would otherwise vest according to their terms within five (5) months
following the Effective Date shall accelerate and become exerciseable on the
Effective Date and for a period of three (3) months thereafter.
(c) If Employee's employment is terminated by the Company as a result
of Disability, then the Company shall provide Employee:
(i) salary continuation in an amount equal to Employee's then
Base Salary for a period of five (5) months, commencing on the Effective Date,
said sum to be paid in equal installments at the times salary payments are
usually made by the Company; and
(ii) insurance coverage as then in effect for Employee his spouse
and dependent children for a period of five (5) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans. Subsequent
insurance benefits will be in accordance with COBRA; and
1/96 Savage Final Agreement Page
<PAGE>
(iii) any options which have not vested on the Effective Date
and would otherwise vest according to their terms within five (5) months
following the Effective Date shall accelerate and become exerciseable on the
Effective Date and for a period of three (3) months thereafter.
(d) If Employee's employment is terminated by the Company as a result
of death, then the Company shall provide, Employee's spouse or estate insurance
coverage as then in effect for Employee, his spouse and dependent children for a
period of five (5) months, subject to any employee contribution provisions as
defined in the Company Benefit Plans. Insurance benefits subsequent to the
salary continuation period will be in accordance with COBRA.
(i) any options which have not vested on the Effective Date and
would otherwise vest according to their terms within five (5) months following
the Effective Date shall accelerate and become exerciseable on the Effective
Date and for a period of three (3) months thereafter.
ARTICLE IV
4. GENERAL PROVISIONS
4.1 NOTICE. For purposes of this Agreement, notices and all other
communication provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: SenDx Medical Incorporated
1945 Palomar Oaks Way
Carlsbad, CA 92009
Attn: President and Chief Executive Officer
If to Employee: Douglas Savage
2361 Recuerdo Cove
Del Mar, CA 92014
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
4.2 PROPRIETARY INFORMATION AND INVENTIONS. Contemporaneously with the
execution of the Agreement, Employee shall execute a Proprietary Information and
Inventions Agreement in the form attached as Exhibit A hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Employee
agrees to be bound thereby.
1/96 Savage Final Agreement Page
<PAGE>
4.3 NO WAIVERS. No provision of the Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Employee and the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
4.4. BENEFICIAL INTERESTS. This Agreement shall inure to the benefit of
and be enforceable by Employee's personal and legal representative, executors,
administrators, successors, heirs, distributees, devises and legatees. If
Employee should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Employee's devisee, legatee, or other designee
or, if there be no such designee, to Employee's estate.
4.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
4.6 SEVERABILITY OR PARTIAL INVALIDITY. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
4.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
4.8 LEGAL FEES AND EXPENSES. Should any party institute any action
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including attorneys' fees, incurred by the prevailing party in
connection with such action or proceeding.
4.9 ENTIRE AGREEMENT. This Agreement, along with the Proprietary
Information and Inventions Agreement by and between Employee and Company of even
date herewith (the "Proprietary Information Agreement"), constitutes the entire
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement, along with
the Proprietary information Agreement, is intended by the parties as the final
expression of their agreement with respect to such terms as are included herein
and therein and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement,
along with the Proprietary Information Agreement, constitutes the complete and
exclusive statement of their terms and that no extrinsic evidence may be
introduced in any judicial proceeding involving such agreements.
1/96 Savage Final Agreement Page
<PAGE>
4.10 ASSIGNMENT. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 4.10, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
4.11 ARBITRATION. Any controversy, dispute, claim or other matter in
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by mediation with the American Arbitration Association
("AAA"), then if unsuccessful, mediation with the Commercial Arbitration Rules.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof, subject to the following terms, conditions and
expectations:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 4.8 hereof, the
costs and fees of the arbitration shall be allocated by the arbitrators.
1/96 Savage Final Agreement Page
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
SenDx Medical, Inc., a California corporation
By: /S/ D. HILLIER
-----------------
Its: Chief Executive Officer, Doug Hillier
-------------------------------------
"Employee"
/S/ DOUGLAS SAVAGE
-----------------------------
Douglas Savage
1/96 Savage Final Agreement Page
<PAGE>
UNIFET, NC.
BASIC LEASE INFORMATION
Lease Date: August 29, 1995
Landlord: M.H.P.P., Inc.
Address of Landlord: 5414 Oberlin Drive, Suite 140
San Diego, California 92121
Telephone Number of Landlord: (619) 597-6888
Tenant: UniFET, Inc., a California
corporation
Address of Tenant: 1945 Palomar Oaks Way
Carlsbad, California 92009
Telephone Number of Tenant: (619) 552-9002
Contact: George Pache
Section 1.1 Building: #6
Address: 1945 Palomar Oaks Way
Carlsbad, California 92009
Park: Palomar Oaks Technology Park
Section 1. 3 Parking Spaces: 3.6/1000 Square Feet of
Rentable Space
Section 2.1 Term: Sixty (60) Months
Commencement Date: November 2, 1995
Lease Rent Commencement
Date: March 19, 1996
Expiration Date: January 31, 2001
Section 3.1 Annual Rent: $261,000.00
Monthly Installments: $21,750.00
Deposit of First Month's Rent: $21,750.00
Section 3.2 Index Area: N/A
Periodic Rent Increase Dates: See Addendum - Rent Schedule
Section 4.1 Rentable Area of Building: 39,514 Square Feet (See
Exhibit "B")
Tenant's Rentable Square Feet: 39,514 Square Feet
Rentable Area of Park: 13,951 Square Feet (See
Exhibit "A")
Tenant's Share of Building: 100%
Tenant's Approximate Share
of Park: 32%
Lease Type: Net, Net, Net
Section 6. 1 Use: Corporate Headquarters,
General Office, Research and
Development, and Manufacturing
of Medical Products
Section 26.1 Security Deposit: $29,635.50
Section 28.1 Listing Broker: CB Commercial Real Estate
Group, Inc.
Procuring Broker: Grubb & Ellis Company
Commission Payable to Listing
Broker: $81,693.90
The Basic Lease information and the Lease are and shall be
construed as a single instrument. Each reference in this Lease to any of the
terms and information set forth in the Basic Lease Information shall mean the
respective terms and information hereinafter set forth, which terms and
1
<PAGE>
RENT SCHEDULE
(SEE ADDENDUM)
2
<PAGE>
INDUSTRIAL LEASE
This Lease is made and entered into as of the Lease Date by and between
Landlord and Tenant.
WITNESSETH:
Landlord and Tenant hereby covenant and agree as follows:
1. Premises and Common Areas
1.1 Upon and subject to the terms, covenants and conditions
hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord the Premises in the Building included in the Park more
particularly described in Exhibit "A" attached hereto, such Premises comprising
the area substantially as shown on the floor plan or plans that have been signed
by Landlord and Tenant and that are attached hereto as Exhibit "B".
1.2 Tenant shall have the right, for the benefit of Tenant and its
employees, suppliers, shippers, customers and invitees, to the non-exclusive use
of all areas and facilities outside the Premises and within the exterior
boundary line of the Park that are provided and designated by Landlord from time
to time for the general non-exclusive use of Landlord, Tenant and the other
tenants of the Park and their respective employees, suppliers, shippers,
customers and invitees, including parking areas, loading and unloading areas,
drives, walkways, roadways, trash areas and landscaped areas (herein called
"Common Areas").
1.3 Tenant shall have the right, for the benefit of Tenant and its
employees, customers and invitees, to the use of the number of vehicle parking
spaces specified in the Basic Lease information on those portions of the Common
Areas designated for parking by Landlord from time to time. Such spaces shall
be used by all tenants of the park on an unassigned basis.
2. Term
2.1 The Premises are leased for the Term to commence on the
Commencement Date and end on the Expiration Date, unless the Term shall sooner
terminate as hereinafter provided.
2.2 If, on or prior to the Commencement Date, Landlord fails to
deliver possession of the Premises, either (a) because Landlord's Work (as
hereinafter defined in Article 5) shall not have been substantially completed,
or (b) because a previous occupant is holding over, or (c) because of any other
cause or reason beyond the reasonable control of Landlord, then the following
provisions shall apply: (i) the Term shall not commence on the Commencement
Date set forth in the Basic Lease Information by shall, instead, commence on a
revised Commencement Date fixed by Landlord in a notice to Tenant, which notice
shall state that the Premises are, or prior to the commencement date fixed in
such notice will be, substantially completed and ready for occupancy by Tenant;
provided, however, that Landlord may from time to time, by notice to Tenant,
change the commencement date fixed in a prior notice; (ii) neither the validity
of this Lease nor the obligations of Tenant under this Lease shall be affected
by such failure to deliver possession, except that the Term shall begin as
provided in clause (i) above; (iii) Tenant shall have no claim against Landlord
because of Landlord's failure to deliver possession of the Premises on the date
originally fixed therefor, except Tenant shall commence payment of Rent upon the
revised Commencement Date, and (iv) in no event shall the expiration date of the
Term be extended beyond the Expiration Date.
2.3 Notwithstanding anything to the contrary herein contained, in the
event that the Term shall not have commenced on or before such date as shall be
thirty (30) days from the original Commencement Date, then Tenant shall have the
right to terminate this Lease and both parties shall be released from all
obligations hereunder. Consequently, upon execution of this Lease, Landlord
shall use its best efforts to cause ParCom, ("ParCom"), to enter into a sublease
(the Sublease") with Tenant ("Tenant"), in the form and on the terms of
Exhibit D attached hereto, whereby Tenant will sublease to ParCom a portion of
the Premises as more particularly described in the Sublease (the "Subleased
Premises"). Landlord hereby consents to the Sublease from Tenant to ParCom. By
September 6, 1995 Landlord will use its best efforts to cause Coded to deliver
possession of the Subleased Premises to ParCom and Tenant. On or before October
23, 1995, Landlord shall use its best efforts to (i) cause Coded to completely
vacate the entire Premises, and (ii) deliver possession of the entire Premises
to Tenant in the condition required by this Lease.
3
<PAGE>
Landlord and Tenant acknowledge that one of the major inducements to Tenant
entering into this Lease is that Landlord has stated that Landlord will use its
best efforts to deliver possession of the Premises in a timely manner. Landlord
and Tenant further acknowledge that if Landlord is unable to deliver possession
of the Premises in a timely manner, Tenant will suffer significant injury and
will not receive the benefits of its bargain.
Accordingly, in addition to Tenant's termination right as provided above in
this Section, if, by November 2, 1995, Landlord for any reason either fails to
cause Coded to fully vacate the entire Premises or Landlord fails to deliver
possession of the entire Premises to Tenant in the condition required by this
Lease, then for each day after November 2, 1995 that Coded remains in possession
of all or any part of the Premises or that Landlord has not delivered possession
of the entire Premises to Tenant in the condition required by this Lease, (i)
Landlord shall pay to Tenant, on a daily basis, One Thousand Dollars and No/100
($1,000.00) ("Daily Fee"), (ii) the Commencement Date shall be delayed by one
day, (iii) the free Base Rent period (currently running from the Commencement
Date of November 2, 1995, until March 18, 1996) shall be extended by one day,
and (iv) the free Additional Charge period (currently running from the
Commencement Date of November 2, 1995, until December 18, 1995) shall be
extended by one day, provided, however, upon Tenant's exercise of its
termination right provided for above, the Daily Fee shall cease to accrue.
2.4 In the event permission is given to Tenant to enter or occupy all
or a portion of the Premises prior to the Commencement Date, such occupancy
shall be subject to all the terms and conditions of this Lease.
2.5 It is agreed that by occupying the Premises as a tenant, Tenant
formally accepts same and acknowledges that the Premises are in the condition
provided for hereunder.
3. Rent; Consumer Price Index; Additional Charges
3.1 Tenant shall pay to Landlord during the Term the Rent, which sum
shall be payable by Tenant in equal consecutive Monthly Installments on or
before the first day of each month, in advance, at the address specified for
Landlord in the Basic Lease Information, or such other place as Landlord shall
designate, without any prior demand therefor and without any abatement,
deduction or setoff whatsoever. If the Commencement Date should occur on a day
other than the first day of a calendar month, or the Expiration Date should
occur on a day other than the last day of a calendar month, then the rental for
such fractional month shall be prorated on a daily basis based upon a thirty
(30) day calendar month.
3.2 See Addendum Article 1, Rent Schedule.
3.3 Tenant shall pay to Landlord all charges and other amounts
whatsoever as provided in this Lease (herein called "Additional Charges"),
including, without limitation any increase in the Rent resulting from the
provisions of Article 4. All such amounts and charges shall be payable to
Landlord at the place where the Rent is payable. Landlord shall have the same
remedies for a default in the payment of Additional Charges as for a default
in payment of Rent. If Tenant pays Rent by personal check and two (2) of such
checks are returned to Landlord marked "NSF" in any consecutive six (6) month
period, then Tenant shall thereafter pay all Rent and Additional Charges in
cash or by cashier's check.
3.4 Notwithstanding any other provisions of this Lease, including
section 3.5 and section 17.1, Tenant will have one time grace period for payment
of rent late. Thereafter, any rent paid later than five (5) days after the due
date shall be delinquent and constitute a default under this Lease, causing a
five percent (5%) late charge to be assessed as additional rent and will be due
within five (5) days. Should Tenant not have made payment within fifteen (15)
days of the due date, an additional five percent (5%) late charge will be due
and payable within five (5) days. Should Tenant not have made payment within
thirty (30) days of the due date, another five percent (5%) late charge will be
added and become due and payable within five (5) days, for a total equal to five
percent (5%) of the delinquent rent as late charges for the thirty (30) day
period.
Such late payment charges are hereby agreed upon by Landlord and
Tenant to be a reasonable estimate of Landlord's actual damages including
additional administrative costs and expenses and detriment to Landlord's ability
to meet its own obligations relating to the Building in a timely manner. The
actual cost and damages to Landlord in each such instance of collecting overdue
Rent is extremely difficult, if not impossible, to determine. Such late payment
charges shall constitute
4
<PAGE>
liquidated damages to compensate Landlord for its damages resulting from failure
to pay such amounts when due and not a penalty. Such late payment charges shall
not constitute any waiver by Landlord of additional damages that may result from
Tenant's default and shall not be and exclusive remedy.
3.5 Notwithstanding any other provisions of this Lease, including
Section 17.1, any installment of Rent or Additional Charges not paid to Landlord
when due hereunder shall bear interest from the date due or from the date of
expenditure by Landlord for the account of Tenant, until the same have been
fully paid, at a rate of ten percent (10%). The payment of such interest shall
not constitute a waiver of any default by Tenant hereunder.
4. Additional Charges for Taxes and Common Expenses (See Addendum of
Lease)
4.1 For purposes of this Article 4, the following terms shall have
the meanings hereinafter set forth:
(a) "Computation Year" shall mean each twelve (12) consecutive
month period commencing January I of each year during the Term.
(b) "Rentable Area" shall be computed in the manner set forth in
Exhibit "C" attached hereto.
(c) "Tenant's Share" shall mean the percentage figure so
specified in the Basic Lease information. Tenant's Share has been computed by
dividing the Rentable Area of the Premises by the total Rentable Area of the
Park and, in the event that either the Rentable Area of the Premises or the
total Rentable Area of the Park is changed, Tenant's Share will be appropriately
adjusted by Landlord, which adjustment shall be conclusive and binding on Tenant
and, as to the Computation Year in which such change occurs, for purposes of
this Article 4, Tenant's Share shall be determined on the basis of the number of
days during such Computation Year at each such percentage.
(d) "Taxes" shall mean all taxes, assessments and charges levied
upon or with respect to the Park or any personal property of Landlord used in
the operation thereof, or Landlord's interest in the Park or such personal
property. Taxes shall include, without limitation, all general real property
taxes and general and special assessments, charges, fees or assessments for
transit, housing, police, fire or other governmental services or purported
benefits to the Park, service payments in lieu of taxes, and any tax, fee or
excise on the act of entering into this Lease or any other lease of space in the
Park or on the use or occupancy of the Park or any part thereof, or on the rent
payable under any lease or in connection with the business of renting space in
the park that are now or hereafter levied or assessed against Landlord by the
United States of America, the State of California, or any political subdivision,
public corporation, district or other political or public entity, and shall also
include any other tax, fee or other excise, however described, that may be
levied or assessed as a substitute for or as an addition to, as a whole or in
part, any other Taxes, whether or not now customary or in the contemplation of
the parties on the date of this Lease. Taxes shall not include franchise,
transfer, inheritance or capital stock taxes or income taxes measured by the net
income of Landlord from all sources, unless, due to a change in the method of
taxation, any of such taxes is levied or assessed against Landlord as a
substitute for or as an addition to, as a whole or in part, any other -tax that
would otherwise constitute a Tax. Taxes shall also include reasonable legal
fees, costs and disbursements incurred in connection with proceedings to
contest, determine or reduce Taxes. If any Taxes are specially assessed by
reason of the occupancy or activities of one or more tenants and not the
occupancy or activities of the tenants as a whole, such Taxes shall be allocated
by Landlord to the tenant or tenants whose occupancy or activities brought about
such assessment.
(e) "Common Expenses" shall mean the aggregate amount of (i) the
total costs and expense paid or incurred by Landlord in connection with the
operation, repair and maintenance of the Common Areas, the Building and the
Park, including, without limitation, parking areas, loading and unloading areas,
trash areas, roadways, driveways, walkways, landscaped areas, striping, bumpers,
lighting facilities, fences and gates, (ii) the cost of fire, extended coverage,
boiler, sprinkler, public liability, property damage, rent, earthquake and other
insurance obtained by Landlord in connection with the Park and the deductible
portion of any insured loss otherwise covered by such insurance, (iii) the cost
of trash disposal services, (iv) the cost of maintaining tenant directories, (v)
the cost of operating, repairing and maintaining life safety systems, including,
without limitation, sprinkler systems, (vi) the cost of security services, if
provided by Landlord, (vii) the cost of water, electricity, gas and any other
utilities used in connection with the operation, maintenance and repair
5
<PAGE>
of the Common Areas, (viii) permits, licenses and certificates necessary to
operate the Park, (ix) legal, accounting and consulting fees and expenses, (x)
management fees (the property management fee shall be a percentage of Rent and
Additional Charges), and administrative expense related to Park (xi) the cost
and repair of any capital improvements (including but not limited to roofs) made
to the Park, after completion of its construction, as labor-saving device or to
effect other economies in the operation or maintenance of the Park, or made to
the Park after the date of this Lease, that are required under any governmental
law or regulation that was not applicable to the Park at the time that permits
for the construction thereof were obtained, such cost to be amortized over such
reasonable period as Landlord shall determine, together with interest on the
unamortized balance at the rate of ten percent (10%) per annum or such higher
rate as may have been paid by Landlord on funds borrowed for the purpose of
constructing such capital improvement, (xii) the cost of any other service
generally provided to the tenants of the Park by Landlord, and (xiii) one cent
per month per square foot of rentable space in the Premises to a reserve for
roof replacement. The computation of Common Expenses may be made in accordance
with generally accepted accounting principles. The common expenses and budget
are defined and agreed to per Exhibit 'C' attached to the lease. Expenses may
be adjusted to reflect a ninety-five percent (95%) occupancy of the Park during
any period in which the Park is not at least ninety-five percent (95%) occupied.
Increases in operating expenses are capped per the terms and conditions
delineated in Article 1 of the attached lease addendum.
4.2 Tenant shall pay to Landlord as Additional Charges one-twelfth
(1/12) of Tenant's share of the Taxes for each Computation Year on or before the
first day of each month during such Computation Year, in advance, in an amount
estimated by Landlord and billed by Landlord to Tenant; provided that Landlord
shall have the right initially to determine monthly estimates and to revise such
estimates from time to time. With reasonable promptness after Landlord has
received the tax bills for any Computation Year. Landlord shall furnish Tenant
with a statement (herein called "Landlord's Tax Statement") setting forth the
amount of Taxes for such Computation Year, and Tenant's Share of such Taxes. If
the actual Taxes for such Computation Year exceed the estimated Taxes paid by
Tenant for such Computation Year, Tenant shall pay to Landlord the difference
between the amount paid by Tenant and the actual Taxes within fifteen (15) days
after the receipt of Landlord's Tax Statement, and if the total amount paid by
Tenant for any such Computation Year shall exceed the actual Taxes for such
Computation Year, such excess be credited against the next installments of Taxes
due from Tenant to Landlord hereunder.
4.3 Tenant shall pay to Landlord as Additional Charges one-twelfth
(1/12) of Tenant's Share of the Common Expenses for each Computation Year on or
before the first day of each month of such Computation Year, in advance, in an
amount estimated by Landlord and billed by Landlord to Tenant; provided that
Landlord shall have the right initially to determine monthly estimates and to
revise such estimates from time to time. With reasonable promptness after the
expiration of each Computation Year, Landlord shall furnish Tenant with a
statement (herein called "Landlord's Expense Statement"), setting forth in
reasonable detail the Common Expenses for such Computation Year and Tenant's
Share of such Common Expenses. If the actual Common Expenses for Computation
Year exceed the estimated Common Expenses paid by Tenant for such Computation
Year, Tenant shall pay to Landlord the difference between the amount paid by
Tenant and the actual Common Expenses within fifteen (15) days after the receipt
of Landlord's Expense Statements, and if the total amount paid by Tenant for any
such Computation Year shall exceed the actual Common Expenses for such
Computation Year, such excess shall be credited against the next installments of
the estimated Common Expenses due from Tenant to Landlord hereunder. Except for
Landlord's Expense Statement, Landlord shall have no obligation to furnish to
Tenant outside of Landlord's offices, access to any of Landlord's documents,
books, or records. If Tenant disputes the accuracy of Landlord's Expense
Statement, Tenant may upon ten (10) days prior written request to Landlord
review at Landlord's office such records as relate directly to the expenses
contained in Landlord's Expense Statement and no others.
4.4 If the Commencement Date Shall occur on a date other than the
first thirty of a Computation Year, Tenant's Share of Taxes and Common Expenses
for the Computation Year in which the Commencement Date occurs shall be in the
proportion that the number of days from and including the Commencement Date to
and including the last day of the Computation Year in which the Commencement
Date occurs bears to 365. Similarly, if the Expiration Date shall occur on a
date other than the last day of a Computation Year, Tenant's Share of Taxes and
Common Expenses for the Computation Year in which the Expiration Date occurs
shall be in the proportion that the number of days from and including the first
day of the Computation Year in which the Expiration Date occurs to and including
the Expiration Date bears to 360. Notwithstanding the foregoing, Landlord may,
pending the determination of the amount of Taxes and Common Expenses for such
partial Computation
6
<PAGE>
Year, furnish Tenant with Statements of estimated Taxes, estimated Common
Expenses, and Tenant's Share of each thereof for such partial Computation Year.
Within fifteen (15) days after receipt of such estimated statement, Tenant shall
remit to Landlord, as Additional Charges, the amount of Tenant's Share of such
Taxes and Common Expenses. After such taxes and Common Expenses have been
finally determined and Landlord's Tax Statement have been furnished to Tenant
pursuant to Sections 4.2 and 4.3 hereof, respectively, and if there shall have
been an underpayment of Tenant's Share of Taxes or Common Expenses, Tenant shall
remit the amount of such underpayment to Landlord within fifteen (15) days after
the issuance of such statements.
5. Construction of the Building, Premises and Common Areas
5.1 Landlord hereby consents and approves Tenant's space plan and
tenant improvement plan as described in Exhibit 'G' attached hereto.
5.2 The manner in which the Common Areas are maintained and operated
and the expenditures therefore shall be at the sole discretion of Landlord, and
the use of such areas and facilities shall be subject to such reasonable and
non-discriminatory rules and regulations, attached as Exhibit 'E' to the lease,
including without limitation the provisions of any covenants, conditions and
restrictions (CC&R's are also attached to the lease as Exhibit 'F') affecting
the Park, as Landlord shall make from time to time. Landlord shall not be
responsible for the nonperformance of any such rules and regulations or
covenants, conditions and restriction by any other tenant or occupant of the
Park.
5.3 The purpose of attached Exhibit 'A' is only to show the
approximate location of the Premises and the Building and such Exhibit is not
meant to constitute an agreement as the construction of the Premises, the
rentable area thereof or the specific location of the Common Areas or the
elements thereof or of the access ways to the Premises or the Park. Provided
that Landlord does not unreasonably interfere with Tenant's business and quiet
use and enjoyment of the Premises, Landlord hereby reserves the right, at any
time and from time to time, to (a) make alteration in or additions to the Park
and the Common Areas including, without limitation, constructing new buildings,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, landscaped areas and
sidewalks, (b) close temporarily any of the Common Areas for maintenance
purposes as long as reasonable access to the Premises remains available, (c)
designated property outside the Park to be part of the Common Areas, (e) use the
Common Areas while engaged in making alteration in or additions or repairs to
the Park, and (f) change the arrangement and location of entrances or
passageways, corridors, stairs, toilets and public parts of the Building.
Tenant agrees that no diminution of light, air or view by any structure that may
be erected in the Park after the Lease Date shall entitle Tenant to any
reduction of Rent or result in any liability of Landlord to Tenant. Any
alteration, modification, change in use or location of common area is
permissible by Landlord subject to tenant's approval which will not be
unreasonably withheld and subject to not interfering or impairing tenant's use
of Premises and/or common area.
5.4 Landlord reserves the right, from time to time, to grant such
easements, rights and dedications as Landlord deems necessary or desirable, and
to cause the recordation of parcel maps and covenants, conditions and
restrictions affecting the Park, as long as such easements, rights, dedications,
maps and covenants, conditions and restrictions do not unreasonably interfere
with the use of the Premises by Tenant or Tenant's business. At Landlord's
request, Tenant shall join in the execution of any of the aforementioned
documents. The Building and the Park may be known by any name that Landlord may
choose, which name may be changed from time to time in Landlord's sole
discretion.
5.5 Tenant hereby acknowledges that Landlord shall have no obligation
whatsoever to provide guard services or other security measures for the benefit
of the Premises or the Park. Tenant assumes all responsibility for the
protection of Tenant, its employees, suppliers, shippers, customers and invitees
and the property of Tenant and of Tenant's employees, suppliers, shippers,
customers and invitees from acts of third parties. Nothing herein contained
shall prevent Landlord, at Landlord's sole option, from providing security
protection for the Park or any part thereof, in which event the cost therefore
shall be included within the definition of Common Expenses, as set forth in
Section 4.1(e).
7
<PAGE>
6. Conduct of Business by Tenant
6.1 Tenant shall use and occupy the Premises during the Term of this
Lease solely for the use specified in the Basic Lease Information and for no
other use or uses without the prior written consent of Landlord.
6.2 Tenant may vacate the Premises at any time during the term,
provided Tenant is and continues to be current on all obligations.
6.3 Tenant shall not use or occupy, or permit the use or occupancy
of, the Premises or any part thereof for any use other than the use specifically
set forth in Section 6.1, or in any manner that, in Landlord's judgement, would
adversely affect or interfere with (a) any services required to be furnished by
Landlord to Tenant or to any other tenant or occupant of the Park, (b) the
proper and economical rendition of any such service, (c) the use or enjoyment of
any part of the Park by any other tenant or occupant, or (d) any agreement
between Landlord and any other tenant.
6.4 The parking spaces to be provided to Tenant pursuant to Section
1.3 shall be used for parking only by vehicles no larger than full-sized
passenger automobiles or pick-up trucks. Tenant shall not permit or allow any
vehicles that belong to or are controlled by Tenant or Tenant's employees,
suppliers, shippers, customers or invitees to be loaded or parked in areas other
than those designated by Landlord for such activities. If Tenant permits or
allows any of the prohibited activities described in this Section 6.3, Landlord
shall have the right, in addition to all other rights and remedies that it may
have under this Lease, to remove or tow away the vehicle involved without prior
notice to Tenant, and the cost thereof shall be paid to Landlord as Additional
Charges within ten (10) days after delivery to Tenant of bills therefor.
6.5 Tenant shall not store any property in the Common Areas without
prior written consent of Landlord. In the event that any unauthorized storage
shall occur, Landlord shall have the right, in addition to all other rights and
remedies that Landlord may have under this Lease, to remove the property without
prior notice to Tenant, and the cost thereof shall be paid by Tenant to Landlord
within ten (10) days after delivery to Tenant of bills therefor.
6.6 Tenant shall not commit, or suffer to be committed, any waste on
the Premises, nor shall Tenant maintain, commit, or permit the maintenance or
commission of any nuisance on the Premises for any unlawful purpose.
7. Alterations and Tenant's Property
7.1 Tenant shall make no alterations, installations, additions or
improvements whether structural or nonstructural (herein collectively called
"Alterations") in or to the Premises in excess of $25,000.00 without Landlord's
prior written consent which shall not be unreasonably withheld. Tenant shall
submit such information as Landlord may require, including without limitation,
(i) plans and specifications for the Alterations, (ii) permits, licenses and
bonds and (iii) evidence of insurance coverage in such types and amounts and
from such insurers as Landlord reasonably deems satisfactory. All Alterations
shall be done at Tenant's expense, at such times and in such manner as Landlord
may designate, and only by such contractors or mechanics as are approved by
Landlord, which shall not be unreasonably withheld. In no event shall any
Alterations affect the structure of the Building or its exterior appearance or
diminish the value of the Premises. Landlord and Tenant shall pay equally
(50/50) the space planning fees only for Cynthia Ericson of Ericson &
Associates. The expenses incurred after space planning has been completed will
be borne solely by the Tenant.
7.2 All appurtenances, fixtures, improvements, additions and other
property attached to or installed in the Premises, whether by Landlord or by or
on behalf of Tenant, and whether at Landlord's expense or Tenant's expense, or
at the joint expense of Landlord and Tenant, shall be and remain the property of
Landlord except for the special purpose tenant improvements installed by Tenant.
Any furnishings and personal property installed in the premises that are
removable without material damage to the Building or the Premises, whether the
property of Tenant or leased by Tenant, are herein sometimes called "Tenant's
Property". Any replacements of any property of Landlord, whether made at
Tenant's expense or otherwise, shall be and remain the property of Landlord.
Tenant shall not install any machines or equipment which cause vibration, noise,
heat or cold that may be transmitted to the structure of the Building or any
other premises therein without Landlord's prior written consent, which consent
which will not be unreasonably withheld.
8
<PAGE>
7.3 Any of Tenant's Property, or any improvements made on the
Premises without Landlord consent that are remaining on the Premises at the
expiration of the Term shall be removed by Tenant at Tenant's cost and expense,
and Tenant shall, at its cost and expense repair any damage to the Premises or
the Building caused by such removal. Any of Tenant's Property not removed from
the Premises prior to the expiration of the Term shall, at Landlord's option,
become the property of Landlord.
7.4 Landlord shall have the right at all time to post and keep posted
on the Premises any notices permitted or required by law, or that Landlord shall
deem proper, for the protection of Landlord, the Premises, the Building, and any
other party having an interest therein, from mechanics' and materialmen's liens,
and Tenant shall give to Landlord at least thirty (30) business days notice of
commencement of any construction on the Premises.
8. Repairs
8.1 Except for damage caused by any negligent or intentional act or
omission of Tenant or any person claiming through or under Tenant, or any of its
employees, suppliers, shippers, customers or invitees, in which event Tenant
shall repair the damage, Landlord, at Landlord's cost and expense, subject to
reimbursement pursuant to Article 4, shall keep in good condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
and roof of the Premises, as well as the parking lots, walkways, driveways,
landscaping, fences, signs and utility installations of the Common Areas.
Landlord shall not, however, be obligated to paint the exterior or interior
surface of exterior walls, nor shall Landlord be required to maintain, repair or
replace windows, doors, or plate glass of the Premises except for the gross
negligence or intentional misconduct of Landlord or its officers, directors,
employees, contractors, agents, or representatives. Landlord shall not be
liable for, and except as provided in Article 13 hereof, there shall be no
abatement of Rent with respect to, any in jury to or interference with Tenant's
business arising from any repair, maintenance, alteration or improvement in or
to (a) any portion of the Park or the Building, including the Premises, or (b)
the fixtures, appurtenances and equipment therein. Tenant hereby waives and
releases its right to make repairs at Landlord's expense under Sections 1941 and
1942 of the California Civil Code or under any similar, law, statute or
ordinance now or hereafter in effect.
8.2 Subject to the provisions of Section 8.1, Tenant, at Tenant's
cost and expense, shall make all repairs and replacements as and when Landlord
deems necessary to preserve in good working order and condition the Premises and
every part thereof, including, without limitation, all plumbing, heating,
ventilating, and air conditioning systems, electrical and lighting facilities
and equipment within the Premises, fixtures, interior walls, interior surfaces
of exterior walls, ceilings, windows, doors, plate glass and skylights located
within the Premises provided however, that in no event shall Tenant be required
to (i) make any improvements or physical alterations (structural or non-
structural to the Premises unless required by law), or (ii) remove any
improvement or material provided not caused or installed by Tenant (including,
but not limited to, any hazardous materials) that is present on the premises as
of the date Tenant takes possession of the Premises. At Landlord's option,
either Tenant shall procure and maintain, at Tenant's expense, a ventilation and
air conditioning system maintenance contract satisfactory to Landlord, or
Landlord shall procure and maintain a ventilation and air conditioning system
maintenance contract. If Landlord elects to procure and maintain the
ventilating and air conditioning system maintenance contract, Tenant shall pay
to Landlord from time to time, within ten (10) days after delivery of a
statement therefor, the cost of such contract.
8.3 All repairs and replacements made by or on behalf of Tenant or
any person claiming through or under Tenant shall be made and performed (a) at
Tenant's cost and expense and at such time and in such manner as Landlord may
designate, (b) by contractors or mechanics approved by Landlord, (c) so that
same shall be at least equal in quality, value, and utility to the original work
or installation, (d) so as not to cause depreciation in the value of the
Premises, and (e) in accordance with the rules and regulations for the Park
adopted by Landlord from time to time in accordance with all applicable laws and
regulations of governmental authorities having jurisdiction over the Premises
and the Park.
9
<PAGE>
9. Liens
9.1 Tenant shall keep the Premises free from any liens arising out of
any work performed, material furnished or obligation incurred by or for Tenant
or any person or entity claiming through or under Tenant. In the event that
Tenant shall not, within ten (10) days following the imposition of any such
lien, cause same to be released of record by payment or posting of a proper
bond, Landlord shall have, in addition to all other remedies provided herein and
by law, the right but not the obligation to cause such lien to be released by
such means as it shall deem proper, including payment of the claim giving rise
to such lien. All such sums paid by Landlord and all expenses incurred by it in
connection therewith shall be payable to it by Tenant with interest at the rate
of ten percent (10%) from the date of payment and shall be due and payable to
Landlord by Tenant on demand.
10. Compliance with Laws and Insurance Requirements
10.1 Tenant, at Tenant's cost and expense, shall comply with all
laws, orders and regulations of federal, state, county and municipal
authorities, and with all directions, pursuant to law, of all public officers,
that shall impose any duty upon Landlord or Tenant with respect to the Premises
or the use or occupancy thereof, except that Tenant shall not be required to
make any structural Alterations in order to comply unless such Alterations shall
be necessitated or occasioned, as a whole or in part, by the act, omission or
negligence of Tenant or any person claiming through or under Tenant, or any of
their employees, suppliers, shippers, customers or invitees, or by the use of
occupancy or manner of use or occupancy of the Premises by Tenant or any such
person. Any work or installation made or performed by or on behalf of Tenant or
any person claiming through or under Tenant pursuant to the provisions of this
Article 10 shall be made in conformity with, and subject to the provisions of,
Section 8.3. Tenant shall not be made to remove any improvement or material
(including, but not limited to, any hazardous materials) that is present on the
Premises as of the date Tenant takes possession of the Premises.
10.2 Tenant shall not do anything, or permit anything to be done, in
or about the Premises that shall (a) invalidate or be in conflict with the
provisions of any fire or other insurance policies covering the Building or the
Park or any property located therein, (b) result in a refusal by fire insurance
companies of good standing to insure the building or the Park or any such
property in amounts reasonably satisfactory to Landlord, (c) subject Landlord to
any liability or responsibility for injury to any person or property by reason
of any business operation being conducted in or about the Premises, (d) cause
any increase in the fire insurance rates applicable to the Building or property
located therein at the beginning of the Term or at any time thereafter or (e) be
in violation of any certificate of occupancy for the Building. Tenant, at
Tenant's expense, shall comply with all rules, orders, regulations and
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and of any similar body that shall hereafter perform the
function of such Association. Tenant shall not be made to remove any
improvement or material (including, but not limited to, any hazardous materials)
that is present on the Premises as of the date Tenant takes possession of the
Premises.
11. Subordination
11.11 Without the necessity of any additional document being executed
by Tenant for the purpose of effecting a subordination, Tenant agrees that this
Lease shall be subject and subordinate at all times to (a) all ground leases or
underlying leases that may now exist or hereafter be executed affecting the
Building or the Park or both, and (b) the lien of any mortgage or deed of trust
that may now exist or hereafter be executed in any amount for which the
Building, the Park, any ground leases or underlying leases, or Landlord's
interest or estate in any of said items is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause the be subordinated to this Lease any such ground leases or underlying
leases or any such liens. In the event that any ground lease or underlying
lease terminates for any reason or any mortgage or deed of trust is foreclosed
or a conveyance in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination to this Lease or any ground lease, underlying
lease or lien, attorn to and become the Tenant of the successor in interest to
Landlord at the option of such successor in interest. Tenant covenants and
agrees to execute and deliver upon demand by Landlord and in the form requested
by Landlord, any additional documents evidencing the priority or
10
<PAGE>
subordination of this Lease with respect to any such ground leases or underlying
leases or the lien of any such mortgage or deed of trust. Notwithstanding the
foregoing, this Lease shall not be subordinate to any future ground lease,
mortgage, deed of trust or other security instrument unless the holder of such
future ground lease, mortgage, deed of trust or other security instrument
executes a nondisturbance agreement, in a form reasonably acceptable to Tenant,
providing Tenant the right to quiet use and enjoyment of the Premises on the
terms and conditions of this Lease, provided that Tenant is not in default.
11.2 Landlord will use its best efforts to obtain from all existing
holders of ground leases, mortgages, deeds of trust, and other security
instruments, a non-disturbance agreement, in a form reasonably acceptable to
Tenant, providing Tenant the right to quiet use and enjoyment of the Premises on
the terms and conditions of this lease, provided that Tenant is not in default.
12. Inability to Perform; Right to Cure
12.1 If, by reason of the occurrence of any of the events of
unavoidable delay specified in Section 5.1, Landlord is unable to furnish or is
delayed in furnishing any utility or service required to be furnished by
Landlord under the provisions of this Lease or of any collateral instrument, or
is unable to perform or make or is delayed in performing or making any
installations, repairs, alterations, additions or improvements, whether required
to be performed or made under this Lease or under any collateral instrument, or
is unable to fulfill or is delayed in fulfilling any of Landlord's other
obligations under this Lease or any collateral instrument, no such inability or
delay shall constitute an actual or constructive eviction, as a whole or in part
or entitle Tenant to any abatement or diminution of Rent or Additional Charges,
or relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Landlord or its agents by reason of inconvenience or annoyance to
Tenant or by reason of injury to or interruption of Tenant's business, or
otherwise. Tenant hereby waives and releases its right to terminate this Lease
under Section 1932(l) of the California Civil Code or under any similar law,
statute or ordinance nor or hereafter in effect.
12.2 Landlord shall not be deemed to be in default in the performance
of any obligation required to be performed by it hereunder unless and until it
has failed to perform such obligation within thirty (30) days after written
notice by Tenant to Landlord specifying the nature of Landlord's failure to
perform such obligation; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it shall
commence such performance within such thirty (30) day period and thereafter
shall prosecute the same to completion. All rights to cure provided to Landlord
under this Section 12.2 shall also be accorded to any mortgagee or beneficiary
under a deed of trust encumbering the Building except for the gross negligence
or intentional misconduct of Landlord or its officers, directors, employees,
contractors agents, or representatives. Landlord shall not be liable for any
injury or damage to persons or property resulting from loss, theft, explosion,
falling plaster, cessation or variation or shortage or interruption of services
or utilities, steam, gas, electricity, earthquake, acts of God, rain or water or
dampness from any source or any other cause whatsoever, except for the gross
negligence or intentional misconduct of Landlord or its officers, directors,
employees, contractors agents, or representatives. Without limiting the
generality of the foregoing, in no event shall Landlord be liable for damages by
reason of loss of profits, business interruptions or other consequential
damages. If, after notice and expiration of the cure periods set forth in the
Lease, Landlord fails to perform any obligation to be performed by Landlord
pursuant to the Lease, then Tenant may perform or cause to be performed such
obligations and deduct the cost of said obligations first from Additional
Charges owed by Tenant under the Lease, and then, to the extent said costs
exceed the monthly Additional Charges, from the Rent. In performing Landlord's
obligations pursuant to the preceding sentence, Tenant shall perform such
obligations in a manner and to the extent consistent with commercially
reasonable practice consistent with other landlord's of similar buildings in the
area.
13. Destruction
13.1 If the Premises shall be damaged by fire or other casualty
insured against by Landlord's fire and extended coverage insurance policy
covering the Building, and if Tenant shall give prompt notice to Landlord of
such damage, Landlord, at Landlord's expense, shall repair such
11
<PAGE>
damage and restore the Premises to substantially the condition it was in prior
to such fire or casualty; provided, however, that Landlord shall have not
obligation to repair any damage to or to replace Tenant's Property, Alterations
or any other property or effects of Tenant. Except as otherwise provided in
this Article 13, if the entire Premises shall be rendered untenantable by reason
of any such damage, Rent and Additional Charges shall abate for the period from
the date of such damage to the date when such damage to the Premises shall have
been repaired, and if only a part of the Premises shall be rendered
untenantable, Rent and Additional Charges shall abate for such period in the
proportion that the area of the part of the Premises so rendered untenantable
bears to the total area of the Premises; provided, however, if prior to the date
when all of such damage shall have been repaired, any part of the Premises so
damaged shall be rendered tenantable or shall be used or occupied by Tenant or
any person or persons claiming through or under Tenant, then the amount by which
Rent and Additional Charges shall abate shall be equitably apportioned for the
period from the date of any such use or occupancy to the date when all such
damage shall have been repaired.
If, within four (4) months from receipt of building permits, Landlord does
not make all repairs required by Section 13 and deliver possession of the
Premises to Tenant in a condition reasonably acceptable to Tenant, then Tenant
may terminate this Lease as of the date of the occurrence of such damage by
giving Landlord written notice. Landlord shall proceed diligently and in good
faith to obtain all required building permits and to repair the Premises. Any
prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of
God, inability to obtain labor or materials or reasonable substitutes therefore,
governmental restrictions, judicial orders, enemy or hostile governmental
action, civil commotion, fire or other casualty shall excuse the performance by
Landlord of its obligations under the preceding two sentences for a period equal
to the prevention, delay or stoppage; provided that Landlord shall have given
Tenant written notice thereof within five (5) days of such event causing the
prevention, delay or stoppage.
13.2 Notwithstanding the provisions of Section 13.1, if, prior to or
during the Terms, the Premises or the Building (whether or not the Premises
shall have been damaged or rendered untenantable) shall be so damaged by fire or
other casualty that, in Landlord's option, it is impractical to restore the
Premises and/or the Building then, in any of such events Landlord, at Landlord's
option, may give to Tenant, within sixty (60) days after such fire or other
casualty, thirty (30) days notice of termination of this Lease and, in the event
such notice is given, this Lease and the Term shall terminate upon the
expiration of such thirty (30) days with the same effect as if the date of
expiration of such thirty (30) days were the Expiration Date; and Rent and
Additional Charges shall be apportioned as of such date and any prepaid portion
of Rent or Additional Charges for any period after such date shall be refunded
to Tenant.
13.3 Notwithstanding anything in this Article 13 to the contrary, in
no event shall Landlord be required to spend for any repair, replacement or
reconstruction of the Premises or the Building an amount greater than the
insurance proceeds actually received by Landlord as result of the fire or other
casualty causing such loss, damage or destruction.
13.4 Landlord shall attempt to obtain and maintain, throughout the
Term, in Landlord's casualty insurance policies, provisions to the effect that
such policies shall not be invalidated should the insured waive, in writing,
prior to loss, any or all right of recovery against any party for loss occurring
to the Building. In the event that at any time Landlord's casualty insurance
carriers shall exact an additional premium for the inclusion of such or similar
provisions, Landlord shall give Tenant notice thereof. In such event, if Tenant
agrees in writing to reimburse Landlord for such additional premium for the
remainder of the Term Landlord shall require the inclusion of such or similar
provisions by Landlord's casualty insurance carriers. As long as such or
similar provisions are included in Landlord's fire insurance policies then in
force, Landlord hereby waives (a) any obligation on the part of Tenant to make
repairs to the Premises necessitated or occasioned by fire or other casualty
that is an insured risk under such policies, and (b) any right of recovery
against Tenant, any other permitted occupant of the Premises, and any of their
servants, employees, agents or contractors, for any loss occasioned by fire or
other casualty that is an insured risk under such policies. In the event that
at any time Landlord's casualty insurance carriers shall not include such or
similar provisions in Landlord's fire insurance policies, the waivers set forth
in the foregoing sentence shall, upon notice given by Landlord to Tenant, be
deemed of no further force or effect.
12
<PAGE>
13.5 Except to the extend expressly provided in Section 13.4, nothing
in this Lease shall relieve Tenant of any liability under law or under the
provisions of this Lease in connection with any damage to the Premises or the
Building by fire or other casualty.
13.6 Notwithstanding the provisions of Section 13.1, if any such
damage is due to the negligence of Tenant, any person claiming through or under
Tenant, or any of their employees, suppliers, shippers, customers or invitees,
then there shall be no abatement of Rent of Additional Charges by reason of such
damage unless Landlord is reimbursed for such abatement of Rent of Additional
Charges pursuant to any rental insurance policies that Landlord may, in its sole
discretion, elect to carry.
13.7 The provisions of this Lease, including this Article 13,
constitute an express agreement between Landlord and Tenant with respect to any
and all damage to, or destruction of, all or any part of the Premises, the
Building or any other portion of the Park, and any statute or regulation of the
State of California, including, without limitation, Sections 1932(2) and 1933(4)
of the California Civil Code with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement between
the parties, and any similar statute or regulation, now or hereafter in effect,
shall have no application to this Lease or to any damage to or destruction of
all or any part of the Premises, the Building or any other portion of the Park.
14. Eminent Domain
14.1 If all or substantially all of the Premises is condemned or
taken in any manner for public or quasi-public use, including but not limited to
a conveyance or assignment in lieu of a condemnation or taking, this Lease shall
automatically terminate as of the earlier of the date of the vesting of title or
the date of dispossession of Tenant as a result of such condemnation or other
taking. If less than all or substantially all of the Premises is so condemned
or taken, this Lease shall automatically terminate only as to the portion of the
Premises so taken as of the earlier of the date of the vesting title or the date
of dispossession of Tenant as a result of such condemnation or taking. If such
portion of the Building or Park is condemned or otherwise taken so as to
require, in the opinion of Landlord, a substantial alteration or reconstruction
of the remaining portions thereof, this Lease may be terminated by Landlord, as
of the earlier of the date of the vesting of title or the date of dispossession
of Tenant as a result of such condemnation or taking, by written notice to
Tenant within sixty (60) days following notice to Landlord or the date of which
said vesting or dispossession will occur.
14.2 Landlord shall be entitled to the entire award in any
condemnation proceeding or other proceeding for taking for public or
quasi-public use, including, without limitation any award made for the value of
the leasehold estate created by this Lease. No award for any partial or entire
taking shall be apportioned, and Tenant hereby assigns to Landlord any award
that may be made in such condemnation or other taking, together with any and all
rights of Tenant now or hereafter arising in or to same of any part thereof;
provided, however, that nothing contained herein shall be deemed to give
Landlord any interest in, or to require Tenant to assign to Landlord, any award
made to Tenant specifically for its relocation expenses, the taking of personal
property and fixtures belonging to Tenant, or the interruption of or damage to
Tenant's business if such award is made separately to Tenant and not as part of
the damages recoverable by Landlord.
14.3 In the event of a partial condemnation or other taking that does
not result in a termination of this Lease as to the entire Premises pursuant to
Section 14.1, the Rent and Additional Charges shall abate in proportion to the
portion of the Premises taken by such condemnation or other taking.
14.4 If all or any portion of the Premises is condemned or otherwise
taken for public or quasi-public use for a limited period of time, this Lease
shall remain in full force and effect and Tenant shall continue to perform all
terms, conditions and covenants of this Lease; provided, however, the Rent and
Additional Charges shall abate during such limited period in proportion to
portion of the Premises that is rendered untenantable and unusable as a result
of such condemnation or other taking. Landlord shall be entitled to receive the
entire aware made in connection with any such temporary condemnation or other
taking.
13
<PAGE>
14.5 Landlord may agree to sell and/or convey to the condemnor the
Premises, the Building or any portion thereof sought by the condemnor, free from
this Lease and the rights of Tenant hereunder, without first requiring that any
action or proceeding by instituted or, in instituted, pursued to a judgement.
15. Assignment and Subletting
15.1 Tenant shall not directly or indirectly, voluntarily or by
operation of law, sell, assign, encumber, pledge or otherwise transfer or
hypothecate all or any part of the Premises or Tenant's leasehold estate
hereunder (collectively, "Assignment"), or permit the Premises to be occupied by
anyone other than Tenant or sublet the Premises (collectively, "Sublease") or
any portion thereof without Landlord's prior written consent in each instance,
which consent shall not be unreasonably withheld.
15.2 If Tenant desires at any time to enter into an Assignment of
this Lease or a Sublease of the Premises or any portion thereof, it shall first
give written notice to Landlord of its desire to do so, which notice shall
contain (a) the name of the proposed assignee, subtenant or occupant, (b) the
nature of the proposed assignee's, subtenant's or occupant's business to be
carried on in the Premises, (c) the terms and provisions of the proposed
Assignment or Sublease, and (d) such financial information as Landlord may
reasonably request concerning the proposed assignee, subtenant or occupant.
Tenant shall reimburse Landlord for Landlord's reasonable counsel fees incurred
in connection with the processing and documentation of any requested Assignment
of this Lease or Sublease of the Premises, not to exceed $1,000.00.
15.3 At any time within ten (10) days after Landlord's receipt of the
notice specified in Section 15.2, Landlord may by written notice to Tenant elect
to (a) Sublease itself the portion of the Premises specified in Tenant's notice,
(b) take an Assignment of Tenant's leasehold estate specified in Tenant's notice
hereunder, (c) terminate this Lease as to the portion of the Premises that is
specified in Tenant's notice, with a proportionate abatement in Rent (d) consent
to the Sublease or Assignment, or (e) disapprove the Sublease or Assignment. In
the event Landlord elects to Sublease or take an Assignment from Tenant as
described in subsections (a) and (b) above, the rent payable by Landlord shall
be the lower of that set forth in Tenant's notice or the Rent and Additional
Charges payable by Tenant under this Lease at the time of the Assignment or
Sublease (or a proportionate amount thereof representing the portion of the
Premises subject to the Assignment or Sublease if less than the entire Premises
is subject to the Assignment or Sublease). In the event Landlord elects any of
the options set forth in subsections (a), (b) and (c) above, with respect to a
portion of the Premises, (i) Tenant shall at all times provide reasonable and
appropriate access to such portion of the Premises and use of any common
facilities, and (ii) Landlord shall have the right to use such portion of the
Premises for any legal purpose in its sole discretion and the right to further
assign or sublease the portion of the Premises subject to Landlord's election
without consent of Tenant. If Landlord consents to the Sublease or Assignment
within said ten (10) day period, Tenant may therefore within ninety (90) days
after Landlord's consent, but not later than the expiration of said ninety (90)
days enter into such Assignment or Sublease of the Premises or portion thereof,
but only upon the terms and conditions set forth in the notice furnished by
Tenant to Landlord pursuant to Section 15.2. Notwithstanding the foregoing, if
Tenant desires to enter into an Assignment or Sublease of twenty-five percent
(25%) or less of the Premises, Landlord shall only have the right to elect one
of the options set forth in subsections (d) or (e) of this Section.
15.4 No consent by Landlord to any Assignment or Sublease by Tenant
shall relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The consent
by Landlord to any Assignment or Sublease shall not relieve Tenant of the
obligation to obtain Landlord's express written consent to any other Assignment
or Sublease. Any Assignment or Sublease that is not in compliance with this
Article 15 shall be void and, at the option of Landlord, shall constitute a
material default by Tenant under this Lease. The acceptance of Rent or
Additional Charges by Landlord from a proposed assignee or sublessee shall not
constitute the consent by Landlord to such Assignment or Sublease.
15.5 Any sale or other transfer, including transfer by consolidation,
merger or reorganization, of more than 50% of Tenant's voting stock shall be an
Assignment for purposes of this Article 15 if as a result of such sale or other
transfer Tenant's net worth is materially reduced.
14
<PAGE>
Notwithstanding the foregoing, Tenant may, upon written notice to Landlord, but
without obtaining Landlord's consent, assign the Lease or sublet all or any
portion of the Premises to (i) any entity formed by Tenant, provided that Tenant
owns or beneficially controls a majority of the outstanding ownership interest
in such entity, (ii) any parent or subsidiary entity of Tenant, (iii) any person
or entity that acquires all or substantially all of Tenant's assets or capital
stock, provided that the acquiring person or entity has a net worth equal to or
greater than that of Tenant, or (iv) any entity with which Tenant merges or
consolidates, regardless of whether Tenant is the surviving entity, provided
that the surviving entity has a net worth equal to or greater than that of
Tenant. In addition, neither an Assignment nor a Sublease shall include, and
Landlord's consent shall not be required for, (i) any sale or transfer of 50% or
less of Tenant's voting shares, (ii) any sale or transfer of more than 50% of
Tenant's voting shares, if as a result of such sale or other transfer Tenant's
net worth is not materially reduced, (iii) the issuance of new shares, provided
that the transferees of such new shares do not, in the aggregate, own or control
more than 50% of Tenant's voting shares, or, if such transferees own or control,
in the aggregate, more than 50% of Tenant's voting stock, then Tenant's net
worth has not materially decreased, or (iv) in the event of any public offering
by Tenant, or if Tenant is a public company, any sale or other transfer of any
shares of Tenant's capital stock.
15.6 Each assignee, sublessee, other transferee, other than Landlord,
shall assume, as provided in this Section 15.6, all obligations of Tenant under
this Lease and shall be and remain liable jointly and severally with Tenant for
the payment of Rent and Additional Charges, and for the performance of all the
terms, covenants, conditions and agreements herein contained on Tenant's part to
be performed for the Term; provided, however, that the assignee, sublessee, or
other transferee shall be liable to Landlord for rent only in the amount set
forth in the Assignment or Sublease. No Assignment shall be binding on Landlord
unless the Assignee or Tenant shall deliver to Landlord a counterpart of the
Assignment and an instrument in recordable form that contains a covenant of
assumption by the assignee satisfactory in substance and form to Landlord,
consistent with the requirements of this Section 15.6, but the failure or
refusal of the assignee to execute such instrument of assumption shall not
release of discharge the assignee from its liability as set forth above.
15.7 Tenant shall pay Landlord's expenses, but in no event will it
exceed more than $1,000, for each such proposed transfer to cover the legal
review and processing expenses of Landlord, whether or not Landlord shall grant
its consent to such proposed transfer.
16. Utilities
16.1 Tenant shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied for the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Tenant shall pay, at Landlord's option, either Tenant's Share or a
reasonable proportion, to be determined by Landlord, of all charges jointly
metered with other Premises in the Building. Landlord makes no representation
with respect to the adequacy or fitness of the air conditioning or ventilation
equipment in the Building to maintain temperatures that may be required for, or
because of, any equipment, and Landlord shall have no liability for loss or
damage in connection therewith.
16.2 In the event any governmental entity promulgates or revises any
statute, ordinance or building, fire or other code or imposes mandatory controls
or guidelines on Landlord or the Park or any part thereof, relating to the use
or conservation of energy, water, gas, light or electricity or the reduction of
automobile or other emissions or the provision of any other utility or service
provided with respect to this Lease, or in the event Landlord is required or
elects to make alterations to the Building or any other part of the Park in
order to comply with such mandatory controls or guidelines, Landlord may, in its
sole discretion, require Tenant to comply with such mandatory controls or
guidelines or Landlord may, in its sole discretion, make such alterations to the
Building or any other part of the Park related thereto. All costs incurred by
Landlord in connection with such laws, ordinances, guidelines or controls,
including alterations to the Building or other portions of the Park, shall be a
Common Expense and assessed to the tenants of the Park. Such compliance and the
making of such alterations shall in no event entitle Tenant to any damages,
relieve Tenant of the obligation to pay the full Rent and Additional Charges
reserved hereunder or constitute or be construed as a constructive or other
eviction of Tenant.
17. Default
15
<PAGE>
17.1 The failure of Tenant to perform or honor any covenant,
condition or representation made under this Lease shall constitute a default
hereunder by Tenant upon the expiration of the appropriate grace period
hereinafter provided. Tenant shall have a period of three (3) days from the
date of written notice to cure any default in the payment of Rent or Additional
Charges; provided, however, that the obligation of Tenant to pay a late charge
pursuant to Section 3.4 or interest pursuant to Section 3.5 shall commence as of
the due date of the Rent and Additional Charges and not on the expiration of
such three-day period. Tenant shall have a period of ten (10) days from the
date of written notice from Landlord within which to cure any other default
under this Lease; provided, however, that with respect to any default other than
the payment of Rent or Additional Charges that cannot reasonably be cured within
ten (10) days, the default shall not be deemed to be uncured if Tenant commences
to cure with ten (10) days from Landlord's notice and continues to prosecute
diligently the curing thereof to completion within a reasonable time.
17.2 Upon the occurrence of a default by Tenant that is not cured by
Tenant within the grace periods specified in Section 17.1 hereof, Landlord shall
have the following rights and remedies in addition to all other rights and
remedies available to Landlord at law or in equity:
(a) The rights and remedies provided by California Civil Code
Section 1951.2 to recover from Tenant upon termination.
(i) The worth at the time of award of the unpaid Rent
which had been entered at the time of termination;
(ii) The worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonable avoided;
(iii) Subject to Subdivision (c) of the California Civil
Code Section 1951.2, the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of rental loss that Tenant proves could be reasonable avoided; and
(iv) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom.
The "worth" at the time of award of the amounts referred to in clauses (i) and
(ii) of this Section 17.2(a) shall be computed by allowing interest at the Prime
Rate. The worth at the time of the award of the amount referred to in clause
(iii) of this Section 17.2(a) shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus 1%.
(b) The rights and remedies provided by California Civil Code
Section 1951.4, which allows Landlord to continue this Lease in effect and to
enforce all of its rights and remedies under this Lease, including the right to
recover Rent and Additional Charges as they become due, for as long as Landlord
does not terminate Tenant's right to possession; provided, however, if Landlord
elects to exercise its remedies described in this subsection (b) and Landlord
does not terminate this Lease, and if Tenant requests Landlord's consent to an
assignment of this Lease or a sublease of the Premises at such time as Tenant is
in default, Landlord shall not unreasonably withhold its consent to such
assignment or sublease. Acts of maintenance or preservation, efforts to relet
the Premises or the appointment of a receiver upon Landlord's initiative to
protect its interest under this Lease shall not constitute a termination of
Tenant's right to possession.
(c) The right to terminate this Lease by giving notice to Tenant
in accordance with applicable law.
(d) The right and power, as attorney-in-fact for Tenant to enter
the Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the account
of Tenant, and to sell such property and
16
<PAGE>
apply the proceeds therefrom pursuant to applicable California law. Landlord,
as attorney-in-fact for Tenant, may from time to time sublet the Premises or any
part thereof for such term or terms (which may extend beyond the term) and at
such rent and such other terms as Landlord in its sole discretion may deem
advisable, with the right to make alterations in and repairs to the Premises.
Upon each such subletting (i) Tenant shall be immediately liable for payment to
Landlord of, in addition to Rent and Additional Charges due hereunder, the cost
of such subletting and such alterations and repairs incurred by Landlord and the
amount, if any, by which the Rent and Additional Charges for the period of such
subletting (to the extent such period does not exceed the Term) exceed the
amount to be paid as Rent and Additional Charges for the Premises for such
period, or (ii) at the option of Landlord, rents received from such subletting
and Additional Charges due hereunder from Tenant to Landlord; second, to
repairs; third, to payment of Rent and Additional Charges due and unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future Rent and Additional Charges as the same become due hereunder.
If Tenant has been credited with any rent to be received by such subletting
under clause (i) and such rent shall not be promptly paid to Landlord by the
subtenant(s), or if such rentals received from such subletting under clause (ii)
during any month are less than those to be paid during that month by Tenant
hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency
shall be calculated and paid monthly. For all purposes set forth in this
Section 17.2(d), Landlord is hereby irrevocably appointed attorney-in-fact for
Tenant, with power of substitution. No taking possession of the Premises by
Landlord, as attorney-in-fact for Tenant, shall be construed as an election of
Landlord's part to terminate this Lease unless written notice of such intention
is given to Tenant. Notwithstanding any such subletting without termination,
Landlord may at any time thereafter elect to terminate this Lease for such
previous breach.
(e) The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and remedies
granted to Landlord as attorney-in-fact for Tenant pursuant to Section 17.2(d).
18. Insolvency or Bankruptcy
18.1 The appointment of a receiver to take possession of all or
substantially all of the assets of Tenant, or an assignment by Tenant for the
benefit of creditors, or any action voluntarily taken by or instituted against
Tenant under any insolvency, bankruptcy, reorganization, moratorium or other
debtor relief act or statute, whether now existing or hereafter amended or
enacted, or if Tenant shall admit in writing its inability to pay its debts or
shall generally not be paying its debts as they mature, shall at Landlord's
option constitute a breach of this Lease by Tenant. Upon the happening of any
such event or at any time thereafter, this Lease shall terminate five (5) days
after written notice of termination from Landlord to Tenant. In no event shall
this Lease be assigned or assignable by operation of law or by voluntary or
involuntary bankruptcy proceedings or otherwise, and in event shall this Lease
or any rights or privileges hereunder be an asset of Tenant under any
bankruptcy, insolvency, reorganization or other debtor relief proceedings.
19. Fees and Expenses, Indemnity
19.1 If Tenant shall default in the performance of its obligations
under this Lease, Landlord, at any time thereafter and without notice, may
remedy such default for Tenant's account and at Tenant's expense, without
thereby waiving any other rights or remedies of Landlord with respect to such
default.
19.2 Tenant agrees to indemnity Landlord against and save Landlord
harmless from any and all loss, cost, liability, damage and expense, including,
without limitation, penalties, fines and counsel fees, incurred in connection
with or arising from any cause whatsoever in, on or about the Premises,
including, without limiting the generality of the foregoing, (a) any default by
Tenant in the observance or performance of any of the terms, covenants or
conditions of this Lease on Tenant's part to be observed or performed, (b) the
use or occupancy or manner of use or occupancy of the Premises by Tenant or any
person claiming through or under Tenant, (c) the condition of the Premises or
any occurrence or happening on the Premises from any cause whatsoever, or
through or under Tenant, or of the employees, suppliers, shippers, customers, or
invitees of Tenant or any such person, in, on or about the Premises or the Park,
whether prior to, during, or after the expiration
17
<PAGE>
of, the Term including, without limitation, any act, omission or negligence in
the making or performing of any Alterations. Tenant further agrees to indemnify
Landlord, Landlord's agents, and the Lessor or Lessors under all ground or
underlying leases, against and hold them harmless from any and all loss, cost,
liability, damage and expense including, without limitation, counsel fees
incurred in connection with or arising from any claims by any persons by reason
of injury to persons or damage to property occasioned by any use, occupancy,
condition, occurrence, happening, act, omission or negligence referred to in the
preceding sentence.
19.3 Landlord shall not be responsible for or liable to Tenant for
any loss or damage that may be occasioned by or through the acts or omissions of
persons occupying adjoining premises or any part of the premises adjacent to or
connected with the Premises or any part of the Park or for any loss or damage
resulting to Tenant or its property from burst, stopped or leaking water, gas,
sewer or steam pipes or from any damage to or loss of property within the
Premises from any causes whatsoever, including theft.
19.4 Except where a longer or shorter period is specifically provided
for in this Lease for a particular expenditure, Tenant shall pay to Landlord,
within ten (10) days after delivery by Landlord to Tenant of bills or statements
therefor: (a) sums equal to all expenditures made and monetary obligations
incurred by Landlord including, without limitation, expenditures made and
obligations incurred for reasonable counsel fees, in connection with the
remedying by Landlord for Tenant's account pursuant to the provisions of Section
19.1; (b) sums equal to all losses, costs, liabilities, damages and expenses
referred to in Section 19.2; and (c) sums equal to all expenditures made and
monetary obligations incurred by Landlord, including, without limitation,
expenditures made and obligations incurred for reasonable counsel fees in
collecting or attempting to collect the Rent, any Additional Charges or any
other sum of money accruing under this Lease or in enforcing or attempting to
enforce any rights of Landlord under this Lease or pursuant to law. Tenant's
obligations under this Section 19.4 shall survive the expiration or sooner
termination of the Term.
20. Access to Premises
20.1 Landlord reserves and shall at all times have the right, upon 24
hour notice (except in emergencies) to enter the Premises at all reasonable
times to inspect same, to supply any service to be provided by Landlord to
Tenant hereunder, to show the Premises to prospective purchasers, mortgagees or
tenants, to post notices of non-responsibility, and to alter, improve or repair
the Premises and any portion of the Park, without abatement of Rent or
Additional Charges, and may for that purpose erect, use and maintain
scaffolding, pipes, conduits and other necessary structures in and through the
Premises where reasonably required by the character of the work to be performed,
provided that the entrance to the Premises shall not be blocked thereby, and
further provided that the business of Tenant shall not be interfered with
unreasonably. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises or any other loss occasioned thereby.
Landlord shall have the right to use any and all means that Landlord may deem
necessary or proper to open all doors in, upon and about the premises in an
emergency, in order to obtain entry to any portion of the Premises, and any
entry to the Premises or portions thereof obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.
21. Notices
21.1 Except as otherwise expressly provided in this Lease, any bills,
statements, notices, demands, request or other communications given or required
to be given under this Lease shall be effective only if rendered or given in
writing, sent by registered or certified mail or delivered personally, (a) to
Tenant (i) at Tenant's address set forth in the Basic Lease Information, if sent
prior to Tenant's taking possession of the Premises, or (ii) at the Park if sent
subsequent to Tenant's taking possession of the Premises, or (iii) at any place
where Tenant or any agent or employee of Tenant may be found if sent subsequent
to Tenant's vacating, deserting, abandoning or surrendering the Premises, or (b)
to Landlord at Landlord's address set forth in the Basic Lease Information, or
(c) to such other address as either Landlord or Tenant may designate as its new
address for such purpose by notice given to the other in accordance with the
provisions of this Section 21.1. Any such bill,
18
<PAGE>
statement, notice, demand, request or other communication shall be deemed to
have been rendered or given two (2) days after the date personal delivery is
made. If Tenant is notified of the identity and address of Landlord's mortgagee
or beneficiary under a deed of trust, or ground or underlying lessor notice of
any default by Landlord under the terms of this Lease in writing sent by
registered or certified mail, and such mortgagee, beneficiary or ground or
underlying lessor shall be given a reasonable opportunity to cure such default
prior to Tenant's exercising any remedy available to it.
22. No Waiver; No Oral Modification
22.1 No failure by Landlord to insist upon the strict performance of
any obligation of Tenant under this Lease or to exercise any right, power or
remedy consequent upon a breach thereof, no acceptance of the keys to or
possession of the Premises prior to the termination of the Term by any employee
of Landlord prior to the termination of the Term by any employee of Landlord
shall constitute a waiver of any such breach or of such term, covenant or
condition or operate as a surrender of this Lease. No payment by Tenant or
receipt by Landlord of a lesser amount than the aggregate of all Rent and
Additional Charges then due under this Lease shall be deemed to be other than on
account of the first items of such Rent and Additional Charges then accruing of
becoming due, unless Landlord elects otherwise; and no endorsement or statement
on any check, no letter accompanying any check or other payment of Rent or
Additional Charges in any such lesser amount and no acceptance of any such check
or other such payment by Landlord shall constitute an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or Additional Charges or to pursue any
other legal remedy.
22.2 Neither this Lease nor any term or provision hereof may be
changed, waived, discharged or terminated orally, and no breach thereof shall be
waived, altered or modified, except by a written instrument signed by the party
against which the enforcement of the change, waiver, discharge or termination is
sought. No waiver of any breach shall affect or alter this Lease, but each and
every term, covenant and condition of this Lease shall continue in full force
and effect with respect to any other existing or subsequent breach thereof.
22.3 The review, approval, inspection or examination by Landlord of
any item to be reviewed, approved, inspected or examined by Landlord under the
terms of this Lease or the exhibits attached hereto shall not constitute the
assumption of any responsibility by Landlord for either the accuracy or
sufficiency of any such item or the quality or suitability of such item for its
intended use. Any such review, approval, inspection or examination by Landlord
is for the sole purpose of protecting Landlord's interest in the Park and under
this Lease, and no third parties, including, without limitation, Tenant or any
person or entity claiming through or under Tenant, or the contractors, agents,
servants, employees, visitors or licensees of Tenant or any such person or
entity, shall have any rights hereunder.
23. Tenant's Certificates
23.1 Tenant, at any time and from time to time upon not less than ten
(10) days prior written notice from Landlord, will execute, acknowledge and
deliver to Landlord and, at Landlord's request, to any prospective purchaser,
ground or underlying lessor, beneficiary under a deed of trust or mortgagee of
any part of the Park, a certificate of Tenant stating: (a) that Tenant has
accepted the Premises (or, if Tenant has not done so, that Tenant has not
accepted the Premises and specifying the reasons therefor), (b) the Commencement
and Expiration Dates of this Lease, (c) that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that same is in
full force and effect as modified and stating the modifications), (d) whether or
not there are then existing any defenses against the enforcement of any of the
obligations of Tenant under this Lease (and, if so, specifying same), (e)
whether or not there are then existing any defaults by landlord in the
performance of its obligations under this Lease (and, if so, specifying same),
(f) the dates, if any, to which the Rent and Additional Charges and other
charges under this Lease have been paid, and (g) any other information that may
reasonably be required by any of such persons. It is intended that any such
certificate of Tenant delivered pursuant to this Section 23.1 may be relied upon
by Landlord and any prospective purchaser, ground or underlying lessor,
beneficiary or mortgagee of any part of the Park.
19
<PAGE>
24. Tenant's Financial Condition
24.1 Within ten (10) days after written request from Landlord, Tenant
shall deliver to Landlord such financial statements as Landlord reasonably
requires to verify the financial condition of Tenant or any assignee, subtenant,
or guarantor of Tenant. In addition, Tenant shall deliver to Landlord, or any
lender or lender representative, designated by Landlord, any financial
statements required by such lender to facilitate the financing or refinancing of
the Property. Tenant represents and warrants to Landlord that each such
financial statement is a true and accurate statement as of the date of such
statement. All financial statements shall be confidential and shall be used
only for the purposes set forth in this Lease.
25. Tax on Tenant's Personal Property
25.1 Prior to delinquency, Tenant shall pay all taxes levied or
assessed upon Tenant's equipment, furniture, fixtures, and other personal
property located in or about the Premises. If the assessed value of Landlord's
property is increased by the inclusion therein of a value placed upon Tenant's
equipment, furniture, fixtures or other personal property, Tenant shall pay to
Landlord, upon written demand, the taxes so levied against Landlord, or the
proportion thereof resulting from said increase is assessment. Tenant shall
have the right, at Tenant's sole cost and expense, to protest or contest, in the
name of Landlord or otherwise, any tax or assessment, or any increase in any tax
or assessment, levied on the Premises, but Tenant shall have no right to direct
Landlord not to pay any tax or assessment before it becomes delinquent pending
final determination of the protest or contest unless Tenant deposits with
Landlord (a) the full amount of the tax or assessment, plus (b) the amount of
penalty that will be imposed on the Premises for failure to pay the tax or
assessment before it becomes delinquent, and (c) one year's interest at the rate
charged by the government entity imposing the tax or assessment on the amount of
the tax or assessment. The portion of real estate taxes payable by Tenant
pursuant to this Section 25.1 and by other tenants of the Park pursuant to
similar provisions in their leases shall be excluded from Taxes for purposes of
computing the Additional Charges to be paid pursuant to Article 4.
26. Security Deposits
26.1 By execution of this Lease, Landlord acknowledges receipt of
Tenant's Security Deposit for the faithful performance of all terms, covenants
and conditions of this Lease. Tenant agrees that Landlord may, without waiving
any of Landlord's other rights and remedies under this Lease upon the occurrence
of any of the events of default described in Article 17, apply the Security
Deposit to remedy any failure by Tenant to repair or maintain the Premises or to
perform any other terms, covenants or conditions contained herein. If Tenant
has kept and performed all terms, covenants and conditions of this Lease during
the Term, Landlord will within thirty (30) days following the termination hereof
return said sum to Tenant or the last permitted assignee of Tenant's interest
hereunder at the expiration of the Term. Should Landlord use any portion of the
Security Deposit to cure any default by Tenant hereunder, Tenant shall replenish
the Security Deposit to the original amount within ten (10) days after notice.
Landlord shall not be required to keep the security deposit separate from its
general funds, and Tenant shall not be entitled to interest on any such deposit.
Upon any sale or transfer of its interest in the Building, Landlord must
transfer the Security Deposit to its successors in interest (minus any lawful
deductions, if any, made) and notify Tenant of such transfer and of the name and
address of the transferee or return to Tenant the portion of such deposit
remaining after any lawful deductions, if any, have been made. Thereupon,
Landlord shall be released from any liability or obligation with respect
thereto. If Tenant fails to pay Rent or Additional Charges when due more than
two (2) times in any consecutive six month period, then Tenant shall immediately
increase the amount of the Security Deposit by an amount equal to one month's
Rent and/or at the option of Landlord Tenant shall immediately pay the next
ensuing three month's Rent in advance. In addition, Landlord shall be
compensated at $100 per hour each hour or part of an hour that Landlord
personnel may spend in enforcing the obligations of this Lease or because of
involvement of Landlord in third party litigation or claims against or involving
Tenant.
20
<PAGE>
27. Authority
27.1 If Tenant signs as a corporation or a partnership, each of the
persons executing this Lease on behalf of Tenant does hereby covenant and
warrant that Tenant is duly authorized and existing entity, that Tenant has and
is qualified to do business in California, that Tenant has full right and
authority to enter into this Lease, and that each and every person signing on
behalf of Tenant is authorized to do so. Upon Landlord's request, Tenant shall
provide Landlord with evidence satisfactory to Landlord confirming that
foregoing covenants and warranties.
28. Broker
28.1 Broker's Fee. When this Lease is signed by and delivered to
both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 28.3, if any, as provided in the written
agreement between Landlord and Landlord's Broker, or the sum of $81,693.90 for
services rendered to Landlord by Landlord's Broker in this transaction.
28.2 Protection of Brokers. If Landlord sells the Property, or
assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Section. Landlord's Broker shall
have the right to bring a legal action to enforce or declare rights under this
provision. The prevailing party in such action shall be entitled to reasonable
attorneys' fees to be paid by the losing party. Such attorneys' fees shall be
fixed by the court in such action. This Paragraph is included in this Lease for
the benefit of Landlord's Broker.
28.3 Agency Disclosure; No Other Brokers. Landlord and Tenant each
warrant that they have dealt with no other real estate broker(s) in connection
with this transaction except: CB Commercial Real Estate Group, Inc., who
represents Twenty-Seven M.H., Inc. and Grubb and Ellis Company, who represents
UniFET, A California Corporation. In the event that CB Commercial represents
both Landlord and Tenant, Landlord and Tenant hereby confirm that they were
timely advised of the dual representation and that they consent to the same, and
that they do not expect said broker to disclose to either of them the
confidential information of the other party.
29. Liability of Landlord
29.1 The liability of Landlord hereunder or in connection with the
Premises, the Building or the Park shall be limited to its interest herein, and
in no event shall any other assets of Landlord or any constituent partner of
Landlord be subject to any claim arising out of or in connection with the Lease
or the Park.
30. Attorney's Fees
30.1 In the event that either Landlord or Tenant fails to perform any
of its obligations under this Lease or in the event a dispute arises concerning
the meaning or interpretation of any provision of this Lease, the basis of the
dispute shall be settled by judicial proceeding and the defaulting party or the
party not prevailing in such dispute, as the case may be, shall pay any and all
costs and expenses incurred by the other party in enforcing or establishing its
rights hereunder, including without limitation, Court costs and attorneys' fees.
If Landlord is required to retain the services of an attorney to collect Rent or
Additional Charges or enforce other provisions of this Lease, even if no
judicial proceeding is commenced, Tenant shall pay Landlord, Landlord's actual
attorney's fees and costs incurred in connection with such enforcement.
31. Surrender and Holding Over
31.1 Upon the expiration or sooner termination of the Term, Tenant
will quietly and peacefully surrender to Landlord the Premises in the condition
in which they are required to be kept as provided in Article 8, ordinary wear
and tear and the provisions of Article 13 excepted.
31.2 Any holding over after the expiration of the Term with the
consent of Landlord shall be construed to be a tenancy from month to month at
one hundred ten percent (110%)
21
<PAGE>
of the Rent herein specified (prorated on a monthly basis), unless Landlord
shall specify a different rent in its sole discretion, together with an amount
estimated by Landlord for the monthly Additional Charges payable under this
Lease, and shall otherwise be on the terms and conditions herein specified as
far as applicable. Any holding over without Landlord's consent shall constitute
a default by Tenant and shall entitle Landlord to re-enter the Premises as
provided in Article 17 hereof.
32. Quiet Enjoyment
32.1 Upon Tenant's paying the Rent and Additional Charges and
performing all of Tenant's obligations under this Lease, Tenant may peacefully
and quietly enjoy the Premises during the Term as against all persons or
entities lawfully claiming by or through Landlord; subject, however, to the
provisions of this Lease and to any mortgages, deeds of trust or ground or
underlying leases referred to in Article 11.
33. Tenant's Insurance
33.1 Tenant shall carry at its expense and maintain in force during
the Term the following insurance:
(a) Comprehensive General Liability Insurance (including
protective liability coverage on operations of independent contractors engaged
in construction and also blanket contractual liability insurance) on an
"occurrence" basis for the benefit of Tenant and Landlord as named insured
against claims for "personal injury" liability including without limitation
bodily injury, death or property damage liability with a limit of not less than
One Million Five Hundred Thousand Dollars ($1,500,000) in the event of "personal
injury" to any number of persons or of damages to property arising out of any
one "occurrence"; such insurance may be furnished under a "primary" policy and
an "umbrella" policy, provided that it is primary insurance and not excess over
or contributory with any insurance in force for Landlord; and
(b) Insurance against loss or damage by fire and such other
risks and hazards as are insurable under present and future standard forms of
fire and extended coverage insurance policies, to the personal property,
furniture, furnishings and fixtures belonging to Tenant located in the Premises
for not less than 100% of the actual replacement value thereof. Such insurance
shall provide for a waiver of the insurer's right of subrogation against
Landlord.
32.2 At Landlord's option, Landlord shall procure at Tenant's expense
or Tenant shall procure at its expense:
(a) Fire, Extended Coverage and Vandalism and Malicious Mischief
Insurance of the Premises in an amount not less than the full replacement value
thereof without Tenant being deemed a co-insurer under the terms of the
applicable policy, and against such additional perils and for such other amounts
as may from time to time be required by Landlord without deduction for physical
depreciation thereof; such insurance on the Premises shall contain the
"Replacement Cost Endorsement";
(b) In the event that such equipment is installed in the
Premises, Boiler and Machinery Equipment Insurance in the amount of One Million
Dollars ($1,000,000) or such greater amount as Landlord may at any time
reasonably require, covering boilers, pressure vessels, pressure piping, all
major components of a central air-conditioning or heating system and such
additional equipment as Landlord may at any time reasonably require;
(c) Business Interruption Insurance against loss of income by
reason of any hazard covered under the insurance required under subsections (a)
and (b) of this Section in an amount sufficient to avoid any co-insurance
penalty, but in any event for not less than one year's gross rent from the
Premises; and
(d) Such other insurance as may be reasonably required by
Landlord in connection with the Premises or Tenant's activities in the Park.
22
<PAGE>
33.3 All such insurance shall name Landlord as additional insured,
shall be effected under policies issued by insurers, shall be in forms and for
amounts approved by Landlord and shall provide that Landlord shall receive
thirty (30) days written notice from the insurer to any cancellation or change
of coverage.
33.4 Tenant shall deliver policies of such insurance or certificates
thereof to Landlord on or before the Commencement Date, and Certificates at
least thirty (30) days before the expiration dates of expiring policies; and, in
the event Tenant shall fail to procure such insurance, or to deliver such
policies or certificates, Landlord may, at its option, procure same for the
account of Tenant, and the cost thereof shall be paid to Landlord as Additional
Charges within ten (10) days after delivery to Tenant of bills thereof. Nothing
contained in this Article 32 shall in any way limit the extent of Tenant's
liability under any of the other provisions of this Lease.
34. Short Form Lease
34.1 Tenant agrees to execute, deliver and acknowledge, at the
request of Landlord, a short form of this Lease satisfactory to counsel for
Landlord, and Landlord may in its sole discretion record this Lease or such
short form in the County where the Premises are located. Tenant shall not
record this Lease, or a short form of this Lease, without Landlord's prior
written consent.
35. Waiver of a Jury Trial
35.1 Landlord and Tenant hereby waive trial by jury in any action or
proceeding brought by either of the parties hereto against the other on any
matters arising out of or connected with this Lease, the relationship of
Landlord and Tenant and Tenant's use or occupancy of the Premises.
36. Miscellaneous
36.1 Use of Terms
The words "Landlord" and "Tenant" as used herein shall include
the plural as well as the singular. Words used in the neuter gender include the
masculine and feminine. If there is more than one Tenant, the obligation under
this Lease imposed on Tenant shall be joint and several. The captions preceding
the articles of this Lease have been inserted solely as a matter of convenience,
and such captions in no way define or limit the scope or intent of any provision
of this Lease.
36.2 The terms, covenants and conditions contained in this Lease
shall bind and inure to the benefit of Landlord and Tenant and, except as
otherwise provided herein, their prospective personal representatives and
successors and assigns; provided, however, upon the sale, assignment or transfer
by Landlord (or by any subsequent landlord) of its interest in the Building as
owner or lessee, including any transfer by operation of law, Landlord (or
subsequent landlord) shall be relieved of all obligations of liabilities under
this Lease, and all obligations or liabilities shall be binding upon the
grantee, assignee or other transferee of such interest, and any such grantee,
assignee or transferee, by accepting such interest, shall be deemed to have
assumed such obligations and liabilities. A lease of the entire Building to a
person other than for occupancy thereof shall be deemed a transfer within the
meaning of this Section 36.2.
36.3 Severability
If any provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, and in
Landlord's opinion such invalid or unenforceable provision does not affect the
material benefit or right hereunder, the remainder of this Lease, or the
application of such provision to persons or circumstances other than those as to
which it is invalid or unenforceable, shall not be affected thereby, and each
provision of this Lease shall be valid and be enforced to the full extent
permitted by law.
23
<PAGE>
36.4 California Law
This Lease shall be construed and enforced in accordance with the
laws of the State of California.
36.5 Execution by Landlord
Submission of this instrument for examination or signature by
Tenant does not constitute a reservation of or an option for lease, and it is
not effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant.
36.6 Merger
This instrument, including the exhibits hereto, which are made a
part of this Lease, contains the entire agreement between the parties, and all
prior negotiations and agreement are merged herein. Neither Landlord nor
Landlord's agents have made any representations or warranties with respect to
the Premises, the Building, the Park, or this Lease except as expressly set
forth herein, and no rights, easements or licenses are or shall be acquired by
Tenant by implication or otherwise unless expressly set forth herein.
36.7 No Signs
Tenant shall not place any sign upon the Premises or the Park
without Landlord's prior written consent, which consent may not be withheld
unreasonably. Said signage will be per the City of Carlsbad sign criteria and
CC&R's of business park. Under no circumstances shall Tenant place a sign on
any roof of the Park.
36.8 Execution of Certificates and Instruments by Tenant
Provisions in this Lease, including sections 11, 23, and 24,
refer to certificates and instruments to be executed by Tenant upon the request
of Landlord to facilitate Landlord management and operation of the Park.
Provided that Tenant has failed to timely execute and return to Landlord such
certificates and instruments after Landlord has (i) sent such certificates and
instruments via both facsimile and certified mail, return receipt requested,
(ii) waited five (5) days, and then again sent such certificates and instruments
via both facsimile and certified mail, return receipt requested, (iii) waited
five (5) days, and then sent two representatives to Tenant's reception area at
the Premises and such representatives have asked the receptionist to see first
Jerry Mezger, Tenant's President (or the then current president), and then
second George Pache, Vice President of Finance (or the then current vice
president of finance), and then either of their respective secretaries, and upon
personally seeing such person(s) hand-delivered such certificates and
instruments and requested that Jerry Mezger or George Pache (or their
predecessors) sign such certificates and instruments (of if such person(s) are
not available, have left such certificates and instruments with Tenant's
receptionist) for Jerry Mezger and George Pache (or their predecessors), and
(iv) waited twenty-four (24) hours and then repeated the procedure just
described in subpart (iii), Tenant shall be responsible to Landlord for all
damages incurred by Landlord caused by Tenant's failure to timely execute and
return to Landlord such certificates and instruments. Tenant shall pay to
Landlord, within thirty (30) days, $200 for each time Landlord is required to
send representatives to the Premises pursuant to subparts (iii) and (iv) of the
preceding sentence because of Tenant's failure to return such certificates and
instruments. In the event Tenant fails to execute and return to Landlord any
certificate or instrument which by the terms of this Lease Tenant is required to
execute, Tenant shall be required to pay to Landlord the sum of $100 as an
administrative charge to defray the administrative costs to Landlord caused by
such failure. In addition, Tenant appoints Landlord Tenant's attorney-in-fact
to execute such certificates or instruments on Tenant's behalf as Tenant's
attorney-in-fact if Tenant fails to execute any instrument or certificate within
the time limit provided and if no time limit provided, within a reasonable time.
37. Hazardous Waste
(a) Tenant covenants, represents and warrants, that it shall not
generate, store, treat, locate, use, release, process or dispose of any
hazardous material on or about the
24
<PAGE>
Premises or the Park except in strict accordance with all laws of every
governmental entity having jurisdiction over the Premises, the Park and/or the
acts of Tenant. Tenant further agrees that it will not use or bring any
material containing asbestos on to or about the Premises or the Park.
(b) Without diminishing the matters set forth above, Tenant
shall immediately notify Landlord, both verbally, and as soon as practicable
thereafter in writing, of (I) any emission, spill, release, discharge or
appearance of any hazardous materials, and/or (II) any correspondence or
communication to Tenant or its agents regarding the presence or suspected
presence of hazardous materials on or about the Premises or regarding the
application of environmental laws to the Premises or Tenant's activities
thereon.
(c) In the event any hazardous materials come onto the Common
Areas by any act or omission of Tenant, Tenant shall immediately remove from the
Common Areas and dispose of all such materials, in a safe and lawful manner. In
the event Tenant breaches any of its obligations and/or covenants in subsection
(a) above, Tenant shall immediately remove from the Premises and dispose of all
such hazardous materials in a safe and lawful manner. Moreover, prior to the
expiration and/or termination of the Lease, Tenant shall remove any and all
hazardous materials introduced to the Premises during Tenant's occupancy, from
the Premises (and any adjoining Premises affected by Tenant's use) and dispose
of such hazardous materials in a safe and lawful manner. Landlord reserves the
right, but not the obligation, to remove any such hazardous materials from the
Premises and the Common Areas and may enter on to the Premises to effectuate
such removal without liability to Tenant for the removal and disposal thereof or
the entrance thereon. Any such acts undertaken by Landlord shall be at Tenant's
sole cost and expense, and Tenant shall immediately reimburse Landlord for any
and all costs and expenses so incurred, including, without limitation,
investigatory and consulting costs and Landlord's overhead.
(d) Tenant shall indemnify and hold harmless Landlord, its
employees, lenders and their agents, for, from and against any and all loss,
damage, obligation, penalty, liability, litigation, demand, defense, judgement,
suit, proceeding, cost, disbursement, and/or expense (including, without
limitation, reasonable investigation, remediation, removal, consulting and legal
fees, costs and expense) including but not limited to, any claim or action for
injury, liability or damage to persons or property, and any and all claims,
investigations, or actions brought by any person, firm, governmental body, or
other entity, alleging or resulting from, or arising from, or in connection
with, contamination of or adverse effects on the environment, the Premises
and/or any other portion of the Park, or adjoining property, or violation or
failure to comply with, any environmental law, statute, ordinance rule,
regulation, judgement, or order of any government or judicial entity, of and
for, from and against any damages, liabilities, costs and penalties assessed as
a result of any activity or operation of Tenant or its agents, contractors,
employees and invitees on or about the Premises or any other portion of the
Park. Without limiting the general survival of Tenant's obligations and
liabilities under this Lease following the expiration or termination of this
Lease, Tenant's obligations and liabilities under this paragraph shall continue
after the expiration or termination of this Lease. Tenant's failure to abide by
the terms of this paragraph shall be restrainable by injunction.
(e) Landlord and Tenant acknowledge that other portions of the
Lease, does or may contain restrictions and provisions regarding the same or
similar subject matter as this paragraph. In such event, all such provisions
shall be read to provide Landlord its greatest protection and indemnity.
(f) Definition of "hazardous material". As used herein, the
term "hazardous material" means any hazardous or toxic substance, material or
waste which is or becomes regulated by any local governmental authority, the
State of California or the United States Government. The term "hazardous
material" includes, without limitation, any material or substance which is (i)
defined as a "hazardous waste", "extremely hazardous waste" or "restricted
hazardous waste" under Sections 25515, 25117 or 25122.7 or listed pursuant to
Section 25140 of the California Health & Safety Code, Division 20, Chapter 6.5
(Hazardous Waste Control Law); (ii) defined as a "hazardous substance" under
Section 25316 of the California Health & Safety Code, Division 2, Chapter 6.8
(Carpenter-Presly-Tanner Hazardous Substance Account Act:); (iii) defined as a
"hazardous material", "hazardous substance" or "hazardous waste" under Section
25501 of the California Health & Safety Code, Division 20, Chapter 6.95
(Hazardous Substances); (iv) petroleum;
25
<PAGE>
(v) asbestos; (vi) listed under Article 9 and defined as hazardous or extremely
hazardous pursuant to Article 9 and defined as hazardous or extremely hazardous
pursuant to Article 11 of Title 22 of the California Administrative Code,
Division 4, Chapter 20; (vii) designated as a "hazardous substance" pursuant to
Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section 1317);
(viii) defined as a "hazardous waste" pursuant to Section 1004 of the Federal
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq. (42
U.S.C. Section 6903); or (ix) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response Compensation and
Liability Act, 42, U.S.C. Section 9601, et seq. (42 U.S.C. Section 9601).
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
Lease Date.
LANDLORD: TENANT:
M.H.P.P., Inc. UniFET, Inc., a California corporation
5414 Oberlin Drive, Suite 140 1945 Palomar Oaks Way
San Diego, CA 92121 Carlsbad, California
92009
By: GARY BOSSTICK By: GEORGE PACHE
-------------------- ------------------------------
Its: AGENT Its: VICE PRESIDENT/CFO
-------------------- ------------------------------
Date: 9/5/95 Date: 9/1/95
-------------------- ------------------------------
26
<PAGE>
ADDENDUM TO THAT CERTAIN INDUSTRIAL LEASE AGREEMENT DATED MAY 1, 1995 BY AND
BETWEEN M.H.P.P., INC., AS LANDLORD, AND UNIFET, INC., a California corporation,
AS TENANT FOR THE BUILDING NO. 6, 1945 PALOMAR OAKS WAY, LOCATED IN THE PALOMAR
OAKS TECHNOLOGY PARK.
- --------------------------------------------------------------------------------
1. RENT SCHEDULE:
YEAR PERIOD LEASE RATE - BASIC RENT
1 November 2, 1995 to March 18, 1996 FREE RENT
1 March 19, 1996 to January 31, 1997 $21,750 Net, Net, Net / Month
2 February 1, 1997 to January 31, 1998 $25,500 Net, Net, Net / Month
3 February 1, 1998 to January 31, 1999 $29,635.50 Net, Net, Net /
Month
4 February 1, 1999 to January 31, 2000 $29,635.50 Net, Net, Net /
Month
5 February 1, 2000 to January 31, 2001 $29,635.50 Net, Net, Net /
Month
Additional Charges - (Sectionstion 4 of Lease)
YEAR ADDITIONAL CHARGE
1 November 2, 1995 to December 18, 1995 Free
1 December 19, 1995 to March 18, 1996 17CENTS / Sq. Ft. / Month
Maximum
1 March 19, 1996 to January 31, 1997 17CENTS / Sq. Ft. / Month
Maximum
2 February 1, 1997 to January 31, 1998 17.85CENTS / Sq. Ft. / Month
Maximum
3 February 1, 1998 to January 31, 1999 18.75CENTS / Sq. Ft. / Month
Maximum
4 February 1. 1999 to January 31, 2000 19.68CENTS / Sq. Ft. / Month
Maximum
5 February 1, 2000 to January 31, 2001 20.66CENTS / Sq. Ft. / Month
Maximum
Tenant shall be responsible for the lesser of the actual common area
maintenance expenses or the specified amounts stated above for each Lease
Year. However, in the event that the actual expenses exceed the maximum
amount in any one (1) year, Landlord shall have the right to accrue the
unbilled excess and bill this amount in following years as long as the
total amount billed does not exceed the maximum.
2. OPTION TO RENEW:
As long as Tenant is not in default under the terms of the Lease, and with
all cure periods having lapsed, Tenant shall be given three (3) one (1)
year options to renew this Lease. The rent for the Option Periods shall be
four percent (4%) higher than the basic rent paid in the preceding twelve
(12) month period and be increased by four percent (4%) every year thereof
during the Option Periods. The common area maintenance expenses for the
option lease periods will be adjusted in the first option period to
establish a new adjusted base amount. Thereafter, future annual increases
will be capped at four percent (4%) per annum per option period. Tenant
must notify Landlord in writing at least six (6) months prior to expiration
of Lease Term for this Option to Renew to be valid. All other terms and
conditions shall remain in full force and effect.
3. PREMISES CONDITION:
Landlord will deliver the Premises in a clean, operational condition and
Landlord shall, at Landlord's sole cost, prior to occupancy, clean
interior/exterior Premises, patch and paint walls, replace broken, stained,
or damaged ceiling tiles, replace lights and/or ballasts, and clean or
replace carpet as determined by both Landlord and Tenant, all on an "as
needed" basis. Tenant will improve the space and Tenant will obtain
Landlord's approval which will not be unreasonably withheld. Landlord
shall ensure heating air conditioning and ventilation (HVAC) is fully
operational and properly serviced and that all other utilities and plumbing
are fully operational, serviced, and ready for tenant's occupancy.
Landlord will be solely responsible for the replacement and cost associated
with converting current HVAC to non-CFC system and/or units.
- --------------------------------- -------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
<PAGE>
ADDENDUM TO THAT CERTAIN INDUSTRIAL LEASE AGREEMENT DATED MAY 1, 1995 BY AND
BETWEEN M.H.P.P., INC., AS LANDLORD, AND UNIFET, INC., a California corporation,
AS TENANT FOR THE BUILDING NO. 6, 1945 PALOMAR OAKS WAY, LOCATED IN THE PALOMAR
OAKS TECHNOLOGY PARK.
All alterations of the space from its current condition are to be
considered Tenant Improvements to the Premises, and all improvements and
the costs associated therewith shall include not only the actual
construction cost of the improvements but also space planning, permitting
fees, engineering, interior only ADA retrofits, etc. Landlord will confirm
all interior and exterior areas meet ADA compliance, Title XXIV, and all
other code compliance at Landlord's sole expense prior to Tenant's
occupancy. At any time during the initial or extended Lease Term, Tenant
may be required to comply with regulations required by the appropriate
governmental agency or agencies, and Tenant shall be solely responsible to
complete said interior modifications at Tenant's sole cost. Landlord will
be responsible for all exterior code compliance costs.
Tenant may plan to do additional interior modifications/improvements,
therefore, should Tenant elect to do its own improvements, then Landlord
(subject to Landlord's written approval) will allow Tenant to make its
required improvements. However, all work shall be performed by a certified
and bonded contractor, and all improvements shall be made according to City
of Carlsbad and other applicable codes and regulations. Additionally,
Landlord retains the right to review Tenant's plans for the Premises and
will require written approval which shall not be unreasonably withheld of
the space plan, contractor, and scope of the work; Landlord shall receive
copies of all building permits for such improvements.
4. LANDLORD'S WARRANTY:
Landlord warrants that all HVAC, plumbing and other utilities, structural
roof and the structural shell building components are sound and in good
working order. Provided that Tenant maintains all parts of this Premises
per the terms and conditions of this Lease, Landlord will repair or replace
any defects in the HVAC, plumbing and other utilities, structural roof or
the structural shell portion of the building during the first (1st) twelve
(12) months of this Lease.
5. LEASE BUYOUT:
Provided that Tenant is not then in default of this Lease beyond any
applicable cure periods set forth in this Lease. Landlord grants Tenant
the right to buyout the Lease for fifty percent (50%) of the base monthly
rent and triple net expenses due under balance of lease term, payable in
cash, one lump sum anytime after the twenty-fourth (24th) month of the
lease term provided Tenant provides Landlord with six (6) months written
notice. Lease Buyout payment to Landlord will be made to Landlord thirty
(30) days prior to vacating premises and terminating the Lease.
6. REPRESENTATIONS RELATING TO THE PREMISES:
Landlord represents to Tenant that as of the date Tenant takes possession,
(i) Landlord is the record fee owner of all right, tide and interest in and
to the Premises; (ii) there are no liens, encumbrances, leases, mortgages,
deeds of trust or other matters encumbering or affecting Landlord's right,
tide or interest in or to the Premises that would materially and adversely
affect Tenant, except for deeds of trust of record as of the date of this
Lease; and (iii) to Landlord's actual knowledge, without any investigation,
the Premises and all improvements therein are in compliance with all
federal, state and local laws, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. Sections 9601 et seq.) as amended, and all other Hazardous
Materials Laws; the Americans With Disabilities Act of 1990, 42 U.S.C.
Sections 1201 et seq and 47 U.S.C. Sections 225 et seq, as amended from
time to time, and any similar or successor federal, state or local laws;
and all building codes and zoning laws; provided, however, that in the
event
- --------------------------------- -------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
<PAGE>
of a violation of subpart (iii) of this Sections, Landlord shall, within
ten (10) days of (or, if Tenant's quiet use and enjoyment of the Premises
is materially threatened, immediately upon) receipt of written notice from
Tenant or any governmental authority having jurisdiction over such matters,
commence and diligently proceed to cure such violation. Tenant's remedy
for breach of any of the provisions of this Section shall be to sue
Landlord for damages or specific performance, or to pursue its self-help
remedies available to Tenant pursuant to Section 12.2 of the Lease, but
Tenant shall not have the right to terminate this Lease or to make a claim
for reduced rent.
7. LANDLORD'S ENVIRONMENTAL COMPLIANCE:
The term "Hazardous Materials Laws" shall mean and include all laws
relating to or regulating the environment or hazardous materials,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.),
the Federal Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901
et seq, and the Carpenter-Presley-Tanner Hazardous Substance Account Act,
each as amended from time to time. To Landlord's actual knowledge, without
any investigation, Landlord has complied, and the Premises, the Park, and
all adjoining property arc in compliance as of the date Tenant takes
possession, with all Hazardous Materials Laws, and no notice of violation
of any Hazardous Materials Laws with respect thereto or of any permit,
license or authorization relating thereto has been received, nor is any
such notice pending or threatened. To Landlord's actual knowledge, without
any investigation as of the date Tenant takes possession, no underground or
above-ground storage tanks or surface impoundments are located on or under
the Premises, the Park or any adjoining property. To Landlord's actual
knowledge, without any investigation as of the date Tenant takes
possession, except in compliance with Hazardous Materials Laws, neither
Landlord, nor any prior owner, operator, tenant or occupant of the
Premises, the Park or any adjoining property has generated, used, treated,
stored, transferred, disposed, released or caused a threatened release in,
at, under, from, to or into, or on the Premises, the Park or any adjoining
property of any hazardous materials. To Landlord's actual knowledge,
without any investigation as of the date Tenant takes possession, Landlord
has not received any notice or claim to the effect that either Landlord,
the Premises or the Park, or any adjoining property, is or may be liable to
any governmental authority or private party as a result of the release or
threatened release of any hazardous materials.
- --------------------------------- -------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
<PAGE>
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") NOR QUALIFIED UNDER THE CALIFORNIA SECURITIES
LAW"). THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
FOR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT. THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE THEREOF MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH THE CALIFORNIA SECURITIES
LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
REGISTRATION AND COMPLIANCE ARE NOT REQUIRED.
Warrant No. ______
Warrant to Purchase
______ Shares of
Series A Preferred Stock
As Herein Described
WARRANT TO PURCHASE PREFERRED STOCK OF
SENDX MEDICAL, INC.
This is to certify that, for value received, ____________or a proper
assignee (in each case, the "Holder"), is entitled to purchase, subject to
the provisions of this Warrant, from ________________, a California
corporation (the "Company"), at any time during the period from the date
hereof (the "Commencement Date") to 5:00 p.m., California time on ___________
(the "Expiration Date") at which time this Warrant shall expire and become
void, _________ shares ("Warrant Shares") of the Company's Series A Preferred
Stock (the "Preferred Stock"). This Warrant shall be exercisable at
$________ per share (the "Exercise Price"). The number of shares of
Preferred Stock to be received upon exercise of this Warrant and the Exercise
Price shall be adjusted from time to time as set forth below. This Warrant
also is subject to the following terms and conditions:
1. EXERCISE AND PAYMENT; EXCHANGE.
A. This Warrant may be exercised in whole or in part at any time from and
after the date hereof and before the Expiration Date, but if such date is a day
on which federal or state chartered banking institutions located in the State of
California are authorized to close, then on the next succeeding day which shall
not be such a day. Exercise shall be by presentation and surrender to the
Company at its principal office, or at the office of any transfer agent
designated by the Company, of (i) this Warrant, (ii)
<PAGE>
the attached exercise form properly executed, and (iii) either (A) a certified
or official bank check for the Exercise Price for the number of Warrant Shares
specified in the exercise form; or (B) other securities of the Company owned by
the Holder and having a fair market value determined as set forth in Section 3
hereof equal to the Exercise Price for the number of Warrant Shares specified in
the exercise form; or (C) any combination of the consideration specified in the
foregoing clauses (A) and (B). If this Warrant is exercised in part only, the
Company or its transfer agent shall, upon surrender of this Warrant, execute and
deliver a new Warrant evidencing the rights of the Holder to purchase the
remaining number of Warrant Shares purchasable hereunder. Upon receipt by the
Company of this Warrant in proper form for exercise, accompanied by payment as
aforesaid, the Holder shall be deemed to be the holder of record of the
Preferred Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to the
Holder.
B. EXCHANGE OF WARRANT FOR PREFERRED STOCK. In addition to and without
limiting the rights of the Holder under the terms of this Warrant, the Holder
shall have the right, upon its written request delivered or transmitted to the
Company together with this Warrant, to exchange this Warrant, in whole or in
part at any time or from time to time on or prior to the Expiration date, for
the number of shares of Preferred Stock having an aggregate fair market value
(determined as set forth in Section 3 hereof) on the date of such exchange equal
to the difference between (i) the aggregate fair market value on the date of
such exchange (determined as set forth in Section 3 hereof) of a number of
Warrant Shares designated by the Holder and (ii) the aggregate Exercise Price
the Holder would have paid to the Company to purchase such designated number of
Warrant Shares upon exercise of this Warrant. Upon any such exchange, the
number of Warrant Shares purchasable upon exercise of this Warrant shall be
reduced by such designated number of Warrant Shares, and, if a balance of
purchasable Warrant Shares remains after such exchange, the Company shall
execute and deliver to the Holder a new Warrant evidencing the right of the
Holder to purchase such balance of Warrant Shares. No payment of any cash or
other consideration shall be required. Such exchange shall be effective upon
the date of receipt by the Company of the original Warrant surrendered for
cancellation and a written request from the Holder that the exchange pursuant to
this Subsection be made, or at such later date as may be specified in such
request.
2. RESERVATION OF SHARES.
The Company shall, at all times until the expiration of this Warrant, reserve
for issuance and delivery upon exercise of this Warrant the number of Warrant
Shares which shall be required for issuance and delivery upon exercise of this
Warrant.
3. FRACTIONAL INTERESTS.
2
<PAGE>
The Company shall not issue any fractional shares or scrip representing
fractional shares upon the exercise or exchange of this Warrant. With respect
to any fraction of a share resulting from the exercise or exchange hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current fair market value per share of Preferred Stock,
determined as follows:
A. If the Preferred Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such an exchange, or is listed on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the current fair market value shall be the last reported sale price
of the Preferred Stock on such exchange or NASDAQ on the last business day prior
to the date of exercise of this Warrant or if no such sale is made on such day,
the mean of the closing bid and asked prices for such day on such exchange or
NASDAQ; or
B. If the Preferred Stock is not so listed or admitted to unlisted
trading privileges or quoted on NASDAQ, the current fair market value shall be
the mean of the last bid and asked prices reported on the last business day
prior to the date of the exercise of this Warrant (i) by NASDAQ, or (ii) if
reports are unavailable under clause (i) above, by the National Quotation Bureau
Incorporated; or
C. If the Preferred Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
fair market value shall be an amount, not less than book value, determined in
such reasonable manner as may be prescribed by the Company's Board of Directors
in good faith.
4. NO RIGHTS AS SHAREHOLDER.
This Warrant shall not entitle the Holder to any rights as a shareholder of the
Company, either at law or in equity. The rights of the Holder are limited to
those expressed in this Warrant and are not enforceable against the Company
except to the extent set forth herein.
5. TRANSFER, EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT.
5.1 This Warrant may be transferred, in whole or in part, subject to the
following restrictions. This Warrant and the Warrant Shares or any other
securities ("Other Securities") received upon exercise of this Warrant shall be
subject to restrictions on transferability until registered under the Securities
Act of 1933, as amended (the "Act"), unless an exemption from registration is
available. Until this Warrant and the Warrant Shares or Other Securities are so
registered, this Warrant and any certificate for Warrant Shares or Other
Securities issued or issuable upon exercise of this Warrant shall contain a
legend on the face thereof, in form and substance satisfactory to counsel for
the Company, stating that this Warrant, the Warrant Shares or Other Securities
may not be sold, transferred or otherwise disposed of unless, in the opinion of
counsel satisfactory
3
<PAGE>
to the Company, which may be counsel to the Company, that the Warrant, the
Warrant Shares or Other Securities may be transferred without such registration.
This Warrant and the Warrant Shares or Other Securities may also be subject to
restrictions on transferability under applicable state securities or blue sky
laws. Until the Warrant and the Warrant Shares or Other Securities are
registered under the Act, the Holder shall reimburse the Company for its
expenses, including attorneys' fees, incurred in connection with any transfer or
assignment, in whole or in part, of this Warrant or any Warrant Shares or Other
Securities.
5.2 Any transfer permitted hereunder shall be made by surrender of this
Warrant to the Company at its principal office or to the Transfer Agent at its
offices with a duly executed request to transfer the Warrant, which shall
provide adequate information to effect such transfer and shall be accompanied by
funds sufficient to pay any transfer taxes applicable. Upon satisfaction of all
transfer conditions, the Company or Transfer Agent shall, without charge,
execute and deliver a new Warrant in the name of the transferee named in such
transfer request, and this Warrant promptly shall be canceled.
5.3 Upon receipt by the Company of evidence satisfactory to it of loss,
theft, destruction or mutilation of this Warrant and, in the case of loss, theft
or destruction, of reasonably satisfactory indemnification, or, in the case of
mutilation, upon surrender of this Warrant, the Company will execute and
deliver, or instruct the Transfer Agent to execute and deliver, a new Warrant of
like tenor and date, and any such lost, stolen or destroyed Warrant thereupon
shall become void.
5.4 Each Holder of this Warrant, the Warrant Shares and any Other
Securities shall indemnify and hold harmless and Company, its directors and
officers, and each other person, if any, who controls the Company, against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director, officer or any such person may become subject under the
Act or any statute or common law, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon the
disposition by such Holder of the Warrant, the Warrant Shares or Other
Securities in violation of this Warrant.
6. NO DILUTION OR IMPAIRMENT.
The Company will not, by amendment of its Articles of Incorporation or
otherwise, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times, in good faith, take all such
action as may be necessary or appropriate in order to protect the rights of the
Holder against dilution or other impairment.
7. NOTICES.
Notices and other communications to be given to the Holder shall be deemed
sufficiently given if delivered by hand, or two business days after mailing if
mailed by registered or
4
<PAGE>
certified mail, postage prepaid, addressed in the name and at the address of
such Holder appearing on the records of the Company. Notices or other
communications to the Company shall be deemed to have been sufficiently given if
delivered by hand or two business days after mailing if mailed by registered or
certified mail, postage prepaid, to the Company at
1945 Palomar Oaks Way
Carlsbad, CA 92009
Either party may change the address to which notices shall be given by notice
pursuant to this Section 7.
8. GOVERNING LAW.
This Warrant shall be governed by and construed in accordance with the laws of
the State of California.
IN WITNESS WHEREOF, the Company has executed this Warrant as of
____________________________, 19_____.
SENDX MEDICAL, INC.
By:_________________________________
Title: _______________________________
5
<PAGE>
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") NOR QUALIFIED UNDER THE CALIFORNIA SECURITIES
LAW"). THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
FOR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT. THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE THEREOF MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH THE CALIFORNIA SECURITIES
LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
REGISTRATION AND COMPLIANCE ARE NOT REQUIRED.
WARRANT NO. ____
Warrant to Purchase
_______ Shares of
Common Stock
As Herein Described
WARRANT TO PURCHASE COMMON STOCK OF
SENDX MEDICAL, INC.
This is to certify that, for value received, ________________ or a proper
assignee (in each case, the "Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from SenDx Medical, Inc., a California corporation
(the "Company"), at any time during the period from the date hereof (the
"Commencement Date") to 5:00 p.m., California time on ______(the "Expiration
Date") at which time this Warrant shall expire and become void, _______ shares
("Warrant Shares") of the Company's Common Stock (the "Common Stock"). This
Warrant shall be exercisable at $____ per share (the "Exercise Price"). The
number of shares of Common Stock to be received upon exercise of this Warrant
and the Exercise Price shall be adjusted from time to time as set forth below.
This Warrant also is subject to the following terms and conditions:
1. EXERCISE AND PAYMENT; EXCHANGE.
A. This Warrant may be exercised in whole or in part at any time from and
after the date hereof and before the Expiration Date, but if such date is a day
on which federal or state chartered banking institutions located in the State of
California are authorized to close, then on the next succeeding day which shall
not be such a day. Exercise shall be by presentation and surrender to the
Company at its principal office, or at the office of any transfer agent
designated by the Company, of (i) this Warrant, (ii)
<PAGE>
the attached exercise form properly executed, and (iii) either (A) a certified
or official bank check for the Exercise Price for the number of Warrant Shares
specified in the exercise form; or (B) other securities of the Company owned by
the Holder and having a fair market value determined as set forth in Section 3
hereof equal to the Exercise Price for the number of Warrant Shares specified in
the exercise form; or (C) any combination of the consideration specified in the
foregoing clauses (A) and (B). If this Warrant is exercised in part only, the
Company or its transfer agent shall, upon surrender of this Warrant, execute and
deliver a new Warrant evidencing the rights of the Holder to purchase the
remaining number of Warrant Shares purchasable hereunder. Upon receipt by the
Company of this Warrant in proper form for exercise, accompanied by payment as
aforesaid, the Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be actually delivered to the Holder.
B. EXCHANGE OF WARRANT FOR COMMON STOCK. In addition to and without
limiting the rights of the Holder under the terms of this Warrant, the Holder
shall have the right, upon its written request delivered or transmitted to the
Company together with this Warrant, to exchange this Warrant, in whole or in
part at any time or from time to time on or prior to the Expiration date, for
the number of shares of Common Stock having an aggregate fair market value
(determined as set forth in Section 3 hereof) on the date of such exchange equal
to the difference between (i) the aggregate fair market value on the date of
such exchange (determined as set forth in Section 3 hereof) of a number of
Warrant Shares designated by the Holder and (ii) the aggregate Exercise Price
the Holder would have paid to the Company to purchase such designated number of
Warrant Shares upon exercise of this Warrant. Upon any such exchange, the
number of Warrant Shares purchasable upon exercise of this Warrant shall be
reduced by such designated number of Warrant Shares, and, if a balance of
purchasable Warrant Shares remains after such exchange, the Company shall
execute and deliver to the Holder a new Warrant evidencing the right of the
Holder to purchase such balance of Warrant Shares. No payment of any cash or
other consideration shall be required. Such exchange shall be effective upon
the date of receipt by the Company of the original Warrant surrendered for
cancellation and a written request from the Holder that the exchange pursuant to
this Subsection be made, or at such later date as may be specified in such
request.
2. RESERVATION OF SHARES.
The Company shall, at all times until the expiration of this Warrant, reserve
for issuance and delivery upon exercise of this Warrant the number of Warrant
Shares which shall be required for issuance and delivery upon exercise of this
Warrant.
3. FRACTIONAL INTERESTS.
2
<PAGE>
The Company shall not issue any fractional shares or scrip representing
fractional shares upon the exercise or exchange of this Warrant. With respect
to any fraction of a share resulting from the exercise or exchange hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current fair market value per share of Common Stock,
determined as follows:
A. If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such an exchange, or is listed on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the current fair market value shall be the last reported sale price
of the Common Stock on such exchange or NASDAQ on the last business day prior to
the date of exercise of this Warrant or if no such sale is made on such day, the
mean of the closing bid and asked prices for such day on such exchange or
NASDAQ; or
B. If the Common Stock is not so listed or admitted to unlisted trading
privileges or quoted on NASDAQ, the current fair market value shall be the mean
of the last bid and asked prices reported on the last business day prior to the
date of the exercise of this Warrant (i) by NASDAQ, or (ii) if reports are
unavailable under clause (i) above, by the National Quotation Bureau
Incorporated; or
C. If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current fair market
value shall be an amount, not less than book value, determined in such
reasonable manner as may be prescribed by the Company's Board of Directors in
good faith.
4. NO RIGHTS AS SHAREHOLDER.
This Warrant shall not entitle the Holder to any rights as a shareholder of the
Company, either at law or in equity. The rights of the Holder are limited to
those expressed in this Warrant and are not enforceable against the Company
except to the extent set forth herein.
5. TRANSFER, EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT.
5.1 This Warrant may be transferred, in whole or in part, subject to the
following restrictions. This Warrant and the Warrant Shares or any other
securities ("Other Securities") received upon exercise of this Warrant shall be
subject to restrictions on transferability until registered under the Securities
Act of 1933, as amended (the "Act"), unless an exemption from registration is
available. Until this Warrant and the Warrant Shares or Other Securities are so
registered, this Warrant and any certificate for Warrant Shares or Other
Securities issued or issuable upon exercise of this Warrant shall contain a
legend on the face thereof, in form and substance satisfactory to counsel for
the Company, stating that this Warrant, the Warrant Shares or Other Securities
may not be sold, transferred or otherwise disposed of unless, in the opinion of
counsel satisfactory
3
<PAGE>
to the Company, which may be counsel to the Company, that the Warrant, the
Warrant Shares or Other Securities may be transferred without such registration.
This Warrant and the Warrant Shares or Other Securities may also be subject to
restrictions on transferability under applicable state securities or blue sky
laws. Until the Warrant and the Warrant Shares or Other Securities are
registered under the Act, the Holder shall reimburse the Company for its
expenses, including attorneys' fees, incurred in connection with any transfer or
assignment, in whole or in part, of this Warrant or any Warrant Shares or Other
Securities.
5.2 Any transfer permitted hereunder shall be made by surrender of this
Warrant to the Company at its principal office or to the Transfer Agent at its
offices with a duly executed request to transfer the Warrant, which shall
provide adequate information to effect such transfer and shall be accompanied by
funds sufficient to pay any transfer taxes applicable. Upon satisfaction of all
transfer conditions, the Company or Transfer Agent shall, without charge,
execute and deliver a new Warrant in the name of the transferee named in such
transfer request, and this Warrant promptly shall be canceled.
5.3 Upon receipt by the Company of evidence satisfactory to it of loss,
theft, destruction or mutilation of this Warrant and, in the case of loss, theft
or destruction, of reasonably satisfactory indemnification, or, in the case of
mutilation, upon surrender of this Warrant, the Company will execute and
deliver, or instruct the Transfer Agent to execute and deliver, a new Warrant of
like tenor and date, and any such lost, stolen or destroyed Warrant thereupon
shall become void.
5.4 Each Holder of this Warrant, the Warrant Shares and any Other
Securities shall indemnify and hold harmless and Company, its directors and
officers, and each other person, if any, who controls the Company, against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director, officer or any such person may become subject under the
Act or any statute or common law, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon the
disposition by such Holder of the Warrant, the Warrant Shares or Other
Securities in violation of this Warrant.
6. ANTI-DILUTION.
The number of shares of Common Stock for which this Warrant may be exercised and
the Exercise Price therefor shall be subject to adjustment as follows:
A. If the Company is recapitalized through the subdivision or combination
of its outstanding shares of Common Stock into a larger or smaller number of
shares, the number of shares of Common Stock for which this Warrant may be
exercised, shall be increased or reduced, as of the record date for such
recapitalization, in the same proportion as the increase or decrease in the
outstanding shares of Common Stock, and the Exercise Price shall be adjusted so
the aggregate amount payable for the purchase of
4
<PAGE>
all of the Warrant Shares issuable hereunder immediately after the record date
for such recapitalization shall equal the aggregate amount so payable
immediately before such record date.
B. If, as part of a financing, the Company issues additional shares of
Common Stock, or other instruments convertible into Common Stock, without
consideration or for a consideration per share of Common Stock less than the
Exercise Price in effect on the date of and immediately prior to such issue,
then such Exercise Price shall be reduced to the lower price at which such
Common Stock, or Common Stock equivalents, were issued.
C. If the Exercise Price shall be reduced, as provided above, the number
of shares of Common Stock for which this Warrant may be exercised, shall be
increased so that the aggregate amount payable for the purpose of all the
Warrant Shares issuable hereunder immediately after the record date for the
issuance of the additional shares of Common Stock shall equal the aggregate
amount so payable immediately before such record date.
7. NOTICES.
Notices and other communications to be given to the Holder shall be deemed
sufficiently given if delivered by hand, or two business days after mailing if
mailed by registered or certified mail, postage prepaid, addressed in the name
and at the address of such Holder appearing on the records of the Company.
Notices or other communications to the Company shall be deemed to have been
sufficiently given if delivered by hand or two business days after mailing if
mailed by registered or certified mail, postage prepaid, to the Company at
1945 Palomar Oaks Way
Carlsbad, CA 92009
Either party may change the address to which notices shall be given by notice
pursuant to this Section 7.
8. GOVERNING LAW.
This Warrant shall be governed by and construed in accordance with the laws of
the State of California.
5
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant as of
____________________________, 19_____.
SenDx Medical, Inc.
By:_________________________________
Title: _______________________________
6
<PAGE>
UNIFET, INCORPORATED
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT is made and effective as
of the ____ day of March, 1995, by and between UNIFET, INCORPORATED, a
California corporation ("Company"), and __________________________ ("Investor").
The parties hereto agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK
1.1 SALE AND ISSUANCE OF PREFERRED STOCK. Investor shall
purchase at the Closing, and the Company shall sell and issue to Investor, at
the Closing, ____________ shares of its Series C Preferred Stock ("Preferred
Stock") for a purchase price of $1.00 per share ("Shares").
1.2 CLOSING. The purchase and sale of the Shares will take
place at the earliest possible date following the execution of this Agreement,
but in no event later than the close of business on May 15, 1995, at 10:00 a.m.,
at the Company's offices in San Diego, California, or at such other time and
place as is agreed to by the Investor and the Company (which time and place are
designated as the "Closing"). At the closing, the Company shall deliver to
Investor a certificate representing the Shares against either (i) the wire
transfer of U.S. funds to the Company, or (ii) the delivery of other immediately
available U.S. funds in form acceptable to the Company in the amount of the
purchase price for the Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Investor that:
2.1 ORGANIZATION AND STANDING. The Company is duly organized,
validly existing, and in good standing under the laws of the State of California
and has all requisite corporate power and authority to carry on business as now
conducted and as proposed to be conducted.
2.2 AUTHORIZATION. All corporate action on the part of the
Company and its officers, directors, and shareholders necessary for the
authorization, execution, delivery, and performance of all the obligations of
the Company under this Agreement and for the authorization, issuance and
delivery of the Preferred Stock being sold under this Agreement and of the
Common Stock issuable upon conversion of the Preferred Stock ("Common Stock")
has been (or will be) taken prior to the Closing. This Agreement, when executed
and delivered, shall constitute a valid and legally binding obligation of the
Company, subject to (i) judicial principles respecting election of remedies or
limiting the availability of specific performance, injunctive relief, or other
equitable remedies and judicial principles with respect to provisions contrary
to public policy, or any particular remedy at law, and (ii) the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting the rights of creditors.
<PAGE>
2.3 VALIDITY OF PREFERRED STOCK. The Preferred Stock, when
issued, sold, and delivered in accordance with the terms of this Agreement,
shall be duly and validly issued, fully paid, and non-assessable and issued in
compliance with all applicable federal and state securities laws. The Common
Stock issuable upon conversion of the Preferred Stock has been (or, prior to the
Closing, will be) duly and validly reserved and, upon issuance in accordance
with the conversion provisions of the Preferred Stock, shall be duly and validly
issued, fully paid, and non-assessable.
2.4 GOVERNMENTAL CONSENTS. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, or filings
with any federal or state governmental authority on the part of the Company
required in connection with the consummation of the transactions contemplated by
this Agreement shall have been obtained prior to, and be effective as of, the
Closing.
2.5 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on
Schedule 2.5 attached hereto, the Company is not in violation of any provisions
of its Articles of Incorporation or Bylaws, as amended and in effect on and as
of the Closing, or, in any material respect, of any provision of any material
instrument or contract to which it is a party, or, to the Company's knowledge,
of any provision of any federal or state judgment, writ, decree, order, statute,
rule or governmental regulation applicable to it. The execution, delivery, and
performance of this Agreement will not result in any such violation or be in
conflict with or constitute a default under any such provision.
2.6 MISLEADING STATEMENTS. No representation or warranty of the
Company in this Agreement, or in any Exhibit to this Agreement, contains or will
contain any untrue statement of a material fact necessary to make the statements
made not misleading.
2.7 PATENTS; TRADEMARKS. To the Company's knowledge it owns or
possesses, has access to, or can become licensed on reasonable terms under, all
patents, inventions, trademarks, trade names, copyrights, licenses, information,
proprietary rights, and processes necessary for the conduct of its business as
now conducted and as proposed to be conducted by the Company, without any
infringement of, or conflict with the rights of others.
2.8 TAXES. The Company has prepared and timely filed all
material United States income tax returns and all material state tax returns
that are required to be filed by it and has paid or made provision for the
payment of all taxes that have become due pursuant to such returns. The United
States income tax returns of the Company have not been audited by the Internal
Revenue Service, no deficiency assessment or proposed adjustment of the
Company's United States income tax or state tax is pending and the Company has
no knowledge of any proposed liability for any tax to be imposed upon its
properties or assets for prior tax periods, for which there is not an adequate
reserve reflected in the Financial Statements.
2.9 INSURANCE. The Company has and will have upon Closing, fire
and casualty insurance policies sufficient in amount (subject to reasonable
deductibles) to allow the Company to replace any of its material properties that
might be damaged or destroyed.
2
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. Investor
represents and warrants to the Company that:
3.1 AUTHORIZATION. This Agreement, when executed and delivered,
shall constitute a valid and legally binding obligation of such Investor,
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of laws
governing specific performance, injunctive relief or other equitable remedies.
3.2 TAX LIABILITY. It has reviewed with its own tax advisors
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. It relies solely on such
advisors and not on any statements or representations of the Company or any of
its agents. It understands that it (and not the Company) shall be responsible
for its own tax liability that may arise as a result of this investment or the
transactions contemplated by this Agreement.
4. SECURITIES LAWS.
4.1 INVESTMENT REPRESENTATIONS.
4.1.1 UNREGISTERED SHARES. Investor understands that the
Shares are not, and any Common Stock issued upon conversion of the Shares may
not be, registered under the Act nor qualified under the California Corporate
Securities Law of 1968, as amended (the "California Securities Law"), on the
ground that the offer and sale of securities provided for in this Agreement is
exempt from (i) the registration requirements of the Act pursuant to
Section 4(2) of the Act and Regulation D promulgated under the Act, and (ii) the
qualification provisions of the California Securities Law pursuant to
Section 25102(f) of the California Securities Law. Investor hereby acknowledges
that the Company's reliance on such exemptions is predicated, in part, on the
accuracy of Investor's representations set forth herein.
4.1.2 QUALIFIED INVESTOR. Investor represents that he has
the ability to bear the economic risks of his investment hereunder. Investor
represents that he is an "accredited investor" as that term is defined in
Rule 501 of Regulation D promulgated under the Act. Investor represents that
(i) he is experienced in evaluating and investing in newly organized, high
technology companies such as the Company, (ii) he is able to fend for himself in
the transactions contemplated by this Agreement, (iii) he has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of his investment, and (iv) he has the ability to bear the risk
of loss of his entire investment. Investor represents that he has had access to
the same kind of information that would be provided in a registration statement
filed by the Company under the Act and that he has had, during the course of the
transactions contemplated hereunder and prior to their purchase of Shares, the
opportunity to ask questions of the Company and to obtain additional information
as necessary to verify the accuracy of the information supplied and to have all
questions which have been asked by the Investor answered by the Company.
Investor represents that he has not been offered the Preferred Stock by any form
of advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by means of any such
media.
3
<PAGE>
4.1.3 INVESTMENT INTENT. Investor represents, and this
Agreement is made by the Company with Investor in reliance upon the accuracy of
such representations, that the Shares (and any shares of Common Stock issued
upon conversion of the Shares) Investor is purchasing will be acquired for
investment for an indefinite period for his own account, and not directly or
indirectly for the account of any other person or entity, and not with a view to
or for sale in connection with any distribution or public offering of such
Shares (and any shares of Common Stock issued upon conversion of such Shares)
within the meaning of the Act and the California Securities Law, and that he has
no present intention of selling, granting participation in, or otherwise
distributing the same. Investor further represents that he does not have any
contract, undertaking, agreement or arrangement with any person or entity to
sell, transfer, or grant participations to such person or entity, or to any
other third person, with respect to any of the Shares or any Common Stock issued
upon conversion of the Shares.
4.1.4 RESTRICTIONS ON TRANSFER. Investor understands that
if the Company does not register its Common Stock with the Securities and
Exchange Commission ("SEC") pursuant to Section 12 or 15 of the Securities
Exchange Act of 1934, as amended, or supply information pursuant to the rules
and regulations thereunder, or if a registration statement covering the Shares
(or any shares of Common Stock issued upon the conversion thereof) under the Act
is not in effect when he desires to sell Shares (or any shares of Common Stock
issued upon the conversion thereof), he may be required to hold the Shares (or
any shares of Common Stock issued upon the conversion thereof) for an
indeterminate period. Investor also acknowledges that he understands that any
sale of Shares (or any shares of Common Stock issued upon conversion thereof)
which might be made by them in reliance upon Rule 144 under the Act may be made
only in limited amounts in accordance with the terms and conditions of that
rule. Among the conditions for use of Rule 144 is the availability of current
information to the public about the Company. Investor acknowledges that such
information is not now available, and the Company has no present plans to make
such information available.
4.1.5 NOTIFICATION OF INTENT TO TRANSFER. Investor agrees
that he will not, in the absence of an effective registration statement covering
the Shares (or any shares of Common Stock issued upon the conversion thereof),
make a disposition of any Shares (or any shares of Common Stock issued upon
conversion thereof) unless and until (a) he shall have notified the Company of
the proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition, and (b) he shall have
furnished the Company an opinion of counsel (which counsel and which opinion
shall be satisfactory to the Company) to the effect that (i) such disposition
will not require registration of the Shares (or any shares of Common Stock
issued upon the conversion thereof) under the Act or registration,
qualification, consent or notice under any applicable state securities laws,
including, without limitation, California Securities Law, and (ii) that all
appropriate action necessary for compliance with the Act any applicable state
securities laws including, without limitation, the California Securities Law,
has been taken.
4.1.6 TRUE AT CLOSING. By acceptance of his Certificate(s)
evidencing Shares, Investor confirms as of the Closing that the representations
made by him in this Section 4.1 remain true and correct, and shall not become
untrue or incorrect with only the passage of time.
4
<PAGE>
4.2 LEGENDS.
4.2.1 RESTRICIVE LEGENDS. All certificates for Shares and
all certificates for shares of Common Stock issued upon the conversion of Shares
shall bear any legends required under applicable state and Federal securities
laws, including without limitation a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
QUALIFIED UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968
(THE "LAW") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT
AND QUALIFIED UNDER THE LAW, OR IN THE OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH OR EXEMPT THEREFROM.
4.2.2 COMPANY STOCKBOOK. In addition, the Company shall
make a notation regarding the restrictions on transfer of the Shares (and any
Common Stock issued upon conversion thereof) in its stockbooks, and the Shares
(and any Common Stock issued upon conversion thereof) shall be transferred on
the books of the Company only if transferred or sold pursuant to an effective
registration statement under the Act covering the Shares (and any Common Stock
issued upon conversion thereof), or pursuant to and in compliance with the
provisions of paragraph 4.1.5 hereof.
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations
of the Investor under Section 1.2 of this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions, any
of which may be waived by the Investor:
5.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same force and effect as if they had been made on and as of
the Closing.
5.2 PERFORMANCE. The Company shall have performed and complied
with all agreements and conditions contained in this Agreement required to be
performed or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Preferred Stock pursuant to this Agreement shall have been duly obtained
and shall be effective on and as of the Closing.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company under Section 1.2 of this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
any of which may be waived by the Company:
5
<PAGE>
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investor contained in Section 3 and Section 4 herein shall be
true on and as of the Closing with the same force and effect as if they had been
made on and as of the Closing.
6.2 GOVERNMENTAL CONSENTS. All consents, approvals, reviews,
orders or authorizations of, or registrations, qualifications, permits,
designations, declarations or filings with any federal or state governmental
authority or regulatory body required in connection with the consummation of the
transactions contemplated herein shall have been obtained or made and shall be
effective as of the Closing.
6.3 PURCHASE PERMITTED BY APPLICABLE LAWS. The sale of the
Preferred Stock, and the other transactions contemplated by this Agreement,
shall not be prohibited by any applicable law or governmental regulation and
shall not subject the Company to any penalty, liability or other onerous
condition under or pursuant to any applicable law or governmental regulation.
7. COVENANTS OF THE COMPANY.
7.1 FINANCIAL STATEMENTS. The Company shall deliver to
Investor, upon such Investor's request and for so long as such Investor is a
holder of at least 100,000 shares of Preferred Stock (or 100,000 shares of
Common Stock issued upon conversion thereof or any combination of such Common
Stock and Shares totaling 100,000):
(a) within 105 days after the end of each fiscal year of
the Company a consolidated statement of operations for such fiscal year, a
consolidated balance sheet of the Company as of the end of such year, a
consolidated statement of shareholders' equity, and a consolidated statement of
changes in financial condition for such year, certified by independent public
accountants selected by the Company;
(b) within 45 days of the end of each of the first three
fiscal quarters of each year an unaudited consolidated statement of operations
for such quarter and the current fiscal year to date and an unaudited
consolidated balance sheet as of the end of each such quarter; and
(c) within 60 days of the commencement of a fiscal year a
business plan for said year.
7.2 TERMINATION OF COVENANTS. The covenants set forth in this
Section 7 shall be terminated and be of no further force or effect upon the
earlier of (i) the Company becoming a reporting Company under the Securities
Exchange Act of 1934, or (ii) when a registration statement filed by the Company
under the Act, in connection with the first public offering of its securities,
becomes effective, if ever.
6
<PAGE>
7.3 ANTI-DILUTION. If, after the date hereof, the Company shall
issue, as part of a financing, Preferred Stock, or the common stock into which
it is convertible, for a consideration per share less than the Conversion Price
for the Preferred Stock, then immediately following such issuance, the
Conversion Price for the Preferred Stock being purchased hereunder shall be
reduced to such lower price, all as more particularly set forth in the
Certificate of Determination filed with the California Secretary of State with
respect to the Series C Preferred Stock.
8. COVENANTS OF INVESTORS.
8.1 CONFIDENTIALITY. Investor agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which Investor may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
Investor pursuant to this Agreement, or pursuant to visitation or inspection
rights granted hereunder, unless such information is generally known, or until
such information becomes generally known, to the public other than by reason of
any breach of Investor's obligations under this Section.
9. REGISTRATION RIGHTS. The Company and Investor hereby adopt the
registration rights agreement attached hereto as Exhibit A and incorporated
herein by this reference.
10. MISCELLANEOUS.
10.1 AGREEMENT IS ENTIRE CONTRACT. This Agreement (including
all the Exhibits hereto) constitutes the entire contract between the parties
hereto with respect to the subject matter hereof and no party shall be liable or
bound to the other in any manner by any warranties, representations or covenants
except as specifically set forth herein. Any previous agreement among the
parties with respect to the subject matter hereof, whether oral or written, is
superseded hereby. This Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties hereto in accordance
with the terms and conditions contained herein. Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the parties
hereto, and their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
10.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as such laws are applied to
agreements by and between California residents entered into and to be performed
entirely within California.
10.3 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and all of which
together shall constitute a complete Agreement.
10.4 TITLES AND SUBTITLES. The titles of the Sections and
Subsections of this Agreement are for convenience only and are not to be
considered in construing this Agreement.
10.5 NOTICES. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal delivery
or telefax with
7
<PAGE>
confirmation, or one day after delivery to an overnight courier such as Federal
Express (two days if international), or three days after dispatch via air mail
(five days if international) postage prepaid to a party at its address
hereinafter shown opposite its signature or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties.
10.6 SURVIVAL OF REPRESENTATIONS. Except as otherwise expressly
provided herein, the warranties, representations and covenants of the Company
and the Investors contained herein shall survive the execution and delivery of
this Agreement and the Closing.
10.7 AUTHORITY TO BIND. Each party executing this Agreement
hereby warrants and represents that (i) the execution of this Agreement has been
duly authorized by all requisite actions on the part of such party, (ii) the
individuals executing this Agreement are duly authorized pursuant thereto, and
(iii) this Agreement is a valid and binding obligation of such party.
10.8 ARBITRATION. Any Dispute between the parties hereto shall
be referred to and finally resolved by arbitration, in accordance with the rules
and procedures of the American Arbitration Association, in San Diego,
California. The term "Dispute" shall mean (1) any differences in interpretation
of this Agreement, (2) any controversy or claim arising out of or relating to
this Agreement or the validity, breach or termination of this Agreement, or
(3) any controversy or claim arising out of or relating to the Shares.
10.9 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its remaining terms.
10.10 CONSTRUCTION OF AGREEMENT. This agreement shall not be
construed in favor of or against either the Company or the Investor, but shall
be construed as if both parties prepared this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE COMPANY:
ADDRESS: UniFET, INCORPORATED
11021 Via Frontera, Suite 200 a California corporation
San Diego, CA 92127
By:
--------------------------------
W. Jerry Mezger, President & CEO
INVESTOR:
ADDRESS:
By:
--------------------------------
- ------------------------- Print Name:
- ------------------------- --------------------------------
9
<PAGE>
Schedule 2.5
to
Series C Preferred Stock Purchase Agreement
The Company is currently in default under that certain Promissory Note dated
March 29, 1993 in favor of Carl Horn & Co. in the principal amount of $50,000.
Such Note will be paid in full immediately following the Closing.
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SENDX MEDICAL, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
MARCH 20, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 Purchase and Sale of Stock . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Series D Preferred Stock. . . . . . . . . . . 1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 Representations and Warranties of the Company. . . . . . . . . . . 2
2.1 Organization and Standing; Articles and Bylaws . . . . . . . . . . 2
2.2 Corporate Power. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Proprietary Information. . . . . . . . . . . . . . . . . . . . . . 4
2.7 Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Projections and Pro Forma Financial Statements . . . . . . . . . . 5
2.10 Absence of Certain Developments. . . . . . . . . . . . . . . . . . 6
2.11 Tax Returns, Payments, and Elections . . . . . . . . . . . . . . . 6
2.12 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 Material Liabilities . . . . . . . . . . . . . . . . . . . . . . . 7
2.14 Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Permits, Compliance with Laws. . . . . . . . . . . . . . . . . . . 8
2.16 Related-Party Transactions . . . . . . . . . . . . . . . . . . . . 8
2.17 Title to Properties and Assets; Liens, etc . . . . . . . . . . . . 8
2.18 Compliance with Other Instruments. . . . . . . . . . . . . . . . . 9
2.19 Employees and Employee Benefits. . . . . . . . . . . . . . . . . . 9
2.20 Environmental and Safety Matters . . . . . . . . . . . . . . . . . 10
2.21 Small Business Matters . . . . . . . . . . . . . . . . . . . . . . 11
2.22 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . 11
2.23 Governmental Consent, etc. . . . . . . . . . . . . . . . . . . . . 11
2.24 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.25 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . 12
2.26 Voting Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3 Representations and Warranties of Purchaser. . . . . . . . . . . . 12
3.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5 Legend, Stop Transfer. . . . . . . . . . . . . . . . . . . . . . . 13
3.6 No Public Market . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Brokers or Funds . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8 Tax Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
i
<PAGE>
SECTION 4 Conditions to Closing of Purchaser . . . . . . . . . . . . . . . . 14
4.1 Conditions at Closing. . . . . . . . . . . . . . . . . . . . . . . 14
4.1.1 Representations and Warranties Correct . . . . . . . . . 14
4.1.2 Covenants. . . . . . . . . . . . . . . . . . . . . . . . 14
4.1.3 Blue Sky . . . . . . . . . . . . . . . . . . . . . . . . 14
4.1.4 Certificate of Determination . . . . . . . . . . . . . . 14
4.1.5 Legal Matters. . . . . . . . . . . . . . . . . . . . . . 14
4.1.6 Opinion of Counsel . . . . . . . . . . . . . . . . . . . 14
4.1.7 Investors' Rights Agreement. . . . . . . . . . . . . . . 14
4.1.8 Registration Rights Agreement. . . . . . . . . . . . . . 14
4.1.9 Compliance Certificate . . . . . . . . . . . . . . . . . 15
4.1.10 Board of Directors . . . . . . . . . . . . . . . . . . . 15
SECTION 5 Conditions to Closing of Company . . . . . . . . . . . . . . . . . 15
5.1 Representations. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Blue Sky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Certificate of Determination . . . . . . . . . . . . . . . . . . . 15
5.5 Investors' Rights Agreement. . . . . . . . . . . . . . . . . . . . 15
5.6 Registration Rights Agreement. . . . . . . . . . . . . . . . . . . 15
5.7 Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 7 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 16
7.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.5 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . 16
7.6 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 17
7.7 Notices, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.8 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . 17
7.9 California Corporate Securities Law. . . . . . . . . . . . . . . . 18
7.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.13 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . 19
ii
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A - Form of Certificate of Determination
Exhibit B - Intentionally Omitted
Exhibit C - Disclosure Schedules
Schedule 2.3 Subsidiaries
Schedule 2.4 Capitalization
Schedule 2.6 Proprietary Information
Schedule 2.7 Litigation
Schedule 2.8 Financial Statements
Schedule 2.9(a) Projections
Schedule 2.9(b) Pro Forma
Schedule 2.11 Insurance
Schedule 2.14 Material Agreements
Schedule 2.16 Related Party Transactions
Schedule 2.17 Liens
Schedule 2.18 Employee Benefit Plans
Exhibit D - Form of Investors' Rights Agreement
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Opinion of Company Counsel
iii
<PAGE>
INDEX TO DEFINED TERMS
Agreements Section 2.2
Certificate of Determination Section 1.1(a)
Closing Section 1.2
Company Preamble
Contracts Section 2.14
Disclosure Schedule Section 2
Employee Pension Benefit Plan Section 2.18(b)
Employee Welfare Benefit Plan Section 2.18(b)
Environmental Health and Safety Requirements Section 2.19(b)
ERISA Section 2.18(b)
ERISA Controlled Group Section 2.18(b)
Intellectual Property Rights Section 2.6(a)
Investor Rights Agreement Section 2.2
Latest Balance Sheet Section 2.8
Purchaser Preamble
Qualified Public Offering Section 1.3(b)
Registration Rights Agreement Section 2.2
Second Closing Intentionally Omitted
Securities Act Section 2.23
Series D Warrants Intentionally Omitted
Shares Section 1.1(b)
Subsidiaries Section 2.3
Series D Preferred Section 2.4
Underlying Common Stock Section 2.5
iv
<PAGE>
SENDX MEDICAL, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of March 20, 1996 by and between SenDx Medical,
Inc., a California corporation (the "Company"), and CIBC Wood Gundy Ventures,
Inc., a Delaware corporation, ("Purchaser").
SECTION 1
PURCHASE AND SALE OF STOCK
1.1 SALE AND ISSUANCE OF SERIES D PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State
of California on or before the Closing (as defined below), a Certificate of
Determination of Series D Preferred Stock (the "Certificate of Determination")
in the form attached hereto as EXHIBIT A.
(b) Subject to the terms and conditions of this Agreement,
Purchaser agrees to purchase and the Company agrees to issue and sell an
aggregate of Three Million Eight Hundred Nine Thousand Five Hundred Twenty-Four
(3,809,524) shares of the Series D Preferred Stock (the "Shares") for the
purchase price of $2.625 per share, or Ten Million One Dollars ($10,000,001).
1.2 CLOSING. The purchase and sale of the Series D Preferred Stock shall
take place at the offices of Stradling, Yocca, Carlson & Rauth, 660 Newport
Center Drive, Suite 1600, Newport Beach, California 92660, at 10:00 A.M., on
March 20, 1996, or at such other time and place as the Company and Purchaser
mutually agree upon orally or in writing (which time and place are designated as
the "Closing"). At the Closing the Company shall deliver to Purchaser a
certificate representing the Series D Preferred Stock which Purchaser is
purchasing against delivery to the Company by Purchaser of a wire transfer or a
check in the amount of the purchase price therefor payable to the Company's
order.
1.3 INTENTIONALLY OMITTED.
1.4 USE OF PROCEEDS. The Company will use the net proceeds from the
transactions contemplated hereby for working capital, ramp-up of its
manufacturing and sales organization, continued research and development and to
support operating losses, all in preparation for the commercialization of its
SenDx 100 POC blood analyzer (the "SenDx 100"). Notwithstanding the foregoing,
the Company may use the proceeds to repay up to $2,000,000 in bridge loans
incurred after January 1, 1996, plus accrued interest thereon (which shall not
exceed 8% per year).
1
<PAGE>
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Purchaser to enter into this Agreement and
purchase the securities issued hereunder, the Company hereby represents and
warrants that, except as set forth on EXHIBIT C (the "Disclosure Schedule") as
of the date hereof and as of the date of the Closing as follows:
2.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of California and is in good standing under such laws. The
Company has all requisite power and authority necessary to own and operate its
properties and assets, and to carry on its business as presently conducted and
as proposed to be conducted. The Company is qualified to do business in every
jurisdiction in which its ownership of property or conduct of business requires
it to qualify. The Company has furnished Purchaser (or its counsel) with copies
of its Articles of Incorporation, of the Certificate of Determination and of its
Bylaws, as amended and restated, which are true, correct and complete and
contain all amendments through the Closing.
2.2 CORPORATE POWER. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement, the Investors' Rights
Agreement attached hereto as EXHIBIT D (the "Investors' Rights Agreement"), the
Registration Rights Agreement attached hereto as EXHIBIT E (the "Registration
Rights Agreement") and all other agreements contemplated hereby or thereby, to
sell and issue the Shares, to issue the Common Stock issuable upon the
conversion of the Series D Preferred Stock, and to carry out and perform its
obligations under the terms of this Agreement, the Investors' Rights Agreement
and the Registration Rights Agreement (together, the "Agreements").
2.3 SUBSIDIARIES. The name of each of the Company's subsidiaries
("Subsidiaries"), the jurisdiction of its organization, its authorized
partnership interests or capital stock, and the persons or entities owning the
outstanding partnership interests or capital stock of each Subsidiary are set
forth on SCHEDULE 2.3 attached hereto. Each of the Company's Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, possesses all requisite power and authority
and all material licenses, permits and authorizations necessary to own its
properties and to carry on its businesses as now being conducted and as
presently proposed to be conducted and is qualified to do business in every
jurisdiction in which its ownership of property or the conduct of business
requires it to qualify. With respect to each of the Company's Subsidiaries, the
copies of such Subsidiaries' partnership agreements or charter documents and
bylaws which have been furnished to Purchaser's counsel reflect all amendments
made thereto at any time prior to the date of this Agreement and are correct and
complete. All of the outstanding partnership interests or shares of capital
stock of each Subsidiary are validly issued, fully paid and nonassessable, and
all such shares are owned free and clear of any liens or encumbrances and are
not subject to any option or right to purchase any such interests or shares.
Neither the Company nor any Subsidiary owns or holds the right to acquire any
shares of stock or any other security or interest in any other entity. Except as
otherwise listed on SCHEDULE 2.3, the Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation, association or business entity.
2
<PAGE>
2.4 CAPITALIZATION. The authorized capital stock of the Company, upon the
filing of the Certificate of Determination and immediately prior to the
consummation of the transactions contemplated hereby, consists of 50,000,000
shares of Common Stock, no par value, of which 1,820,484 shares are issued and
outstanding, and 100,000,000 shares of Preferred Stock, no par value, of which
(a) 5,000,000 shares have been designated Series A Preferred Stock, 2,460,930 of
which are issued and outstanding, (b) 1,500,000 shares have been designated
Series A-2 Preferred Stock, 861,067 of which are issued and outstanding,
(c) 1,500,000 Shares have been designated Series B Preferred Stock, 1,310,000 of
which are issued and outstanding, (d) 10,000,000 have been designated Series C
Preferred Stock, 7,884,337 of which are issued and outstanding and (e) 3,809,524
shares have been designated Series D Preferred Stock ("Series D Preferred"),
none of which are issued and outstanding. The currently outstanding shares of
Series A, Series A-2, Series B and Series C Preferred and Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable, and have
been issued in compliance with applicable securities laws. The Company has
issued warrants to purchase up to an aggregate of 822,672 shares of Common
Stock, 300,000 shares of Series A Preferred Stock and 275,248 shares of Series C
Preferred Stock. The Company has reserved 3,809,524 shares of Series D
Preferred for issuance pursuant to this Agreement, 822,672 shares of Common
Stock, 300,000 shares of Series A Preferred Stock and 275,248 shares of Series C
Preferred Stock for issuance on exercise of the foregoing warrants, 440,395
shares of Series C Preferred Stock for issuance on conversion of Convertible
Promissory Notes issued by the Company, 2,760,930 shares of Common Stock for
issuance upon conversion of the Series A Preferred Stock, 861,067 shares of
Common Stock for issuance upon conversion of the Series A-2 Preferred, 1,310,000
shares of Common Stock for issuance upon conversion of the Series B Preferred,
8,599,980 shares of Common Stock for issuance upon conversion of the Series C
Preferred and 3,809,524 shares of Common Stock for issuance upon conversion of
the Series D Preferred. The Company has also reserved 2,777,516 shares of
Common Stock for issuance to employees, consultants and directors pursuant to
its Stock Option Plan. The Company has issued rights to purchase 2,643,210
shares of Common Stock pursuant to its Stock Option Plan. Except as set forth
above, there are no options, warrants, subscriptions, calls, puts, claims,
commitments, convertible securities or other agreements or arrangements under
which the Company is or may be obligated to issue or purchase, as the case may
be, shares of the Company's capital stock. The Company has not violated any
federal or state securities laws in connection with the issuance or sale of any
of the Company's capital stock. Attached hereto as SCHEDULE 2.4 is a complete
and accurate list of the names of each of the holders of securities issued by
the Company, and the number shares or rights to acquire shares held by such
holder.
2.5 AUTHORIZATION All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of the Agreements by the Company, the authorization, sale,
issuance and delivery of the Series D Preferred and the Common Stock issued or
issuable upon conversion of the Series D Preferred (the "Underlying Common
Stock"), and the performance of all of the Company's obligations hereunder has
been taken or will be taken at or prior to the Closing. The Agreements, when
executed and delivered by the Company, shall constitute valid and binding
obligations of the Company, enforceable in accordance with their respective
terms; subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors. The Series D Preferred, when issued in compliance
with the provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will have the rights, preferences and privileges described in
the Certificate of Determination; the Underlying Common Stock has been duly and
validly reserved
3
<PAGE>
and, when issued in compliance with the provisions of the Certificate of
Determination, will be validly issued, fully paid and nonassessable; and the
Shares and the Underlying Common Stock will be free of any liens or
encumbrances, other than any liens or encumbrances created by Purchaser;
provided, however, that the Shares and the Underlying Common Stock may be
subject to restrictions on transfer under state or federal securities laws as
set forth in this agreement and the exhibits hereto.
2.6 PROPRIETARY INFORMATION.
(a) For purposes hereof, "Intellectual Property Rights" means all
of the following, and registrations, applications and renewals for any of the
following: patents, patent applications, patent disclosures and inventions
(whether or not patentable and whether or not reduced to practice) and any
reissues, continuations, continuations-in-part, revisions, extensions or
reexaminations thereof; trademarks, service marks, trade dress, logos, trade
names and corporate names; copyrights and copyrightable works; mask works; trade
secrets and confidential information (including, without limitation, ideas,
formulae, compositions, know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, financial and accounting data,
business and marketing plans, and customer and supplier lists and related
information); computer software (including, without limitation, data, data bases
and documentation); other intellectual property rights; and all copies and
tangible embodiments of the foregoing (in whatever form or medium), in each case
including, without limitation, the items set forth in SCHEDULE 2.6.
(b) The attached SCHEDULE 2.6 lists all (i) patented or registered
Intellectual Property Rights owned or used by the Company or any Subsidiary
thereof, (ii) pending patent applications and applications for registrations of
other Intellectual Property Rights owned or filed by the Company or any
Subsidiary thereof, (iii) unregistered trade names and corporate names owned or
used by the Company or any Subsidiary thereof and (iv) material unregistered
trademarks, service marks, copyrights, mask works and computer software owned or
used by the Company or any Subsidiary thereof. SCHEDULE 2.6 also contains a
complete and accurate list of all licenses and other rights granted by or to the
Company or any Subsidiary thereof with respect to any Intellectual Property
Rights. The Company or one of its Subsidiaries owns all right, title and
interest to, or has the right to use pursuant to a valid license, all
Intellectual Property Rights necessary for the operation of the businesses of
the Company and its Subsidiaries as presently conducted and to the Company's
knowledge as presently proposed to be conducted. The Company and its
Subsidiaries have taken all reasonably necessary actions to maintain and protect
the Intellectual Property Rights which they own or have the right to use.
(c) Except as set forth on SCHEDULE 2.6, (i) The Company and its
Subsidiaries own all right, title and interest in and to all of the Company's
Intellectual Property Rights, (ii) there have been no claims made or threatened
against the Company or any Subsidiary thereof, asserting the invalidity, misuse
or unenforceability of any of such Intellectual Property Rights, and to the
Company's knowledge there are no valid grounds for the same, (iii) the Company
and its Subsidiaries have not received any notices of, and are not aware of any
facts which indicate a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to such Intellectual Property
Rights and (iv) to the Company's knowledge, the conduct of business of the
Company and its Subsidiaries has not infringed, misappropriated or conflicted
4
<PAGE>
with and does not infringe, misappropriate or conflict with any Intellectual
Property Rights of any third party.
2.7 LITIGATION, ETC. Except as set forth on SCHEDULE 2.7, there are no
actions, suits, proceedings, orders, investigations or claims pending or
threatened against or affecting the Company, or any Subsidiary or any property
thereof, or pending or threatened by the Company or any Subsidiary thereof
against any third party, at law or in equity, or before or by any governmental
department or agency. Neither the Company nor any Subsidiary thereof is subject
to any arbitration proceedings under collective bargaining agreements or
otherwise or, to the best of the knowledge of the Company, any governmental
investigations or inquiries (including, without limitation, inquiries as to the
qualification to hold or receive any license or permit). Neither the Company
nor any Subsidiary thereof is subject to any judgment, order or decree of any
court or other governmental agency. To the best of the Company's knowledge,
there is no basis for any of the foregoing.
2.8 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 2.8 are the
following financial statements:
(a) the unaudited consolidated balance sheets of the Company and
its Subsidiaries as of December 31, 1993 and 1994, and the related statements of
income and cash flows (or the equivalent) for the respective twelve-month
periods then ended; and
(b) the unaudited consolidated balance sheet of the Company and
its Subsidiaries as of December 31, 1995 (the "LATEST BALANCE SHEET"), and the
related statements of income and cash flows (or the equivalent) for the
twelve-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is consistent with the books and records of the Company and its
Subsidiaries (which, in turn, are accurate and complete in all material
respects) and presents fairly in all material respects the consolidated
financial condition, results of operations and cash flows of the Company and its
Subsidiaries as of the dates and for the periods set forth therein, prepared in
accordance with generally accepted accounting principles consistently applied,
except for the omission of footnotes, and subject to normal year-end adjustments
which shall not be material either individually or in the aggregate, in the case
of the financial statements as of and for the twelve months ended December 31,
1995.
2.9 PROJECTIONS AND PRO FORMA FINANCIAL STATEMENTS.
(a) Attached hereto as SCHEDULE 2.9(a) is a true and complete copy
of the latest projections of the consolidated income and cash flows of the
Company and its Subsidiaries on a monthly basis for the fiscal year ending
December 31, 1996. Such projections are based on underlying assumptions of the
Company which the Company believes provide a reasonable basis for the
projections contained therein. Such projections have been prepared on the basis
of the assumptions set forth therein, which the Company reasonably believes are
fair and reasonable in light of the historical financial performance of the
Company and its Subsidiaries and of current and reasonably foreseeable business
conditions. The Company makes no representations or warranty that such
projected results will be realized or approximated or that the underlying
assumptions are accurate or complete.
5
<PAGE>
(b) The pro forma consolidated balance sheet of the Company and
its Subsidiaries as of December 31, 1995, attached hereto as SCHEDULE 2.9(b), is
complete and correct in all material respects and presents fairly in all
material respects the consolidated financial condition of the Company and its
Subsidiaries as of such date as if the transactions contemplated by this
Agreement had occurred immediately prior to such date, and such balance sheet
contains all pro forma adjustments necessary in order to fairly reflect such
transaction.
2.10 ABSENCE OF CERTAIN DEVELOPMENTS.
(a) Except as expressly contemplated by this Agreement, since the
date of the Latest Balance Sheet, neither the Company nor any Subsidiary thereof
has:
(i) declared or made any payment or distribution to its
equityholders with respect to its equity securities, or purchased or
redeemed any equity securities;
(ii) mortgaged or pledged any of its properties or assets or
subjected them to any material lien, except liens for current property
taxes not yet due and payable;
(iii) sold, assigned or transferred any of its tangible or
intangible assets, except in the ordinary course of business, or canceled
any material debts or claims;
(iv) suffered any material extraordinary losses or waived
any rights of material value;
(v) incurred costs in excess of $50,000 for capital
expenditures;
(vi) suffered any material extraordinary losses or damage,
destruction or casualty loss exceeding in the aggregate $10,000, whether or
not covered by insurance; or
(vii) entered into any transaction other than in the ordinary
course of business or any other material transaction (whether or not in the
ordinary course of business) other than as specifically described in
EXHIBIT C attached hereto.
(b) Since the date of the latest Balance Sheet, there has
been no material adverse change in the financial condition, operating results,
assets, operations, employee relations or supplier relations, or to the
reasonable good faith belief of the Company, the business prospects of the
Company or any Subsidiary thereof.
(c) Neither the Company nor any of its Subsidiaries has at
any time made any payments for political contributions or made any bribes,
kickback payments or other illegal payments.
2.11 TAX RETURNS, PAYMENTS, AND ELECTIONS. The Company has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The provision for
taxes of the Company as shown in the Latest Balance Sheet is adequate for taxes
due, accrued or contested as of the date thereof. The Company has not
6
<PAGE>
elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to
be treated as an S corporation or a collapsible corporation pursuant to
Section 1362(a) or Section 341(f) of the Code, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation, or amortization) that would have a material
effect on the business, properties, prospects, or financial condition of the
Company. The Company has never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns and none of its state income or franchise
tax or sales or use tax returns has ever been audited by governmental
authorities. Since the date of the Latest Balance Sheet, the Company has made
adequate provisions on its books of account for all taxes, assessments, and
governmental charges with respect to its business, properties, and operations
for such period. The Company has withheld or collected from each payment made
to each of its employees, the amount of all taxes, including, but not limited
to, federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositaries.
2.12 INSURANCE. The attached SCHEDULE 2.12 describes each insurance policy
maintained by the Company and each of its Subsidiaries with respect to their
respective properties, assets and business. Each such policy is in full force
and effect. Neither the Company nor any of its Subsidiaries is in default with
respect to its obligations under any insurance policy maintained by it, and
neither the Company nor any of its Subsidiaries has been denied insurance
coverage. The insurance coverage of the Company and each of its Subsidiaries is
customary for adequately insured businesses of similar size engaged in similar
lines of business. Neither the Company nor any of its Subsidiaries has any
self-insurance or co-insurance programs.
2.13 MATERIAL LIABILITIES. Neither the Company nor any Subsidiary thereof
has any material obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known by the Company or any
Subsidiary, whether due or to become due and regardless of when asserted) except
(i) liabilities set forth on the Latest Balance Sheet (including any notes
thereto), (ii) liabilities and obligations specifically described on SCHEDULE
2.13 hereto, and (iii) such other liabilities and obligations which have arisen
after the date of the Latest Balance Sheet in the ordinary course of business
(none of which is a liability resulting from breach of contract, breach of
warranty, tort, infringement, claim or lawsuit and none of which individually or
in the aggregate could reasonably be expected to have an adverse effect on the
financial condition, operations, assets or business prospects of the Company or
any Subsidiary thereof, and which do not exceed $50,000 either individually or
in the aggregate).
2.14 MATERIAL AGREEMENTS.
(a) Except as disclosed on SCHEDULE 2.14, neither the Company nor
any Subsidiary thereof is a party to, or bound by, any material contract,
instrument, commitment, arrangement or understanding (whether written or oral),
including, without limitation, any pension or other employee benefit plans,
collective bargaining agreements, employment or consulting contracts, loan
agreements (whether as a borrower or as a lender), guarantees of any obligation,
leases (whether as a lessor or lessee), noncompetition agreements, sales or
distribution agreements (collectively, "CONTRACTS").
7
<PAGE>
(b) All of the Contracts are valid, binding and enforceable in
accordance with their respective terms subject to laws of general application
relating to bankruptcy, insolvency and to relief of debtors. The Company and
its Subsidiaries have performed all material obligations required to be
performed by them and are not in default under or in breach of nor in receipt of
any claim of default or breach under any material contract, agreement or
instrument. No event has occurred which with the passage of time or the giving
of notice or both would result in a default, breach or event of noncompliance by
the Company or any Subsidiary thereof under any Contract. Neither the Company
nor any Subsidiary thereof has knowledge of any breach or anticipated breach by
the other parties to any Contract. Neither the Company nor any Subsidiary
thereof has knowledge that any party to any Contract intends to withdraw from
such Contract. To the Company's knowledge neither the Company nor any
Subsidiary thereof is a party to any Contract which is presently materially
adverse to the Company.
(c) Purchaser's counsel has been furnished with a true and correct
copy or an accurate description (in the case of Contracts not in writing) of
each of the Contracts, together with all amendments, waivers or other changes
thereto.
2.15 PERMITS, COMPLIANCE WITH LAWS. The Company has all franchises,
permits, licenses, and any similar authority necessary for the conduct of its
business as now being conducted by it and to the Company's knowledge, as
presently proposed to be conducted, except for any such franchise, permit,
license or authority, the absence of which would not have a material adverse
affect on the business, properties, prospects or financial condition of the
Company. The Company is not in default in any material respect under any of
such franchises, permits, licenses or other similar authority. The Company has
not violated any federal, state or local law or governmental regulation or
requirement which violation has had or could have a material adverse affect on
the business, properties, prospects or financial condition of the Company.
Notwithstanding the foregoing, the Company has all franchises, permits,
licenses, or other governmental approvals required in connection with the SenDx
100, except, to the knowledge of the Company, and as set forth on Schedule 2.15,
for any such franchise, permit, license or authority, the absence of which would
not have a material adverse affect on the business, properties, prospects or
financial condition of the Company.
2.16 RELATED-PARTY TRANSACTIONS. Except as set forth on Schedule 2.16, no
employee, officer, or director of the Company or member of his or her immediate
family is, directly or indirectly, interested in any material contract with the
Company. To the Company's knowledge, none of such persons has any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that employees, officers, or
directors of the Company and members of their immediate families may own stock
in publicly traded companies that may compete with the Company. Schedule 2.16
sets forth all existing contracts with affiliates of the Company.
2.17 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and
marketable title to, or a valid leasehold interest in, all of the properties and
assets necessary for the conduct of its business as presently conducted and to
the Company's knowledge as presently proposed to be conducted, and in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than
(i) the lien of current taxes not yet due and payable, and
8
<PAGE>
(ii) as set forth on SCHEDULE 2.17. The properties and assets of the Company
are in good operating condition in all material respects for use in the ordinary
course of business.
2.18 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation of
any term of its Articles of Incorporation or its Bylaws or in any material
respect of any mortgage, indebtedness, indenture, judgment or decree, or in any
material respect of any term or provision of any contract, agreement or
instrument, and is not in violation of any order, statute, rule or regulation
applicable to the Company, which violation in any such case could have a
material adverse effect on the Company or its operations, or on the Series D
Preferred or Underlying Common Stock. The execution, delivery and performance
of and compliance with the Agreements, and the issuance of the Series D
Preferred and the Underlying Common Stock have not resulted and will not result
in any violation of, or conflict with, or constitute a default under, the
Company's Articles of Incorporation or Bylaws or a default in any material
respect under any of its Contracts or other agreements, nor will it result in
the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company, which in any such case could have a
material adverse effect on the Company or its operations or on the Series D
Preferred and Underlying Common Stock.
2.19 EMPLOYEES AND EMPLOYEE BENEFITS. (a) To the best of the Company's
knowledge, no employee of the Company is in violation of any term of any
employment contract, patent disclosure agreement or any other contract or
agreement relating to the relationship of such employee with the Company or any
other party. To the best of the Company's knowledge, no executive or key
employee of the Company or any Subsidiary thereof, or any group of employees of
the Company or any or any Subsidiary thereof, has any plans to terminate
employment with the Company or Subsidiary thereof. The Company and each
Subsidiary thereof have complied in all material respects with all laws relating
to the employment of labor (including, without limitation, provisions thereof
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes). Neither the Company nor any
Subsidiary thereof has any material labor relations problems (including, without
limitation, any union organization activities, threatened or actual strikes or
work stoppages or material grievances). Neither the Company nor any Subsidiary
thereof, nor to the best of the Company's knowledge, any employee of a Company
or any of its Subsidiaries, is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities of the
Company or any Subsidiary thereof, except for agreements between the Company or
Subsidiary thereof and its present or former employees. Neither the Company nor
any member of its ERISA Controlled Group maintains, or contributes to, or has
any liability (whether actual or potential) with respect to any Employee Pension
Benefit Plan or any Employee Welfare Benefit Plan within the meaning of ERISA,
nor is it presently, or has it ever been required to contribute to any
Multiemployer Plan within the meaning of ERISA. SCHEDULE 2.19 lists each
employee benefit plan, program or policy covering employees or former employees
of the Company or its Subsidiaries.
(b) For purposes hereof:
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(2).
9
<PAGE>
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(1).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA CONTROLLED GROUP" includes all companies, partnerships
and other entities under common control within the meaning of Code Sec. 414.
2.20 ENVIRONMENTAL AND SAFETY MATTERS.
(a) The Company has complied with and is currently in compliance
with all Environmental Health and Safety Requirements, which failure to comply
with could have a material adverse affect on the Company, and the Company has
not received any oral or written notice, report or information regarding any
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
or any corrective, investigatory or remedial obligations arising under
Environmental Health and Safety Requirements which relate to the Company or any
of its properties or facilities.
(b) Without limiting the generality of the foregoing, the Company
has obtained and complied with, and is currently in compliance with, all
permits, licenses and other authorizations that may be required pursuant to any
Environmental Health and Safety Requirements for the occupancy of their
properties or facilities or the operation of their businesses, the failure to
comply with which could have a material adverse affect on the Company.
(c) Neither this Agreement nor the consummation of the transactions
contemplated by this Agreement shall impose any obligations on the Company or
otherwise for site investigation or cleanup, or notification to or consent of
any government agencies or third parties under any Environmental Health and
Safety Requirements (including, without limitation, any so called "transaction-
triggered" or "responsible property transfer" laws and regulations).
(d) None of the following exists at any property or facility owned,
occupied or operated by the Company: (a) underground storage tanks or surface
impoundments; (b) asbestos-containing materials in any form or condition; or (c)
materials or equipment containing polychlorinated biphenyls.
(e) No facts, events or conditions relating to the past or present
properties, facilities or operations of the Company shall prevent, hinder or
limit continued compliance with Environmental Health and Safety Requirements,
give rise to any corrective, investigatory or remedial obligations or other
liabilities pursuant to Environmental Health and Safety Requirements or give
rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental Health and Safety
Requirements (including, without limitation, those liabilities relating to
onsite or offsite Releases or threatened Releases of hazardous materials,
substances or wastes, personal injury, property damage or natural resources
damage. The Company has not, either expressly or by operation of law, assumed
or undertaken any material liability or corrective, investigatory or remedial
obligation of any other Person relating to any Environmental Health and Safety
Requirements.
10
<PAGE>
(f) For purposes hereof, "ENVIRONMENTAL HEALTH AND SAFETY
REQUIREMENTS" means CERCLA, SWDA, the Resource Conservation and Recovery Act of
1976, and the Occupational Safety and Health Act of 1970, each as amended,
together with all applicable laws of federal, state and local governments (and
all agencies thereof), and all common law, concerning pollution or protection of
the environment, public health and safety, or employee health and safety,
including without limitation, laws relating to emissions, discharges, releases,
or threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials, substances or wastes.
2.21 SMALL BUSINESS MATTERS. The Company, together with its "affiliates"
(as that term is defined in Section 121.401(a) of Title 13 of the Code of
Federal Regulations), is a "small business concern" within the meaning of the
Small Business Investment Act of 1958, as amended, and the regulations
promulgated thereunder, including Section 121.802(a) of Title 13 of the Code of
Federal Regulations. The information regarding the Company, and each of its
Affiliates set forth in Small Business Administration Forms 480, 652 and 1031
delivered at the Closing is accurate and complete. Copies of such forms have
been completed and executed by the Company and delivered to Purchaser at the
Closing together with a written statement of the Company regarding the planned
use of proceeds from the sale of securities issued hereunder. The Company does
not presently engage in, nor shall it hereafter engage in, any activities, nor
shall the Company use directly or indirectly the proceeds from the sale of
securities issued hereunder for any purpose, for which a Small Business
Investment Company is prohibited from providing funds by the Small Business
Investment Act of 1958, as amended, and the regulations promulgated thereunder
(including Title 13, Code of Federal Regulations, Section 107.901). In the
event of any such prohibited use by the Company, the Company shall have 120 days
to cure such use and if the Company is unable to cure such use during such 120
day period Purchasers shall thereafter be entitled to an immediate return of the
full amount of its investment in the Company upon surrender of the securities
represented thereby.
2.22 REGISTRATION RIGHTS. Except as set forth in (a) the Registration
Rights Agreements with the holders of the Series A Preferred, Series A-2
Preferred, Series B Preferred and Series C Preferred, and (b) the Registration
Rights Agreement, the Company is not under any contractual obligation to
register under the Securities Act of 1933, as amended (the "Securities Act") any
of its presently outstanding securities or any of its securities which may
hereafter be issued.
2.23 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of the Agreements, or the offer, sale or issuance of the Series D
Preferred and the Underlying Common Stock, or the consummation of any other
transaction contemplated hereby or thereby, except (a) filing of the Certificate
of Determination in the office of the California Secretary of State, and
(b) filings or notices under applicable federal securities laws and state Blue
Sky laws, which filings and qualifications, if required, will be accomplished in
a timely manner.
11
<PAGE>
2.24 OFFERING. Subject to the accuracy of Purchaser's representations set
forth in its Section 3 hereof, the offer, sale and issuance of the Series D
Preferred, and the issuance of the Underlying Common Stock, constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended ("Securities Act"), and applicable Blue Sky
regulations.
2.25 BROKERS OR FINDERS. Neither the Company nor Purchaser has incurred or
will incur, directly or indirectly, as a result of any agreement to which the
Company is a party, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
2.26 VOTING AGREEMENTS. To the Company's knowledge, there exists no voting
agreements or voting trusts involving shares of the Company's stock or any
shareholder of the Company, except as set forth in the Investors' Rights
Agreement.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company with respect to the
purchase of the Shares as follows:
3.1 AUTHORIZATION. All corporate action on the part of Purchaser, its
directors and shareholders necessary for the authorization, execution and
delivery of the Agreements by Purchaser and the performance of all of
Purchaser's obligations under the Agreements has been taken. The Agreements,
when executed and delivered by Purchaser, will constitute valid and legally
binding obligations of Purchaser, enforceable in accordance with their
respective terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of laws governing specific
performance, injunctive relief or other equitable remedies.
3.2 EXPERIENCE. It has substantial experience in evaluating and investing
in similar private placement transactions of securities so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests and bear the risk of loss of its entire
investment.
3.3 INVESTMENT. It is acquiring the Series D Preferred and the Underlying
Common Stock for investment for its own account, not as a nominee or agent, and
not with a view to, or for resale in connection with any distribution in
violation of applicable securities laws. It understands that the Series D
Preferred and the Underlying Common Stock have not been, and will not be
(subject to the provisions of the Registration Rights Agreement), registered
under the Securities Act by reason of the exemption from the registration
provisions of the Securities Act contained in Section 4(2) thereof, the
availability of which depends upon, among other things, the BONA FIDE nature of
the investment intent and the accuracy of Purchaser's representations as
expressed herein. Such Purchaser is an "accredited investor" within the meaning
of Regulation D, Rule 501(a), promulgated by the Securities and Exchange
Commission.
12
<PAGE>
3.4 RULE 144. It acknowledges that the Series D Preferred and the
Underlying Common Stock must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is
available. It is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the shares, the availability
of certain current public information about the Company, the resale occurring
not less than two years from the date of issuance or purchase from an affiliate
of the issuer, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker", and the number of shares being sold
during any three-month period not exceeding specified limitations.
3.5 LEGEND, STOP TRANSFER. It understands that each certificate
representing the Shares and the Underlying Common Stock will be endorsed with
the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144
OR THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF THE 1933 ACT."
and that the Company will instruct any transfer agent not to register the
transfer of any of the Shares or the Underlying Common Stock unless the
conditions specified in the foregoing legend are satisfied; provided, however,
that in the case of a Purchaser that is a partnership, no such opinion of
counsel shall be necessary for a transfer by such Purchaser to a partner of such
Purchaser, or a retired partner of such Purchaser who retires after the date
hereof, or the estate of any such partner or retired partner, or to a
partnership that is comprised entirely of partners of such Purchaser, if in each
case the transferee agrees in writing to be subject to the terms of this
Section 3 to the same extent as if such transferee were originally a signatory
to this Agreement.
3.6 NO PUBLIC MARKET. It understands that no public market now exists for
any of the securities issued by the Company and that no assurances can be made
that a public market will ever exist for any of the Company securities.
3.7 BROKERS OR FUNDS. The Company has not, and will not, incur, directly
or indirectly, as a result of any agreement to which Purchaser is a party, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
13
<PAGE>
3.8 TAX LIABILITY. It has reviewed with its own tax advisors the tax
consequences of this investment and the transactions contemplated by this
Agreement. It relies solely on such advisors and not on any statements or
representations of the Company or any of its agents. It understands that it
(and not the Company) shall be responsible for its own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Agreement.
SECTION 4
CONDITIONS TO CLOSING OF PURCHASER
4.1 CONDITIONS AT CLOSING. The Purchaser's obligation to purchase the
Shares at the Closing is subject to the fulfillment of the following conditions
(subject to the option of Purchaser to waive in writing any of the following):
4.1.1 REPRESENTATIONS AND WARRANTIES CORRECT. All representations
and warranties made by the Company herein shall be true and correct in all
material respects as of the Closing date.
4.1.2 COVENANTS. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing date
shall have been performed or complied with in all material respects.
4.1.3 BLUE SKY. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Series D
Preferred and the Underlying Common Stock.
4.1.4 CERTIFICATE OF DETERMINATION. The Certificate of Determination
shall have been filed with the California Secretary of State.
4.1.5 LEGAL MATTERS. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby, shall have
been reasonably approved by counsel to Purchaser.
4.1.6 OPINION OF COUNSEL. The Purchaser shall have received from
Stradling, Yocca, Carlson & Rauth, counsel to the Company, an opinion letter
substantially in the form attached hereto as EXHIBIT F, addressed to them, dated
the date of the Closing.
4.1.7 INVESTORS' RIGHTS AGREEMENT. The Company and Purchaser and
each of the Principal Shareholders named therein shall have executed the
Investors' Rights Agreement, attached hereto as EXHIBIT D.
4.1.8 REGISTRATION RIGHTS AGREEMENT. The Company, the Purchaser and
each of the other persons set forth on Annex A thereto shall have executed the
Registration Rights Agreement in substantially the form attached hereto as
EXHIBIT E.
14
<PAGE>
4.1.9 COMPLIANCE CERTIFICATE. The Company shall have delivered to
the Purchaser a certificate of the Company executed by the President and Chief
Executive Officer of the Company, dated as of the Closing date, and certifying,
among other things, the fulfillment of the conditions specified in
Sections 4.1.1, 4.1.2 and 4.1.4 of this Agreement, together with true and
correct copies of the Company's Articles of Incorporation, Bylaws and
resolutions of the Board of Directors of the Company authorizing all of the
transactions contemplated by this Agreement..
4.1.10 BOARD OF DIRECTORS. Effective as of the Closing, the Board of
Directors of the Company shall have appointed the nominee designated in writing
by the Purchaser as a director of the Company.
SECTION 5
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing is
subject to the fulfillment of the following conditions (subject to the option of
the Company to waive in writing any of the foregoing):
5.1 REPRESENTATIONS. The representations made by Purchaser in Section 3
hereof shall be true and correct as of the Closing.
5.2 COVENANTS. All covenants, agreements, and conditions contained in
this Agreement to be performed by the Purchaser on or prior to the Closing shall
have been performed or complied with in all material respects.
5.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Series D Preferred and the
Underlying Common Stock.
5.4 CERTIFICATE OF DETERMINATION. The Certificate of Determination shall
have been filed with the California Secretary of State.
5.5 INVESTORS' RIGHTS AGREEMENT. The Company and Purchaser shall have
executed the Investors' Rights Agreement in substantially the form attached
hereto as EXHIBIT D.
5.6 REGISTRATION RIGHTS AGREEMENT. The Company and the Purchaser shall
have executed the Registration Rights Agreement in substantially the form
attached hereto as EXHIBIT E.
5.7 LEGAL MATTERS. All material matters of a legal nature which pertain
to this Agreement, and the transactions contemplated hereby, shall have been
reasonably approved by counsel to the Company.
15
<PAGE>
SECTION 6
INDEMNIFICATION
6.1 INDEMNITY. Each party hereto agrees to indemnify and hold the other
party harmless from any and all debts, obligations, losses, liabilities or
expenses of any description whatsoever (including without limitation reasonable
attorneys' fees and costs) (collectively, "Damages") which such other party may
suffer or incur due to or arising out of any inaccuracy or breach of any
representation, warranty or covenant of the indemnifying party set forth herein.
SECTION 7
MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed in all respects and
construed under the internal laws of the State of California.
7.2 SURVIVAL. The representations, warranties, covenants, indemnities and
agreements made herein shall survive irrespective of any investigation made by
the Purchaser and the closing of the transactions contemplated hereby.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided, however, that the rights of Purchaser to purchase the Series D
Preferred shall not be assignable without the consent of the Company.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, covenants, or agreements except as specifically set
forth herein or therein. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
7.5 AMENDMENT AND WAIVER. 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, either retroactively or prospectively, and either for
a specified period of time or indefinitely), with the written consent of the
Company and the holders of not less than a majority of the Shares; provided,
however, that no such amendment or waiver shall reduce the aforesaid percentage
of Shares and Underlying Common Stock required to consent to any waiver or
supplemental agreement without the consent of the holders of all of the Shares
and Underlying Common Stock. 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 have been converted), each future holder of all such
securities, and the Company. Upon the effectuation of each such amendment or
waiver, the Company shall promptly give written notice thereof to the record
holders of the
16
<PAGE>
Shares and such Underlying Common Stock who have not previously consented
thereto in writing.
7.6 INTENTIONALLY OMITTED.
7.7 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or by facsimile or nationally recognized
overnight delivery service, otherwise delivered by hand or by messenger,
addressed:
(a) if to Purchaser, CIBC Wood Gundy Ventures, Inc.
425 Lexington Avenue
New York, New York 10017
Attn: Robi Blumenstein
Telecopy: (212) 697-1544
with a copy to: Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Emile Karafiol
Telecopy: (312) 861-2200
or (b) if to the Company, 1945 Palomar Oaks Way
Carlsbad, California 92009
Attn: President
Telecopy: (619) 930-6315
with a copy to: Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attn: Lawrence B. Cohn
Telecopy: (714) 725-4100
or at such other address as such party may have notified the other party as set
forth in this Section.
Each such notice or other communication shall, for all intents and
purposes of this Agreement, be treated as effective or having been given when
delivered if by facsimile, nationally recognized overnight delivery service, or
delivered personally, or, if sent by mail, at the earlier of its receipt or on
the third day after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid.
7.8 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to the Purchaser, upon
any breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of the Purchaser nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any
17
<PAGE>
waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of the Purchaser, or any waiver on
the part of the Purchaser of any provisions or conditions of this Agreement,
must be in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to Purchaser, shall be cumulative and not alternative.
7.9 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
7.10 EXPENSES. The Company and the Purchaser shall each bear its own
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby; provided, however, that the Company shall
timely reimburse the Purchaser for its reasonable out-of-pocket expenses
(including the fees and costs of a single counsel to the Purchaser) incurred in
connection with the purchase of the Shares, but in no event to exceed $50,000,
whether or not the Closing occurs.
7.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the party actually
executing such counterpart, and all of which together shall constitute one
instrument.
18
<PAGE>
7.12 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
7.13 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not considered in construing or
interpreting this Agreement.
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
SENDX MEDICAL, INC.
a California corporation
By: /s/ DOUGLAS R. HILLIER
---------------------------
Douglas Hillier
President and Chief Executive Officer
"PURCHASER"
CIBC WOOD GUNDY VENTURES, INC.
By:
----------------------
Its:
----------------------
19
<PAGE>
EXHIBIT A
CERTIFICATE OF DETERMINATION
A-1
<PAGE>
EXHIBIT B
INTENTIONALLY OMITTED
B-1
<PAGE>
EXHIBIT C
DISCLOSURE SCHEDULES
C-1
<PAGE>
EXHIBIT D
INVESTORS' RIGHTS AGREEMENT
D-1
<PAGE>
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
E-1
<PAGE>
EXHIBIT F
FORM OF OPINION OF COMPANY COUNSEL
F-1
<PAGE>
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement is entered into as of March 20, 1996, by
and among SENDX MEDICAL INC., a California corporation (the "Company"), CIBC
Wood Gundy Ventures, Inc., a Delaware corporation (the "Series D Holder") and
for purposes of Section 2.15 and Article 3 only, the principal shareholders of
the Company listed on Annex A (the "Principal Shareholders"). Subject to
Section 1.3 and Section 2.13 hereof, any permitted transferee of the rights of a
Series D Holder hereunder, any holder of common stock of the Company (the
"Common Stock") issued upon conversion of the Series D Preferred Stock or
exercise of the Series D Warrants and any holder of Series D Warrants, shall
also be deemed a Series D Holder for purposes of permitting such transferee to
exercise such rights for purposes hereof.
WHEREAS, in connection with the Company's issuance of Series D Preferred
Stock and warrants to purchase Series D Preferred Stock or Common Stock (the
"Series D Warrants") to the Series D Holder pursuant to that certain Series D
Preferred Stock Purchase Agreement dated as of March 20, 1996 (the "Purchase
Agreement"), the Company has agreed to enter into this Investors' Rights
Agreement as a condition to the Closing thereunder.
NOW THEREFORE, in consideration of the mutual agreements, covenants and
conditions and releases contained herein, the Company, the Series D Holder and,
with respect to Section 2.15 and Article 3, the Principal Shareholders hereby
agree as follows:
1. RIGHTS OF FIRST REFUSAL
1.1 PRO RATA RIGHT. The Company hereby grants to the Series D Holders the
right of first refusal to purchase, pro rata, New Securities (as defined in
Section 1.2 below) which the Company may, from time to time, propose to issue,
sell or exchange. Each Series D Holder's pro rata share, for purposes of this
right of first refusal, is the ratio (A) the numerator of which is (i) the
number of shares of Common Stock held by such Series D Holder issued or issuable
upon conversion of Series D Preferred Stock (together with shares of Common
Stock issued or issuable on exercise of Series D Warrants and shares of Common
Stock issued or issuable upon conversion of Series D Preferred Stock issued or
issuable upon exercise of the Series D Warrants held by such Series D Holder),
and (ii) the number of shares of Common Stock purchased by such Series D Holder
pursuant to its rights under this Section 1.1 (including any Common Stock
issuable upon conversion or exercise of any convertible securities or rights to
acquire securities so purchased) (the sum of (i) and (ii) being the "Underlying
Common Stock") on the date the Company specifies in its written notice delivered
pursuant to Section 1.3 below (provided however, that any such shares shall
cease being Underlying Common Stock when (x) effectively registered under the
Securities Act of 1933 (the "Securities Act") and disposed of pursuant to a
valid registration statement, or (y) when sold without restriction pursuant to
Rule 144 or any similar provision then in force); and (B) the denominator of
which is the total number of shares of Common Stock then outstanding and
issuable upon exercise and conversion of all outstanding options, warrants,
rights and convertible securities. This right of first refusal shall be subject
to the following additional provisions of this Section 1.
<PAGE>
1.1.1 DEFINITION.
"New Securities" shall mean any capital stock (including the Common
Stock or the Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase, subscribe for or otherwise acquire
capital stock, and securities of any type whatsoever that are, or may become,
convertible into or exchangeable for capital stock; provided that the term "New
Securities" does not include (i) securities issuable upon conversion of the
Series A, Series A-2, Series B, Series C or Series D Preferred Stock outstanding
as of the date hereof, or upon conversion, exchange or exercise of other
currently outstanding securities which are convertible into, or exchangeable or
exercisable for, capital stock (but not including new issuances of such
securities); (ii) securities issued to another corporation or its shareholders
pursuant to the acquisition of such other corporation by the Company by merger,
purchase of substantially all the assets or other reorganization which results
in the Company owning more than fifty percent (50%) of the voting power or
substantially all the assets of such other corporation; (iii) shares of Common
Stock or Preferred Stock convertible into Common Stock (including options to
purchase such shares) issued or issuable to employees, consultants, vendors or
directors of the Company pursuant to any stock option plan or stock purchase or
stock bonus agreements or arrangements approved by the Board of Directors of the
Company but in no event to exceed 16% of the total number of shares of Common
Stock (on a fully diluted basis) then outstanding or issuable upon conversion of
convertible securities or upon the exercise of options or warrants (and
including in such 16%, shares previously issued to employees, consultants,
vendors or directors, pursuant to such plans or agreements); (vi) securities
issued pursuant to any stock dividend, stock split, combination or other
reclassification by the Company of any of its capital stock; or (v) securities
offered pursuant to a public offering pursuant to a registration statement under
the Securities Act, from which the gross proceeds to the Company exceed
$18,000,000 (a "Qualified Public Offering").
1.1.2 REQUIRED NOTICES. In the event the Company proposes to
undertake an issuance of New Securities, it shall give the Series D Holders
written notice of the proposed issuance, describing the type of New Securities
(including a brief description of the rights, preferences and privileges
thereof), the number of New Securities proposed to be issued, the proposed
issuance date and the price and the general terms upon which the Company
proposes to issue the same. Each Series D Holder shall have twenty (20) days
from the date of receipt of any such notice (the "Purchase Period") to agree to
purchase up to its pro rata share of such New Securities for the price and upon
the general terms specified in the notice by giving written notice to the
Company and the other Series D Holders and stating therein the quantity of New
Securities to be purchased.
1.1.3 COMPANY'S RIGHT TO SELL. In the event that any Series D
Holder (the "Non-Electing Holder") fails to exercise its right of first refusal
to purchase all of its pro rata share of New Securities within the applicable
Purchase Period and the other Series D Holders (the "Electing Holders") have
elected to purchase all of their pro rata share of the New Securities, then the
Company shall deliver notice of such failure by the Non-Electing Holder to the
Electing Holders specifying the number of New Securities available for sale (the
"Clean-up Notice") and the Electing Holders may elect, by means of delivery of a
written notice to the Company within ten (10) days after the receipt of the
Clean-up Notice (the "Clean-up Period"), to purchase all or a portion the New
Securities not purchased by the Non-Electing Holder. If
2
<PAGE>
upon the expiration of the Clean-up Period the Series D Holders (as a group)
have not elected to purchase all of their pro rata share of the New Securities,
the Company shall have one hundred and twenty (120) days thereafter to sell or
enter into an agreement (pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within one hundred and twenty (120) days
from the date of said agreement) to sell the New Securities not purchased by the
Series D Holders (the "Available New Securities") at a price and upon general
terms no more favorable in any material respect to the purchasers thereof than
specified in the Company's notice. In the event the Company has not issued and
sold the Available New Securities within said one hundred and twenty (120) day
period, the Company shall not thereafter issue or sell any Available New
Securities, without first offering such securities to the Series D Holders in
the manner provided above and in no event shall the Company issue or sell any
additional New Securities without first offering such securities to the Series D
Holders in the manner provided above.
1.2 TERMINATION. The provisions of this Section 1 shall terminate upon
the earlier to occur of any one of the following events: (i) the closing a
Qualified Public Offering; or (ii) the aggregate shares of Underlying Common
Stock represent less than two percent (2%) of the fully diluted shares of Common
Stock of the Company.
1.3 ASSIGNMENT. The right of first refusal set forth in this Section 1 is
(a) assignable in connection with a sale or assignment of not less than the
lesser of (i) 100,000 shares (as adjusted for stock splits, stock dividends or
recapitalizations after the date hereof) of Underlying Common Stock or (ii) 100%
of the Shares of Underlying Common Stock held by such Series D Holder;
(b) assignable by a Series D Holder to any wholly-owned subsidiary or parent of,
or to any corporation, entity or other person which is, within the meaning of
the 1933 Act, controlling, controlled by or under common control with such
Series D Holder, (c) assignable by a partnership to its partners in connection
with distributions to the partners and if so assigned will be treated as one
Series D Holder for purposes of this Section 1, and (d) assignable with the
prior written consent of the Company, which will not be unreasonably withheld.
1.4 AMENDMENT OF RIGHTS OF FIRST REFUSAL. Any provision of this Section 1
may be amended and the observance thereof may be waived (either generally or in
a particular instance either retroactively or prospectively) only with the
written consent of the Company and the Series D Holders owning at least a
majority of the shares of Underlying Common Stock held by all Series D Holders.
2. COVENANTS
2.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company shall furnish
the following reports to each Series D Holder that owns at least 100,000 shares
of Underlying Common Stock (provided that all Underlying Common Stock held by
affiliated Series D Holders shall be aggregated for purposes of this and all
other calculations under this Agreement) (a "Qualified Holder"):
3
<PAGE>
(a) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries, for such monthly period and for the period from
the beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries, as of the end of such monthly period, setting forth in each case
comparisons to the Company's annual budget and all such statements shall be
prepared in accordance with United States generally accepted accounting
principles, consistently applied ("GAAP") except for the omission of notes in
interim period statements, and shall be certified by such Company's chief
financial officer;
(b) accompanying the financial statements referred to in
subparagraph (a), a certificate from the Company stating that neither the
Company nor any of its Subsidiaries is in default under any of its other
material agreements or, if any such default exists, specifying the nature and
period of existence thereof and what actions the Company and its Subsidiaries
have taken and propose to take with respect thereto;
(c) as soon as available but in any event within 90 days after
the end of each fiscal year, unaudited consolidating and audited consolidated
statements of income and cash flows of the Company and its Subsidiaries for such
fiscal year, and unaudited consolidating and audited consolidated balance sheets
of the Company and its Subsidiaries as of the end of such fiscal year, all
prepared in accordance with GAAP, and accompanied by (i) with respect to the
consolidated portions of such statements, an opinion containing no exceptions or
qualifications (except for qualifications regarding specified contingent
liabilities and except in the case of such opinion for the fiscal year ended
December 31, 1995 for a qualification relating to the Company's ability to
continue as a going concern) of an independent accounting firm of recognized
national standing, (ii) a copy of such firm's annual management letter to the
Company, if any; and (iii) a supplemental report setting forth in each case
comparisons to the Company's annual budget;
(d) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(e) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis for
the Company and its Subsidiaries for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets), and promptly upon
preparation thereof any other significant budgets prepared by the Company and
any revisions of such annual or other budgets, and within 30 days after any
monthly period in which there is a material adverse deviation from the annual
budget, a statement from the Company explaining the deviation and what actions
it has taken and proposes to take with respect thereto;
4
<PAGE>
(f) promptly (but in any event within ten business days) after
the discovery or receipt of notice of default under any material agreement to
which the Company or any of its Subsidiaries is a party, any condition or event
which is reasonably likely to result in any material liability under any
foreign, federal, state or local statute or regulation relating to public health
and safety, worker health and safety or pollution or protection of the
environment or any other material adverse change, event or circumstance
affecting the Company or any Subsidiary (including, without limitation, the
filing of any material litigation against the Company or any Subsidiary or the
existence of any dispute with any person which involves a reasonable likelihood
of such litigation being commenced), a statement specifying the nature and
period of existence thereof and what actions the Company and its Subsidiaries
have taken and propose to take with respect thereto;
(g) within ten days after transmission thereof, copies of all
financial statements, reports and any other general written communications which
the Company sends to its equity holders and copies of all registration
statements and all regular, special or periodic reports which it files, or any
of its partners, officers or directors file with respect to the Company, with
the Securities and Exchange Commission ("SEC") or with any securities exchange
on which any of its securities are then listed, and copies of all press releases
and other statements made available generally by the Company to the public
concerning material developments in the Company's and its Subsidiaries'
businesses; and
(h) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Series D
Holder entitled to receive information under this Section 2.1 may reasonably
request.
Each of the financial statements referred to in subsection (a) and (c) above
(including in all cases the notes thereto, if any) shall be consistent with the
books and records of the Company (which, in turn, shall be accurate and complete
in all material respect) and shall fairly present in all material respects the
consolidated financial condition, results of operations and cash flows of the
Company and its Subsidiaries as of the dates and for the periods stated therein.
2.2 FINANCIAL INFORMATION TO OTHER SERIES D HOLDERS. The Company shall
furnish the following reports to each Series D Holder not entitled to receive
information under Section 2.1 above:
(a) as soon as available but in any event within 30 days after
the end of each of the first three fiscal quarters in each fiscal year,
unaudited consolidating and consolidated statements of income and cash flows of
the Company and its Subsidiaries for such quarter and for the period from the
beginning of the fiscal year to the end of such quarter, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such quarter, setting forth in each case
comparisons to the Company's annual budget, and all such statements shall be
prepared in accordance with GAAP, except for the omission of notes in interim
period statements, and shall be certified by the Company's chief financial
officer; and
5
<PAGE>
(b) as soon as available but in any event within 90 days after
the end of each fiscal year, unaudited consolidating and audited consolidated
statements of income and cash flows of the Company and its Subsidiaries for such
fiscal year, and unaudited consolidating and audited consolidated balance sheets
of the Company and its Subsidiaries as of the end of such fiscal year, all
prepared in accordance with GAAP, and, accompanied by (a) with respect to the
consolidated portions of such statements, an opinion of an independent
accounting firm of recognized national standing and (b) a supplemental report
setting forth in each case comparisons to the Company's annual budget.
2.3 INSPECTION OF PROPERTY. The Company shall afford to the officers,
employees, accountants, counsel and other representatives of each Qualified
Holder access (upon reasonable prior notice, during normal business hours and
without undue disruption to the business of the Company) to all personnel,
properties, books, contracts, commitments and records of the Company and its
Subsidiaries and all other information concerning their respective businesses,
properties and personnel as such Qualified Holder may reasonably request. The
Company shall allow, and shall cooperate with the such Qualified Holder in
providing, reasonable access to the internal and external auditors of the
Company and its Subsidiaries, and shall allow each such Qualified Holder to
review the financial statements, books and records of the Company and its
Subsidiaries. Any information disclosed or received pursuant to this Section
2.3 is subject to the confidentiality provisions of Section 2.14 below, without
limiting the generality of such Section 2.14.
2.4 RESTRICTIONS.
So long as any Series D Holder holds any Series D Preferred (or
securities convertible into, or exchangeable or exercisable for, Series D
Preferred), the Company shall not take any of the following actions without the
prior written consent of the holders of not less than a majority of the Series D
Preferred (including Series D Preferred issuable on conversion, exchange or
exercise):
(a) declare or pay any dividends or make any distributions upon
any of its equity securities;
(b) redeem, purchase or otherwise acquire, or permit any of its
Subsidiaries to redeem, purchase or otherwise acquire, any equity securities
(including, without limitation, warrants, options and other rights to acquire
such capital stock or other equity securities) of the Company or any or its
Subsidiaries thereof, except for the repurchase of stock from employees of the
Company or any such Subsidiary in connection with the termination of their
employment with the Company or any affiliate thereof, if such repurchase has
been specifically approved by the Board of Directors;
(c) authorize, issue or enter into any agreement providing for
the issuance (contingent or otherwise) of, or permit any of its Subsidiaries to
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of (a) any equity securities senior or pari passu in
priority to the Series D Preferred (or any securities convertible into or
exchangeable for any such equity securities) or (b) any notes or debt securities
containing any equity features (including, without limitation, any notes or debt
securities convertible into or
6
<PAGE>
exchangeable for such equity securities, or containing profit participation
features); provided, however, the Company may issue up to $2,000,000 in debt
securities which may be accompanied by warrants to purchase capital stock junior
to the Series D Preferred, provided the exercise price of such warrants is not
less than (i) 80% of the fair market value of the underlying capital stock, and
(ii) $2.625 per share of Common Stock, and the aggregate exercise price of such
warrants does not exceed 50% of the principal amount of such debt securities;
(d) acquire, or permit any of its Subsidiaries to acquire, any
interest in any company or business (whether by a purchase of assets, purchase
of stock, merger or otherwise), or enter into any joint venture, involving an
aggregate consideration (including, without limitation, the assumption of
liabilities whether direct or indirect) exceeding (i) $2,000,000 in any 12-month
period if funded entirely from new debt ("Acquisition Indebtedness") (not
including new draws under existing lines of credit) and/or new equity
investment, and (ii) $500,000 in the aggregate in any 12-month period if funded
otherwise, provided however, that the aggregate outstanding Acquisition
Indebtedness shall at no time exceed $2,000,000;
(e) enter into, or permit any of its Subsidiaries to enter into,
the ownership, active management or operation of any business other than the
manufacture, marketing and sale of point of care blood analysis and industrial
pH equipment substantially as conducted by the Company and its Subsidiaries as
of the date hereof and business activities ancillary thereto;
(f) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict the ability of the Company or any Subsidiary thereof to
perform the provisions of, or otherwise conflict with any of the Series D
Holder's rights under, this Agreement, the Purchase Agreement, the Registration
Rights Agreement, the Certificate of Determination, the Series D Warrants or any
other agreement contemplated hereby or thereby;
(g) directly or indirectly, enter into, amend, modify or
supplement, or permit any Subsidiary to enter into, amend, modify or supplement,
any agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, employees, partners, stockholders, agents or
affiliates, or with any family member of any such individual, or with any entity
in which any such Person or individual owns a beneficial interest, except for
payment of salaries and benefits to employees on reasonable terms and except for
employment agreements with Douglas Hillier, George Pache, Michael Mercer, Ronald
Betts, Ruben Chairez, Matthew Leader, Douglas Savage, a new vice president of
manufacturing/operations and any replacements of the foregoing, subject to
approval of the Board of Directors;
(h) increase the number of members of the Board of Directors of
the Company above seven;
7
<PAGE>
(i) issue or sell any equity or partnership interest, or rights
to acquire any equity or partnership interest, of any Subsidiary of the Company
to any person or entity other than the Company or a wholly-owned Subsidiary
thereof;
(j) approve the adoption of any equity or partnership option
plan or employee equity or partnership interest ownership plan or the issuance
of any equity or partnership interests of the Company or any Subsidiary thereof;
to any employee of the Company or any Subsidiary thereof, provided however, that
the Company may grant stock options to acquire stock under its existing Stock
Option Plan in an amount which shall not exceed 16% of the total number of
shares of Common Stock (on a fully diluted basis) then outstanding or issuable
upon conversion of convertible securities or upon the exercise of options or
warrants (and including in such 16%, shares previously issued to employees,
consultants, vendors or directors, pursuant to such plans or agreements;
(k) merge or consolidate with any entity (other than a merger of
a wholly-owned Subsidiary into another wholly-owned Subsidiary), unless in
connection with such transactions, the Series D Holders receive, an amount equal
to the greater of the Series D Liquidation Preference (as defined in the
Certificate of Determination of the Series D Preferred Stock (the "Certificate
of Determination")) for each share of Series D Preferred Stock then held or the
fair market value of any share of Underlying Common Stock then held, in cash, or
freely marketable securities (other than restrictions arising solely by virtue
of a Series D Holder's status as an affiliate or former affiliate of the
Company). Such securities shall be valued as follows:
(i) if traded on a securities exchange or reported on the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of such securities over the 30-day period ending three (3) days
prior to the closing of such transaction; or
(ii) if actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sales prices (whichever are
applicable) over the 30-day period ending three (3) days prior to the closing of
such transaction;
(l) liquidate, dissolve or effect any recapitalization or
reorganization of the Company unless the Series D Holders receive the amounts
set forth in subsection 2.4(k);
(m) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than $100,000 of the
consolidated assets of the Company or its Subsidiaries in any transaction or
series of related transactions or $250,000 of such consolidated assets in any
12-month period (other, in either case, than sales of inventory in the ordinary
course of business); provided however, the Company may sell all or substantially
all, of its assets in a single transaction or series of related transactions, if
the Series D Holders receive the consideration set forth in subsection 2.4(k);
(n) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or investments in, any person or
entity (other than a Subsidiary of the Company), except for reasonable advances
to employees in the ordinary course of business;
8
<PAGE>
(o) except as permitted under Section 2.4(c) and Section 2.4(d)
above, create, incur, assume or suffer to exist, or permit any Subsidiary to
create, incur, assume or suffer to exist, Indebtedness exceeding an aggregate
principal amount of $500,000 outstanding at any time on a consolidated basis,
other than indebtedness to PPG, Ventana Fund II, Instrumentation Laboratories
and Praktikerfinans as reflected on the Latest Balance Sheet. For purposes
hereof, "Indebtedness" shall mean indebtedness for borrowed money.
(p) amend or modify any bank loan agreement or any other
Indebtedness; provided the Company may extend the terms thereof and in
connection thereof compensate such lender in cash or by delivery of warrants
subject to the conditions of subsection 2.4(c) (except the $2.625 exercise price
shall be not less than $4.00);
(q) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Liens other than
Permitted Liens. For purposes hereof "Lien" shall mean any mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority of other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute;
For purpose hereof, Permitted Liens shall mean:
(i) Liens for taxes, assessments and other governmental
charges or levies not yet due and payable, or which are being contested in good
faith by appropriate proceedings and for which reserves, if any, required under
generally accepted accounting principles shall have been established;
(ii) Liens in respect of property or assets of the Company
imposed by law, which were incurred in the ordinary course of business, such as
carriers', warehousemen's and mechanics' liens and other similar Liens arising
in the ordinary course of business;
(iii) deposits or pledges to secure bids, tenders,
contracts, leases, the payment of workmen's compensation, unemployment insurance
or other social security benefits or obligations, public or statutory
obligations, surety or appeal bonds or other obligations of a like general
nature incurred in the ordinary course of business;
(iv) zoning restrictions, easements, license, restrictions
on the use of real property and minor irregularities in title thereto which do
not materially impair the use or the value of such property;
(v) inchoate liens arising under ERISA to secure current
service pension liabilities as they are incurred;
9
<PAGE>
(vi) rights reserved to or vested in any municipality or
governmental, statutory or public authority to control or regulate any property,
or to use such property in a manner which does not materially impair the use of
such property; and
(vii) those Liens existing as of the date hereof and
disclosed in the Purchase Agreement;
(r) make or permit any of its Subsidiaries to make, any capital
expenditures (including, without limitation, payments with respect to
capitalized leases, as determined in accordance with GAAP) exceeding $850,000 in
the aggregate on a consolidated basis for the Company and its Subsidiaries in
any 12-month period following the date hereof;
(s) enter or permit any of its Subsidiaries to enter into any
leases or other rental agreements (excluding capitalized leases, as determined
in accordance with GAAP) under which the amount of the aggregate lease payments
for all such agreements exceeds $500,000 on a consolidated basis for the Company
and its Subsidiaries in any 12-month period following the date hereof; and
(t) appoint any person to the position of an executive officer
of the Company.
2.5 AFFIRMATIVE COVENANTS. So long as any Series D Holder holds any
Series D Preferred (or securities convertible into, or exchangeable or
exercisable for, Series D Preferred), the Company shall, and shall cause each
of its Subsidiaries to:
(a) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material licenses,
authorizations, permits and Intellectual Property Rights (as defined in Section
2.6 of the Purchase Agreement) necessary to the conduct of its businesses;
(b) maintain and keep its properties in good repair, working
order and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its businesses may be properly and
advantageously conducted in all material respects at all times;
(c) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before penalties
accrue thereon) and all claims for labor, materials or supplies which if unpaid
would by law become a Lien upon any of its property, unless and to the extent
that the same are being contested in good faith and by appropriate proceedings
and adequate reserves (as determined in accordance with GAAP) have been
established on its books with respect thereto;
10
<PAGE>
(d) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due, unless and to the extent that the same
are being contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with GAAP) have been established on its
books with respect thereto;
(e) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which could have a material
adverse effect upon the financial condition, operating results, assets,
operations or business prospects of the Company, or any Subsidiary thereof;
(f) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in such
amounts as are customary for adequately-insured businesses of similar size
engaged in similar lines of business;
(g) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such proper
reserves as in each case are required in accordance with GAAP;
(h) at all times continue to operate in the ordinary course of
business; and
(i) within two (2) years of the date hereof, the Company shall
complete a Qualified Public Offering (the sole remedy for failure to comply with
this covenant shall be those rights set forth in the Certificate of
Determination of the Series D Preferred).
2.6 COMPLIANCE WITH AGREEMENTS. The Company shall perform and observe all
of its obligations to the Series D Holders set forth in this Agreement, the
Purchase Agreement, the Registration Rights Agreement, the Certificate of
Determination, the Series D Warrants or the articles of incorporation or bylaws
of the Company or articles of incorporation or bylaws of any Subsidiary of the
Company and each other agreement contemplated hereby or thereby.
2.7 CURRENT PUBLIC INFORMATION; RULE 144A. At all times after the Company
has filed a registration statement with the SEC pursuant to the requirements of
either the Securities Act or the Securities Exchange Act (an "SEC Registration
Statement"), the Company shall file all reports required to be filed by it under
the Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the SEC thereunder and shall take such further action as any holder
or holders of the Company's equity securities may reasonably request, all to the
extent required to enable such holders to sell the Company's equity securities
pursuant to (i) Rule 144 adopted by the SEC 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 or (ii) a short-form registration statement on Form
S-2 or S-3 or any similar registration form hereafter adopted by the SEC. Upon
request, the Company shall deliver to any Series D Holder a written statement as
to whether it has complied with such requirements. Upon the request of any
Series D Holder, the Company shall promptly supply to such Series D Holder or
its prospective transferees all information regarding the Company required to be
delivered in connection with a transfer
11
<PAGE>
pursuant to Rule 144A of the SEC (as such rule may be amended from time to time)
and otherwise cooperate and take all other actions reasonably requested by any
Series D Holder in connection with any such transfers pursuant to Rule 144A,
provided, that if the Company has not previously filed an SEC Registration
Statement, it shall not be obligated to supply information to a Series D Holder
pursuant to this sentence if this involves extraordinary and material expense on
the part of the Company unless such Series D Holder agrees to reimburse the
Company for such expense.
2.8 AMENDMENT OF AGREEMENTS. The Company shall not amend, modify or waive
any provision of this Agreement, the Purchase Agreement, the Registration Rights
Agreement, the Certificate of Determination, or the Series D Warrants without
the prior written consent of the holders of not less than a majority of the
Series D Preferred.
2.9 DISCLOSURE TO BOARD. The Company shall, and shall cause its officers,
directors, agents, employees and other representatives to, promptly disclose to
each member of the Board of Directors all details (and will provide any written
proposals, inquiries or other materials) regarding any information, inquiry,
communication (whether written or oral) or other indication of interest in any
reorganization, consolidation, merger, sale of all or substantially all of the
assets of the Company, or the sale of equity securities or any other transaction
which, if consummated, would materially affect the Company or its equity
holders.
2.10 PUBLIC DISCLOSURES. The Company or any Subsidiary thereof shall not
disclose any person's or entity's name or identity as an investor in the Company
or the terms of the transactions contemplated by this Agreement in any press
release or other public announcement or in any document or material filed with
any governmental entity, without the prior written consent of such investor,
unless such disclosure is required by applicable law or governmental regulations
or by order of a court of competent jurisdiction, in which case prior to making
such disclosure the Company shall give written notice to such investor
describing in reasonable detail the proposed content of such disclosure and
shall permit the investor to review, comment upon and approve of the form and
substance of such disclosure.
2.11 USE OF PROCEEDS. The Company and its Subsidiaries shall only use or
permit the use of any of the proceeds from the sale of Series D Preferred to (i)
repay indebtedness under Bridge Notes issued in February 1996 in the aggregate
amount of $1,100,987, plus accrued interest thereon, and (ii) for working
capital, including ramp up of manufacturing and sales organization, research and
development and support of operating losses.
2.12 COMPLIANCE WITH LAWS. The Company and its Subsidiaries shall take,
and neither the Company nor any Subsidiary thereof shall (whether directly or
indirectly) fail to take, all necessary efforts to ensure that neither it nor
any of its Subsidiaries, employees and agents, and Subsidiaries' employees and
agents take or fail to take) any action that would result in a material
violation of any foreign or United States federal, state, or local law, rule or
regulation. The Company shall comply with, and shall ensure that each of its
Subsidiaries, employees and agents, and Subsidiaries' employees and agents,
comply with, in all material respects, all applicable foreign and United States
federal, state or local laws, rules or regulations.
12
<PAGE>
2.13 ASSIGNMENT. The rights granted pursuant to this Section 2 may be
assigned or otherwise conveyed by the Series D Holders or by any subsequent
transferee of any such rights in connection with any transfer of Series D
Preferred Stock or Underlying Common Stock; provided that such assignment shall
not be permitted without the prior written consent of the Company if the
proposed transferee is a competitor of the Company.
2.14 CONFIDENTIALITY. Each Series D Holder agrees that all information
received by it pursuant to this Section 2, and any other information relating to
the Company's technology, processes or formulas that is disclosed by the Company
to any Series D Holder in writing and is marked as being confidential, shall be
considered confidential information. Each Series D Holder further agrees that
it shall hold all confidential information relating to the Company in confidence
and shall not disclose any such confidential information to any third party
other than its counsel or accountants or to a governmental agency having
regulatory authority over such Series D Holder, nor shall such Series D Holder
use such confidential information for any purpose other than evaluation of such
Series D Holder's investment in the Company; provided, however, that a Series D
Holder may distribute summary information regarding the Company to its
affiliates, investors or partners; and, provided further, that the foregoing
obligation to hold in confidence and not to disclose confidential information
shall not apply to any such information that (a) was publicly known prior to
disclosure by the Company, (b) becomes publicly known through no fault of such
Series D Holder, (c) is disclosed to such Series D Holder on a non-confidential
basis by a third party having a legal right to make such disclosure or (d) is
independently developed by such Series D Holder.
2.15 BOARD OF DIRECTORS.
(a) From and after the date hereof, and until the provisions of this
Section 2.15 cease to be effective, each Series D Holder and each of the
Principal Shareholders shall vote all of its shares of capital stock of the
Company which are voting shares and any other voting securities of the Company
over which such holder has voting control and shall take all other reasonably
necessary or desirable actions within its control (whether in its capacity as
shareholder, director, member of a board committee or officer of the Company or
otherwise, and including, without limitation, attendance at meetings in person
or by proxy for purposes of obtaining a quorum and execution of written consents
in lieu of meetings), and the Company shall take all reasonably necessary or
desirable actions within its control (including, without limitation, calling
special board and shareholder meetings), so that:
(i) the authorized number of directors on the Board of Directors
of the Company (the "Board") shall be established at seven
directors;
(ii) the following individuals shall be elected to the Board;
(A) one representative designated by CIBC Wood Gundy
Ventures, Inc., so long as it or one of its affiliates
holds Series D Preferred or Underlying Common Stock
equal to not less than 1% of the fully diluted Common
Stock then outstanding;
13
<PAGE>
(B) one representative of a Series D Holder (other than a
representative of CIBC Wood Gundy Ventures, Inc.),
designated in such manner as determined by holders of a
majority of the then outstanding Series D Preferred and
Underlying Common Stock so long as such Series D Holder
or one of its affiliates holds Series D Preferred and
Underlying Common Stock equal to not less than 1% of
the fully diluted Common Stock then outstanding; and
(C) five representatives designated by other holders of
capital stock of the Company, as provided by the
Company's Articles of Incorporation and Bylaws.
(iii)the composition of the board of directors of the Company's
Subsidiaries (a "Sub Board") shall be the same as that of
the Board;
(iv) any committees of the Board or a Sub Board shall be created
only upon the approval of a majority of members of the Board
and the composition of each such committee (if any) shall
include the director designated pursuant to paragraph
(ii)(A) above, unless otherwise determined by holders of a
majority of the Series D Preferred Stock and Underlying
Common Stock then outstanding. The director designated
pursuant to paragraph (ii)(B) above shall be entitled to
receive notice of, and attend, all meetings of such
committees.
(v) the removal from the Board, Sub Board or any committee
thereof (with or without cause) of any representative
designated pursuant to paragraph (ii)(A) or (B) hereunder
shall be only at the written request of the group of
shareholders entitled to nominate such representative; and
(vi) in the event that any representative designated hereunder
ceases to serve as a member of the Board, Sub Board or any
committee thereof during his term of office, the resulting
vacancy on the Board or the Sub Board shall be filled by a
representative designated by the group of shareholders
originally entitled to nominate such representative as
proved hereunder.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the
Board, any Sub Board and any committee thereof. The Company's Articles of
Incorporation and Bylaws shall provide for indemnification and exculpation of
directors to the fullest extent permitted under applicable law.
14
<PAGE>
(c) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this Section 2.15, the election of an
individual to such directorship shall be accomplished in accordance with the
Company's Bylaws and applicable law.
(d) The Company shall give each Series D Holder who holds at least
380,000 shares of Underlying Common Stock written notice of each meeting of the
Board and each committee thereof at the same time and in the same manner as
notice is given to the directors (which notice shall be promptly confirmed in
writing to each such Series D Holder), and the Company shall permit one
representative of each such Series D Holder who has not designated a member of
the Board pursuant to paragraph (ii)(A) or (B) above to attend as an observer
all meetings of the Board and all committees thereof (and each director who is
not a member of each Sub Board or Board Committee shall have the right to attend
any meeting thereof). Each representative shall be entitled to receive all
written materials and other information (including, without limitation, copies
of meeting minutes) given to directors in connection with such meetings at the
same time such materials and information are given to the directors. If the
Company proposes to take any action by written consent in lieu of a meeting of
the Board or of any committee thereof, the Company shall give written notice
thereof to each such Series D Holder prior to the effective date of such consent
describing in reasonable detail the nature and substance of such action. The
rights set forth in this paragraph (d) shall be subject to the right of the
Board of Directors to exclude such person from meetings and to withhold
information to the extent necessary to protect the Company's confidential and
privileged information and competitive position and any such observer shall
agree to the confidentiality provisions of Section 2.14.
2.16 EXPIRATION OF COVENANTS. The covenants set forth in this Section 2
shall expire and be of no further force or effect upon the closing of a
Qualified Public Offering, provided however, (i) the Company shall provide to
each Series D Holder copies of its annual, quarterly and current reports filed
with the SEC for a period of four (4) years after the closing of a Qualified
Public Offering, if requested by a Series D Holder, and (ii) Sections 2.6, 2.7
and 2.8 shall survive so long as any Series D Preferred Stock or Underlying
Common Stock is outstanding.
3. CO-SALE RIGHTS
3.1 RIGHTS OF CO-SALE. In the event any Principal Shareholder desires, at
any time, to sell, transfer, assign or otherwise dispose of any shares of Common
Stock or shares convertible into or exercisable for Common Stock (whether now
held or hereafter acquired) (the "Offered Shares"), or receives a bona fide
offer from a third party to purchase such Offered Shares, in a transaction or
series of related transactions which would result in the transfer to a "person"
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934) of 50%
or more of the voting power of outstanding securities of the Company or which
results in such person holding 50% or more of the voting power of outstanding
securities of the Company (a "Control Transaction"), such Principal Shareholder
shall deliver a notice (the "Notice") to the Company stating (i) the Principal
Shareholder's bona fide intention to sell or transfer the Offered Shares, (ii)
the number of such Shares to be sold or transferred, (iii) the price for which
the Principal Shareholder proposes to sell or transfer such Offered Shares, (iv)
the name of the proposed purchaser or transferee, or class of purchaser or
transferee, and (v) all other material terms and provisions
15
<PAGE>
relating to the proposed sale or transfer. The Secretary of the Company shall
then promptly give notice of the contemplated transfer to each Series D Holder,
who shall have the right, exercisable upon written notice to the Principal
Shareholder within twenty (20) days after receipt by such Series D Holder from
the Company of the notice described above, to participate in the Principal
Shareholder's sale of Offered Shares. To the extent such Series D Holder
exercises such right of participation in accordance with the terms and
conditions set forth below, the number of Offered Shares which the Principal
Shareholder may sell pursuant to the Notice shall be correspondingly reduced.
The right of participation of such Series D Holder shall be subject to the
following terms and conditions:
3.1.1 Each Series D Holder may sell in such transaction all or any
part of that number of shares of Common Stock of the Company equal to the
product obtained by multiplying (i) the sum of the total number of shares of
Common Stock to be sold in such Control Transaction, plus the total number of
shares of Common Stock issuable upon the conversion or exercise of warrants or
convertible securities to be sold in such Control Transaction ("Common
Equivalents"), by (ii) a fraction, the numerator of which is the number of
shares of Underlying Common Stock then owned by such Series D Holder, and the
denominator of which is the sum of the aggregate number of shares of Underlying
Common Stock then owned by the Series D Holders plus the total number of shares
of Common Stock and Common Equivalents owned by all other shareholders proposing
to sell shares in such Control Transaction. If required to permit each Series D
Holder to sell the number of shares set forth above, each Principal Shareholder
participating in such transaction shall reduce the number of shares of Common
Stock it proposes to sell in such transaction. Such reduction shall be made pro
rata among the Principal Shareholders participating in such transaction, in
proportion to the aggregate number of shares of Common Stock then held by each
such Principal Shareholder and shares of Common Stock issuable upon conversion
of convertible securities and exercise of warrants and options then held by each
such Principal Shareholder.
3.1.2 The Series D Holder may effect its participation in the sale
by delivering to the Principal Shareholder for transfer to the purchase offeror
one or more certificates, properly endorsed for transfer, which represent:
(a) the number of shares of Common Stock which the Series D
Holder elects to sell pursuant to this Section 3.1; or
(b) that number of shares of Series D Preferred Stock which is
at such time convertible into the number of shares of Common Stock which
such purchaser elects to sell pursuant to this Section 3.1; provided,
however, that if the purchase offeror objects to the delivery of Series D
Preferred Stock in lieu of Common Stock, the Series D Holder may convert
and deliver Common Stock as provided in subparagraph 3.1.2(a) above.
3.2 DELIVERIES. The stock certificate or certificates which a Series D
Holder delivers to the Principal Shareholder pursuant to Section 3.1 shall be
transferred by such Principal Shareholder to the proposed purchaser in
consummation of the sale of the Common Stock pursuant to the terms and
conditions specified in the Notice, and the Principal Shareholder shall promptly
thereafter remit to such Series D Holder that portion of the sale proceeds to
which such Series D Holder is entitled by reason of its participation in such
sale.
16
<PAGE>
3.3 PROHIBITED TRANSFERS. In the event any Series D Holder is not
permitted by the Principal Shareholders or the purchase offeror to fully
participate as set forth in Section 3.1 above, no Principal Shareholder may sell
any of the Offered Shares. Any such transfer shall be void and without effect
and shall not be reflected on the books and records of the Company.
3.4 TERMINATION. The provisions of this Section 3 shall terminate upon
the occurrence of any one of the following events: (i) the closing of an
offering of the Company's Common Stock pursuant to a Qualified Public Offering;
or (ii) the number of shares of Underlying Common Stock represent less than five
percent (5%) of the fully diluted outstanding shares of Common Stock of the
Company.
3.5 LEGENDS. Each certificate representing shares of the Common Stock of
the Company now or hereafter owned by the Principal Shareholder pursuant to this
Section 3 above shall be endorsed with the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RIGHTS OF CO-SALE AS SET FORTH IN AN INVESTOR RIGHTS
AGREEMENT DATED MARCH 20, 1996 BY AND AMONG THE REGISTERED
HOLDER, THE CORPORATION AND OTHERS. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED BY THOSE PERSONS OR ENTITIES
HAVING A LEGITIMATE INTEREST UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
3.6 AMENDMENT OF CO-SALE RIGHTS. Any provision of this Section 3 may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Principal Shareholder to be affected and the Series D
Holders owning at least a majority of the shares of Underlying Common Stock.
4. MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the internal laws of the State of California.
4.2 ENTIRE AGREEMENT. This Agreement, the Certificate of Determination,
the Series D Preferred Stock Purchase Agreement, the Registration Rights
Agreement and the other agreements contemplated hereby or thereby constitute the
full and entire understanding and agreement between the parties with respect to
the subject matter hereof.
17
<PAGE>
4.3 NOTICES. Any notice, request or other communication required or
permitted hereunder shall be given in writing and shall be deemed to have been
duly given if personally delivered or if telegraphed, or mailed by registered or
certified mail, postage prepaid, at the respective addresses of the parties as
set forth below and shall be deemed to have been received when delivered. Any
party hereto may by notice so given change its address for future notices
hereunder.
if to Purchaser, CIBC Wood Gundy Ventures, Inc.
425 Lexington Avenue
New York, New York 10017
Attn: Robi Blumenstein
Telecopy: (212) 697-1544
with a copy to: Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Emile Karafiol
Telecopy: (312) 861-2200
if to the Company, 1945 Palomar Oaks Way
Carlsbad, California 92009
Attn: President
Telecopy: (619) 930-6315
with a copy to: Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attn: Lawrence B. Cohn
Telecopy: (714) 725-4100
if to a Principal Shareholder, to the address set forth on the signature
page.
4.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.5 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
4.6 CAPTIONS. The captions and headings to Sections of this Agreement
have been inserted for identification and reference purposes only and shall not
be used to construe the meaning or the interpretation of this Agreement.
18
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties as of the date first above written.
ADDRESS SENDX MEDICAL, INC.
1945 Palomar Oaks Way By /S/ DOUGLAS HILLIER
Carlsbad, CA 92009 ----------------------------------------------
Douglas Hillier, Chief Executive Officer
PRINCIPAL SHAREHOLDERS (FOR PURPOSES OF SECTION
2.15 AND ARTICLE 3 ONLY):
Print Name of Principal Shareholder:
- -------------------------
- -------------------------
[SEE "SIGNATORIES TO AGREEMENT"]
- -------------------------- --------------------------------------------------
By:
----------------------------------------------
Its:
---------------------------------------------
SERIES D HOLDERS :
By:
----------------------------------------------
Its:
---------------------------------------------
19
<PAGE>
INDEX TO DEFINED TERMS
Acquisition Indebtedness Section 2.4(d)
Available New Securities Section 1.1.3
Certificate of Determination Section 2.4(k)
Clean-Up Notice Section 1.1.3
Clean-up Period Section 1.1.3
Common Stock Preamble
Electing Holders Section 1.1.3
GAAP Section 2.1(a)
Indebtedness Section 2.4(o)
Intellectual Property Rights Section 2.4(a) (Section 2.6 of the Purchase
Agreement)
Lien Section 2.4(q)
New Securities Section 1.1.1
Non-Electing Holder Section 1.1.3
Permitted Liens Section 2.4(q)
Principal Shareholder Preamble
Purchase Agreement Recital
Purchase Period Section 1.1.2
Qualified Holder Section 2.1
Qualified Public Offering Section 1.1.1
SEC Section 2.1(g)
SEC Registration Statement Section 2.6
Securities Act Section 1.1
Series D Holder Preamble
Series D Warrants Recital
Underlying Common Stock Section 2.1
<PAGE>
ANNEX A
PRINCIPAL SHAREHOLDERS
NAME ADDRESS
FBL Ventures of South 5400 University Avenue
Dakota, Inc. West Des Moines, Iowa 50266
Walter Kaczor, Jr. 28842 Curlew Lane
Laguna Niguel, California 92677
Paladin Equities (1991), Inc. 1310 Greene Avenue, Suite 660
Westmount, Quebec H2Z 2V2
Canada
Praktikerjanst AB Jan H. Svensson
Hollandargaten - 10
S-106-63 Stockholm
Sweden
S-E Bankens Lakemedelsfond Regeringsgatan 45
P. O. Box 16053
S-103-21 Stockholm
Sweden
C. Ian Sym-Smith 676 E. Swedesford Road, Suite 100
Wayne, Pennsylvania 19087-1651
Ventana Equity Expansion 8880 Rio San Diego Drive, Suite 500
Partnership IV, L.P. San Diego, California 92108
Ventana Growth Fund II, L.P. 8880 Rio San Diego Drive, Suite 500
San Diego, California 92018
Ventana Partnership III, L.P. 8880 Rio San Diego Drive, Suite 500
San Diego, California 92108
Viking Medical Ventures 8 Queensway House, Queen Street
Limited St. Helier, Jersey JE2 4WD
Channel Islands
21
<PAGE>
SIGNATORIES TO AGREEMENT
<TABLE>
<CAPTION>
Name By: Its:
<S> <C> <C>
FBL VENTURES OF SOUTH DAKOTA, INC. /S/ S.G. HUNTER ALTERNATIVE INVESTMENTS MANAGER
WALTER J. KACZOR, JR. /S/ WALTER J. KACZOR, JR. AN INDIVIDUAL
PALADIN EQUITIES (1991), INC. /S/ MARK BERCUVITZ PRESIDENT
PRAKTIKERJANST AB /S/ GILLIS CULLIN VICE PRESIDENT
S-E BANKENS LAKEMEDELSFOND /S/ ANDERS KLINTORPH FUND MANAGER
C.I. SYM-SMITH /S/ C.I. SYM-SMITH
VENTANA GROWTH FUND II, L.P. /S/ F.D. TOWNSEN MANAGING GENERAL PARTNER
VENTANA PARTNERSHIP III, L.P. /S/ F.D. TOWNSEN MANAGING GENERAL PARTNER
VENTANA EQUITY EXPANSION
PARTNERSHIP IV, L.P. /S/ F.D. TOWNSEN MANAGING GENERAL PARTNER
PR. PRO. DEN NORSKE KRIGSFORSIKRING (for SKIB) /S/ TOM CHRISTIANSEN
</TABLE>
<PAGE>
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (the "Agreement")
is entered into as of March 20, 1996, by and among SENDX MEDICAL INC., a
California corporation (the "Company"), the Series D Preferred Stock purchasers
listed on Annex A (the "Series D Holders") and PPG INDUSTRIES, INC. ("PPG") and
the existing holders of shares of the Company's Series C Preferred Stock and/or
warrants to purchase shares of the Company's Series C Preferred Stock who are
listed on Annex B (collectively, including PPG, the "Existing Holders"), with
reference to the following facts:
WHEREAS, in connection with its previous financings the Company has entered
into Registration Rights Agreements with each of the Existing Holders, whereby
the Company granted certain registration rights to such Existing Holders; and
WHEREAS, pursuant to the terms of that certain Warrant No. PPG-1 to
purchase Common Stock dated January 17, 1995 which was issued to PPG by the
Company, the Company granted to PPG certain registration rights, which the
Company and PPG now desire to replace with the registration rights set forth in
this Agreement; and
WHEREAS, this Agreement is not intended to alter any rights of the holders
of the Company's Series A and Series B Preferred Stock; and
WHEREAS, it is a condition to the obligations of the Series D Holders to
purchase Series D Preferred Stock and warrants to purchase Series D Preferred
Stock (the "Series D Warrants") pursuant to that certain Series D Preferred
Stock Purchase Agreement dated as of March 20, 1996, that the Company, the
Series D Holders and the Existing Holders enter into this Amended and Restated
Registration Rights Agreement, setting forth the registration rights of all of
the Holders.
NOW THEREFORE, in consideration of the mutual agreements, covenants and
conditions and releases contained herein, the Company, the Series D Holders and
the Existing Holders hereby agree as follows:
1. DEFINITIONS. As used in this Agreement:
1.1 REGISTER. The term "register", "registered", and "registration"
refer to a registration effected by preparing and filing with the Securities and
Exchange Commission (the "SEC") a registration statement or similar document in
compliance with the Securities Act of 1933, as amended (the "Act"), and the
declaration or ordering of effectiveness of such registration statement or
document by the SEC.
1.2 REGISTRABLE SECURITIES. The term "Registrable Securities" means
the Existing Registrable Securities and the Series D Registrable Securities, in
each case subject to Section 15 hereof.
<PAGE>
1.3 EXISTING REGISTRABLE SECURITIES. The term "Existing Registrable
Securities" means (a) the common stock of the Company issuable or issued upon
conversion of the shares of the Company's Series A, Series B and Series C
Preferred Stock (including shares issued upon exercise of warrants) to the
extent set forth on Annex C (which states the holders thereof and the dates of
issuance thereof) and the shares of Common Stock issuable upon exercise of
Warrant PPG-1 (collectively, the "Existing Shares"), and (b) any common stock of
the Company issued as (or issuable upon the conversion of any other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, the securities listed in clause (a),
excluding in all cases, however, any Existing Registrable Securities transferred
by a person in a transaction in which its rights under this Agreement are not
assigned in accordance with Section 13 and any Existing Registrable Securities
for which registration is not required under Section 15 hereof.
1.4 SERIES D REGISTRABLE SECURITIES. The term "Series D Registrable
Securities" means (a) the common stock of the Company issuable or issued upon
conversion of the shares of the Company's Series D Preferred Stock (including
shares issued upon exercise of warrants or upon conversion of Series D Preferred
Stock issuable upon the exercise of the Series D Warrants) (collectively, the
"Series D Shares"), and (b) any common stock of the Company issued as (or
issuable upon the conversion of any other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, the securities listed in clause (a), excluding in all cases,
however, any Series D Registrable Securities transferred by a person in a
transaction in which its rights under this Agreement are not assigned in
accordance with Section 13 and any Existing Registrable Securities for which
registration is not required under Section 15 hereof.
1.5 HOLDER. The term "Holder" mean any Existing Holder or Series D
Holder or any assignee thereof in accordance with Section 13 hereof.
1.6 INITIATING HOLDERS. The term "Initiating Holders" shall mean
Holders initiating a registration request under Section 3.1.1 or 3.1.2 hereof.
1.7 FORM S-3. The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC
and which permits registration of securities to be offered for the account of
persons other than the registrant.
2. AMENDMENT AND REPLACEMENT OF EXISTING AGREEMENTS; ENTIRE AGREEMENT.
The Company and each of the Existing Holders agree that this Agreement shall
amend and supersede any and all existing agreements between them regarding the
registration of any of the Shares. The Company and the Series D Holders agree
that the registration rights provided herein (together with Series D Preferred
Stock Purchase Agreement and the documents executed in connection therewith)
constitute the sole and entire agreement on the subject matter between the
Company and the Series D Holders.
2
<PAGE>
3. REQUEST FOR REGISTRATION.
3.1 REQUEST.
3.1.1 BY EXISTING HOLDERS. If at any time after the date six
(6) months after the Company's initial public offering (but not within six
(6) months before an anticipated effective date or after the effective date
of a registration), the Company shall receive a written request from
Holders of not less than 50% of the Existing Registrable Securities then
outstanding that the Company file a registration statement under the Act,
or a similar document pursuant to any other statute then in effect
corresponding to the Act, covering the registration of at least 50% of the
Existing Registrable Securities held by all Holders and the anticipated
aggregate offering price of such registration, net of underwriting
discounts and commissions, would exceed $2,000,000, then the Company shall
give written notice to all other Holders, and shall use its best efforts to
effect registration under the Act of all Registrable Securities which any
of the Holders request to be registered, provided that such request is made
with 20 days of the giving of such notice by the Company, and subject to
the limitations of Section 3.2 of this Agreement.
3.1.2 BY SERIES D HOLDERS. If at any time after the date six
(6) months after the Company's initial public offering (but not within six
(6) months before an anticipated effective date or after the effective date
of a registration), the Company shall receive a written request from the
Holders of not less than 50% of the Series D Registrable Securities then
outstanding that the Company file a registration statement under the Act,
or a similar document pursuant to any other statute then in effect
corresponding to the Act, covering the registration of at least 50% of the
Series D Registrable Securities and the anticipated aggregate offering
price of such registration, net of underwriting discounts and commissions,
would exceed $2,000,000, then the Company shall give written notice to all
other Holders, and shall use its best efforts to effect registration under
the Act of all Registrable Securities which the Holders request to be
registered, provided that such request is made with 20 days of the giving
of such notice by the Company, and subject to the limitations of Section
3.2 of this Agreement.
3.2 UNDERWRITTEN PUBLIC OFFERING. If the 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 this Section 3 and the Company shall include such information in the
written notice referred to in Section 3.1. Such an underwriting shall be with a
managing underwriter or underwriters reasonably acceptable to the Company. In
such event, the right of any Holder to include its 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 and the inclusion of such Holder's 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 as
provided in Section 5.5) enter into an underwriting agreement in customary from
with the managing underwriter or underwriters selected for such underwriting by
a majority in interest of the Initiating Holders. Notwithstanding any other
provision of this Section 3, if the managing underwriter advises the Initiating
Holders in writing that market factors require a limitation of the number of
shares to be underwritten, then the Company shall so advise all
3
<PAGE>
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, in which event at the option of a majority in interest of the Initiating
Holders, such request may be withdrawn, or the number of shares of Registrable
Securities that may be included in the underwriting shall be allocated among all
Holders thereof, including the Initiating Holders, in proportion, as nearly as
practical, to the amount of Registrable Securities owned by each Holder;
PROVIDED, HOWEVER, that solely for purposes of any such calculation of
proportionate share, each share of Series D Registrable Securities shall be
counted as two (2) shares of Registrable Securities.
3.3 LIMITATION ON REGISTRATIONS. The Company is obligated to effect
only two registrations pursuant to requests made under Section 3.1.1, and two
registrations pursuant to requests made under Section 3.1.2.
3.4 COMPANY'S RIGHT TO DEFER. Notwithstanding the foregoing, if the
Company shall furnish to the Initiating Holders a certificate signed by the
President of 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 shareholders for such registration statement to be filed in the near
future and its is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer such filing for a period of
not more than 120 days after receipt of the request of the Initiating Holders.
4. COMPANY REGISTRATION. If, at any time the company proposes to
register (including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its stock or other securities under
the Act in connection with a public offering of such securities solely for cash
(other than a registration on From S-8 or any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), then
the Company shall, each such time, promptly give each Holder written notice of
such proposed registration. The Company shall not be required to complete any
registration of which it gives notice to the Holders pursuant to this Section 4.
Upon the written request of any Holder given within 20 days after such notice is
given by the Company, the Company shall cause to be registered under the Act all
of the Registrable Securities and the shares of Common Stock that each such
Holder has requested to be registered, subject to Section 8 hereof.
5. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
5.1 Prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
to become effective, and upon the request of the Holders of a majority of the
Registrable Securities that are registered thereunder, keep such registration
statement effective for up to 120 days;
4
<PAGE>
5.2 Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement and the prospectus used in connection with such
registrations statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement;
5.3 Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities;
5.4 Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue Sky"
laws of such jurisdictions as shall be reasonably necessary and requested by the
Holders, provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction; and
5.5 In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms reasonably
satisfactory to the managing underwriter of such offering.
6. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the securities held by them and the intended method of disposition
of such securities as shall be required to effect the registration of their
Registrable Securities.
7. EXPENSES OF REGISTRATION. All expenses incurred in connection with
two registrations pursuant to Section 3.1.1, two registrations pursuant to
Section 3.1.2 and an unlimited number pursuant to Section 4 (excluding
underwriter discounts and commissions of the selling Holders but including the
reasonable fees and disbursements of a single counsel for the selling Holders)
shall be borne by the Company; provided however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 3 if the registration statement is subsequently withdrawn and the
registration proceeding terminated at the request of the Holders of a majority
of the Registrable Securities to be registered, in which event the Holders
requesting such termination of the registration proceeding shall bear such
expenses in proportion to the number of Registrable Securities held by each such
person, unless such persons requesting a termination of the registration
proceeding agree to forfeit their right to any remaining demand registration
pursuant to Section 3; provided further, that if at the time of such withdrawal,
there shall have been a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders at the time of their
request, which should have been disclosed by the Company, then the Company shall
be required to pay all of such expenses and each Holder shall retain all of its
rights pursuant to Section 3.
5
<PAGE>
8. UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares issued by the Company, the Company shall not be
required under Section 4 to include any of the Holder's Registrable Securities
in such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it, and then only in
such quantity as will not, in the opinion of the underwriters, jeopardize the
success of the offering by the Company. If the total amount of Registrable
Securities that all selling Holders with registration rights request to be
included in such offering exceeds the amount of such securities that the
underwriters reasonably believe to be compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of such securities of the selling Holders which the underwriters
believe will not jeopardize the success of the offering; provided, that the
securities to be included thereby shall be included as follows: FIRST, all
Existing Registrable Securities requested to be included by the holders of
Series A and Series B Preferred Stock; and SECOND, all shares issued upon
exercise of that certain Warrant No. PPG-1 dated January 17, 1995 which are
requested to be included by the holder thereof, all Existing Registrable
Securities requested to be included by the holders of Series C Preferred Stock
and all Series D Registrable Securities requested to be included by the holders
of Series D Preferred Stock, in each of such two cases apportioned PRO RATA
within such groups according to the total amount of Registrable Securities owned
by such selling Holders and for which registration may be requested, or in such
other proportions as mutually shall be agreed to by such selling Holders.
Notwithstanding the foregoing, in the case of the Company's initial public
offering, if the underwriters reasonably believe that including such securities
of selling holders would not jeopardize the success of the offering, the
securities to be included therein shall be apportioned as set forth above until
an aggregate of $5,000,000 of such securities has been included (based upon the
midpoint between the anticipated high and low selling prices set forth in the
registration statement), then shall be apportioned fifty percent (50%) to the
selling Series D Holders and fifty percent (50%) to the other Holders
(apportioned within such group based upon the proportional ownership of
Registrable Securities of each selling Holder as set forth above). Each Holder
participating in the underwriting shall also enter into and perform its
obligation under any underwriting agreement entered into in accordance with
Section 5.5.
9. FUTURE REGISTRATION RIGHTS. The Company shall not grant any
registration rights superior or equal to the rights granted herein without the
prior written consent of the Holders of a majority of the Series D Registrable
Securities, which consent may be withheld at the sole and absolute discretion of
such Holders.
10. INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under this Agreement:
10.1 INDEMNIFICATION BY THE COMPANY. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder of such securities, the
officers and directors of each such Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the Securities Exchange Act of 1934
("1934 Act") against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act, any state
securities law or regulation, or any state common law doctrines relating to
fraud, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"); (i) any
6
<PAGE>
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934 Act
or any state law or any rule or regulation promulgated under the Act, the 1934
Act or any state securities law; and the Company will reimburse each such
Holder, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigation or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 10.1 shall not apply to
amounts paid in settlement of such loss, claim, damage, lability, or action if
such settlement is effected without the consent of the Company (which consent
shall be unreasonably withheld), nor shall the Company be liable in such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
10.2 INDEMNIFICATION BY HOLDERS. To the extent permitted by law, each
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter (within
the meaning of the Act) for the Company, any person who controls such
underwriter, counsel to the Company, accountants for the Company, and any other
Holder selling securities in such registration statement or any of its directors
or officers or any person who controls such Holder, against any losses, claims,
damages, or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, or underwriter or controlling person, or
other such Holder or director, officer or controlling person, or counsel to the
Company or accountants for the Company may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
only to the extent that such Violation occurs in reliance upon and in conformity
with written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or controlling person, other Holder,
officer, director, or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 10.2 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
10.3 PARTICIPATION IN DEFENSE. Promptly after receipt by an
indemnified party under this Section 10 of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 10, notify the indemnifying party in writing of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees to
7
<PAGE>
be paid by the indemnifying party, if the indemnifying party shall not in fact
have employed counsel within a reasonable time to assume the defense of such
action or if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
10, but the omission so to notify the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Section 10.
11. REPORTS UNDER THE 1934 ACT. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
11.1 Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times following the effective
date of the first registration statement filed by the Company;
11.2 Take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize, except for the requisite financial, listing or quotation
requirements, Form S-3 for the sale of their Registrable Securities, such action
to be taken as soon as practicable after the end of the fiscal year in which the
first registration statement filed by the Company is declared effective;
11.3 File with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
11.4 Furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
following the effective date of the first registration statement filed by the
Company), the Act and the 1934 Act (at any time after it has become subject to
such reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC permitting the selling of any such securities
without registration pursuant to such form.
12. FORM S-3 REGISTRATION. If the Company shall receive from Holders of
at least 20% of the Existing Registrable Securities or 20% of the Series D
Registrable Securities a written request or requests 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 Holders,
the Company will:
12.1 Promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
8
<PAGE>
12.2 As soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested as would permit or
facilitate the sale and distribution of all or such portion of such Holder's
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 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 12: (1) if the Company is
not qualified as a registrant entitled to use Form S-3; (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 anticipated aggregate offering price to the
public of less than $50,000, net of underwriting discounts and commissions; (3)
if the Company shall have been requested to effect a registration on Form S-3 by
the Holders within the previous six (6) months; (4) if the Company shall furnish
to the Holders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of at the Company, it would
be seriously detrimental to the Company and its shareholders 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 120 days after receipt of the request of the Holders
under this Section 12; 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. Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the requests of the
Holders. All expenses incurred in connection with a registration requested
pursuant to this Section 12, including (without limitation) all registration,
filing, qualification, printer's and accounting fees and the reasonable fees and
disbursements of a single counsel for the selling Holder or Holders and counsel
for the Company, but excluding all underwriting discounts and selling
commissions, shall be borne by the Company. Registrations effected pursuant to
this Section 12 shall not be counted as Requests for Registration or Company
Registrations effected pursuant to Section 3 or Section 4 except as otherwise
provided herein.
13. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Agreement may be assigned by a
Holder to a transferee or assignee of such securities by providing the Company,
within a reasonable time prior to such transfer, with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; provided,however, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.
14. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it shall
not, to the extent requested by the Company and an underwriter of common stock
(or other securities) of at the Company, sell or otherwise transfer or dispose
(other than to affiliates of the transferor, to donees, or, to the extent
permitted by such underwriter to other transferees, who agree to be similarly
bound) of any Registrable Securities during (a) the 180-day period following the
effective date of the registration statement of the Company filed under the Act
in its initial public offering and (b) the 90-day period following the effective
date of any other registration statement of the Company filed under the Act (it
being understood that such restrictions shall not apply to
9
<PAGE>
the sale of shares by any Holder pursuant to such registration statement);
provided however, if the underwriters in an offering subsequent to the Company's
initial offering require that such period be extended beyond 90 days, after the
Company has used its best efforts to provide for such 90 day period, then the
Holders shall not sell, transfer or dispose of any Registrable Securities for
the period required by such underwriters, not to exceed 180 days from the
effective date of such registration. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instruction with respect to the
Registrable Securities of each Holder until the end of such restricted period.
15. REGISTRATION NOT REQUIRED. Registration rights under this Agreement
shall not be available to any Holder with respect to Registrable Securities
which such Holder may sell under Rule 144 of the Act, or any similar rule. In
addition, if, in the opinion of counsel for the Company concurred in by counsel
for the Initiating Holders, no registration under the Act is required in
connection with a proposed disposition of Registrable Securities, the Company
need not comply with such requests.
16. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may
be amended and the observance thereof 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 owning at least a majority of
the Existing Registrable Securities and the Holders owning at least a majority
of the Series D Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder, each future
holder of Registrable Securities, and the Company.
17. MISCELLANEOUS.
17.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the internal laws of the State of California.
17.2 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with respect to the subject
matter hereof.
17.3 NOTICES. Any notice, request or other communication required or
permitted hereunder shall be given in writing and shall be deemed to have been
duly given if personally delivered or if telegraphed, or mailed by registered or
certified mail, postage prepaid, at the respective addresses of the parties as
set forth on the records of the Company and shall be deemed to have been
received when delivered. Any party hereto may by notice so given change its
address for future notices hereunder.
17.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.5 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
10
<PAGE>
17.6 CAPTIONS. The captions and headings to Sections of this
Agreement have been inserted for identification and reference purposes only and
shall not be used to construe the meaning or the interpretation of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties as of the date first above written.
SENDX MEDICAL, INC.
By: /s/ DOUGLAS HILLIER
-----------------------------------------------
Douglas Hillier, Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
By:
-----------------------------------------------
Its:
-------------------------------------------
11
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT]
The undersigned Existing Holder hereby agrees that the Registration Rights
Agreement between the Company and the undersigned shall be amended and
superseded by the foregoing Agreement, and the undersigned agrees to be bound by
all of the terms hereof.
Name of Holder: [SEE "SIGNATORY PAGES"]
-------------------------------------
By:
-------------------------------------------------
Its:
-------------------------------------------------
12
<PAGE>
SIGNATORY PAGES
<TABLE>
<CAPTION>
Name of Holder: By: Its:
<S> <C> <C>
DAVID BRUCE SMITH /s/ DAVID BRUCE SMITH
ANDREW J. SYM-SMITH /s/ ANDREW J. SYM-SMITH
A. CLAUDIA KNIGHT /s/ A. CLAUDIA KNIGHT
IAN M.H. KNIGHT /s/ IAN M.H. KNIGHT
GEOFF & ELLEN HOUGH /s/ GEOFF HOUGH REPRESENTATIVE
SCOTT SEAWALD /s/ SCOTT SEAWALD
SMITH BARNDY INC., IRA CUSTODIAN /s/ MARK A. KRASNER
BLANCHALD, KRASNER
& FRENCH RETIREMENT TRUST /s/ MARK A. KRASNER TRUSTEE
/s/ ROBERT W. BLANCHARD TRUSTEE
/s/ B.M. DEUEL TRUSTEE
JACKSON, TUFTS, COLE & BLACK
PROFIT SHARING PROGRAM /s/ CARL J. STONEY, JR. TRUSTEE
JACKSON, TUFTS, COLE & BLACK /s/ GEORGE H. COLE
/s/ RAMONA COLE
JACK BURRI & JACQUELYN BURRI /s/ JACK BURRI
/s/ JACQUELYN BURRI REPRESENTATIVES
DAVID A. THOMPSON /s/ DAVID A. THOMPSON
DIANE T. THOMPSON /s/ DIANE A. THOMPSON
MICHAEL MERCER /s/ MICHAEL MERCER
WILLIAM FAULDS /s/ WILLIAM FAULDS
TIM & WENDY BELCZAK /s/ TIM BALCZAK
JOHN J. BELCZAK /s/ JOHN J. BELCZAK
EDNA SANIT /s/ EDNA SANIT
RICHARD C. AMBROSE /s/ RICHARD C. AMBROSE
NANCY C. AMBROSE /s/ NANCY C. AMBROSE
VENTANA LIQUIDATING TRUST /s/ THOMAS O. GEPHART TRUSTEE
AUBAN JACKSON /s/ AUBAN JACKSON
BARTLETT A. JACKSON /s/ BARTLETT A. JACKSON
DONALD B. HILLIER /s/ D.B. HILLIER
SANDRA L. HILLIER /s/ SANDRA HILLIER
ROBERT K. GLADWISH /s/ ROBERT K. GLADWISH
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
STEVE SCOTT /s/ STEVE SCOTT
VENTANA GLOBAL TRUST /s/ THOMAS O. GEPHART TRUSTEE
STEVE ROON /s/ STEVE ROON
JACKSON, TUFTS, COLE &
BLACK PROFIT SHARING PROGRAM /s/ ROBERT R. TUFTS
/s/ JOYCE A. TUFTS TRUSTEES
PETER A. KEOUSH, MD /s/ PETER A. KEOUSH, M.D. TRUSTEE
PATRICK CURRAN /s/ PATRICK CURRAN
GLENDA CURRAN /s/ GLENDA CURRAN
GEORGE PACHE /s/ GEORGE PACHE
MALCOLM E. ROBERTSON /s/ MALCOLM E. ROBERTSON
BERTIL HALLSTEN /s/ BERTIL HALLSTEN
MAS PARTNERS /s/ DAN AFRASIABI MANAGING PARTNER
DANIELSON TRUST COMPANY /s/ BRIAN S. SILJANDER ASSOCIATE TRUST OFFICER
SCMG FBO DAVID WILLIAMS /s/ DIANA M. SAIDIN SENIOR TRUST OFFICER
MALMSTEM INVEST AB /s/ BOB CONSTANT MANAGING DIRECTOR
VENTANA GROWTH CAPITAL FUND V L.P. /s/ F. D. TOWNSEN MANAGING GENERAL PARTNER
GIACOMO GARAVENTA /s/ GIACOMO GARAVENTA INDIVIDUAL
SAVOY HOLDING, LTD. /s/ DUDLEY COTTINGGAME DIRECTOR
HILLIER FAMILY TRUST /s/ DOUGLAS A. ELLIS TRUSTEE
FIDELITY OVERSEAS CORPORATION, INC. /s/ DUDLEY COTTINGGAME DIRECTOR
THUNDER ENTERPRISES LTD. /s/ DUDLEY COTTINGGAME DIRECTOR
THOMAS O. GEPHART /s/ THOMAS O. GEPHART INDIVIDUAL
GEPHART FAMILY TRUST /s/ THOMAS O. GEPHART TRUSTEE
ALTIMAX TRADING /s/ JAMES J. WARNER GENERAL COUNSEL
DEN NORSKE
KRIGSFORSIKRING FOR SKIB /s/ TOM CHRISTIANSEN
CANTERBURY HOLDINGS, LTD. /s/ DUDLEY COTTINGGAME DIRECTOR
SE BANKEN LAKEMEDELSFOND /s/ ANDERS KLINTORPH FUND MANAGER
APTA GROUP /s/ PER TONNESON PRESIDENT/CEO
ATRIX-VENTANA INVESTMENT /s/ MARK BERCUVITZ
AND CO., LP
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
KENSINGTON ROSS LTD. /s/ DUDLEY COTTINGGAME DIRECTOR
VIKING MEDICAL VENTURES, LTD. /s/ MICHAEL EDMUNDS DIRECTOR
F.D. TOWNSEN /s/ F.D. TOWNSEN
F. DUWAINE TOWNSEN AND
JOY JUANELLE TOWNSEN,
TRUSTEES OF THE TOWNSEN
FAMILY TRUST DATED
MARCH 17, 1987 /s/ F.D. TOWNSEN TRUSTEE
HOEGH INVEST A/S /s/ CARL TREVEN HOEGH CHAIRMAN
PRAKTIKERJANST /s/ GILLIS CULLIN VICE PRESIDENT
PALADIN EQUITIES (1991), INC. /s/ MARK BERCUVITZ
WALTER J. KACZOR, JR. /s/ WALTER J. KACZOR, JR. INDIVIDUAL
C. I. SYM-SMITH /s/ C.I. SYM-SMITH
FBL VENTURES OF SOUTH DAKOTA, INC. /s/ STEPHEN G. HUNTER ALTERNATIVE INVESTMENTS MANAGER
VENTANA EQUITY EXPANSION
PARTNERSHIP IV, L.P. /s/ F.D. TOWNSEN MANAGING GENERAL PARTNER
VENTANA EQUITY EXPANSION
PARTNERSHIP II, L.P. /s/ F.D. TOWNSEN MANAGING GENERAL PARTNER
VENTANA EQUITY EXPANSION
PARTNERSHIP III, L.P. /s/ F.D. TOWNSEN MANAGING GENERAL PARTNER
</TABLE>
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT]
The undersigned Existing Holder hereby agrees that any registration rights
between the Company and the undersigned shall be amended and superseded by the
foregoing Amended and Restated Registration Rights Agreement dated March __,
1996, by and among the Company, the purchaser of Series D Preferred Stock and
other shareholders of the Company, and the undersigned agrees to be bound by all
of the terms hereof.
PPG INDUSTRIES, INC.
By: /s/ D.R. WALLIS
-------------------------------------------------
Its: VICE PRESIDENT -- CORPORATE DEVELOPMENT
-------------------------------------------------
12
<PAGE>
SENDX MEDICAL, INC.,
A CALIFORNIA CORPORATION
SUBSCRIPTION AGREEMENT
TO: SenDx Medical, Inc.,
a California Corporation
1945 Palomar Oaks Way
Carlsbad, California 92009
Attn: George Pache
The undersigned ("Subscriber"), on the terms and conditions herein set
forth, tenders this subscription ("Subscription") to SENDX MEDICAL, INC., a
California corporation (the "Company").
1. SUBSCRIPTION.
1.1. OFFERING. Convertible Bridge Notes in the form attached as
Exhibit A and associated warrants to purchase Series C Preferred Stock
("Warrants") in the form attached as Exhibit B ("Note") are offered pursuant to
this offering. The Warrants will be issued to Subscriber in the amount of 0.25
warrants for each $1.00 of funds deposited in the account described below for
purchase of the Notes (rounded to the nearest whole number of Warrants).
1.2. PARTICIPATION. The Offering is open only to "Accredited
Investors" within the meaning of Rule 501 of Regulation D promulgated by the
Securities Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"). See Section 0 below for those who qualify. Each holder of
Preferred Stock of the Company who is an Accredited Investor shall have the
right to participate, based on such shareholder's pro rata interest.
1.3. TERM. The Offering shall commence on January 25, 1996 and shall
terminate on February 2, 1996, unless extended by the Company, in its sole
discretion, for up to 24 days (the "Term").
1.4. OFFER TO PURCHASE. Subject to the terms and conditions hereof,
the Subscriber hereby subscribes for the amount set forth opposite Subscriber's
name on the signature page hereto and tenders payment of such amount
simultaneously with the delivery of an executed copy of this Subscription
Agreement (the "Subscription Agreement").
<PAGE>
1.5. SEGREGATED ACCOUNT. All funds shall be deposited by the Company
in a segregated account. At such time as at least $1,000,000 has been deposited
in such account, the Company may withdraw all, but not less than all, of such
funds from such account. In such event, a Note shall be issued to the
Subscriber in the principal of Subscriber's investment. In the event the
Company has not withdrawn such funds on or before February 26, 1996, all such
funds shall be returned without interest to Subscriber on February 29, 1996.
Although such account will be segregated by the Company, it will be a Company
asset and therefore subject to claims of the Company's creditors.
1.6. ISSUANCE OF WARRANTS. The Warrants shall be issued upon deposit
of the Subscriber's funds into the Segregated Account whether the Company
withdraws such funds from the Segregated Account or returns such funds to the
Subscriber.
1.6. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER.
2.1. ACCREDITED INVESTOR. Subscriber is aware that the Company may
sell Securities (as defined below) to Subscriber only if Subscriber is an
Accredited Investor. In connection therewith, Subscriber represents and
warrants that Subscriber is an Accredited Investor as defined in the Accredited
Investor Qualifications set forth on Exhibit C attached hereto. For purposes
hereof, "Securities" shall mean the Notes, the Warrants and any securities which
may be issued or issuable on conversion or exercise thereof (including Common
Stock which may be issued or issuable upon conversion of Series C Preferred
Stock).
2.2. INVESTMENT REPRESENTATIONS AND WARRANTIES. The Subscriber
further represents and warrants to the Company as follows:
(a) The Securities are being acquired for the Subscriber's own
account for investment, with no intention of distributing or selling any portion
thereof within the meaning of the Securities Act, and will not be transferred by
the Subscriber in violation of the Securities Act or the then applicable rules
or regulations thereunder. No one other than the Subscriber has any interest in
or any right to acquire the Securities. The Subscriber understands and
acknowledges that the Company will have no obligation to recognize the
ownership, beneficial or otherwise, of such Securities by anyone but the
Subscriber.
(b) The Subscriber's financial condition is such that the
Subscriber is able to bear the risk of holding the Securities for an indefinite
period of time and the risk of loss of the Subscriber's entire investment in the
Company.
(c) The Subscriber has received, has read and understood and is
familiar with this Subscription Agreement, the form of Note and form of Warrant
attached hereto as Exhibits A and B.
(d) The Company has made available all additional information
which the Subscriber has requested in connection with the Offering from the
Company and its representatives, and the Subscriber has been afforded an
opportunity to make further inquiries of the Company and its representatives.
<PAGE>
(e) No representations or warranties have been made to the
Subscriber by the Company, or any representative of the Company, other than as
set forth herein.
(f) The Subscriber has investigated the acquisition of the
Securities to the extent the Subscriber deemed necessary or desirable and the
Company has provided the Subscriber with any assistance the Subscriber has
requested in connection therewith.
(g) The Subscriber has such knowledge and experience in
financial and business matters that the Subscriber is capable of evaluating the
merits and risks of acquisition of the Securities and of making an informed
investment decision with respect thereto.
(h) The Subscriber is aware that the Subscriber's rights to
transfer the Securities are restricted by the Securities Act, applicable state
securities laws and the absence of a market for the Securities, and the
Subscriber will not offer for sale, sell or otherwise transfer the Securities
without registration under the Securities Act and qualification under the
securities laws of all applicable states, unless such sale would be exempt
therefrom.
(i) The address set forth below is the Subscriber's true and
correct address.
(j) The Subscriber understands that the Securities have not been
registered under the Securities Act or any state securities act in reliance on
an exemption for private offerings, and the Subscriber acknowledges that the
Subscriber is purchasing the Securities in the Company without being furnished
any offering literature or prospectus other than the Memorandum.
The Subscriber has full power and authority to make the
representations referred to herein, to purchase the Securities and to execute
and deliver this Subscription Agreement.
(l) The Subscriber acknowledges and is aware of the following:
(A) investment in the Securities is speculative and involves a
high degree of risk of loss of the entire investment in the Company.
(B) are substantial restrictions on the transferability of the
Securities; the Securities will not be registered under the Securities Act;
there will be no public market for the Securities; the Subscriber may not be
able to take advantage of the provisions of Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act with respect to the resale of
the Securities and accordingly may have to hold the Securities indefinitely, and
it may not be possible for the Subscriber to liquidate the investment in the
Company.
(C) No state or federal agency has made any finding or
determination as to the fairness of the terms of the offering and sale of the
Securities or any recommendation or endorsement of the offering.
<PAGE>
(D) Any certificate representing the Securities will be endorsed
with a restrictive legend similar to the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT
REGISTRATION UNDER SAID ACT IS NOT REQUIRED.
The Subscriber understands that the foregoing representations and
warranties are to be relied upon by the Company as a basis for exemption of the
sale of the Securities under the Securities Act, under the securities laws of
all applicable states and for other purposes.
2.3. SURVIVAL. The foregoing representations and warranties are true
and accurate as of the date hereof and shall survive such date. If in any
respect such representations and warranties shall not be true and accurate prior
to the acceptance of the Subscription by the Company, the Subscriber shall give
notice of such fact to the Company by telex, telegram, or facsimile with written
confirmation of receipt, specifying which representations and warranties are not
true and accurate and the reasons therefor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
3.1. ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California, and has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as presently
conducted.
3.2. CAPITALIZATION. The authorized capital stock of the Company,
immediately prior to this offering, will consist of 50,000,000 shares of Common
Stock and 100,000,000 shares of Preferred Stock, of which 5,000,000 are
designated Series A Preferred Stock, 1,500,000 are designated Series A-2
Preferred Stock, 1,500,000 are designated Series B Preferred Stock and
10,000,000 are designated Series C Preferred Stock. The number of shares of
stock issued and outstanding, immediately prior to this Offering, will consist
of 1,820,484 shares of Common Stock, 3,321,997 shares of Series A and A-2
Preferred Stock, 1,310,000 shares of Series B Preferred Stock and 7,884,337
shares of Series C Preferred Stock. In addition, the Company has outstanding
warrants to purchase 760,672 shares of Common Stock, 300,000 shares of Series A
Preferred Stock and 62,000 shares of Series B Preferred Stock and a Stock Option
Plan under which 2,777,516 shares of Common Stock remain issuable upon exercise
of outstanding options or options which may be granted in the future.
<PAGE>
3.2. INDEMNIFICATION. The Subscriber acknowledges that the Subscriber
understands the meaning and legal consequences of the representations and
warranties made by the Subscriber herein, and that the Company is relying on
such representations and warranties in making the determination to accept or
reject this Subscription. The Subscriber hereby agrees to indemnify and hold
harmless the Company and each employee and agent thereof from and against any
and all losses, damages or liabilities due to or arising out of a breach of any
representation or warranty of the Subscriber contained in this Subscription
Agreement.
5. TRANSFERABILITY. The Subscriber agrees not to transfer or assign this
Subscription Agreement, or any interest herein, and further agrees that the
assignment and transferability of the Securities acquired pursuant hereto shall
be made only in accordance with applicable federal and state securities laws.
6. NO REVOCATION. The Subscriber agrees that this Subscription Agreement
and any agreement of the Subscriber made hereunder is irrevocable, and that this
Subscription Agreement shall survive the death or disability of the Subscriber,
except as provided below in Section 0.
7. TERMINATION OF AGREEMENT. If this Subscription is rejected by the
Company in whole or in part, then this Subscription Agreement shall be null and
void and of no further force and effect, and no party shall have any rights
against any other party hereunder, and the Company shall promptly return or
cause to be returned to the Subscriber this Subscription Agreement and the money
tendered hereunder that is not being applied to the purchase of Securities.
8. NOTICES. All notices or other communications given or made hereunder
shall be in writing and shall be delivered or mailed by registered or certified
mail, return receipt requested, postage prepaid, or delivered by telex, telegram
or facsimile with written confirmation of receipt to the Subscriber at the
address set forth below and to the Company at the address set forth on the cover
hereof, or at such other place as the Company may designate by written notice to
the Subscriber.
9. EXPENSES. The Subscriber will pay the Subscriber's own expenses
relating to this Subscription Agreement and the purchase of the Subscriber's
Securities of the Company hereunder.
10. AMENDMENTS. Neither this Subscription Agreement nor any term hereof
may be changed, waived, discharged or terminated except in a writing signed by
the Subscriber and the Company.
11. COUNTERPARTS. This Subscription Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
taken together shall constitute one Subscription Agreement.
<PAGE>
12. GOVERNING LAW. This Subscription Agreement and all amendments hereto
shall be governed by and construed in accordance with the laws of the State of
California.
13. HEADINGS. The headings in this Subscription Agreement are for
convenience of reference, and shall not by themselves determine the meaning of
this Subscription Agreement or of any part hereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this Subscription Agreement
as of the date set forth below.
SUBSCRIBER
Total Subscription Amount: $
Purchaser Name (Please Print)
Dated: , 1996 By:
Title:
COMPANY
Accepted: , 1996 SENDX MEDICAL, INC.
By:
Title:
<PAGE>
EXHIBIT A
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND,
EXCEPT AS STATED IN AN AGREEMENT BETWEEN THE HOLDER OF THIS
CERTIFICATE, OR ITS PREDECESSOR IN INTEREST, AND THE ISSUER
CORPORATION, SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR REGULATION A
NOTIFICATION UNDER SUCH ACT COVERING SUCH SECURITIES OR THE ISSUER
CORPORATION RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR
THE ISSUER CORPORATION) STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT.
A-1
<PAGE>
EXHIBIT A
SENDX MEDICAL, INC.,
a California corporation
Convertible Promissory Note
Carlsbad, California
, 1996
FOR VALUE RECEIVED, SenDx Medical, Inc., a California corporation (the
"Company"), hereby promises to pay to _________________________
(hereinafter referred to as the "Holder"), or registered assigns, on the
earlier of the closing of the Company=s next round of financing or on
_______________________ _____, 1997 [one (1) year following date of
issuance], subject to prepayment or earlier conversion as described below,
the principal sum of ___________________________ Dollars ($________), or
such part thereof as then remains unpaid, and to pay interest from the date
hereof on the whole amount of said principal sum remaining unpaid at a rate
per annum equal to the lesser of (a) eight percent (8%), or (b) the maximum
rate permitted by law. Interest shall accrue and compound quarterly, from
the date of issuance, and shall be payable at such time as the outstanding
principal amount is due or has been converted. All accrued and unpaid
interest shall be paid in cash upon the payment in cash of the principal
outstanding hereunder or the conversion of this Note as provided herein.
Nothing contained in this Note shall require the Company at any time to pay
interest at a rate exceeding the maximum rate allowable under California
law. Principal and interest shall be payable at the principal office of
the Holder or at such other place as Holder may designate from time to time
in writing to the Company. Interest shall be computed on the basis of a
365-day year. This Note may be pre-paid at any time by the Company.
1. PURCHASE AGREEMENT. This Note is issued pursuant to and is
entitled to the benefits and subject to the conditions of that certain
Subscription Agreement of even date herewith, between the Company and
Holder, as the same may be amended from time to time (the "Subscription
Agreement"), and Holder, and its successors and assigns, by its acceptance
hereof, agrees to be bound by the provisions of the Subscription Agreement.
2. DEFAULT. If any of the following events (hereafter called
"Events of Default") shall occur:
(a) If the Company shall default in the payment of any principal
or interest due under this Note when the same shall become due
and payable, whether at maturity or by acceleration or otherwise; or
(b) If the Company shall make a general assignment for the
benefit of creditors; or
If the Company shall file a voluntary petition in bankruptcy, or
shall be adjudicated a bankrupt or insolvent, or shall file any
petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief
under the present or any future Federal Bankruptcy Act or other
applicable federal, state or other statute, law or regulation, or
shall file any answer admitting the material allegation of a petition
filed against the Company in such proceeding, or shall seek or consent
to or acquiesce in the appointment of any trustee, receiver or
liquidator of the Company of all or any substantial part of the
properties of the Company, or the Company shall commence the winding
up or the dissolution or liquidation of the Company; or
A-2
<PAGE>
EXHIBIT A
(d) If, within sixty (60) days after a court of competent
jurisdiction shall have entered an order, judgment or decree
approving any complaint or petition against the Company seeking
reorganization, dissolution or similar relief under the present or any
future Federal Bankruptcy Act or other applicable federal, state or
other statute, law or regulation, such order, judgment or decree shall
not have been dismissed or stayed pending appeal, or if, within sixty
(60) days after the appointment, without the consent or acquiescence
of the Company, of any trustee, receiver or liquidator of the Company
or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated or stayed pending appeal,
or if, within sixty (60) days after the expiration of any such stay,
shall not have been vacated; or
(e) If the Company should breach any of the material covenants,
representations, warranties, terms or conditions of this Note or
the Subscription Agreement and such breach shall continue unremedied
for a period of thirty (30) days following notice of such breach;
then, and in each and every such case, the Holder of this Note may by
notice in writing to the Company declare all amounts under this Note to be
forthwith due and payable and thereupon the balance shall become so due and
payable, without presentation, protest or further demand or notice of any
kind, all of which are hereby expressly waived.
3. CONVERSION.
(a) RIGHT TO CONVERT INTO SERIES C PREFERRED STOCK. Subject to
and upon compliance with the provisions of this Section 0, at the option of
the Holder, at any time or from time to time, this Note may be converted,
in whole or in part, into shares of Series C Preferred Stock of the Company
by the surrender of this Note in the manner specified in Section 0(0)
below. The number of shares of Series C Preferred Stock into which this
Note shall be convertible shall equal the principal amount of the Note
being converted divided by the "Conversion Price" (as hereinafter defined).
The Conversion Price shall initially be $2.50 per share. The Company
shall, at all times, reserve a sufficient number of shares of Series C
Preferred Stock as may be issuable on conversion hereof.
(b) AUTOMATIC CONVERSION ON PUBLIC OFFERING OR CERTAIN SALES .
This Note shall automatically be converted into shares of Common Stock at
the Conversion Price then in effect immediately upon the closing of the
Company's sale of its Common Stock in a firm commitment underwriting
pursuant to a registration statement under the Securities Act of 1933, as
amended, on Form S-1 or Form SB-2 or any successor to such forms, which
produces either (i) aggregate gross proceeds to the Company of not less
than $20,000,000, or (ii) the sale of a number of shares equal to twenty
percent (20%) of the then-outstanding capital stock of the Company.
(c) MECHANICS OF CONVERSION. Before any Holder shall be
entitled to convert any Note into shares of Series C Preferred Stock or
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the Company's principal corporate office,
together with written notice of such holder's election to convert the same,
and shall state therein the name or names in which the certificate or
certificates for shares of Series C Preferred Stock or Common Stock are to
be issued. The Company shall, as soon as practicable thereafter, issue and
deliver at such office to such Holder, or to the nominee or nominees of
such Holder, a certificate or certificates for the number of shares of
Series C Preferred Stock or 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 Note to be converted, and the person or persons entitled to receive the
shares of Series C Preferred Stock or Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Series C Preferred Stock or Common Stock as of
such date. If this Note is converted in part, this Note must be converted
for a number of whole shares of Series C Preferred Stock and the Holder
shall be entitled to receive a new Note covering the remaining amount in
respect of which this Note has not been converted. Upon such surrender of
this Note, the Company will issue a certificate or certificates in the name
of the Holder for the largest number of whole shares of Series C Preferred
Stock or Common Stock to which the Holder shall be
A-3
<PAGE>
EXHIBIT A
entitled and, if this Note is converted in whole, in lieu of any fractional
share of Series C Preferred Stock or Common Stock to which the Holder shall
be entitled, cash equal to the remaining amount due hereunder. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at
the option of any Holder tendering a Note for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant
to such offering, in which event the person or persons entitled to receive
the Common Stock upon conversion of such Note shall not be deemed to have
converted such Note until immediately prior to the closing of such sale of
securities.
(d) CONVERSION PRICE ADJUSTMENTS UPON CERTAIN EVENTS. The
Conversion Price shall be subject to adjustment from time to time as
follows:
(i) In the event the Company's next round of financing
following the issuance of this Note is achieved through its initial public
offering of Common Stock (the "IPO"), and the per share offering price in
the IPO is less than $3.75, the Conversion Price shall be adjusted so as to
equal two-thirds (2/3) of the per share offering price in the IPO.
(ii) In the event the Company should at any time or from
time to time after the Effective Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Series
C Preferred Stock or Common Stock or the determination of holders of Series
C Preferred Stock or Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Series C Preferred Stock or
Common Stock or other securities or rights convertible into, or entitling
the holder thereof to receive directly or indirectly, additional shares of
Series C Preferred Stock or Common Stock (hereinafter referred to as "Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Series C Preferred Stock or Common Stock or the Stock
Equivalents (including the additional shares of Series C Preferred Stock or
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 shall be
appropriately decreased so that the number of shares of Series C Preferred
Stock or Common Stock issuable on conversion of each share of Note shall be
increased in proportion to such increase of the aggregate of shares of
Series C Preferred Stock or Common Stock outstanding and those issuable
with respect to such Stock Equivalents.
(iii) If the number of shares of Series C Preferred
Stock or Common Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Series C Preferred
Stock or Common Stock, then, following the record date of such combination,
the Conversion Price shall be appropriately increased so that the number of
shares of Series C Preferred Stock or Common Stock issuable on conversion
of each share of the Note shall be decreased in proportion to such decrease
in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event the Company shall
declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets (excluding
cash dividends) or options or rights not referred to in Section 0(0)(0),
then, in each such case for other purposes of this Section 0(0), the
holders of the Notes shall be given ten (10) days notice prior to the
record date for such distribution in order to permit the holders of the
Notes to convert the Notes into Series C Preferred Stock.
(f) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Series C Preferred Stock or Common
Stock (other than a subdivision, combination or merger or sale of assets
transaction or like transaction provided for elsewhere in this Section 0),
provision shall be made so that the holders of the Notes shall thereafter
be entitled to receive upon conversion of the Notes the number of shares of
stock or other securities or property of the Company, or otherwise, to
which a holder of Series C Preferred Stock or Common Stock 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 0 with respect to the rights of the holders of the Notes after the
recapitalization to the end that the provisions of this Section 0
(including adjustment of the Conversion Price then in effect and the number
of shares purchasable upon conversion of the Notes) shall be applicable
after that event as they were before as nearly equivalent as may be
practicable.
(g) NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization,
A-4
<PAGE>
EXHIBIT A
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 the Company but will at all times in good faith
assist in the carrying out of all the provisions of this Section 3 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 Notes against
impairment.
(h) CERTIFICATE AS TO ADJUSTMENT. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this
Section 0, the Company, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and cause
its chief financial officer to verify such computation and prepare and
furnish to each holder of the Notes a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any Note holder, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price at the time in effect, and (C) the
number of shares of Series C Preferred Stock or Common Stock and the
amount, if any, of other securities and/or property which at the time would
be receivable upon the conversion of the Notes. Such certificate shall set
forth in reasonable detail such facts as may be necessary to show the
reason for and manner of computing such adjustment. If demanded by the
holders of more than 10% of the principal amount of the Notes, the Company
shall provide the holders of the Notes a verification or confirmation of
the calculation of such adjustment signed by an independent certified
public accountant, which may be the firm of independent certified public
accountants servicing the Company.
(i) NOTICES OF RECORD DATE. In the event of any taking by the
Company 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 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, the Company shall mail to each
holder of a Note, at least 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) TAXES ON CONVERSION. The issue of share certificates on
conversion of this Note shall be made without charge to the converting
Holder for any tax in respect of the issue thereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares in any name other
than that of the Holder, and the Company shall not be required to issue or
deliver any certificate in respect of such shares unless and until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
(k) RESERVATION OF CONVERSION SECURITIES. The Company agrees
that the Company will at all times have authorized and reserved, and will
keep available, solely for issuance or delivery upon the conversion of this
Note, the shares of Series C Preferred Stock or Common Stock and other
securities and properties as from time to time shall be receivable upon the
conversion of this Note.
(l) NO RIGHTS AS STOCKHOLDERS. Prior to the conversion of this
Note, the Holder of this Note shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any
pre-emptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein or in the
Subscription Agreement or as otherwise agreed.
A-5
<PAGE>
EXHIBT A
4. MERGER, CONSOLIDATION.
(a) ACCELERATION ON MERGER, CONSOLIDATION. In the event of (i) any
consolidation or merger of the Company with or into any other corporation or
other entity or person, or any other corporate reorganization in which the
Company shall not be the continuing or surviving entity, or any transaction or
series of related transactions by the Company in which in excess of 50% of the
Company's voting power is issued for the purpose of combining with or
acquisition by one or more corporations or other entities or persons; or (ii) a
sale, conveyance or disposition of all or substantially all of the assets of the
Company, then the principal and accrued interest on this Note shall be due and
payable at the closing of any such transaction.
(b) NOTICES. The Company shall give each Note holder written notice
of such impending transaction not later than twenty (20) days prior to the
stockholders' meeting called to approve such transaction, or twenty (20) days
prior to the closing of such transaction, whichever is earlier. The first of
such notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 0 and the Company 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 the
Company has given the first notice provided for herein or sooner than ten (10)
days after the Company has given the notice provided for herein of any material
changes, provided, however, that such periods may be shortened upon the written
consent of the holders of the majority of the principal amount of Notes then
outstanding.
5. TRANSFER. Subject to the restrictions and limitations set forth in
the Subscription Agreement, upon surrender of this Note for transfer or
exchange, a new Note or new Notes of the same tenor, dated the date to which
interest has been paid on the surrendered Note and in an aggregate principal
amount equal to the unpaid principal amount of the Note so surrendered, will be
issued to and registered in the name of the transferee or transferees. The
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payments and for all other purposes.
6. NOTE REGISTER. This Note is transferable only upon the books of the
Company which it shall cause to be maintained for such purpose. The Company may
treat the registered holder of this Note as he or it appears on the Company's
books at any time as the Holder for all purposes.
7. LOSS, ETC., OF NOTE. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note, and of
indemnity reasonably satisfactory to the Company if lost, stolen or destroyed,
and upon surrender and cancellation of this Note if mutilated, and upon
reimbursement of the Company's reasonable incidental expenses, the Company shall
execute and deliver to the Holder a new Note of like date, tenor and
denomination.
8. AMENDMENT, WAIVER ETC., BY HOLDERS. The terms of this Note may be
amended or waived upon the written consent of the Company and the Holder.
This Note shall be governed by and construed in accordance with the laws of
the State of California.
The Company hereby waives presentment, demand, notice of nonpayment,
protest and all other demands and notices in connection with the delivery,
acceptance, performance or enforcement of this Note. If an action is brought
for collection under this Note, the Holder shall be entitled to receive all
costs of collection, including, but not limited to, its reasonable attorneys'
fees.
SENDX MEDICAL, INC.,
a California corporation
By:
Douglas R. Hillier, President
A-6
<PAGE>
EXHIBIT A
[Corporate Seal]
A-7
<PAGE>
EXHIBIT B
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") NOR QUALIFIED UNDER THE CALIFORNIA CORPORATE
SECURITIES LAW OF 1968, AS AMENDED, (THE "CALIFORNIA SECURITIES LAW"). THIS
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES
ACT. THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND COMPLIANCE WITH THE CALIFORNIA SECURITIES LAW OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
REGISTRATION AND COMPLIANCE ARE NOT REQUIRED.
Warrant No. ________ Warrant to Purchase
________ Shares of
Series C Preferred Stock
As Herein Described
WARRANT TO PURCHASE SERIES C PREFERRED STOCK
OF
SENDX MEDICAL, INC.
This is to certify that, for value received, ___________________ or a
proper assignee (in each case, the "Holder"), is entitled to purchase, subject
to the provisions of this Warrant, from SenDx Medical, Inc., a California
corporation (the "Company"), at any time during the period from the date hereof
(the "Commencement Date") to 5:00 p.m., California time, on ________, 1999 (the
"Expiration Date") at which time this Warrant shall expire and become void,
________ shares ("Warrant Shares") of the Company's Preferred Stock (the
"Preferred Stock"). This Warrant shall be exercisable at $1.8375 per share (the
"Exercise Price"), subject to adjustment upon certain events as hereinafter
provided. The number of shares of Preferred Stock to be received upon exercise
of this Warrant and the Exercise Price shall be adjusted from time to time as
set forth below. This Warrant also is subject to the following terms and
conditions:
1. EXERCISE AND PAYMENT; EXCHANGE
(a) This Warrant may be exercised in whole or in part at any time
from and after the date hereof and before the Expiration Date, but if such date
is a day on which federal or state chartered banking institutions located in the
State of California are authorized to close, then on the next succeeding day
which shall not be such a day. Exercise shall be presentation and surrender to
the Company at its principal office, or at the office of any transfer agent
designated by the Company, of (i) this Warrant, (ii) the attached exercise form
properly executed, and (iii) either (A) a certified or official bank check for
the Exercise Price for the number of Warrant Shares specified in the exercise
form; or (B) other securities of the Company owned by the Holder and having a
fair market value determined as specified in the exercise form; or (C) any
combination of the consideration specified in the foregoing clauses (A) and (B).
If this Warrant is exercised in part only, the Company or its transfer agent
shall, upon surrender of this Warrant, execute and deliver a new Warrant
evidencing the rights of the Holder to purchase the remaining number of Warrant
Shares purchase hereunder. Upon receipt by the Company of this Warrant in
proper form for exercise, accompanied by payment as aforesaid, the Holder shall
be deemed to be the holder of record of the Preferred Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such warrant Shares shall not
then be actually delivered by the Holder.
(b) EXCHANGE OF WARRANT FOR PREFERRED STOCK. In addition to and
without limiting the rights of the Holder under the terms of this Warrant, the
Holder shall have the right, upon its written request delivered or transmitted
to the Company together with this Warrant, to exchange this Warrant, in whole or
in part at any time or from time to time on or prior to the Expiration date, for
the number of shares of Preferred Stock having an aggregate fair market value
(determined as set forth in Section 4 hereof) on the date of such exchange equal
B-1
<PAGE>
EXHIBIT B
to the difference between (i) the aggregate fair market value on the date of
such exchange (determined as set forth in Section 4 hereof) of a number of
Warrant Shares designated by the Holder and (ii) the aggregate Exercise Price
the Holder would have paid to the Company to purchase such designated number of
Warrant Shares upon exercise of this Warrant. Upon any such exchange, the
number of Warrant Shares purchasable upon exercise of this Warrant shall be
reduced by such designated number of Warrant Shares, and, if a balance of
purchasable Warrant Shares remains after such exchange, the Company shall
execute and deliver to the Holder a new Warrant evidencing the right of the
Holder to purchase such balance of Warrant Shares. No payment of any cash or
other consideration shall be required. Such exchange shall be effective upon
the date of receipt by the Company of the original Warrant surrendered for
cancellation and a written request from the Holder that the exchange pursuant to
this Subsection be made, or at such later date as may be specified in such
request.
2. EXERCISE PRICE ADJUSTMENTS UPON CERTAIN EVENTS. The Exercise Price
shall be subject to adjustment from time to time as follows:
(a) In the event the price per share of the initial round of the
Company's Series D Preferred Stock financing is less or more than $2.625 per
share, the Exercise Price shall be adjusted so as to equal seventy percent (70%)
of such per share price.
(b) In the event the Company's next round of financing following the
issuance of this Warrant is achieved through its initial public offering of
Common Stock (the "IPO"), the Exercise Price shall be adjusted to $2.50 per
share; provided, however, that if the per share offering price in the IPO is
less than $3.75, the Exercise Price shall instead be adjusted so as to equal
two-thirds (2/3) of the per share offering price in the IPO.
(c) In the event the Company should at any time or from time to time
after the Effective Date fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Series C Preferred Stock or the
determination of holders of Series C Preferred Stock entitled to receive a
dividend or other distribution payable in additional shares of Series C
Preferred Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Series C
Preferred Stock (hereinafter referred to as "Stock Equivalents") without payment
of any consideration by such holder for the additional shares of Series C
Preferred Stock or the Stock Equivalents (including the additional shares of
Series C Preferred Stock issuable upon the 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 Exercise Price shall be appropriately decreased so
that the number of shares of Series C Preferred Stock issuable upon exercise of
this Warrant shall be increased in proportion to such increase of the aggregate
of shares of Series C Preferred Stock outstanding and those issuable with
respect to such Stock Equivalents.
(d) If the number of shares of Series C Preferred Stock outstanding
at any time after the Effective Date is decreased by a combination of the
outstanding shares of Series C Preferred Stock, then, following the record date
of such combination, the Exercise Price shall be appropriately increased so that
the number of shares of Series C Preferred Stock issuable upon exercise of this
Warrant shall be decreased in proportion to such decrease in outstanding shares.
(e) If at any time or from time to time there shall be a
recapitalization of the Series C Preferred Stock (other than a subdivision,
combination or merger or sale of assets transaction or like transaction provided
for elsewhere in this Section 2, provision shall be made so that the holders of
the Warrants shall thereafter be entitled to receive upon exercise of the
Warrants the number of shares of stock or other securities or property of the
Company, or otherwise, to which a holder of Series C Preferred Stock 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 2
with respect to the rights of the holders of the Warrants after the
recapitalization to the end that the provisions of this Section 2 (including
adjustment of the Exercise Price then in effect and the number of shares
purchasable upon exercise of the Warrants) shall be applicable after that event
as they were before as nearly equivalent as may be practicable.
B-2
<PAGE>
EXHIBIT B
The Company will not, by amendment of its Articles 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 the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Section 2 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Warrants against impairment.
(g) Upon the occurrence of each adjustment or readjustment of the
Exercise Price pursuant to this Section 2, the Company, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause its chief financial officer to verify such computation and
prepare and furnish to each holder of the Warrants a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any Warrant holder, furnish or cause to be furnished to
such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Exercise Price at the time in effect, and (C) the number
of shares of Series C Preferred Stock and the amount, if any, of other
securities and/or property which at the time would be receivable upon the
exercise of the Warrants. Such certificate shall set forth in reasonable detail
such facts as may be necessary to show the reason for and manner of computing
such adjustment. If demanded by the holders of more than 10% of the principal
amount of the Warrants, the Company shall provide the holders of the Warrants a
verification or confirmation of the calculation of such adjustment signed by an
independent certified public accountant, which may be the firm of independent
certified public accountants servicing the Company.
(h) NOTICES OF RECORD DATE. In the event of any taking by the
Company 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 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, the Company shall mail to each holder of a Warrant, at
least 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.
3. RESERVATION OF SHARES. The Company shall, at all times until the
expiration of this Warrant, reserve for issuance and delivery upon exercise of
this Warrant the number of Warrant Shares which shall be required for issuance
and delivery upon exercise of this Warrant.
4. FRACTIONAL INTERESTS. The Company shall not issue any fractional
shares or scrip representing fractional shares upon the exercise or exchange of
this Warrant. With respect to any fraction of a share resulting from the
exercise or exchange hereof, the Company shall pay to the Holder an amount in
cash equal to such fraction multiplied by the current fair market value per
share of Preferred Stock, determined as follows:
(a) If the Preferred Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, or is
listed on the National Association of Securities Dealers Automatic Quotation
System ("NASDAQ"), the current fair market value shall be the last reported sale
price of the Preferred Stock on such exchange or NASDAQ on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the mean of the closing bid and asked prices for such day on such exchange
of NASDAQ; or
(b) If the Preferred Stock is not so listed or admitted to unlisted
trading privileges or quoted on NASDAQ, the current fair market value shall be
the mean of the last bid and asked prices reported on the last business day
prior to the date of the exercise of this Warrant (i) by NASDAQ, or (ii) if
reports are unavailable under clause (i) above, by the National Quotation Bureau
Incorporated; or
(c) If the Preferred Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
fair market value shall be an amount, not less than book value, determined in
such reasonable manner as may be prescribed by the Company's Board of Directors
in good faith.
B-3
<PAGE>
EXHIBIT B
5. NO RIGHTS AS SHAREHOLDER. This Warrant shall not entitle the Holder
to any rights as a shareholder of the Company, either at law or in equity. The
rights of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
6. TRANSFER, EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT
6.1. This Warrant may be transferred, in whole or in part,
subject to the following restrictions. This Warrant and the Warrant Shares or
any other securities ("Other Securities") received upon exercise of this Warrant
shall be subject to restrictions on transferability until registered under the
Securities Act of 1933, as amended (the "Act"), unless an exemption from
registration is available. Until this Warrant and the Warrant Shares or Other
Securities are so registered, this Warrant and any certificate for Warrant
Shares or Other Securities issued or issuable upon exercise of this Warrant
shall contain a legend on the face thereof, in form and substance satisfactory
to counsel for the Company, stating that this Warrant, the Warrant Shares or
Other Securities may not be sold, transferred or otherwise disposed of unless,
in the opinion of counsel satisfactory to the Company, which may be counsel to
the Company, that the Warrant, the Warrant Shares or Other Securities may be
transferred without such registration. This Warrant and the Warrant Shares or
Other Securities may also be subject to restrictions on transferability under
applicable state securities or blue sky laws. Until the Warrant and the Warrant
Shares or Other Securities are registered under the Act, the Holder shall
reimburse the Company for its expenses, including attorneys' fees, incurred in
connection with any transfer or assignment, in whole or in part, of this Warrant
or any Warrant Shares or Other Securities.
6.2. Any transfer permitted hereunder shall be made by surrender
of this Warrant to the Company at its principal office or to the Transfer Agent
at its offices with a duly executed request to transfer the Warrant, which shall
provide adequate information to effect such transfer and shall be accomplished
by funds sufficient to pay any transfer taxes applicable. Upon satisfaction of
all transfer conditions, the Company or Transfer Agent shall, without charge,
execute and deliver a new Warrant in the name of the transferee named in such
transfer request, and this Warrant promptly shall be cancelled.
6.3. Upon receipt by the Company of evidence satisfactory to it
of loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of reasonably satisfactory indemnification, or, in
the case of mutilation, upon surrender of this Warrant, the Company will execute
and deliver, or instruct the Transfer Agent to execute and deliver, a new
Warrant of like tenor and date, and any such lost, stolen or destroyed Warrant
thereupon shall become void.
6.4. Each Holder of this Warrant, the Warrant Shares and any
Other Securities shall indemnify and hold harmless the Company, its directors
and officers and each other person, if any, who controls the Company, against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or any such person may become subject
under the Act or any statute or common law, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are based
upon the disposition by such Holder of the Warrant, the Warrant Shares or Other
Securities in violation of this Warrant.
7. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of
its Articles of Incorporation or otherwise, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times, in good faith, take all such action as may be necessary or appropriate in
order to protect the rights of the Holder against dilution or other impairment.
B-4
<PAGE>
EXHIBIT B
NOTICES. Notices and other communications to be given to the Holder shall
be deemed sufficiently given if delivered by hand, or two business days after
mailing if mailed by registered or certified mail, postage prepaid, addressed in
the name and at the address of such Holder appearing on the records of the
Company. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand or two business days after mailing
if mailed by registered or certified mail, postage prepaid, to the Company at
1945 Palomar Oaks Way
Carlsbad, CA 92009
Either party may change the address to which notices shall be given by notice
pursuant to this Section 7.
9. GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the Company has executed this Warrant as of
SENDX MEDICAL, INC.
By:
Douglas R. Hillier, President
B-5
<PAGE>
EXHIBIT C
ACCREDITED INVESTOR QUALIFICATIONS
ACCREDITED INVESTOR STATUS. Subscriber shall be deemed to be an Accredited
Investor if Subscriber satisfies any one of the following conditions:
(a) Subscriber is a natural person whose net worth, either
individually or jointly with such person's spouse, at the time of the
Subscriber's purchase, exceeds $1,000,000;
(b) Subscriber is a natural person who had an individual income
in excess of $200,000, or joint income with that person's spouse in excess of
$300,000, in 1993 and 1994 and reasonably expects to reach the same income level
in 1995;
(c) Subscriber is a bank as defined in Section 3(a)(2) of the
Securities Act, or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity;
(d) Subscriber is a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, as amended;
(e) Subscriber is an insurance company as defined in Section
2(13) of the Securities Act;
(f) Subscriber is an investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act;
(g) Subscriber is a Small Business Investment Company licensed
by the U.S. Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958;
(h) Subscriber is a plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000;
(i) Subscriber is an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974, if the investment decision
is made by a plan fiduciary, as defined in Section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are Accredited Investors;
(j) Subscriber is a private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
(k) Subscriber is an organization described in Section 501(c)(3)
of the Internal Revenue Code, corporation, business trust, or partnership, not
formed for the specific purpose of acquiring the Securities, with total assets
in excess of $5,000,000;
(l) Subscriber is a director or executive officer of the
Company;
(m) Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the Securities,
whose purchase is directed by a sophisticated person who has such knowledge and
experience in financial and business matters that such person is capable of
evaluating the merits and risks of investing in the Company; or
(n) Subscriber is an entity in which ALL of the equity owners
qualify under any of the above subparagraphs.
C-1
<PAGE>
EXHIBIT C
(n) NET WORTH. The term "net worth" means the excess of total assets over
total liabilities. In calculating net worth, the Subscriber may include the
estimated fair market value of Subscriber's principal residence as an asset.
3. INCOME. In determining individual "income," the Subscriber should add
to the Subscriber's individual taxable adjusted gross income (exclusive of any
spousal income) any amounts attributable to tax exempt income received, losses
claimed as a limited partner in any limited partnership, deductions claimed for
depletion, contributions to an IRA or Keogh retirement plan, alimony payments,
and any amount by which income from long-term capital gains has been reduced in
arriving at adjusted gross income.
C-2
<PAGE>
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND, EXCEPT AS STATED IN
AN AGREEMENT BETWEEN THE HOLDER OF THIS CERTIFICATE, OR ITS PREDECESSOR IN
INTEREST, AND THE ISSUER CORPORATION, SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR
REGULATION A NOTIFICATION UNDER SUCH ACT COVERING SUCH SECURITIES OR THE
ISSUER CORPORATION RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR
THE ISSUER CORPORATION) STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
SENDX MEDICAL, INC.,
a California corporation
Convertible Promissory Note
Carlsbad, California
February @, 1996
FOR VALUE RECEIVED, SENDX MEDICAL, INC., a California corporation (the
"Company"), hereby promises to pay to INVESTMENT_LEGAL_NAME~ (hereinafter
referred to as the "Holder"), or registered assigns, on the earlier of the
closing of the Company's next round of financing or on February ##, 1997
[one (1) year following date of issuance], subject to prepayment or earlier
conversion as described below, the principal sum of @@ DOLLARS
($BRIDGE_FINANCING_AMOUNT~), or such part thereof as then remains unpaid,
and to pay interest from the date hereof on the whole amount of said
principal sum remaining unpaid at a rate per annum equal to the lesser of
(a) eight percent (8%), or (b) the maximum rate permitted by law. Interest
shall accrue and compound quarterly, from the date of issuance, and shall
be payable at such time as the outstanding principal amount is due or has
been converted. All accrued and unpaid interest shall be paid in cash upon
the payment in cash of the principal outstanding hereunder or the
conversion of this Note as provided herein. Nothing contained in this Note
shall require the Company at any time to pay interest at a rate exceeding
the maximum rate allowable under California law. Principal and interest
shall be payable at the principal office of the Holder or at such other
place as Holder may designate from time to time in writing to the Company.
Interest shall be computed on the basis of a 365-day year. This Note may
be pre-paid at any time by the Company.
1. PURCHASE AGREEMENT. This Note is issued pursuant to and is
entitled to the benefits and subject to the conditions of that certain
Subscription Agreement of even date herewith, between the Company and
Holder, as the same may be amended from time to time (the "Subscription
Agreement"), and Holder, and its successors and assigns, by its acceptance
hereof, agrees to be bound by the provisions of the Subscription Agreement.
2. DEFAULT. If any of the following events (hereafter called
"Events of Default") shall occur:
(a) If the Company shall default in the payment of any principal
or interest due under this Note when the same shall become due
and payable, whether at maturity or by acceleration or otherwise; or
(b) If the Company shall make a general assignment for the
benefit of creditors; or
If the Company shall file a voluntary petition in bankruptcy, or
shall be adjudicated a bankrupt or insolvent, or shall file any
petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under the present or any future Federal Bankruptcy Act or other
applicable federal, state or other statute, law or regulation, or
shall file any answer admitting the material allegation of a petition
filed against the Company in such proceeding, or shall seek or consent
to or acquiesce in the appointment of any trustee, receiver or
liquidator of the Company of all or any substantial part of the
properties of the Company, or the Company shall commence the winding
up or the dissolution or liquidation of the Company; or
Page 1
<PAGE>
(d) If, within sixty (60) days after a court of competent
jurisdiction shall have entered an order, judgment or decree
approving any complaint or petition against the Company seeking
reorganization, dissolution or similar relief under the present or any
future Federal Bankruptcy Act or other applicable federal, state or
other statute, law or regulation, such order, judgment or decree shall
not have been dismissed or stayed pending appeal, or if, within sixty
(60) days after the appointment, without the consent or acquiescence
of the Company, of any trustee, receiver or liquidator of the Company
or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated or stayed pending appeal,
or if, within sixty (60) days after the expiration of any such stay,
shall not have been vacated; or
(e) If the Company should breach any of the material covenants,
representations, warranties, terms or conditions of this Note or
the Subscription Agreement and such breach shall continue unremedied
for a period of thirty (30) days following notice of such breach;
then, and in each and every such case, the Holder of this Note may by
notice in writing to the Company declare all amounts under this Note to be
forthwith due and payable and thereupon the balance shall become so due and
payable, without presentation, protest or further demand or notice of any
kind, all of which are hereby expressly waived.
3. CONVERSION.
(a) RIGHT TO CONVERT INTO SERIES C PREFERRED STOCK. Subject to
and upon compliance with the provisions of this Section 3, at the option of
the Holder, at any time or from time to time, this Note may be converted,
in whole or in part, into shares of Series C Preferred Stock of the Company
by the surrender of this Note in the manner specified in Section 3(c)
below. The number of shares of Series C Preferred Stock into which this
Note shall be convertible shall equal the principal amount of the Note
being converted divided by the "Conversion Price" (as hereinafter defined).
The Conversion Price shall initially be $2.50 per share. The Company
shall, at all times, reserve a sufficient number of shares of Series C
Preferred Stock as may be issuable on conversion hereof.
(b) AUTOMATIC CONVERSION ON PUBLIC OFFERING OR CERTAIN SALES .
This Note shall automatically be converted into shares of Common Stock at
the Conversion Price then in effect immediately upon the closing of the
Company's sale of its Common Stock in a firm commitment underwriting
pursuant to a registration statement under the Securities Act of 1933, as
amended, on Form S-1 or Form SB-2 or any successor to such forms, which
produces either (i) aggregate gross proceeds to the Company of not less
than $20,000,000, or (ii) the sale of a number of shares equal to twenty
percent (20%) of the then-outstanding capital stock of the Company.
(c) MECHANICS OF CONVERSION. Before any Holder shall be
entitled to convert any Note into shares of Series C Preferred Stock or
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the Company's principal corporate office,
together with written notice of such holder's election to convert the same,
and shall state therein the name or names in which the certificate or
certificates for shares of Series C Preferred Stock or Common Stock are to
be issued. The Company shall, as soon as practicable thereafter, issue and
deliver at such office to such Holder, or to the nominee or nominees of
such Holder, a certificate or certificates for the number of shares of
Series C Preferred Stock or 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 Note to be converted, and the person or persons entitled to receive the
shares of Series C Preferred Stock or Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Series C Preferred Stock or Common Stock as of
such date. If this Note is converted in part, this Note must be converted
for a number of whole shares of Series C Preferred Stock and the Holder
shall be entitled to receive a new Note covering the remaining amount in
respect of which this Note has not been converted. Upon such surrender of
this Note, the Company will issue a certificate or certificates in the name
of the Holder for the
Page 2
<PAGE>
largest number of whole shares of Series C Preferred Stock or Common Stock
to which the Holder shall be entitled and, if this Note is converted in
whole, in lieu of any fractional share of Series C Preferred Stock or
Common Stock to which the Holder shall be entitled, cash equal to the
remaining amount due hereunder. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities
Act of 1933, the conversion may, at the option of any Holder tendering a
Note for conversion, be conditioned upon the closing with the underwriters
of the sale of securities pursuant to such offering, in which event the
person or persons entitled to receive the Common Stock upon conversion of
such Note shall not be deemed to have converted such Note until immediately
prior to the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS UPON CERTAIN EVENTS. The
Conversion Price shall be subject to adjustment from time to time as
follows:
(i) In the event the Company's next round of financing
following the issuance of this Note is achieved through its initial public
offering of Common Stock (the "IPO"), and the per share offering price in
the IPO is less than $3.75, the Conversion Price shall be adjusted so as to
equal two-thirds (2/3) of the per share offering price in the IPO.
(ii) In the event the Company should at any time or from
time to time after the Effective Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Series
C Preferred Stock or Common Stock or the determination of holders of Series
C Preferred Stock or Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Series C Preferred Stock or
Common Stock or other securities or rights convertible into, or entitling
the holder thereof to receive directly or indirectly, additional shares of
Series C Preferred Stock or Common Stock (hereinafter referred to as "Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Series C Preferred Stock or Common Stock or the Stock
Equivalents (including the additional shares of Series C Preferred Stock or
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 shall be
appropriately decreased so that the number of shares of Series C Preferred
Stock or Common Stock issuable on conversion of each share of Note shall be
increased in proportion to such increase of the aggregate of shares of
Series C Preferred Stock or Common Stock outstanding and those issuable
with respect to such Stock Equivalents.
(iii) If the number of shares of Series C Preferred
Stock or Common Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Series C Preferred
Stock or Common Stock, then, following the record date of such combination,
the Conversion Price shall be appropriately increased so that the number of
shares of Series C Preferred Stock or Common Stock issuable on conversion
of each share of the Note shall be decreased in proportion to such decrease
in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event the Company shall declare
a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 3(d)(ii), then,
in each such case for other purposes of this Section 3(e), the holders of
the Notes shall be given ten (10) days notice prior to the record date for
such distribution in order to permit the holders of the Notes to convert
the Notes into Series C Preferred Stock.
(f) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Series C Preferred Stock or Common
Stock (other than a subdivision, combination or merger or sale of assets
transaction or like transaction provided for elsewhere in this Section 3),
provision shall be made so that the holders of the Notes shall thereafter
be entitled to receive upon conversion of the Notes the number of shares of
stock or other securities or property of the Company, or otherwise, to
which a holder of Series C Preferred Stock or Common Stock 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 3 with respect to the rights of the holders of the Notes after the
recapitalization to the end that the provisions of this Section 3
(including adjustment of the Conversion Price then in effect and the number
of shares purchasable upon conversion of the Notes) shall be applicable
after that event as they were before as nearly equivalent as may be
practicable.
Page 3
<PAGE>
(g) NO IMPAIRMENT. The Company will not, by amendment of its
Articles 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 the Company but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 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 Notes against impairment.
(h) CERTIFICATE AS TO ADJUSTMENT. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this
Section 3, the Company, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and cause
its chief financial officer to verify such computation and prepare and
furnish to each holder of the Notes a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any Note holder, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price at the time in effect, and (C) the
number of shares of Series C Preferred Stock or Common Stock and the
amount, if any, of other securities and/or property which at the time would
be receivable upon the conversion of the Notes. Such certificate shall set
forth in reasonable detail such facts as may be necessary to show the
reason for and manner of computing such adjustment. If demanded by the
holders of more than 10% of the principal amount of the Notes, the Company
shall provide the holders of the Notes a verification or confirmation of
the calculation of such adjustment signed by an independent certified
public accountant, which may be the firm of independent certified public
accountants servicing the Company.
(i) NOTICES OF RECORD DATE. In the event of any taking by the
Company 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 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, the Company shall mail to each
holder of a Note, at least 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) TAXES ON CONVERSION. The issue of share certificates on
conversion of this Note shall be made without charge to the converting
Holder for any tax in respect of the issue thereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares in any name other
than that of the Holder, and the Company shall not be required to issue or
deliver any certificate in respect of such shares unless and until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
(k) RESERVATION OF CONVERSION SECURITIES. The Company agrees
that the Company will at all times have authorized and reserved, and will
keep available, solely for issuance or delivery upon the conversion of this
Note, the shares of Series C Preferred Stock or Common Stock and other
securities and properties as from time to time shall be receivable upon the
conversion of this Note.
(l) NO RIGHTS AS STOCKHOLDERS. Prior to the conversion of this
Note, the Holder of this Note shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any
pre-emptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein or in the
Subscription Agreement or as otherwise agreed.
Page 4
<PAGE>
4. MERGER, CONSOLIDATION.
(a) ACCELERATION ON MERGER, CONSOLIDATION. In the event of
(i) any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate
reorganization in which the Company shall not be the continuing or
surviving entity, or any transaction or series of related transactions by
the Company in which in excess of 50% of the Company's voting power is
issued for the purpose of combining with or acquisition by one or more
corporations or other entities or persons; or (ii) a sale, conveyance or
disposition of all or substantially all of the assets of the Company, then
the principal and accrued interest on this Note shall be due and payable at
the closing of any such transaction.
(b) NOTICES. The Company shall give each Note holder written
notice of such impending transaction not later than twenty (20) days prior
to the stockholders' meeting called to approve such transaction, or twenty
(20) days prior to the closing of such transaction, whichever is earlier.
The first of such notices shall describe the material terms and conditions
of the impending transaction and the provisions of this Section 4 and the
Company 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 the Company has given the first notice provided for herein
or sooner than ten (10) days after the Company has given the notice
provided for herein of any material changes, provided, however, that such
periods may be shortened upon the written consent of the holders of the
majority of the principal amount of Notes then outstanding.
5. TRANSFER. Subject to the restrictions and limitations set forth
in the Subscription Agreement, upon surrender of this Note for transfer or
exchange, a new Note or new Notes of the same tenor, dated the date to
which interest has been paid on the surrendered Note and in an aggregate
principal amount equal to the unpaid principal amount of the Note so
surrendered, will be issued to and registered in the name of the transferee
or transferees. The Company may treat the person in whose name this Note
is registered as the owner hereof for the purpose of receiving payments and
for all other purposes.
6. NOTE REGISTER. This Note is transferable only upon the books of
the Company which it shall cause to be maintained for such purpose. The
Company may treat the registered holder of this Note as he or it appears on
the Company's books at any time as the Holder for all purposes.
7. LOSS, ETC., OF NOTE. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this Note, and
of indemnity reasonably satisfactory to the Company if lost, stolen or
destroyed, and upon surrender and cancellation of this Note if mutilated,
and upon reimbursement of the Company's reasonable incidental expenses, the
Company shall execute and deliver to the Holder a new Note of like date,
tenor and denomination.
Page 5
<PAGE>
8. AMENDMENT, WAIVER ETC., BY HOLDERS. The terms of this Note may
be amended or waived upon the written consent of the Company and the
Holder.
This Note shall be governed by and construed in accordance with
the laws of the State of California.
The Company hereby waives presentment, demand, notice of
nonpayment, protest and all other demands and notices in connection with
the delivery, acceptance, performance or enforcement of this Note. If an
action is brought for collection under this Note, the Holder shall be
entitled to receive all costs of collection, including, but not limited to,
its reasonable attorneys' fees.
SENDX MEDICAL, INC.,
a California corporation
By:
---------------------------------------
Douglas R. Hillier, President
[Corporate Seal]
Page 6
<PAGE>
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") NOR QUALIFIED UNDER THE CALIFORNIA CORPORATE
SECURITIES LAW OF 1968, AS AMENDED, (THE "CALIFORNIA SECURITIES LAW"). THIS
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES
ACT. THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND COMPLIANCE WITH THE CALIFORNIA SECURITIES LAW OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
REGISTRATION AND COMPLIANCE ARE NOT REQUIRED.
WARRANT NO. WARRANT_NUMBER~
WARRANT TO PURCHASE
WARRANT_AMOUNT-SHARES OF
SERIES C PREFERRED STOCK
AS HEREIN DESCRIBED
WARRANT TO PURCHASE SERIES C PREFERRED STOCK
OF
SENDX MEDICAL, INC.
This is to certify that, for value received, INVESTMENT_LEGAL_NAME~ or a
proper assignee (in each case, the "Holder"), is entitled to purchase, subject
to the provisions of this Warrant, from SENDX MEDICAL, INC., a California
corporation (the "Company"), at any time during the period from the date hereof
(the "Commencement Date") to 5:00 p.m., California time, on FEBRUARY 4, 1999
(the "Expiration Date") at which time this Warrant shall expire and become void,
WARRANT_AMOUNT-shares ("Warrant Shares") of the Company's Preferred Stock (the
"Preferred Stock"). This Warrant shall be exercisable at $1.8375 per share (the
"Exercise Price"), subject to adjustment upon certain events as hereinafter
provided. The number of shares of Preferred Stock to be received upon exercise
of this Warrant and the Exercise Price shall be adjusted from time to time as
set forth below. This Warrant also is subject to the following terms and
conditions:
1. EXERCISE AND PAYMENT; EXCHANGE
(a) This Warrant may be exercised in whole or in part at any time
from and after the date hereof and before the Expiration Date, but if such date
is a day on which federal or state chartered banking institutions located in the
State of California are authorized to close, then on the next succeeding day
which shall not be such a day. Exercise shall be presentation and surrender to
the Company at its principal office, or at the office of any transfer agent
designated by the Company, of (i) this Warrant, (ii) the attached exercise form
properly executed, and (iii)either (A)a certified or official bank check for the
Exercise Price for the number of Warrant Shares specified in the exercise form;
or (B) other securities of the Company owned by the Holder and having a fair
market value determined as specified in the exercise form; or (C) any
combination of the consideration specified in the foregoing clauses (A) and (B).
If this Warrant is exercised in part only, the Company or its transfer agent
shall, upon surrender of this Warrant, execute and deliver a new Warrant
evidencing the rights of the Holder to purchase the remaining number of Warrant
Shares purchase hereunder. Upon receipt by the Company of this Warrant in
proper form for exercise, accompanied by payment as aforesaid, the Holder shall
be deemed to be the holder of record of the Preferred Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such warrant Shares shall not
then be actually delivered by the Holder.
EXCHANGE OF WARRANT FOR PREFERRED STOCK. In addition to and without
limiting the rights of the Holder under the terms of this Warrant, the Holder
shall have the right, upon its written request delivered or transmitted to the
Company together with this Warrant, to exchange this Warrant, in whole or in
part at any
1
<PAGE>
time or from time to time on or prior to the Expiration date, for the number of
shares of Preferred Stock having an aggregate fair market value (determined as
set forth in Section 4 hereof) on the date of such exchange equal to the
difference between (i) the aggregate fair market value on the date of such
exchange (determined as set forth in Section 4 hereof) of a number of Warrant
Shares designated by the Holder and (ii) the aggregate Exercise Price the Holder
would have paid to the Company to purchase such designated number of Warrant
Shares upon exercise of this Warrant. Upon any such exchange, the number of
Warrant Shares purchasable upon exercise of this Warrant shall be reduced by
such designated number of Warrant Shares, and, if a balance of purchasable
Warrant Shares remains after such exchange, the Company shall execute and
deliver to the Holder a new Warrant evidencing the right of the Holder to
purchase such balance of Warrant Shares. No payment of any cash or other
consideration shall be required. Such exchange shall be effective upon the date
of receipt by the Company of the original Warrant surrendered for cancellation
and a written request from the Holder that the exchange pursuant to this
Subsection be made, or at such later date as may be specified in such request.
2. EXERCISE PRICE ADJUSTMENTS UPON CERTAIN EVENTS. The Exercise Price
shall be subject to adjustment from time to time as follows:
(a) In the event the price per share of the initial round of the
Company's Series D Preferred Stock financing is less or more than $2.625 per
share, the Exercise Price shall be adjusted so as to equal seventy percent (70%)
of such per share price.
(b) In the event the Company's next round of financing following the
issuance of this Warrant is achieved through its initial public offering of
Common Stock (the "IPO"), the Exercise Price shall be adjusted to $2.50 per
share; provided, however, that if the per share offering price in the IPO is
less than $3.75, the Exercise Price shall instead be adjusted so as to equal
two-thirds (2/3) of the per share offering price in the IPO.
(c) In the event the Company should at any time or from time to time
after the Effective Date fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Series C Preferred Stock or the
determination of holders of Series C Preferred Stock entitled to receive a
dividend or other distribution payable in additional shares of Series C
Preferred Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Series C
Preferred Stock (hereinafter referred to as "Stock Equivalents") without payment
of any consideration by such holder for the additional shares of Series C
Preferred Stock or the Stock Equivalents (including the additional shares of
Series C Preferred Stock issuable upon the 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 Exercise Price shall be appropriately decreased so
that the number of shares of Series C Preferred Stock issuable upon exercise of
this Warrant shall be increased in proportion to such increase of the aggregate
of shares of Series C Preferred Stock outstanding and those issuable with
respect to such Stock Equivalents.
(d) If the number of shares of Series C Preferred Stock outstanding
at any time after the Effective Date is decreased by a combination of the
outstanding shares of Series C Preferred Stock, then, following the record date
of such combination, the Exercise Price shall be appropriately increased so that
the number of shares of Series C Preferred Stock issuable upon exercise of this
Warrant shall be decreased in proportion to such decrease in outstanding shares.
(e) If at any time or from time to time there shall be a
recapitalization of the Series C Preferred Stock (other than a subdivision,
combination or merger or sale of assets transaction or like transaction provided
for elsewhere in this Section 2, provision shall be made so that the holders of
the Warrants shall thereafter be entitled to receive upon exercise of the
Warrants the number of shares of stock or other securities or property of the
Company, or otherwise, to which a holder of Series C Preferred Stock 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 2
with respect to the rights of the holders of the Warrants after the
recapitalization to the end that the provisions of this Section 2 (including
adjustment of the Exercise Price then in effect and the number of
2
<PAGE>
shares purchasable upon exercise of the Warrants) shall be applicable after that
event as they were before as nearly equivalent as may be practicable.
(f) The Company will not, by amendment of its Articles 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 the Company but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against impairment.
(g) Upon the occurrence of each adjustment or readjustment of the
Exercise Price pursuant to this Section 2, the Company, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause its chief financial officer to verify such computation and
prepare and furnish to each holder of the Warrants a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any Warrant holder, furnish or cause to be furnished to
such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Exercise Price at the time in effect, and (C) the number
of shares of Series C Preferred Stock and the amount, if any, of other
securities and/or property which at the time would be receivable upon the
exercise of the Warrants. Such certificate shall set forth in reasonable detail
such facts as may be necessary to show the reason for and manner of computing
such adjustment. If demanded by the holders of more than 10% of the principal
amount of the Warrants, the Company shall provide the holders of the Warrants a
verification or confirmation of the calculation of such adjustment signed by an
independent certified public accountant, which may be the firm of independent
certified public accountants servicing the Company.
(h) NOTICES OF RECORD DATE. In the event of any taking by the
Company 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 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, the Company shall mail to each holder of a Warrant, at
least 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.
3. RESERVATION OF SHARES. The Company shall, at all times until the
expiration of this Warrant, reserve for issuance and delivery upon exercise of
this Warrant the number of Warrant Shares which shall be required for issuance
and delivery upon exercise of this Warrant.
4. FRACTIONAL INTERESTS. The Company shall not issue any fractional
shares or scrip representing fractional shares upon the exercise or exchange of
this Warrant. With respect to any fraction of a share resulting from the
exercise or exchange hereof, the Company shall pay to the Holder an amount in
cash equal to such fraction multiplied by the current fair market value per
share of Preferred Stock, determined as follows:
(a) If the Preferred Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, or is
listed on the National Association of Securities Dealers Automatic Quotation
System ("NASDAQ"), the current fair market value shall be the last reported sale
price of the Preferred Stock on such exchange or NASDAQ on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the mean of the closing bid and asked prices for such day on such exchange
of NASDAQ; or
(b) If the Preferred Stock is not so listed or admitted to unlisted
trading privileges or quoted on NASDAQ, the current fair market value shall be
the mean of the last bid and asked prices reported on the last business day
prior to the date of the exercise of this Warrant (i)by NASDAQ, or (ii)if
reports are unavailable under clause(i)above, by the National Quotation Bureau
Incorporated; or
3
<PAGE>
(c) If the Preferred Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
fair market value shall be an amount, not less than book value, determined in
such reasonable manner as may be prescribed by the Company's Board of Directors
in good faith.
5. NO RIGHTS AS SHAREHOLDER. This Warrant shall not entitle the Holder
to any rights as a shareholder of the Company, either at law or in equity. The
rights of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
6. TRANSFER, EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT
6.1. This Warrant may be transferred, in whole or in part,
subject to the following restrictions. This Warrant and the Warrant Shares or
any other securities ("Other Securities") received upon exercise of this Warrant
shall be subject to restrictions on transferability until registered under the
Securities Act of 1933, as amended (the "Act"), unless an exemption from
registration is available. Until this Warrant and the Warrant Shares or Other
Securities are so registered, this Warrant and any certificate for Warrant
Shares or Other Securities issued or issuable upon exercise of this Warrant
shall contain a legend on the face thereof, in form and substance satisfactory
to counsel for the Company, stating that this Warrant, the Warrant Shares or
Other Securities may not be sold, transferred or otherwise disposed of unless,
in the opinion of counsel satisfactory to the Company, which may be counsel to
the Company, that the Warrant, the Warrant Shares or Other Securities may be
transferred without such registration. This Warrant and the Warrant Shares or
Other Securities may also be subject to restrictions on transferability under
applicable state securities or blue sky laws. Until the Warrant and the Warrant
Shares or Other Securities are registered under the Act, the Holder shall
reimburse the Company for its expenses, including attorneys' fees, incurred in
connection with any transfer or assignment, in whole or in part, of this Warrant
or any Warrant Shares or Other Securities.
6.2. Any transfer permitted hereunder shall be made by surrender
of this Warrant to the Company at its principal office or to the Transfer Agent
at its offices with a duly executed request to transfer the Warrant, which shall
provide adequate information to effect such transfer and shall be accomplished
by funds sufficient to pay any transfer taxes applicable. Upon satisfaction of
all transfer conditions, the Company or Transfer Agent shall, without charge,
execute and deliver a new Warrant in the name of the transferee named in such
transfer request, and this Warrant promptly shall be cancelled.
6.3. Upon receipt by the Company of evidence satisfactory to it
of loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of reasonably satisfactory indemnification, or, in
the case of mutilation, upon surrender of this Warrant, the Company will execute
and deliver, or instruct the Transfer Agent to execute and deliver, a new
Warrant of like tenor and date, and any such lost, stolen or destroyed Warrant
thereupon shall become void.
6.4. Each Holder of this Warrant, the Warrant Shares and any
Other Securities shall indemnify and hold harmless the Company, its directors
and officers and each other person, if any, who controls the Company, against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or any such person may become subject
under the Act or any statute or common law, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are based
upon the disposition by such Holder of the Warrant, the Warrant Shares or Other
Securities in violation of this Warrant.
7. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of
its Articles of Incorporation or otherwise, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times, in good faith, take all such action as may be necessary or appropriate in
order to protect the rights of the Holder against dilution or other impairment.
4
<PAGE>
8. NOTICES. Notices and other communications to be given to the
Holder shall be deemed sufficiently given if delivered by hand, or two business
days after mailing if mailed by registered or certified mail, postage prepaid,
addressed in the name and at the address of such Holder appearing on the records
of the Company. Notices or other communications to the Company shall be deemed
to have been sufficiently given if delivered by hand or two business days after
mailing if mailed by registered or certified mail, postage prepaid, to the
Company at
1945 Palomar Oaks Way
Carlsbad, CA 92009
Either party may change the address to which notices shall be given by notice
pursuant to this Section 7.
9. GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the Company has executed this Warrant as of February 5,
1996.
SENDX MEDICAL, INC.
By:
George Pache, Vice President and
Chief Financial Officer
5
<PAGE>
AGREEMENT
BETWEEN
UNIFET INCORPORATED
AND
PPG INDUSTRIES, INC.
SENSORS BUSINESS
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Sale, Assignment and Purchase of Purchased Property. . . . . . . . 4
3. Closing, Payment of Preliminary Purchase Price, Assumption of
Liabilities and Delivery of Purchased Property . . . . . . . . . . 4
4. Adjustment in Preliminary Purchase Price . . . . . . . . . . . . . 7
5. Representations and Warranties of Seller . . . . . . . . . . . . . 9
6. Representations and Warranties of Purchaser. . . . . . . . . . . . 13
7. Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9. Survival of Representations and Warranties, Covenants and
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10. Indemnities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11. Limitation of Remedies and Damages . . . . . . . . . . . . . . . . 16
12. Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14. Cooperation as to Certain Claims and Litigation. . . . . . . . . . 19
15. Governing Law, Attorneys' Fees,Table of Contents and Section
Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
16. Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . 19
17. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 19
LIST OF EXHIBITS
A. Lease Included as Purchased Property (to be assigned)
B. Contracts
C. Patents, Patent Applications, Trademarks, Trade Names, License and
Confidentiality and Secrecy Agreements
D. Employees
E. Preliminary Balance Sheet
F. Fixed Assets
G. Permits
H. Litigation
I-1. Form of First Note
I-2. Form of Second Note
J. Form of Warrant
K. Allocation of Purchase Price
L. Form of License Agreement
M. Intentionally Omitted
N. Form of Security Agreement
O. Financial Statements of Sensors Business
P. Form of Opinion of Purchaser's Counsel
Q. Form of Opinion of Seller's Counsel
i
<PAGE>
AGREEMENT
THIS AGREEMENT IS MADE this 17th day of January, 1995, by and between PPG
INDUSTRIES, INC., a Pennsylvania corporation having its principal offices in
Pittsburgh, Pennsylvania ("Seller"), and UNIFET INCORPORATED, a California
corporation having its principal offices at 11021 Via Frontera, Suite 200, San
Diego, California 92127 ("Purchaser");
WHEREAS, Purchaser desires to purchase and accept from Seller, and Seller
desires to sell, assign and transfer to Purchaser, substantially all of the
assets, technology, properties and business, as a going concern, of the Sensors
Business as defined below;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
covenant and agree as follows:
1. DEFINITIONS.
(a) The closing of the transactions contemplated hereby (the "Closing")
shall take place on January 17, 1995 (the "Closing Date") beginning at 10:00
a.m. and shall be effective at 11:59 p.m., Prevailing Time, on the Closing Date
(the "Closing Time"). The Closing shall take place at the offices of Stradling,
Carlson, Yocca and Rauth in Newport Beach, California.
(b) "Sensors Business" shall mean the development, manufacture and sale of
proprietary blood chemistry sensors as currently conducted or as presently
contemplated by Seller.
(c) "Purchased Property" shall mean, except as otherwise provided in
Section 1(d), all of the assets, technology, properties and business of Seller
devoted exclusively to the Sensors Business whether owned or leased, including,
without limitation, the following:
(i) assignment of the lease for the real property identified in
Exhibit A hereto (the "Lease") in the form included in Exhibit A;
(ii) the fixed assets of Seller devoted exclusively to the Sensors
Business existing at the Closing Time identified in Exhibit F ("Fixed Assets");
(iii) all inventories, including finished goods, work in process and
raw materials on hand or in transit or storage, of the Sensors Business,
together with all operating supplies of the Sensors Business, existing at the
Closing Time ("Inventories");
(iv) all accounts receivable of the Sensors Business existing at the
Closing Time ("Accounts Receivable");
(v) except as provided in Section 1(d)(vi), the prepaid expenses
and deferred charges of the Sensors Business existing at the Closing Time
("Prepaid Expenses" and "Deferred Charges," respectively);
1
<PAGE>
(vi) the rights and benefits of Seller under all contracts,
including purchase orders, sales orders, agreements, commitments and binding
arrangements of every kind and description, which relate exclusively to the
Sensors Business and which are in force at, and (but only) to the extent they
relate to the conduct of the Sensors Business from and after, the Closing Time
(collectively, the "Contracts") (including, but not limited to, those listed in
Exhibit B hereto but excluding those so indicated in Exhibit B hereto);
(vii) except as provided in Section 1(d)(iii), all business forms,
operating manuals and records, libraries, customer lists, sales literature and
records, supplier lists, price lists, packaging materials, labels, containers,
correspondence files, and other similar property and materials ("Business
Records") to the extent relevant exclusively to the conduct of the Sensors
Business and existing at the Closing Time provided that Seller may retain copies
of such Business Records;
(viii) all permits (including permit applications), authorizations,
approvals, or other indicia of authority to the extent pertinent to the
installation, construction, operation or maintenance of any machinery, equipment
(including laboratory equipment), fixture, vehicle, furniture or tool, or the
plants, of the Sensors Business but only to the extent assignable ("Permits");
(ix) all rights of Seller at the Closing Time under or pursuant to
all warranties, representations and guarantees, if any, made to Seller in
connection with the Purchased Property;
(x) all rights of Seller at the Closing Time to rebates, refunds
and other adjustments in the form of materials or credits toward the purchase of
materials exclusively for the Sensors Business;
(xi) except as limited by Section 7(e), and except as set forth in
Section 3(a)(viii)(C), the patents, patent applications, trademarks, trade
names, and license, confidentiality and secrecy agreements necessary to the
conduct of the Sensors Business, including those listed in Exhibit C hereto,
provided that, as to such patents and patent applications, Seller shall be
deemed to have an irrevocable, nonexclusive, royalty-free license to make, use
and sell the claimed subject matter of any such patents or patent applications
in applications other than in the Sensors Business. If Purchaser should decide
against maintaining any of the patents or patent applications listed in Exhibit
C, Purchaser will make reasonable efforts to notify Seller in a timely manner.
Seller, at its option and at its expense, may pay the maintenance fees on any of
such Licensed Patent and Applications, and Purchaser will assign such patents or
patent applications to Seller; and
(xii) the intellectual property rights and proprietary expertise
relating exclusively to the Sensors Business (other than those included in
Section 1(c)(xi) hereof) including the existing Computer Associates' Manman
software license, and including, but not limited to, know-how, trade secrets,
manufacturing and engineering data, and research and development records
(collectively, and as limited herein, hereinafter called "Sensors Business Know-
How") and copyright interests related to software (including source code) but
only to the extent that such Sensors Business Know-How and copyright interests
either (a) are used by Seller as of the Closing Time in the Sensors Business or
(b) were developed or acquired by Seller prior to the Closing Time for use in
the Sensors Business, and (c) are not limited by Section 7(e);
2
<PAGE>
provided, however, that Seller shall be deemed to have an irrevocable,
nonexclusive, royalty-free license to use the Sensors Business Know-How in
applications other than in the Sensors Business.
(d) "Purchased Property" shall not include (without limiting other
exclusions expressly provided for herein) the following assets of the Sensors
Business:
(i) cash and imprest funds (whether on hand, on deposit or in
transit) and rights to rebates, refunds and other adjustments in the form of
cash, other than cash adjustments pursuant to warranties, representations and
guarantees as set out in Section 1(c)(ix);
(ii) the name "PPG Industries, Inc." and "PPG" and, in any form, any
name, insignia, logo, design, trademark or trade name similar thereto or derived
therefrom anywhere in the world;
(iii) records, regardless of the form, about the medical condition of
Employees or related to those assets listed in this Section 1(d), to the extent
prepared or created prior to the Closing Time, provided that Purchaser shall be
given copies of Employee records hereby excluded as it shall request to the
extent the affected employees agree to release such records to Purchaser;
(iv) the Settlement Agreement and Mutual General Releases between
PPG Industries, Inc. and Diametrics Medical, Inc., et al., dated March 25, 1994
and referenced in Section 7(e) and Exhibits B, C and H (the "Settlement
Agreement");
(v) all pensions, profit sharing, savings, welfare benefits, or
other employee benefit plans or trusts of Seller;
(vi) all insurance policies, including related prepaid expenses;
(vii) any refund or credit related to federal, state or local taxes
to the extent related to any time prior to the Closing Time;
(viii) the Microsoft Office Package utilized by the Sensors Business
and covered under the Seller's license;
(ix) the MANMAN computer system utilized by the Sensors Business,
prior to December 31, 1994 provided however, that the Sensors Business shall,
prior to closing begin to utilize Computer Associates' MANMAN license, at a
monthly charge not to exceed $18,000, shall assume all responsibility for
ensuring that Computer Associates is providing satisfactory services to the
Sensors Business (provided that after such service is deemed satisfactory by
Purchaser, Seller shall have no further continuing obligation) and shall bear
all expenses of the transfer of the services from the system utilized prior to
December 31, 1994 to Computer Associates, including any such expenses arising
after the Closing.
(x) the American Express cards and AT&T phone cards, and Seller's
participation in these programs;
3
<PAGE>
(xi) employee travel advances or reimbursements for any travel
before the Closing Time;
(xii) any assets, technology, properties or business of the Seller
not related exclusively to the Sensors Business; and
(xiii) those two certain notes (and attendant security interests)
dated October 2, 1986 and September 19, 1989, held by Seller from Ronald E.
Betts and from Debra J. Shane and Michael J. Shane.
(e) "Preliminary Purchase Price" shall mean Seven Million Five Hundred
Thousand Dollars ($7,500,000.00), plus the Warrant (as defined in Section 1(i)).
(f) "Final Purchase Price" shall mean the Preliminary Purchase Price as
adjusted pursuant to Section 4 hereof.
(g) "Employee" shall mean each employee of Seller listed in Exhibit D.
(h) "Preliminary Balance Sheet" shall mean the balance sheet dated
September 30, 1994 and set forth in Exhibit E.
(i) "Warrant" shall mean that certain warrant for Seller to purchase five
hundred thousand (500,000) shares of Purchaser's common stock exercisable at Two
Dollars ($2.00) per share and expiring December 31, 1997, which Warrant is to be
executed and delivered by Purchaser at the Closing and which shall be in the
form set out as Exhibit J. Seller shall have "piggyback" registration rights
with respect to the shares of Common Stock issuable upon exercise of the
Warrant.
2. SALE, ASSIGNMENT AND PURCHASE OF PURCHASED PROPERTY.
Subject to the terms and conditions herein set forth, Seller shall sell,
assign and transfer to Purchaser and Purchaser shall purchase and accept from
Seller the Purchased Property at the Closing for the consideration provided for
herein.
[REMAINER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
3. CLOSING, PAYMENT OF PRELIMINARY PURCHASE PRICE, ASSUMPTION OF LIABILITIES
AND DELIVERY OF PURCHASED PROPERTY.
(a) At the Closing:
(i) Purchaser shall have completed wire transfer(s) to Seller or
shall have delivered to Seller or Seller's authorized agent, cashiers check(s)
of funds, which shall be U.S. Dollars, in an amount of One Million Dollars
($1,000,000.00), Five Hundred Thousand ($500,000) of which was delivered to
Seller's authorized agent on December 30, 1994. Such $500,000 shall be an
irrevocable payment to Seller whether or not the Closing occurs. In the case of
wire transfer(s) such wire transfer(s) shall be to:
Mellon Bank - Pittsburgh, PA
ABA Routing #043000261
To the benefit of PPG Industries, Inc.
Account #0004010
(ii) Purchaser shall execute and deliver to Seller (i) a secured
Note in the amount of One Million Five Hundred Thousand Dollars ($1,500,000.00)
due March 31, 1995 and in substantially the form of Exhibit I-1 (the "First
Note") and (ii) a secured Note in the amount of Five Million Dollars
($5,000,000.00) due two (2) years from the Closing and in substantially the form
of Exhibit I-2 (the "Second Note").
(iii) Purchaser shall execute and deliver to Seller a Security
Agreement in substantially the form of Exhibit N evidencing Seller's first
priority security interest in substantially all the assets of Purchaser (the
"Security Agreement"), and a UCC-2 Financing Statement Amendment from Ventana
Partnership III L.P. evidencing its subordination of its security interest in
the assets of Purchaser to Seller's security interest.
(iv) Purchaser shall execute and deliver the Warrant.
(v) The parties shall allocate the Preliminary Purchase Price, the
Assumed Liabilities, and covenant not to compete set out in Section 7(c) in
accordance with Exhibit K. The Final Purchase Price shall be allocated as set
out in Exhibit K. Seller and Purchaser shall report the acquisition for all
federal, state and local tax purposes in a manner consistent with such
allocation.
(vi) Purchaser shall by virtue of the Closing assume and agree to
pay, perform and discharge and indemnify Seller against and hold it harmless
from, and only from, the following liabilities of the Sensors Business (the
"Assumed Liabilities"):
(A) all prospective obligations of Seller existing at the
Closing Time under and explicitly set forth in the Lease, Permits and agreements
referred to in Section 1(c)(i), (viii) and (xi) hereof, respectively;
(B) all liabilities relating to claims or suits by Affected
Employees (as that term is defined in Section 12(c)) that are for (i) personal
injuries (including death resulting
5
<PAGE>
therefrom) suffered while working after, but not prior to, the Closing Time or
(ii) diseases (including death resulting therefrom) contracted or aggravated
(but if only aggravated, only to the extent aggravated) while working after the
Closing Time, in either case only to the extent due to any operation conducted,
condition existing, product shipped or action taken or omitted after the Closing
Time (such operations, conditions, products and actions being hereinafter in
this Section 3(a)(v)(B) called "Causes"); provided, however, that Purchaser
assumes no liability for claims or suits based upon Causes to the extent
occurring prior to the Closing Time; provided further, however, that if such
claims or suits are based upon Causes occurring both prior to and after the
Closing Time or if it cannot be reasonably determined whether such Causes
occurred both prior to and after the Closing Time, then such liability shall be
apportioned between Purchaser and Seller in an equitable manner;
(C) all liabilities relating to claims or suits (other than
those above described in Section 3(a)(vi)(B) and those described below in
Section 3(a)(vi)(F)) by any person that are for personal injuries (including
death resulting therefrom) or diseases (including death resulting therefrom) and
arising out of the Sensors Business either before or after the Closing Time;
(D) all obligations and duties and all liability for
defaults or breaches of any Contract (as such term is used in Section 1(c)(vi)
hereof) assigned to or assumed by Purchaser hereunder regardless of whether the
obligations, duties, default or breach arose or occurred prior to or after the
Closing;
(E) all liabilities, obligations and duties with respect to
regulatory compliance requirements or product recalls and any other service
warranty and customer training and support obligation of the Sensors Business
whether related to the products of the Sensors Business manufactured and sold
before or after the Closing;
(F) all liabilities, obligations and duties relating to the
remediation of, penalties or fines for, or damage to third parties from,
environmental conditions on site at the Purchased Property identified in Section
1(c)(i) whether under, in or on the ground and including, but not limited to,
liabilities, obligations or duties under any and all federal, state or local
environmental laws, rules, regulations and orders applicable (whether as of the
Closing Date or in the future) to such Purchased Property but only to the extent
such liabilities, obligations and duties for such environmental conditions arise
out of the operations of the Sensors Business as conducted by Purchaser after
the Closing Time. Except as otherwise provided in this Section 3(a)(v)(F),
Purchaser assumes no liability, obligation or duty for any other environmental
conditions at such Purchased Property, including, but not limited to, those
which arise out of the operations of the Sensors Business as conducted by Seller
prior to the Closing Time. If such liabilities, obligations and duties relate
to conditions occurring both prior to and after the Closing Time or if it cannot
be reasonably determined whether the conditions occurred prior to or after the
Closing Time, then such liabilities, obligations and duties shall be apportioned
between Purchaser and Seller in an equitable manner;
(G) except as otherwise provided herein, any liabilities of
Seller existing at the Closing Time with respect to the Sensors Business and
reflected on the Closing Balance Sheet, including, without limitation, audited
invoices, accounts payable and accounting provisions or accruals; and
6
<PAGE>
(H) all other liabilities to the extent they grow out of
the operations or business of the Sensors Business as conducted by Purchaser
after the Closing time.
(vii) Purchaser shall assume no, and Seller shall indemnify Purchaser
against all, liabilities or obligations other than those specifically set forth
in Clauses (A) through (H) of Section 3(a)(v) hereof and, without limiting the
generality of the foregoing, Purchaser shall not assume and Seller shall
indemnify Purchasers against, the following liabilities or obligations:
(A) any liabilities or obligations for federal, state, or
other taxes arising out of, resulting from or incident to the conduct of the
Sensors Business prior to the Closing Time or the assignment, transfer and
delivery of the Purchased Property;
(B) any liabilities or obligations incurred by Seller in
connection with the execution, delivery of or performance under this Agreement
or the instruments to be delivered pursuant hereto; and
(C) any liabilities of Seller in connection with any off-
site waste of the Sensors Business (including, without limitation, any
liabilities for the treatment or disposal of such waste and cleanup of off-site
waste sites).
(viii) Seller shall:
(A) deliver to Purchaser appropriate bills of sale or other
instruments of assignment, transfer and conveyance, in form reasonably
satisfactory to Purchaser, to effect the assignment, transfer and conveyance of
all assets, technology and properties constituting the Purchased Property, free
and clear of any encumbrances or liens; and
(B) execute and deliver assignments (including consents to
such assignments as are necessary) of the registered trademarks, trademark
applications and the assignments of license, confidentiality and other
agreements and any copyright interests in software constituting the Purchased
Property, free and clear of all encumbrances and liens other than set out in
this Agreement all as listed in Exhibit C.
(C) execute and deliver a License Agreement in
substantially the form attached as Exhibit L, pursuant to which Seller grants
Purchaser an exclusive, royalty-free license to practice the United States
patents, United States patent applications, foreign patents and foreign patent
applications set forth therein and pursuant to which such patents and patent
applications shall be assigned to Purchaser upon payment of the First Note.
Such License Agreement shall be cancelled upon default of Purchaser under the
First Note, in which event Purchaser shall also not be entitled to any
assignment of such Patents and Patent Applications.
(ix) Any sales or use taxes or any other tax imposed by any
governmental entity and arising out of, resulting from, or incident to, the
purchase and sale contemplated by this Agreement shall be borne by Seller.
(x) Purchaser and Seller shall execute an assignment of the Lease
in substantially the form set forth in Exhibit A.
7
<PAGE>
(xi) Purchaser shall deliver an opinion of its counsel with respect
to the representations and warranties of Purchaser contained in Section 6.
(xii) Seller shall deliver an opinion of its counsel with respect to
the representations and warranties of Seller contained in Section 5.
(b) From and after the Closing Date, upon the request of Purchaser, Seller
shall undertake to perform, execute, acknowledge and deliver all such further
acts, assurances, deeds, bills of sale, assignments, transfers, conveyances,
powers of attorney and other instruments and papers as may be required to sell,
assign, transfer, convey and deliver to and vest in Purchaser and protect its
rights, title and interest in and enjoyment of all of the Purchased Property
intended to be sold, assigned, transferred, conveyed and delivered pursuant to
this Agreement, and as may be appropriate otherwise to carry out the
transactions contemplated by this Agreement.
4. ADJUSTMENT IN PRELIMINARY PURCHASE PRICE.
(a) Within thirty (30) days after the Closing Date, Seller shall prepare
(in accordance with generally accepted accounting principles and on a basis
consistent with the Preliminary Balance Sheet) and deliver to Purchaser a
balance sheet as of the Closing Date (the "Closing Balance Sheet"). Purchaser
shall be entitled to participate in the on-site enumeration of Inventories which
shall be reflected in the Closing Balance Sheet. The Closing Balance Sheet and
any underlying work papers and relevant records shall be subject to review by
Purchaser and its representatives. Such review shall be completed within thirty
(30) days after receipt of the Closing Balance Sheet by Purchaser (the "Review
Period"). In the event that Purchaser shall be in disagreement with any part of
the Closing Balance Sheet prepared by Seller, each item of disagreement shall be
set forth in a letter delivered to Seller within the Review Period. Failure by
Purchaser to dispute any item of the Closing Balance Sheet in writing within the
Review Period shall be deemed acceptance by Purchaser of such item. If
Purchaser and Seller shall not, within thirty (30) days following the delivery
of such a letter to Seller, resolve each such item of disagreement, each
unresolved item shall immediately be referred to such big six accounting firm
other than Ernst & Young or Deloitte & Touche LLP as may be mutually agreed to
by the parties (the "Accounting Firm"). In resolving such disputes the
Accounting Firm shall accept the values set forth on the Closing Balance Sheet
except to the extent that such values are not in accordance with the
representations of Section 5(i) hereof. Such resolution of the Accounting Firm
shall be conclusive and binding upon the parties hereto. The Accounting Firm
shall be instructed to use its best efforts to resolve disputed items within
thirty (30) days of such referral. The fees and disbursements of the Accounting
Firm shall be borne one-half (1/2) by Seller and one-half(1/2) by Purchaser.
(b) The Preliminary Purchase Price shall be adjusted, upward or downward,
by the amount ("Purchase Price Adjustment"), if any, by which the Net Current
Assets of the Sensors Business at the Closing Time, as reflected in the Closing
Balance Sheet, differs from the Net Current Assets of the Sensors Business as
reflected in the Preliminary Balance Sheet. As used herein, the term "Net
Current Assets" shall mean Current Assets minus Current Liabilities. "Current
Assets" shall mean only the line items designated Trade Accounts Receivable
Allowance for Uncollectible Receivables, Material and Supply Inventory, Work-in-
Process, Finished Stocks, Obsolete Inventory Reserve, Non-Variable Cost in
Finished Stock and Prepaid Rent in the Closing Balance Sheet and the Preliminary
Balance Sheet. "Current Liabilities" shall
8
<PAGE>
mean only the line items designated as Audited Invoices, Accounts Payable,
Accrued Salaries, Estimated Cost of Product Guaranty, Accrued Liabilities-Other,
and Accrued Personal Property Taxes in the Closing Balance Sheet and the
Preliminary Balance Sheet.
(c) Any Purchase Price Adjustment made pursuant to the provisions of
Section 4(b) hereof shall be an adjustment to the Preliminary Purchase Price
(which, as adjusted, shall be referred to as the "Final Purchase Price").
(d) Any amounts due as a result of the Purchase Price Adjustment shall
bear interest at the prime interest rate of Mellon Bank, N.A., Pittsburgh,
Pennsylvania, on the Closing Date calculated from the Closing Date through the
date of payment or adjustment (the "Settlement Date").
(e) Any Purchase Price Adjustment (plus accrued interest thereon) shall be
made by an increase or decrease in the principal amount of the First Note as of
such date (as reflected by an addendum to such note). If the Settlement Date
shall not have occurred until after the First Note has been paid, any upward
Purchase Price Adjustment shall be paid by Purchaser to Seller in cash and any
downward Purchase Price Adjustment shall be paid by Seller to Purchaser in cash,
in both events with interest as set forth above and by wire transfer to such
account as designated by Seller or Purchaser, as the case may be.
(f) The Settlement Date shall be within three (3) business days of the
determination of the Final Purchase Price, pursuant to the procedures set forth
in this Section 4, or such later date as is agreed to in writing between the
parties hereto.
5. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Purchaser at the Closing Time as follows:
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. Seller has the
power and authority (corporate and other) to own and/or lease the Purchased
Property and to conduct the business of the Sensors Business as it is now being
conducted, and Seller is duly qualified as a foreign corporation and is in good
standing in such places where the business of the Sensors Business requires such
qualification. Seller has and will, except as otherwise specifically provided
herein, transfer to Purchaser outright and good and marketable title to all of
the Purchased Property, free and clear of all leases, liens, easements, claims
or encumbrances or other title exceptions of any nature or kind or any
conditional sales agreement or other title retention agreement except as noted
in Exhibits A, B, C, N and L.
(b) Seller has the power and authority (corporate and other) to execute
and deliver this Agreement and the instruments to be executed and delivered by
it pursuant hereto and to consummate the transactions contemplated hereby and
thereby. All acts and other proceedings required to be taken by or on the part
of Seller to authorize it to execute, deliver and perform under this Agreement
and such other instruments, and to consummate the transactions contemplated
hereby and thereby, have been duly and properly taken, and this Agreement has
been duly and properly executed and delivered by Seller and constitutes (and
such other instruments, when duly executed and delivered by Seller, will
constitute) legal, valid and binding
9
<PAGE>
obligations of Seller (subject, as to enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting the enforcement of creditors' rights generally from time to time in
effect and subject to any equitable principles limiting the right to obtain
specific performance and injunctive relief). The execution, delivery of and
performance under this Agreement, and such other instruments, by Seller, and its
consummation of the transactions contemplated hereby and thereby, will not
result in the creation of a lien or encumbrance on any of the Purchased Property
or violate, conflict with or result in a breach of or constitute a default (or
an event which with the giving of notice, lapse of time, or both, would become a
default) under any order or decree of any court, administrative agency or other
governmental authority, the Articles of Incorporation or By-laws of Seller, or
any indenture, mortgage, lease, agreement, contract or other instrument to which
Seller is a party or to which its assets or properties may be bound or affected.
No approval authorization, consent or other order or action of or filing with
any court, administrative agency or other governmental authority is required for
the execution, delivery of or performance under this Agreement, or the
instruments to be executed and delivered pursuant hereto, by Seller.
(c) Except as set forth in Exhibit H, Seller, with respect to the
Purchased Property and/or the Sensors Business, is neither (i) engaged in,
threatened with, or the subject of, any litigation or proceeding before any
court, administrative agency or other governmental authority nor (ii) subject to
any judgment, order, ruling (excluding rulings of U.S. or foreign patent or
trademark offices in their normal course of administrative action) or decree
entered into with or issued by, or to any stipulation entered into with, any
court, administrative agency or other governmental authority.
(d) Except as specifically provided by this Agreement or as otherwise
contemplated by or noted in this Agreement, (i) there are no material assets or
properties of the Sensors Business not included in the Purchased Property and
(ii) the assets and properties included in the Purchased Property constitute all
the material assets and properties, real and personal, tangible and intangible,
employed by Seller in conducting the Sensors Business as currently conducted.
(e) With respect to the Contracts and the license, confidentiality and
secrecy agreements to be assumed by Purchaser pursuant to Sections 3(a)(vi)(A)
and 3(a)(vi)(D) hereof:
(i) there is none which is not reasonably related to the normal
business operations of the Sensors Business as conducted prior to the date
hereof and they constitute all the contracts and agreements that are material to
the normal operations of the Sensors Business;
(ii) (A) as to the Contracts, there is none other than those
listed in Exhibit B which is (1) with or for the benefit of any Employee or
former employee; or (2) with any labor organization; or (3) for the purchase or
lease of goods or services which obligates Seller from and after the Closing
Date (a) for a period in excess of three (3) months or (b) to pay an amount in
excess of Fifty Thousand Dollars ($50,000.00); or (4) for the sale of goods or
services which obligates Seller from and after the Closing Date (a) for a period
in excess of three (3) months or (b) to deliver goods or services for an amount
in excess of Fifty Thousand Dollars ($50,000.00); (5) with a distributor,
dealer, sales agent or manufacturer's representative, consignee, advertiser or
public relations firm or (6) for the sale of goods under government contract;
and
10
<PAGE>
(B) as to the license, confidentiality and secrecy
agreements, there is none which is not listed in Exhibit C.
(iii) each is in full force and effect and is legal, valid and
binding (subject, as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally from time to time in effect and
subject to any equitable principles limiting the right to obtain specific
performance and injunctive relief); Seller is not in default thereunder and
there exists no event which with the giving of notice, or lapse of time, or
both, would result in the Seller being in default thereunder; and to the
knowledge of Seller the other parties thereto are not in default nor has there
occurred any event which with the giving of notice, or lapse of time, or both,
would result in default by the other parties thereto.
(f) The permits held by Seller and listed in Exhibit G constitute all the
permits (as such terms is used in Section 1(c)(viii) hereof) necessary to the
conduct of the Sensors Business as presently conducted, each is in full force
and effect in all material respects; Seller is conducting the Sensors Business
so as to comply in all material respects with the terms thereof; and no
suspension or cancellation proceeding with respect thereto has been brought, and
to the best knowledge of Seller, no such proceeding is threatened. Seller shall
assist Purchaser in making all requisite filing with, and obtaining all consents
and approvals from, applicable regulatory or government authorities, if any,
which are required in order for Purchaser to assume the rights and obligations
of such permits.
(g) The balance sheets of the Sensors Business as of June 30, 1994 and
September 30, 1994 and the statements of income for the twelve month periods
ended December 31, 1992 and December 31, 1993 and the six month periods ended
June 30, 1993 and June 30, 1994, heretofore delivered to Purchaser and set forth
as Exhibit O fairly present the financial condition of the Sensors Business and
the results of its operations as of the dates and for the periods referred to
and have been derived from accounts of Seller, which accounts have been
maintained in accordance with generally accepted accounting principles ("GAAP")
consistently applied. Except as set forth in Exhibit H, there are no
liabilities, direct or indirect, fixed or contingent, of Sensors Business
(including without limitation any tax liability) which are not reflected in the
Preliminary Balance Sheet, or specifically identified in the notes thereto,
except for liabilities and obligations incurred in the ordinary course of
business subsequent to September 30, 1994, which will be reflected in the
Closing Balance Sheet.
(h) There has been no material adverse change in the financial condition,
properties, assets, business or operating results of the Sensors Business from
that reflected in the September 30, 1994 financial statements. In all material
respects, the Sensors Business has been conducted in the ordinary course of
business, consistent with past practice, since September 30, 1994.
(i) The Closing Balance Sheet will fairly reflect the values of those
assets and liabilities of the Sensors Business shown in the Preliminary Balance
Sheet on the same bases as noted in the Preliminary Balance Sheet but as of the
Closing Date and will be derived from the accounts of Seller which accounts will
have been maintained in accordance with GAAP consistently applied.
11
<PAGE>
(j) The Inventories, including finished goods, work in process and raw
materials, constituting part of the Purchased Property are, subject to reserves
for obsolete inventory set out in the Closing Balance Sheet, in good condition
and are salable in the ordinary course of business.
(k) All accounts receivable of the Sensors Business (i) reflected on the
Preliminary Balance Sheet or (ii) in existence as of the Closing, represent bona
fide claims against debtors for sales made or services performed. All accounts
receivable of the Sensors Business (i) reflected on the Preliminary Balance
Sheet, or (ii) in existence as of the Closing are, except to the extent of any
reserve with respect thereto reflected on the Preliminary or Closing Balance
Sheet, subject to no defenses, counterclaims or rights of setoff and are fully
collectible in the ordinary course of business consistent with past practices.
(l) There is set forth in Exhibit C hereto a list of all United States or
foreign patents, United States or foreign patent applications, United States or
foreign trademarks (whether registered or unregistered), owned by, or registered
in the name of, Seller which relate exclusively to the Sensors Business. Except
as set forth in Sections (1)(c)(xi) and (xii) or in Exhibit C, with respect to
the assets referred to in Sections 1(c)(xi) and (xii) hereof, Seller has
outright ownership free and clear of any liens or encumbrances and pays no
royalty to anyone with respect to any of them; such assets and tangible indicia
thereof are transferable to Purchaser as herein contemplated. Such patents,
patent applications and trademarks, and the other licenses, service marks, trade
names, inventions, processes, formulae, trade secrets, franchises, copyrights
and other proprietary rights transferred hereunder are sufficient for the
operation of the Sensors Business as now conducted. Except as otherwise
provided in this Agreement (i) such ownership, possession or license is
exclusive and not subject to termination without the Purchaser's consent,
(ii) the operation of the Sensors Business does not infringe upon or conflict
with the intellectual or proprietary rights (including without limitation,
copyright, trademark, service mark and trade name rights) of any other party,
and (iii) to the best knowledge of Seller no third party is infringing or
violating any of its patents, licenses, trademarks, service marks, trade names,
inventions, processes, formulae, trade secrets, franchises, copyrights or other
proprietary rights.
(m) The Fixed Assets are in reasonable operating condition and have been
maintained in the ordinary course of business.
(n) The Closing Balance Sheet will reflect adequate reserves for
liabilities of the Sensors Business being assumed by Purchaser whether or not
any such reserve would be required by GAAP. As of the Closing Date there are no
liabilities, direct or indirect, fixed or contingent, known or unknown, of the
types described in Sections 3(a)(vi)(C), (D), (E) or (F).
(o) Seller has been and is conducting the Sensors Business so as to comply
in all material respects with all applicable federal, state and local laws,
rules and regulations including, but not limited to, those relating to health
and safety, equal employment opportunity, employment practices, working
conditions, environmental protection, the manufacturing or the labeling, sale
and shipment of the products of the Sensors Business (including, without
limitation, FDA current Good Manufacturing Practices), and Seller neither has
been charged with, nor is Seller under any government investigation (other than
routine tax audits) with respect to, nor does Seller have any basis to believe
that, any actual or alleged violation of any such laws, rules or regulations
insofar as the Sensors Business is concerned.
12
<PAGE>
(p) Other than as made in this Section 5, Seller makes no warranties or
representations as to the Sensors Business and none shall be implied. In that
regard, Purchaser may not rely upon the accuracy or completeness of information
contained in the Confidential Descriptive Memorandum for the Sensors Business
provided to Purchaser by Seller pursuant to a Confidentiality Agreement dated
October 14, 1994, or on any materials or projections provided to Purchaser by
Seller concerning the Sensors Business.
(q) Seller is acquiring the Warrant and will acquire any security issued
upon exercise thereof (collectively, the "Securities") for its own account, not
as nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933 (the "1933 Act"). It understands that (i) the
Securities have not been registered under the 1933 Act by reason of a specific
exemption therefrom, that the Securities must be held by it indefinitely, and
that it must, therefore, bear the economic risk of such investment indefinitely,
unless a subsequent disposition thereof is registered under the 1933 Act or is
exempt from such registration and (ii) the Securities will be endorsed with a
legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED
OF UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN
OPINION OF COUNSEL STATING THAT SUCH DISPOSITION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT."
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to Seller the following:
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of California.
(b) Purchaser has the corporate power and authority to execute and deliver
this Agreement and the instruments to be executed and delivered by it pursuant
to this Agreement and to consummate the transactions contemplated hereby and
thereby. All acts and other proceedings that are required to be taken by or on
the part of Purchaser to authorize it to execute, deliver and perform under this
Agreement and such other instruments, and to consummate the transactions
contemplated hereby and thereby, have been duly and properly taken, and this
Agreement has been duly and properly executed and delivered by Purchaser and
constitutes (and such instruments, when duly executed and delivered by
Purchaser, will constitute) legal, valid and binding obligations of Purchaser
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally from time to time in effect and
subject to any equitable principles limiting the right to obtain specific
performance and injunctive relief). The execution, delivery of and performance
under this Agreement, and such instruments, by Purchaser, and its
13
<PAGE>
consummation of the transactions contemplated hereby and thereby, will not
violate, conflict with or result in a breach of or constitute a default (or an
event which with the giving of notice, lapse of time, or both, would become a
default) under any law of the State of California or the United States, any
order or decree of any court, administrative agency or other governmental
authority, the Articles of Incorporation, Bylaws or other documents of formation
or organization of Purchaser, or any indenture, mortgage, lease, agreement,
contract or other instrument to which Purchaser is a party or to which its
assets or properties may be bound or affected provided however, that certain of
Purchaser's existing contracts (i.e., not Purchased Property) require consent to
assignment (which will be sought by Purchaser), and such requirement may affect
Seller's security interest. No approval authorization, consent or other order
or action of or filing with any court, administrative agency or other
governmental authority is required for the execution, delivery of or performance
under this Agreement, or the instruments to be executed and delivered pursuant
hereto, by Purchaser.
7. COVENANTS.
(a) Notwithstanding the retention by Seller of the rights to the name "PPG
Industries, Inc." and "PPG" and, in any form, any name, insignia, logo, design,
trademark or trade name similar thereto or derived therefrom, Purchaser, for a
period not to exceed three (3) months after the Closing Date, shall not be
required to remove such names, insignias, logos, designs, trademarks or trade
names from packaging materials, labels, signs, price lists, sales literature and
other printed material or matter included in the Purchased Property and used by
Purchaser in the normal business operations of the Sensors Business; provided,
however, that Purchaser (i) shall alter, block out or obscure such names,
insignias, logos, designs, trademarks or trade names, (ii) shall clearly
identify to third parties after the Closing Date that the business of the
Sensors Business has been acquired, and is being conducted, by Purchaser, and
(iii) shall indemnify and hold Seller harmless from any and all losses,
liabilities, costs, damages and expenses (including, but not limited to,
reasonable counsel fees and expenses) relating to Purchaser's use of such
material or matter; and provided further, however, that Purchaser shall exercise
diligent efforts to exhaust its supply of such material or matter as soon as
reasonably practicable after the Closing Date in the ordinary course of
business, but in no event later than three (3) months after the Closing Date.
(b) To the extent that any of the Purchased Property set forth in Section
1(c)(i), (vi), (viii), (ix), (x) and (xi) is not assignable or is not assignable
without the consent of another party, this Agreement shall not constitute an
assignment or an attempted assignment thereof and such assignment or attempted
assignment would be of no force or effect or would constitute a breach thereof,
except to the extent consent is obtained. Seller agrees to make all reasonable
efforts to obtain at its sole expense any consents required for the assignment
of any such Purchased Property. If any such consent shall not be obtained,
Seller shall cooperate with Purchaser in any reasonable arrangement acceptable
to Purchaser designed to provide for Purchaser the benefits under any such
Purchased Property, including, without limiting the generality of the foregoing,
enforcement at the cost and for the account of Purchaser of any and all rights
of Seller against the other party thereto arising out of the breach or
cancellation thereof by such other party or otherwise. If and to the extent
that such arrangement cannot be made, Purchaser shall have no obligation with
respect to any such Purchased Property.
14
<PAGE>
(c) For a period of five (5) years after the Closing Date, neither Seller
nor any entity controlled by Seller, will engage in the manufacture or sale of
any of the products of the Sensors Business or any products competitive
therewith nor will Seller or any entity controlled by Seller utilize the name
"Medical Sensors" commercially; provided, however, that this Section 7(c) shall
not preclude Seller from acquiring, in whole or in part, any entity which is
engaged other than primarily in the manufacture or sale of the products of the
Sensors Business or similar products.
(d) BOOKS AND RECORDS. For a period of seven (7) years after the Closing
Date, Purchaser shall not destroy or otherwise dispose of any Business Records
without first offering such Business Records to Seller. During such seven (7)
years, Purchaser shall allow Seller and its respective agents access to all
Business Records in Purchaser's possession and not in Seller's possession during
normal working hours at Purchaser's principal places of business or at any
location where such Business Records are stored, and Seller shall have the
right, at its own expense, to make copies of such Business Reports; provided,
however, that any such access or copying shall be had or done in such a manner
so as not to interfere with the normal conduct of Purchaser's businesses and
Purchaser shall execute such confidentiality agreements as Seller shall
reasonably require. Seller shall cooperate and cause its accountants and agents
to cooperate in Purchaser's preparation of any audit of the financial records of
the Sensors Business and Purchaser's preparation of audited financial statements
therefrom. Purchaser shall indemnify and hold Seller harmless from all damages
and costs of Seller or any third party agent of Seller arising out of Seller's
involvement pursuant to the immediately preceding sentence.
(e) For the duration of the Settlement Agreement, Purchaser shall be bound
by the obligations and limitation of rights of Seller under the Settlement
Agreement and Purchaser shall indemnify Seller and its successors, assigns,
directors, officers, employees, agents and representatives against and hold each
of them harmless from all losses, liabilities, damages, costs and expenses
(including, but not limited to, reasonable fees and disbursements of counsel)
accruing from, or resulting by reason of, any claim that Purchaser has failed to
satisfy such obligations or has exceeded such limitations.
(f) For a period of five (5) years from the Closing, Seller shall maintain
in confidence and not use for any purposes other than those contemplated by this
Agreement, any confidential or proprietary information regarding the Sensors
Business ("Confidential Information"). Confidential Information includes, but
is not limited to, trade secrets, marketing plans, blueprints, schematics,
designs, techniques, processes, procedures and formulae related to the Sensors
Business. Seller will take all necessary measures to maintain the secrecy of
the Confidential Information, but not less than the standard of care and
measures which it uses to protect its confidential information of similar type,
including without limitation obtaining written agreements from its employees and
agents to maintain such Confidential Information in accordance herewith.
However, this confidentiality obligation shall not extend to information which:
(i) is or becomes public knowledge without the fault of Seller; or (ii) is
received from a third party without the breach of any confidentiality provisions
8. EXPENSES.
Except as otherwise provided herein, each party hereto shall pay its own
expenses incident to the preparation of this Agreement and the other instruments
to be delivered pursuant
15
<PAGE>
hereto and the consummation of the transactions contemplated hereby and thereby,
including, without limitation, all legal, accounting and investment banking fees
and disbursements.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, COVENANTS AND AGREEMENTS.
The representations and warranties contained herein and in any certificates
delivered pursuant hereto shall survive the Closing Date and shall remain in
full force and effect thereafter for a period of eighteen (18) months (provided
that the representations and warranties with respect to tax matters shall
survive for the applicable statute of limitations for tax matters) at which time
they shall cease, regardless of any investigation made or not made by or on
behalf of any party hereto, except to the extent that Purchaser shall have given
notice in writing of a claim to Seller or Seller shall have given notice in
writing of a claim to Purchaser prior to the expiration of such period, and no
claim may thereafter be asserted thereon and Seller or Purchaser (as the case
may be) shall have no liability therefor. The covenants and agreements
contained herein shall survive the Closing Date in accordance with their
respective terms. The indemnification obligations of the parties as set out in
Sections 3(a)(vi) and (vii) and 7(e) and in Section 11 shall not be subject to
the limitations set out in this Section 9.
10. INDEMNITIES.
(a) Seller shall indemnify Purchaser and its successors, assigns,
directors, officers, employees, agents and representatives against, and hold
each of them harmless from, all losses, liabilities, damages, costs and expenses
(including, but not limited to, reasonable fees and disbursements of counsel)
accruing from, or resulting by reason of (i) any attempt by a third party to
collect from, or assert against, such indemnified party any obligation or
liability of Seller not assumed by Purchaser pursuant to Section 3(a)(vi) and
(vii); (ii) any breach by Seller of any representation or warranty or covenant
herein; and (iii) any liability with respect to the items not part of the
Purchased Property pursuant to Section 1(d). Purchaser shall indemnify Seller
and its successors, assigns, directors, officers, employees, agents and
representatives against, and hold each of them harmless from, all losses,
liabilities, damages, costs and expenses (including, but not limited to,
reasonable fees and disbursements of counsel) accruing from, or resulting by
reason of, (i) any attempt by a third party to collect from or assert against
such indemnified party any obligation or liability of Seller assumed by
Purchaser pursuant to Section 3(a)(vi), and (ii) any breach by Seller of any
representation or warranty or covenant herein.
(b) Each party hereto shall give the other party hereto prompt notice of
any action, claim, or proceeding asserted or commenced against the notifying
party as to which the other party's indemnification obligation (under any
section hereof) could apply and the other party (the "indemnifying party") may,
at its option and at its sole expense, assume control of the defense of, and
contest or compromise, any such action, claim, or proceeding, provided that the
indemnifying party shall give written notice to the notifying party of its
election to do so within twenty (20) days after receipt of such notice and
provided that the notifying party shall at all times also have the right to
participate fully in the defense at its expense and may not be subjected to,
directly or indirectly, any loss, liability, damage, cost or expense as a
consequence of a compromise of such action, claim or proceeding by the
indemnifying party. If the indemnifying party shall not so elect to assume
control of the defense, the notifying party shall have the right, but shall not
be obligated, to undertake the defense of the action, claim or proceeding for
the account, and at the risk of, the indemnifying party.
16
<PAGE>
11. LIMITATION OF REMEDIES AND DAMAGES.
(a) In no event shall Seller be liable to Purchaser or shall Purchaser be
liable to Seller for any lost profits or consequential damages (which shall not
include damages for loss of bargain) sustained or suffered by the other as a
consequence of a breach of any warranty or representation contained herein or as
a consequence of a breach of any covenant or agreement contained herein.
(b) Purchaser shall not be entitled to recover any damages from Seller,
and Seller shall not be entitled to recover any damages from Purchaser, unless
and until the aggregate of all damages recoverable by the claiming party exceeds
Two Hundred Thousand Dollars ($200,000.00) and then only to such extent,
provided however, that in calculating such damages for the purposes of this
section only, the attorneys' fees and costs of the claiming party with respect
to such matter shall not be included. In addition, notwithstanding the
foregoing, such limitation shall not apply to damages arising to Seller from
Purchaser's failure to pay any liability assumed by Purchaser or under First
Note or the Second Note, or under Section 7(e) or any damages arising to
Purchaser from Seller's failure to pay any liability retained by Seller. In no
event shall Seller's liability to Purchaser exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000).
(c) Except as to Seller's obligations to be performed after the Closing,
Purchaser's sole remedy under this Agreement shall be for damages. Purchaser
shall in no event be entitled to recover damages in cash (as opposed to by way
of set-off) in an amount in excess of the amount of cash theretofore received by
Seller at Closing and pursuant to the First Note and the Second Note. To the
extent Purchaser's damages exceed such amount, Purchaser may, but is not
obligated to, set off any such amount due to it hereunder, as evidenced by a
final judgment or settlement agreement) against the First Note or the Second
Note.
12. EMPLOYEES.
(a) Purchaser shall offer Employees (as listed in Exhibit D) the
opportunity to become employees of Purchaser on the Closing Date or, with
respect to each such Employee who is disabled to the extent that he or she is
unable to perform the duties of his/her job on the day after the Closing Date,
on the date following the Closing Date on which he/she becomes able to perform
the duties of his/her job; provided, however, that if he/she does not become so
able within twelve (12) months of the Closing Date, Purchaser's offer to him/her
may be withdrawn. Nothing herein shall be construed as constituting a right to
employment for any specified period of time for any such employee. Except as
otherwise specifically provided herein, nothing in this Agreement shall be
construed as creating any rights in the individuals listed in Exhibit D, nor
shall any provision of this Agreement be construed as varying the Seller's
employment policies or practices or as varying Purchaser's employment policies
and practices regarding its employees other than as provided specifically in
this Agreement with respect to those individuals listed in Exhibit D who shall
elect to become employees of Purchaser.
(b) Purchaser will offer continuing employment to the Employees at an
annual compensation not less than the amount specified in Exhibit D as being the
salary paid to such Employees by Seller.
17
<PAGE>
(c) Those individuals listed on Exhibit D who accept Purchaser's offer of
employment (hereinafter referred to as "Affected Employees") shall be deemed to
have become Purchaser's employees at the Closing Time; provided, however, that
any Employee listed on Exhibit D who accepts an offer of employment subsequent
to the Closing Time shall be deemed to become Purchaser's employee on the date
such employee commences work for the Purchaser.
(d) Each Affected Employee listed in Exhibit D shall cease to be Seller's
employee and shall cease to participate in any of Seller's employee welfare
benefits, pension benefits or other employment benefits or policies (except to
the extent of Seller's obligations under COBRA) on the date that such employee
is deemed to become Purchaser's employee pursuant to Section 13(c). Purchaser
shall have no liability, and Seller shall indemnify Purchaser with respect to
such cessation of participation.
(e) On the Closing Date, Purchaser shall credit all Affected Employees
with the amount of service recognized by Seller (as reflected by the original
date of hire listed on Exhibit D), for purposes of determining eligibility,
amount, terms and conditions or termination of employee benefits or remuneration
in any form whether such benefits or remuneration are pursuant to Purchaser's
obligations under this Agreement or pursuant to Purchaser's own plans or
practices.
(f) In the event Purchaser terminates the employment of an Affected
Employee other than for cause at any time during the nine (9) month period
immediately following the Closing Date, such terminated Affected Employee shall
be paid a severance allowance by Purchaser in an amount equal to (x) eighty
percent (80%) of two (2) weeks salary, times (y) the number of years (including
fractions of a year) of the Affected Employee's service with Purchaser (as
reflected by the Hire Date listed in Exhibit D).
(g) On the Closing Date, the Affected Employees shall be eligible to
participate in all employee benefit plans (whether written or not) maintained on
the Closing Date by the Purchaser for its employees except to the extent that
benefits for Affected Employees required by this Agreement are more advantageous
to such Affected Employees in which case such Agreement-required benefits shall
prevail according to the terms of this Agreement. For purposes of medical
insurance, including vision and dental coverage, Affected Employees shall be
eligible to participate in such plans without regard to any waiting period which
might otherwise apply.
(h) Purchaser shall provide Affected Employees with the number of annual
vacation days to which they are entitled as an employee of Seller but had not
taken as of the Closing Date (irrespective of the fact that Seller does not
accrue for such vacation and as such it is not reflected in the Preliminary
Balance Sheet or the Final Balance Sheet) and Affected Employees will be
compensated by Purchaser for any vacation days to which they are entitled under
this Section 13(h), but which they have not taken as of the end of calendar year
1995. Affected Employees who are terminated prior to the end of calendar year
1995 shall be entitled to payment from Purchaser for any unused vacation days as
of the date of the termination of employment. Except as the provisions of this
Section (h) and Section 13(e) result in more favorable vacation benefits for any
Affected Employee, each Affected Employee shall be entitled to receive annual
vacation in accordance with the Purchaser's usual vacation policy. To the
extent Purchaser is required to pay for any such vacation days as a result of an
Affected Employee voluntarily
18
<PAGE>
terminating employment with Purchaser within ninety (90) days of the Closing,
Purchaser may deduct such amount from the balance due on the First Note.
(i) Until 12:00 a.m., February 1, 1995, Seller shall continue to provide
medical, dental, life and disability insurance coverage for the Affected
Employees.
13. NOTICES.
Any notice, request, consent or other document to be given hereunder to
either party hereto shall be in writing and sent by registered or certified
mail, postage prepaid, if to Purchaser, addressed to:
Unifet Incorporated
11021 Via Frontera, Suite 200
San Diego, California 92127
Attention: W. Jerry Mezger, President
with a copy to:
Stradling, Yocca, Carlson and Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attention: Lawrence B. Cohn
and if to Seller, addressed to:
PPG Industries, Inc.
One PPG Place
Pittsburgh, Pennsylvania 15272
Attention: Director, Commercial Development
with a copy to H. Kennedy Linge at the same address. Either party hereto may
change its address for receiving notices by giving written notice of such change
to the other party.
14. COOPERATION AS TO CERTAIN CLAIMS AND LITIGATION.
Each party hereto shall cooperate with the other party in defending or
prosecuting any claims or litigation relating to the Purchased Property or the
Sensors Business in which their interests are not adverse and shall make
available and furnish appropriate documents and testimony in connection
therewith. Each party requesting such assistance shall reimburse the party
rendering such assistance for its reasonably incurred expenses of assisting the
other party in such claims or litigation.
15. GOVERNING LAW, ATTORNEYS' FEES,TABLE OF CONTENTS AND SECTION HEADINGS.
This Agreement shall be governed by, and be construed in accordance with,
the internal substantive laws of the State of California. In the event of any
dispute with respect hereto, the
19
<PAGE>
losing party shall pay the reasonable attorneys' fees and costs of the
prevailing party. The table of contents and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
16. BULK SALES LAW.
Seller and Purchaser agree to waive compliance with any applicable Bulk
Sales Law. Seller shall indemnify Purchaser for any claims asserted against
either party as a result of such noncompliance.
17. ENTIRE AGREEMENT.
This Agreement, the Exhibits hereto, the instruments to be delivered
pursuant hereto, and the Letter Agreement between the parties dated December 30,
1994, as amended, contain the entire agreement between the parties hereto and
supersede any prior agreements, understandings, representations or warranties
between the parties hereto relating to the subject matter hereof and thereof,
whether written or oral, including, without limitation, the Confidential
Descriptive Memorandum for the Sensors Business provided to Purchaser by Seller,
pursuant to a Confidentiality Agreement dated October 14, 1994. The rights and
obligations of the parties under this Agreement and each of the instruments to
be delivered pursuant hereto shall be severally enforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written.
WITNESS: UNIFET INCORPORATED
/s/ LOUIS H. BUNN By /s/ W. JERRY MEZGER
- ----------------------------------- -------------------------------------
WITNESS: PPG INDUSTRIES, INC.
/s/ FREDERICK DENK By /s/ H. KENNEDY LINGE
- ----------------------------------- -------------------------------------
20
<PAGE>
CONFIDENTIAL PROVISIONS OMITTED
AMENDED LICENSE AGREEMENT
THIS AMENDMENT, made in Pittsburgh, Pennsylvania, U.S.A. is to the
AGREEMENT, made in Pittsburgh, Pennsylvania, U.S.A., the 17th day of January,
1995, by and between:
PPG INDUSTRIES, INC., a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania, with its principal office at
One PPG Place, Pittsburgh, Pennsylvania 15272, U.S.A., hereinafter
referred to as "LICENSOR";
and
UNIFET, INCORPORATED, a California corporation, having a new address
of 11077 N. Torrey Pines Road, Lajolla, California 92037 and formerly
of Suite 200,11021 Via Frontera, San Diego, California 92127, U.S.A.,
hereinafter referred to as "LICENSEE";
WITNESSETH:
WHEREAS:
A. LICENSOR is the owner of both domestic and non-domestic patents,
design registrations, and applications for patents and for design registrations
listed in Attachment A (hereinafter the "LICENSOR Patents," of Attachment A as
more fully defined at Article
<PAGE>
1.4), which constitute valuable assets of LICENSOR and which relate to the blood
gas sensor product of the former Sensors Business Unit of LICENSOR;
B. LICENSOR sold its Sensors Business Unit having an office at 11077 N.
Torrey Pines Road in LaJolla, California 92037 to LICENSEE with an exclusive
license for the LICENSOR Patents of Attachment A as of January 17, 1995;
C. The exclusive license was to have expired after an extension on May
31, 1995 and LICENSOR is willing to continue the exclusive license agreement and
assign the LICENSOR Patents of Attachment A at the end of the term of this
amended exclusive license to the LICENSEE, the purchaser of the Sensors Business
Unit upon fulfillment of the certain conditions after the closing of the sale of
the Sensors Business Unit (the "CLOSING");
D. LICENSEE purchased as of January 17, 1995 the former Sensors Business
Unit of LICENSOR with certain conditions remaining after the CLOSING of the sale
and since that date up to May 31, 1995, had an exclusive license to and is
willing to continue an exclusive license from LICENSOR for the LICENSOR Patents
of Attachment A until LICENSEE fulfills the certain obligations of the CLOSING
for such acquisition by the end of the term of this amended exclusive license in
order to acquire LICENSOR's interest in the LICENSOR Patents of Attachment A;
and
E. LICENSOR is entitled to grant, and LICENSEE desires to acquire such an
exclusive license under the terms and conditions herein set forth as an
amendment to the Original License Agreement from May 31, 1995, where this
Amended License Agreement does not act in any way as a waiver of any of the
unamended conditions, obligations or rights imposed upon or granted to the
parties under the Original License Agreement, and all
2
<PAGE>
unamended items, conditions, obligations, rights and provisions thereof are to
apply to this Amended License Agreement and are made a part of this Amended
License Agreement as they are expressly rewritten, incorporated and included
herein, and in the event of any conflict, inconsistency or incongruity between
the provisions of this Amended License Agreement and a provision of the Original
License Agreement, the provisions of this Amended License Agreement shall in all
respects govern and control.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, the parties hereto, intending to be legally bound
hereby, covenant and agree as follows:
ARTICLE 1. DEFINITIONS
1.1. Whenever used in this Amended License Agreement, unless otherwise
clearly indicated in the context, the following terms shall have the meanings as
defined in this Article 1.
1.2. "Sensors Business Unit" means the former business of LICENSOR of
manufacturing, using and selling blood gas sensors and components therefor as
conducted at the time of signing the Original License Agreement at LICENSOR's
facility at 11077 N. Torrey Pines Road in LaJolla, California 92037.
1.3. "Effective Date of this Amended License Agreement" means June 14,
1995.
1.4. "LICENSOR Patents" or "Patents of LICENSOR" means unexpired United
States and foreign patents, and design registrations, and pending United States
and foreign patent applications and applications for design registrations, and
patents and registrations to
3
<PAGE>
be issued upon such applications all as listed in Attachment A and any
continuations, divisionals, reexaminations, reissues, and patents of addition
relating thereto, existing at the time of execution of this License Agreement or
thereafter which relate to the subject matter disclosed or claimed in any patent
and design registration and applications therefor listed in Attachment A.
1.5. "Licensed Products" means 1) any blood gas sensor devices; 2) any
devices using any oxygen, carbon dioxide, or pH sensors; and 3) any product or
device, whether or not used in conjunction with a product or device covered in
subparts (1) or (2) of this Article 1.5, which would infringe any unexpired,
valid (i.e. not held invalid by a court of competent jurisdiction) claim of any
patent or design registration or patent or design registration issued or granted
on any application listed in Attachment A.
1.6. "Person" means an individual, partnership, firm, association, or
corporation or other legal entity.
1.7. "Long Term Note" means the promissory note for Five Million Dollars
($5,000,000) for LICENSEE to pay LICENSOR dated January 17, 1995 and pursuant to
the sale of the Sensors Business Unit of LICENSOR to LICENSEE, as it now exists
or as it may hereafter be amended.
1.8. "Short Term Note" means the promissory note originally stated for One
Million Five Hundred Thousand Dollars ($1,500,000) and as amended this date for
One Million Five Hundred and Seventy-four Thousand and Nine Hundred and
Forty-six Dollars ($1,574,946) for LICENSEE to pay LICENSOR originally dated
January 17, 1995 as amended and pursuant to the sale of the Sensors Business
Unit of LICENSOR to LICENSEE.
4
<PAGE>
1.9. "Term of this License Agreement" or "License Term" means the period
from January 17, 1995, as extended to May 31, 1995, and amended from May 31,
1995, and during which this License Agreement shall continue in effect which is
the same term as that of the Long Term Note so that the period of this License
Agreement continues until the amount due and owed to LICENSOR from LICENSEE
pursuant to the Long Term Note is paid in full, subject to earlier termination
as provided for in Article 4 or otherwise.
1.10. "License Agreement" means collectively the Original License
Agreement of January 17, 1995 and the Amended License Agreement of June 14,
1995.
ARTICLE 2. GRANTS AND OBLIGATIONS CONCERNING LICENSED PATENTS
2.1. LICENSOR hereby grants to LICENSEE an exclusive, royalty-free,
worldwide license, to use and employ LICENSOR Patents in the manufacture, use
and sale of Licensed Products for the License Term, said exclusive license to
preclude LICENSOR from use and employment of LICENSOR Patents in the
manufacture, use and sale of the Licensed Products. During the License Term,
the license shall be irrevocable as long as LICENSEE is not in default of this
License Agreement and except for the termination provisions of Article 4.
2.2. LICENSOR hereby grants to the customers of LICENSEE royalty-free, the
right to use and sell Licensed Products, and to make, use and sell articles made
from or incorporating Licensed Products, made by LICENSEE while LICENSEE is
licensed under this License Agreement and not in default hereunder. Such
Licensed Products made during the License Term may be used and sold by LICENSEE.
5
<PAGE>
2.3. If at or prior to the termination of the License Term the amount due
and owed to LICENSOR is paid in full by LICENSEE to LICENSOR pursuant to both
the Short Term Note and the Long Term Note, this License Agreement shall
terminate and LICENSOR will assign to LICENSEE LICENSOR's entire right, title
and interest in and to LICENSOR Patents, said assignment to become effective
automatically upon the date of such full payment of both the Short Term Note
and the Long Term Note. LICENSOR shall promptly provide LICENSEE with
assignment documents in the form attached hereto as Attachment B and LICENSEE
shall be responsible for recordation and all of the out-of-pocket expenses
associated with recordation of the applicable assignment documents. The failure
to timely pay either the Short Term Note or the Long Term Note at or prior to
the expiration of the License Term shall bar LICENSEE from further manufacture,
use and sale of Licensed Products.
2.4. The license grants of Articles 2.1 and 2.2, the obligation to assign
of Article 2.3, Article 3.1, and this License Agreement are limited by and
subject to the mutual general releases of and covenant not to sue to Walter L.
Sembrowich, David W. Deetz, Kee Van Sin, or Diametrics Medical, Inc., a
Minnesota corporation, its officers, directors, employees, agents or
representatives according to the Settlement Agreement and Mutual General
Releases dated March 25, 1994 between PPG Industries Inc. and Walter L.
Sembrowich, David W. Deetz, Kee Van Sin, and Diametrics Medical, Inc., regarding
Civil File No. 4-93-763 in the United States District Court, District of
Minnesota, Fourth Division.
6
<PAGE>
2.5. Until such time as LICENSEE acquires the LICENSOR's entire right,
title and interest in and to LICENSOR Patents or until the termination of the
License Term, whichever first occurs:
(a) LICENSOR at its own expense, but with full reimbursement from
LICENSEE without the creation of any assignment obligation from LICENSOR, shall
(i) be responsible for filing (limited to continuation and divisional filings),
seeking allowance of and maintaining LICENSOR Patents and (ii) use its best
efforts to insure all LICENSOR Patents remain in force and available for
assignment to LICENSEE as provided for by this License Agreement. Failure of
LICENSEE to reimburse LICENSOR under Article 2.5(a) upon receipt of written
notification for reimbursement from LICENSOR shall be a default by LICENSEE
under Article 4.1(b) of this License Agreement.
(b) Only in the event that LICENSOR should decide not to so maintain
Licensed Patents, LICENSOR shall give LICENSEE prior written notification of
such decision and LICENSEE may undertake to do so at LICENSEE's own expense, and
LICENSOR shall assign such patents to LICENSEE.
2.6. The licenses and grants of Articles 2.1 and 2.2 do not grant and
LICENSEE shall not have the right to sublicense any of LICENSOR patents.
LICENSEE shall have no rights, other than rights granted herein to LICENSED
Patents.
ARTICLE 3. THIRD PARTY INFRINGEMENT ND INDEMNIFICATION
3.1. If, during the License Term, LICENSOR or LICENSEE becomes aware of any
infringement by a third party of any of LICENSOR Patents, the knowledgeable
party
7
<PAGE>
will give written notice to the other party, either LICENSOR or LICENSEE.
LICENSEE may file an infringement action in its name or on behalf of LICENSOR,
at LICENSEE's sole expense, and LICENSOR shall provide reasonable cooperation as
may be necessary for LICENSEE to pursue such action. LICENSEE shall be the sole
recipient of the proceeds of any recovery.
3.2. If, during the License Term, an action for patent infringement, a
cancellation, revocation or nullity action, or other such proceeding, or a
request for reexamination in the United States Patent and Trademark Office, is
brought or threatened by a third party against LICENSEE for activities
respecting the Licensed Products or any of LICENSOR Patents, the parties hereto
shall promptly consult with one another with a view toward agreeing on a course
of action to be pursued. If the parties hereto mutually agree to defend or make
appropriate response to any such proceeding, LICENSEE shall initiate and
prosecute such defense or response. The costs of such defense or response,
including settlement costs and any damages awarded to a plaintiff or plaintiffs,
shall be borne equally by LICENSEE and LICENSOR. If LICENSOR declines to defend
in any such proceeding LICENSEE may, at its sole option, elect to proceed to
defend in its name and/or on behalf of LICENSOR, at LICENSEE'S own expense, but
LICENSOR shall provide such cooperation as may be reasonably necessary to such
proceeding.
3.3. Except to the extent of any breach by LICENSOR of its representations
and warranties made under that certain Agreement between LICENSOR and LICENSEE
regarding the sale of the Sensors Business, dated January 17, 1995 (the "Asset
Purchase Agreement"), LICENSEE will defend, indemnify and hold LICENSOR harmless
against all
8
<PAGE>
liabilities, demands, damages, expenses (including attorneys' fees) or losses
arising (i) out of the use or sale of Licensed Products manufactured by
LICENSEE, or (ii) out of the use by LICENSEE of LICENSOR Patents in the
manufacture, use and sale of Licensed Products.
ARTICLE 4. TERMINATION
4.1. This License Agreement may be terminated:
(a) by written agreement of the parties;
(b) by a nondefaulting party, upon default by the other party in the
performance of its obligations under this License Agreement, if not remedied
within thirty (30) days of written notice requiring that breach to be
remedied;
(c) by a party, upon the other party being adjudged bankrupt, becoming
insolvent, or upon filing of any petition seeking its dissolution or
liquidation, if such petition is not stayed or dismissed within sixty (60) days;
(d) by a party, if all, or a substantial portion of all, of the assets of
the other party are attached or seized by creditors;
(e) by LICENSOR if LICENSEE breaches or defaults in the performance of
its obligations under either the Short Term Note or the Long Term Note;
(f) by either party if any agreement to be entered into for the purpose
of implementing this License Agreement is not executed or is terminated for any
reason other than the terminating party's breach;
(g) by either party if the warranties or representations made to such
party in connection with this License Agreement are found to be materially false
or misleading;
(h) pursuant to Article 2.3 of this Amended License Agreement.
9
<PAGE>
4.2. The termination of this License Agreement for any reason shall neither
release any party hereto from any liabilities, obligations, or agreements which,
pursuant to any provisions of this License Agreement, is to survive or be
performed after such termination nor shall it release any party hereto from its
liability to pay any sums of money accrued, due, and payable to the other party
or to discharge its then-accrued and unfulfilled obligations. The termination
of this License Agreement for any reason shall not be deemed a waiver or release
of, or otherwise prejudice or affect, any rights, remedies, or claims, whether
for damages or otherwise, which any party may then possess under this License
Agreement or which arise as a result of such termination, all of which rights,
remedies, and claims shall survive such termination.
4.3. Nothing in this License Agreement shall prevent a party from enforcing
its provisions by such remedies as may be available in lieu of termination.
ARTICLE 5. DISPUTE RESOLUTION
5.1. In the event of any controversy or claim between LICENSOR and LICENSEE
as to any provision of this License Agreement, upon the written request of
either party, the matter shall immediately be referred jointly to the
managements of LICENSOR and LICENSEE for decision. In the case of LICENSOR,
such management shall be represented by the Secretary, and in the case of
LICENSEE, such management shall be represented by its Chief Executive Officer.
If such persons do not agree upon a decision within thirty (30) days after
reference of the matter to them, either party may, within thirty (30) days after
the thirty (30) days first referenced above, give the other party notice of
arbitration pursuant to
10
<PAGE>
Article 5.2 hereof. No arbitration may commence concerning the matter in
dispute until thirty (30) days have elapsed from the sending of the notice of
arbitration. The parties shall bear their respective costs incurred in
connection with this Article 5.1.
5.2. After exhausting the procedures set forth in Article 5.1 hereof, any
controversy or claim arising out of or relating to this License Agreement, or
any breach thereof, shall be determined by a board of three (3) arbitrators with
the right of appeal under the Arbitration Rules of the American Arbitration
Association. Each party shall designate one arbitrator and the third arbitrator
shall be chosen by the two so designated. The arbitration shall be conducted in
the English language. The award may be entered in any court having jurisdiction
thereof, or application may be made to such court for a judicial acceptance of
the award and an order of enforcement, as the case may be.
ARTICLE 6. DISCLAIMER OF AGENCY
6.1. This License Agreement does not constitute any party as the legal
representative or agent of the other party for any purpose whatsoever. No party
shall have any right or authority to assume, create, or incur any liability or
obligation of any kind, express or implied, against, in the name of, or on
behalf of the other party, except in accordance with this License Agreement or
as may otherwise be agreed in writing by the parties.
ARTICLE 7. ASSIGNMENT
11
<PAGE>
7.1. This License Agreement and the rights and obligations hereunder are
personal to the parties hereto and shall not be assigned by a party hereto,
voluntarily or by operation of law, to a third Person without the express prior
written consent of the other party hereto. Any such assignment shall be on the
basis that the assignee executes an undertaking that it will assume all the
liabilities and obligations of the party making the assignment and that it will
be bound by the terms and conditions of this License Agreement and that the
assigning party remains bound by the terms and conditions of this License
Agreement.
ARTICLE 8. NOTICES
8.1. Any notice, request, demand, or other communication required or
authorized to be given by either party hereunder to the other party shall be
reduced to writing and shall be deemed effectively served when delivered
personally or when sent, if given by facsimile transmission or when deposited in
the mails, in a sealed envelope with sufficient airmail postage affixed,
registered and addressed to the party to whom such notice is directed at the
post office address of such party's place of business, which, in the case of
LICENSOR, shall be:
Vice President, Corporate Development
PPG INDUSTRIES, INC.
One PPG Place
Pittsburgh, Pennsylvania 15272
and, in the case of LICENSEE, shall be:
12
<PAGE>
President & CEO
UNIFET INCORPORATED
11077 N. Torrey Pines Road
LaJolla, California 92037
or at such other address as either party shall hereafter furnish to the other
party by written notice, as herein provided.
ARTICLE 9. GENERAL PROVISIONS
9.1. In the event that lawful performance of this License Agreement or any
material part hereof shall be prohibited by any law or act of any government or
political subdivision or by the entry of a judgment, order, or determination by
any court, commission, or agency having jurisdiction over a party or over a
parent company of a party, whether consented to by such party or by such parent
company or not, the parties covenant and agree that, forthwith upon the
effective date of such governmental action, they will exert their best efforts
to agree on an amendment or amendments to this License Agreement or on
modifications of their practices hereunder in such manner as will fully comply
with said final judgment or final order. In the event that the parties are
unable, within a period of sixty (60) days after the written notice by either
party to the other of such impossibility of lawful performance to reach such
agreement, either party may terminate this License Agreement by written notice
to the other party effective as of the expiration of such sixty (60) day period.
Any rights or obligations of either party under this License Agreement adjudged
invalid by a
13
<PAGE>
court or government shall be suspended upon the entry thereof pending
negotiations between the parties as herein provided to remedy such invalidity.
9.2. The failure of a party at any time to require performance of any
provision hereof shall in no manner affect the right to enforce the same. The
waiver by any party of any breach of the provisions herein shall not be
construed to be a waiver of any succeeding breach of such provision or a waiver
of the provision itself by such party or a waiver of any other provision or
condition herein.
9.3. Whether or not the transactions contemplated by this License Agreement
are consummated (other than by reason of a failure by any party to perform its
obligations hereunder), each of the parties hereto shall pay the fees and
expenses of its respective counsel, accountants, other experts, and all other
expenses incurred by such party incident to the negotiation, preparation, and
execution of this License Agreement or any transaction incident hereto or
contemplated hereby.
ARTICLE 10. INTERPRETATION
10.1. The headings of the Articles of this License Agreement are to
facilitate. reference only, do not form a part of this License Agreement, and
shall not in any way affect or be considered in the interpretation hereto.
10.2. The validity, construction, and performance of this License
Agreement shall be governed by and interpreted in accordance with the laws of
California.
10.3. Attachment A hereto is deemed to be an integral part of this License
Agreement and all references herein to this License Agreement shall encompass
such Attachment A and the terms and conditions therein.
14
<PAGE>
10.4. The terms; and conditions contained in this License Agreement
constitute the entire agreement between the parties and shall supersede all
previous communications, either oral or written, between the parties hereto with
respect to the subject matter hereof.
10.5. No amendment or change in this License Agreement or addition
hereto shall be effective or binding on any of the parties hereto unless set
forth in writing and executed by the respective duly authorized representatives
of each of the parties hereto and, if required, upon approval by competent
governmental authorities.
10.6. Nothing in this Agreement shall be construed as:
(a) a warranty by LICENSOR to LICENSEE that practice of LICENSOR
Patents or making using or selling of Licensed Products pursuant
to this Agreement does not constitute infringement of patents of
Persons or parties not Persons nor parties hereto and nothing in
this License Agreement shall be construed as an assumption of any
responsibility or liability for any such infringement;
(b) a grant by LICENSOR of any right, license or immunity, or as a
grant of any license under any trademark except as specifically
granted in this Agreement;
(c) a representation or warranty by LICENSOR to LICENSEE as to the
results to be attained by the utilization of LICENSOR Patents;
(d) a limitation upon the right of LICENSEE to determine
independently its customers and selling prices of Licensed
Products.
15
<PAGE>
10.7. Except with respect to the Term of this License Agreement as set
forth in Article 1.9 and the LICENSOR's right to terminate this Amended License
Agreement as set forth in Article 4.1(e), nothing herein shall be deemed to
amend the Asset Purchase Agreement and in the event of any conflict between the
terms of this Agreement and the Asset Purchase Agreement, the Asset Purchase
Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto have caused this License Agreement
to be signed by their respective duly authorized representatives on the day,
month, and year first above written.
Witness: PPG INDUSTRIES, INC.
/S/ FRED DENK By: /S/ H. KENNEDY LINGE
---------------- ------------------
H. Kennedy Linge
Secretary
Date:
------------------
Witness: UNIFET INCORPORATED
- ----------------------- By: W. JERRY MEZGER
--------------------
Date: 6-20-95
---------------
16
<PAGE>
ATTACHMENT A
I. UNITED STATES ISSUED PATENTS:
U.S. PATENT NO. TITLE DATE ISSUED
- -------------------------------------------------------------------------------
5,046,496 Sensor Assembly for Measuring Analytes in Fluids 9/10/91
D 331286 Blood Gas Monitoring Module 11/24/92
5,246,576 Cathode in a Layered Circuit and Electrochemical 9/21/93
Cell for a Measurement of Oxygen in Fluids
5,230,427 Sterilizable Hermetically-Sealed Substantially Glass
Container 7/27/93
5,284,570 Fluid Sample Analyte Collector and Calibration
Assembly 2/8/94
5,336,388 Analyte and pH Measuring Sensor Assembly and
Method 8/9/94
5,338,435 Integrated Circuit Hydrated Sensor Apparatus 8/16/94
5,342,498 Electronic Wiring Substrate 8/30/94
5,405,510 Portable Analyte Measuring System for Multiple 4/11/95
Fluid Samples
5,421,981 Electrochemical Sensor Storage Device 6/6/95
II. PENDING UNITED STATES PATENT APPLICATIONS:
NUMBER TITLE FILING DATE
- -------------------------------------------------------------------------------
[*]
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
17
<PAGE>
III. FOREIGN PATENTS, DESIGN REGISTRATIONS AND APPLICATIONS FOR PATENT AND
DESIGN
REGISTRATION (KEYED TO U.S. PATENT OR APPLICATION NUMBER)
RELATED U.S. STATUS/APPROPRIATE
PATENT/PATENT COUNTRY SERIAL NO. NUMBER (1)
APPLICATION
- ---------------------------------------------------------------------------
USP 5,046,496
- ---------------------------------------------------------------------------
[*]
USP 5,246,576
- ---------------------------------------------------------------------------
[*]
USP 5,230,427
- ---------------------------------------------------------------------------
[*]
**USP 5,284,570
**USP 5,338,435
**USP 5,342,498
**USP 5,405,510
**USP 5,421,981
- ---------------------------------------------------------------------------
[*]
USP 5,336,388
- ---------------------------------------------------------------------------
[*]
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
18
<PAGE>
- ---------------------------------------------------------------------------
USSN 29/008,496
USSN 29/008,497
- ---------------------------------------------------------------------------
[*]
D 331286
USSN 29/008,497
- ---------------------------------------------------------------------------
[*]
* International design.
** Combined for filing a single foreign application.
USSN = U.S. Serial Number.
USP = U.S. Patent Number.
AN = Application Number.
PB = Publication Number.
1 Most recent status with the appropriate number for that status; i.e., if the
status is "issued" the number is a patent number; if published, the number is a
publication number; if pending, refer to the serial number for the application.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
19
<PAGE>
SECURED PROMISSORY NOTE
$5,000,000.00 January 17, 1995
San Diego, California
UNIFET, Incorporated, a California corporation ("Obligor") for value
received, hereby promises to pay to PPG Industries, Inc., a Pennsylvania
corporation, ("Payee") or its registered assignee, at the address set forth
below or at such other place as Payee designates in writing the sum of FIVE
MILLION AND NO/100THS DOLLARS ($5,000,000.00), together with any and all accrued
but unpaid interest thereon as of such date, with such interest accruing at the
Prime Rate of interest as publicly announced from time to time by Bank of
America or its successors in interest plus two percent (2%) per annum, computed
on a basis of a 365-day year and actual days elapsed.
All principal outstanding and accrued and unpaid interest will be due and
payable on December 31, 1996. This Note may be prepaid at any time, in whole or
in part, without premium or penalty and without prior notice to, or consent of,
Payee. Any payments with respect to this Note will be credited first to the
payment of accrued but unpaid interest and then to the repayment of principal.
The rate of interest payable under this Note will in no event exceed the maximum
rate permitted by law. Principal and interest will be payable in lawful money
of the United States of America. Upon any payment in full of all principal and
interest payable under this Note, this Note will be surrendered to Obligor for
cancellation.
The indebtedness evidenced by this Note is secured by, and this Note is the
"Note" referred to in, that certain Security Agreement, dated as of the date of
this Note and between the Obligor and the Payee.
By acceptance of this Note, Payee represents and acknowledges to Obligor
that by reason of its business and financial experience it has the capacity to
protect its own interests in this transaction and is accepting this Note for its
own account and not with a view to distribution.
If any of the following events (hereafter called "Events of Default") shall
occur:
(a) If Obligor shall default in the payment of any principal or
interest due under this Note when the same shall become due and payable; or
(b) If Obligor shall make a general assignment for the benefit of
creditors; or
(c) If Obligor shall file a voluntary petition in bankruptcy, or
shall be adjudicated a bankrupt or insolvent, or shall file any petition or
answer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the present or any future
Federal Bankruptcy Act or other applicable federal, state or other statute,
law or regulation, or shall file any answer admitting the material
allegation of a petition filed against Obligor in such proceeding, or shall
seek or consent to or acquiesce in the appointment of any trustee, receiver
or liquidator of Obligor of all or any substantial part of the properties
of Obligor; or
<PAGE>
(d) If, within sixty (60) days after a court of competent
jurisdiction shall have entered an order, judgment or decree approving any
complaint or petition against Obligor seeking reorganization, dissolution
or similar relief under the present or any future Federal Bankruptcy Act or
other applicable federal, state or other statute, law or regulation, such
order, judgment or decree shall not have been dismissed or stayed pending
appeal, or if, within sixty (60) days after the appointment, without the
consent or acquiescence of Obligor, of any trustee, receiver or liquidator
of Obligor or of all or any substantial part of the properties of Obligor,
such appointment shall not have been vacated or stayed pending appeal, or
if, within sixty (60) days after the expiration of any such stay, shall not
have been vacated;
then, and in each and every such case, Payee may by notice in writing to Obligor
declare all amounts under this Note to be forthwith due and payable and
thereupon the balance shall become so due and payable, without presentation,
protest or further demand or notice of any kind, all of which are hereby
expressly waived.
This Note may be transferred only upon surrender of the original Note for
registration of transfer, duly endorsed, or accompanied by a duly executed
written instrument of transfer in form satisfactory to Obligor and only in
compliance with applicable Federal and State securities laws. Thereupon, a new
note for like principal amount and interest will be issued to, and registered in
the name of, the transferee. Interest and principal are payable only to the
registered holder of the Note. The provisions hereof will bind and inure to the
benefit of the parties and their respective successors and permitted assigns.
Obligor waives presentment, demand for performance, notice of
nonperformance, protest, notice of protest, and notice of dishonor. No delay on
the part of Payee in exercising any right under this Note will operate as a
waiver of such right under this Note.
If the indebtedness represented by this Note or any part thereof is
collected at law or in equity or in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, Obligor will pay, in addition to the principal and interest
payable on this Note, reasonable attorneys' fees and costs incurred by Payee.
Any notice or other communication (except payment) required or permitted
under this Note will be in writing and will be deemed to have been given upon
delivery if personally delivered or three days after deposit if deposited in the
United States mail for mailing by certified mail, postage prepaid, and addressed
as follows:
If to Payee: PPG Industries, Inc.
c/o Treasurer
One PPG Place
Pittsburgh, PA 15272
If to Obligor: UNIFET, Incorporated
11021 Via Frontera, Suite 200
San Diego, CA 92127
I-1-2
<PAGE>
Any payment will be deemed made upon receipt by Payee. Payee or Obligor
may change their address for purposes of this paragraph by giving to the other
party notice in conformance with this paragraph of such new address.
This Note is being delivered in and will be construed in accordance with
the laws of the State of California.
IN WITNESS WHEREOF, the Obligor has caused this Promissory Note to be duly
executed and delivered on and as of the date first written above.
UNIFET, INCORPORATED
By: /s/ W. JERRY MEZGER
-----------------------------------
W. Jerry Mezger, President
ACKNOWLEDGED AND AGREED TO:
PPG INDUSTRIES, INC.
By:
------------------------------
, Treasurer
----------------
I-1-3
<PAGE>
FIRST AMENDMENT TO $5,000,000.00 SECURED PROMISSORY NOTE
THIS FIRST AMENDMENT TO SECURED PROMISSORY NOTE ("AMENDMENT") is entered
into as of June 14, 1995, by and between UNIFET INCORPORATED, a California
corporation ("OBLIGOR") and PPG INDUSTRIES, INC., a Pennsylvania corporation
("PAYEE").
R E C I T A L S
A. Obligor has previously executed and delivered to Payee that certain
Secured Promissory Note, dated as of January 17, 1995, in the original principal
amount of $5,000,000.00 (the "ORIGINAL $5,000,000.00 NOTE" or the "ORIGINAL
NOTE").
B. Obligor and Payee desire to amend the Original $5,000,000.00 Note in
the manner set forth in this Amendment.
NOW, THEREFORE, with reference to the foregoing and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. The first sentence of the second Paragraph of the Original Note shall
be deleted and restated as follows as if originally set forth therein:
"ONE MILLION AND NO/100THS DOLLARS ($1,000,000.00) (the
'FIRST PAYMENT') will be due and payable on December 31,
1996. The First Payment shall be applied first to the
payment of accrued but unpaid interest on this Note then to
the repayment of Principal. The remaining unpaid Principal,
plus outstanding and accrued interest thereon (the 'FINAL
PAYMENT'), will be due and payable on December 31, 1997."
2. The Original $5,000,000.00 Note, as modified herein, is hereby
ratified and shall remain in full force and effect, and shall remain secured by
the Security Agreement dated as of January 17, 1995, by and between the Obligor
and Payee.
-1-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment, including
Annex 1 hereto, as of the day and year first above written.
UNIFET INCORPORATED
a California corporation
/S/ W. JERRY MEZGER
-------------------------
By: W. Jerry Mezger, President
ACKNOWLEDGED AND AGREED TO:
PPG INDUSTRIES, INC.
a Pennsylvania corporation
/S/ H. K. LINGE
- ---------------------------
By: H. K. Linge, Secretary
-2-
<PAGE>
ANNEX 1
ACKNOWLEDGEMENT AND CONSENT
Each of UNIFET Incorporated, a California corporation ("UNIFET") and PPG
Industries, Inc., a Pennsylvania corporation ("PPG") (collectively, the
"Parties"), is a party to that certain Security Agreement, dated as of January
17, 1995 (the "Security Agreement"), pursuant to which UNIFET has granted to PPG
a security interest in the Collateral (as defined in the Security Agreement), to
secure its obligations under those certain Secured Promissory Notes, each dated
as of January 17, 1995, respectively, in the original principal amounts of
$5,000,000 and $1,500,000, respectively (such promissory notes, as respectively
amended, modified, renewed or extended from time to time are referred to in the
Security Agreement collectively and in the alternative as the "Secured
Obligations" or the "Notes").
Each Party hereby acknowledges that it has reviewed the terms and
provisions of the Original $5,000,000.00 Note and this Amendment and consents to
the amendment of the Original $5,000,000.00 Note effected pursuant to this
Amendment. Each Party hereby confirms that the Security Agreement to which it
is a party and bound and all Collateral encumbered thereby will continue to
secure to the fullest extent possible the payment and performance of all of the
obligations of UNIFET to PPG (the "Obligations"), including, without limitation,
the payment and performance of all such Secured Obligations (as defined in the
Security Agreement), in respect of the Obligations of UNIFET now or hereafter
existing under or in respect of this Amendment, the Notes or the Security
Agreement.
Each Party acknowledges and agrees that the Security Agreement shall
continue in full force and effect and that all of its respective obligations
thereunder shall be valid and enforceable and shall not be impaired by or
limited by the execution or effectiveness of this Amendment.
UNIFET represents and warrants that all of its representations and
warranties contained in the Security Agreement are true, correct and complete in
all material respects on the date hereof to the same extent as though made on
and as of the date hereof.
-1-
<PAGE>
Each Party acknowledges and agrees that (I) it is not required by the terms
of the Notes or the Security Agreement to consent to the amendments to the
Original $5,000,000.00 Note effected pursuant to this Amendment and (ii) nothing
in the Notes, the Security Agreement or this Amendment shall be deemed to
require its consent to any future amendments to the Notes or to the Security
Agreement.
UNIFET INCORPORATED
a California corporation
/S/ W. JERRY MEZGER
----------------------------------------
By: W. Jerry Mezger
President
PPG INDUSTRIES, INC.
a Pennsylvania corporation
/S/ H.K. LINGE
-------------------------------------------
By: H. K. Linge, Secretary
-2-
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement"), dated as of January 17, 1995, is
made by UNIFET, Incorporated, a California corporation ("Grantor"), in favor of
PPG Industries, Inc., a Pennsylvania corporation ("PPG").
WHEREAS, Grantor has executed and delivered a promissory note dated
January 17, 1995, in the original principal amount of $1,500,000 and payable to
PPG or its registered assigns and Grantor has executed and delivered a
promissory note dated January 17, 1995 in the original principal amount of
$5,000,000 and payable to PPG or its registered assigns (such promissory notes,
as respectively amended, modified, renewed or extended from time to time, are
referred to in this Agreement collectively and in the alternative as the
"Secured Obligations" or the "Notes");
NOW THEREFORE, in consideration of the foregoing, the parties to this
Agreement agree as follows:
1. TERMS DEFINED IN UCC. Where applicable and except as otherwise
defined in this Agreement, terms used in this Agreement have the meanings
assigned to them in the Uniform Commercial Code of the State of California, as
amended ("UCC").
2. GRANT OF SECURITY INTEREST. Grantor hereby grants to PPG a security
interest in all of Grantor's right, title and interest in and to the collateral
described in SECTION 3 (the "Collateral") in order to secure the payment and
performance of the obligations of Grantor to PPG described in SECTION 4.
3. COLLATERAL. The Collateral under this Agreement consists of all of
the assets of Grantor set forth in EXHIBIT A. The security interest held by PPG
in all Collateral will be released, as described in SECTION 16 hereof, by PPG as
of the date upon which Grantor has paid the full amount of principal and
interest due under the Notes.
4. SECURED INDEBTEDNESS. This Agreement secures, and the Collateral is
collateral security for, the prompt payment in full when due of all obligations
and liabilities of every nature of Grantor now or hereafter existing under or
arising out of or in connection with the Secured Obligations by Grantor to PPG,
whether at stated maturity, by acceleration, demand or otherwise (including the
payment of amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)).
All payments and performance will be in accordance with the terms under which
such indebtedness, obligations and liabilities were or are hereafter incurred or
created. Grantor will also promptly reimburse PPG for any and all reasonable
amounts expended by PPG in accordance with, or in the enforcement (judicially or
otherwise) or exercise of its rights under the terms of this Agreement, which
amounts are included in the indebtedness secured under this Agreement.
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF GRANTOR. Debtor hereby represents
and warrants to PPG that:
a. This present Agreement creates a legal and valid security
interest on and in all of the Collateral in which Grantor has rights.
b. Grantor's chief executive office, principal place of business,
and the place where Grantor maintains its records concerning the Collateral are
presently located at the address set forth in the Note.
c. Except for the security interest created by this Agreement,
Grantor owns the Collateral free and clear of any liens or encumbrances,
provided however, that Grantor is relying on the representations and warranties
of PPG in that certain agreement of even date herewith under which Debtor
purchased certain Collateral from PPG. Except as may have been filed in favor
of PPG relating to this Agreement, no effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any filing or recording office.
d. All of the equipment and inventory described in Exhibit A is, as
of the date hereof, located at the places specified in Schedule 1 attached
hereto.
e. No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
either (i) the grant by Grantor of the security interest granted hereby or for
the execution, delivery or performance of this Agreement by Grantor or (ii) the
perfection of or the exercise by PPG of its rights and remedies hereunder
(except as may have been taken by or at the direction of Grantor).
f. This Agreement, together with the State of California Uniform
Commercial Code Financing Statement, Form UCC-1, creates a valid, perfected and
first priority security interest in the Collateral of the type which may be
perfected by such a filing, securing the payment of the Secured Obligations, and
all filings and other actions necessary or desirable to perfect and protect such
security interest have been duly made or taken.
g. All information heretofore, herein or hereafter supplied to PPG
by or on behalf of Grantor with respect to the Collateral is accurate and
complete in all respects, provided however, that Grantor is relying on the
representations and warranties of PPG in that certain agreement of even date
herewith under which Debtor purchased certain Collateral from PPG.
6. FURTHER ASSURANCES.
a. Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that PPG may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable PPG to exercise and enforce its
rights and remedies hereunder with respect to any Collateral.
2
<PAGE>
b. Grantor will furnish to PPG from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as PPG may reasonably request, all in
reasonable detail.
7. RIGHTS OF PPG WITH RESPECT TO THE COLLATERAL. PPG has the right at
any time to make any payments and do any other acts as may be reasonably
necessary to protect its security interest in the Collateral, including, without
limitation, the right to make any applicable filings, to pay, purchase, contest
or compromise any encumbrance, charge or lien which reasonably appears to be
prior or superior to the security interest granted under this Agreement, and to
appear in and defend any action or proceeding purporting to affect its security
interest in and/or the value of the Collateral, and in exercising any such
powers or authority, PPG has the right (but not any obligation) to pay all
reasonable expenses incurred in connection therewith. PPG will have no
obligation to make any of the foregoing payments or perform any of the foregoing
acts.
8. COVENANTS OF GRANTOR. Grantor shall:
a. not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
b. notify PPG of any change in Grantor's name, identity or corporate
structure within 15 days of such change;
c. give PPG 30 days prior written notice of any change in Grantor's
chief place of business, chief executive office or residence or the office where
Grantor keeps its records regarding the accounts described in Exhibit A;
d. if PPG gives value to enable Grantor to acquire rights in or the
use of any Collateral, use such value for such purpose; and
e. pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent the validity thereof is being contested in good faith; PROVIDED that
Grantor shall in any event pay such taxes, assessments, charges, levies or
claims not later than five days prior to the date of any proposed sale under any
judgment, writ or warrant of attachment entered or filed against Grantor or any
of the Collateral as a result of the failure to make such payment.
9. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY. Grantor
shall:
a. keep the equipment and inventory described in Exhibit A at the
places specified on Schedule 1 attached hereto or, upon 30 days prior written
notice to PPG, at such other places in jurisdictions where all action that may
be necessary or desirable, or that PPG may request, in order to perfect and
protect any security interest granted or purported to be granted hereby, or to
enable PPG to exercise and enforce its rights and remedies hereunder, with
respect to such equipment and inventory shall have been taken;
3
<PAGE>
b. cause the equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and shall forthwith, or, in the case of any loss or damage to any of
the equipment, as quickly as practicable after the occurrence thereof, make or
cause to be made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. Grantor shall promptly
furnish to PPG a statement respecting any material loss or damage to any of the
Equipment; and
c. keep correct and accurate records of the inventory, itemizing and
describing the kind, type and quantity of inventory, Grantor's cost therefor and
(where applicable) the current list prices for the inventory.
10. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED CONTRACTS.
Grantor shall keep its chief place of business and chief executive office and
the office where it keeps its records concerning the accounts and related
contracts described in Exhibit A at the location described in the Notes or, upon
30 days' prior written notice to PPG, at such other location in a jurisdiction
where all action that may be necessary or desirable, or that PPG may request, in
order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable PPG to exercise and enforce its rights and remedies
hereunder, with respect to such accounts and related contracts shall have been
taken. Grantor will hold and preserve such records and will permit
representatives of PPG on reasonable notice during normal business hours to
inspect and make abstracts from such records, and Grantor agrees to render to
PPG, at Grantor's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. Promptly upon the request of PPG,
Grantor shall deliver to PPG complete and correct copies of each such related
contract.
11. POWER OF ATTORNEY. Grantor hereby appoints and constitutes PPG as
Grantor's attorney-in-fact for purposes of filing all documents required to
renew and maintain the security interests on the Collateral. This power of
attorney is coupled with an interest, is irrevocable by Grantor, and shall
terminate upon termination of this Agreement.
12. GOVERNING LAW. This Agreement will be construed in accordance with
and all disputes under this Agreement will be governed by the laws of the State
of California, without regard to conflicts of law.
13. AMENDMENTS, WAIVERS AND NOTICES. This Agreement or any provision of
this Agreement may be changed, waived, or terminated only by a statement in
writing signed by both parties hereto. All notices between the parties will be
made pursuant to the notices provisions of the Note.
14. ENTIRE AGREEMENT. This Agreement, together with the Notes and any
other agreement executed in connection with this Agreement is intended by the
parties as a final expression of their agreement and is intended as a complete
and exclusive statement of the terms and conditions thereof.
15. SEVERABILITY. If any provision of this Agreement should be found to
be invalid or unenforceable to any extent, all of the other provisions will
nonetheless remain in full force and effect to the maximum extent permitted by
law and the affected provision will be construed as if it were written so as to
be valid and enforceable to the maximum possible extent.
4
<PAGE>
16. TERMINATION OF AGREEMENT. This Agreement will terminate upon the full
and final payment and performance of all indebtedness and obligations secured
under this Agreement. At such time, PPG will reassign to Grantor all of the
Collateral which has not been sold, disposed of, retained or applied by PPG.
PPG will execute all appropriate instruments and other documents (including,
without limitation, UCC termination statements) to release the security interest
in the Collateral granted in this Agreement.
17. COUNTERPARTS. This Agreement may be executed in counterparts; any one
or more of which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly
executed the date first written above.
UNIFET, INCORPORATED
By: /S/ W. JERRY MEZGER
--------------------------------------
W. Jerry Mezger, President
PPG INDUSTRIES, INC.
By: /S/ H. K. LINGE
--------------------------------------
H.K. LINGE , TREASURER
-------------
[SIGNATURE PAGE FOR SECURITY AGREEMENT]
5
<PAGE>
EXHIBIT A
COLLATERAL. The Collateral of Grantor is described as follows:
1. All present and future accounts, general intangibles and other rights
of Grantor to the payment of money no matter how evidenced, all chattel paper,
instruments and other writings evidencing any such right, and all goods
repossessed or returned in connection therewith;
2. All inventory of Grantor, now owned or hereafter acquired, and all raw
materials, work in process, materials used or consumed in Grantor's business and
finished goods, together with all additions and accessions thereto and
replacements therefor, and products thereof;
3. All equipment of Grantor, now owned or hereafter acquired, including,
without limitation, all machinery, tools, dies, blueprints, catalogues, computer
hardware and software, furniture, furnishings and fixtures.
4. All documents and instruments now owned or hereafter acquired,
including, without limitation, securities and all new substituted and additional
documents and instruments issued with respect thereto, all voting or other
rights now or hereafter exercisable and all cash and non-cash dividends and all
other property now or hereafter receivable with respect to any of the foregoing;
5. All now existing or hereafter acquired patents, trademarks and trade
names used in Grantor's business;
6. All now existing and hereafter acquired books and records relating to
the foregoing Collateral and all equipment containing such books and records;
7. All other property of Grantor now or hereafter in the possession,
custody or control of PPG and all property of Grantor in which PPG now has or
hereafter acquires a security interest; and
8. All proceeds of the foregoing Collateral. For purposes hereof, the
term "proceeds" includes whatever is receivable or received when Collateral or
proceeds is sold, collected, exchanged or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes, without limitation, all
rights to payment, including return premiums, with respect to any insurance
relating thereto.
1
<PAGE>
SCHEDULE 1
LOCATION OF EQUIPMENT AND INVENTORY
11021 Via Frontera, Suite 200
San Diego, California 92127
11077 North Torrey Pines Road
La Jolla, California 92037
2
<PAGE>
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR THE
ISSUER RECEIVES AN OPINION OF COUNSEL STATING THAT SUCH DISPOSITION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT.
Warrant No. PPG-1 (As amended April 28, 1995, June 14, 1995 and March 20, 1996)
WARRANT TO PURCHASE COMMON STOCK
OF SENDX MEDICAL, INC. (formerly UniFET Incorporated)
This certifies that PPG INDUSTRIES, INC. (the "Holder") and the Holder's
registered successors and assigns are entitled, subject to the terms and
conditions set forth below, to subscribe for and purchase from SENDX MEDICAL,
INC. (formerly UniFET Incorporated) (the "Company") Five Hundred Thousand
(500,000) shares of the Common Stock of the Company (the "Warrant Shares") at an
exercise price (the "Exercise Price") of One Dollar and Fifty Cents ($1.50) per
share, subject to adjustment as set forth herein. The term Warrant Shares as
used herein includes the shares of the Company's Common Stock (and such other
securities or property into which such shares of Common Stock may hereafter be
changed) which are at the time receivable by the Holder upon exercise of this
Warrant. The term "Warrant" as used herein shall include this Warrant and any
Warrant delivered in substitution or exchange herefor, as provided herein.
1. EXERCISE AND EXPIRATION.
1.1 EXPIRATION, METHOD OF EXERCISE. This Warrant may be
exercised in whole or in part at any time or times, prior to December 31, 1999,
at which time this Warrant shall expire. This Warrant shall be exercised by
surrender hereof together with delivery of a signed Subscription Agreement in
the form attached hereto as Annex I specifying the number of shares to be
purchased.
1.2 PAYMENT. Payment of the purchase price for the shares
to be purchased shall be made upon the delivery of certificates evidencing the
shares to be purchased, and shall be made in cash, or by wire transfer or
certified check, or by cancellation of all or part of the Secured Promissory
Note, including accrued but unpaid interest, issued to the original holder of
this Warrant pursuant to the Agreement between the Company and PPG Industries,
Inc. dated January 17, 1995.
<PAGE>
1.3 NET EXERCISE. In addition, the Holder shall have the
right, upon its written request delivered or transmitted to the Company together
with this Warrant, to exchange this Warrant, in whole or in part at any time or
from time to time on or prior to December 31, 1999, for the number of shares of
Common Stock having an aggregate Fair Market Value (determined as set forth in
Section 1.4 below) on the date of such exchange equal to the difference between
(i) the aggregate Fair Market Value on the date of such exchange of a number of
Warrant Shares designated by the Holder and (ii) the aggregate exercise price
the Holder would have paid to the Company to purchase such designated number of
Warrant Shares upon exercise of this Warrant. Upon any such exchange, the
number of Warrant Shares purchasable upon exercise of this Warrant shall be
reduced by such designated number of shares, and, if a balance of purchasable
shares remains after such exchange, the Company shall execute and deliver to the
Holder a new Warrant evidencing the right of the Holder to purchase such balance
of shares. No payment of any cash or other consideration shall be required.
Such exchange shall be effective upon the date of receipt by the Company of the
original Warrant surrendered for cancellation and a written request from the
Holder that the exchange pursuant to this Section be made, or at such later date
as may be specified in such request.
1.4 FAIR MARKET VALUE. Fair market value of the Common
Stock ("Fair Market Value") shall be determined as follows:
(a) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such an
exchange, or is listed on the Nasdaq National Market or Small Cap Market, the
current Fair Market Value shall be the last reported sales price of the Common
Stock on such exchange or Nasdaq on the last business day prior to the date of
exercise of this Warrant or if no such sale is made on such day, the mean of the
closing bid and asked prices for such day on such exchange or Nasdaq; or
(b) If the Common Stock is not so listed or admitted
to unlisted trading privileges or quoted on Nasdaq, the current Fair Market
Value shall be the mean of the last bid and asked prices reported on the last
business day prior to the date of the exercise of this Warrant (i) by Nasdaq, or
(ii) if reports are unavailable under clause (i) above, by the National
Quotation Bureau Incorporated; or
(c) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so reported, the
current Fair Market Value shall be determined in good faith as promptly as
reasonably practicable by the mutual agreement of the Board of Directors and the
Holder. If such partes are unable to reach agreement within 20 days after the
need for such determination arises, the Board of Directors shall appoint a
nationally recognized investment banking firm acceptable to the Holder (the
"Appointed Firm") to make such determination. The parties shall use their best
efforts to cause the Appointed Firm to resolve all disagreements as soon as
practicable, but in any event within 45 days after the submission of the
disputes to such Appointed Firm. The resolution of such disagreements and the
determination of Fair Market Value by the Appointed Firm shall be final and
binding on the Company and the Holder. The Appointed Firm will determine the
allocation of its fees and expenses in connection with its determination of Fair
Market Value based upon the percentage which the portion of the contested amount
not awarded to each party bears to the amount actually contested by such party.
For example, if the Board of Directors claims that the Fair Market Value is
$1,000 less than the amount claimed by the Holder, and if the Appointed Firm
2
<PAGE>
ultimately resolves the dispute by awarding the Holder $300 of the $1,000
contested, then the fees and expenses of the Appointed Firm will be allocated
70% (ie: 700/1000) to the Holder and 30% (i.e: 300/1000) to the Company.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
Exercise Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 2.
2.1 STOCK DIVIDENDS, SPLITS. If the Company shall (i) pay
a dividend or make a distribution in shares of capital stock (whether shares of
Common Stock or capital stock of any other class), (ii) effect a stock split or
subdivide its outstanding Common Stock, (iii) effect a reverse stock split or
combine its outstanding Common Stock into a smaller number of shares, or
(iv) effect any other reclassification or recapitalization, the Exercise Price
in effect immediately prior thereto shall be adjusted so that upon the
subsequent exercise of this Warrant the Holder hereof shall be entitled to
receive the number of shares of capital stock of the Company which the Holder
hereof would have owned or have been entitled to receive after the happening of
any of the events described above had such Warrant been exercised immediately
prior to the happening of such event. An adjustment made pursuant to this
Section 2.1 shall become effective immediately after the record date for any
event requiring such adjustment or shall become effective immediately after the
effective date of such event if no record date is set.
2.2 ADJUSTMENT OF WARRANT SHARES. Upon each adjustment of
the Exercise Price pursuant to Section 2.1, the holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Warrant Shares obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment; and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
2.3 NOTICE. Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly prepare a notice of such adjustment
of the Exercise Price setting forth the adjusted Exercise Price, the number of
shares issuable upon exercise of the Warrant and the date on which such
adjustment becomes effective and shall mail such notice of such adjustment of
the Exercise Price to the holder of this Warrant at the address of such Holder
as in the records of the Company.
2.4 EFFECT OF CONSOLIDATION, MERGER OR SALE. This Warrant
shall expire upon any consolidation or merger to which the Company is a party or
upon any sale or conveyance to another entity of the property of the Company as
an entirety or substantially as an entirety, other than a consolidation, merger,
sale or conveyance in which the Company is the continuing corporation or in the
case of any statutory exchange of securities with another corporation (excluding
any exchange effected in connection with a merger of a third corporation into
the Company). Notice of any such consolidation, merger, sale, conveyance or
statutory exchange, and of the expiration of this Warrant shall be mailed to the
Holders of the Warrants not less than 30 days prior to such event.
3
<PAGE>
2.5 NO IMPAIRMENT. The Company will not, by amendment of
its Articles of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, 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 herein, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the Holder of this
Warrant against dilution or other impairment.
3. RESERVATION OF COMMON STOCK. The Company hereby covenants
and agrees that it shall at all times reserve and keep authorized and available
for issuance, free of any preemptive rights or rights of first refusal, a
sufficient number of Warrant Shares for the purpose of issuance upon exercise of
this Warrant to permit the exercise of this Warrant in whole.
4. REGISTRATION RIGHTS. The Holder shall be entitled to
register the Warrant Shares pursuant to that certain Registration Rights
Agreement dated March 20, 1996, by and among the Company, the Holder and certain
other shareholders of the Company.
5. LOSS, ETC. OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Warrant, if
mutilated, the Company shall execute and deliver to the Holder a new Warrant of
like date, tenor and denomination.
6. WARRANT HOLDER NOT SHAREHOLDERS. Except as otherwise
provided herein, this Warrant does not confer upon the Holder any right to vote
or to consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
7. COMMUNICATION. No notice or other communication under this
Warrant shall be effective unless, but any notice or other communication shall
be effective and shall be deemed to have been given if, the same is in writing
and is mailed by first-class mail, postage prepaid, addressed as set forth
below:
IF TO THE COMPANY: SENDX MEDICAL, INC.
1945 Palomar Oaks Way
Carlsbad, California 92009
Attn: President
or such other address as the Company has designated in writing to the
Holder.
IF TO THE HOLDER: PPG Industries, Inc.
One PPG Place
Pittsburgh, Pennsylvania 15272
Attn: Treasurer
or such other address as the Holder has designated in writing to the
Company.
4
<PAGE>
8. HEADINGS. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
9. APPLICABLE LAW. This Warrant shall be governed by and
construed in accordance with the law of the State of California without giving
effect to the principles of conflicts of law thereof.
10. AMENDMENT. This Warrant may only be amended by written
agreement of the Holder and the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered by its duly authorized officers as of the 20TH day
of March, 1996.
SENDX MEDICAL, INC.
By: /s/ DOUGLAS R. HILLIER
----------------------------------
Its: Chief Executive Officer
5
<PAGE>
ANNEX I TO WARRANT
SUBSCRIPTION AGREEMENT
The undersigned holder of the Warrant to which this Subscription
Agreement is attached as Annex I hereby (i) subscribes for ___________________
Warrant Shares (as defined in the Warrant) which the undersigned is entitled to
purchase pursuant to the terms of such Warrant, and (ii) directs that the
certificates evidencing such shares of Common Stock be issued and delivered to
_______________________________. Payment of the Exercise Price will be made
upon delivery of such certificates.
Date:
----------------
Signature
Type or Print Name
Street Address
City, State Zip Code
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
$2,000,000 July 31, 1995
FOR VALUE RECEIVED, the undersigned, UniFET INCORPORATED, a California
corporation (the "BORROWER"), hereby unconditionally promises to pay to
INSTRUMENTATION LABORATORY COMPANY, a Delaware corporation (the "LENDER"), to
its account no. 54140622 at Bank of Boston, Boston, Massachusetts, ABA no. 011
000 390, or to its order, in lawful money of the United States of America and in
immediately available funds, the principal amount of TWO MILLION DOLLARS
($2,000,000), or if less, the aggregate unpaid principal amount hereof, on July
31, 1996, and to pay interest to such account in like money on the unpaid
principal amount hereof outstanding from time to time, computed from the date
hereof until maturity at an interest rate, calculated on the basis of a 365 or
366 day year, as the case may be, equal to ten percent (10%) per annum, at
maturity.
The entire principal balance of this Note, together with all accrued and
unpaid interest thereon, shall be due and payable on or before the earlier to
occur of (a) July 31, 1996, or (b) the closing date of any public offering of
securities of the Borrower.
This Note may be prepaid in whole or in part at any time or times without
penalty or premium.
Borrower hereby covenants and agrees that during the term of this Note, (a)
it shall preserve its corporate existence and its material rights and
franchises; (b) it shall not enter into any transaction of merger or
consolidation, or liquidate or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease or otherwise dispose of all or a material
portion of its property or business; (c) it shall prepay all amounts outstanding
hereunder immediately upon receipt of the proceeds of any public offering of its
securities; (d) it shall disclose to Lender any material transaction with
affiliates at least ten days prior to effecting the same and shall not enter
into any transactions with its affiliates other than on an armslength basis; (e)
it shall use reasonable efforts to meet the conditions for closing under the
definitive stock purchase agreement and related documentation to be negotiated
in accordance with the term sheet annexed hereto as Annex 1 on or prior to
August 31, 1995; (f) it shall not incur any obligations for borrowed money prior
to payment in full hereof, unless such obligations are subordinated in right of
payment to this Promissory Note on terms reasonably satisfactory to the Lender;
and (g) it shall not issue any equity securities, or rights or options to
purchase its equity securities, prior to September 15, 1995, except as set forth
on Appendix I hereto. Failure by Borrower to satisfy any of the covenants set
forth above (in the case of clauses (e), (f) and (g), within 10 days after
notice) shall constitute a "COVENANT DEFAULT."
If (a) default shall be made in any payment hereon, including either
principal or interest; (b) a Covenant Default shall occur; (c) Borrower shall
file a petition for relief under the
<PAGE>
EXHIBIT "A"
Bankruptcy Reform Act of 1978, as amended or recodified (the "Bankruptcy Act")
or under any other present or future state or federal law regarding bankruptcy,
reorganization, or the relief to debtors; (d) Borrower shall file any pleading
in any involuntary proceeding under the Bankruptcy Act which admits the
petition's material allegations regarding Borrower's insolvency; (e) Borrower
shall make a general assignment for the benefit of creditors; or (f) Borrower
shall apply for the appointment of a receiver, trustee, custodian, or liquidator
of Borrower or substantially all of its property, then, in any such event, the
unpaid principal balance of this Note and all accrued interest then unpaid shall
at once become due and payable without notice or demand.
Any sum, whether constituting principal or interest, payable under this
Note which is not paid when due shall bear interest from the date such payment
is due until paid at the rate of ten percent (10%) per annum, computed as set
forth above.
If default is made in the prompt payment of this Note when due and the same
is placed in the hands of an attorney for collection, or suit is brought on
same, or the same is collected through probate, bankruptcy, or other judicial
proceedings, then Borrower agrees and promises to pay any attorney's fees and
court costs incurred by Lender in connection with collection of this Note.
Except for such notice as is provided for herein, Borrower and any and all
endorsers, guarantors, and sureties severally waive protest and notice of
protest, notice of intent to accelerate, notice of acceleration, any other
notices of any kind, and consent that the time of payment hereof may be extended
and re-extended from time to time without notice to them or any of them.
All notices, requests, and communications under this Note shall be given in
writing or by telegram or telecopy confirmed in writing, and shall be delivered
in person or mailed by first class registered or certified mail, postage
prepaid, return receipt requested, to the individuals and addresses indicated
below:
BORROWER: UniFET Incorporated
11077 N. Torrey Pines Road
LaJolla, CA 92037
LENDER: Instrumentation Laboratory Company
101 Hartwell Avenue
Lexington, MA 02173
Every provision of this Note is intended to be severable. In the event any
term or provision hereof is declared by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever, such illegality or invalidity
shall not affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable.
2
<PAGE>
EXHIBIT "A"
Time is of the essence with respect to each provision hereof.
3
<PAGE>
EXHIBIT "A"
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, this Note has been executed and delivered as of the
date first above written.
UniFET INCORPORATED
By /s/ W. JERRY MEZGER
-----------------------------
W. Jerry Mezger
4
<PAGE>
CONFIDENTIAL PORTIONS OMITTED
AGREEMENT
AGREEMENT by and between UNIFET, INC., a California corporation having a
place of business at 11021 Via Frontera, Suite 200, San Diego, California 92127
("Unifet") and BECKMAN INSTRUMENTS, INC. a Delaware corporation having a place
of business at 2500 Harbor Boulevard, Fullerton, California 92634 ("BECKMAN").
R E C I T A L S
I. Unifet is in the business of designing, developing and manufacturing
pH meters and probes for sale by itself and others.
II. Beckman desires Unifet to especially design, develop and manufacture
two (2) pH meters and two (2) probes for distribution by Beckman into non-
medical markets (the "Meters").
III. Beckman desires to be the sole and exclusive world-wide distributor of
the Meters and to have the exclusive right and option to manufacture the Meters.
NOW THEREFORE in consideration of the undertakings contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
1.0 DESIGN AND DEVELOPMENT
1.1 DESIGN AND DEVELOPMENT - Unifet shall use its best efforts to
design and develop the Meters. The Meters shall meet each and all of the
specifications of Exhibit A.
1.2 SCHEDULE - Unifet shall use its best efforts to comply with the
development schedule of Exhibit B. Unifet recognizes that time is of the
essence in its performance under this Agreement.
1.3 DEVELOPMENT PAYMENTS - Beckman shall make the payments to Unifet
at the times and in the amounts specified in Exhibit C.
1.4 WORKS MADE FOR HIRE - Unifet shall promptly disclose and assign
to Beckman all original works of authorship (whether made solely by them or
jointly with others) fixed in any tangible medium of expression resulting from
or suggested by the design and development services to be performed under
Paragraph 1.1 and relating to the user interface, icons, the sequence of
operations for input of data and calibration, graphics, the display format or
the LCD for the Meters (jointly and severally "Works") . Works specifically
excludes those inventions and trade secrets listed in Exhibit D which Unifet may
include in the design and/or manufacture of the Meters. Unifet agrees (a) that
all such Works shall be works made for hire, (b) that in the event any such
Works are deemed not to be works made for hire, that Unifet assigns any and all
rights they may have in such Works to Beckman, (c) that Beckman shall
<PAGE>
be the sole and exclusive owner of such Works and any copyright arising in such
Works, and (d) that from time to time, upon request of Beckman, and without
charge for their services beyond the payments herein specified, Unifet will
assist Beckman, during and subsequent to the term of this Agreement (entirely at
Beckman's expense) to obtain for Beckman's benefit copyrights and copyright
registrations in any or all countries of the world and that they will execute
all papers (including assignments) and do all things reasonably required in
order to protect the copyrights and copyright registrations of Beckman and vest
in it all right, title and interest in and to such copyrights and copyright
registrations.
1.5 EXTERNAL DESIGN AND INVENTIONS - Unifet agrees that, except for
exterior features common to the inventions listed in Exhibit D, the external
design for the Meters is the sole and exclusive property of Beckman. Unifet
shall promptly disclose and assign to Beckman all inventions conceived or first
reduced to practice by them or in accordance with their directions (whether
patentable or not or made solely by them or jointly with others) and relating to
the external design for the Meters. Such inventions are to become the property
of Beckman whether or not patent applications are filed thereon. Unifet agrees
that from time to time, upon request and without charge for their services
beyond the payments herein specified, they will assist Beckman in every proper
way during and subsequent to the term of this Agreement (entirely at Beckman's
expense) to obtain for Beckman's benefit patents for such inventions in any or
all countries of the world and that they will execute all papers (including
assignments) and do all things that may reasonably be required in order to
protect the rights of Beckman and vest in it all right, title and interest in
and to such inventions, patent applications, and patents.
1.6 PROPRIETARY INFORMATION - Unifet agrees not to disclose to any
third party or publish, directly or indirectly at any time or use, except for
furtherance of the purposes of this Agreement, any proprietary or confidential
information of Beckman (including any information created by the design and
development services of Paragraph 1.1) which they may obtain under this
Agreement. Unifet represents that, with respect to any information, knowledge
or data disclosed by them to Beckman, they have the full and unrestricted right
to disclose the same without incurring legal liability to others, and that
Beckman shall have the full and unrestricted right and license to use and
publish the same as it may see fit, subject only to such prior rights in others
as may arise under the patent and copyright statutes.
1.7 TERMINATION AT WILL - Beckman may, in addition to its right to
terminate this Agreement in accordance with Paragraph 11.2, also terminate this
Agreement at will upon thirty (30) days prior written notice to Unifet. In the
event of termination in accordance with this Paragraph 1.7 Unifet shall upon
receipt of such notice use its best efforts to stop performance of the design
and development services of Paragraph 1.1 in the least costly and most efficient
manner possible and to otherwise minimize the expenses of Beckman. Unifet shall
promptly after the expiration of the thirty (30) day notice period send Beckman
an invoice for the time and expenses actually and reasonably incurred by Unifet
in its performance of the services of Paragraph 1.1; provided that, in no event
shall the cumulative total of such invoice plus all amounts theretofore paid by
Beckman to Unifet under this Agreement exceed [*].
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
2
<PAGE>
2.0 PURCHASE AND SALE OF METERS
2.1 PURCHASE AND SALE - Unifet shall manufacture, sell and deliver to
Beckman and Beckman shall purchase and take from Unifet such quantities of the
Meters and parts for the Meters as Beckman may order under this Agreement.
2.2 CONFORMANCE WITH SPECIFICATIONS - Each Meter and part thereof
manufactured and sold under this Agreement shall conform to the specifications
of Exhibit A. Beckman may request changes or additions to the specifications.
Unifet agrees to and shall negotiate in good faith and use its best efforts to
incorporate such changes or additions into the Meters sold under this Agreement.
2.3 TRADEMARKS AND TRADENAMES - Each Meter shall be packaged and
labeled in accordance with the specifications of Exhibit A.
2.4 CHANGES - Unifet shall not make any changes to the Meters, the
software of the Meters, the source of raw materials and components used in the
Meters or the method of manufacture or quality control thereof without the prior
written approval of Beckman.
2.5 FORECASTS AND ORDERING OF PRODUCT - Beckman shall, promptly after
completion of fully integrated testing of the hardware and software for each
Meter, provide Unifet with a written forecast of the quantity of each Meter
which Beckman anticipates it will purchase from Unifet during each of the next
twelve (12) months. A non-cancelable Beckman Purchase Order for the total
quantity, if any, specified during the initial three (3) months of this
Agreement, shall accompany the forecast. The remaining nine (9) months of the
forecast shall be Beckman's best estimate of its requirements for each Meter
from Unifet during such period. The forecast shall not be binding on either
party and shall be used for planning purposes only.
2.5.1 Subject to Article 6.0, Beckman shall, within ten (10) days of
the end of each month, send Unifet a revised twelve (12) month forecast.
Beckman shall include with each revised forecast a non-cancelable Purchase Order
for the quantities, if any, of each Meter specified in month three (3). The
remaining nine (9) months of the revised forecast shall be Beckman's best
estimate of its requirements for each Meter from Unifet during such period. The
revised forecasts shall not be binding on either party and shall be used for
planning purposes only.
2.5.2 Unifet shall build Meters for Beckman only in response to a
Beckman Purchase Order and not to a Beckman forecast.
2.5.3 Each Beckman Purchase Order shall set forth the quantity to be
purchased, the delivery date and shipping instructions.
2.6 DELIVERY - Subject to Paragraph 2.6.1 Unifet shall deliver the
Meters and parts thereof in the quantities specified in Beckman's Purchase
Orders, FOB destination. Time is of the essence in Unifet's performance under
this Agreement. Unifet understands and accepts that Beckman operates on a
"just-in-time" manufacturing system and that the delivery date specified by
Beckman is when Beckman needs the Meters and/or parts in-house. Accordingly,
Unifet will plan, manufacture, test and provide adequate transportation time to
assure that the delivery date is met. Unifet will promptly communicate to the
Beckman Purchasing Agent any anticipated delays in delivery so that special
shipping or other
3
<PAGE>
arrangements can be made. Unifet will be responsible for any extra shipping
charges associated with or resulting from late shipments. Any disputes arising
from delivery scheduling shall, to the extent possible, be resolved by the
Beckman Purchasing Agent and the Unifet Account Manager. Any unresolved
disputes shall be transferred to Beckman and Unifet Vice-Presidents for
settlement.
2.6.1 Subject to the provision hereafter, Beckman is not required to
accept partial shipments; provided that, any quantity of each Meter in excess of
one hundred and thirty percent (130%) of the forecast therefor provided to
Unifet in the immediately preceding month may be delivered in such period after
the specified delivery date as the parties agree is reasonable under the
circumstances.
2.7 RETURN MATERIAL AUTHORIZATION - Unifet agrees to promptly respond
to all requests for return material authorizations and bear all freight and
insurance costs associated with either Meters or parts which do not meet
specifications or over shipments of the Meters.
2.8 PRODUCT PROBLEM - Each party shall promptly communicate to the
other all information which comes to its attention pertaining to adverse
performance or product anomalies relative to or having a bearing on the Meters.
Unifet shall promptly investigate and regularly report back to Beckman on its
actions contemplated and taken to resolve all such problems.
2.9 PRODUCT CORRECTIVE ACTION - Beckman shall be responsible for,
coordinate and conduct any corrective action required for Meters sold hereunder
to its direct and indirect customers. If such corrective action is caused by
the failure or fault of Unifet to comply with Paragraph 2.2 or 4.1, then Unifet
shall replace, at no cost to Beckman, all quantities of the Meters affected
thereby.
2.10 PURCHASE AND SALE FORMS - Any terms and conditions on either a
Beckman Purchase Order or a Unifet Order Acknowledgment or any other document
relating to the purchase, sale or transfer of Meters between the parties which
are in conflict with any of the terms of this Agreement shall be null and void
and without legal effect.
2.11 IMPROVEMENTS - Unifet shall promptly disclose to Beckman any
improvements to, or applicable to, the Meters and shall offer such improvements
to Beckman. The parties shall, if Beckman desires to market or use such
improvement, negotiate in good faith to provide Beckman marketing and
territorial rights equivalent to those granted under this Agreement.
3.0 PRICING AND PAYMENT TERMS
3.1 PRICE - Subject to Paragraphs 3.2 and 3.5, the purchase price for
each Meter sold by Unifet to Beckman under this Agreement shall be those shown
in the Price List to be hereafter agreed by the parties and attached hereto as
Exhibit E. Parts shall be sold to Beckman at Unifet's Standard Cost plus [*].
Unifet's Standard Cost shall be the cumulative total of Unifet's actual expenses
for labor, materials and direct overhead applicable to the manufacture of such
parts.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
4
<PAGE>
3.2 BECKMAN SUPPLIED PARTS - Beckman presently manufacturers certain
parts and components which can be used in the Meters. If Unifet elects to use
such Beckman parts in the Meters Beckman shall manufacture such parts for Unifet
and transfer such parts to Unifet at no charge. Beckman shall notify Unifet of
the standard cost for each such part. Unifet shall reduce the purchase price of
Paragraph 3.1 for each Meter by the cumulative total of the standard costs for
each of such Beckman parts in such Meter.
3.3 PAYMENT TERMS - Beckman shall pay each Unifet invoice for Meters
and/or parts within thirty (30) days of the latter of the receipt of the Meters
or parts referenced on such invoice or the invoice.
3.4 INVOICE INFORMATION - Unifet will include the following
information on all invoices and packing slips: (i) Purchase Order number
including the alpha character prefix, (ii) line item number, (iii) release
number, and, on invoices, the packing slip number. Unifet understands and
agrees that failure to comply with these requirements may delay payment.
3.5 PRICE ADJUSTMENTS - The prices set forth in Exhibit E will remain
firm for all orders placed through the second anniversary of this Agreement.
Thereafter, pricing shall be reviewed on an annual basis, and adjusted upon
agreement between Beckman and Unifet. Upon request of Beckman, Unifet shall
provide written documentation relating to any requested price change, including
Unifet's cost data for material, labor and overhead, and any other data deemed
necessary by Beckman to establish and justify the equity of the proposed price
change. If the parties cannot agree on a proposed price change the matter shall
be submitted to mediation and arbitration in accordance with Paragraph 15.2.
4.0 QUALITY ASSURANCE AND COMPLIANCE WITH LAWS
4.1 WARRANTY - Unifet warrants that the probe shall for a period of
six (6) months and the remainder of the Meters and parts therefor shall, for a
period of three (3) years be free from defects in materials and workmanship and
conform to each and all of the specifications therefor in attached Exhibit A.
In both cases time shall be calculated from shipment of the Meters to Beckman or
Beckman's designee. Unifet shall replace any Meter, part or probe which fails
to comply with the foregoing warranty.
4.2 QUALITY TESTING - Unifet agrees to and shall, prior to shipment
of any of the Meters sold hereunder, perform each of the quality tests specified
in Exhibit F on such Meter. Unifet shall provide a Certificate in a form
mutually agreed upon by the parties specifying conformance to the preceding
sentence and the numerical or other results of such testing.
4.3 LEGAL COMPLIANCE AND INSPECTIONS - Unifet shall comply with all
Federal, State and local laws and regulations applicable to the Meters and their
manufacture. No article shipped pursuant to this Agreement will be produced in
violation of any provision of the Fair Labor Standards Act of 1938 as amended.
The provisions of Section 202 of Executive Order 11246 and Sections 60-1.4,
60-1.7 and 60-1.8 of Chapter 60 of 41 Code of Federal Regulations, as amended,
prohibiting discrimination against any employee or applicant for employment
because of race, color, religion, sex or national origin, Section 60-741.4 of
Chapter 60 of 41 Code of Federal Regulations, as amended, prohibiting
discrimination against any employee or applicant for employment because of
physical or mental handicap and Section 60-250.4 of Chapter 60 of 41 Code of
Federal Regulations as amended, providing for the employment
5
<PAGE>
of disabled veterans and veterans of the Vietnam era. Each of such regulations
are hereby incorporated by reference to the same extent and with the same force
and effect as if set forth herein in full. Unifet shall make its facilities,
personnel and all regulatory records and documents (subject to a right by Unifet
to blackout or otherwise excise specific proprietary information from such
records and documents) available to Beckman at all reasonable times upon
reasonable notice to allow such inspections and investigations as Beckman shall
reasonably require to assure itself of Unifet compliance with all legal and
regulatory standards pertaining to the Meter.
4.4 QUALITY GOAL - Beckman's quality goal is to receive, and Unifet's
quality goal is to supply, defect-free material. Accordingly, the parties agree
to a "zero-defect" objective. Unifet understands Beckman's supplier philosophy
and quality supplier principles, and accepts those principles as the basis of
the relationship between Unifet and Beckman. Unifet and Beckman agree to
communicate openly and to work together on quality programs to achieve long-term
success for the businesses involved. Meetings to review progress will be held.
This Paragraph 4.4 is not intended to impose on either party any legal
obligations additional to those imposed by the other sections of this Agreement.
It is intended simply to recognize the quality focus on which the parties'
business relationship is based.
5.0 RIGHTS TO BECKMAN
5.1 EXCLUSIVE SELLER AND DISTRIBUTOR - Unifet hereby appoints
Beckman, and Beckman accepts appointment, as Unifet's sole and exclusive seller
and distributor throughout the world for the Meters designed for Beckman under
this Agreement.
5.2 RESTRICTIONS ON UNIFET - Unifet shall not promote or sell the
Meters designed for Beckman under this Agreement to any third party nor shall
Unifet accept any orders for such Meters from any third party anywhere in the
world. Nothing contained herein shall preclude Unifet from promoting or selling
meters of a different design.
6.0 MARCH IN RIGHTS
6.1 MARCH-IN RIGHTS - Beckman shall, on the occurrence of any of the
following events have the right to cancel any outstanding Purchase Orders for
the Meters, to be thereafter relieved of its obligations to purchase the Meters
from Unifet and to immediately exercise the right to manufacture of Paragraph
6.4 and the option for license of Paragraph 6.5:
(a) Unifet is unable or unwilling to accept a Beckman Purchase Order
for Meters; or,
(b) Subject to Paragraph 2.6.1, Unifet has not supplied at least
eighty percent (80%) of the quantities set forth in two (2) successive Purchase
Orders for Meters; or,
(c) Two (2) successive shipments or three (3) shipments in the
previous twelve (12) months have failed, in whole or in part to meet the
specifications of Exhibit A.
6.2 ESCROW OF KNOW HOW - Unifet shall, not later than sixty (60) days
after receipt of the Beckman forecast of Paragraph 2.5, transfer to an escrow
selected by Beckman and acceptable to Unifet all of the technology, data, know
how and process information necessary or useful to make, use, quality control,
package, store and ship the Meters. Included within such know how, by way of
example and
6
<PAGE>
not limitation, shall be the source code, code descriptions and fields for each
Meter's software, the name and address of each vendor that Unifet then uses for
each of the parts and components for the Meters, a complete parts list for each
Meter, and wiring diagrams and manufacturing instructions for each Meter.
Completion of the escrow by Unifet in accordance with this Paragraph is material
to this Agreement.
6.3 INSTRUCTIONS FOR ESCROW - The instructions for the escrow shall
be prepared jointly by the parties and, at a minimum shall include: (a)
inspection by Beckman of the escrowed material to assure completeness, and (b)
immediate transfer to Beckman of the escrowed material on receipt by the escrow
of written notice from Beckman that one or more of the conditions of Paragraph
6.1 have occurred. A copy of the notice to the escrow shall be sent to Unifet.
Beckman shall pay all of the expenses of the escrow.
6.4 BECKMAN MANUFACTURE - Beckman may, on the occurrence of any of
the events of Paragraph 6.1 manufacture the Meters on its own or have third
parties manufacture the Meters on its behalf.
6.4.1 Beckman's exercise of its right under Paragraph 6.4 shall not
alter or modify Beckman's rights under Paragraph 5.1 and Unifet's duty under
Paragraph 5.2.
6.5 OPTION TO BECKMAN - Unifet hereby grants to Beckman and Beckman
accepts an option to receive a non-exclusive, worldwide, royalty-bearing, non-
cancelable license under any patents, copyrights, know-how or trade secrets now
or hereafter owned or Controlled By Unifet and necessary or useful to make, use
and sell the Meters. For purposes of the present Agreement, the term
"Controlled By" means the right in Unifet or any division or subsidiary of
Unifet to grant licenses, rights or immunities under the controlled material,
either with or without a corresponding obligation on the part of Unifet to
account or report to another because of such grant.
6.6 EXERCISE OF OPTION - Beckman may by written notice to Unifet,
exercise the option of Paragraph 6.5 at any time upon the occurrence of any of
the events of Paragraph 6.1. Such license shall become effective, without the
need for further acts or action on the part of Unifet, as of the date Beckman
sends such notice.
6.7 ROYALTIES - Beckman shall pay Unifet a running royalty of: [*]
of the purchase price of Paragraph 3.1 in effect at the time of exercise of
Paragraph 6.6 for all Meters manufactured by or for Beckman under Paragraph 6.4.
6.8 ROYALTY PAYMENTS - Beckman shall, within sixty (60) days
following each calendar quarter commencing with the quarter wherein it makes its
first sale of a Meter subject to the royalty provisions of Paragraph 6.7, submit
to Unifet an accounting report of: (a) the quantity of such Meters sold by
Beckman, and (b) the royalty earned by Unifet as a result thereof.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
7
<PAGE>
6.8.1 In the event Beckman shall be required by any taxing authority to
pay or withhold taxes on account of a tax liability of Unifet with respect to
royalties payable under this Agreement, Beckman shall have the right to withhold
such taxes, or pay such taxes to the local taxing authority on behalf of Unifet,
as the case may be, and make a corresponding reduction in the royalty payment
due to Unifet; provided, however, that Beckman shall first notify Unifet of such
taxes, allow Unifet to protest such taxes prior to withholding or payment, and
shall furnish to Unifet proof of any such taxes withheld and/or paid by Beckman
for the benefit of Unifet.
6.9 BOOKS AND RECORDS - Beckman shall keep or cause to be kept books,
records and accounts in accordance with good accounting practice and principles
consistently applied covering its sales to third parties of Meters manufactured
under Paragraph 6.4 and containing all information necessary for the true and
accurate determination of the amounts earned and paid hereunder. Beckman shall,
not more than once per year and upon prior written notice by Unifet, permit an
accountant appointed and paid for by Unifet to review the previous two (2)
years' books, records and accounts to verify the amounts earned by Unifet and
paid by Beckman hereunder. Accounting reports supplied by Beckman which are
more than two (2) years old shall be conclusively presumed to be correct.
6.9.1 Any deficiency identified by the accountant between the amounts
actually earned by Unifet under Paragraph 6.8 and the amounts reported to be
earned and paid by Beckman shall be paid to Unifet within thirty (30) days of
receipt by Beckman of the accountant's report. Any overpayment shall, at the
option of Beckman, be a credit towards future royalties or reimbursed by Unifet
to Beckman.
6.9.2 The termination of this Agreement for any reason shall not
prejudice Unifet's right, for at least one (1) year subsequent to such
termination, to examine Beckman's books, records and accounts. A final
accounting and the royalty due and payable by Beckman to Unifet, if any, shall
be provided to Unifet within sixty (60) days of the termination of this
Agreement.
6.10 PROSECUTION OF INFRINGERS - If at any time during the term of
this Agreement Beckman believes that a product covered by a claim of any patent
owned or Controlled By Unifet has been used, manufactured or sold by a third
party in any country where Beckman is selling the Meters it shall promptly
notify Unifet thereof in writing. Such notice shall include all documentation
and other information then in Beckman's possession relative thereto. Unifet
shall have ninety (90) days from receipt of such notice to file suit against
such third party or to otherwise halt such infringement. All costs,
disbursements and expenses of such suit shall be borne by Unifet. All damages
recovered in such suit shall be retained by Unifet for its own benefit to
compensate it for losses resulting from such infringement, and Unifet shall not
be liable in any way to account to Beckman therefor. Beckman shall, at the
request and expense of Unifet or may on its own motion and at its own expense,
join in any suit for such infringement; provided, however, that Unifet shall
have the sole and exclusive right to control such suit, and shall have the right
to terminate, compromise or otherwise settle such suit upon any terms it deems
appropriate not inconsistent with this Agreement.
6.11 If Unifet fails to bring suit or otherwise foreclose such
manufacture or sale as provided in Paragraph 6.10, then after said ninety (90)
days Beckman may withhold any royalty payment due under Paragraph 6.8 for the
Meters in the affected countries until such infringement shall be terminated or
Unifet commences and diligently pursues steps to halt such manufacture or sale.
Such election by Beckman shall not effect the continuing nature of the rights
and licenses granted pursuant to this
8
<PAGE>
Agreement and Beckman shall continue to report and pay royalties as required by
Paragraph 6.8 for sales of the Meters in the remaining, unaffected countries.
6.12 CONFLICTING PATENTS - If, at any time during the life of this
Agreement, Beckman shall discover that the Meters or the use of the Meters is
covered by a patent owned by a third party Beckman may negotiate with such
person, firm or corporation for a license on such terms as Beckman deems
appropriate. Should such license agreement require the payment of earned
royalties on the Meters or their use, the earned royalties otherwise payable to
Unifet under Paragraph 6.7 shall be reduced by the same amount that earned
royalties are paid to such other person, firm or corporation but such reduction
shall not exceed [*] of the earned royalties otherwise payable under Paragraph
6.7.
6.13 TERM OF OBLIGATION - Beckman's obligation to pay royalties under
Paragraph 6.7 for Meters manufactured by it under Paragraph 6.4 shall continue
for the term of this Agreement.
7.0 CONFIDENTIALITY
Each party shall maintain in confidence any information received during the
term of this Agreement from the other party in written or graphic form or other
tangible medium of expression that is marked confidential and shall neither
publish, disseminate nor disclose such information to any third party nor use
such information except for the furtherance of the purposes of this Agreement
without the express written permission of such other party. Subject to the next
sentence, the foregoing obligations of confidentiality and non-use shall
continue for three (3) years after the expiration of this Agreement. The
obligation of the first sentence shall not apply to any information which is:
(a) now or hereafter comes into the public domain, or (b) which is already in
the possession of the receiving party other than as a result of having received
it from the disclosing party and as shown by written records, or (c) is brought
to the receiving party by a third party who does not require that it be
maintained confidential or (d) is independently developed by the receiving party
without use of or access to the information of the disclosing party. Upon
termination of this Agreement, each party shall, at the other party's request,
destroy or return to such other party all copies of such information; provided
that, counsel for each receiving party may retain one (1) copy of such
information solely for the purpose of monitoring such party's obligation of
confidentiality under this Agreement.
8.0 THIRD PARTY PATENTS
Unifet agrees to and shall defend, indemnify and hold Beckman and its
customers harmless, including attorneys fees necessary to consider, advise and
defend, from and against any suit, proceeding, claim or loss and any damages or
penalties awarded therein so far as such suit or proceeding is based upon an
assertion that the manufacture, use or sale of the Meters purchased from Unifet
under this
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
9
<PAGE>
Agreement constitutes an infringement of any Letter Patent or copyright. If the
Meters are, in such suit or proceeding, held to infringe and their further
manufacture, use or sale is enjoined Unifet shall, at its sole cost and expense,
either: (1) procure for Beckman and its direct and indirect customers, the
right to continue using and selling the Meters, (2) replace the same with a
non-infringing equivalent, or (3) modify the Meters so that, they become
non-infringing.
9.0 REGULATORY REQUIREMENTS
Unifet shall use its best efforts to provide to Beckman any data or
information in Unifet's possession or under its control which would assist
Beckman in obtaining or satisfying any legal or regulatory requirement anywhere
in the world that must be met before the Meters can be used or sold for the
purposes intended by Beckman.
10.0 INDEMNIFICATIONS AND INSURANCE
10.1 HOLD HARMLESS - Unifet agrees to and shall defend, indemnify and
hold Beckman, its employees, agents and officers harmless, including attorneys
fees necessary to consider, advise and defend, from and against any suit or
proceeding alleging injury to persons, including death, or property and any
liability, damages or penalties awarded therein and resulting from or arising
out of Unifet's negligence in the design, manufacture, storage or transport of
the Meters prior to their receipt by Beckman. Beckman agrees to and shall
defend, indemnify and hold Unifet, its employees, agents and officers harmless
including attorneys fees necessary to consider, advise and defend, from and
against any suit or proceeding alleging injury to persons, including death, or
property and any liability, damages or penalties awarded therein and resulting
from or arising out of Beckman's negligence in handling, storage or transport of
the Meters after receipt thereof from Unifet.
10.2 INSURANCE - Each party shall at all times during the term of this
Agreement self insure for, or purchase and maintain, comprehensive general
liability insurance including products liability, contractual liability and
broad form property damage with combined single limits for bodily injury and/or
death and property damage of $1,000,000 for any one occurrence. Such insurance
shall also require thirty (30) days, prior written notice of cancellation or
material change in coverage. The insurance to apply to any claim will be
governed by Paragraph 10.1 and with respect to a party's indemnification
obligations thereunder, provide that such insurance is primary without right of
contribution from any other insurance which might otherwise be available to the
insured party and provide that in the event of loss payment under a policy the
insurer shall waive any rights of subrogation against the insured party and
shall waive any set-off or counterclaim or any other deduction whether by
attachment or otherwise as respects the activities under this Agreement.
11.0 TERM AND TERMINATION
11.1 TERM - Subject to the proviso hereafter the term of this
Agreement shall be eight (8) years from the last date in time adjacent to the
signatures on the last page of this Agreement; provided that, if in any calendar
year beginning after the second anniversary of such signing Beckman has not
purchased a cumulative total of at least five hundred (500) Meters Unifet may
terminate this Agreement on six (6) months prior written notice to Beckman.
10
<PAGE>
11.2 TERMINATION FOR CAUSE - Should either party be in default as to
any material term of this Agreement and fail to remedy same within thirty (30)
days after receipt of written notice of such default by the non-defaulting
party, then the nondefaulting party shall have, in addition to all other
remedies available at law or in equity, the right to terminate this Agreement
upon delivery of written notice of termination to the defaulting party, provided
that:
(a) Such notice specifies with particularity the basis for such
default.
(b) Such termination shall only relieve the parties of obligations
which would have arisen under this Agreement after the effective date of
termination and shall in no way relieve the parties from any obligations
existing on the date of such termination.
(c) The failure of the non-defaulting party to terminate this
Agreement for any cause shall not constitute a waiver of such right in the
future as to any subsequent default.
12.0 NOTICES
All notices provided for in this Agreement shall be in writing and shall be
considered delivered when they are deposited in the United States mail,
registered first class or air mail postage prepaid, addressed to the respective
parties as follows:
If to Beckman: BECKMAN INSTRUMENTS, INC.
Analytical Development Center
2500 Harbor Boulevard
Fullerton, CA 92634
Attention: General Manager
with a copy to: BECKMAN INSTRUMENTS, INC.
2500 Harbor Boulevard
Fullerton, CA 92634
Attention: General Counsel
If to Unifet: UNIFET, INC.
11021 Via Frontera, Suite 200
San Diego, California 92127
13.0 SEVERABILITY
In the event a court of competent jurisdiction holds any provision of this
Agreement to be invalid or unenforceable, such holding shall have no effect on
the remaining provisions and they shall continue in full force and effort.
14.0 ASSIGNMENT
Neither party shall assign this Agreement to another without the prior
written consent of the other party; provided, however, that either party may
assign this Agreement to an affiliate or a successor in
11
<PAGE>
ownership of all or substantially all of the business assets to which this
Agreement pertains. Any other purported assignment shall be void. This
Agreement shall be a binding obligation of the heirs, successors and permitted
assigns of all the right, title and interest of either party hereto.
15.0 LAW GOVERNING AND CONSTRUCTION
15.1 GOVERNING LAW - This Agreement shall be governed by and construed
in accordance with the laws of the State of California as if it had been
delivered in California and all acts performed or to be performed had been fully
and entirely performed in California and notwithstanding any conflicts of laws
provisions of California. Both parties agree to use their best efforts in a
good faith attempt to settle as promptly as possible any and all disputes
arising from transactions pursuant to Paragraph 15.2.
15.2 MEDIATION AND ARBITRATION - Any controversy or conflict involving
this Agreement, its interpretation or the respective rights or obligations of
the parties shall first be submitted to their respective Vice-Presidents for
resolution. If they cannot agree, the controversy shall be submitted to
mediation to be held in a mutually agreeable neutral place. If the parties
still cannot settle the controversy or reach an accommodation, the matter shall
be submitted to binding arbitration to be conducted in Orange County, California
in accordance with the following rules:
(a) There shall be a panel of three (3) arbitrators, all of whom
shall be lawyers. If the parties cannot agree on the selection of the three (3)
then each shall pick one (1) arbitrator and the two (2) so chosen shall select
the third.
(b) All disputes which are not specifically raised by the parties in
the arbitration process shall be forever waived.
(c) The arbitration proceeding shall be governed by (i) the rules and
understandings set forth in this Paragraph 15.2 or as hereafter agreed upon in
writing by the parties, and (ii) to the extent not inconsistent with such rules
and understandings, by the Commercial Arbitration Rules of the American
Arbitration Association.
(d) The parties agree to refrain from filing a lawsuit with regard to
any aspect of their controversy and to abide by and perform any award rendered
by the arbitrators. The parties further agree that a judgement of a California
Court having jurisdiction may be entered upon the award and an execution may be
issued for its collection. The parties further agree not to contest the
jurisdiction or execution of the California Court.
(e) At least two (2) of the panel of arbitrators must agree on each
point in controversy for an award to be rendered.
(f) The arbitration hearing shall be convened within forty-five (45)
days of request therefor by either party. The request shall be in writing and
sent in accordance with Article 12.0. The hearing shall be limited to three
days: Each party shall have a maximum of eight (8) hours to put on its main
case and four (4) hours for rebuttal. Neither party shall engage in extended
cross-examination or other tactics which have the effect of substantially
altering this allocation.
12
<PAGE>
(g) The parties agree to exchange all documents they intend to
produce at the hearing at least thirty (30) days in advance of the opening of
the arbitration hearing. There will be no taking of depositions, serving of
interrogatories or any other form of discovery and neither party may compel the
appearance of the other party's employees, officers, directors or consultants.
(h) The arbitrators decision must be rendered within thirty (30) days
after completion of the arbitration hearing.
(i) A transcript may, at the option of the parties, be made. Either
party may, at its expense, tape record or video tape the proceedings.
(j) All applicable common law or statutory privileges such as
attorney-client or attorney work product shall be applicable to the arbitration
proceedings.
(k) Either party may, at its option, use prepared testimony as long
as the witness whose testimony is so presented is available to the other party
for cross-examination.
(l) Each party shall bear its own expenses for the arbitration and
they shall each share equally in the expenses and fees of the arbitration panel.
15.3 MUTUALITY - This Agreement has been drafted after considerable
negotiation by the parties and on the basis of mutual understanding; neither
party shall be prejudiced as being the drafter thereof.
16.0 PUBLIC STATEMENTS
Neither party shall make any public announcement or authorize or author any
statement to the press regarding this Agreement or any of its terms or
conditions or the relationships between the parties created by this Agreement
without the prior written permission of the other party. The terms and
conditions of this Agreement shall be maintained as confidential in accordance
with Article 8.0 hereof.
17.0 RELATIONSHIP CREATED
The relationship created by this Agreement shall be strictly that of a
supplier and purchaser. Neither party is hereby constituted an agent or legal
representative of the other party for any purpose whatsoever, and is granted no
right or authority hereunder to assume or create any obligation, express or
implied, or to make any representations, warranties or guarantees on behalf or
in the name of the other party, except to the extent that such right or
authority, or such representations, warranties or guarantees are expressly
provided for in this Agreement.
18.0 ENTIRE AGREEMENT, MODIFICATION
18.1 ENTIRE AGREEMENT - This instrument contains the entire and only
agreement between the parties respecting the subject matter hereof and
supersedes all previous negotiations, representations, understandings, promises
or conditions, both written and oral, heretofore made between the parties with
respect to the subject matter hereof.
13
<PAGE>
18.2 MODIFICATION - No waiver, alteration or modification of this
Agreement shall be valid unless made in writing and signed by a duly authorized
representative of Beckman and Unifet.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement by their
duly authorized representatives as of the last day and year adjacent the
following signatures.
BECKMAN INSTRUMENTS, INC. UNIFET, INC.
By /s/ J. P. Quick By /s/ W. Jerry Mezger
---------------- --------------------
Date June 8, 1994 Date June 6, 1994
------------- -----------------
14
<PAGE>
EXHIBIT A: Product Specificiations
[*]
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
Page 1
<PAGE>
EXHIBIT B - Beckman pH Meter Development Schedule
[*]
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>
EXHIBIT C - Beckman pH Meter Development Payment Shedule
[*]
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>
EXHIBIT D - List of UniFET Prior Technology as of October 1, 1993
[*]
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Exhibit E. Beckman pH Meter Purchase Agreement Pricing Schedule
[*]
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>
EXHIBIT F - PRODUCT QUALITY TESTING SPECIFICIATIONS
[*]
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>
1050 Page Mill Road, Box 10200, Palo Alto, CA 94303-0803 - (415) 857-1150
_____________________________________________________________________________
BECKMAN
August 4, 1995
Mr. W. Jerry Mezger
President and Chief Executive Officer
Unifet, Incorporated
11077 North Torrey Pines Road
La Jolla, CA 92037
Dear Jerry:
During our recent meetings you have represented that you wish to maintain the
business relationship between Beckman and Unifet as described in our Agreement
of June 8, 1994 ("the Agreement") and that you now have the funding and
personnel to engineer and produce the product. You have also acknowledged our
desire to obtain a "pass-through" product of high quality which we can deliver
to our customers with confidence and which will not adversely reflect upon
Beckman's reputation as a supplier of quality products.
You have previously expressed your reluctance to comply with the escrow
requirements because of your concern that Beckman would immediately exercise its
"march-in" rights. I have been informed that since our last meeting your have
delivered certain manufacturing drawings although we believe these to be
incomplete (We are working to identify missing documentation). Also additional
documentation will be due as your complete your manufacturing process for the
meters and probes and as engineering and manufacturing modifications are made in
the future.
It is Beckman's opinion that Unifet has not complied with its duties under the
Agreement and that Beckman currently has the right to exercise its "march-in"
rights thereunder. However, in order to do everything possible to preserve the
relationship between us, we have not yet done so and will not do so as long as
Unifet strictly complies in the future with the agreements reached at those
meetings and the milestones established and the other terms of the Agreement.
<PAGE>
W. Jerry Mezger
August 4, 1995
Page 2
So that we may move forward with confidence, we propose the following:
1) A new Exhibit A will be developed setting forth precise specifications
(due date August 8, 1995).
2) A detailed final inspection test procedure and acceptable ranges (a
new Exhibit F) will be finalized and a Certificate of Compliance
agreed upon (See PARA4.2) (due date August 8, 1995).
3) Unifet will immediately submit for our inspection and deposit into
Escrow the remaining existing technology (e.g. Software related
documentation other than source code, documentation on the FET) and
the prompt submission of other technology as it is developed. (See
PARA 6.2) (due August 11, 1995 and ongoing).
4) Paragraph 2.5.1 is amended in its entirely to read as follows:
2.5.1 Subject to Article 6.0, Beckman shall, within ten (10) days of
the end of each month, send Unifet a revised twelve (12) month
forecast. Beckman shall include with each revised forecast a
non-cancelable Purchase Order for the quantities, if any, of each Meter
specified in month three (3). Unifet shall not be required to accept,
without its consent, any order which specifies any quantity of each
Meter (i.e. pH meter or probe) in excess of one hundred thirty percent
(130%) of the quantity provided to Unifet in the immediately
preceding revised forecast but Unifet's rejection thereof shall only
apply to such excess. The remaining nine (9) months of the revised
forecast shall be Beckman's best estimate of its requirements for each
Meter from Unifet during such period. The revised forecasts shall not
be binding on either party and shall be used for planning purposes
only.
5) Paragraph 2.6.1 is amended in its entirety to read as follows:
2.6.1 Beckman is not required to accept partial shipments.
6) Paragraph 6.1(c) of the Agreement is modified to read as follows:
<PAGE>
W. Jerry Mezger
August 4, 1995
Page 3
(c) More than three percent (3%) of the pH meters and/or more
than three percent (3%) of the probes delivered to Beckman
have failed to meet the specifications of Exhibit A in two
(2) successive shipments or in three (3) shipments in the
previous twelve (12) months.
This letter and any of the provisions hereof shall not absolve Unifet of any
prior breach of the Agreement and all rights and remedies existing in favor of
Beckman on the date hereof are hereby preserved.
If you agree with the foregoing and the amendments to the Agreement, I would
appreciate your signing the enclosed copy of this letter and returning it to me.
If you have any questions please do not hesitate to call me.
Very truly yours,
/s/ JACK P. FINNEY
Jack P. Finney
Vice President, Manager
Centrifugation Department
Center
PRH:JPF:jd
cc: P. R. Harder/Fullerton
R. Norum/Fullerton
APPROVED AND AGREED TO:
Unifet, Incorporated
By /s/ W. JERRY MEZGER
----------------------------------
W. Jerry Mezger,
President and CEO
Date 8-8-95
------------------------------------
<PAGE>
EXHIBIT 11.1
SENDX MEDICAL, INC.
------------------------
STATEMENT RE: COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net loss.................................................... $ (1,839) $ (5,299) $ (7,813) $ (1,930) $ (1,610)
Average common shares outstanding........................... 537 557 559 559 607
Adjustments to reflect requirements of the Securities and
Exchange Commission (Effect of SAB 83)..................... 2,771 2,771 2,771 2,771 2,771
--------- --------- --------- --------- ---------
Adjusted shares outstanding................................. 3,308 3,328 3,330 3,330 3,378
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Historical net loss per share reflecting requirements of the
SEC........................................................ $ (0.56) $ (1.59) $ (2.35) $ (0.58) $ (0.48)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Effect of assumed conversion of preferred shares from date
of issuance................................................ -- -- 1,589 -- 1,589
--------- --------- --------- --------- ---------
Adjusted shares outstanding................................. 3,308 3,328 4,919 3,330 4,967
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net loss per share................................ $ (0.56) $ (1.59) $ (1.59) $ (0.58) $ (0.32)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Data" and to the use of our report dated March 1, 1996,
except for Note 8 as to which the date is May 8, 1996, in the Registration
Statement (Form S-1) and the related Prospectus of SenDx Medical, Inc. for the
registration of shares of its common stock.
We also consent to the reference to our firm under the caption "Experts" and
to the use of our report dated March 1, 1996 of Medical Sensors in the
Registration Statement (Form S-1) and the related prospectus of SenDx Medical,
Inc.
ERNST & YOUNG LLP
San Diego, California
May 8, 1996
- --------------------------------------------------------------------------------
THE FOREGOING CONSENT IS IN THE FORM THAT WILL BE SIGNED UPON COMPLETION OF THE
CHANGES IN CAPITALIZATION DESCRIBED IN NOTE 8 TO THE FINANCIAL STATEMENTS.
San Diego, California
May 9, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1996 FINANCIAL STATEMENTS, AND THE DECEMBER 31, 1995 FINANCIAL
STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 9,252,445 563,909
<SECURITIES> 0 0
<RECEIVABLES> 420,407 203,724
<ALLOWANCES> 25,206 25,206
<INVENTORY> 375,661 429,510
<CURRENT-ASSETS> 10,127,382 1,255,428
<PP&E> 2,561,853 2,218,106
<DEPRECIATION> 732,622 590,674
<TOTAL-ASSETS> 13,947,969 4,940,261
<CURRENT-LIABILITIES> 4,167,299 4,497,075
<BONDS> 5,521,658 5,379,967
0 0
23,277,274 12,471,350
<COMMON> 72,780 72,780
<OTHER-SE> (19,091,042) (17,480,911)
<TOTAL-LIABILITY-AND-EQUITY> 13,947,969 4,940,261
<SALES> 825,965 1,250,945
<TOTAL-REVENUES> 825,965 1,250,945
<CGS> 902,363 3,319,664
<TOTAL-COSTS> 1,345,140 4,872,684
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (188,593) (871,437)
<INCOME-PRETAX> (1,610,131) (7,812,840)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,610,131) (7,812,840)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,610,131) (7,812,840)
<EPS-PRIMARY> (.48) (2.35)
<EPS-DILUTED> 0 0
</TABLE>
