<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1996
REGISTRATION NO. 333-3431
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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. / /
------------------------
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 JUNE 13, 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."
THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ STOCK MARKET
NATIONAL MARKET UNDER THE SYMBOL "SNDX," SUBJECT TO NOTICE OF ISSUANCE.
--------------
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 units, operating rooms
and emergency departments,
require frequent and timely
analysis of key blood
parameters on acutely-ill
patients.
The SenDx 100 has just conducted a
panel of 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.
<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,
and 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 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 of hospitals, 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
generally 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, as stat
laboratories generally have lower testing volumes but require 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 features of the SenDx
100 include ease-of-use, broad data management capability and enhanced
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 was first 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 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 calibrant 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 marketing the
SenDx 100 to 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 units at selected leading medical centers in the United States and Europe
which will serve as reference 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. 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......................... 8,638,978 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) 1,448,365 shares of Common Stock issuable upon exercise of
outstanding warrants and stock options as of May 31, 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
Notes payable and current portion of long-term debt, including accrued interest......... 3,244 --
Long-term debt, including accrued interest.............................................. 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. In addition to the pro forma
net loss per share described in Note 1, assuming the Company had used a
portion of the proceeds of this Offering to repay debt, supplemental pro
forma loss per share would have been $(1.25) and $(.25), for the periods
ended December 31, 1995 and March 31, 1996, respectively. Supplemental pro
forma loss per share shows what the loss per share would have been if the
retirement of debt in the amount of $7,873,000 had taken place at the
beginning of the respective periods. The number of additional shares issued
is based on the related proceeds used to retire the debt and are included in
this calculation.
(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 units at selected 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
any 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 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-tidal carbon dioxide
as a monitor of blood carbon dioxide 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 and Via Medical Corporation
introduced an on-demand, patient-connected glucose monitor. 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. In addition, 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 demand for the Company's products.
There can also be no assurances that the Company's research and development
programs to improve its product offerings 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."
NEED FOR 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 and pilot run units 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. Certain of such 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 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."
7
<PAGE>
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 its 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 current
exclusive European distributor of the StatPal II, Medlink Europe B.V.
("Medlink") has notified the Company that it believes it is also entitled to
exclusively distribute the SenDx 100 in Europe. The Company has not come to an
agreement with Medlink with respect to distribution of the SenDx 100 in Europe.
The Company's current agreement with Medlink is terminable on January 1, 1997,
if Medlink fails to meet certain annual sales requirements for 1996, and
terminates in May 1997 by its own terms. The Company intends to seek a new
distributor in Europe for the SenDx 100. The Company's ability to market the
SenDx 100 in certain markets 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 upon the proprietary rights of others. The
patent position of a medical device company can 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 issue therefrom. The Company has filed 12 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. Costs
associated with entering into licensing or other arrangements to settle
potential disputes, could 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 the components used in its products including video
displays, printed circuit board assemblies and certain calibrant chemicals, from
third parties. 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 marketing efforts 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. There can be no assurance that the
Company will be able to continue to sell its products in U.S. dollars to
minimize risks from fluctuating exchange rates. 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 principally 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. The Company is subject to periodic
inspection to ensure its continued compliance with such laws and regulations.
There can be no assurance 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."
10
<PAGE>
UNCERTAINTY RELATED TO THIRD-PARTY 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. See "Business
- -- Reimbursement."
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."
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company expects that the proceeds of this offering will be used for
sales and marketing activities, repayment of debt, research and development,
working capital and general corporate purposes. The Company is not currently
able to estimate precisely the allocation of the proceeds among such uses, and
the
11
<PAGE>
timing and amount of expenditures will vary depending upon numerous factors. The
Company's management will have broad discretion to allocate the proceeds of this
offering and to determine the timing of expenditures. See "Use of Proceeds."
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 lease 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."
12
<PAGE>
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
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. This and other provisions of Delaware law, and certain provisions
of the Company's Amended and Restated Certificate of Incorporation and Bylaws,
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."
ADVERSE IMPACT OF 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
6,238,978 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 May 31, 1996 of the
approximately 1,448,365 shares issuable pursuant to outstanding options or
warrants, approximately 785,807 of which were then exercisable): (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) 2,325,142
shares of Common Stock will be eligible for sale beginning 180 days after the
Effective Date of this Offering. The approximately 3,913,836 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 the Company. 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 underwriting discounts and commissions 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).
Of the net proceeds of this Offering, the Company expects to use
approximately $8.3 million to increase sales and marketing activities,
approximately $8.1 million to repay debt and related interest, approximately
$4.5 million to fund increased research and development activities, and the
balance to provide funds for working capital and general corporate purposes. Of
such $8.1 million of the proceeds to be used to repay debt immediately following
the closing of the Offering, the Company will utilize approximately $2.2 million
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 in full a demand note
payable, which bears interest at prime plus 2%. In addition, the Company will
utilize approximately $5.8 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.
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<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. Subsequent to March 31, 1996, the Company granted options to
purchase 197,796 shares of Common Stock, options to purchase an aggregate of
68,765 shares were exercised and options to purchase an aggregate of 18,833
shares were cancelled, which activity is also not reflected in the foregoing
tables and calculations. 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 and the repayment of $3,244,000 of short-term debt
obligations.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and current portion of long-term debt, including accrued
interest................................................................... $ 3,244 $ 3,244 $ --
Long-term debt, including accrued interest.................................. 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)(2)................................................................... 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 May 31, 1996 at a weighted average exercise
price of $1.32 per share, 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 11,393 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."
(2) Excludes stock option activity between April 1, 1996 and May 31, 1996, as
follows: (i) options to purchase 197,796 shares of Common Stock were
granted; (ii) options for 68,765 shares were exercised; and (iii) options
for 18,833 shares were cancelled.
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(1) 1995(1) 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
Notes payable and current portion of long-term debt,
including accrued interest........................... -- -- 1,078 2,562 3,191 3,244
Long-term debt, including accrued interest............ -- -- 560 6,588 5,380 5,522
Total stockholders' equity (deficit).................. 478 503 (1,314) (4,982) (4,937) 4,259
</TABLE>
- --------------------------
(1) Revenues and expenses increased substantially in 1995 due to the acquisition
of certain assets and liabilities of Medical Sensors, a business unit of
PPG, Industries, Inc. in December 1994. See Note 1 of Notes to Financial
Statements.
(2) See Note 1 of Notes to Financial Statements for a description of the
computation of pro forma net loss per share. In addition to the pro forma
net loss per share described in Note 1, assuming the Company had used a
portion of the proceeds of this Offering to repay debt, supplemental pro
forma loss per share would have been $(1.25) and $(.25), for the periods
ended December 31, 1995 and March 31, 1996, respectively. Supplemental pro
forma loss per share shows what the loss per share would have been if the
retirement of debt in the amount of $7,873,000 had taken place at the
beginning of the respective periods. The number of additional shares issued
is based on the related proceeds used to retire the debt and are included in
this calculation.
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 repaid 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 outstanding 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 the 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 negative gross profits 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 for
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 from 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 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 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, and 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 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 marketing the
SenDx 100 to 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 units at selected leading medical centers in the United States and Europe
which will serve as reference 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. 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 generally decreased turnaround times
for blood analyses as 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, as stat laboratories generally have lower
testing volumes but require 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 blood gas and electrolyte analysis
provides clinicians with rapid, accurate data that enables hospitals 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 instead 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 gas 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 units at several selected
leading medical centers which will serve as reference 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 to target small
to mid-size hospitals. The Company believes that while
22
<PAGE>
POC testing needs are less developed internationally, there are substantial
opportunities to 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 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.
While the Company intends to implement this strategy, there can be no
assurance that the Company will become the leading global supplier addressing
the POC blood analysis needs of the critical care market.
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 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 calibrant 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, including required quality control
tests, 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.
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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
promote compliance with federal clinical laboratory regulations.
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 system over other POC
blood gas and electrolyte 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 list prices of the disposable
elements for comparable test panels from POC competitors range from $4 to
$18. The Company believes that the cost per test for the SenDx 100 will be
lower than costs incurred for stat laboratory analyses and competitive with
central laboratories' testing costs.
EASY-TO-USE TESTING FORMAT -- The testing process is designed for simple
operation by clinical users. The clinician enters user and patient
identification data, selects any combination of the seven analytes to be
measured, presents the sample of whole blood in the sampling syringe to the
aspirating port, 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 disposable components.
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 is a federal statute regulating medical laboratory
practice. The SenDx 100 facilitates compliance with CLIA '88 by providing
automatic one-point calibration, using a single calibration solution with
known concentrations of analytes, with each test and automatic two-point
calibration, using two different calibration solutions with known
concentrations of analytes, 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
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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.
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 350 patient test results and 350 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 or skill
to install and remove. The Company is currently developing disposables with
extended shelf and use lives in addition to 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.
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CALIBRANT PACK
The analyzer also accommodates a multi-use, disposable calibrant pack that
is a companion disposable to the sensor cassette. Each proprietary calibrant
pack contains two gas-tight, polylaminate foil pouches containing solutions with
different concentrations of electrolytes and gases, which are stable at room
temperature for two 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 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, facilitating 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 was first 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 has applied 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 SenDx 100 units at selected leading medical centers in the United
States and Europe to serve as reference centers and 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 a POC analyzer for blood
gas, electrolyte and hematocrit testing. 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 broad
testing array suitable 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
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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. 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. The Company's current exclusive European distributor of the StatPal II,
Medlink Europe B.V. ("Medlink") has notified the Company that it believes it is
also entitled to exclusively distribute the SenDx 100 in Europe. The Company has
not come to an agreement with Medlink with respect to distribution of the SenDx
100 in Europe. The Company's current agreement with Medlink is terminable on
January 1, 1997, if Medlink fails to meet certain annual sales requirements for
1996, and terminates in May 1997 by its own terms. The Company intends to seek a
new distributor in Europe for the SenDx 100. 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 and pilot run units 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 demand 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
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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 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
this facility 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 two 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
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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 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 has filed 12 additional 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 U.S. and pending 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.
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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, and Via Medical Corporation introduced an on-demand,
patient-connected glucose-only monitor. 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-tidal carbon dioxide as a monitor of blood carbon dioxide
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
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and foreign regulatory review of requirements could result in civil monetary
penalties or criminal sanctions, 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 does not meet the "substantial equivalence" test
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 Administration and the Environmental
31
<PAGE>
Protection Agency, and by various state agencies. The Company believes it is
materially in compliance with such 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. 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.
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, using a single calibration solution containing known
concentrations of analytes, with each sample and an automatic two-point
calibration, using two different calibration solutions with known concentrations
of analytes, 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. 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.
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<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 May 31, 1996, the Company had a total of 96 employees, of which 81
were full-time, two were part-time permanent employees, and 13 were temporary
employees. Of the full-time employees, 31 were in manufacturing operations, 14
were in sales and marketing, 19 were in research and development and product
engineering, eight were in regulatory affairs and quality assurance and nine
were in general and administrative. The 13 temporary and the two 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 the
33
<PAGE>
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........................ 61 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........................ 63 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, each non-employee director who is initially elected as a director after
the closing of this Offering during the term of such plan 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
37
<PAGE>
of the two years following the date of grant. 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, 846,796 are subject to outstanding
options at a weighted average exercise price of $1.32 per share, 141,811 shares
had been purchased upon exercise of options and 11,393 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 "1996 Plan") in May
1996, covering an aggregate of 700,000 shares of Common Stock plus any shares
which are or become available for grant under the 1991 Plan. The 1996 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"),
nonstatutory options and restricted stock grants 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
1996 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 1996 Plan is administered by the Compensation Committee, which has
sole discretion and authority, consistent with the provisions of the 1996 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 1996 Plan. As of May 31,
1996, there were 135,596 options outstanding under the 1996 Plan at a weighted
average exercise price of $6.14 per share.
In addition, the 1996 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 1996 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. In addition, upon the
reelection of such non-employee director in each year of such
40
<PAGE>
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 1996 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 1996 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 90 days. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 20% 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 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.
41
<PAGE>
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
except as otherwise indicated, 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, provided, however, that if the initial offering price
is less than $11.81 per share, the Series D Preferred Stock will convert into up
to 35,812 additional shares of Common Stock. 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.
Between July and December 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 (1,211,901 shares), FBL Ventures of South Dakota, Inc. ("FBL
Ventures")(1,200,000 shares), Canterbury Holdings, Ltd. (18,017 shares), C. Ian
Sym-Smith (393,304 shares), Thomas O. Gephart (150,000 shares), F. Duwaine
Townsen (258,845 shares), Douglas R. Hillier (129,817 shares), George Pache
(55,000 shares) and Michael W. 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 $80,000 and 20,000 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.
In May 1996, the Company granted options to purchase Common Stock to Messrs.
Hillier (50,000 shares), Pache (10,000 shares), Mercer (13,333 shares), Betts
(8,333 shares), Chairez (15,000 shares), Leader (11,667 shares) and Savage
(13,333 shares) at an exercise price of $11.50 per share, and granted Mr.
Blumenstein options to purchase 12,000 shares of Common Stock at an exercise
price of $6.00 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common Stock
as of June 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 20.4% 14.7%
423 Lexington Avenue
New York, NY 10017
Ventana Funds (2) ...................................................... 1,113,368 17.8 12.9
c/o Ventana
18881 Von Karman Avenue,
Suite 350
Irvine, CA 92715
FBL Ventures of South Dakota, Inc. (3) ................................. 508,333 8.1 5.9
c/o Farm Bureau Life Insurance Co.
5400 University Avenue
West Des Moines, IA 50266
S-E Banken (4) ......................................................... 493,516 7.9 5.7
Jakobsbergsgaten 17
Stockholm, Sweden STJ9
Praktikerjanst AB (5) .................................................. 371,366 5.9 4.3
Hollandargaten 10
Stockholm, Sweden S-106-63
Thomas O. Gephart (6)................................................... 1,273,108 20.3 14.7
Anthony Rippo, M.D. (7)................................................. 111,621 1.8 1.3
F. Duwaine Townsen (8).................................................. 1,214,480 19.4 14.0
Frederik C. Schreuder (9)............................................... 267,307 4.3 3.1
C. Ian Sym-Smith (10)................................................... 152,595 2.4 1.8
Robi Blumenstein (11)................................................... 1,275,841 20.4 14.7
Douglas R. Hillier (12)................................................. 91,667 1.5 1.1
W. Jerry Mezger......................................................... 67,682 1.1 *
George Pache (13)....................................................... 38,400 * *
Ronald Betts, Ph.D. (14)................................................ 14,000 * *
Matthew Leader (15)..................................................... 12,000 * *
All executive officers and directors 3,399,333 52.1 38.1
as a group (13 persons) (16)...........................................
</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 June 1, 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 held by Ventana Partnership III, L.P. and warrants for 1,756 shares
held by Ventana Growth Capital Fund V, both of which are exercisable within
60 days of June 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 June 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 June 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 June 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 June 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 June 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 June 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 June 1, 1996. 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 June 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. Also includes options for 6,000 shares
exercisable by Mr. Blumenstein within 60 days of June 1, 1996.
(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 37,500 shares held by Mr. Hillier,
both of which are exercisable within 60 days of June 1, 1996.
(13) Includes options exercisable for 21,666 shares and warrants exercisable for
1,667 shares, both of which are exercisable within 60 days of June 1, 1996.
(14) Consists of options exercisable for 14,000 shares within 60 days of June 1,
1996.
(15) Consists of options exercisable for 12,000 shares within 60 days of June 1,
1996.
(16) Includes an aggregate of 291,109 shares subject to options and warrants
exercisable within 60 days of June 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 June 1, 1996, there were 675,560 shares of Common Stock outstanding
held by 96 stockholders of record. There will be 8,638,978 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 the outstanding shares 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.
The Company's Bylaws currently provide, and effective immediately following
the closing of this Offering, the Company's Amended and Restated Certificate of
Incorporation will provide, that all stockholder actions must be effected at a
duly called meeting and not by a consent in writing. The Bylaws provide that a
special meeting of the Company's stockholders may only be called by the Chairman
of the Board or upon application by a majority of the Board of Directors, and
not by the Company's stockholders, and
47
<PAGE>
further provide that stockholders must give the Company advance notice of any
proposals or business which they intend to present at a meeting of the Company's
stockholders. These provisions of the Amended and Restated Certificate of
Incorporation and the Bylaws could discourage potential acquisition proposals
and could delay or prevent a change in control of the Company. These provisions
are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change in control of the Company. These
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal. The provisions are also intended to discourage
certain tactics that may be used in proxy fights. However, such provisions could
have the effect of discouraging others from making tender offers for the
Company's shares and, as a consequence, they may also inhibit fluctuations in
the market price of the Company's shares that could result from actual or
rumored takeover attempts. Such provisions may also have the effect of
preventing changes in the management of the Company. See "Risk Factors --
Control by Management and Existing Stockholders; Effect of Antitakeover
Provisions."
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 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
American Stock Transfer & Trust Company, New York, New York.
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 8,638,978 shares of Common Stock (i) assuming no exercise of the
Underwriters' over-allotment option, (ii) no exercise after May 31, 1996 of the
approximately 1,448,365 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 6,638,978 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.
Holders of an aggregate of 6,190,117 shares 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 the 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 May 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) 2,325,142
shares of Common Stock will be eligible for sale beginning 180 days after the
Effective Date of this Offering. The approximately 3,913,836 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. At May 31, 1996, the Company had outstanding options to purchase
982,392 shares of Common Stock and an additional 575,797 shares of Common Stock
were available for issuance pursuant to the 1991 Plan and the 1996 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 and 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
6,190,117 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 do not expect
discretionary sales 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-18
Balance Sheets at December 31, 1993 and 1994......................................... F-19
Statements of Operations and Intercompany Advances for the years ended December 31,
1993 and 1994....................................................................... F-20
Statements of Cash Flows for the years ended December 31, 1993 and 1994.............. F-21
Notes to Financial Statements........................................................ F-22
</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>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
--------------------------- EQUITY AT
1994 1995 MARCH 31, MARCH 31,
------------ ------------- 1996 1996
-------------- ----------------
(UNAUDITED) (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 MARCH
YEARS ENDED DECEMBER 31, 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 as the Company has no further
significant obligations and, therefore, the earnings process is complete.
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)
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 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>
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)
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.
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>
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)
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>
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).
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)
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 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, transactions with affiliates
and the incurrence of additional debt not subordinated to the note. The note
also contains covenants which require the Company to prepay all amounts
outstanding upon receipt of proceeds of a public offering of its securities In
February 1996, the Company issued 8% convertible notes in the principal amount
of $1,100,897 to investors, including affiliates, without notice to the
noteholder. In addition, such 8% convertible notes were not expressly
subordinated to the note as required. In March 1996, $910,987 of the principal
amount of the 8% convertible notes was converted into Series C Preferred Stock
and the remaining balance of $190,000 was paid in cash from proceeds of the sale
of Series D Preferred Stock. As a result, none of the 8% convertible notes are
outstanding. The Company requested, but did not receive a waiver from the
noteholder. 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.
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.
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 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 notes were converted into 364,395 Series C preferred stock and the remaining
balance of $190,000 was paid in cash.
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.
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)
5. INCOME TAXES (CONTINUED)
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.
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.
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
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............................................... 2,460,930 $ 2,460,930
Series A-2............................................. 861,067 861,067
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 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.
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)
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.
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.
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)
7. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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 90 days. The
plan will allow eligible employees to purchase stock at 85% of fair market value
through payroll deductions, which may not exceed 20% 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>
YEARS ENDED
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 incurred by the Parent on behalf of the Company,
which have been allocated, are immaterial. 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,
line- 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........................... 38,928
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 Amended and
Restated Certificate of Incorporation of the Company (Exhibit 3.3 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 Amended and 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 3.4 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 Amended and 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 10.15 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") and 1996 Stock Incentive Plan to officers, directors and
employees of the Registrant. During the period referred to above, 117,310
options and rights to purchase granted pursuant to the 1991 Plan were exercised
for an aggregate exercise price of $62,534. Exemption from the registration
provisions of the Securities Act is claimed, with respect to the grant of
options referred to above,
II-1
<PAGE>
on the basis that the grant of 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 150,000 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 $40,859, 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. In connection with such conversion, the
Registrant also issued to such purchasers warrants to purchase an aggregate of
62,000 shares of Common Stock.
(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 Form of Amended and Restated Certificate of Incorporation of the
Company
3.4 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 Stock Option Agreement pertaining to the 1996 Plan
10.6 Intentionally Omitted
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")+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- -----------------------------------------------------------------
<C> <S>
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+
</TABLE>
- ------------------------
+Previously filed.
*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 Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Carlsbad, State of California, on the 13th day of June, 1996.
SenDx Medical, Inc.
By: /s/ DOUGLAS R. HILLIER
----------------------------------------
Douglas R. Hillier
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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 June 13, 1996
Douglas R. Hillier Officer)
Vice President and Chief
/s/ GEORGE PACHE Financial Officer
------------------------------------- (Principal Financial and June 13, 1996
George Pache Principal Accounting
Officer)
* Chairman of the Board of
------------------------------------- Directors June 13, 1996
Thomas O. Gephart
*
------------------------------------- Director June 13, 1996
Anthony Rippo, M.D.
*
------------------------------------- Director June 13, 1996
F. Duwaine Townsen
*
------------------------------------- Director June 13, 1996
Fredrik C. Schreuder
*
------------------------------------- Director June 13, 1996
C. Ian Sym-Smith
*
------------------------------------- Director June 13, 1996
Robi Blumenstein
*By: /s/ DOUGLAS R. HILLIER
--------------------------------
Douglas R. Hillier
ATTORNEY-IN-FACT
</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 Form of Amended and Restated Certificate of Incorporation of
the Company
3.4 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 Stock Option Agreement pertaining to the 1996
Plan.......................................................
10.6 Intentionally Omitted
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+..........................................
</TABLE>
- ------------------------
+Previously filed.
*To be filed by amendment.
<PAGE>
AGREEMENT AND PLAN OF MERGER
OF SENDX MEDICAL, INC.,
A DELAWARE CORPORATION
AND
SENDX MEDICAL, INC.,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER, dated as of ___________, 1996 (this
"Agreement"), is between SENDX MEDICAL, INC., a Delaware corporation ("SenDx
Delaware"), and SENDX MEDICAL, INC., a California corporation ("SenDx
California"), which corporations are sometimes referred to herein as the
"Constituent Corporations".
R E C I T A L S
A. SenDx Delaware is a corporation duly organized and existing under the
laws of the State of Delaware and has an authorized capital of 60,000,000
shares, 50,000,000 of which are designated "Common Stock", $.001 par value, and
26,490,253 of which are designated "Preferred Stock", $.001 par value. As of
May 31, 1996, 100 shares of Common Stock were issued and outstanding, all of
which were held by SenDx California. No shares of Preferred Stock were
outstanding.
B. SenDx California is a corporation duly organized and existing under
the laws of the State of California and has an authorized capital of 150,000,000
shares, 50,000,000 of which are designated "Common Stock", no par value and
100,000,000 of which are designated "Preferred Stock", no par value. As of May
31, 1996, 2,029,930 shares of Common Stock were outstanding and 16,490,253
shares of Preferred Stock were outstanding.
C. The Board of Directors of SenDx California has determined that, for
the purpose of effecting the reincorporation of SenDx California in the State of
Delaware, it is advisable and in the best interests of SenDx California and its
shareholders that SenDx California merge with and into SenDx Delaware upon the
terms and conditions herein provided.
D. The respective Boards of Directors of SenDx Delaware and SenDx
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective stockholders and executed by the
undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, SenDx Delaware and SenDx California hereby agree, subject to the
terms and conditions hereinafter set forth, as follows:
I.
MERGER
1.1 MERGER. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation Law,
SenDx California shall be merged with and into SenDx Delaware (the "Merger"),
the separate existence of SenDx California shall cease and SenDx Delaware shall
be, and is herein sometimes referred to as, the "Surviving Corporation", and the
name of the Surviving Corporation shall be "SenDx Medical, Inc."
1.2 FILING AND EFFECTIVENESS. The Merger shall become effective when
the following actions have been completed:
<PAGE>
(a) This Agreement has been adopted and approved by the
stockholders of each Constituent Corporation in accordance with the
requirements of the Delaware General Corporation Law and the California
General Corporation Law;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement have been satisfied or duly waived by
the party entitled to satisfaction thereof ; and
(c) An executed Certificate of Merger or an executed counterpart
of this Agreement meeting the requirements of the Delaware General
Corporation Law has been filed with the Secretary of State of the State of
Delaware.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Date of the Merger".
1.3 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence and corporate organization of SenDx California shall cease
and SenDx Delaware, as the Surviving Corporation, shall continue its corporate
existence under the laws of the State of Delaware.
II.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
SenDx Delaware as in effect immediately before the Effective Date of the Merger
shall continue in full force and effect as the Certificate of Incorporation of
the Surviving Corporation until duly amended or repealed in accordance with the
provisions thereof and applicable law.
2.2 BYLAWS. The Bylaws of SenDx Delaware as in effect immediately before
the Effective Date of the Merger shall continue in full force and effect as the
Bylaws of the Surviving Corporation until duly amended or repealed in accordance
with the provisions thereof and applicable law.
2.3 DIRECTORS AND OFFICERS. The directors and officers of SenDx
California immediately before the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until the expiration of
their current terms and until their successors have been duly elected and
qualified, or until their prior resignation, removal or death, subject to the
Certificate of Incorporation and the Bylaws of the Surviving Corporation.
III.
MANNER OF CONVERSION OF STOCK
3.1 SENDX CALIFORNIA SHARES. Upon the Effective Date of the Merger, each
share of SenDx California Common Stock, no par value, issued and outstanding
immediately before the Effective Date of the Merger shall by virtue of the
Merger and without any action by the Constituent Corporations, by the holder of
such shares or by any other person be converted into and exchanged for one-third
(1/3) of a fully paid and nonassessable share of Common Stock, $.001 par value,
of the Surviving Corporation. Upon the Effective Date of the Merger, each share
of Series A Preferred Stock, no par value, Series A-2 Preferred Stock, no par
value, Series B Preferred Stock, no par value, Series C Preferred Stock, no par
value, and Series D Preferred Stock, no par value, of SenDx California issued
and outstanding immediately before the Effective Date of the Merger shall by
virtue of the Merger and without any action by the Constituent Corporations, by
the holder of such shares or by any other person be converted into and exchanged
for one (1) fully paid and nonassessable share of Series A Preferred Stock,
$.001 par value, Series A-2 Preferred Stock, $.001 par value,
2
<PAGE>
Series B Preferred Stock, $.001 par value, Series C Preferred Stock, $.001 par
value, and Series D Preferred Stock, respectively, of the Surviving Corporation.
3.2 SENDX CALIFORNIA OPTIONS, STOCK PURCHASE RIGHTS AND CONVERTIBLE
SECURITIES. Upon the Effective Date of the Merger, the Surviving Corporation
shall assume and continue the SenDx California 1996 Stock Incentive Plan, the
SenDx California 1991 Stock Option Plan and all other employee benefit plans of
SenDx California. Each outstanding and unexercised option, other right to
purchase or security convertible into SenDx California Common Stock shall become
an option, right to purchase or a security convertible into the Surviving
Corporation's Common Stock on the basis of one-third (1/3) share of the
Surviving Corporation's Common Stock for each share of SenDx California Common
Stock issuable pursuant to any such option, stock purchase right or convertible
security, under the same terms and conditions and at an exercise price per share
equal to three (3) times the exercise price per share applicable to any such
SenDx California stock option, stock purchase right or other convertible
security at the Effective Date of the Merger. Each Preferred Stock Purchase
Warrant convertible into SenDx California Preferred Stock shall become a
Preferred Stock Purchase Warrant convertible into the Surviving Corporation's
Preferred Stock on the basis of one (1) share of the Surviving Corporation's
Preferred Stock for each share of SenDx California Preferred Stock issuable
pursuant to any such Preferred Stock Purchase Warrant, under the same terms and
conditions and at an exercise price per share equal to the exercise price per
share applicable to any such SenDx California Preferred Stock Purchase Warrant
at the Effective Date of the Merger.
A number of shares of the Surviving Corporation's Common Stock and
Preferred Stock shall be reserved for issuance upon the exercise of stock
options, stock purchase rights and convertible securities equal to the number of
shares of SenDx California Common Stock and Preferred Stock so reserved
immediately before the Effective Date of the Merger.
3.3 SENDX DELAWARE COMMON STOCK. Upon the Effective Date of the Merger,
each share of Common Stock, $.001 par value, of SenDx Delaware issued and
outstanding immediately before the Effective Date of the Merger shall, by virtue
of the Merger and without any action by SenDx Delaware, by the holder of such
shares or by any other person be canceled and returned to the status of
authorized but unissued shares.
3.4 EXCHANGE OF CERTIFICATES. After the Effective Date of the Merger,
each holder of an outstanding certificate representing shares of SenDx
California Common Stock may, at such stockholder's option, surrender the same
for cancellation to the Surviving Corporation or to its transfer agent (the
"Exchange Agent"), and each such holder shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of shares of the
Surviving Corporation's Common Stock or Preferred Stock into which the
surrendered shares were converted as herein provided. Until so surrendered,
each outstanding certificate theretofore representing shares of SenDx California
Common Stock or Preferred Stock shall be deemed for all purposes to represent
the number of shares of the Surviving Corporation's Common Stock or Preferred
Stock, as adjusted pursuant to Section 3.1 above, into which such shares of
SenDx California Common Stock or Preferred Stock were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any such outstanding certificate shall, until such
certificate has been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Exchange Agent, have and be
entitled to exercise voting and other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock or Preferred
Stock of the Surviving Corporation represented by such outstanding certificate
as provided above.
Each certificate representing Common Stock and Preferred Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to restrictions on transferability as the certificates of
SenDx California so converted and given in exchange therefor,
3
<PAGE>
unless otherwise determined by the Board of Directors of the Surviving
Corporation in compliance with applicable laws.
If any certificate for shares of SenDx Delaware stock is to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, it shall be a condition of issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer, that such transfer otherwise be proper and that the person requesting
such transfer pay to the Exchange Agent any transfer or other taxes payable by
reason of issuance of such new certificate in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of SenDx Delaware that such tax has been paid or is not payable.
IV.
TRANSFER OF ASSETS AND LIABILITIES
4.1 TRANSFER OF ASSETS AND LIABILITIES. On the Effective Date, (i) the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all the disabilities, duties
and restrictions of or upon each of the Constituent Corporations; (ii) all
rights, privileges, powers and franchises of each of the Constituent
Corporations, all property, real, personal and mixed, of each of the Constituent
Corporations, all debts due to each of the Constituent Corporations on whatever
account and all things in action or belonging to each of the Constituent
Corporations shall be transferred to and vested in the Surviving Corporation;
(iii) all property, rights, privileges, powers and franchises, as well as all
other interests, shall be as effectively the property of the Surviving
Corporation as they were of the Constituent Corporations before the Effective
Date; and (iv) the title to any real estate vested by deed or otherwise in
either of the Constituent Corporations shall not revert to either of the
Constituent Corporations or be in any way impaired by reason of the Merger.
Notwithstanding the foregoing, (i) the liabilities of the Constituent
Corporations and of their stockholders, directors and officers shall not be
affected by the Merger; (ii) all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be preserved unimpaired
notwithstanding the Merger; and (iii) any claim existing or action or proceeding
pending by or against either of the Constituent Corporations may be prosecuted
to judgment as if the Merger had not taken place; provided, however, that the
claims and rights of the creditors of either or both of the Constituent
Corporations may be modified with the consent of such creditors; and, provided
further, that all debts, liabilities and duties of or upon each of the
Constituent Corporations shall attach to the Surviving Corporation and
accordingly may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.
4.2 FURTHER ASSURANCES. From time to time, as and when required by SenDx
Delaware or by its successors or assigns, there shall be executed and delivered
on behalf of SenDx California such deeds and other instruments, and there shall
be taken or caused to be taken by it such further and other actions as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by SenDx Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of SenDx California and otherwise to carry out the purposes of this
Agreement, and the officers and directors of SenDx Delaware are fully authorized
in the name and on behalf of SenDx California or otherwise to take all such
actions and to execute and deliver all such deeds and other instruments.
4
<PAGE>
V.
GENERAL
5.1 COVENANTS OF SENDX DELAWARE. SenDx Delaware covenants and agrees that
it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State
of California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of the
California General Corporation Law.
(b) File all documents with the California Franchise Tax Board
necessary for the assumption by SenDx Delaware of all of the franchise tax
liabilities of SenDx California.
(c) Take such other actions as may be required by the California
General Corporation Law.
5.2 DEFERRAL. Consummation of the merger may be deferred by the Board of
Directors of SenDx California for a reasonable period of time if the Board of
Directors determines that deferral would be in the best interests of SenDx
California and its shareholders.
5.3 AMENDMENT. The parties hereto, by mutual consent of their respective
Boards of Directors, may amend, modify or supplement this Agreement in such
manner as may be agreed upon by them in writing at any time before or after
adoption and approval of this Agreement by the stockholders of SenDx Delaware
and SenDx California, but not later than the Effective Date; provided, however,
that no such amendment, modification or supplement not adopted and approved by
the stockholders of SenDx Delaware and SenDx California shall affect the rights
of such stockholders or change any of the principal terms of this Agreement.
5.4 ABANDONMENT. At any time before the Effective Date of the Merger,
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either SenDx California or of SenDx
Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of SenDx California or by the stockholders of SenDx Delaware, or by
both.
In the event of abandonment of this Agreement, as above provided, this
Agreement shall become wholly void and of no effect, and no liability on the
part of either Constituent Corporation or its Board of Directors or its
stockholders shall arise by virtue of such termination except as provided in
Section 5.5 hereof.
5.5 EXPENSES. If the Merger becomes effective, the Surviving Corporation
shall assume and pay all expenses in connection therewith not theretofore paid
by the respective parties. If for any reason the Merger shall not become
effective, SenDx California shall pay all expenses incurred in connection with
all the proceedings taken in respect of this Agreement or relating thereto.
5.6 REGISTERED OFFICE. The registered office of the Surviving Corporation
in the State of Delaware is located at The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware 19801, and The Corporate Trust Company is
the registered agent of the Surviving Corporation at such address.
5.7 AGREEMENT. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 1945 Palomar Oaks
Way, Carlsbad, California 92009, and, upon request and without cost, copies
thereof will be furnished to any stockholder of either Constituent Corporation.
5
<PAGE>
5.8 GOVERNING LAW. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the Merger provisions of the
California General Corporation Law.
5.9 COUNTERPARTS. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, this Agreement having first been approved by
resolutions of the Boards of Directors of SenDx Delaware and SenDx California is
hereby executed on behalf of each of such two corporations and attested by their
respective officers thereunto duly authorized.
SenDx Medical, Inc.,
a Delaware corporation
By:
----------------------------------------
Douglas R. Hillier
President and Chief Executive Officer
SenDx Medical, Inc.,
a California corporation
By:
----------------------------------------
Douglas R. Hillier
President and Chief Executive Officer
6
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SENDX MEDICAL, INC.
(Duly adopted in accordance with Sections 242 and 245 of the
Delaware General Corporation Law)
It is hereby certified that:
1. The present name of the corporation (hereinafter called the
"Corporation") is SenDx Medical, Inc., which is the name under which the
Corporation was originally incorporated; the original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
May 9, 1996.
2. The Certificate of Incorporation of the Corporation, as amended and
restated herein, at the effective time of filing of this Amended and Restated
Certificate of Incorporation with the Delaware Secretary of State, shall read in
full as follows:
"AMENDED AND RESTATED 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 the
State of Delaware, as amended from time to time.
<PAGE>
ARTICLE IV: AUTHORIZED SHARES
4.1 This Corporation is authorized to issue two classes of shares,
designated respectively "Common Stock" and "Preferred Stock." The Corporation
is authorized to issue 50,000,000 shares of Common Stock and 26,490,253 shares
of Preferred Stock.
4.2 The Preferred Stock may be issued from time to time in any number of
series. The Board shall fix the designation and number of shares of each such
series. The Board may determine and alter the rights, preferences, privileges
and restrictions granted to and imposed upon any such wholly unissued series of
the Preferred Stock. The Board of Directors (within the limits and restrictions
of any resolution adopted by it, originally fixing the number of shares of any
series) may increase or decrease the number of shares of any such series after
the issuance of shares of that series, but not below the number of then
outstanding shares of such series. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status that they had before the adoption of the resolution originally fixing the
number of shares of such series.
4.3 PREFERRED STOCK.
4.3.1 DESIGNATION. This initial five Series of Preferred Stock
shall be designated "Series A Preferred Stock," "Series A-2 Preferred Stock,"
"Series B Preferred Stock," "Series C Preferred Stock" and "Series D Preferred
Stock."
4.4 NUMBER. The number of authorized shares constituting the Series A
Preferred Stock shall be 5,000,000 shares, the number of authorized shares
constituting the Series A-2 Preferred Stock shall be 1,500,000 shares, the
number of authorized shares constituting the Series B Preferred Stock shall be
1,500,000 shares, the number of authorized shares constituting the Series C
Preferred Stock shall be 10,000,000 shares and the number of authorized shares
constituting the Series D Preferred Stock shall be 3,809,524 shares.
4.5 DIVIDENDS.
4.5.1 SERIES A, SERIES A-2, SERIES B AND SERIES C PREFERRED STOCK.
The holders of shares of the Series A, Series A-2, Series B and Series C
Preferred Stock shall be entitled to receive, out of the assets of the
Corporation legally available therefor and as and when declared by the Board of
Directors of the Corporation in its sole discretion, noncumulative dividends at
a rate per share equal to the aggregate dividend paid on the number of shares of
Common Stock then issuable upon conversion of such Share of Preferred Stock.
Such dividends shall be payable to the holders of record as they appear on the
stock books of the Corporation on such record dates, not more than 50 days nor
less than 10 days preceding the payment date(s), as shall be fixed by the Board
of Directors of the Corporation in its sole discretion.
Unless full dividends on the Series A, Series A-2, Series B and Series C
Preferred Stock have been paid, no other dividends or other distributions with
respect to Common Stock or shares ranking on liquidation junior to the
respective Series of Preferred Stock, may be paid.
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4.5.2 SERIES D PREFERRED STOCK. In the event that any dividends
or other distributions are declared or paid on the Common Stock, the holders of
shares of the Series D Preferred Stock shall be entitled to receive, out of the
assets of the Corporation legally available therefor, noncumulative dividends or
other distributions at the rate per share equal to that declared or paid on the
number of shares of Common Stock issuable upon conversion of the shares of
Series D Preferred Stock. In the event that any dividends or other
distributions are declared or paid on any Preferred Stock, the holders of shares
of the Series D Preferred Stock shall be entitled to receive, out of the assets
of the Corporation legally available therefor, noncumulative dividends at the
rate per share equal to that declared or paid on such other shares of Preferred
Stock, based upon the number of shares of Common Stock issuable upon conversion
of such other shares of Preferred Stock and the shares of Series D Preferred
Stock. In the event such other shares of Preferred Stock are not convertible
into Common Stock, the holders of shares of the Series D Preferred Stock shall
be entitled to receive, out of the assets of the Corporation legally available
therefor, noncumulative dividends at the rate per share equal to that paid on
such other Preferred Stock, based upon the relative liquidation preferences of
such other shares of Preferred Stock and the shares of Series D Preferred Stock.
4.6 LIQUIDATION PREFERENCE.
4.6.1 SERIES D PREFERRED STOCK. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
subject to the rights of any series of Preferred Stock which may from time to
time come into existence, the holders of Series D Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of Series A Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock and
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to $2.625 for each outstanding share of Series D Preferred Stock
(the "Series D Original Issue Price" for the Series D Preferred Stock), plus an
amount equal to declared but unpaid dividends or other distributions on such
shares or which have been declared or which should have been declared or paid
pursuant to Section 4.5.2 above or 4.7.4.4(d)(iv) below (the "Series D
Liquidation Preference"). If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series D Preferred Stock shall
be insufficient to permit the payment to such holders of the Series D
Liquidation Preference, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series D Preferred Stock with each such holder to receive an
amount equal to the aggregate assets and funds to be distributed multiplied by a
fraction, the numerator of which is the aggregate Series D Liquidation
Preference of all the shares of Series D Preferred Stock held by such holder and
the denominator of which is the aggregate Series D Liquidation Preference of all
of the shares of Series D Preferred Stock then outstanding.
4.6.1.1 MERGERS, CONSOLIDATIONS, ETC. The transactions
referenced in 4.10 below shall not be deemed to be a liquidation, dissolution or
winding up within the meaning of this Section 4.6.1 but shall instead be
governed by the provisions set forth in 4.10.
4.6.1.2 DISTRIBUTIONS TO JUNIOR SHARES. Sections 502 and 503
of the
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Corporations Code do not apply to the Corporation's purchase of shares of Common
Stock (which are specifically approved by the Corporation's Board of Directors)
from an employee, officer, director or consultant of the Corporation upon
termination of their employment or services pursuant to a right of purchase
granted to the Corporation under a contract for the services of the employee or
consultant.
4.6.2 SERIES A, SERIES A-2 AND SERIES B PREFERRED STOCK. In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, the holders of Series A, Series A-2 and Series B Preferred
Stock shall be entitled to receive, out of the assets of the Corporation,
whether such assets are capital or surplus, an amount equal to $1.00 per share
plus any declared but unpaid dividends before any payment shall be made or any
assets distributed to the holders of shares of Common Stock or shares ranking on
liquidation junior to the Series A, Series A-2 and Series B Preferred Stock.
If, upon any liquidation, dissolution, or winding up of the Corporation,
the amounts payable to the holders of the Series A, Series A-2 and Series B
Preferred Stock are not paid in full, then the entire remaining assets of the
Corporation shall be distributed ratably among the holders of the Series A,
Series A-2 and Series B Preferred Stock.
4.6.3 SERIES C PREFERRED STOCK. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, after
payment of the liquidation preferences of the Series A, Series A-2 and Series B
Preferred Stock, the holders of Series C Preferred Stock shall be entitled to
receive, out of the assets of the Corporation, whether such assets are capital
or surplus, an amount equal to $1.00 per share plus any declared but unpaid
dividends before any payment shall be made or any assets distributed to the
holders of shares of Common Stock or shares ranking on liquidation junior to the
Series C Preferred Stock.
If, upon any liquidation, dissolution, or winding up of the Corporation,
after payment of the liquidation preferences of the Series A, Series A-2 and
Series B Preferred Stock, the amounts payable to the holders of the Series C
Preferred Stock are not paid in full, then the entire remaining assets of the
Corporation shall be distributed ratably among the holders of the Series C
Preferred Stock.
4.6.4 ASSETS REMAINING FOLLOWING PAYMENT OF LIQUIDATION
PREFERENCES. In the event that, upon any liquidation, dissolution or winding up
of the Corporation, the liquidation preferences of the Series D Preferred Stock
and the Series A, Series A-2, Series B and Series C Preferred Stock, together
with the liquidation preferences of any Series of Preferred Stock subsequently
designated by the Board of Directors, are paid in full, the entire remaining
assets of this Corporation shall be distributed ratably among the holders of the
Common Stock.
4.7 CONVERSION RIGHTS.
4.7.1 RIGHT TO CONVERT. Shares of Series A, Series A-2, Series B,
Series C and Series D Preferred Stock shall be convertible into Common Stock at
any time at the option of the holders thereof. The number of shares of Common
Stock issuable with respect to any share of Series A, Series A-2, Series B and
Series C Preferred Stock upon conversion shall be determined by dividing $1.00
by the conversion price for each Series of Preferred Stock in effect at the date
of conversion (the "Series A Conversion Price," the "Series A-2 Conversion
Price," the "Series
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B Conversion Price" and the "Series C Conversion Price," respectively) and the
number of shares of Common Stock issuable with respect to any share of Series D
Preferred Stock upon conversion shall be determined by dividing $2.625 by the
conversion price in effect at the date of conversion (the "Series D Conversion
Price") (the Series A Conversion Price, the Series A-2 Conversion Price, the
Series B Conversion Price, the Series C Conversion Price and the Series D
Conversion Price shall sometimes be collectively referred to as the "Conversion
Prices"). The Series A Conversion Price, Series A-2 Conversion Price, Series B
Conversion Price and Series C Conversion Price shall initially be $3.00, and the
Series D Conversion Price shall initially be $7.875. The Conversion Prices
shall be subject to adjustment from time to time as provided in Section 4.7.4
below. In effecting the conversion, accrued unpaid dividends on the Series A,
Series A-2, Series B, Series C and Series D Preferred Stock, if any, shall be
disregarded but remain payable to the holders of the respective Series of
Preferred Stock so converted. The Corporation shall reserve and keep reserved
out of its authorized but unissued shares of Common Stock sufficient shares to
effect the conversion of all shares of Series A, Series A-2, Series B, Series C
and Series D Preferred Stock outstanding from time to time.
4.7.2 AUTOMATIC CONVERSION.
4.7.2.1 SERIES A, SERIES A-2, SERIES B AND SERIES C PREFERRED
STOCK. Upon the closing of a sale of Common Stock by the Corporation in a
public offering pursuant to a registration statement on Form S-1 or Form SB-2
(or any successor to such forms) under the Securities Act of 1933, as amended,
which results in either aggregate cash proceeds (before payment of underwriter
commissions and expenses) in excess of $20,000,000 or the sale of a number of
shares of Common Stock equal to twenty percent (20%) of the then-outstanding
capital stock of the Corporation, each share of Series A, Series A-2, Series B
and Series C Preferred Stock then outstanding shall automatically be converted
into shares of Common Stock at the respective Conversion Price for such Series
of Preferred Stock then in effect. On and after such conversion date, all
designated but unissued shares of Series A, Series A-2, Series B and Series C
Preferred Stock shall be cancelled and no longer authorized, and notwithstanding
that any certificates for shares of the Series A, Series A-2, Series B and
Series C Preferred Stock shall not have been surrendered for conversion, the
shares of Series A, Series A-2, Series B, and Series C Preferred Stock evidenced
thereby shall be deemed to be cancelled and no longer outstanding or authorized,
and all rights with respect thereto shall forthwith cease and terminate, except
only the rights of the holder (i) to receive the shares of Common Stock to which
such holder shall be entitled upon conversion thereof, and (ii) with respect to
any dividends or other distributions declared but unpaid, or which should have
been declared or paid pursuant to Section 4.5 above or Section 4.7.4.4(d)(ii)
below, on the respective Series of Preferred Stock prior to such conversion
date.
4.7.2.2 SERIES D PREFERRED STOCK. Upon (A) the closing of a
sale of Common Stock by the Corporation in a public offering pursuant to a
registration statement on Form S-1 or Form SB-2 (or any successor to such forms)
under the Securities Act of 1933, as amended, which results in aggregate gross
proceeds to the Corporation in excess of $18,000,000 (a "Qualified Public
Offering"), or (B) upon the written approval of the respective holders of at
least 90% of the Series D Preferred Stock then outstanding, each share of Series
D Preferred Stock then outstanding shall automatically be converted into shares
of Common Stock at the Conversion Price for Series D Preferred Stock then in
effect. On and after such conversion date, all designated but unissued shares
of Series D Preferred Stock shall be cancelled and no longer
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authorized, and notwithstanding that any certificates for shares of the
Series D Preferred Stock shall not have been surrendered for conversion, the
shares of Series D Preferred Stock evidenced thereby shall be deemed to be
cancelled and no longer outstanding or authorized, and all rights with
respect thereto shall forthwith cease and terminate, except only the rights
of the holder (i) to receive the shares of Common Stock to which such holder
shall be entitled upon conversion thereof, and (ii) with respect to any
dividends or other distributions declared but unpaid, or which should have
been declared or paid pursuant to Section 4.5 above or Section 4.7.4.4(d)(ii)
below, on the Series D Preferred Stock prior to such conversion date.
4.7.3 MECHANICS OF CONVERSION. In order to convert shares of
Series A, Series A-2, Series B, Series C and/or Series D Preferred Stock into
shares of Common Stock, the holder thereof shall deliver the share certificate
or certificates for such shares to the Corporation's transfer agent if it has
one, or otherwise to the Corporation at its principal executive office,
accompanied by a written request to convert, specifying the number of shares to
be converted. The endorsement of the share certificate and the request to
convert shall be in form reasonably satisfactory to the transfer agent or to the
Corporation, as the case may be. Upon the date of such delivery, the conversion
is deemed to have occurred and the person entitled to receive share certificates
for Common Stock shall be regarded for all corporate purposes from and after
such date as the holder of the number of shares of Common Stock to which such
holder is entitled upon the conversion. If the conversion is in connection with
an underwritten offer of securities registered pursuant to the Securities Act of
1933, the conversion shall be conditioned upon the closing with the underwriter
of the sale of securities pursuant to such offering, in which event the
person(s) entitled to receive the Common Stock issuable upon such conversion of
the Series A, Series A-2, Series B, Series C or Series D Preferred Stock shall
not be deemed to have converted such shares until immediately prior to the
closing of such sale of securities. If the conversion is in connection with the
written approval of the respective holders of at least 90% of the Series A,
Series A-2, Series B, Series C or Series D Preferred Stock, as set forth in
subsection 4.7.2(B) above, such conversion shall be deemed to have been made on
the effective date of such conversion as set forth in such written approval.
4.7.4 CONVERSION PRICE ADJUSTMENTS. The Series A Conversion
Price, Series A-2 Conversion Price, Series B Conversion Price, Series C
Conversion Price and the Series D Conversion Price shall be subject to
adjustment from time to time as follows:
4.7.4.1 SPECIAL DEFINITIONS. For purposes of this subsection
4.7.4, the following definitions shall apply:
(a) "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities (as hereinafter defined).
(b) "ORIGINAL ISSUE DATE" shall mean, with respect to each
of the Series A, Series A-2, Series B, Series C, or Series D Preferred Stock,
the date on which the first share of such series was first issued.
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(c) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock, other than Options.
(d) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to subsection 4.7.4.3 below, deemed
to be issued) by the Corporation after the Original Issue Date, OTHER THAN
shares of Common Stock issued (or, pursuant to subsection 4.7.4.3 below, deemed
to be issued) or issuable:
(i) upon conversion of shares of the Series A,
Series A-2, Series B, Series C or Series D Preferred Stock, including without
limitation conversion of shares of Series A, Series A-2, Series B, Series C or
Series D Preferred Stock issued upon exercise of warrants therefor pursuant to
the terms of any stock purchase agreement or warrants or Convertible Securities
in effect on the date hereof;
(ii) to officers, directors, employees and
consultants of the Corporation which have been approved by the Board of
Directors, provided however, that the number of shares of Common Stock issued or
issuable under option to officers, directors, employees and consultants shall
not at any time exceed 16% of the outstanding Common Stock, on a fully diluted
basis after giving effect to all shares of Common Stock issuable on exercise of
Options and conversion of Convertible Securities (and including in such 16%,
shares previously issued to employees, consultants, vendors or directors,
pursuant to any equity participation plan for such persons);
(iii) pursuant to the issuance or exercise of any
Options to purchase shares of Common or Preferred Stock of the Company, provided
however, that, with respect to adjustments to the Conversion Price for the
Series D Preferred Stock, such Options must have been (i) issued prior to the
Original Issue Date (or issued in exchange for Options issued prior to the
Original Issue Date) but not to exceed 3,465,882 shares of Common Stock, 300,000
shares of Series A Preferred Stock, and 275,248 shares of Series C Preferred
Stock, as adjusted for stock splits, stock dividends and combinations after the
date hereof, or (ii) the issuance of such Options must have been approved in
writing by the holders of a majority of the Series D Preferred Stock; or
(iv) pursuant to any event for which adjustment has
already been made pursuant to this subsection 4.7.4.
4.7.4.2 NO ADJUSTMENT OF CONVERSION PRICES. No adjustment in
the Conversion Prices shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share for an Additional
Share of Common Stock issued or deemed to be issued by the Corporation is less
than the respective Conversion Price in effect immediately prior to such issue.
4.7.4.3 DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
Except as provided in subsection 4.7.4.1(d), above, in the event the Corporation
at any time or from time to time after the Original Issue Date for the Series A,
Series A-2, Series B, Series C or Series D Preferred Stock shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
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Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue of Options or Convertible Securities or, in case such a
record date shall have been fixed, as of the close of business on such record
date, provided that in any such case in which Additional Shares of Common Stock
are deemed to be issued:
(a) no further adjustment in the Conversion Prices shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities.
(b) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Prices computed upon the initial
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities; and
(c) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Prices computed upon the initial issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(i) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged plus the
consideration actually received by the Corporation upon such conversion or
exchange, if any, and
(ii) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options and the consideration
received by the Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by the Corporation
for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised;
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(d) no readjustment pursuant to clause 4.7.4.4 below shall
have the effect of increasing the Conversion Prices to an amount which exceeds
the lower of (i) the respective Conversion Price on the original adjustment
date, or (ii) the respective Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
4.7.4.4 ADJUSTMENT OF CONVERSION PRICES UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON AND OTHER EVENTS.
(a) ADJUSTMENT OF CONVERSION PRICE FOR SERIES A PREFERRED
STOCK. If, after the Original Issue Date of the Series A Preferred Stock (the
"Series A Issue Date"), the Corporation shall issue any Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to subsection 4.7.4.3) without consideration or for a consideration per
share less than the Conversion Price in effect immediately prior to the issuance
or deemed issuance of such Common Stock, then the Series A Conversion Price in
effect immediately prior to each such issuance or deemed issuance shall
forthwith be adjusted to a price equal to a quotient obtained by dividing (a) an
amount equal to the sum of (i) the total number of shares of Common Stock
outstanding (including the shares of Common Stock deemed to have been issued)
immediately prior to such issuance or deemed issuance multiplied by the
conversion price in effect immediately prior to such issuance or deemed issuance
plus, plus (ii) the consideration received by the Corporation upon such issuance
or deemed issuance, by (b) the total number of shares of Common Stock
outstanding then including the shares of Common Stock deemed to have been
issued) immediately after the issuance or deemed issuance of such Common Stock.
(i) DETERMINATION OF CONSIDERATION. For purposes of
this subsection 4.7.4.4(a), the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed as follows:
(A) In the case of the issuance or deemed
issuance of Common Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor without deduction for any discounts, commissions or
other expenses allowed, paid or incurred by the Corporation for any underwriting
or otherwise in connection with the issuance or deemed issuance and sale
thereof.
(B) In the case of the issuance or deemed
issuance of Common Stock for a consideration in whole or in part other than
cash, the consideration other than cash shall be deemed to be the fair market
value thereof as determined by the Board of Directors of the Corporation.
(C) In the case of the issuance of options or
rights to subscribe for Common Stock (but not including any issuance of options,
warrants or rights under Section 4.7.4.1(d)(i) and 4.7.4.1(d)(ii) or the
issuance of any securities by their terms convertible into or exchangeable for
Common Stock:
(1) The aggregate number of shares of Common
Stock initially deliverable upon exercise of such options or rights shall be
deemed to have been issued at the times such options or rights were granted or
issued, as the case may be,
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and for a consideration equal to the consideration, if any (determined in the
same manner provided in Sections 4.7.4.4(a)(i)(1) and 4.7.4.4(a)(i)(2) above
with respect to cash consideration and consideration other than cash) received
by the Corporation upon the grant or issuance of such options or rights plus the
minimum purchase price provided in such options or rights or shares of Common
Stock covered thereby;
(2) The aggregate number of shares of Common
Stock initially deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities shall be deemed to have been issued at
the times such securities were issued and for a consideration equal to the
consideration received by the Corporation by any such securities (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation upon the
conversion or exchange thereof (the consideration in each case to be determined
in the same manner as provided in Sections 4.7.4.4(a)(i)(1) and 4.7.4.4(a)(i)(2)
above); and
(3) On the expiration of such options or
rights or the termination of such right to convert or exchange, the conversion
price shall forthwith be readjusted to such conversion price as would have
obtained had the adjustment made upon the issuance of such options, rights or
securities been made on the basis of the issuance or sale of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights or upon the conversion or exchange of such securities.
(b) ADJUSTMENT OF CONVERSION PRICES FOR SERIES A-2, SERIES
B AND SERIES C PREFERRED STOCK. If, after the Original Issue Date of the Series
A-2, Series B or Series C Preferred Stock, the Corporation shall issue any
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to subsection 4.7.4.3) without consideration or for
a consideration per share less than the Conversion Price in effect for such
Series immediately prior to the issuance or deemed issuance of such Common
Stock, then the respective Conversion Price in effect for each such Series (but
not for the Series A or Series D Preferred Stock) immediately prior to each such
issuance or deemed issuance shall forthwith be adjusted to such lesser price.
(c) ADJUSTMENT OF CONVERSION PRICE FOR SERIES D PREFERRED
STOCK. If, after the Original Issue Date of the Series D Preferred Stock, the
Corporation shall issue any Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to subsection
4.7.4.3 but excluding stock dividends, subdivisions or split-ups that are the
subject of adjustment pursuant to subsections 4.7.4.4(d)(i) and 4.7.4.4(d)(ii)
without consideration or for a consideration per share less than the Conversion
Price applicable on and immediately prior to such issue, then and in such event,
the Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest one-tenth cent) determined by dividing (X) the
aggregate consideration received or to be received by the Corporation for the
total number of Additional Shares of Common Stock so issued (or deemed issued)
by (Y) the total number of such Additional Shares of Common Stock. In the event
the Corporation has not requested to redeem all of the Series D Preferred Stock
pursuant to subsection 4.9.2.1, or in the event the Corporation did make such
request, but failed to redeem shares of Series D Preferred Stock delivered for
redemption, then the Conversion Price shall be reduced, commencing one month
following the second anniversary of the Original Issue Date (as defined in this
Section 4.7.4), and on the same day of each month thereafter, by an amount equal
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to one-twelfth (1/12) of the difference between the Conversion Price and $3.00,
so that after twelve (12) months of such adjustment, the Conversion Price shall
be $3.00. In the event that the Conversion Price is, during such period,
adjusted pursuant to another subsection of this subsection 4.7.4 such monthly
adjustments to the Conversion Price shall be appropriately adjusted so that any
remaining monthly adjustments are equal and result in the Conversion Price at
the end of the twelve (12) month period being equal to $3.00. Notwithstanding
the foregoing, at any time that a majority of the authorized number of directors
have been elected by the Series D Preferred Stock holders pursuant to Section
4.8.4.1 hereto, such monthly Conversion Price adjustments shall be suspended
(however, any adjustments made prior to such time shall remain effective). The
foregoing $3.00 target Conversion Price shall be adjusted as set forth in
subsections 4.7.4.4(d)(i), 4.7.4.4(d)(ii), 4.7.4.4(d)(iii), and 4.7.4.4(d)(iv).
(i) DETERMINATION OF CONSIDERATION. For purposes of
this subsection 4.7.4.4(c), the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY. Such consideration shall:
(1) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation;
(2) Such consideration insofar as it
consists of property other than cash, be computed at the fair value thereof at
the time of such issue, as determined in accordance with
Section 4.7.4.4(c)(i)(A)(4) below; and
(3) In the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, as determined in Section 4.7.4.4(c)(i)(A)(4) below.
(4) The determination set forth in Sections
4.7.4.4(c)(i)(A)(2) and 4.7.4.4(c)(i)(A)(3) above shall be determined in good
faith as promptly as reasonably practicable by the mutual agreement of the Board
of Directors and a representative designated by the holders of a majority of the
outstanding Series D Preferred Stock (the "Series D Representative"). If such
parties 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 Series D Representative
(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
determinations by the Appointed Firm shall be final and binding on the
Corporation and the holders of Series D Preferred Stock. The Appointed Firm
will determine the allocation of its fees and expenses in connection with its
determinations 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 value is
$1,000 less than the amount claimed by the Series D Representative, and if the
Appointed Firm ultimately resolves the dispute by awarding the holders of the
Series D Preferred
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Stock $300 of the $1,000 contested, then the fees and expenses of the Appointed
Firm will be allocate 70% (ie: 700/1,000) to the holders of the Series D
Preferred Stock and 30% (ie: 300/100) to the Corporation.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to subsection 4.7.4.3, relating
to Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) ADJUSTMENT OF CONVERSION PRICES. In addition to the
adjustment of the Series A Conversion Price as provided in Section 4.7.4.4(a)
above, the adjustment of the respective Conversion Prices of the Series A-2,
Series B and/or Series C Preferred Stock as provided in Section 4.7.4.4(b) above
and the adjustment of the Series D Conversion Price as provided in Section
4.7.4.4(c) above, each of the Conversion Prices shall be subject to adjustment
from time to time as follows:
(i) ADJUSTMENTS FOR STOCK DIVIDENDS, SUBDIVISIONS, OR
SPLIT-UPS OF COMMON STOCK. If the number of shares of Common Stock outstanding
at any time after the effectiveness of these resolutions is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, immediately effective at the close of business
upon the record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up, the Conversion
Prices shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of Series A, Series A-2, Series B,
Series C and Series D Preferred Stock shall be increased in proportion to such
increase of outstanding shares of Common Stock.
(ii) ADJUSTMENTS FOR COMBINATIONS OF COMMON STOCK. If
the number of shares of Common Stock outstanding at any time after the
effectiveness of these resolutions is decreased by a combination of the
outstanding shares of Common Stock, then, immediately effective at the opening
of business upon the record date of such combination, the Conversion Prices
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such Series A, Series A-2, Series B,
Series C and Series D Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares of Common Stock.
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(iii) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the
event the Corporation at any time or from time to time makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive, any
distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series A, Series A-2, Series B, Series C and Series D Preferred
Stock shall receive upon conversion thereof, in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Series A, Series A-2,
Series B, Series C, or Series D Preferred Stock, respectively, been converted
into Common Stock on the date of such event to and including the date of
conversion, and retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during such period
under these resolutions with respect to the rights of the holders of the
respective Series of Preferred Stock.
(iv) ADJUSTMENTS FOR REORGANIZATIONS,
RECLASSIFICATIONS, ETC. Subject to Section 4.10 below, if the Common Stock
issuable upon conversion of the Series A, Series A-2, Series B, Series C and/or
Series D Preferred Stock shall be changed into the same or a different number of
shares of any other class or classes of stock or other securities or property,
whether by reclassification, a merger or consolidation of this Corporation with
or into any other corporation or corporations in which the holders of the
capital stock of this Corporation then hold 50% or more of the voting securities
of the surviving corporation (other than pursuant to a subdivision or
combination of shares provided for above), the respective Conversion Price then
in effect shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the Series A,
Series A-2, Series B, Series C and/or Series D Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock or securities or other property
equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the respective Series of
Preferred Stock immediately before such event; and, in any such case,
appropriate adjustment (pursuant to the procedures set forth in
Section 4.7.4.4(c)(i)(A)(4) above) shall be made in the application of the
provisions herein set forth with respect to the rights and interest
thereafter of the holders of the respective Series of Preferred Stock, to the
end that the provisions set forth herein (including provisions with respect
to changes in and other adjustments of the respective Conversion Price) shall
thereafter be applicable, as nearly as may be reasonable, in relation to any
shares of stock or other property thereafter deliverable upon the conversion
of the Series A, Series A-2, Series B, Series C and/or Series D Preferred
Stock, provided that no such change or adjustment shall adversely affect the
rights, preference and privileges of the Series A, Series A-2, Series B,
Series C or Series D Preferred Stock, respectively, hereunder.
(e) SPECIAL ADJUSTMENT TO SERIES D CONVERSION PRICE ON
INITIAL PUBLIC OFFERING OR SALE OF MAJORITY INTEREST. In the event this
Corporation shall issue Additional Shares of Common Stock in its initial public
offering (which may include a Qualified Public Offering) or in the event of a
private sale, in a transaction or series of related transactions, of more than
50% of its voting stock (determined after the consummation thereof), to a single
person or group of persons acting together (as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934), for a consideration per share of Common
Stock less than 150% of the Series D Conversion Price applicable on and
immediately prior to such issue, then immediately prior to the closing of such
sale of securities the Series D Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest one-tenth cent) equal to
33.3%
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of such consideration per share, but in no event less than $3.00. The foregoing
$3.00 minimum Series D Conversion Price shall be adjusted as set forth in
subsections 4.7.4.4(d)(i), 4.7.4.4(d)(ii), 4.7.4.4(d)(iii), and 4.7.4.4(d)(iv).
4.7.5 COMPUTATIONS. The Corporation may retain a firm of
independent public accountants (recognized as one of the "Big Six"), which may
be a firm regularly employed by the Corporation, to make any computation
required under this subsection 4.7.4, and a certificate signed by such firm
shall be conclusive evidence of the correctness of any computation made under
this subsection 4.7.4, provided that the holders of Series A, Series A-2, Series
B, Series C and Series D Preferred Stock have the opportunity to review such
computation prior to the issuance of a certificate by such accounting firm.
4.7.6 OFFICER'S CERTIFICATES. Whenever the number of Common
Shares into which the Series A, Series A-2, Series B, Series C and/or Series D
Preferred Stock is convertible or the respective Conversion Price shall be
adjusted as required by the provisions of this subsection 4.7.4, the Corporation
forthwith shall file in the custody of its secretary or an assistant secretary,
at its principal office, an officer's certificate showing the adjusted number of
Common Shares into which the Series A, Series A-2, Series B, Series C and/or
Series D Preferred Stock is convertible and the respective Conversion Price and
setting forth in reasonable detail the circumstances requiring the adjustment.
Each such officer's certificate shall be made available at all reasonable times
during reasonable hours for inspection by any holder of Series A, Series A-2,
Series B, Series C or Series D Preferred Stock. The Corporation shall also
cause a notice setting forth any such adjustment to be sent by mail, first-
class, postage prepaid, to each registered holder of shares of Series A, Series
A-2, Series B, Series C and Series D Preferred Stock at such holder's address
appearing on the stock register.
4.7.7 NOTICES TO HOLDERS OF PREFERRED STOCK. So long as any
Series A, Series A-2, Series B, Series C and/or Series D Preferred Stock shall
be outstanding (a) if the Corporation shall pay any dividends or make any
distribution upon the Common Stock or any class or series of Preferred Stock
otherwise than in cash or (b) if the Corporation shall offer generally to the
holders of Common Stock or any class or series of Preferred Stock the right to
subscribe to or purchase any shares of any class of Common Stock, Options,
Convertible Securities, or any other securities of the Corporation, or any
similar rights or (c) if there shall be any capital reorganization of the
Corporation in which the Corporation is not the surviving entity,
recapitalization of the capital stock of the Corporation, consolidation or
merger of the Corporation with or into another corporation, sale, lease or other
transfer of all or substantially all of the property and assets of the
Corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, then in such event, the Corporation shall cause to be mailed
to any holder of Series A, Series A-2, Series B, Series C and Series D Preferred
Stock and the holders of any options, warrants or convertible securities
exercisable, exchangeable or convertible into or for such Series of Preferred
Stock, at least twenty days prior to the relevant date described below (or such
shorter period as is reasonably possible if twenty days is not reasonably
possible), a notice containing a description of the proposed action and stating
the date or expected date on which a record of the Corporation's shareholders is
to be taken for the purpose of any such dividend, distribution of rights, or
such reclassification, reorganization, consolidation, merger, conveyance, lease
or transfer, dissolution, liquidation or winding up is to take place and the
date or expected date, if any is to be fixed, as of which the record holders of
capital stock shall be entitled to exchange their shares of Common Stock for
securities or other
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property deliverable upon such event. All notices required to be given or given
under the terms of these resolutions shall be treated as properly given to each
holder of Series A, Series A-2, Series B, Series C and Series D Preferred Stock
if mailed first class mail, postage prepaid, to the record holders of such
Series of Preferred Stock on the Corporation's records.
4.7.8 FRACTIONAL SHARES. The Corporation shall not be required to
issue fractional shares of Common Stock upon conversion of shares of Series A,
Series A-2, Series B, Series C and/or Series D Preferred Stock, so long as the
value of a share of Common Stock is less than $100 per share. As to any final
fraction of a share of Common Stock which a holder of one or more shares of
Series A, Series A-2, Series B, Series C or Series D Preferred Stock would
otherwise be entitled to receive upon conversion of shares of respective
Series of Preferred Stock, in the same transaction the Corporation shall pay a
cash adjustment in respect of such final fraction in an amount equal to the same
fraction of the last sale price (or bid price if there was no sale) per share on
the national stock exchange which shall then constitute the principal market for
the Common Stock on the business day which next precedes the date of conversion
or, if such Common Stock is not then listed on any national stock exchange, of
the market price per share (as determined in a reasonable manner prescribed in
good faith by the Board of Directors of the Corporation) at the close of
business on the business day which next precedes the date of conversion.
4.7.9 ISSUANCE TAXES. The Corporation shall pay all documentary
stamp or other issuance taxes attributable to the issuance or delivery of shares
of Common Stock upon conversion of any shares of Series D Preferred Stock.
4.7.10 RESERVATION OF STOCK. The Corporation shall at all times
reserve and keep available, out of its authorized and unissued stock, solely for
the purpose of effecting the conversion of shares of Series A, Series A-2,
Series B, Series C and Series D Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
shares of the respective Series of Preferred Stock from time to time outstanding
and issuable upon the exercise of warrants to purchase Series A, Series A-2,
Series B, Series C and/or Series D Preferred Stock then outstanding.
4.7.11 CONVERTED SHARES. All certificates evidencing shares of
Series A, Series A-2, Series B, Series C and Series D Preferred Stock
surrendered for conversion shall be appropriately cancelled on the books of the
Corporation, and the shares so converted represented by such certificates shall
not be restored to the status of authorized but unissued shares of Preferred
Stock,but instead shall no longer constitute authorized shares of the
Corporation
4.8 VOTING RIGHTS.
4.8.1 SERIES A AND SERIES A-2 PREFERRED STOCK. The holder of a
share of Series A or Series A-2 Preferred Stock issued and outstanding shall
have voting rights equal to the voting rights of that number of shares of Common
Stock issuable upon conversion of the share of Series A or Series A-2 Preferred
Stock. The holders of the Series A and Series A-2 Preferred Stock shall vote as
one class with the holders of Common Stock and the holders of Series C and
Series D Preferred Stock; provided however,
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4.8.1.1 that consent of the holders of a majority of the
Series A and Series A-2 Preferred Stock, voting together as a class, will be
required for any action which (i) alters or changes the rights, preferences or
privileges of the Series A and Series A-2 Preferred Stock in a materially
adverse way, or (ii) causes repurchases of the Corporation's stock, except for
repurchases from employees, officers or directors of the Corporation or
repurchases pursuant to any stock option plan or other benefit plan for
employees, officers, directors, consultants and other persons rendering services
to the Corporation or its subsidiaries; and
4.8.1.2 for purposes of any vote of holders of shares of
Series A and Series A-2 Preferred Stock at any meeting of shareholders of the
Corporation, the holders of a majority of such shares then outstanding, present
in person or by proxy, shall constitute a quorum.
4.8.2 SERIES B PREFERRED STOCK. The holder of a share of Series B
Preferred Stock issued and outstanding shall not have voting rights.
4.8.3 SERIES C PREFERRED STOCK. The holder of a share of Series C
Preferred Stock issued and outstanding shall have voting rights equal to the
voting rights of that number of shares of Common Stock issuable upon conversion
of the share of Series C Preferred Stock. The holders of Series C Preferred
Stock shall vote as one class with the holders of Common Stock and the holders
of Series A, Series A-2 and Series D Preferred Stock; provided, however,
4.8.3.1 that consent of the holders of a majority of the
Series C Preferred Stock will be required for any action which (i) alters or
changes the rights, preferences or privileges of the Series C Preferred Stock in
a materially adverse way, or (ii) causes repurchases of the Corporation's stock,
except for repurchases from employees, officers or directors of the Corporation
or repurchases pursuant to any stock option plan or other benefit plan for
employees, officers, directors, consultants and other persons rendering services
to the Corporation or its subsidiaries; and
4.8.3.2 for purposes of any vote of holders of shares of
Series C Preferred Stock at any meeting of shareholders of the Corporation, the
holders of a majority of such shares then outstanding, present in person or by
proxy, shall constitute a quorum.
4.8.4 SERIES D PREFERRED STOCK. The holder of a share of Series D
Preferred Stock issued and outstanding shall have voting rights equal to that
number of shares of Common Stock issuable upon conversion of the share of Series
D Preferred Stock. The holders of the Series D Preferred Stock shall vote as
one class with the holders of Common Stock and holders of Series A, Series A-2
and Series C Preferred Stock; provided, however,
4.8.4.1 so long as at least 100,000 shares of Series D
Preferred Stock are outstanding, the holders of the Series D Preferred Stock
shall be entitled, voting as a separate class, to elect one (1) director of the
Corporation at each annual election of directors. Any remaining directors shall
be elected by the holders of Common Stock and Preferred Stock (other than the
Series D Preferred Stock) voting together as a class, subject to any voting
agreements among the shareholders of the Corporation. In the case of any
vacancy in the office of a director occurring among the directors elected by the
holders of a series or class of stock pursuant hereto, the remaining directors
so elected by that series or class may by affirmative vote
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of a majority thereof (or the remaining director so elected if there be but one,
or if there are no directors remaining, by the affirmative vote of the holders
of a majority of the shares of that series or class), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a series or class of stock or by any directors so elected as
provided in the next preceding sentence hereof may be removed during the
aforesaid term of office either with or without cause, by, and only by, the
affirmative vote of the holders of a majority of the shares of the series or
class of stock who elected such director or directors, given either at a special
meeting of such shareholders duly called for that purpose or pursuant to a
written consent of shareholders, and any vacancy thereby created may be filled
by the holders of that series or class of stock represented at such meeting or
pursuant to such written consent.
4.8.4.2 in the event that subsequent to a Holders Notice of
Redemption (as defined in Section 4.9.2.1 below) all of the Series D Preferred
Stock requested to be redeemed shall not have been redeemed in accordance with
Section 4.9.2.1 below, the holders of the Series D Preferred Stock shall be
entitled, upon giving written notice to the Corporation, voting together as a
single class, to elect the number of directors which is equal to the smallest
number of directors which would constitute a majority of the authorized number
of directors, and the holders of Common Stock and any other class or series
(other than the Series D Preferred Stock) entitled to vote generally for the
election of directors, voting together as a single class shall be entitled to
elect the remaining members of the Board of Directors. Such right to elect a
majority of the authorized number of directors shall continue until all of the
shares of Series D Preferred Stock requested to be redeemed have been so
redeemed or until the holders of the Series D Preferred Stock have elected to
suspend their rights hereunder (which rights may be later reasserted) (in which
the holders of the Series D Preferred Stock shall be entitled to adjustment of
the Series D Conversion Price as set forth in Section 4.7.4.4(c)
4.8.4.3 The Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Series D Preferred Stock.
(a) amend the Corporation's Articles of Incorporation or
Bylaws if such action would have an adverse effect on the rights, preferences or
privileges of the Series D Preferred Stock;
(b) create, authorize or file any certificate of
determination with respect to, any new class or series of stock or any other
securities convertible into equity securities of the Corporation having a
preference equal to or over the Series D Preferred Stock with respect to voting,
dividends, redemption or upon merger, consolidation or liquidation;
(c) pay or declare any dividend or distribution on shares
of Common Stock or Preferred Stock, or purchase, redeem or otherwise acquire any
of the Common Stock or Preferred Stock of this Corporation; provided, however,
that this restriction shall not apply to the repurchase of shares of Common
Stock or Preferred Stock from directors, officers, consultants, vendors or
employees of, or others with important business relationships with, this
Corporation or any subsidiary pursuant to agreements approved by this
Corporation's Board of Directors under which this Corporation has a right of
first refusal with respect to such
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shares or the option or obligation to repurchase such shares upon the
occurrence of certain events, including the termination of employment or
services.
4.9 REDEMPTION.
4.9.1 SERIES A, SERIES A-2, SERIES B AND SERIES C PREFERRED STOCK.
Series A, Series A-2, Series B and Series C Preferred Stock are not subject to
redemption.
4.9.2 SERIES D PREFERRED STOCK.
4.9.2.1 REDEMPTION AS REMEDY FOR BREACH OF COVENANT. In the
event the Corporation breaches its covenant to complete a Qualified Public
Offering (as defined in Section 4.7.2 below) as set forth in Section 2.5(i) of
that certain Investor Rights Agreement with the initial purchaser of Series D
Preferred Stock, upon the written request of the holders of at least fifty
percent (50%) of the Series D Preferred Stock then outstanding (voting together
as a single class) each holder of Series D Preferred Stock may at its option
require the Corporation to redeem all of the Series D Preferred Stock held by it
by delivery of a written notice to the Corporation requesting such redemption
and specifying the number of shares to be redeemed (the "Holders Redemption
Notice"). The rights of holders of the Series D Preferred Stock to request
redemption pursuant to this Section 4.9.2.1 may be exercised one time only and
may not be exercised until at least 21 months after the Original Issue Date, as
defined in Section 4.7.4. After the receipt of a Holders Redemption Notice (the
"Date of Receipt"), the Corporation shall deliver written notice to all other
holders of Series D Preferred Stock informing each such holder of (1) the
receipt of such Holders Redemption Notice, (2) the Date of Receipt, (3) the
number of shares of Series D Preferred Stock requested to be redeemed in the
Holders Redemption Notice, and (4) the total number of shares of Series D
Preferred Stock outstanding as of the Date of Receipt. Any such other holder
desiring to have all of its Series D Preferred Stock redeemed by the Corporation
in accordance with the above schedule shall have until thirty (30) days after
receipt of such written notice (the "Exercise Period") in which to notify the
Corporation. The Corporation first shall redeem all the shares of Series D
Preferred Stock so requested to be redeemed at a redemption price equal to the
Series D Liquidation Preference (the "Redemption Price") within one hundred
twenty days (120) of the receipt by the Company of the Holders Redemption
Notice. The Corporation shall pay for shares redeemed hereunder by delivery of
cash in the amount of the Redemption Price for the shares to be so redeemed on
the respective redemption date pursuant to subsection 4.9.2.5 below. The
Corporation may satisfy its obligations hereunder by arranging or causing a
third party to purchase the shares of Series D Preferred Stock requested to be
redeemed for a price not less than the Redemption Price.
4.9.2.2 OPTIONAL REDEMPTION AT THE ELECTION OF THE CORPORATION.
In the event the Corporation has not completed a Qualified Public Offering (as
defined in Section 4.7.2 below) prior to the second anniversary of the Original
Issue Date, at any time after the second anniversary of the Original Issue Date,
the Corporation may request redemption of all of the Series D Preferred Stock
for the Redemption Price. If the Corporation desires to redeem the Series D
Preferred Stock, the Corporation shall give the holders thereof notice of such
redemption, which notice shall set forth the number of shares to be redeemed and
the place and date fixed for redemption, which date shall be not less than
thirty (30) nor more than ninety (90) days after the date of such notice. The
holders of the Series D Preferred Stock shall notify the Corporation of their
election to accept or reject redemption pursuant to the Corporation's notice.
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Unless holders of a majority of the Series D Preferred Stock then outstanding
reject such redemption within ten (10) business days of receipt of the
Corporation's notice, the Corporation shall have the right to and shall be
obligated to redeem all shares of Series D Preferred Stock.
4.9.2.3 SURRENDER OF STOCK. On or before the date fixed for
redemption pursuant to subsection 4.9.2.1 or 4.9.2.2 above (the "Redemption
Date"), each holder of shares of Series D Preferred Stock to be redeemed, unless
the holder of Series D Preferred Stock has exercised its right to convert the
shares as provided in Section 4.7 hereof, shall surrender the certificate or
certificates representing such shares to the Corporation, and thereupon the
Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be cancelled and retired. In the event less
than all of the shares represented by such certificate are redeemed, a new
certificate representing the unredeemed shares shall be issued to the holder of
such shares.
4.9.2.4 PARTIAL REDEMPTION. From and after the Redemption
Date, unless there shall have been a default in payment of the Redemption Price,
all rights of the holders as to the shares of Series D Preferred Stock requested
to be redeemed (except the right to receive the Redemption Price upon surrender
of their certificate or certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the Corporation legally available for redemption of shares of Series D
Preferred Stock on the Redemption Date are insufficient to redeem the total
number of such shares to be redeemed on such date (which for purposes hereof
shall constitute a default in the payment of the Redemption Price), then subject
to the rights of any series of Preferred Stock which may from time to time come
into existence, those funds which are legally available will be used to redeem
the maximum possible number of shares of Series D Preferred Stock, with each
holder of Series D Preferred Stock to receive an amount equal to the aggregate
funds to be distributed multiplied by a fraction, the numerator of which is the
aggregate Redemption Price of all of the shares of Series D Preferred Stock
requested to be redeemed held by such holder, and the denominator of which is
the aggregate Redemption Price of all shares of Series D Preferred Stock
requested to be redeemed held by all holders of Series D Preferred Stock. The
shares of Series D Preferred Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of shares of Series D Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the Corporation
has become obliged to redeem, but which it has not redeemed in accordance with
the foregoing provisions.
4.9.2.5 DEPOSIT OF REDEMPTION PRICE. On or prior to the
Redemption Date, the Corporation shall deposit the Redemption Price of all
shares designated for redemption and not yet redeemed with a bank or trust
company having aggregate capital and surplus in excess of $100,000,000 as a
trust fund for the benefit of the respective holders of the shares designated
for redemption and not yet redeemed, with irrevocable instructions and authority
to the bank or trust company to pay the Redemption Price for such shares to
their respective holders as soon as practical on or after the Redemption Date
upon receipt of notification from the Corporation that such holder has
surrendered its share certificate to the Corporation pursuant to Section 4.9.2.3
above. Such instructions shall also provide that any moneys deposited by the
Corporation pursuant to this Section 4.9.2.5 for the redemption of
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shares of Series D Preferred Stock thereafter converted into shares of the
Corporation's Common Stock pursuant to Section 4.7 hereof prior to the
Redemption Date shall be returned to the Corporation forthwith upon such
conversion. The balance of any moneys deposited by the Corporation pursuant to
this Section 4.9.2.5 remaining unclaimed at the expiration of two (2) years
following the Redemption Date shall thereafter be returned to the Corporation
upon its request expressed in a resolution of its Board of Directors, in which
event the Corporation shall thereafter be obligated to directly make any such
payment required by this Section 4.9.
4.10 MERGER, CONSOLIDATION
4.10.1 At any time, in the event of (i) any transaction or series
of related transactions (including, without limitation, any reorganization,
merger or consolidation) which will result in the Corporation's shareholders
immediately prior to such transaction or series of related transactions not
holding at least 50% of the voting power of the surviving or continuing entity,
or (ii) a sale of all or substantially all of the assets of the Corporation,
unless the Corporation's shareholders immediately prior to such sale will hold
at least 50% of the voting power of the purchasing entity after such sale; then
each holder of Series D Preferred Stock shall be entitled upon written request
to the Corporation to receive, prior and in preference to any payment of
consideration to the holders of Series A, Series A-2, Series B or Series C
Preferred Stock or Common Stock, in cash or in freely marketable securities
received from the acquiring corporation (or, if consented to by holders of a
majority of the Series D Preferred, other securities) in such transaction, or in
a combination thereof, at the closing of any such transaction, an amount per
share equal to the Series D Liquidation Preference as of the date of closing of
such transaction. In the event such Series D Liquidation Preference is not
satisfied, then the entire amount legally available to pay such Series D
Liquidation Preference shall be distributed ratably among the holders of the
Series D Preferred Stock with each such holder to receive an amount equal to the
aggregate assets and funds to be distributed multiplied by a fraction, the
numerator of which is the aggregate liquidation preferences of all the shares of
Series D Preferred Stock held by such holder and the denominator of which is the
aggregate liquidation preference of all of the shares of Series D Preferred
Stock then outstanding. Upon completion of the payment to the holders of
Series D Preferred Stock as provided in the preceding sentence, and subject to
the rights of any other Series of Preferred Stock, the remaining proceeds of
such transaction (if any) shall be distributed among the holders of the capital
stock of the Corporation in accordance with the Articles of Incorporation of the
Corporation. Unless otherwise directed to by the holders of a majority of the
outstanding shares of Series D Preferred Stock, such payments shall be made with
respect to the Series D Preferred Stock by purchase of such shares of Series D
Preferred Stock by the surviving corporation, entity or person or by redemption
of such shares by the Corporation. Holders of Series D Preferred Stock shall
receive all payments made pursuant to this Section 4.10 in cash to the extent
available unless otherwise agreed.
4.10.2 Any securities to be delivered to the holders of the
Series D Preferred Stock pursuant to subsection 4.7.1 above shall be valued as
follows:
4.10.2.1 Securities not subject to investment letter or other
similar restrictions on free marketability covered by 4.10.2.2 below:
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(a) 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 the securities on such exchange over the 30-day period ending
three (3) days prior to the closing;
(b) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the 30-day period ending three (3) days prior to the closing;
and
(c) If there is no active public market, the value shall be
the fair market value thereof, as determined in accordance with
Section 4.10.2.1.4 below.
(d) Fair market value shall be determined in good faith as
promptly as reasonably practicable by the mutual agreement of the Board of
Directors and a representative designated by the holders of a majority of the
outstanding Series D Preferred Stock and Underlying Common Stock (the "Series D
Representative"). If such parties are unable to reach agreement within seven
(7) days after the need for such determination arises, the Board of Directors
shall appoint a nationally recognized investment banking firm acceptable to the
Series D Representative (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 14 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 Corporation and the holders of Series D
Preferred Stock. 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 Series D Representative, and if the Appointed Firm
ultimately resolves the dispute by awarding the holders of the Series D
Preferred Stock $300 of the $1,000 contested, then the fees and expenses of the
Appointed Firm will be allocated 70% (ie: 700/1,000) to the holders of the
Series D Preferred Stock and 30% (ie: 300/1,000) to the Corporation.
4.10.2.2 The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in 4.10.2.1(a), 4.10.2.1(b), or 4.10.2.1(c) to reflect
the approximate fair market value thereof, as reasonably determined in
accordance with Section 4.10.2.1(d) above.
4.10.3 In the event the requirements of subsection 4.10.1 are not
complied with, the Corporation shall forthwith either:
4.10.3.1 cause such closing to be postponed until such time as
the requirements of subsection 4.10.1 have been complied with, or
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4.10.3.2 cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series D Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
4.10.4 hereof.
4.10.4 The Corporation shall give each holder of record of Series D
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this subsection 4.7.4, and the Corporation shall thereafter give such holders
prompt notice of any material changes. The transaction shall in no event take
place sooner than twenty (20) days after the Corporation has given the first
notice provided for herein or sooner than ten (10) days after the Corporation
has given notice of any material changes provided for herein; provided, however,
that such periods may be shortened upon the written consent of the holders of a
75% of the Series D Preferred Stock.
4.10.5 The provisions of this subsection 4.10 are in addition to
the provisions of subsection 4.8.4.3 hereof.
ARTICLE V - BOARD OF DIRECTORS AND MEETINGS OF STOCKHOLDERS
5.1 BOARD OF DIRECTORS. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors and elections of
directors need not be by written ballot unless otherwise provided in the Bylaws.
The number of directors of the Corporation shall be fixed from time to time by
the Board of Directors either by a resolution or Bylaw adopted by the
affirmative vote of a majority of the entire Board of Directors.
5.2 MEETINGS OF STOCKHOLDERS. Meetings of the stockholders may be held
within or without the State of Delaware, as the Bylaws may provide. The books
of the Corporation may be kept (subject to any provision contained in the
Delaware Statutes) outside the State of Delaware at such place or places as may
be designated from time to time by the Board of Directors or by the Bylaws of
the Corporation.
ARTICLE VI - 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
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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 VI 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.
ARTICLE VII - AMENDMENT OF BYLAWS
The Board of Directors of the Corporation shall have the power to make,
alter, amend, change, add to or repeal the Bylaws of the Corporation."
IN WITNESS WHEREOF, said SenDx Medical, Inc. has caused this certificate to
be signed by Douglas R. Hillier, its President and Chief Executive Officer, this
day of June, 1996.
SenDx Medical, Inc.
By:
---------------------------------------
Douglas R. Hillier
President and Chief Executive Officer
23
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SENDX MEDICAL, INC.
(Duly adopted in accordance with Sections 242 and 245 of the
Delaware General Corporation Law)
It is hereby certified that:
1. The present name of the corporation (hereinafter called the
"Corporation") is SenDx Medical, Inc., which is the name under which the
Corporation was originally incorporated; the original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
May 9, 1996, and an Amended and Restated Certificate of Incorporation was filed
with the Secretary of State on June ___, 1996.
2. The Certificate of Incorporation of the Corporation, as amended and
restated herein, at the effective time of filing of this Amended and Restated
Certificate of Incorporation with the Delaware Secretary of State, shall read in
full as follows:
"AMENDED AND RESTATED 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 the
State of Delaware, as amended from time to time.
<PAGE>
ARTICLE IV: AUTHORIZED CAPITAL
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 60,000,000, of which (i) 50,000,000 shares
shall be designated "Common Stock" and shall have a par value of $0.001 per
share; and (ii) 10,000,000 shares shall be designated "Preferred Stock" and
shall have a par value of $0.001 per share. The Board of Directors is
authorized, subject to limitations prescribed by law, to provide for the
issuance of the shares of Preferred Stock in one or more series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but not be
limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and amount of such
sinking fund; and
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series.
ARTICLE V: BOARD OF DIRECTORS AND MEETINGS OF STOCKHOLDERS
A. BOARD OF DIRECTORS. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors and elections of
directors need not be by written ballot unless otherwise provided in the Bylaws.
The number of directors of the
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Corporation shall be fixed from time to time by the Board of Directors either by
a resolution or Bylaw adopted by the affirmative vote of a majority of the
entire Board of Directors.
B. MEETINGS OF STOCKHOLDERS. Meetings of the stockholders may be held
within or without the State of Delaware, as the Bylaws may provide. The books
of the Corporation may be kept (subject to any provision contained in the
Delaware Statutes) outside the State of Delaware at such place or places as may
be designated from time to time by the Board of Directors or by the Bylaws of
the Corporation.
C. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. 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. At any annual meeting or special
meeting of stockholders of the Corporation, only such business shall be
conducted as shall have been brought before such meeting in the manner provided
by the Bylaws of the Corporation.
ARTICLE VI - 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 VI 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.
ARTICLE VII - AMENDMENT OF BYLAWS
The Board of Directors of the Corporation shall have the power to make,
alter, amend, change, add to or repeal the Bylaws of the Corporation."
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<PAGE>
IN WITNESS WHEREOF, said SenDx Medical, Inc. has caused this certificate to
be signed by Douglas R. Hillier, its President and Chief Executive Officer, this
day of June, 1996.
SenDx Medical, Inc.
By:
---------------------------------------
Douglas R. Hillier
President and Chief Executive Officer
4
<PAGE>
SENDX MEDICAL, INC.
1996 STOCK INCENTIVE PLAN
This 1996 STOCK INCENTIVE PLAN (the "Plan") is hereby established by SENDX
MEDICAL, INC., a California corporation (the "Company") and adopted by its Board
of Directors as of the 8th day of May, 1996 (the "Effective Date").
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees, officers and
directors (including non-employee officers and directors), and consultants and
other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends,
and (b) to provide additional incentives to such persons or entities to devote
their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company
and thereby have an interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of more than fifty percent (50%) of the outstanding
securities of the Company; (ii) a merger or consolidation in which the Company
is not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated; (iii) the
sale, transfer or other disposition of all or substantially all of the assets of
the Company; (iv) a complete liquidation or dissolution of the
<PAGE>
Company; or (v) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are transferred to
a person or persons different from the persons holding those securities
immediately prior to such merger.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock of the Company,
subject to adjustment pursuant to Section 4.2 hereof.
2.8 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 EFFECTIVE DATE. "Effective Date" means the date on which the Plan is
adopted by the Board, as set forth on the first page hereof.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per share
of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
Nasdaq market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the closing sale price on the date of valuation on
such Nasdaq market system or principal stock exchange on which the Common Stock
is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the
Common Stock on such Nasdaq market system or such exchange on the next preceding
day on which a closing sale price is quoted.
(b) If the Common Stock is not then listed or admitted to trading on
a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked prices
of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator in good
faith using any reasonable method of evaluation, which determination shall be
conclusive and binding on all interested parties.
2.12 INCENTIVE OPTION. "Incentive Option" means any Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
2
<PAGE>
2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member of
the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is
not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Shareholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement" means
an Option Agreement with respect to a Nonqualified Option.
2.17 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.18 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.21 PARTICIPANT. "Participant" means an individual or entity who holds an
Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 PURCHASE PRICE. "Purchase Price" means the purchase price per share
of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.24 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.26 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
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2.27 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company or
of an Affiliated Company (including members of the Board if they are employees
of the Company or of a Affiliated Company) are eligible to receive Incentive
Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Rights to Purchase or Options in any calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 600,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. The total number of shares of Common
Stock which may be issued under the Plan shall be equal to 2,100,000 shares,
plus such number of additional shares as shall be available for grant under the
Company's 1991 Stock Option Plan, including shares underlying lapsed options
granted thereunder, subject to adjustment as to the number and kind of shares
pursuant to Section 4.2 hereof. For purposes of this limitation, in the event
that (a) all or any portion of any Option or Right to Purchase granted or
offered under the Plan can no longer under any circumstances be exercised, or
(b) any shares of Common Stock are reacquired by the Company pursuant to an
Incentive Option Agreement, Nonqualifed Option Agreement or Stock Purchase
Agreement, the shares of Common Stock allocable to the unexercised portion of
such Option or such Right to Purchase, or the shares so reacquired, shall again
be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
4
<PAGE>
ARTICLE 5.
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered
by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualifed Option shall not be less than 85% of Fair Market
Value on the date the Nonqualified Option is granted, and (c) if the person to
whom an Incentive Option is granted is a 10% Shareholder on the date of grant,
the Exercise Price shall not be less than 110% of Fair Market Value on the date
the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and termination of each
Option shall be as fixed by the Administrator, but no Option may be exercisable
more than ten (10) years after the date it is granted. An Incentive Option
granted to a person who is a 10% Shareholder on the date of grant shall not be
exercisable more than five (5) years after the date it is granted.
5
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5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and be
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the administrator, any Option may be
assigned or transferred in any manner which an "incentive stock option" is
permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a shareholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
5.9 NON-EMPLOYEE DIRECTORS. Each non-employee director of the Company who
is a director as of the date of this Plan or who is initially elected as a
director of the Company during the term of this Plan shall be granted an option
consisting of 12,000 shares of Common Stock, which option shall vest and become
excisable 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 hereunder 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 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 converting 3,000 shares of Common Stock,
exercisable immediately, subject to the limitations set forth herein.
ARTICLE 6.
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHTS TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights with
respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
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Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions, payment
of the Purchase Price upon acceptance of a Right to Purchase Restricted Stock
may be made in the discretion of the Administrator, by: (a) cash; (b) check;
(c) the surrender of shares of Common Stock owned by the Offeree that have been
held by the Offeree for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a shareholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company in accordance
with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement or by the Administrator.
In the event of termination of a Participant's employment, service as a director
of the Company or Service Provider status for any reason whatsoever (including
death or disability), the Stock Purchase Agreement may provide, in the
discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator, to repurchase (i) at the
original Purchase Price, any shares of Restricted Stock which have not vested as
of the date of termination, and (ii) at Fair Market Value, any shares of
Restricted Stock which have vested as of such date, on such terms as may be
provided in the Stock Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
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6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be assignable
or transferable except by will or the laws of descent and distribution or as
otherwise provided by the Administrator.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or release or waive any
repurchase rights of the Company with respect to Restricted Stock; (h) to extend
the exercise date of any Option or acceptance date of any Right to Purchase;
(i) to provide for rights of first refusal and/or repurchase rights; (j) to
amend outstanding Option Agreements and Stock Purchase Agreements to provide
for, among other things, any change or modification which the Administrator
could have provided for upon the grant of an Option or Right to Purchase or
in furtherance of the powers provided for herein; and (k) to make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the Plan. Any
action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the
Plan shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of the
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
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ARTICLE 8.
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In the event of a Change in Control of the Company,
the Administrator in its discretion may, at any time an Option or Right to
Purchase is granted, or at any time thereafter, take one or more of the
following actions: (A) provide for the purchase of each Option or Right to
Purchase for an amount of cash or other property that could have been received
upon the exercise of the Option or Right to Purchase had the Option been
currently exercisable, (B) adjust the terms of the Options and Rights to
Purchase in a manner determined by the Administrator to reflect the Change in
Control, (C) cause the Options and Rights to Purchase to be continued or
assumed, or new rights substituted therefor, by the surviving or another entity,
through the continuance of the Plan and the continuation or assumption of
outstanding Options and Rights to Purchase, or the substitution for such Options
and Rights to Purchase of new options and new rights to purchase of comparable
value covering shares of a successor corporation, with appropriate adjustments
as to the number and kind of shares and Exercise Prices, in which event the Plan
and such Options and Rights to Purchase, or the new options and rights to
purchase substituted therefor, shall continue in the manner and under the terms
so provided or (D) make such other provision as the Administrator may consider
equitable. If the Administrator does not take any of the forgoing actions, all
Options and Rights to Purchase shall terminate upon the consummation of the
Change in Control and the Administrator shall cause written notice of the
proposed transaction to be given to all Participants not less than fifteen (15)
days prior to the anticipated effective date of the proposed transaction,
provided however that if no provision is made for continuance of the Plan and
the continuance, assumption or substitution of outstanding Options or Rights to
Purchase, then concurrent with the effective date of the Change of Control all
Options, Rights of Purchase and Restricted Stock shall be accelerated and
concurrent with such date the holders of such Options and Rights to Purchase
shall have the right to exercise such Options and Rights of Purchase in respect
to any or all shares subject thereto. The Administrator shall have the right,
with respect to any specific Option, Right of Purchase or Restricted Stock
granted under the Plan, to provide that such Options, Rights of Purchase or
Restricted Stock shall be accelerated in any event upon the effective date of
the Change of Control.
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionee more favorable tax treatment than that applicable to
Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.
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9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights
to Purchase then outstanding shall continue in effect in accordance with
their respective terms.
ARTICLE 10.
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to
satisfy any applicable Federal, state, and local tax withholding requirements
with respect to any Options exercised or Restricted Stock issued under the
Plan. To the extent permissable under applicable tax, securities and other
laws, the Administrator may, in its sole discretion and upon such terms and
conditions as it may deem appropriate, permit a Participant to satisfy his or
her obligation to pay any such tax, in whole or in part, up to an amount
determined on the basis of the highest marginal tax rate applicable to such
Participant, by (a) directing the Company to apply shares of Common Stock to
which the Participant is entitled as a result of the exercise of an Option or
as a result of the purchase of or lapse of restrictions on Restricted Stock
or (b) delivering to the Company shares of Common Stock owned by the
Participant. The shares of Common Stock so applied or delivered in
satisfaction of the Participant's tax withholding obligation shall be valued
at their Fair Market Value as of the date of measurement of the amount of
income subject to withholding.
ARTICLE 11.
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits under
the Plan may not be assigned or alienated, whether voluntarily or involuntarily.
Any unauthorized attempt at assignment, transfer, pledge or other disposition
shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment of any Participant. Nothing
contained in the Plan shall be deemed to give the right to any Participant to be
retained as an employee of the Company or any Affiliated Company or to interfere
with the right to the Company or any Affiliated Company to discharge any
Participant at any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
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SENDX MEDICAL, INC.
STOCK OPTION AGREEMENT
TYPE OF OPTION (CHECK ONE): / / INCENTIVE / / NONQUALIFIED
This Stock Option Agreement (the "Agreement") is entered into as of
____________, 199_, by and between SenDx Medical, Inc., a California corporation
(the "Company") and ___________________ (the "Optionee") pursuant to the
Company's 1996 Stock Incentive Plan (the "Plan").
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (the
"Option") to purchase all or any portion of a total of ___________________
(______) shares (the "Shares") of the Common Stock of the Company at a purchase
price of $_______ per share (the "Exercise Price"), subject to the terms and
conditions set forth herein and the provisions of the Plan. If the box marked
"Incentive" above is checked, then this Option is intended to qualify as an
"incentive stock option" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"). If this Option fails in whole or in part to
qualify as an incentive stock option, or if the box marked "Nonqualified" is
checked, then this Option shall to that extent constitute a nonqualified stock
option.
2. VESTING OF OPTION. The right to exercise this Option shall vest in
installments, and this Option shall be exercisable from time to time in whole or
in part as to any vested installment. The Optionee's right to exercise this
Option shall vest in ________ Shares on the first anniversary hereof, and
thereafter at the rate of________ Shares per month commencing on ___________,
199__, and, subject to the terms of this Agreement, continuing each month
thereafter and shall be fully vested as of _________________, 199__ when ______
Shares shall so vest.
No additional shares shall vest after the date of termination of Optionee's
"Continuous Service" (as defined in Section 3 below), but this Option shall
continue to be exercisable in accordance with Section 3 hereof with respect to
that number of shares that have vested as of the date of termination of
Optionee's Continuous Service. Notwithstanding the foregoing, immediately prior
to the consummation of a Change in Control (as defined in Section 10 below), the
vesting of this Option shall accelerate as if Optionee had held such Option for
a period two years longer than actually held.
3. TERM OF OPTION. Optionee's right to exercise this Option shall
terminate upon the first to occur of the following:
(a) the expiration of ten (10) years from the date of this Agreement;
(b) the expiration of three (3) months from the date of termination
of Optionee's Continuous Service if such termination occurs for any reason other
than permanent disability or death; provided, however, that if Optionee dies
during such three-month period the provisions of Section 3(d) below shall apply;
<PAGE>
(c) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to permanent disability
of the Optionee (as defined in Section 22(e)(3) of the Code);
(d) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to Optionee's death or
if death occurs during either the three-month or one-month period following
termination of Optionee's Continuous Service pursuant to Section 3(b) or 3(c)
above, as the case may be; or
(e) a Change in Control of the Company if such options are terminated
pursuant to Section 10.
As used herein, the term "Continuous Service" means (i) employment by
either the Company or any parent or subsidiary corporation of the Company, or by
a corporation or a parent or subsidiary of a corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies, which
is uninterrupted except for vacations, illness (except for permanent disability,
as defined in Section 22(e)(3) of the Code) or leaves of absence which are
approved in writing by the Company or any of such other employer corporations,
if applicable, (ii) service as a member of the Board of Directors of the
Company, or (iii) so long as Optionee is engaged as a consultant or service
provider to the Company or other corporation referred to in clause (i) above.
4. EXERCISE OF OPTION. On or after the vesting of any portion of this
Option in accordance with Section 2 above, and until termination of this Option
in accordance with Section 3 above, the portion of this Option which has vested
may be exercised in whole or in part by the Optionee (or, after Optionee's
death, by the successor designated in Section 5 below) upon delivery of the
following to the Company at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares then being purchased (but no fractional Shares may
be purchased);
(b) a check or cash in the amount of the Exercise Price (or payment
of the Exercise Price in such other form of lawful consideration as the
Administrator may approve from time to time under the provisions of Section 5.3
of the Plan);
(c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's withholding obligations under federal, state or other
applicable tax laws with respect to the taxable income, if any, recognized by
the Optionee in connection with the exercise of this Option (unless the Company
and Optionee shall have made other arrangements for deductions or withholding
from Optionee's wages, bonus or other compensation payable to Optionee, or by
the withholding of Shares issuable upon exercise of this Option or the delivery
of Shares owned by the Optionee in accordance with Section 10.1 of the Plan,
provided such arrangements satisfy the requirements of applicable tax laws); and
(d) a letter, if requested by the Company, in such form and substance
as the Company may require, setting forth the investment intent of the Optionee,
or person designated in Section 5 below, as the case may be.
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5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of the Optionee under
this Agreement may not be assigned or transferred except by will or by the laws
of descent and distribution, and may be exercised during the lifetime of the
Optionee only by such Optionee. Any attempt to sell, pledge, assign,
hypothecate, transfer or dispose of this Option in contravention of this
Agreement or the Plan shall be void and shall have no effect. If the Optionee's
Continuous Service terminates as a result of Optionee's death, and provided
Optionee's rights hereunder shall have vested pursuant to Section 2 hereof,
Optionee's legal representative, Optionee's legatee, or the person who acquired
the right to exercise this Option by reason of the death of the Optionee
(individually, a "Successor") shall succeed to the Optionee's rights and
obligations under this Agreement. After the death of the Optionee, only a
Successor may exercise this Option.
6. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that this Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such Shares under the Securities Act
of l933, as amended (the "Act"), on the basis of certain exemptions from such
registration requirement. Accordingly, Optionee agrees that Optionee's exercise
of the Option may be expressly conditioned upon Optionee's delivery to the
Company of an investment certificate including such representations and
undertakings as the Company may reasonably require in order to assure the
availability of such exemptions, including a representation that Optionee is
acquiring the Shares for investment and not with a present intention of selling
or otherwise disposing thereof and an agreement by Optionee that the
certificates evidencing the Shares may bear a legend indicating such
non-registration under the Act and the resulting restrictions on transfer.
Optionee acknowledges that, because Shares received upon exercise of an Option
may be unregistered, Optionee may be required to hold the Shares indefinitely
unless they are subsequently registered for resale under the Act or an exemption
from such registration is available.
(c) Optionee acknowledges receipt of a copy of the Plan and
understands that all rights and obligations connected with this Option are set
forth in this Agreement and in the Plan.
7. RESTRICTIVE LEGENDS. Optionee hereby acknowledges that federal
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of this Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Shares as the Company, or its
counsel, may deem necessary or advisable.
8. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE. The Company agrees
to use its reasonable best efforts to obtain from any applicable regulatory
agency such authority or approval as may be required in order to issue and sell
the Shares to the Optionee pursuant to this Option. Inability of the Company to
obtain, from any such regulatory agency, authority or approval deemed by the
Company's counsel to be necessary for the lawful issuance and sale of the Shares
hereunder and under the Plan shall relieve the Company of any liability in
respect of the nonissuance or sale of such Shares as to which such requisite
authority or approval shall not have been obtained.
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9. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that the
outstanding Shares of Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend or other change in the
capital structure of the Company, then appropriate adjustment shall be made by
the Administrator to the number of Shares subject to the unexercised portion of
this Option and to the Exercise Price per share, in order to preserve, as nearly
as practical, but not to increase, the benefits of the Optionee under this
Option, in accordance with the provisions of Section 4.2 of the Plan.
10. CHANGE IN CONTROL.
(a) In the event of a Change in Control (as defined below) of the
Company, the Administrator in its discretion may, at any time, take one or more
of the following actions: (A) provide for the purchase of this Option, if not
currently exerciseable, for an amount of cash or other property that could have
been received upon the exercise of the Option had the Option been currently
exercisable, (B) adjust the terms of this Option in a manner determined by the
Administrator to reflect the Change in Control, (C) cause this Option to be
continued or assumed, or new rights substituted therefor, by the surviving or
another entity, through the continuance and assumption of the Plan, or the
substitution for this Option of a new option of comparable value covering shares
of a successor corporation, with appropriate adjustments as to the number and
kind of shares and Exercise Price, in which event the Plan and this Option, or
the new option substituted therefor, shall continue in the manner and under the
terms so provided or (D) make such other provision as the Administrator may
consider equitable. If the Administrator does not take any of the forgoing
actions, this Option shall terminate upon the consummation of the Change in
Control and the Administrator shall cause written notice of the proposed
transaction to be given to all Participants not less than fifteen (15) days
prior to the anticipated effective date of the proposed transaction, provided
however that if no provision is made for continuance of the Plan and the
continuance, assumption or substitution of this Option, then concurrent with the
effective date of the Change of Control this Option shall be accelerated and
concurrent with such date the Optionee shall have the right to exercise the
Option in respect to any or all shares subject thereto. The Administrator shall
have the right to provide that this Option shall be accelerated in any event
upon the effective date of the Change of Control.
(b) "Change in Control" shall mean (i) the acquisition, directly or
indirectly, by any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) of the beneficial ownership of
more than fifty percent (50%) of the outstanding securities of the Company;
(ii) a merger or consolidation in which the Company is not the surviving entity,
except for a transaction the principal purpose of which is to change the state
in which the Company is incorporated; (iii) the sale, transfer or other
disposition of all or substantially all of the assets of the Company; (iv) a
complete liquidation or dissolution of the Company; or (v) any reverse merger in
which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
merger.
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11. NO EMPLOYMENT CONTRACT CREATED. Neither the granting of this Option
nor the exercise hereof shall be construed as granting to the Optionee any right
with respect to continuance of employment by the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will the Optionee's employment at any time (whether by dismissal, discharge
or otherwise), with or without cause, is specifically reserved, subject to any
other written employment agreement to which the Company and Optionee may be a
party.
12. RIGHTS AS SHAREHOLDER. The Optionee (or transferee of this option by
will or by the laws of descent and distribution) shall have no rights as a
shareholder with respect to any Shares covered by this Option until the date of
the issuance of a stock certificate or certificates to him or her for such
Shares, notwithstanding the exercise of this Option.
13. "MARKET STAND-OFF" AGREEMENT. Optionee agrees that, if requested by
the Company or the managing underwriter of any proposed public offering of the
Company's securities, Optionee will not sell or otherwise transfer or dispose of
any Shares held by Optionee without the prior written consent of the Company or
such underwriter, as the case may be, during such period of time, not to exceed
180 days following the effective date of the registration statement filed by the
Company with respect to such offering, as the Company or the underwriter may
specify.
14. INTERPRETATION. This Option is granted pursuant to the terms of the
Plan, and shall in all respects be interpreted in accordance therewith. The
Administrator shall interpret and construe this Option and the Plan, and any
action, decision, interpretation or determination made in good faith by the
Administrator shall be final and binding on the Company and the Optionee. As
used in this Agreement, the term "Administrator" shall refer to the committee of
the Board of Directors of the Company appointed to administer the Plan, and if
no such committee has been appointed, the term Administrator shall mean the
Board of Directors.
15. NOTICES. Any notice, demand or request required or permitted to be
given under this Agreement shall be in writing and shall be deemed given when
delivered personally or three (3) days after being deposited in the United
States mail, as certified or registered mail, with postage prepaid, and
addressed, if to the Company, at its principal place of business, Attention:
the Chief Financial Officer, and if to the Optionee, at Optionee's most recent
address as shown in the employment or stock records of the Company.
16. ANNUAL AND OTHER PERIODIC REPORTS. During the term of this Agreement,
the Company will furnish to the Optionee copies of all annual and other periodic
financial and informational reports that the Company distributes generally to
its shareholders.
17. SEVERABILITY. Should any provision or portion of this Agreement be
held to be unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
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18. 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 be deemed one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"SENDX MEDICAL, INC." "OPTIONEE"
By:
--------------------------- --------------------------
Its: (Signature)
---------------------------
--------------------------
(Printed Name)
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SENDX MEDICAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
This EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is hereby established by
SENDX MEDICAL, INC., a Delaware corporation (the "Company") effective
__________, 1996 (the "Effective Date").
ARTICLE I
PURPOSE OF THE PLAN
1.1 PURPOSE. The Company has determined that it is in its best interest
to provide incentives to attract and retain employees and to increase employee
morale by providing a program through which employees of the Company, and of
such of the Company's subsidiaries as the Company's Board of Directors (the
"Board of Directors") may from time to time designate (each a "Designated
Subsidiary", and collectively, "Designated Subsidiaries"), may acquire a
proprietary interest in the Company through the purchase of shares of the common
stock of the Company ("Company Stock"). The Plan is hereby established by the
Company to permit employees to subscribe for and purchase directly from the
Company shares of the Company Stock at a discount from the market price, and to
pay the purchase price in installments by payroll deductions. The Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code").
The provisions of the Plan are to be construed in a matter consistent with the
requirements of Section 423 of the Code. The Plan is not intended to be an
employee benefit plan under the Employee Retirement Income Security Act of 1974,
and therefore is not required to comply with that Act.
ARTICLE II
DEFINITIONS
2.1 COMPENSATION. "Compensation" means the amount indicated on the
Form W-2, including any elective deferrals with respect to a plan of the Company
qualified under either Section 125 or Section 401(a) of the Code, issued to an
employee by the Company.
2.2 EMPLOYEE. "Employee" means each person currently employed by the
Company or any of its Designated Subsidiaries, any portion of whose income is
subject to withholding of income tax or for whom Social Security retirement
contributions are made by the Company or any Designated Subsidiary.
2.3 EFFECTIVE DATE. "Effective Date" means the effective date of the
Company's first Registration Statement filed with the Securities and Exchange
Commission registering Company Stock.
2.4 5% OWNER. "5% Owner" means an Employee who, immediately after the
grant of any rights under the Plan, would own Company Stock or hold outstanding
options to purchase
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Company Stock possessing 5% or more of the total combined voting power of all
classes of stock of the Company. For purposes of this Section, the ownership
attribution rules of Code Section 425(d) shall apply.
2.5 GRANT DATE. "Grant Date" means the first day of each Offering Period
(July 1 and January 1) under the Plan. However, for the first Offering Period,
the Grant Date shall be the Effective Date.
2.6 PARTICIPANT. "Participant" means an Employee who has satisfied the
eligibility requirements of Section 3.1 and has become a participant in the Plan
in accordance with Section 3.2.
2.7 PLAN YEAR. "Plan Year" means the twelve consecutive month period
ending on the last day of October.
2.8 OFFERING PERIOD. "Offering Period" means the six-month periods from
January 1 through June 30 and July 1 through December 31 of each Plan Year.
However, the first Offering Period shall commence on the Effective Date and end
December 31, 1996 regardless of whether such initial Offering Period is more or
less than six months.
2.9 PURCHASE DATE. "Purchase Date" means the last day of each Offering
Period (June 30 or December 31).
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Each Employee of the Company, or any Designated
Subsidiary, who, on the Grant Date, is customarily engaged on a regularly-
scheduled basis of more than twenty (20) hours per week and who has been
employed for at least ninety (90) days (or, for the initial Offering Period
only, such Employees who are employed on the Effective Date) in the rendition of
personal services to the Company, or any Designated Subsidiary, may become a
Participant in the Plan on the Grant Date coincident with or next following his
satisfaction of such requirements of employment with the Company or any
Designated Subsidiary.
3.2 PARTICIPATION. An Employee who has satisfied the eligibility
requirements of Section 3.1 may become a Participant in the Plan upon his
completion and delivery to the Human Resources Department of the Company of a
stock purchase agreement provided by the Company (the "Stock Purchase
Agreement") authorizing payroll deductions. Payroll deductions for a
Participant shall commence on the Grant Date coincident with or next following
the filing of the Participant's Stock Purchase Agreement and shall remain in
effect until revoked by the Participant by the filing of a notice of withdrawal
from the Plan under Article VIII or by the filing of a new Stock Purchase
Agreement providing for a change in the Participant's payroll deduction rate
under Section 5.2.
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3.3 SPECIAL RULES. Under no circumstances shall:
(a) A 5% Owner be granted a right to purchase Company Stock under the
Plan;
(b) A Participant be entitled to purchase Company Stock under the
Plan which, when aggregated with all other employee stock purchase plans of the
Company, exceed an amount equal to the Aggregate Maximum. "Aggregate Maximum"
means an amount equal to $25,000 worth of Company Stock (determined using the
fair market value of such Company Stock at each applicable Grant Date) during
each calendar year; or
(c) The number of shares of Company Stock purchasable by a
Participant on any Purchase Date shall not exceed 5,000 shares, subject to
periodic adjustments under Section 10.4.
ARTICLE IV
OFFERING PERIODS
4.1 OFFERING PERIODS. The initial grant of the right to purchase Company
Stock under the Plan shall occur on the Effective Date and terminate on December
31, 1996. Thereafter, the Plan shall provide for Offering Periods commencing on
each Grant Date and terminating on the next following Purchase Date.
ARTICLE V
PAYROLL DEDUCTIONS
5.1 PARTICIPANT ELECTION. Upon completion of the Stock Purchase
Agreement, each Participant shall designate the amount of payroll deductions to
be made from his or her paycheck to purchase Company Stock under the Plan. The
amount of payroll deductions shall be designated in whole percentages of
Compensation, not to exceed 20%. The amount so designated upon the Stock
Purchase Agreement shall be effective as of the next Grant Date and shall
continue until terminated or altered in accordance with Section 5.2 below.
5.2 CHANGES IN ELECTION. A Participant may terminate participation in the
Plan at any time prior to the close of an Offering Period as provided in
Article VIII. A Participant may decrease the rate of payroll deductions once
during each Offering Period by completing and delivering to the Human Resources
Department of the Company a new Stock Purchase Agreement setting forth the
desired change. A Participant may also terminate payroll deductions and have
accumulated deductions for the Offering Period applied to the purchase of
Company Stock as of the next Purchase Date by completing and delivering to the
Human Resources Department a new Stock Purchase Agreement setting forth the
desired change. Any change under this Section shall become effective on the
next payroll period (to the extent practical under the Company's payroll
practices) following the delivery of the new Stock Purchase Agreement.
5.3 PARTICIPANT ACCOUNTS. The Company shall establish and maintain a
separate account ("Account") for each Participant. The amount of each
Participant's payroll deductions shall be credited to his Account. No interest
will be paid or allowed on amounts credited to a Participant's Account. All
payroll deductions received by the Company under the Plan are general corporate
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assets of the Company and may be used by the Company for any corporate purpose.
The Company is not obligated to segregate such payroll deductions.
ARTICLE VI
GRANT OF PURCHASE RIGHTS
6.1 RIGHT TO PURCHASE SHARES. On each Grant Date, each Participant shall
be granted a right to purchase at the price determined under Section 6.2 that
number of shares and partial shares of Company Stock that can be purchased or
issued by the Company based upon that price with the amounts held in his
Account, subject to the limits set forth in Section 3.3. In the event that
there are amounts held in a Participant's Account that are not used to purchase
Company Stock, such amounts shall remain in the Participant's Account and shall
be eligible to purchase Company Stock in any subsequent Offering Period.
6.2 PURCHASE PRICE. The purchase price for any Offering Period shall be
the lesser of:
(a) 85% of the Fair Market Value of Company Stock on the Grant Date;
or
(b) 85% of the Fair Market Value of Company Stock on the Purchase
Date.
6.3 FAIR MARKET VALUE. "Fair Market Value" means for the initial Grant
Date (which is the Effective Date), the price per share at which the Common
Stock is to be sold to the public in the initial public offering of the Common
Stock. For any subsequent date thereafter, "Fair Market Value" shall mean the
value of one share of Company Stock, determined as follows:
(a) If the Company Stock is then listed or admitted to trading on the
Nasdaq National Market System or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the closing sale price on the date of
valuation on the Nasdaq National Market System or principal stock exchange on
which the Company Stock is then listed or admitted to trading, or, if no closing
sale price is quoted or no sale takes place on such day, then the Fair Market
Value shall be the closing sale price of the Company Stock on the Nasdaq
National Market System or such exchange on the next preceding day on which a
sale occurred.
(b) If the Company Stock is not then listed or admitted to trading on
the Nasdaq National Market System or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the average of the closing bid and asked
prices of the Company Stock in the over-the-counter market on the date of
valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator in good
faith using any reasonable method of valuation, which determination shall be
conclusive and binding on all interested parties.
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ARTICLE VII
PURCHASE OF STOCK
7.1 PURCHASE OF COMPANY STOCK. Absent an election by the Participant to
terminate and have his or her Account returned, on each Purchase Date, the Plan
shall purchase on behalf of each Participant the maximum number of whole shares
of Company Stock at the purchase price determined under Section 6.2 above as can
be purchased with the amounts held in each Participant's Account. In the event
that there are amounts held in a Participant's Account that are not used to
purchase Company Stock, all such amounts shall be held in the Participant's
Account and carried forward to the next Offering Period.
7.2 DELIVERY OF COMPANY STOCK.
(a) Company Stock acquired under the Plan may either be issued
directly to Participants or may be issued to a contract administrator
("Administrator") engaged by the Company to administer the Plan under
Article IX. If the Company Stock is issued in the name of the Administrator,
all Company Stock so issued ("Plan Held Stock") shall be held in the name of the
Administrator for the benefit of the Plan. The Administrator shall maintain
accounts for the benefit of the Participants which shall reflect each
Participant's interest in the Plan Held Stock. Such accounts shall reflect the
number of whole and partial shares of Company Stock that are being held by the
Administrator for the benefit of each Participant.
(b) Any Participant may elect to have the Company Stock purchased
under the Plan from his or her Account be issued directly to the Participant.
Any election under this paragraph shall be on the forms provided by the Company
and shall be issued in accordance with paragraph (c) below.
(c) In the event that Company Stock under the Plan is issued directly
to a Participant, the Company will deliver to each Participant a stock
certificate or certificates issued in his name for the number of shares of
Company Stock purchased as soon as practicable after the Purchase Date. Where
Company Stock is issued under this paragraph, only full shares of stock will be
issued to a Participant. The time of issuance and delivery of shares may be
postponed for such period as may be necessary to comply with the registration
requirements under the Securities Act of 1933, as amended, the listing
requirements of any securities exchange on which the Company Stock may then be
listed, or the requirements under other laws or regulations applicable to the
issuance or sale of such shares.
ARTICLE VIII
WITHDRAWAL
8.1 IN SERVICE WITHDRAWALS. At any time prior to the Purchase Date of an
Offering Period, any Participant may withdraw the amounts held in his Account by
executing and delivering to the Human Resources Department for the Company
written notice of withdrawal on the form provided by the Company. In such a
case, the entire balance of the Participant's Account shall be paid to the
Participant, without interest, as soon as is practicable. Upon such
notification, the Participant shall cease to participate in the Plan for the
remainder of the Offering Period in which the notice is given. Any Employee who
has withdrawn under this Section shall be excluded from
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participation in the Plan for the remainder of the Offering Period, but may then
be reinstated as a participant for a subsequent Offering Period by executing and
delivering a new Stock Purchase Agreement to the Human Resources Department of
the Company.
8.2 TERMINATION OF EMPLOYMENT.
(a) In the event that a Participant's employment with the Company
terminates for any reason, the Participant shall cease to participate in the
Plan on the date of termination. As soon as is practical following the date of
termination, the entire balance of the Participant's Account shall be paid to
the Participant or his beneficiary, without interest.
(b) A Participant may file a written designation of a beneficiary who
is to receive any shares of Company Stock purchased under the Plan or any cash
from the Participant's Account in the event of his or her death subsequent to a
Purchase Date, but prior to delivery of such shares and cash. In addition, a
Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's Account under the Plan in the event of his death
prior to a Purchase Date under paragraph (a) above.
(c) Any beneficiary designation under paragraph (b) above may be
changed by the Participant at any time by written notice. In the event of the
death of a Participant, the Committee may rely upon the most recent beneficiary
designation it has on file as being the appropriate beneficiary. In the event
of the death of a Participant where no valid beneficiary designation exists or
the beneficiary has predeceased the Participant, the Committee shall deliver any
cash or shares of Company Stock to the executor or administrator of the estate
of the Participant, or if no such executor or administrator has been appointed
to the knowledge of the Committee, the Committee, in its sole discretion, may
deliver such shares of Company Stock or cash to the spouse or any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Committee, then to such other person as the Committee
may designate.
ARTICLE IX
PLAN ADMINISTRATION
9.1 PLAN ADMINISTRATION.
(a) Authority to control and manage the operation and administration
of the Plan shall be vested in the Board of Directors (the "Board") for the
Company, or a committee ("Committee") thereof. The Board or Committee shall
have all powers necessary to supervise the administration of the Plan and
control its operations.
(b) In addition to any powers and authority conferred on the Board or
Committee elsewhere in the Plan or by law, the Board or the Committee shall have
the following powers and authority:
(i) To designate agents to carry out responsibilities relating
to the Plan;
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(ii) To administer, interpret, construe and apply this Plan and
to answer all questions which may arise or which may be raised under this Plan
by a Participant, his beneficiary or any other person whatsoever;
(iii) To establish rules and procedures from time to time for
the conduct of its business and for the administration and effectuation of its
responsibilities under the Plan; and
(iv) To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate, or convenient for the operation of the
Plan.
(c) Any action taken in good faith by the Board or Committee in the
exercise of authority conferred upon it by this Plan shall be conclusive and
binding upon a Participant and his beneficiaries. All discretionary powers
conferred upon the Board shall be absolute.
9.2 LIMITATION ON LIABILITY. No Employee of the Company nor member of the
Board or Committee shall be subject to any liability with respect to his duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any other Employee of the Company with duties under the Plan who
was or is a party, or is threatened to be made a party, to any threatened,
pending or completed proceeding, whether civil, criminal, administrative, or
investigative, by reason of the person's conduct in the performance of his
duties under the Plan.
ARTICLE X
COMPANY STOCK
10.1 LIMITATIONS ON PURCHASE OF SHARES. The maximum number of shares of
Company Stock that shall be made available for sale under the Plan shall be
250,000 shares, subject to adjustment under Section 10.4 below. The shares of
Company Stock to be sold to Participants under the Plan will be issued by the
Company. If the total number of shares of Company Stock that would otherwise be
issuable pursuant to rights granted pursuant to Section 6.1 of the Plan at the
Purchase Date exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available in as
uniform and equitable manner as is practicable. In such event, the Company
shall give written notice of such reduction of the number of shares to each
participant affected thereby and any unused payroll deductions shall be returned
to such participant if necessary.
10.2 VOTING COMPANY STOCK. The Participant will have no interest or voting
right in shares to be purchased under Section 6.1 of the Plan until such shares
have been purchased.
10.3 REGISTRATION OF COMPANY STOCK. Shares to be delivered to a
Participant under the Plan will be registered in the name of the Participant
unless designated otherwise by the Participant.
10.4 CHANGES IN CAPITALIZATION OF THE COMPANY. Subject to any required
action by the stockholders of the Company, the number of shares of Company Stock
covered by each right under the Plan which has not yet been exercised and the
number of shares of Company Stock which have been authorized for issuance under
the Plan but have not yet been placed under rights or which have
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been returned to the Plan upon the cancellation of a right, as well as the
Purchase Price per share of Company Stock covered by each right under the Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Company Stock resulting
from a stock split, stock dividend, spin-off, reorganization, recapitalization,
merger, consolidation, exchange of shares or the like. Such adjustment shall be
made by the Board of Directors for the Company, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Company Stock subject to any right granted hereunder.
10.5 MERGER OF COMPANY. In the event that the Company at any time proposes
to merge into, consolidate with or enter into any other reorganization pursuant
to which the Company is not the surviving entity (including the sale of
substantially all of its assets or a "reverse" merger in which the Company is
the surviving entity), the Plan shall terminate, unless provision is made in
writing in connection with such transaction for the continuance of the Plan and
for the assumption of rights theretofore granted, or the substitution for such
rights of new rights covering the shares of a successor corporation, with
appropriate adjustments as to number and kind of shares and prices, in which
event the Plan and the rights theretofore granted or the new rights substituted
therefor, shall continue in the manner and under the terms so provided. If such
provision is not made in such transaction for the continuance of the Plan and
the assumption of rights theretofore granted or the substitution for such rights
of new rights covering the shares of a successor corporation, then the Board of
Directors or its committee shall cause written notice of the proposed
transaction to be given to the persons holding rights not less than 10 days
prior to the anticipated effective date of the proposed transaction, and,
concurrent with the effective date of the proposed transaction, such rights
shall be exercised automatically in accordance with Section 7.1 as if such
effective date were a Purchase Date of the applicable Offering Period unless a
Participant withdraws from the Plan as provided in Section 8.1.
ARTICLE XI
MISCELLANEOUS MATTERS
11.1 AMENDMENT AND TERMINATION. The Plan shall terminate on January 1,
2006. Since future conditions affecting the Company cannot be anticipated or
foreseen, the Company reserves the right to amend, modify, or terminate the Plan
at any time. Upon termination of the Plan, all benefits shall become payable
immediately. Notwithstanding the foregoing, no such amendment or termination
shall affect rights previously granted, nor may an amendment make any change in
any right previously granted which adversely affects the rights of any
Participant. In addition, no amendment may be made without prior approval of
the stockholders of the Company if such amendment would:
(a) Increase the number of shares of Company Stock that may be issued
under the Plan;
(b) Materially modify the requirements as to eligibility for
participation in the Plan; or
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(c) Materially increase the benefits which accrue to Participants
under the Plan.
11.2 STOCKHOLDER APPROVAL. Continuance of the Plan and the effectiveness
of any right granted hereunder shall be subject to approval by the stockholders
of the Company, within twelve months before or after the date the Plan is
adopted by the Board.
11.3 BENEFITS NOT ALIENABLE. Benefits under the Plan may not be assigned
or alienated, whether voluntarily or involuntarily. Any attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
Article VIII.
11.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Employee or to be consideration for, or an
inducement to, or a condition of, the employment of any Employee. Nothing
contained in the Plan shall be deemed to give the right to any Employee to be
retained in the employ of the Company or to interfere with the right of the
Company to discharge any Employee at any time.
11.5 GOVERNING LAW. To the extent not preempted by Federal law, all legal
questions pertaining to the Plan shall be determined in accordance with the laws
of the State of Delaware.
11.6 NON-BUSINESS DAYS. When any act under the Plan is required to be
performed on a day that falls on a Saturday, Sunday or legal holiday, that act
shall be performed on the next succeeding day which is not a Saturday, Sunday or
legal holiday. Notwithstanding the above, Fair Market Value shall be determined
in accordance with Section 6.3.
11.7 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision of the
Plan, the Committee shall administer the Plan in such a way to ensure that the
Plan at all times complies with any requirements of Federal Securities Laws.
For example, affiliates may be required to make irrevocable elections in
accordance with the rules set forth under Section 16b-3 of the Securities
Exchange Act of 1934.
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INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT ("Agreement") is made on ________, 1996,
between SENDX MEDICAL, INC., a Delaware corporation (the "Company"), and
_________________ ("Indemnitee"), an officer and/or member of the Board of
Directors of the Company.
WHEREAS, the Company desires the benefits of having Indemnitee serve as an
officer and/or director secure in the knowledge that expenses, liabilities and
losses incurred by him in his good faith service to the Company will be borne by
the Company or its successors and assigns in accordance with applicable law; and
WHEREAS, the Company desires that Indemnitee resist and defend against what
Indemnitee may consider to be unjustified investigations, claims, actions, suits
and proceedings which have arisen or may arise in the future as a result of
Indemnitee's service to the Company notwithstanding that conditions in the
insurance markets may make directors' and officers' liability insurance coverage
unavailable or available only at premium levels which the Company may deem
inappropriate to pay; and
WHEREAS, the parties believe it appropriate to memorialize and reaffirm the
Company's indemnification obligations to Indemnitee and, in addition, set forth
the indemnification agreements contained herein;
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties agree as follows:
1. INDEMNIFICATION. Indemnitee shall be indemnified and held harmless by
the Company to the fullest extent permitted by its Certificate of Incorporation,
Bylaws and applicable law, as the same exists or may hereafter be amended,
against all expenses, liabilities and loss (including attorneys' fees,
judgments, fines, and amounts paid or to be paid in any settlement approved in
advance by the Company, such approval not to be unreasonably withheld)
(collectively, "Indemnifiable Expenses") actually reasonably incurred or
suffered by Indemnitee in connection with any present or future threatened,
pending or contemplated investigation, claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative (collectively,
"Indemnifiable Litigation"), (i) to which Indemnitee is or was a party or is
threatened to be made a party by reason of any action or inaction in
Indemnitee's capacity as a director or officer of the Company, or (ii) with
respect to which Indemnitee is otherwise involved by reason of the fact that
Indemnitee is or was serving as a director, officer, employee or agent of the
Company, or of any subsidiary or division, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Notwithstanding the
foregoing, Indemnitee shall have no right to indemnification for expenses and
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended.
<PAGE>
2. INTERIM EXPENSES. The Company agrees to pay Indemnifiable Expenses
incurred by Indemnitee in connection with any Indemnifiable Litigation in
advance of the final disposition thereof, provided that the Company has received
an undertaking by or on behalf of Indemnitee, substantially in the form attached
hereto as EXHIBIT A, to repay the amount so advanced to the extent that it is
ultimately determined that Indemnitee is not entitled to be indemnified by the
Company under this Agreement or otherwise. The advances to be made hereunder
shall be paid by the Company to Indemnitee within twenty (20) days following
delivery of a written request therefor by Indemnitee to the Company.
3. PROCEDURE FOR MAKING DEMAND. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the Company
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to the Chief Executive Officer of the Company
at the address set forth in Section 11 hereof (or such other address as the
Company shall designate in writing to Indemnitee). Notice shall be deemed
received three business days after the date postmarked and sent by certified or
registered mail, properly addressed; otherwise notice shall be deemed received
when such notice shall actually be received by the Company. In addition,
Indemnitee shall give the Company such information and cooperation as it may
reasonably require and as shall be within Indemnitee's power. Any
indemnification provided for in Section 1 shall be made no later than forty-five
(45) days after receipt of the written request of Indemnitee.
4. FAILURE TO INDEMNIFY.
(a) If a claim under this Agreement, or any statute, or under any
provision of the Company's Amended and Restated Certificate of Incorporation or
Bylaws providing for indemnification, is not paid in full by the Company, within
forty-five (45) days after a written request for payment thereof has been
received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 12 of this Agreement, if successful in whole or in part,
Indemnitee shall also be entitled to be paid for the expense (including
attorneys' fees) of bringing such action.
(b) It shall be a defense to such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standard of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of interim expenses pursuant to Section 2 hereof unless
and until such defense may be finally adjudicated by court order or judgment
from which no further right of appeal exists. It is the parties' intention that
if the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Company (including its board of
directors, any committee or subgroup of the board of directors, independent
legal counsel, or its
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stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
5. NOTICE TO INSURERS. If, at the time of the receipt of a notice of a
claim pursuant to Section 3 thereof, the Company has director and/or officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
6. RETENTION OF COUNSEL. In the event that the Company shall be
obligated to pay Indemnifiable Expenses as a result of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, which approval shall
not be unreasonably withheld, upon the delivery to Indemnitee of written notice
of its election to do so. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by that Indemnitee with respect to that same
proceeding, provided that (i) Indemnitee shall have the right to employ his or
her counsel in any such proceeding at Indemnitee's expense, and (ii) if (A) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not, in fact, have employed counsel to
assume defense of such proceeding, then the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.
7. SUCCESSORS. This Agreement establishes contract rights which shall be
binding upon, and shall inure to the benefit of, the successors, assigns, heirs
and legal representatives of the parties hereto.
8. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company may be
required in the future to undertake to the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee, and, in that event, the Indemnitee's rights and the Company's
obligations hereunder shall be subject to that determination.
9. CONTRACT RIGHTS NOT EXCLUSIVE. The contract rights conferred by this
Agreement shall be in addition to, but not exclusive of, any other right which
Indemnitee may have or may hereafter acquire under any statute, provision of the
Company's Certificate of Incorporation or Bylaws, agreement, vote of
shareholders or disinterested directors, or otherwise.
10. ASSUMPTION OF INDEMNIFICATION OBLIGATION. The Company hereby assumes
the obligation to indemnify Indemnitee of the Company's corporate parent, SenDx
Medical, Inc., a California corporation ("SenDx California"), PROVIDED HOWEVER,
that at all times prior to the effective time of the merger between the Company
and SenDx California, SenDx California shall
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continue to indemnify Indemnitee to the fullest extent permitted under its
Articles of Incorporation, its Bylaws and the General Corporation Law of the
State of California.
11. INDEMNITEE'S OBLIGATIONS. The Indemnitee shall promptly advise the
Company in writing of the institution of any investigation, claim, action, suit
or proceeding which is or may be subject to this Agreement and keep the Company
generally informed of, and consult with the Company with respect to, the status
of any such investigation, claim, action, suit or proceeding. Notices to the
Company shall be directed to SenDx Medical, Inc., 1945 Palomar Oaks Way,
Carlsbad, California 92009, Attn: Chief Executive Officer (or other such
address as the Company shall designate in writing to Indemnitee). Notice shall
be deemed received three days after the date postmarked if sent by certified or
registered mail, properly addressed. In addition, Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
12. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement, or to enforce
or interpret any other terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
13. SEVERABILITY. Should any provision of this Agreement, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties.
14. MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether of
not similar) nor shall such waiver constitute a continuing waiver.
15. CHOICE OF LAW. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Delaware.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
SENDX MEDICAL, INC.:
By:
------------------------------
INDEMNITEE:
-----------------------------------
Name:
5
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EXHIBIT A
UNDERTAKING AGREEMENT
This UNDERTAKING AGREEMENT is made on _______________, 19__, between SENDX
MEDICAL, INC., a Delaware corporation (the "Company") and __________________, an
officer and/or member of the board of directors of the Company ("Indemnitee").
WHEREAS, Indemnitee may become involved in investigations, claims, actions,
suits or proceedings which have arisen or may arise in the future as a result of
Indemnitee's service to the Company; and
WHEREAS, Indemnitee desires that the Company pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed by
insurance; and
WHEREAS, the Company is willing to make such payments but, in accordance
with Section 145 of the General Corporation Law of the State of Delaware, the
Company may make such payments only if it receives an undertaking to repay from
Indemnitee; and
WHEREAS, Indemnitee is willing to give such an undertaking;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. In regard to any payments made by the Company to Indemnitee pursuant
to the terms of the Indemnification Agreement dated __________, 19__, between
the Company and Indemnitee, Indemnitee hereby undertakes and agrees to repay to
the Company any and all amounts so paid promptly and in any event within thirty
(30) days after the disposition, including any appeals, of any litigation or
threatened litigation on account of which payments were made, but only to the
extent that Indemnitee is ultimately found not entitled to be indemnified by the
Company under the Bylaws of the Company and Section 145 of the General
Corporation Law of the State of Delaware, or other applicable law.
2. This Agreement shall not affect in any manner rights which Indemnitee
may have against the Company, any insurer or any other person to seek
indemnification for or reimbursement of any expenses referred to herein or any
judgment which may be rendered in any litigation or proceeding.
A-1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
SENDX MEDICAL, INC.:
By:
------------------------------
INDEMNITEE:
-----------------------------------
-----------------------------------
(PRINT NAME)
A-2
<PAGE>
PROMISSORY NOTE
BORROWER: UniFET, INCORPORATED
11021 Via Frontera, Suite 200
San Diego, CA 92127
LENDER: PRAKTIKERFINANS AB
Hollandargatan 10
Box 3160
S-106 63 Stockholm, Sweden
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $738,688 INTEREST RATE: 9% DATE OF NOTE: JUNE 1, 1994
1. PROMISE TO PAY. UniFET, INCORPORATED ("Borrower") promises to pay to
PRAKTIKERFINANS ("Lender"), or order, in lawful money of the United States of
America, the principal amount of $738,688, together with interest on the unpaid
outstanding principal balances from the date hereof, until paid in full, at the
rate of nine (9) per cent per annum.
2. PAYMENT AND TERM. Borrower will pay outstanding principal plus all accrued
unpaid interest on or before thirty-six (36) months from the date hereof.
Borrower will pay Lender at Lender's address shown above or at such other place
as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to any unpaid collection costs and late charges, and any remaining amount to
principal.
3. PREPAYMENT. Borrower may pay without penalty all or a portion of the
amount owed earlier than it is due, upon thirty (30) days written notice to the
Lender by the Borrower.
4. DEFAULT. Borrower will be in default immediately upon notice if any of the
following events shall occur: (a) Borrower fails to make any payment in
connection with this loan within ten (10) days after due; (b) any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect; (c) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws.
5. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued interest immediately due. In
such event, subject to any limits under applicable law, Borrower shall also pay
Lender's reasonable attorneys' fees and
1
<PAGE>
legal expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Borrower will also pay any court costs, in addition to all
other sums provided by law. This Note has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of San Diego
County, the State of California. This Note shall be governed by and construed
in accordance with the laws of the State of California.
6. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law, waive
any applicable statute of limitations, presentment, demand for payment, protest
and notice of dishonor.
7. NOTICES. All notices required to be given hereunder shall be given in
writing and shall be effective when actually delivered or three (3) days after
deposited in the mail, first class, postage prepaid, addressed to the party to
whom the notice is to be given and the address shown above.
BORROWER:
UniFET, INCORPORATED
By: /S/ W.J. MEZGER
------------------------------
W. JERRY MEZGER, President & CEO
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<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 in
Amendment No. 1 to 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 Amendment No.
1 to the Registration Statement (Form S-1) and the related prospectus of SenDx
Medical, Inc.
ERNST & YOUNG LLP
San Diego, California
June 13, 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
June 13, 1996
