AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CARDIOPULMONARY CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 3842 06-1240435
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
200 CASCADE BOULEVARD
MILFORD, CONNECTICUT 06460
(203) 877-1999
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JAMES W. BIONDI, M.D.
CARDIOPULMONARY CORP.
200 CASCADE BOULEVARD
MILFORD, CONNECTICUT 06460
(203) 877-1999
FACSIMILE: (203) 877-3401
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to
PAUL JACOBS, ESQ. STEVEN A. WILCOX, ESQ.
FULBRIGHT & JAWORSKI L.L.P. ROPES & GRAY
666 FIFTH AVENUE ONE INTERNATIONAL PLACE
NEW YORK, NEW YORK 10103 BOSTON, MASSACHUSETTS 02110
(212) 318-3000 (617) 951-7000
FACSIMILE: (212) 752-5958 FACSIMILE: (617) 951-7050
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (2) PRICE (2) FEE (2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value ......... 2,300,000 (1) $11.00 $25,300,000 $8,724.14
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</TABLE>
(1) Includes 300,000 shares of Common Stock subject to over-allotment options
granted to the several Underwriters. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
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 THE 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.
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<PAGE>
CARDIOPULMONARY CORP.
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Cross-Reference Sheet
(Between Items of Form S-1 Registration Statement and Prospectus)
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<TABLE>
<CAPTION>
FORM S-1 ITEM AND CAPTION PROSPECTUS CAPTIONS
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<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of Prospectus .... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus ........................... Inside Front Cover Page; Additional Information; Outside
Back Cover Page
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; Underwriting
6. Dilution ....................................... Dilution
7. Selling Security Holders ....................... Not Applicable
8. Plan of Distribution ........................... Outside and Inside Front Cover Pages; Underwriting
9. Description of Securities to be Registered ..... Capitalization; Description of Capital Stock
10. Interests of Named Experts and Counsel ......... Legal Matters; Experts
11. Information With Respect to the Registrant ..... Outside and Inside Front Cover Pages; Prospectus
Summary; Risk Factors; Use of Proceeds; Dividend
Policy; Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Principal Stockholders; Certain
Transactions; Description of Capital Stock;
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.
SUBJECT TO COMPLETION, DATED MAY 22, 1996
2,000,000 SHARES
CARDIOPULMONARY CORP.
COMMON STOCK
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Cardiopulmonary Corp. ("Cardiopulmonary" or the "Company") hereby offers
2,000,000 shares of Common Stock (the "Common Stock"). Prior to this offering,
there has been no public market for the Common Stock. It is currently
anticipated that the initial public offering price of the Common Stock will be
between $9.00 and $11.00 per share. See "Underwriting" for information regarding
the factors considered in determining the initial public offering price. The
Company will apply to have the Common Stock approved for quotation on the Nasdaq
National Market under the symbol "CPCP."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 6-12.
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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 ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
- --------------------------------------------------------------------------------
Per Share .......... $ $ $
- --------------------------------------------------------------------------------
Total (3) .......... $ $ $
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(1) Does not include additional compensation to the Representatives of the
Underwriters. The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $700,000.
(3) The Company has granted to the Underwriters a 30 day option to purchase up
to an aggregate of 300,000 additional shares of Common Stock solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively. See
"Underwriting."
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The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to the
right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares will be made in New York, New York, on or
about , 1996.
ADVEST, INC. CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1996
<PAGE>
THE VENTURI VENTILATOR
[PHOTOGRAPH OF
VENTURI VENTILATOR]
The Company's Venturi ventilator incorporates proprietary "smart" software and
pneumatic hardware to continuously control patient airway flow and pressure
throughout all phases of the respiratory cycle, including the active control of
exhalation.
The Venturi is controlled through an active, full-color, integrated graphics
display and touchscreen that depicts the patient's respiratory status. The
Venturi displays a comprehensive set of widely used and clinically established
respiratory parameters and waveforms.
[PHOTOGRAPH OF
CONTROL DISPLAY]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus.
THE COMPANY
Cardiopulmonary Corp. designs, develops and assembles advanced,
software-driven ventilators which it believes represent a new generation of life
support technology for the treatment of intensive care and anesthesia patients.
The Company's first product, the Venturi ventilator, incorporates proprietary
"smart" software and pneumatic hardware to continuously control patient airway
flow and pressure throughout all phases of the respiratory cycle, including the
active control of exhalation. These unique features enable continuous automatic
adjustment within and between individual breaths to tune therapy to
patient-specific demands and to supplement the patient's spontaneous breathing
efforts without suppressing or mechanically overriding the patient's natural
drive to breathe. The Company believes that these features will fundamentally
change the practice of applied respiratory care by reducing the work of
breathing, accelerating weaning from mechanical ventilatory support and reducing
ventilator dependence. As a result, the Company believes the Venturi will
improve patient outcomes, shorten the length of hospital stays and reduce
treatment costs.
Respiratory dysfunction represents one of the most prevalent and costly
conditions in healthcare. The National Center for Health Statistics reports that
lung disease affects some 25 million people and is the third leading cause of
death in the United States. Furthermore, the cumulative effects of air
pollution, smoking, and the increasing incidence of the acquired
immunodeficiency syndrome (AIDS), together with the aging of the United States
population, are expected to cause a significant increase in the need for
respiratory care. Mechanical ventilation is required for the treatment of acute
respiratory failure due to primary lung disease and for a variety of secondary
causes of respiratory failure, including heart attacks, circulatory failure,
strokes, sepsis and trauma. In addition, patients undergoing general anesthesia
and surgery require temporary ventilation to sustain breathing during surgery
and/or in the immediate post-operative period. The American Society of
Anesthesiology estimates that 22 million surgical procedures are performed in
the United States each year; a significant portion of these procedures requires
general anesthesia.
The Company has entered into an exclusive distribution agreement with
Kontron Instruments Ltd. for the promotion, sales, servicing and distribution of
Venturi products in Europe and certain other jurisdictions. Kontron is a
subsidiary of Kontron Instruments Holding N.V., a leading manufacturer and
distributor of medical and scientific instruments with over $175 million in
annual sales and an established critical care sales force which includes
approximately 60 European sales representatives. To date, Kontron has funded
most of the expenditures relating to European regulatory approvals for the
Venturi, and through direct investments owns approximately 12% of the Company
prior to this offering. Subject to certain termination rights, the distribution
agreement with Kontron calls for Kontron to purchase specified quantities of the
Venturi ventilator through the end of 1997, after which time the parties have
agreed to negotiate in good faith concerning a new purchase schedule. In
addition, Kontron has agreed to expend a total of at least $1,000,000 for
promotion, advertisement and selling of the Venturi, the timing of which
expenditure is based on the receipt by the Company of certain regulatory
approvals for the Venturi. The Company currently is supplying demonstration
units to Kontron and expects to begin commercial sales efforts through Kontron
in the second half of 1996. See "Business--Distribution Agreement with Kontron."
The Company's objective is to become a leading provider of advanced
ventilatory support and other critical care systems in the United States and
internationally. The important elements of the Company's strategy are to (i)
establish the Company's Venturi system as a new standard of care in advanced
ventilatory support, (ii) focus initial sales efforts on leading teaching
hospitals and clinical opinion leaders, (iii) initiate clinical marketing
studies to validate certain key benefits of the Venturi, (iv) establish
international presence through Kontron and other strategic alliances, (v)
establish a direct sales force and selected distributor network in the United
States, and (vi) leverage core ventilation technologies to create new products
and maintain product leadership.
The Venturi has received Section 510(k) pre-market clearance from the U.S.
Food and Drug Administration and has passed IEC 601 safety tests administered by
the British Standards Institution. As a result, the Company may begin commercial
sales of the Venturi in the United States and most European countries other than
Germany and France,
3
<PAGE>
where specific regulatory applications are pending. The European and United
States product launches for the Venturi presently are scheduled for the second
half of 1996. In addition, the Venturi's software and hardware have been
specifically designed as a platform to accommodate future enhancements for
ventilation, patient monitoring and anesthesia delivery, subject to regulatory
approval.
Cardiopulmonary Corp. was incorporated under the laws of Delaware in March
1988. The Company's executive offices and manufacturing facilities are located
at 200 Cascade Boulevard, Milford, Connecticut 06460 and its telephone number is
(203) 877-1999.
THE OFFERING
Common Stock offered .............................. 2,000,000 shares
Common Stock outstanding after offering ........... 5,892,166 shares (1)
Use of proceeds ................................... Development of future
products; working capital
to finance production of
ventilators for sale to
Kontron and other
purchasers; establishing a
marketing and sales force;
expanding production
facilities; and for other
general corporate purposes.
Proposed Nasdaq National Market symbol ............ CPCP
- ----------
(1) Based upon shares outstanding as of May 20, 1996. Excludes 600,000 shares
reserved for issuance under the Company's 1994 Stock Option Plan and 50,000
shares reserved for issuance under the Company's Stock Option Plan for
Non-Employee Directors. As of May 20, 1996, options to purchase an
aggregate of 398,400 shares of Common Stock had been granted under the
Company's 1994 Stock Option Plan at a weighted average exercise price of
$2.43 per share. As of May 20, 1996, 110,300 of these options were vested;
the remainder are subject to vesting restrictions which lapse at various
times from 1996 to 2000. As of May 20, 1996, options to purchase 40,000
shares of Common Stock had been granted under the Non-Employee Director
Stock Option Plan at an exercise price of $0.63 per share, all of which are
subject to vesting restrictions which lapse at various times from 1996 to
2000. See "Management -- Stock Options." Also excludes 475,300 shares
reserved for issuance upon exercise of outstanding warrants exercisable for
$5.00 per share and 100,000 shares reserved for issuance upon exercise of
warrants to be issued to the Representatives of the Underwriters
exercisible at 120% of the initial public offering price (the
"Representatives' Warrants"). See "Underwriting."
Except as otherwise indicated, all information in this Prospectus (i) gives
effect to a five-into-two reverse stock split effected in May 1996, (ii) gives
effect to the automatic conversion upon the closing of this offering of all
outstanding shares of the Company's Series A Convertible Preferred Stock, Series
B Convertible Preferred Stock and Series C Convertible Preferred Stock into
2,612,407 shares of Common Stock and (iii) assumes no exercise of the
Underwriters' over-allotment option. See "Description of Capital Stock" and
"Underwriting."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR PERIOD
THREE MONTHS ENDED FROM INCEPTION
YEAR ENDED DECEMBER 31, MARCH 31, (MARCH 4, 1988)
------------------------- ------------------ THROUGH
1993 1994 1995 1995 1996 MARCH 31, 1996
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Costs and expenses:
Research and development ................ $542 $1,075 $1,718 $301 $525 $5,930
General and administrative .............. 72 184 580 127 272 2,104
---- ------ ------ ---- ---- ------
Loss from operations ..................... 614 1,259 2,298 428 797 8,034
Net interest (income) expense ............ 79 (38) 32 (4) 102 221
---- ------ ------ ---- ---- ------
Net loss ................................. $693 $1,221 $2,330 $424 $899 $8,255
==== ====== ====== ==== ==== ======
Unaudited pro forma net loss
per share (1) ........................... $ 0.56 $0.11 $0.22
====== ===== =====
Shares used in computing unaudited
pro forma net loss per share (1) ........ 4,037 4,037 4,037
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------
ACTUAL PRO FORMA (2) AS ADJUSTED (2)(3)
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BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash and cash equivalents ..................................... $ 525 $1,475 $19,375
Total assets .................................................. 1,081 2,022 19,922
Long-term obligations and redeemable
convertible preferred stock .................................. 7,344 7,344 6
Accumulated (deficit) ......................................... (8,879) (8,924) (8,924)
Common stock and other stockholders' equity (deficit) ......... (8,313) (6,141) 19,097
</TABLE>
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(1) Unaudited pro forma net loss per share is determined by dividing the net
loss attributable to common stockholders by the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding during the
period, assuming the automatic conversion of all outstanding shares of
Preferred Stock into 2,612,407 shares of Common Stock upon the closing of
this offering. See Note 1 of Notes to the Company's Financial Statements.
(2) Reflects the issuance of additional convertible notes in the aggregate
principal amount of $80,000 in April 1996, of which $18,320 was ascribed to
detachable warrants issued in conjunction with the notes, the issuance of
177,000 shares of Common Stock and the conversion of all outstanding notes
into 298,300 shares of Common Stock on May 20, 1996. See Note 8 and Note 10
of Notes to the Company's Financial Statements.
(3) Reflects the conversion of all outstanding shares of Preferred Stock into
2,612,407 shares of Common Stock upon the closing of this offering. See
Note 1 of Notes to the Company's Financial Statements. Also gives effect to
the sale of 2,000,000 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $10.00 per share, after
deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company. See "Use of Proceeds"
and "Capitalization."
5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following information should be considered carefully by potential purchasers in
evaluating the Company, its business and the shares of Common Stock offered
hereby. This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed below, as
well as those discussed elsewhere in the Prospectus.
Development Stage Company. The Company is a development stage company
completing the development and testing of its initial product, the Venturi
ventilator. To date, the Company has been dependent primarily upon loans and
equity investments to finance its operations. As a development stage company,
the Company's operations are subject to all risks inherent in the establishment
of a new business enterprise. The likelihood of success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the establishment of a new
business and the development and introduction of new products. These include,
but are not limited to, factors relating to competition, marketability of the
Company's products, the need to expand production and distribution and the
ability to establish and sustain product quality. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 1 of
Notes to the Company's Financial Statements.
Dependence upon Single Product; Potential Delays. The Venturi is currently
the Company's only product and is expected to account for substantially all of
the Company's revenue for the foreseeable future. The Venturi has not been used
extensively on patients outside of an academic setting nor sold commercially,
nor has the Company produced the Venturi in commercial quantities. The Company's
efforts are subject to the risks inherent in the development of innovative
products, including the risk that the product will be found to be ineffective or
unsafe, or will otherwise fail to receive necessary regulatory clearances, or
that the product, if safe and effective, will be difficult to manufacture on a
large scale or will be uneconomical to market. See "Business -- Products." No
assurance can be given that the Company will be able to produce the Venturi in
commercial quantities at acceptable costs or without delays, or that it will be
able to market the Venturi successfully. Any failure of the device to achieve
acceptable market performance or the identification of technical deficiencies
could lead to delays in the introduction and market acceptance of the product
and could jeopardize the viability of the Company. The Company has received
510(k) clearance for the Venturi from the United States Food and Drug
Administration (the "FDA") and has passed IEC 601 medical electrical equipment
safety tests administered by the British Standards Institution, and presently
plans to introduce the Venturi commercially in Europe and the United States
during the second half of 1996. However, the Company will need to obtain
additional regulatory approvals before the Venturi can be sold in a number of
significant international markets, including France and Germany, and may
encounter delays in obtaining such approvals or other regulatory delays relating
to the commercial production of the Venturi. Any such delay could have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
Uncertainty of Market Acceptance. There can be no assurance that the
Venturi will gain market acceptance. Clinicians will not use the Company's
products unless they determine, based on experience, clinical data, and other
factors, that the Venturi is an attractive alternative to current ventilators.
To date, the Venturi has only been used in the treatment of approximately 50
patients, and no published studies exist to support the Company's claims of
superior performance and cost reduction. The Company believes that the
publication of such studies and recommendations and endorsements by influential
clinicians will be essential for market acceptance of the Venturi. There can be
no assurance that any such study will be completed and published on a timely
basis, if at all, that results of such studies will support the Company's claims
or that recommendations or endorsements by influential clinicians will be
obtained. In addition, purchase decisions are greatly influenced by healthcare
administrators who are subject to increasing pressures to reduce costs.
Healthcare administrators must determine that the Venturi and the Company's
potential products are cost-effective alternatives to current ventilators and
other intensive care equipment. Hospitals that have a significant investment in
existing ventilators or established relationships with other vendors may be
reluctant to accept the Venturi system even if its clinical usefulness and
cost-effectiveness are demonstrated. Although the Company plans to price the
Venturi competitively with or at a premium to existing high-end ventilators, it
may find it necessary to adjust its pricing policies in accordance with market
conditions. Any of these problems or delays in achieving market acceptance would
have a material adverse effect on the Company's business, financial
6
<PAGE>
condition and results of operations. See "Business -- Products," "-- Products
Under Development" and "-- Sales, Marketing and Distribution."
Limited Production Experience; Need to Improve Production Capabilities. The
Company has only limited experience in producing the Venturi. As a result, the
Company has no experience producing its product in the quantities necessary to
achieve significant commercial sales, and there can be no assurance that
reliable commercial assembly operations can be achieved at a reasonable cost and
without significant delays. If the Company encounters production difficulties,
including problems involving production yields, quality control and assurance,
or supplies of components, it could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Production."
As the Company begins to implement its marketing and operations plan fully,
it will need to expand its production capacity and improve and refine its
assembly process and quality control systems. As currently configured, the
Company's facilities will accommodate only limited ventilator production. As a
result, the Company anticipates that it will need to expand its production
facilities or establish alternate facilities as it expands from the development
stage to full production, and intends to spend a portion of the proceeds from
this offering for that purpose. See "Use of Proceeds." There can be no assurance
that the Company will complete expansion of its production facilities in a
timely manner, that the Company will not encounter unanticipated production
problems or delays or that the increased capacity will be sufficient to satisfy
demand for its products. Any production constraint could adversely affect
potential customers' perception of the Company and cause them to seek
alternative products. In addition, the anticipated expansion of the Company's
production facilities may result in a significant increase in operating
expenses, and if revenue is not generated to offset these additional expenses,
there would be a material adverse effect on the Company's business, financial
condition and results of operations.
History of Losses; Uncertain Profitability. The Company has experienced net
losses in each year since its incorporation in 1988. The Company had net losses
of approximately $2,330,000 for the year ended December 31, 1995, $899,000 for
the three months ended March 31, 1996 and $8,255,000 for the period from
inception (March 4, 1988) through March 31, 1996. There can be no assurances
that the Company will achieve or maintain profitability in the future. See
"Management's Discussion and Analysis of Financial Condition and the Results of
Operations."
Dependence on and Relationship with Key Foreign Distributor. Sales of
testing and demonstration units to Kontron, the exclusive distributor of the
Company's products in a number of foreign countries, accounted for all of the
Company's sales to date. (Because Kontron has the right to return testing and
demonstration products at a stipulated depreciated value in the event that the
distribution agreement is terminated, the related revenues have been deferred
for financial accounting purposes.) Subject to certain termination rights, the
distribution agreement with Kontron calls for Kontron to purchase specified
quantities of Venturi ventilators through the end of 1997, after which time the
parties have agreed to negotiate in good faith concerning a new purchase
schedule. There can be no assurance that the Company will be able to meet the
production schedule called for in the distribution agreement with Kontron. The
distribution agreement may be terminated by Kontron upon the occurrence of
certain specified events. The termination or significant reduction by Kontron of
its business with the Company would have a material adverse effect upon the
Company's business, financial condition and results of operations. See "Business
- -- Distribution Agreement With Kontron," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 12 of Notes to the
Company's Financial Statements.
Limited Direct Marketing, Training and Service Experience. The Company
currently has no direct marketing and sales organization and no United States
distribution arrangements. The Company's ability to sell its products in the
United States will depend, among other things, on its ability to develop such a
sales force or to enter into marketing and distribution agreements with
specialty respiratory distributors or other medical device distributors. There
can be no assurance that any such sales force that may be established by the
Company will be able to market and distribute the Company's products
successfully. There can be no assurance that Kontron or any third party
distributors with which the Company enters into marketing and distribution
agreements in the United States will be able to market the products effectively.
See "Business -- Sales, Marketing and Distribution." In addition, as of the date
of this Prospectus, the Company has not yet established a training and service
program adequate to meet the expected demand for its products. Because the
Venturi product line includes significant software components, the Company will
need to develop training and support programs to instruct users how to operate
the product. Failure to develop sales, marketing, distribution, service or
training programs could have a material adverse effect upon the Company's
business, financial condition and results of operations.
7
<PAGE>
Competition. The Company is engaged in a highly competitive industry.
Competition from medical device manufacturers in the United States and abroad is
intense and expected to increase. Many of these companies have substantially
greater capital resources, research and development staffs and facilities, and
greater experience in obtaining regulatory approvals and in production,
marketing and distribution of products, than does the Company. There can be no
assurance that the Company's competitors will not succeed in developing products
that are more effective than those that are being developed or sold by the
Company. In addition, because competition based on price is expected to become
increasingly important in the healthcare industry, the Company may be required
to adjust its pricing policies in accordance with market conditions and may
otherwise be limited with respect to the prices it is able to charge for its
products. See "Business -- Sales, Marketing and Distribution" and "Business --
Competition."
Rapid Technological Change. Because the attractiveness of the Company's
products is based in large part on the Company's proprietary software, demand
for the Company's products will be affected by rapidly changing technology,
evolving industry standards and new product introductions. The introduction of
products embodying new software may present opportunities for potential
competitors of the Company to render the Company's products less attractive or
obsolete and unmarketable. Even if the Company's present and future products
prove effective and obtain regulatory approval, there can be no assurance that
others will not develop products employing new scientific advances or using
similar or new techniques which are less expensive, more reliable or have some
combination of such advantages which would render the Company's products
uncompetitive. See "Business -- Competition." The Company's ability to
anticipate changes in technology and industry standards and to successfully
develop and introduce new and enhanced products which can gain market acceptance
on a timely basis will be a critical factor in the Company's growth and
competitiveness. Should the Company be unable, for technological or other
reasons, to develop products that are technologically competitive, responsive to
customer needs and competitively priced, there would be a material adverse
effect upon the Company's business, financial condition and results of
operations.
Dependence upon Key Employees; New Management Team; Attraction and
Retention of Key Personnel. The Company's business is dependent to a substantial
extent upon its Chief Executive Officer, James W. Biondi, M.D. The loss of the
services of Dr. Biondi would have a material adverse effect upon the Company.
The Company has entered into a three-year employment agreement with Dr. Biondi
containing non-competition provisions, and the Company carries $1,500,000 of
insurance on the life of Dr. Biondi. See "Management -- Employment Agreements."
The Company's business is also dependent to a substantial extent upon Douglas M.
Johnston, Vice President, Research and Development, Gerhardt P. Schroeder, Vice
President, Engineering, and Donald D. Gilmore, Director of Software Development.
The Company has entered into two-year employment agreements with each of these
key employees containing non-competition provisions. In addition, the Company's
Chief Financial Officer and Vice President, Sales have joined the Company during
the first quarter of 1996. The Company's success will depend to a significant
extent on the ability of its executive officers and key employees to operate
effectively, both individually and as a team. The Company believes its future
success will depend, among other things, upon its ability to attract and retain
qualified managerial and scientific personnel. Competition among companies in
the medical devices area is intense, and there can be no assurance that the
Company will be able to attract and retain such personnel on acceptable terms.
The failure to attract and retain such personnel or to develop such expertise
could have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Management."
Government Regulation. The medical devices to be manufactured and marketed
by the Company and the Company's ongoing research and development activities are
subject to regulation by numerous governmental authorities, including the United
States Food and Drug Administration and corresponding state and foreign
agencies. In the United States, the development, manufacture, marketing and
promotion of medical devices are regulated by the FDA under the Federal Food,
Drug, and Cosmetic Act (the "FFDCA"). Unless exempted by regulation, the FFDCA
and the regulations implemented thereunder require that devices such as the
Venturi receive FDA clearance or approval prior to marketing in the United
States. The Venturi ventilator has been cleared by the FDA under a premarket
notification procedure known as a "510(k) Submission."
The FFDCA requires the filing of a new 510(k) Submission when, among other
things, there is a major change or modification in the intended use of the
device or a change or modification, including product enhancements, to a legally
marketed device that could significantly affect its safety or effectiveness. A
device manufacturer is responsible for making the initial determination as to
whether a proposed change to a cleared device or to its intended use
necessitates the filing of a new 510(k) Submission. The addition of software
features to the cleared Venturi product would require the filing of a new 510(k)
Submission if such addition made a major change or modification to the
8
<PAGE>
Venturi that could significantly affect the safety or effectiveness of the
product or change or modify the product's intended use.
If the Company determines that any modifications that it may make to its
FDA-cleared devices do not require a new 510(k) Submission, there can be no
assurance that the FDA would agree with the Company's determinations and would
not require the Company to submit a new 510(k) for any modifications made to the
device. If the FDA requires the Company to submit a new 510(k) for any
modifications to a cleared device, the Company may be prohibited from marketing
the device as modified until the 510(k) is cleared by the FDA. There can be no
assurance that the Company will obtain 510(k) clearance on a timely basis, if at
all, for any devices or modifications for which it files a future 510(k)
Submission. Moreover, the clearances, if granted, could limit the uses for which
the product could be marketed.
Some of the Company's products under development may not qualify for
clearance pursuant to a 510(k) Submission, but instead may require FDA approval
under a premarket approval application ("PMA") procedure. PMAs generally involve
more extensive prefiling testing than 510(k) Submissions, including clinical
testing, and a longer FDA review process, which can take a number of years and
require the expenditure of substantial resources. The Company has limited
experience in conducting clinical testing and obtaining regulatory approvals.
There can be no assurance that FDA approval of future clinical study protocols
or PMAs would be forthcoming in a timely manner, if at all, or that FDA's
approval of a PMA, if granted, would not limit the uses for which the product
could be marketed.
Many countries regulate the manufacture, marketing, and use of medical
devices in ways similar to the United States. The Company intends to market its
products in some of those countries and intends to pursue product clearance,
approval, or registration procedures in such countries. The Venturi ventilator
product has passed IEC 601 medical electrical equipment safety tests
administered by the British Standards Institution. The Company has not yet
received similar clearances or approvals in Germany, France and certain other
countries in which it proposes to sell this product. Although the Company
believes that the clearances received to date will aid the Company in obtaining
approvals and licenses in France and Germany for the Venturi ventilator, there
can be no assurance that such approvals will be obtained. Moreover, there can be
no assurance that the Company will receive clearances or approvals of future
products from foreign regulatory authorities on a timely basis, if at all.
Failure to obtain, or delays in obtaining, requisite governmental
clearances or approvals, or failure to obtain clearances or approvals of the
scope requested, could delay or preclude the Company from marketing such
products, could limit the commercial use of the products, and could allow
competitors to introduce competing products prior to the Company and thereby
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company is also subject to strict domestic and foreign regulations and
supervision regarding the manufacturing, marketing, labeling, distribution, and
promotion of its products. This includes periodic inspections of the Company's
manufacturing facility by the FDA to determine compliance with Good
Manufacturing Practice ("GMP") regulations, which may become more stringent in
the future. There can be no assurance that the Company will be able to attain or
maintain compliance with GMP requirements.
In addition, laws and regulations governing the manufacture and marketing
of medical devices in the United States and in foreign jurisdictions may be
amended or modified from time to time and the interpretation and administration
of present and future laws and regulations by the FDA, other regulatory
authorities and courts are subject to change, which could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
Noncompliance with applicable requirements can result in, among other
things, rejection or withdrawal of premarket clearance or approval for devices,
recall or seizure of products, total or partial suspension of production,
injunctions, and civil and criminal penalties. The FDA also has the authority to
request repair, replacement or refund of the cost of any devices manufactured or
sold by the Company. Any of these sanctions could have a material adverse effect
on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."
Protection of Intellectual Property and Proprietary Technology. The Company
seeks to protect its proprietary rights in its technology and products through
patent applications, trade secrets and non-disclosure and confidentiality
agreements. The Company's ability to compete effectively with other companies
will depend, in part, on its ability to maintain the proprietary nature of its
technologies and products.
9
<PAGE>
The Company has developed technology and proprietary know-how for which
either patents have been issued or patent applications are pending. Patent
applications are currently pending in the United States relating to the
Venturi's pneumatic system and its control system and software. In addition, the
Company has filed applications relating to the Venturi's pneumatic system in
Europe under the Patent Cooperation Treaty ("PCT") and plans to submit
applications relating to the Venturi's control system under the PCT by the end
of 1996. Certain of the Company's products under development are protected by
two United States patents and two international patents covering ventilation
methods and hardware design. There can be no assurance that any of the Company's
patent applications will result in issued patents, that any issued patents will
provide any competitive advantage or that patents will not be challenged,
circumvented or invalidated.
The Company also relies on unpatented trade secrets and proprietary
know-how. There can be no assurance that others may not independently develop or
otherwise acquire the same or similar trade secrets and know-how or otherwise
gain access to the Company's proprietary technology or disclose such technology,
or that the Company can meaningfully protect its rights to its unpatented
technology. In the absence of patent protection, the Company's business may be
adversely affected by competitors who independently develop substantially
equivalent technology.
Third parties may hold or be issued patents to, or may otherwise acquire
the rights to, technology necessary or potentially useful to the Company. There
can be no assurance that needed or potentially useful licenses will be available
in the future on acceptable terms or at all. Failure of the Company to obtain
licenses to use such technologies could delay or prevent the introduction of
products. Litigation relating to the infringement of the patents of others could
result in substantial costs to the Company. Litigation which could result in
substantial costs to the Company may also be necessary to enforce any patents
issued to the Company or to determine the scope and validity of others'
proprietary rights.
In addition, the Company has applied to register the "Venturi" mark in the
United States. There can be no assurance that any Company mark will not be
challenged, invalidated or circumvented, or that any pending trademark
application will issue to registration. See "Business -- Patents and Proprietary
Information."
Reliance upon Key Suppliers. The Company acquires the components of its
products from third-party suppliers. Several components used in the Company's
products are currently available from only one source and others are available
from only a limited number of sources. There can be no assurance that the
Company will continue to be able to obtain items from these suppliers on
satisfactory terms or at all. If the Company were unable to obtain sufficient
components, it could suffer delays or reductions in product shipments or cost
increases which could have a material adverse effect upon the Company's
business, financial condition and results of operation. The Company believes
that it could obtain all necessary items from alternative sources if required
but that a change in sole source suppliers would disrupt production, create
delays or reductions in product shipments or increase component costs. See
"Business -- Production."
Need to Finance Operations. The Company will require substantial funds to
conduct the necessary research and development and testing of its products under
development, to obtain regulatory approvals for marketing these products, to
establish its direct sales force and to implement its marketing programs. The
Company has no established bank financing arrangements, and there can be no
assurance that the Company will be able to establish such arrangements on
satisfactory terms, if at all. There can be no assurance that additional
financing will be available when needed or on terms acceptable to the Company.
If adequate funds are not available, the Company may be required to delay, scale
back or eliminate one or more of its development programs or otherwise impede
the development, manufacture or sale of the Venturi ventilator or future
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 2 of Notes to
the Company's Financial Statements.
Potential for Product Liability Claims. The testing, marketing and sale of
medical devices entail an inherent risk that product liability claims will be
asserted against the Company. Because most of the Company's products are
intended to be used on patients who are physiologically unstable and may be
severely ill, the Company may be exposed to serious potential product liability
claims. From time to time, patients on whom the Company's products are being
used are likely to sustain injury or death related to their medical condition or
treatment, which could lead to product liability claims against the Company. A
product liability claim or a product recall could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company maintains product liability insurance coverage in an amount which it
believes adequate for its present purposes; however, there can be no assurance
that the Company will be able to maintain such coverage or obtain additional
coverage on
10
<PAGE>
acceptable terms, or that such insurance will provide adequate coverage against
any potential claims. See "Business -- Legal Proceedings and Product Liability."
Reliance on Foreign Sales; Foreign Currency Fluctuation. All of the
Company's product sales to date have been to Kontron for use in clinical studies
and as demonstration units outside the United States. Although sales to Kontron
are denominated in U.S. dollars, Kontron's resales to end users generally will
be denominated in other currencies, and the Company's distribution agreement
with Kontron provides that the Company and Kontron shall negotiate in good faith
with respect to price adjustments if the exchange rate of the U.S. dollar with
respect to the European Currency Unit (ECU) varies by more than 7.5% from that
in effect on the date a price is agreed. Consequently, the Company's revenues
from sales to Kontron may be adversely affected by fluctuations in currency
exchange rates. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Absence of Public Market and Possible Volatility of Stock Price. Prior to
this offering, there has been no public market for the Common Stock. The initial
public offering price will be determined through negotiations between the
Company and the Representatives. See "Underwriting." There is no assurance that
an active trading market will develop or be sustained after completion of this
offering, or that the market price of the Common Stock will not decline below
the initial public offering price. The market prices for securities of emerging
companies such as the Company have historically been highly volatile. Future
announcements concerning the Company or its competitors, including financial
results, the results of testing, technological innovations, new commercial
products, governmental regulations, developments concerning proprietary rights,
litigation or public concern as to product safety, may have a significant impact
on the market price of the Company's Common Stock.
Dilution. This offering involves immediate dilution of $6.78 per share to
new investors. Additional dilution will occur upon the exercise of outstanding
stock options. See "Dilution" and "Management -- Stock Options." In addition,
upon consummation of this offering, there will be outstanding options and
warrants to purchase an aggregate of 913,700 shares of Common Stock (excluding
the Representatives' Warrants), at exercise prices ranging from $0.23 to $5.00
per share. To the extent that outstanding options or warrants are exercised,
further dilution to the interests of the Company's stockholders will occur.
Moreover, the terms upon which the Company will be able to obtain additional
equity may be adversely affected since the holders of the outstanding options
and warrants can be expected to exercise them at a time when the Company would,
in all likelihood, be able to obtain any needed capital on terms more favorable
to the Company than those provided by such securities. See "Management -- Stock
Options" and "Certain Transactions."
No Dividends. For the foreseeable future, the Company expects to retain
earnings, if any, to finance the expansion and development of its business. Any
future payment of dividends will be within the discretion of the Company's Board
of Directors, and will depend, among other factors, on the earnings, capital
requirements and operating and financial condition of the Company. See "Dividend
Policy."
Shares Eligible for Future Sale. Future sales of Common Stock in the public
market by existing stockholders following this offering could adversely affect
the market price for the Common Stock. The Company and its directors and
executive officers and certain other stockholders holding an aggregate of
3,619,166 of the 3,892,166 shares of Common Stock outstanding prior to this
offering have agreed that, without the prior written consent of the
Representatives, they will not directly or indirectly offer to sell, sell or
otherwise dispose of any of their shares of Common Stock, or any securities
convertible into or exchangeable for Common Stock, for a period of 180 days from
the date of this Prospectus, subject to certain limited exceptions. Upon
expiration of lock-up agreements with the Representatives 180 days after the
date of this Prospectus (or earlier upon the written consent of the
Representatives), 2,737,488 of such 3,892,166 shares may be sold in the public
market subject to the volume and other limitations contained in Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"). In addition, upon
expiration of such lock-up agreements, pursuant to Rule 701 of the Securities
Act, an additional 159,900 shares issuable upon the exercise of options may be
sold in reliance on Rule 144 without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation, manner of sale or notice
provisions of Rule 144. Certain holders of Common Stock and warrants exercisable
for Common Stock, including the Representatives' Warrants, have registration
rights with respect to such shares and the shares of Common Stock issuable upon
the exercise of such warrants. See "Principal Stockholders," "Management --
Stock Options," "Shares Eligible for Future Sale" and "Underwriting."
11
<PAGE>
Concentration of Ownership. The Company's directors and executive officers
and their affiliates will own beneficially an aggregate of approximately 40.8%
of the Company's outstanding shares of Common Stock after this offering
(approximately 38.9% if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders, acting together, would have significant
influence over all matters requiring approval by the stockholders of the
Company, including the election of directors. See "Principal Stockholders."
Possible Adverse Impact of Issuance of Preferred Stock; Certain
Anti-Takeover Effects. The Board of Directors of the Company has authority to
issue up to 1,000,000 shares of Preferred Stock, and to fix the rights,
preferences, privileges and restrictions of those shares without any further
vote or action by the stockholders. The potential issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Company, may discourage bids for the Common Stock at a premium over the
market price of the Common Stock and may adversely affect the market price of,
and the voting and other rights of, the holders of Common Stock. The Company
currently has no plans to issue shares of Preferred Stock. See "Description of
Capital Stock -- Preferred Stock." In addition, certain provisions of the
Company's charter may make the Company less attractive to a potential acquiror.
See "Description of Capital Stock -- Certain Anti-Takeover Effects."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby are estimated to be approximately $17,900,000
($20,690,000 if the Underwriters' over-allotment option is exercised in full)
based on an assumed initial public offering price of $10.00 per share and after
deducting estimated underwriting discounts and offering expenses. The Company
expects to use approximately $5,000,000 of the net proceeds for development
costs of future products, approximately $3,000,000 of the net proceeds for
working capital to finance production of ventilators for sale to Kontron and
other purchasers and the establishment of a marketing and sales force and
approximately $1,000,000 of the net proceeds of this offering to expand its
production facilities. The Company expects to use the balance of the net
proceeds of this offering for general corporate purposes. See "Business --
Manufacturing" and "Business -- Sales, Marketing and Distribution." The exact
allocation of the proceeds and the timing of such expenditures will depend upon
various factors, including market acceptance of the Venturi ventilator and
progress of regulatory approvals.
Pending use of the net proceeds, the Company intends to invest the funds in
short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company anticipates that all the Company's earnings, if any, will be
retained for the foreseeable future to finance the operation and expansion of
its business. The payment of any future dividends will be within the discretion
of the Company's Board of Directors and will depend, among other factors, upon
the earnings, capital requirements and operating and financial condition of the
Company.
13
<PAGE>
DILUTION
As of March 31, 1996, the Company had a net tangible book value of
$(1,114,000) or $(0.33) per share. Subsequent to March 31, 1996, the Company
issued convertible notes in the aggregate principal amount of $80,000, of which
$18,320 was ascribed to detachable warrants issued in conjunction with the
notes, and issued 475,300 shares of Common Stock, including 298,300 shares
issued upon the conversion of all outstanding notes on May 20, 1996
(collectively, the "Subsequent Financing Transactions"). See Note 8 and Note 10
of Notes to the Company's Financial Statements. The pro forma net tangible book
value would be $1,058,000 or $0.27 per share after giving effect to the
Subsequent Financing Transactions.
After giving effect to the Subsequent Financing Transactions and the sale
of the 2,000,000 shares offered by the Company hereby at an assumed initial
public offering price of $10.00 per share, after deducting estimated
underwriting discounts and offering expenses, the pro forma net tangible book
value of the Company at March 31, 1996 would have been approximately $18,958,000
or $3.22 per share. This represents an immediate increase in the pro forma net
tangible book value of $2.95 per share to existing stockholders and an immediate
dilution in net tangible book value of $6.78 per share to the persons purchasing
shares of Common Stock in this offering ("New Investors"). The following table
illustrates this per share dilution.
Assumed initial public offering price per share ............... $10.00
Pro forma net tangible book value before the offering (1) .... $0.27
Increase per share attributable to New Investors ............. 2.95
-----
Pro forma net tangible book value after the offering .......... 3.22
------
Dilution per share to New Investors (2) ....................... $ 6.78
======
The following table summarizes, as of March 31, 1996, the difference
between the existing stockholders and New Investors, with respect to the number
of shares of Common Stock purchased from the Company, the total consideration
paid and the average price per share (assuming an initial public offering price
of $10.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders (3) .............. 3,892,166 66.1% $ 9,627,000 32.5% $ 2.47
New Investors .......................... 2,000,000 33.9% 20,000,000 67.5% $10.00
--------- ----- ----------- -----
Total ................................ 5,892,166 100.0% $29,627,000 100.0%
===== =========== =====
</TABLE>
- ----------
(1) Pro forma net tangible book value per share (tangible assets less total
liabilities) of the Company divided by the number of shares of Common Stock
outstanding as of March 31, 1996.
(2) Dilution is determined by subtracting the estimated net tangible book value
per share after completion of this offering from the assumed public
offering price paid by New Investors for a share of Common Stock.
(3) Includes the Subsequent Financing Transactions.
The foregoing computations give effect to the automatic conversion upon the
closing of this offering of all outstanding shares of the convertible preferred
stock. The foregoing computations exclude 310,400 shares of Common Stock
issuable upon exercise of options outstanding as of March 31, 1996 at a weighted
average exercise price of $1.40 per share. As of March 31, 1996, 110,300 of
these options were vested; the remainder are subject to vesting restrictions
which lapse at various times from 1996 to 2000. To the extent these options are
exercised, there will be further dilution to New Investors. These computations
also exclude (i) 128,000 shares of Common Stock issuable upon the exercise of
options granted subsequent to March 31, 1996 at an exercise price of $4.38 per
share, (ii) 282,300 shares issuable upon exercise of warrants outstanding as of
March 31, 1996, (iii) an additional 193,000 shares issuable upon the exercise of
warrants issued subsequent to March 31, 1996 and (iv) 100,000 shares issuable
upon the exercise of the Representatives' Warrants. See "Management -- Stock
Options," "Certain Transactions," "Underwriting" and Note 8 of Notes to the
Company's Financial Statements.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, actual and as adjusted to give effect to the sale by the Company
of the 2,000,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $10.00 per share and the application of the net
proceeds therefrom. This table should be read in conjunction with the Company's
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------------
ACTUAL PRO FORMA (1) AS ADJUSTED (1)(2)
---------- ------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and capital lease obligation .................... $ 1,243 $ 12 $ 12
Redeemable convertible preferred stock, $.01 par value:
Series A -- 3,200,000 shares authorized; 3,030,501 shares
issued and outstanding at issuance cost plus accumulated
accretion of $27,503 at March 31, 1996 and pro forma,
none outstanding as adjusted ................................ 3,339 3,339 --
Series B -- 2,200,000 shares authorized; 2,196,183 shares
issued and outstanding at issuance cost plus accumulated
accretion and dividends of $458,307 at March 31, 1996
and pro forma, none outstanding as adjusted ................. 2,403 2,403 --
Series C -- 1,350,000 shares authorized; 1,304,348 shares
issued and outstanding at issuance cost plus accumulated
accretion and dividends of $138,526 at March 31, 1996
and pro forma, none outstanding as adjusted ................. 1,596 1,596 --
Total redeemable convertible preferred stock .............. 7,338 7,338 --
Common stock and other stockholders' equity (deficit):
Common stock, $.01 par value; 10,000,000 shares authorized;
804,459 shares issued and outstanding at March 31, 1996;
1,279,759 shares issued and outstanding pro forma;
5,892,166 shares issued and outstanding as adjusted (3) ..... 8 13 59
Additional paid-in capital ................................... 558 2,770 27,962
Accumulated deficit .......................................... (8,879) (8,924) (8,924)
--------- ------ -------
Total common stock and other stockholders' equity
(deficit) ................................................ (8,313) (6,141) 19,097
--------- ------ -------
Total capitalization ...................................... $ 268 $1,209 $19,109
========= ====== =======
</TABLE>
- ----------
(1) Reflects the issuance of convertible notes in the aggregate principal
amount of $80,000 in April 1996, of which $18,320 was ascribed to
detachable warrants issued in conjunction with the notes, and the issuance
of 177,000 shares of Common Stock and the conversion of all outstanding
notes into 298,300 shares of Common Stock on May 20, 1996. See Note 8 and
Note 10 of Notes to the Company's Financial Statements.
(2) Reflects the conversion of all outstanding redeemable convertible preferred
stock into 2,612,407 shares of Common Stock upon the closing of this
offering and the issuance of 2,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $10.00 per share and
the application of a portion of the net proceeds therefrom, after deducting
underwriting discounts and estimated offering expenses. See "Use of
Proceeds."
(3) Excludes (i) 600,000 shares of Common Stock reserved for issuance under the
Company's 1994 Stock Option Plan as of March 31, 1996, of which 270,400
shares were subject to currently outstanding options (54,300 of which were
vested as of March 31, 1996 and the remainder of which vest at various
times from 1996 to 2000), and (ii) 50,000 shares of Common Stock reserved
for issuance under the Company's Non-Employee Director Stock Option Plan,
of which 40,000 shares are subject to currently outstanding options, none
of which were vested as of March 31, 1996. See Note 10 of Notes to the
Company's Financial Statements. Also excludes (i) 282,300 shares reserved
as of March 31, 1996 for issuance upon exercise of outstanding warrants,
(ii) 193,000 shares issuable upon the exercise of warrants issued
subsequent to March 31, 1996, (iii) 128,000 shares of Common Stock reserved
for issuance under the Company's 1994 Stock Option Plan pursuant to options
granted subsequent to March 31, 1996 and (iv) 100,000 shares issuable upon
the exercise of the Representatives' Warrants. See "Underwriting." The
stockholders of the Company have approved an amendment of the Company's
Certificate of Incorporation, that will be filed immediately following the
consummation of this offering, that will delete all references to Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock. See "Description of Capital Stock."
15
<PAGE>
SELECTED FINANCIAL DATA
The following table presents certain selected financial data for the
Company for each of the years in the five-year period ended December 31, 1995
and for the three-month periods ended March 31, 1995 and 1996 and the period
from inception (March 4, 1988) to March 31, 1996. The selected financial data
presented below at and for each of the fiscal years ended December 31, 1994 and
1995 have been derived from, and are qualified by reference to, financial
statements audited by Price Waterhouse LLP, independent accountants. The
selected financial data presented below at and for each of the three years ended
December 31, 1993 have been derived from financial statements audited by
Deloitte & Touche LLP, independent accountants. The balance sheet at December
31, 1994 and 1995 and the related statements of operations and cash flows for
the three years ended December 31, 1995 and notes thereto appear elsewhere
herein. The selected financial data as of March 31, 1996 and for the three
months ended March 31, 1995 and 1996, and for the period from inception (March
4, 1988) through March 31, 1996, have been derived from unaudited financial
statements; however, in the opinion of management, such data include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such data. The results of operations for the three-month
period ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the full year. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Financial Statements and the Notes
thereto included elsewhere in the Prospectus.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR PERIOD
FROM
INCEPTION
THREE MONTHS ENDED (MARCH 4,
YEAR ENDED DECEMBER 31, MARCH 31, 1988) THROUGH
--------------------------------------------- ------------------ MARCH 31,
1991 1992 (1) 1993 (1) 1994 1995 1995 1996 1996
---- -------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Costs and expenses:
Research and development ... $ 669 $ 637 $542 $1,075 $1,718 $301 $525 $5,930
General and administrative . 372 255 72 184 580 127 272 2,104
------ ------ ---- ------ ------ ---- ---- ------
Loss from operations ........ 1,041 892 614 1,259 2,298 428 797 8,034
Interest (income) ........... (40) (4) (14) (38) (34) (4) (11) (273)
Interest expense ............ 91 130 93 -- 66 -- 113 494
------ ------ ---- ------ ------ ---- ---- ------
Net loss .................... $1,092 $1,018 $693 $1,221 $2,330 $424 $899 $8,255
====== ====== ==== ====== ====== ==== ==== ======
Unaudited pro forma net loss
per share (2) .............. $ 0.56 $0.11 $0.22
====== ===== =====
Shares used in computing
unaudited pro forma net
loss per share (2) ......... 4,037 4,037 4,037
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ MARCH 31,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............. $ 502 $ 43 $1,688 $ 428 $1,257 $ 525
Total assets ........................... 731 202 1,858 614 1,802 1,081
Long-term obligations and redeemable
convertible preferred stock ........... 1,639 1,644 5,288 5,527 7,269 7,344
Accumulated (deficit) .................. (2,111) (3,134) (3,837) (5,297) (7,904) (8,879)
Common stock and other stockholders'
(deficit) ............................. (2,101) (3,123) (3,650) (5,068) (7,350) (8,313)
</TABLE>
- ----------
(1) During the period from June 1992 to July 1993 the Company reduced certain
of its expenditures due to a decreased level of funding.
(2) Unaudited pro forma net loss per share is determined by dividing the net
loss attributable to common stockholders by the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding during the
period, assuming the conversion of all outstanding shares of Preferred
Stock into 2,612,407 shares of Common Stock upon the closing of this
offering. See Note 1 of Notes to the Company's Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements of the Company and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed below, as well as those discussed elsewhere in the Prospectus.
OVERVIEW
The Company is a development stage enterprise. Since its inception in March
1988, the Company has been engaged in the design, development, pre-commercial
assembly and testing of the Venturi ventilator. The Venturi received Section
510(k) pre-market clearance from the U.S. Food and Drug Administration in
October 1995 and passed IEC 601 medical electrical equipment safety tests
administered by the British Standards Institution in March 1996.
The Company's initial sales of demonstration and testing units are being
made to Kontron Instruments Ltd., the exclusive distributor of the Venturi in
Europe and certain other jurisdictions. In addition, the Company has relied upon
Kontron to fund most of the expenses to date relating to European regulatory
approvals for the Venturi. During the year ended December 31, 1995 and the three
month period ended March 31, 1996, the Company shipped testing and demonstration
products to Kontron totaling $183,000 and $83,000, respectively. Because Kontron
has the right to return these testing and demonstration products at a stipulated
depreciated value in the event that the distribution agreement is terminated,
the related revenues have been deferred. See Note 12 of Notes to the Company's
Financial Statements. The Company expects to begin commercial sales to Kontron
during the second half of 1996.
The Company has incurred ongoing losses from operations since inception
through March 31, 1996; it had cumulative losses totalling $8,255,000 as of
March 31, 1996. To date, substantially all of the Company's expenditures have
related to the design, development, pre-commercial assembly and testing of the
Venturi ventilator. The Company expects that selling, general and administrative
expenses will increase in connection with the creation of the Company's sales
and marketing organization, the expansion of its facilities and staff and the
commercial launch of the Venturi.
The Company presently expects to begin commercial sales efforts respecting
the Venturi in the second half of 1996, and the Venturi is expected to account
for substantially all of the Company's revenue for the foreseeable future. The
Company's efforts are subject to the risks inherent in the development of
innovative products, including the risk that the product will be found to be
ineffective or unsafe, or will otherwise fail to receive necessary regulatory
clearances, or that the product, if safe and effective, will be difficult to
manufacture on a large scale or will be uneconomical to market. No assurance can
be given that the Company will be able to produce the Venturi in commercial
quantities at acceptable costs or without delays, or that it will be able to
market the Venturi successfully. Any failure of the device to achieve acceptable
market performance or the identification of technical deficiencies could lead to
delays in the introduction and market acceptance of the product and could
jeopardize the viability of the Company. In addition, the Company will need to
obtain additional regulatory approvals before the Venturi can be sold in a
number of significant international markets, including France and Germany, and
may encounter delays in obtaining such approvals or other regulatory delays
relating to the commercial production of the Venturi. See "Risk Factors."
RESULTS OF OPERATIONS
Three-Month Period Ended March 31, 1996 and 1995
During the three month period ended March 31, 1996, the Company shipped
testing and demonstration products to Kontron totaling $83,000. Because Kontron
has the right to return testing and demonstration products at a stipulated
depreciated value in the event that the distribution agreement is terminated,
the related revenue has been deferred. No products were shipped in the
comparable period in 1995.
Research and development expenses were $525,000 in the three-month period
ended March 31, 1996 compared with $301,000 in the comparable period in 1995.
The increase in these expenses was primarily attributable to the increased
number of personnel and related costs for additional design in preparation of
assembly operations.
17
<PAGE>
General and administrative expenses were $272,000 in the three-month period
ended March 31, 1996, compared with general and administrative expenses of
$127,000 in the comparable period in 1995. The increase in these expenses
resulted primarily from increases in personnel, additional legal, professional
and consulting fees and insurance premiums.
The Company received interest income of $11,000 in the three-month period
ended March 31, 1996 and $4,000 in the comparable period in 1995. The increase
in interest income was due to higher balances of cash and cash equivalents on
hand during the three-month period ended March 31, 1996 compared to the
comparable period in 1995 as a result of the proceeds from the issuance of
$1,372,000 of convertible notes and warrants in December 1995. The Company
incurred interest expense in the three-month period ended March 31, 1996 of
$113,000 relating primarily to convertible notes issued in December 1995,
including $85,000 related to the amortization of the value of related warrants.
See Note 8 of Notes to the Company's Financial Statements.
Years Ended December 31, 1995, 1994 and 1993
Prior to July 1995, the Company shipped no products as the primary focus of
the Company was research and development on the Venturi ventilator. Beginning in
July 1995, the Company shipped testing and demonstration products to Kontron;
these shipments totalled $183,000 for the year ended December 31, 1995. Because
Kontron has the right to return testing and demonstration products at a
stipulated depreciated value in the event the distribution agreement is
terminated, the related revenue has been deferred.
Research and development expenses were $1,718,000 in 1995, $1,075,000 in
1994 and $542,000 in 1993. The increase in 1995 over 1994 was primarily
attributable to increases in personnel and related costs for additional product
research and increases in related materials and supplies. The increase in 1994
over 1993 was primarily attributable to additional expenditures in connection
with personnel, materials and supplies and outside services. In addition,
research and development expenditures were limited during the period from
January to July 1993 due to a decreased level of funding.
General and administrative expenses were $580,000 in 1995, $184,000 in 1994
and $72,000 in 1993. The increase from 1995 to 1994 resulted primarily from
increases in personnel and related costs and additional professional fees. The
increase from 1994 to 1993 resulted primarily from a temporary reduction of
management staff during the period from January to July 1993 due to a decreased
level of funding.
The Company received interest income of $34,000 in 1995, $38,000 in 1994
and $14,000 in 1993 and incurred interest expense of $66,000 in 1995 and $93,000
in 1993. The interest income was derived from the investment of the net proceeds
from the issuance of $1,372,000 of convertible notes and warrants in December
1995, $1,457,000 of preferred stock in March 1995 and $1,944,000 of preferred
stock in July 1993. Interest expense in 1995 resulted from the convertible notes
issued in December 1995, and interest expense in 1993 resulted from $1,381,000
in bridge loans which were converted into equity concurrently with the July 1993
financing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for funds generally have increased from period to
period as it has increased the scope of its research and development activity
and began shipments of testing and demonstration units. From inception through
March 31, 1996, the Company has funded these needs with approximately $7.8
million obtained through private placements of its equity securities and loans,
principally from stockholders. In addition, in April 1996, the Company issued a
note and warrants and received net proceeds of approximately $80,000, and in May
1996 the Company issued common stock and warrants and received net proceeds of
approximately $867,000.
As of March 31, 1996 and December 31, 1995, the Company's principal source
of liquidity was cash and cash equivalents totalling $525,000 and $1,257,000
respectively. The Company had no material commitments for capital expenditures
at December 31, 1995 or March 31, 1996.
The Company plans to finance its capital needs principally from the net
proceeds of this offering and interest thereon and its existing capital
resources. The Company's working capital and capital requirements will depend on
numerous factors, including the level of sales, the progress of the Company's
research activities and the level of resources that the Company devotes to the
developmental, clinical, regulatory and marketing aspects of its products. As it
expands from the development stage, the Company expects to expand its production
facilities or establish
18
<PAGE>
alternate facilities and to hire additional production, marketing and sales
personnel. The Company believes that the financial resources available to it,
including its current working capital and the net proceeds from this offering,
will be sufficient to finance its planned operations and capital expenditures at
least through the end of 1997. The Company further believes that the level of
financial resources available to it is an important competitive factor and,
accordingly, may seek to raise additional capital through public or private
equity or debt financings in the future. Failure to raise such capital may
adversely affect the Company's operations and prospects. The Company plans to
continue development and testing of the Venturi and is actively designing new
products, including the Venturi MS, the Venturi AS and the Venturi CS. See
"Business -- Research and Development."
The Company may from time to time seek bank financing following completion
of this offering, although there can be no assurance that such financing will be
obtained. The Company presently has no available bank financing.
The distribution agreement between the Company and Kontron provides for
negotiated price adjustments based on fluctuations in the exchange rate of the
U.S. dollar with respect to the European Currency Unit. See "Business --
Distribution Agreement with Kontron." Other international sales may expose the
Company to risks from currency fluctuations. In instances in which future
transactions are denominated in foreign currencies, the Company may seek to
hedge its foreign currency exposure. To date, the Company has had no foreign
currency exposure. See "Risk Factors -- Reliance on Foreign Sales; Foreign
Currency Fluctuation."
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $3,274,000 and $2,674,000 for federal and state income tax
reporting purposes, respectively. In addition, at December 31, 1995, the Company
had federal research and development credit carryforwards of approximately
$238,000. The utilization of these net operating loss carryforwards and credit
carryforwards may be limited based upon changes in ownership of the Company. See
Note 11 of Notes to the Company's Financial Statements.
EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("FAS 123"), which established financial accounting and reporting
standards for stock-based employee compensation plans. Companies are encouraged,
rather than required, to adopt a new method that accounts for stock compensation
awards based on their fair value using an option pricing model. Alternatively,
companies may make pro forma disclosures of net income as if the fair value
based method of accounting required by this standard had been applied. The
Company has elected to adopt FAS 123 in 1996 through disclosure only.
19
<PAGE>
BUSINESS
GENERAL
Cardiopulmonary Corp. designs, develops and assembles advanced,
software-driven ventilators which it believes represent a new generation of life
support technology for the treatment of intensive care and anesthesia patients.
The Company's first product, the Venturi ventilator, incorporates proprietary
"smart" software and pneumatic hardware to continuously control patient airway
flow and pressure throughout all phases of the respiratory cycle, including the
active control of exhalation. These unique features enable continuous automatic
adjustment within and between individual breaths to tune therapy to
patient-specific demands and to supplement the patient's spontaneous breathing
efforts without suppressing or mechanically overriding the patient's natural
drive to breathe. The Company believes that these features will fundamentally
change the practice of applied respiratory care by reducing the work of
breathing, accelerating weaning from mechanical ventilatory support and reducing
ventilator dependence. As a result, the Company believes the Venturi will
improve patient outcomes, shorten the length of hospital stays and reduce
treatment costs.
The Company has entered into an exclusive distribution agreement with
Kontron Instruments Ltd. for the promotion, sales, servicing and distribution of
Venturi products in Europe and certain other jurisdictions. Kontron is a
subsidiary of Kontron Instruments Holding N.V., a leading manufacturer and
distributor of medical and scientific instruments with over $175 million in
annual sales and an established critical care sales force which includes
approximately 60 European sales representatives. To date, Kontron has funded
most of the expenditures relating to European regulatory approvals for the
Venturi, and through direct investments owns approximately 12% of the Company
prior to this offering. Subject to certain termination rights, the distribution
agreement with Kontron calls for Kontron to purchase specified quantities of the
Venturi ventilator through the end of 1997, after which time the parties have
agreed to negotiate in good faith concerning a new purchase schedule. In
addition, Kontron has agreed to expend a total of at least $1,000,000 for
promotion, advertisement and selling of the Venturi, the timing of which
expenditure is based on the receipt by the Company of certain regulatory
approvals for the Venturi. See "Business -- Distribution Agreement with
Kontron." The Company currently is supplying demonstration units to Kontron and
expects to begin commercial sales efforts through Kontron in the second half of
1996.
The Venturi has received Section 510(k) pre-market clearance from the U.S.
Food and Drug Administration and has passed IEC 601 safety tests administered by
the British Standards Institution. As a result, the Company may begin commercial
sales in the United States and most European countries other than Germany and
France, where specific regulatory applications are pending. The European and
United States product launches for the Venturi presently are scheduled for the
second half of 1996.
INDUSTRY BACKGROUND
Market Overview
Respiratory dysfunction represents one of the most prevalent and costly
conditions in healthcare. The National Center for Health Statistics reports that
lung disease affects some 25 million people and is the third leading cause of
death in the United States. Furthermore, the cumulative effects of air
pollution, smoking, and the increasing incidence of the acquired
immunodeficiency syndrome (AIDS), together with the aging of the United States
population, are expected to cause a significant increase in the need for
respiratory care.
Mechanical ventilation is required for the treatment of acute respiratory
failure due to primary lung disease and for a variety of secondary causes of
respiratory failure, including heart attacks, circulatory failure, strokes,
sepsis and trauma. According to HCIA Inc., approximately 730,000 patients
required mechanical ventilation for acute respiratory failure in the United
States in 1994. Based upon 1996 studies which indicated an average duration of
ventilatory support of 18 days, patients suffering acute respiratory failure
require approximately 13 million patient days of advanced ventilatory support
each year. Furthermore, patients undergoing general anesthesia and surgery
require temporary ventilation to sustain breathing during surgery and/or in the
immediate post-operative period. The American Society of Anesthesiology
estimates that 22 million surgical procedures are performed in the United States
each year; a significant portion of these procedures requires general
anesthesia.
Mechanical ventilation for acute respiratory failure is generally provided
in hospital intensive care units. The American Hospital Association estimated
that in 1992 there were approximately 100,000 ICU beds in some 6,500
20
<PAGE>
hospitals in the United States. Based upon the industry data described above and
the American Hospital Association's 1994 estimated average bed utilization of
66% in acute care hospitals, the Company estimates that there is an installed
base of approximately 50,000 intensive care ventilators in the United States.
According to a 1994 survey, the total cost of ICU care in the United States was
approximately $55 billion. In addition, studies have shown that hospital charges
were higher in patients receiving mechanical ventilation than in other patients
in the ICU and that mechanically ventilated patients consume a disproportionate
share of ICU resources. As a result, any reduction in average duration of
ventilatory support or the resources required to maintain such support would
represent a significant direct cost benefit, particularly for healthcare
providers operating under capitated payment contracts and Medicare's
diagnosis-related group reimbursement system.
Current Status of Mechanical Ventilator Technology
A ventilator is a mechanical device which facilitates the exchange of
oxygen and carbon dioxide between the atmosphere and the patient. Mechanical
ventilation has evolved from methods of temporary support during anesthesia and
surgery to become one of the most important treatments in the management of
critically ill patients. Ventilators are used as primary life supportive therapy
for patients unable to accomplish effective, spontaneous breathing due to
serious medical illness, such as acute respiratory distress, acute circulatory
failure, chronic obstructive pulmonary disease, sepsis and multi-organ failure.
Although the respiratory needs of critically ill patients change
constantly, the current generation of ventilators provides relatively static
ventilatory support. Current systems supply oxygen and other gases to a patient
based upon preset parameters (such as breathing rate, tidal volume, pressure or
flow) with limited ability for automatic adjustment. As a result, current
ventilators often mechanically override the patient's spontaneous respiratory
effort or require the use of sedatives or narcotics to extinguish the natural
drive to breathe. The clinician's ability to improve treatment also is hampered
by the limited ability of current ventilators to optimize patient-ventilator
interaction. The management of a patient under these conditions requires
constant vigilance and intervention by a clinician, including frequent manual
adjustments to the ventilatory controls. In addition, conventional mechanical
ventilation provides assistance only during inhalation, which leads to higher
work of breathing and the potential for gas trapping in the lungs.
Due to these technological limitations, the Company believes that patients
are often either under- or over-ventilated, leading to increased work of
breathing, diaphragmatic fatigue, altered pulmonary gas exchange, respiratory
muscle atrophy and mechanical overdistention of the lung. The Company believes
these conditions may lead to increased respiratory complications and may impede
the ability to wean a patient from the ventilator, resulting in prolonged
ventilator dependence, suboptimal patient outcomes and increased treatment
costs.
THE CARDIOPULMONARY SOLUTION: PATIENT-SPECIFIC, "SMART" VENTILATION
Cardiopulmonary has developed its core ventilation technology to address
key clinical problems, technological limitations and high treatment costs that
the Company believes are associated with current ventilators. The Company's
basic premise is that patient outcomes in ventilation can be improved only if
the ventilator is able to respond automatically and continuously adapt to the
changing needs of the critically ill patient. The Company has designed the
Venturi to achieve these objectives. The Company believes that the Venturi will
advance the standard of ventilatory care and lead to improved patient outcomes,
reduced length of stay and treatment cost savings through:
O IMPROVED PATIENT-VENTILATOR INTERACTION: The Venturi's precise
monitoring and fast pneumatic response improve synchrony between
patient effort and ventilatory response, reducing the work of
breathing and ventilator dependence.
O AUTOMATIC WEANING: The Venturi promotes spontaneous breathing by
providing automatic withdrawal of mechanical ventilatory support
commensurate with the improved clinical status of the patient,
reducing clinician time and consequently lowering treatment costs.
O ACTIVE CONTROL OF EXHALATION: To date, ventilator technology has
focused on assisting inhalation. The Company believes the Venturi's
unique ability to actively control exhalation will minimize gas
trapping in the lungs (a phenomenon known as "intrinsic PEEP" or
"auto-PEEP"), reduce the risks of barotrauma (injury due to
overpressurization of the lung), increase gas exchange, and improve
patient comfort.
O PATIENT SIMULATION: The Venturi permits the clinician to predict the
effects of proposed changes to treatment settings in a computer
simulation using current patient data without disrupting the ongoing
care
21
<PAGE>
regimen. The Company believes this feature will improve safety
and reduce the risk of complications during ventilator adjustment.
O DATA MANAGEMENT AND OUTCOMES MEASUREMENT: The Venturi records and
maintains individual patient ventilation data through the use of its
customized database, allowing clinicians to compare historical
physiologic data with current patient settings and responses. The
Venturi software architecture will permit the assembly of an outcomes
database for the development of optimal treatment protocols which the
Company believes ultimately will enable healthcare providers to better
manage the cost of care.
STRATEGY
The Company's objective is to become a leading provider of advanced
ventilatory support and other critical care systems in the United States and
internationally. The important elements of the Company's strategy are to:
Establish the Company's Venturi system as a new standard of care in
advanced ventilatory support. The Company intends to establish the Venturi
ventilator as an essential interventional platform at the bedside of
critically ill patients. The Company believes that the advanced clinical
features of its products will allow the delivery of superior patient care
and the reduction of overall treatment costs.
Focus on leading teaching hospitals and clinical opinion leaders. The
Company is focusing its initial product marketing and sales efforts on
major teaching hospitals and key opinion leaders in pulmonary and critical
care medicine and anesthesiology in the United States and in Europe. The
Company believes that the support of well-respected clinicians will
contribute to market acceptance and stimulate product demand by validating
the performance of the Venturi ventilators.
Initiate clinical marketing studies to validate certain key
benefits. The Company believes that published peer-reviewed studies
validating the safety, key clinical benefits and claims of superior
performance of the Venturi and future products will constitute an important
element of its marketing efforts. The Venturi currently is undergoing
clinical marketing studies at Yale-New Haven Hospital. The Company plans to
begin additional clinical marketing studies during the second half of 1996
at Polyclinica di Milano in Italy, Medizinsche Hochschule Hannover in
Germany, Hopital Henri Mondor in Creteil, France, Gloucester Royal
Infirmary in England and Duke University Medical Center, and plans to
initiate additional studies in the future.
Establish international presence through Kontron and other strategic
alliances. The Company plans to work closely with Kontron to market the
Venturi in Europe and certain other jurisdictions. The Company believes
this relationship will facilitate the penetration of the European market
through Kontron's established sales and marketing force and service
network. The Company also intends to establish similar strategic alliances
or distributor relationships in the Pacific Rim, South America and other
key international markets to assist with regulatory requirements and to
market, distribute and service its products.
Establish a direct sales force and selected distributor network. In
the United States, the Company is establishing a direct sales force, which
initially will focus on leading teaching hospitals, and a network of
respiratory specialty distributors to support the efforts of the direct
sales force in generating sales to other hospitals and subacute healthcare
providers.
Leverage core ventilation technologies to create new products and
maintain product leadership. The Company plans to use the Venturi
ventilator as a technological platform for its future products. As a
result, the Company believes it can reduce the development time and cost
required for these products. In addition, the Company has designed the
Venturi to accommodate software and modular component upgrades which will
enable field upgrades of existing products. The Company believes these
upgrades will allow it to maintain a technological leadership position by
adding new therapeutic options for respiratory care to the capabilities of
the existing Venturi platform, subject to obtaining necessary regulatory
clearances.
PRODUCTS
The Venturi Ventilator
The Company's Venturi ventilator is a portable system that provides
advanced life support for patients with acute respiratory failure. It features
proprietary, patient-focused, "smart" ventilation which improves the dynamic
22
<PAGE>
interaction between patient demand and ventilator response. The Company's
Venturi ventilator offers numerous advanced clinical features, including:
Proprietary "smart" software. The Venturi's proprietary "smart"
software is shared by two computers. The first implements the desired
therapy by controlling the system's pneumatics, and the second runs a color
graphical, object-oriented touchscreen interface and provides redundant
capability for system operation. The software accepts and implements a
broad range and a high level of instructions from the clinician. The
Venturi permits clinicians to invent and implement protocols, and to reuse
and adapt proven protocols to different patients. Once the clinician has
selected or "programmed" a protocol, the Venturi's software continuously
adapts the Venturi to automatically remain in synchrony with the patient
during changing breathing patterns. The Company believes the automatic
control of ventilation represents a significant advance in respiratory
care.
Pneumatic system. The pneumatic drive mechanism in the Venturi's
respiratory control system is a dual venturi tube driven by a single
proportional valve. In the forward direction, the Venturi tube generates
pressure to the outside of the breathing bag that contains the gases to be
delivered to the patient (these gases can be any blend of air and oxygen,
and can include other diagnostic and therapeutic gases such as helium or
nitric oxide). Reversing the flow through the venturi tube lowers airway
pressure and allows the patient to exhale freely, providing exhalation
assistance to promote higher airway flow and more complete exhalation. The
Company believes that the Venturi ventilator's proprietary pneumatic system
provides several significant clinical advantages, including lower lung
pressure, faster respiratory cycles, reduced gas trapping and better gas
exchange. Among other benefits, the Company believes these clinical
improvements will encourage spontaneous breathing, and consequently allow
earlier weaning from ventilatory support.
Monitoring. To offer the clinician flexibility in the control of
ventilation and the monitoring of patient response, the Venturi
incorporates an active, full color, integrated graphics display and
touchscreen that depicts the patient's respiratory status. The Venturi
displays a comprehensive set of widely used and clinically established
respiratory parameters and waveforms, including standard waveforms
depicting primary respiratory mechanics such as pressure, volume, and flow,
in conjunction with selected secondary data such as the continuous display
of flow-volume and pressure-volume relations. The Venturi also permits
remote monitoring by means of computer and telecommunications networks.
Data management and outcomes measurement. The Venturi records and
maintains individual patient ventilatory data with its proprietary database
system, allowing clinicians to compare historical treatment data with
current patient settings and responses. The Venturi software architecture
also permits a user to assemble a customized outcomes database to develop
optimal treatment protocols, which the Company believes ultimately will
contribute to reductions in the cost of care and help users remain
competitive in a managed care environment.
Proprietary patient simulator. The Venturi permits the clinician to
predict the effects of proposed changes to a patient's treatment settings
in a computer simulation using current patient data without disrupting the
ongoing care regimen. Thus, a clinician can test proposed changes before
applying them to a patient to determine optimal, patient-specific settings.
Software operating system with open architecture and
telecommunications capability. The Company has developed a proprietary
software system with an open architecture design which allows the
flexibility to change and/or upgrade the Venturi's functionality. The
Company believes the Venturi's software structure will allow the Company to
test and distribute new methods of ventilation, thus facilitating the
implementation of new therapeutic strategies for respiratory care, subject
to obtaining necessary regulatory clearances. Furthermore, the system's
data management capabilities and ability to connect to computer and
telecommunications networks will enable healthcare providers to integrate
the Venturi with other information management systems.
Disposable integrated breathing circuit, humidifier and reservoir. The
Venturi provides temperature control and humidification of the breathing
gas. By integrating all of the system components that come into contact
with the patient, including the humidifier, into one disposable circuit,
the Company believes the Venturi will reduce the risk of patient-to-patient
cross contamination and the costs of cleaning and sterilization. As the
number of patients with advanced cases of acquired immunodeficiency
syndrome (AIDS), tuberculosis and hepatitis who require ventilatory support
increases, this feature will offer important patient care and safety
benefits. In addition, this integrated circuit reduces work of breathing by
eliminating flow-restricted demand
23
<PAGE>
valves and protective filters within the breathing circuit as required by
existing ventilators. The Company anticipates that sale of its proprietary
disposable breathing circuits will provide an additional source of revenue.
Portability with full pneumatic and electrical capability. The Venturi
is a portable system that includes batteries and gas tanks to provide
complete electrical and pneumatic capability for one hour or more of
uninterrupted, full scale ventilation without recharging. As a result, the
Venturi can be moved throughout the hospital with the patient. This
alleviates the need to interrupt life support to switch a patient to a
temporary ventilatory support system during patient transfer, which has
been shown to be a high risk event for a ventilated patient. This also
allows care institutions the flexibility to bring advanced ventilatory
support to any bedside without moving the patient. These features make the
Venturi suitable for a wide range of healthcare facilities, including
flexible environments such as subacute care facilities and outpatient
surgery facilities, and reduces the need for healthcare providers to
purchase separate transport ventilators.
Incorporation of standardized hospital protocols. The Company believes
there is an increasing trend toward the use of standardized treatment
protocols in order to shorten hospital stays and improve patient outcomes.
The Venturi allows healthcare providers to customize protocols and display
them on the system's guidance screen. Additional protocols can be
implemented in accordance with a patient's response to treatment until
ventilatory support is no longer required.
As a result of these features, the Company believes that the Venturi system
offers significant benefits to patients and healthcare providers, including: (i)
improved patient care, (ii) ease of use, (iii) reduced ventilator days, (iv)
reduced cost of patient care, (v) reduced need for sedatives and narcotics, and
(vi) reduced risk of cross-contamination.
PRODUCTS UNDER DEVELOPMENT
The Company is developing new products which are being designed to be fully
compatible with the software and hardware platform utilized in the Venturi
system.
The Venturi MS is being designed as a stand alone system which will add a
wide array of critical care patient monitoring parameters to the Venturi's
primary respiratory platform. The Company expects that this system will
continuously monitor a patient's electrocardiogram (EKG), invasive and
non-invasive arterial blood pressure, blood oxygen saturation, end tidal carbon
dioxide, temperature and respiration. The Venturi MS will provide healthcare
clinicians with a fully-integrated display of these key vital parameters.
Because the Venturi MS will use the same software platform and hardware utilized
in the Venturi, Venturi owners will also be able to incorporate these expanded
monitoring capabilities through modular, easy-to-install hardware and software
upgrades. The Company believes the Venturi MS will significantly reduce users'
capital equipment needs by consolidating commonly used individual monitoring
tools into one fully-integrated portable life-support workstation. The Venturi
MS is in the advanced stages of product design.
The Venturi AS, an advanced anesthesia workstation, is expected to combine
precise anesthetic agent delivery with the Venturi's advanced ventilatory
control. The data management system will be designed to consolidate and simplify
patient monitoring and anesthetic delivery information so that the
anesthesiologist can base clinical decisions on prompt and reliable
patient-specific information depicting the patient's intraoperative and
post-anesthetic status. In addition, the Company expects the product to
incorporate an innovative and precise anesthetic agent delivery system. The
Company believes these features will provide precise control of anesthetic
delivery, increase patient safety and decrease recovery time and costs. The
Venturi AS is still in the research stage.
The Venturi CS, a second generation version of the Venturi system, is being
designed to enhance heart-lung interaction during mechanical ventilation. The
Venturi CS is also expected to incorporate new "smart" software for
cardiac-ventilator synchronization, pulmonary mechanics measurements and
enhanced patient monitoring capabilities. As a result, the Company believes that
the Venturi CS will significantly reduce cardiac work and enhance circulatory
function in cardiac-compromised patients, leading to enhanced patient care and
reduced treatment costs. The Venturi CS is undergoing investigational trials at
Yale-New Haven Hospital under an Investigational Device Exemption (IDE).
The Company will need to obtain clearance or approval from the FDA and
comparable regulatory authorities outside the United States before marketing its
products under development. See "-- Government Regulation."
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SALES, MARKETING AND DISTRIBUTION
The Company, through its relationship with Kontron and its direct sales
force in the United States, intends to focus its initial sales and marketing
efforts on major teaching hospitals and key opinion leaders in the field of
pulmonary medicine and acute ventilatory care, who are in the best positions to
appreciate the therapeutic and financial benefits attributable to the Company's
products. In addition, the Company believes it will be able to develop, as part
of its ongoing clinical marketing studies, published reports which document key
clinical benefits of the Venturi, including the ability of the Venturi to reduce
the average number of ICU days for specific patient populations. The Company
believes studies of this nature would influence purchasing decisions with
respect to intensive care products such as ventilators, which generally are made
by hospital administrators and specialists for buying consortiums. However,
there can be no assurance that such studies will be published on a timely basis,
if at all, or that any studies that are published will support the Company's
claims. See "Risk Factors--Uncertainty of Acceptance."
Domestic Sales and Service. The Company currently is establishing a direct
sales force for the United States market. Initially, the Company expects to
establish a sales force of Regional Account Managers in select geographic areas;
the Company expects this sales force to grow in number to the extent product
acceptance and sales volume increase. The sales force will be responsible for
the demonstration and sale of the Company's products as well as developing a
close working relationship with target accounts. Initially, the Company intends
to focus its sales and marketing efforts on major teaching hospitals and other
centers of influence. The sales force will be expected to leverage sales at
these influence centers to achieve subsequent recommendations and endorsements.
A portion of the proceeds of this offering will be used to establish such a
direct sales force. See "Use of Proceeds."
The Company also plans to utilize respiratory specialty distributors to
sell products in markets which will not be initially targeted by the direct
sales force. These distributors will also support the efforts of the direct
sales force in the smaller acute care hospitals and subacute care facilities and
will be responsible for the related sales, service, stocking and account
receivable functions in their assigned geography.
The Company plans to utilize a combination of in-house direct service
representatives and dealer/third party field service representatives. The
Company's direct service representatives will be responsible for the repair of
products, act as liaison between the customer and the Company's product quality
and manufacturing staff, train the dealer/third party service support network
and produce applicable service and support technical material. The dealer/third
party service organizations will be responsible for the field service of
products which have been sold in their assigned geographic territory.
International. The Company plans to penetrate international markets through
its relationship with Kontron. The Company's initial sales are being made to
Kontron for resale in Europe and certain other jurisdictions. See " --
Distribution Agreement with Kontron." The Company is supporting Kontron's
efforts by encouraging clinical marketing studies of the Venturi at several
leading European hospitals. The Company intends to seek additional long-term
strategic relationships or distribution agreements to take advantage of
established sales organizations in the Pacific Rim, South America and other
international markets.
Clinical Support and In-Service Training. The Company plans to support its
domestic and international markets as well as its clinical marketing studies
with a limited staff of clinical specialists, which will increase in size with
product acceptance and increased sales volume. These specialists will be
responsible for installing products and monitoring their operation at study
sites as well as assisting the Company's direct sales organization with
in-service training and technical presentations.
Promotion. The Company plans an intensive awareness campaign to educate the
medical community about its products by sponsoring clinical abstracts and papers
pertaining to Company products at major professional society meetings. The
Company plans to display its products at exhibitions at the annual meetings of
major professional societies, such as the American Association of Respiratory
Care, American Thoracic Society, American College of Chest Physicians, American
Society of Anesthesiologists and the American Society of Critical Care Medicine,
as well as at local respiratory therapy society meetings. The Company also plans
to advertise in professional journals both to enhance recognition of the
Company's name and products and to generate sales leads.
Ancillary Products and Services. Once a sufficient installed base of its
products is in place, the Company may also realize revenue from the sale of
training services, software based treatment guidelines and utilization review
protocols and from the sale of disposable breathing circuits.
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DISTRIBUTION AGREEMENT WITH KONTRON
In March 1995, the Company entered into an exclusive Distribution Agreement
with Kontron Instruments Ltd. for the promotion, sales, servicing and
distribution of Venturi products in Europe and certain other jurisdictions.
Kontron is a subsidiary of Kontron Instruments Holding N.V., a leading European
manufacturer and distributor of medical and scientific instruments with over
$175 million in annual sales and an established critical care sales force which
includes approximately 60 European sales representatives. The Company has
granted Kontron exclusive distribution rights for the Venturi (including the
Venturi CS, Venturi AS and any upgrades of or new developments included therein)
in Europe and certain other jurisdictions. The Company believes a long-term
strategic relationship with Kontron will allow the Company to benefit from
Kontron's established sales organization and distribution network, and
consequently accelerate the Company's penetration of overseas markets. In
addition, the Company hopes to benefit from Kontron's experience with respect to
overseas regulatory approvals. To date, Kontron has funded most of the
expenditures relating to European regulatory approvals, and through direct
investments owns approximately 12% of the Company prior to this offering. See
"Certain Transactions."
Pursuant to the terms of the Distribution Agreement, Kontron has obtained
British Standards Institution certification that the Venturi complies with IEC
601 safety standards. Subject to certain termination rights, the distribution
agreement with Kontron calls for Kontron to purchase specified quantities of the
Venturi ventilator through the end of 1997, after which time the parties have
agreed to negotiate in good faith concerning a new purchase schedule. In
addition, Kontron has agreed to expend a total of at least $1,000,000 for
promotion, advertisement and selling of the Venturi, the timing of which
expenditure is based on the receipt by the Company of certain regulatory
approvals for the Venturi. The Company currently is supplying demonstration
units to Kontron and expects to begin commercial sales efforts through Kontron
in the second half of 1996. A representative of Kontron also is entitled to
attend meetings of the Company's Board of Directors.
The Distribution Agreement extends indefinitely, subject to termination
upon the occurrence of certain events. Ordinary termination of the Distribution
Agreement requires thirty-six months' written notice by either party.
Exceptional termination is allowed: (i) upon twenty-four (24) month's notice by
either party given during any month of January, if Kontron and the Company have
failed to agree by the end of the prior year on a purchase schedule for the
upcoming three years to update the purchase schedule contained in the
Distribution Agreement; (ii) upon six month's notice by either party given
during any month of January beginning in January 1996, if Kontron has failed to
order from the Company in the previous year at least the minimum number of
products set forth in the mutually agreed schedule for the prior year, except
where such failure is due to the Company's inability to deliver products; (iii)
automatically and without notice in case of dissolution or liquidation of the
Company or of Kontron; (iv) immediately upon notice by the Company if Kontron
(other than for reasons of force majeure) shall fail to make any payment due the
Company for a period of sixty (60) days following the date such payment is due
unless such obligation is disputed in good faith; and (v) upon six month's
notice by either party in case a competitor of either party acquires direct or
indirect control of the other party, in which case the right to exceptional
termination can be exercised only by the party not being so acquired.
The Distribution Agreement provides that the Company and Kontron shall
negotiate in good faith with respect to price adjustments for future sales if
the exchange rate of the U.S. dollar with respect to the ECU varies by more than
7.5% from that in effect on the date a price is agreed. Consequently, the
Company's revenues from sales to Kontron may be adversely affected by
fluctuations in currency exchange rates. See "Risk Factors --Reliance on Foreign
Sales; Foreign Currency Fluctuation" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
PRODUCTION
The Company's production operations consist primarily of final assembly,
testing, and quality control of materials, components, subassemblies, and
systems. The Company currently assembles and tests its products at its facility
in Milford, Connecticut. As currently configured, the Company's facilities will
accommodate only limited ventilator production. As a result, the Company
anticipates that it will need to expand its production facilities or establish
alternate facilities as it expands from the development stage to full
production, and intends to spend a portion of the proceeds from this offering
for that purpose. See "Use of Proceeds" and "Risk Factors."
The Company purchases the components for its products from various
independent suppliers. These components are either standard components or are
built to the Company's specifications. As a result of the Company's
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efforts to develop multiple supplier relationships, many of the purchased
components are available from more than one vendor. However, several components
used in the Company's products are currently available from only one source and
others are available from only a limited number of sources. Although the Company
believes it could obtain all of the necessary items from alternate sources if
required, a change in sole source suppliers would disrupt production, create
delays or reductions in product shipments, or increase component costs. See
"Risk Factors -- Reliance Upon Key Suppliers."
PATENTS AND PROPRIETARY INFORMATION
The Company seeks to protect its proprietary rights in its technology and
products through patent applications, trade secrets and non-disclosure and
confidentiality agreements. The Company has filed patent applications relating
to the Venturi's pneumatic system in the United States and internationally
(including a pending application to the PCT) and to the Venturi's control system
and software in the United States. In addition, certain of the Company's
products under development are protected by two United States patents and two
international patents covering ventilation methods and hardware design. The
Company intends to submit additional international patent applications. There
can be no assurance that any of the Company's patent applications will result in
issued patents, that any issued patents will provide any competitive advantage
or that patents will not be challenged, circumvented or invalidated.
The Company also relies on unpatented trade secrets and proprietary
know-how. There can be no assurance that others may not independently develop or
otherwise acquire the same or similar trade secrets and know-how or otherwise
gain access to the Company's proprietary technology or disclose such technology,
or that the Company can meaningfully protect its rights to its unpatented
technology. In the absence of patent protection, the Company's business may be
adversely affected by competitors who independently develop substantially
equivalent technology.
In addition, the Company has filed an "intent-to-use" trademark
registration for the "Venturi" mark, which has been allowed by the United States
Patent and Trademark Office.
COMPETITION
The medical device industry in the United States and abroad is intensely
competitive. The principal manufacturers of ventilator equipment are Nellcor
Puritan-Bennett, Inc., Siemens Life Systems (a division of Siemens AG),
Infrasonics, Inc. (which has entered into an agreement to be acquired by Nellcor
Puritan-Bennett, Inc.), Bird Medical Technologies, Inc. (a division of Thermo
Electron Corp.), Bear Medical Systems, Inc. (a division of Allied Healthcare
Products, Inc.) and Draegerwerk AG. The Company may also compete with other
manufacturers of respiratory products and medical devices. Many of these
companies have substantially greater capital resources, research and development
staffs and facilities, and experience in obtaining regulatory approvals and in
marketing and distribution of products, than does the Company. The Company
believes that the principal competitive factors in this market are product
features and quality, ability to reduce treatment costs, price, customer
service, and improved patient outcomes. The Company believes that it can compete
with respect to each of these factors; however, the Company may find it
necessary to adjust its pricing policies in accordance with market conditions.
See "Risk Factors -- Competition" and "Risk Factors -- Uncertainty of Market
Acceptance."
RESEARCH AND DEVELOPMENT
The Company has devoted substantially all of its efforts since inception to
the design, development, pre-commercial assembly and testing of the Venturi
ventilator. Research and development expenses were $525,000 in the three-month
period ended March 31, 1996 and $301,000 in the three-month period ended March
31, 1995; $1,718,000 in the year ended December 31, 1995, $1,075,000 in the year
ended December 31, 1994 and $542,000 in the year ended December 31, 1993; and
$5,930,000 for the period from inception (March 4, 1988) through March 31, 1996.
The Company's research and development activities are performed by the
Company's internal research and development team. The Company's principal
research and development activities consist of the continued development and
testing of the Venturi and the research, design and development of future
products, including the Venturi MS, the Venturi AS and the Venturi CS. See "--
Products" and "-- Products Under Development." The Company will be required to
seek regulatory clearance or approval for these devices. There can be no
assurance that
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product development will be successfully completed, that regulatory clearances
or approvals will be granted on a timely basis or at all or that any products
that are successfully developed will achieve commercial acceptance. See "Risk
Factors -- Uncertainty of Market Acceptance" and "Risk Factors -- Government
Regulation."
GOVERNMENT REGULATION
General. All medical devices are subject to extensive and rigorous
regulation by the federal government, principally the FDA and, in some
instances, by state, local, and foreign government authorities. The Federal
Food, Drug, and Cosmetic Act ("FFDCA") and other federal statutes and
regulations govern the development, testing, manufacture, labeling, packaging,
storage, approval, advertising, promotion, sale and distribution of such
products. Sales of the Company's products outside of the United States are
subject to foreign regulatory requirements that vary from country to country.
The time required to obtain clearance from a foreign country may be longer or
shorter than that required by the FDA, and clearance or approval or other
product requirements may differ.
Regulation of Medical Devices -- United States. Pursuant to the FFDCA,
medical devices intended for human use are classified into three categories,
Classes I, II and III, on the basis of the controls deemed necessary by the FDA
to reasonably assure their safety and effectiveness. Generally, Class I devices
are subject to general controls (e.g., labelling, premarket notification, and
adherence to the Good Manufacturing Practice ("GMP") regulations), and Class II
devices are subject to general controls and special controls (e.g., performance
standards, postmarket surveillance, patient registries and FDA guidelines).
Class III devices are those which must receive premarket approval ("PMA") from
the FDA to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting, and implantable devices, or new devices that have not been
found substantially equivalent to legally marketed devices). The Venturi
ventilator is classified as a Class II device.
Before a manufacturer can introduce a new device into the market, the
manufacturer must generally obtain marketing clearance through either a
premarket notification ("510(k)") procedure or a PMA procedure. FDA will grant
510(k) clearance for a new device if the medical device manufacturer can
establish that the new device is "substantially equivalent" in terms of safety
and effectiveness to a legally marketed Class I or Class II medical device or to
a Class III medical device for which the FDA has not called for a PMA. The FDA
has recently been requiring a more rigorous demonstration of substantial
equivalence than in the past. It generally takes from four to twelve months from
submission of a 510(k) to obtain 510(k) clearance from FDA, but it may take
longer.
The FDA may determine that the new device is not substantially equivalent
to a legally marketed device, in which case a PMA may be required. The FDA may
also determine that additional information is needed before a substantial
equivalence determination can be made in which case data from safety and
effectiveness tests, including clinical tests, may be required. A "not
substantially equivalent" determination or a request for additional information
could delay the market introduction of new products that fall into this category
and could have a material adverse effect on the Company's business, financial
condition and results of operation.
The Company's Venturi ventilator has been cleared for marketing by the FDA
through the 510(k) clearance process; as a result, the Company may begin
commercial sales of the Venturi in the United States without further regulatory
approval so long as no changes are made which require the filing of an
additional 510(k) Submission. The Company currently anticipates that the Venturi
MS and the Venturi AS will qualify for 510(k) clearance and that the Venturi CS
will require premarket approval. However, there can be no assurance that the
Company will receive FDA clearance of a 510(k) notification for the Venturi MS
or the Venturi AS, or any device that the Company may develop in the future, on
a timely basis or at all.
The FFDCA requires the filing of a new 510(k) Submission when, among other
things, the manufacturer makes a major change or modification in the intended
use of a previously cleared device or a change or modification, including
product enhancements, to a previously cleared device that could significantly
affect its safety or effectiveness. A device manufacturer is responsible for
making the initial determination as to whether a proposed change to a cleared
device or to its intended use necessitates the filing of a new 510(k)
Submission. If the Company determines that any modifications that it may make to
its previously cleared products do not require the filing of a new 510(k)
Submission, there can be no assurance that the FDA would agree with the
Company's determinations and would not require the Company to submit a new
510(k) for any modifications made to the devices. If the FDA requires the
Company to submit a new 510(k) for any modification to the device the Company
may be prohibited from marketing the device as modified until the 510(k) is
cleared by the FDA. There can be no assurance that the Company will obtain
510(k) clearance on a timely basis, if at all, for any device modification for
which it files a future 510(k) Submission.
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A manufacturer must file a PMA application if a new device is not
substantially equivalent to a legally marketed Class I or Class II device, or if
it is a Class III device for which FDA has called for PMA's. A PMA application
must be supported by extensive data, usually including both preclinical and
clinical trial data, to demonstrate the safety and effectiveness of the device.
If clinical trials of a device are required and the device presents a
"significant risk," the sponsor of the trial (usually the manufacturer or the
distributor of the device) must obtain FDA approval of an investigational device
exemption ("IDE") application prior to commencing the clinical trials. The IDE
application must be supported by data, typically including the results of animal
and laboratory testing. Sponsors of clinical trials are permitted to sell those
devices distributed in the course of the study provided such compensation does
not exceed recovery of the costs of manufacture, research, development and
handling. An IDE supplement must be submitted to and approved by the FDA before
a sponsor or an investigator may make a change to the investigational plan that
may affect its scientific soundness or the rights, safety or welfare of human
subjects. There can be no assurance that the Company will be permitted to
undertake such clinical trials or that, if conducted, such clinical trials will
demonstrate the safety and effectiveness of the device.
The PMA application must contain the results of the clinical trials, the
results of all relevant bench tests, laboratory and animal studies, a complete
description of the device and its components, and a detailed description of the
methods, facilities and controls used to manufacture the device. In addition,
the submission must include the proposed labeling, advertising literature and
training methods (if required). The FDA generally takes approximately one to two
years from the date of filing to complete its review of a PMA, but may take
significantly longer. The review time is often significantly extended by the FDA
requesting additional information or clarification of information already
provided in the submission. During the review period, an advisory committee
likely will be convened to review and evaluate the application and provide
recommendations to the FDA as to whether the device should be approved for
marketing. The FDA is not bound by the recommendations of the advisory panel. In
addition, the FDA will inspect the manufacturing facility to ensure compliance
with the GMP regulations for medical devices prior to approval of the PMA
application. If the FDA's evaluations of both the PMA application and the
manufacturing facilities are favorable, the FDA will either issue an approval
letter or an approvable letter, which usually contains a number of conditions
which must be met in order to secure final approval of the PMA. When and if
those conditions have been fulfilled to the satisfaction of the FDA, the agency
will issue a PMA approval letter, authorizing commercial marketing of the device
for certain indications. If the FDA's evaluations of the PMA application or
manufacturing facilities are not favorable, the FDA will deny approval of the
PMA application or issue a "not approvable" letter. The FDA can also determine
that additional clinical trials are necessary, in which case PMA approval may be
delayed for several years while additional clinical trials are conducted and
submitted in an amendment to the PMA. There can be no assurance that the Company
will obtain PMA approval by the FDA to commercially market a device in the
United States on a timely basis, if at all. If granted, the premarket approval
may include significant limitations on the uses for which the product may be
marketed, and the agency may require postmarketing studies of the device.
Modifications to a device that is the subject of an approved PMA, its
labeling, or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA.
The Venturi did not require a PMA application; however, the Company may be
required to submit a PMA application for future upgrades of the Venturi or for
some or all of its future products, and expects that its Venturi CS product may
require a PMA application.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA. Device manufacturers are required to register their establishments and
list their devices with the FDA, and are subject to periodic inspections by the
FDA, or by a state entity under an FDA contract, for compliance with the GMP
regulations for medical devices. These regulations require a company to
manufacture its products and maintain documents in a prescribed manner with
respect to manufacturing, testing and control activities. The GMP regulations
may be revised by the FDA to include design controls as well. This and other
proposed changes to the GMP regulations, if finalized, could likely increase the
cost of complying with GMP requirements. The Company also may be subject to the
registration and inspection requirements of state regulatory agencies. There can
be no assurance that the Company will be able to attain or maintain compliance
with GMP regulations.
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In addition, the Medical Device Reporting ("MDR") regulation obligates the
Company to inform FDA whenever there is reasonable evidence to suggest that one
of its devices may have caused or contributed to death or serious injury, or
where one of its devices malfunctions and, if the malfunction were to recur, the
device would be likely to cause or contribute to death or serious injury. The
Company may also be required to comply with device tracking regulations, which
require manufacturers to establish a method of tracking individual devices
through the distribution channel to the physician and patient using the device.
Labeling and promotion activities are also subject to scrutiny by the FDA
and, in certain instances, by the Federal Trade Commission. The FDA actively
enforces regulations prohibiting marketing of products for unapproved uses.
If, as a result of FDA inspections, MDR reports or information derived from
any other source, the FDA believes the Company is not in compliance with the
law, the FDA can refuse to clear or approve new products for marketing; withdraw
previous product clearances or approvals; require notification to users
regarding newly found unreasonable risks; request repair, refund or replacement
of faulty devices; request corrective advertisements, formal recalls or
temporary marketing suspension; impose civil penalties; or institute legal
proceedings to detain or seize products, enjoin future violations, or seek
criminal penalties against the Company, its officers or employees. Civil
penalties for FFDCA violations may be assessed by the FDA in lieu of or in
addition to instituting legal actions. Any such action by the FDA could result
in disruption of the Company's operations for an indeterminate time.
Regulations of Medical Devices Outside the United States. Products marketed
outside the United States that are manufactured in the United States are subject
to certain FDA regulations, as well as regulation by the country in which the
products are to be sold. The Company also might be subject to foreign regulatory
requirements governing clinical trials and medical device sales if such products
are marketed abroad. Approval of a product by the comparable regulatory
authorities of foreign countries usually must be obtained prior to commencement
of marketing of the product in those countries whether or not FDA approval has
been obtained, although the receipt or denial of FDA clearance for a product may
affect the receipt or denial of regulatory clearance for that product in certain
countries. The approval process varies from country to country and time required
may be longer or shorter than that required for FDA approval.
The Venturi has passed IEC 601 medical electrical equipment safety tests
administered by the British Standards Institution. IEC 601 is the base product
safety standard accepted by all member countries of the European Union and a
number of non-European Union jurisdictions. Although additional approvals will
be required in France andGermany, this certification allows the Venturi to be
marketed in most of the other countries of Europe. Both France and Germany have
specific regulatory requirements that go beyond IEC 601 and involve the
submission of technical and clinical data. The Company has also applied for
approval from the Groupement pour l'evaluation des dispositifs medicaux (G-Med)
for sales in France and from the Technischer Uberwachungsverein (TUV) for sales
in Germany. Although the Company believes that its existing clearance from the
FDA and test results from the British Standards Institution may increase the
likelihood of clearance in other jurisdictions, there can be no assurances that
any such clearances will be received in a timely manner or at all.
Other Regulations. The Company is subject to numerous federal, state and
local laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances. There can be no assurance that
the Company will not be required to incur significant costs to comply with such
laws and regulations in the future or that such laws or regulations will not
have a material adverse effect upon the Company's ability to do business.
PROPERTIES
The Company's administrative offices, research and development and
production facilities occupy approximately 6,942 square feet of leased space in
Milford, Connecticut. The lease expires on August 1, 1997. The Company plans to
expand its production facilities or establish alternate facilities as it expands
from the development stage to full production. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
EMPLOYEES
As of March 31, 1996, the Company employed 22 full-time individuals. In
addition, the Company utilizes free-lance consultants from time to time. The
Company believes its future success will depend upon, among other things,
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its ability to attract and retain qualified managerial and scientific personnel.
Competition among companies in the medical devices area is intense, and there
can be no assurance that the Company will be able to attract and retain such
personnel on acceptable terms. The Company believes it maintains satisfactory
relations with its employees.
LEGAL PROCEEDINGS AND PRODUCT LIABILITY
The Company is not a party to any material litigation or legal proceeding
relating to its products, and none of the Company's products has ever been the
subject of a safety or quality recall.
Because most of the Company's products are intended to be used on patients
who are physiologically unstable and may be severely ill, the Company may be
exposed to serious potential product liability claims. From time to time,
patients on whom the Company's products are being used are likely to sustain
injury or death related to their medical treatment or condition, which could
lead to product liability claims against the Company. The Company maintains
product liability insurance coverage in an amount which it believes adequate for
its present purposes. There can be no assurance that the Company will be able to
maintain such coverage or obtain additional coverage on acceptable terms, or
that such insurance will provide adequate coverage against all potential claims.
The Company is currently in arbitration with Stephen Jack Herman, a former
officer of the Company, regarding a claim against the Company for $69,090 plus
accrued interest from July 1, 1992 in severance compensation, originally filed
by Mr. Herman in July 1994 in the Superior Court of Massachusetts. The Company
is disputing such claim.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company are:
NAME AGE POSITION
---- --- --------
James W. Biondi, M.D. ... 40 Chairman, Chief Executive Officer and Director
N. Nicoll Snow .......... 51 Vice President, Chief Financial Officer and
Secretary
Robert Glinski .......... 49 Vice President, Sales
Douglas M. Johnston ..... 41 Vice President, Research and Development
Gerhardt P. Schroeder ... 53 Vice President, Engineering
Thomas J. Abbenante ..... 56 Director
John R. Cullinane, Jr. .. 43 Director
Alan Kessman ............ 49 Director
W. Gordon Kruberg, M.D. . 35 Director
James W. Biondi, M.D. has served as Chairman and Director since inception
(March 1988) and as Chief Executive Officer since June 1992. Dr. Biondi also has
been an Adjunct Associate Professor of Pulmonary Medicine and Anesthesiology at
Yale University School of Medicine since 1992. He is widely published in the
area of ventilation and cardiac interaction. Dr. Biondi completed residencies in
Internal Medicine, Pulmonary and Critical Care Medicine, and Anesthesiology at
Yale University School of Medicine. He holds B.S. degrees in mechanical
engineering and biology from Rensselaer Polytechnic Institute and an M.D. degree
from Albany Medical College.
N. Nicoll Snow joined the Company in January 1996 as Vice President, Chief
Financial Officer and Secretary. From May 1992 until joining the Company, he
served as Chief Financial Officer and Secretary of Simmons Outdoor Corporation,
an importer and distributor of sports optical products. Prior to joining
Simmons, Mr. Snow served as a consultant to Noel Group, Inc. from November 1991
through March 1992 and as Chief Financial Officer of U.S. Auction, Inc., a real
estate auction company, from September 1990 through October 1991. Mr. Snow
served as an audit partner for Arthur Andersen & Co. for the ten years through
August 1990. Mr. Snow holds a B.A. in Economics from the University of
Pennsylvania and an M.B.A. from the Wharton Graduate School.
Robert Glinski joined the Company in March 1996 as Vice President of Sales.
Prior to joining the Company, Mr. Glinski spent 20 years, primarily in sales and
marketing positions, with Puritan Bennett Corporation, which was acquired by
Nellcor Incorporated in August 1995. At Nellcor Puritan Bennett, Mr. Glinski was
Corporate Accounts Manager from December 1995 to March 1996. At Puritan Bennett,
Mr. Glinski was Director of National Accounts from 1992 to 1995. Prior to that,
he served as U.S. Field Operations Manager from 1990 to 1992 and as National
Sales Manager for the Puritan Bennett's Boston Division from 1981 to 1990. Mr.
Glinski received a B.S. in Marketing from Fairleigh Dickinson University.
Douglas M. Johnston joined the Company in January 1990 as Vice President of
Research and Development and also served as Secretary of the Company from 1993
to January 1996. From 1988 to 1990, he was a founding partner of Square One
Technology, a medical instrument development company. From 1984 to 1988, he was
the Director of Instrument Development for Cardiovascular Devices, Inc., a
developer of blood gas monitoring systems, now a division of Minnesota Mining
and Mfg. Co. From 1980 to 1984, he held technical leadership positions with
Puritan Bennett Corporation in its ventilator and anesthesia divisions. From
1976 to 1980, he was a design engineer with the Patient Monitoring Division of
Hewlett Packard Co. Mr. Johnston holds a B.S. in Electrical Engineering from the
Massachusetts Institute of Technology.
Gerhardt P. Schroeder joined the Company in May 1991 as Director of
Ventilator Development and was appointed Vice President, Engineering in November
1995. From 1977 to 1991 he held various technical leadership positions at Ohmeda
Inc., a healthcare products and services company, including Director of Research
and Development for the Infant Care Division and Product Development Manager for
the Anesthesia Systems Division. Mr. Schroeder holds a B.S. in Mechanical
Engineering and an MBA from the University of Wisconsin.
Thomas J. Abbenante was a founder of the Company and served as a director
from 1988 to 1991 and since April 1995. Since 1984, he has served as President
of Ivy Biomedical Systems, Inc., a manufacturer of patient monitoring
32
<PAGE>
equipment. He is also a founder of Novametrix Medical Systems, Inc., a
manufacturer of transcutaneous gas monitors and ventilator monitors.
John R. Cullinane, Jr. became a Director of the Company in July 1993. Since
1987 he has been a partner of Marsh Point Partners, the general partner of
Cullinane & Donnelly Venture Partners, L.P., and since 1993 he has been a
partner of Marsh Point Partners, II, the general partner of The Connecticut
Future Fund, L.P. Cullinane & Donnelly Venture Partners, L.P. and The
Connecticut Future Fund, L.P. are venture capital funds. Prior to forming
Cullinane & Donnelly, he was a principal in Quantum Venture Partners and Vice
President at Blyth Eastman Paine Webber. Mr. Cullinane is a graduate of
Princeton University and the Yale University School of Organization and
Management.
Alan Kessman became a director of the Company in June 1995. Since 1988, he
has been Chairman, President and Chief Executive Officer of Executone
Information Systems, Inc., a supplier of voice data and specialized hospital
communications equipment.
W. Gordon Kruberg, M.D. became a Director of the Company in 1990. He has
been a General Partner of Horn Venture Partners and related entities since 1992.
He was previously Senior Associate of Horn Venture Partners from 1989 to 1992.
Dr. Kruberg received his M.D. from Northwestern University and holds degrees in
Industrial Engineering and Human Biology from Stanford University.
All directors hold office until the next meeting of the stockholders of the
Company and until their successors are elected and qualified. Officers serve at
the discretion of the Board of Directors. There are no family relationships
among directors or executive officers of the Company.
The Company's Audit Committee currently consists of Mr. Cullinane and
Dr. Kruberg. The Company's Compensation Committee currently consists of
Drs. Biondi and Kruberg and Mr. Cullinane. Dr. Biondi will resign from the
Compensation Committee upon the consummation of this offering. The Audit
Committee, among other things, oversees actions taken by the Company's
independent accountants. The Compensation Committee, among other things, reviews
the compensation levels of the Company's executive officers and makes
recommendations to the Board of Directors regarding compensation. The
Compensation Committee also administers the Company's 1994 Stock Option Plan and
makes grants thereunder. See " --Stock Options."
KEY PERSONNEL
The following persons, although not executive officers of the Company, make
significant contributions to the Company's business:
Donald D. Gilmore, Director of Software Development, joined the Company in
March 1991. From 1982 to 1991, he held technical management positions for
several startup software companies. He was Engineering Manager for the
development of a visual programming language for Cognex Corp. He was a Senior
System Architect for ON Technology Inc., where he was a member of a team
assembled by Mitch Kapor to design information management applications. He led
the design and development of a CAD/CAE complex object database for Aries
Technology, Inc., and was Vice President of Research and Development for Azrex,
Inc. From 1969 to 1982, he held software design engineering positions at Digital
Equipment Corporation and Southern New England Telephone Co., and performed
software consulting. Mr. Gilmore studied engineering and mathematics at the
University of Kansas.
Elliot Blank, Director of Manufacturing, joined the Company in September
1994. From 1982 to 1993 he held manufacturing and project management positions
at Puritan Bennett Corporation. From 1976 to 1982, he worked as a manufacturing
engineer in the aerospace industry and as an electrical engineer for ophthalmic
surgery equipment.Mr. Blank holds a B.S. in Electrical Engineering from the
State University of New York, and an MBA from Pepperdine University.
SCIENTIFIC ADVISORS AND INVESTIGATORS
The Company has organized a Scientific Advisory Board which consists of
recognized experts in the research and clinical practice of respiratory care.
The members of the Scientific Advisory Board rely on their diverse areas of
practice to review and comment upon the Company's ongoing and proposed
scientific products. The Scientific Advisory Board also advises the Company on
potential areas of clinical interest and provides scientific evaluations on
products under development. The Scientific Advisory Board will meet quarterly
and certain members will meet in smaller groups or individually with the Company
as needed. The Company will provide each member of the
33
<PAGE>
Scientific Advisory Board with a nominal stipend in the amount of $1,000 per
meeting and a one time grant of an option for 4,000 shares of the Company's
Common Stock. The Company also reimburses each member for expenses incurred when
attending meetings.
All members of the Scientific Advisory Board are employed elsewhere and may
have commitments to and/or consulting contracts with other organizations,
including potential competitors of the Company, that may limit their
availability to the Company. None of these individuals is expected to devote
more than a small portion of his or her time to the Company.
The following are the members of the Company's Scientific Advisory Board:
Michael W. Cleman, M.D. is a Professor of Medicine and a Director of the
Cardiac Catherization Laboratory and PTCA Services at Yale University School of
Medicine. Dr. Cleman's work is primarily in the areas of the use of mechanical
devices in the treatment of coronary artery disease and restenosis. Dr. Cleman
received his M.A. from Johns Hopkins University and his M.D. Johns Hopkins
Medical School.
Lloyd N. Friedman, M.D., is Director of Intensive Care and Quality
Management at Milford Hospital and is an Associate Clinical Professor of
Medicine in Pulmonary and Critical Care at Yale University School of Medicine.
Dr. Friedman received National Institute of Health sponsored training in
clinical epidemiology, biostatistics and clinical study design, and has directed
and published several studies, authored numerous chapters and edits a text in
pulmonary medicine. Dr. Friedman received his B.A. in Biochemistry at Columbia
University and his M.D. at Yale University School of Medicine.
Richard A. Matthay, M.D. is Professor of Medicine and Associate Director of
Pulmonary and Critical Care Medicine at Yale University School of Medicine. Dr.
Matthay was a Director of the Medical Intensive Care Unit of Yale New Haven
Hospital from 1982 to 1990. He is the author of numerous scientific
publiciations. His work is primarily in the areas of cardiovascular performance
in lung disease, chronic obstructive lung disease and asthma, lung cancer and
the immune system, pulmonary manifestations of the connective tissue diseases,
and pulmonary disease of the immuno compromised host. Dr. Matthay serves on the
editorial board of a number of scientific journals, and has edited and authored
numerous texts in pulmonary and critical care medicine. Dr. Matthay received his
A.B. from Stanford University, his M.D. from Tufts University and an M.A. in
Business from Yale University School of Organization and Management.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning all
1995 cash and non cash compensation awarded to, earned by or paid to the
Company's Chief Executive Officer and the Company's only other executive officer
whose total salary and bonus for 1995 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
1995 COMPENSATION AWARDS
-------------------- ------------ ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C>
James W. Biondi, M.D. ............................ $120,016 -- -- $5,966(1)
Chief Executive Officer and Director
Douglas M. Johnston .............................. $120,016 -- 27,200 $2,982(1)
Vice President
</TABLE>
- ----------
(1) Consists of compensation expense incurred upon lapse of restrictions on
restricted stock.
EMPLOYMENT AGREEMENTS
The Company has entered into a three year employment agreement, effective
upon the closing of this offering, with James W. Biondi, M.D., the founder and
the Chief Executive Officer of the Company, pursuant to which Dr.
34
<PAGE>
Biondi will be employed as the Chief Executive Officer of the Company and will
receive a minimum annual base salary of $175,000. The agreement provides for
automatic renewal for successive one year terms unless either party gives
advance notice to the contrary. In addition, the agreement provides that Dr.
Biondi shall not compete with the Company during the term of the employment
agreement and for two years thereafter. If the Company terminates the agreement
without cause (as defined in the agreement) or if Dr. Biondi terminates the
agreement for "good reason" (as defined in the employment agreement), Dr. Biondi
shall be entitled to receive the greater of his salary for the remainder of the
term of the agreement or his annual salary for the then current year of
employment. If the employment agreement is terminated in certain circumstances
following certain changes in control of the Company, Dr. Biondi shall be
entitled to receive two times his then current salary (including an amount equal
to any bonuses paid during the prior twelve-month period).
The Company also has entered into two year employment agreements, effective
upon the closing of this offering, with N. Nicoll Snow, Vice President, Chief
Financial Officer and Secretary of the Company, Robert Glinski, Douglas M.
Johnston and Gerhardt P. Schroeder, each a Vice President of the Company, Donald
D. Gilmore, Director of Software Development, and Elliot Blank, Director of
Manufacturing. Pursuant to these agreements, Messrs. Snow, Glinski, Johnston,
Schroeder, Gilmore and Blank will receive minimum annual base salaries of
$150,000, $90,000, $130,000, $130,000, $110,000 and $95,000, respectively. The
agreement with Mr. Glinski also provides for an annual bonus based upon sales
and performance. The agreements provide for automatic renewal for successive
one year terms unless either party gives advance notice to the contrary. In
addition, the agreements with Messrs. Johnston, Schroeder and Gilmore provide
that they shall not compete with the Company during the term of the agreement
and for two years thereafter, and the agreements with Messrs. Snow, Glinski and
Blank provide that they will not compete with the Company during the term of the
agreement and for one year thereafter. If the Company terminates the agreement
without cause (as defined in the agreements) or if the employee terminates the
agreement for "good reason," each of Messrs. Johnston, Schroeder and Gilmore
shall be entitled to receive one year's salary at his then current rate
(including an amount equal to any bonuses paid during the prior twelve-month
period), and each of Messrs. Snow, Glinski and Blank shall be entitled to
receive six months' salary at his then current rate (including, in the case of
Messrs. Snow and Blank, an amount equal to any bonuses paid during the prior
six-month period). If the employment agreement with Mr. Snow is terminated in
certain circumstances following certain changes in control of the Company, Mr.
Snow shall be entitled to receive two times his then current salary (including
an amount equal to any bonuses paid during the prior twelve-month period).
STOCK OPTIONS
1994 Stock Option Plan
The Company's 1994 Stock Option Plan was adopted by the Board of Directors
on February 15, 1995 and approved by the Company's stockholders on May 13, 1995.
The plan currently provides for the grant of qualified and non-qualified options
to purchase up to 600,000 shares of Common Stock. The 1994 Stock Option Plan
permits the granting of options to present or future key employees, consultants
and non-employee directors of the Company.
The 1994 Stock Option Plan provides for the granting of options intended to
qualify as "incentive stock options" ("ISOs"), as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and non-qualified stock
options ("NQSOs") to key employees of the Company as well as other persons or
entities who perform services for the Company. The 1994 Stock Option Plan is
administered by the Compensation/Option Committee of the Board of Directors (the
"Committee"). The Committee determines, subject to the provisions of the plan,
the persons to whom options should be granted, the number of shares covered by
each option, and the exercise price, vesting schedule and other terms and
conditions of the options to be granted.
The exercise price of all ISOs granted under the 1994 Stock Option Plan may
not be less than 100% of the fair market value of the Common Stock (determined
by reference to public market data or, in the absence of such data, by a
committee of the Company's Board of Directors) at the time the option is granted
and the exercise price of NQSOs may not be less than the par value of the Common
Stock. Options may be exercised for a period of not more than ten years from the
date of grant, and are not generally assignable or otherwise transferable except
by will or the laws of descent and distribution. Shares subject to options
granted under the 1994 Stock Option Plan which have lapsed or terminated may
again be subject to options granted under the 1994 Stock Option Plan.
Furthermore, the Committee may offer to exchange new options for existing
options, with the shares subject to the existing options being again available
for grant under the 1994 Stock Option Plan.
35
<PAGE>
As of May 20, 1996, options to purchase an aggregate of 398,400 shares of
Common Stock had been granted under the 1994 Stock Option Plan at exercise
prices ranging from $0.23 to $4.38 per share (with a weighted average exercise
price of $2.43 per share). As of May 20, 1996, 110,300 of these options were
vested; the remainder are subject to vesting restrictions which lapse at various
times from 1996 to 2000. The fair market value of the Common Stock on the
respective grant dates has been determined to date by the Board of Directors. As
of May 20, 1996, no options had been exercised under the 1994 Stock Option Plan.
During 1995, the Company granted options under the 1994 Stock Option Plan
to purchase an aggregate of 158,400 shares of Common Stock at exercise prices
from $0.23 to $0.63 per share.
The following table sets forth certain information regarding stock options
held as of December 31, 1995 by the executive officers named in the Summary
Compensation Table:
AGGREGATE YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN THE MONEY
AT YEAR END OPTIONS AT YEAR END (1)
------------------------------ ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James W. Biondi, M.D. ............... -- -- -- --
Douglas M. Johnston ................. 13,600 13,600 $132,872 $132,872
</TABLE>
- ----------
(1) Based on an assumed initial public offering price of $10.00 per share.
Stock Option Plan for Non-Employee Directors
The Company's Stock Option Plan For Non-Employee Directors (the
"Non-Employee Director Plan") was adopted by the Board of Directors on August
31, 1995 and approved by the Company's stockholders on October 24, 1995.
Pursuant to this formula plan, the Company automatically grants options on an
annual basis to members of its Board of Directors who are not employees of the
Company ("Non-Employee Directors"). Each Non-Employee Director will
automatically be granted an option to purchase 10,000 shares of Common Stock on
the date of his or her initial election or appointment, vesting over a five year
period, and each Non-Employee Director will automatically be granted an option
to purchase an additional 400 shares of Common Stock on the fifth anniversary
and each successive anniversary of his or her initial election or appointment,
provided the Non-Employee Director is still a member of the Board on such date.
All options are exercisable at a per share price equal to the fair market value
of the Common Stock on the grant date. Options may be exercised at any time
during the ten years subsequent to the date of grant, subject to earlier
termination as a result of the earlier termination of the director's service. In
general, if an optionee's service terminates, the option will expire six months
thereafter (one year if service terminates by reason of death or disability).
The Company has authorized 50,000 shares of Common Stock for issuance under the
Non-Employee Director Plan. As of May 20, 1996, 40,000 options have been granted
under the Non-Employee Director Plan at an exercise price of $0.63 per share,
all of which were granted during 1995.
RESTRICTED STOCK AWARDS
During 1995, restrictions lapsed with respect to 44,458 shares of Common
Stock held by James W. Biondi, M.D. and 22,229 shares of restricted stock held
by Douglas M. Johnston. These shares were granted by the Company, subject to
restrictions, in July 1993.
COMPENSATION OF DIRECTORS
Directors currently do not receive any fees for services on the Board of
Directors. Directors who are not employees of the Company receive grants under
the Non-Employee Director Plan. See " Stock Options." The Company had four
non-employee directors during 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Company's current Compensation Committee consists of Drs. Biondi and
Kruberg and Mr. Cullinane. Dr. Biondi will resign from the Compensation
Committee upon the consummation of this offering.
36
<PAGE>
CERTAIN TRANSACTIONS
In December 1995, the Company issued 8% convertible debt notes to five
principal stockholders, including Kontron, and to a company controlled by an
employee of Kontron. Principal on these notes totaled $1,371,500. In March 1996,
two additional notes in the aggregate principal amount of $40,000 were issued to
employees of Kontron. In April 1996 an additional note in the principal amount
of $80,000 was issued to an officer of the Company. These notes were converted
into 298,300 shares of Common Stock on May 20, 1996.
In connection with the issuance of the 8% convertible debt notes in
December 1995, March 1996 and April 1996, the Company granted warrants to
purchase 274,300, 8,000 and 16,000 shares of Common Stock, respectively, at an
exercise price per share of $5.00. The number of shares issuable upon exercise
of these warrants and the exercise price are to be adjusted for certain dilutive
and anti-dilutive events. The warrants are exercisable for a period of five
years from the issuance date.
In March 1995, the Company entered into a Distribution Agreement with
Kontron Instruments Ltd. pursuant to which the Company granted Kontron exclusive
distribution rights for the Venturi in most of Europe and the Middle East, the
former Soviet Union and Africa. See "Business --Distribution Agreement with
Kontron." Kontron Instruments Holding N.V., the corporate parent of Kontron
Instruments Ltd., made an equity investment of approximately $1.0 million
concurrently with the execution of the Distribution Agreement and Kontron
Instruments Holding N.V. Certain employees of Kontron and a company controlled
by an employee of Kontron subsequently have invested an additional $380,000 in
the Company. As a result, Kontron and its affiliates will control an aggregate
of 8.4% of the Company's Common Stock after completion of this offering (8.0% if
the Underwriter's over-allotment option is exercised in full). A representative
of Kontron also is entitled to attend meetings of the Company's Board of
Directors. In addition, in March 1996, the Company granted an option to purchase
10,000 shares of Common Stock at an exercise price of $3.75 per share to Leslie
Smith, an officer of Kontron Instruments Ltd. The Company believes all
transactions with Kontron have been negotiated on an arms length basis and on
terms no less favorable to the Company than those which could be obtained with
an unaffiliated party.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock, in each case as of May 20, 1996 (giving effect to
the automatic conversion of all shares of the Company's Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock into shares of Common Stock upon completion of this offering),
by (i) those persons known to the Company to be the beneficial owner of more
than five percent of the Common Stock, (ii) each of the Company's directors and
executive officers who beneficially owns Common Stock or options to purchase
Common Stock that vest within 60 days of May 20, 1996, and (iii) all directors
and officers of the Company as a group, and after the sale of the 2,000,000
shares of Common Stock pursuant to this offering. All information with respect
to beneficial ownership by the Company's directors, officers and beneficial
owners has been furnished by the respective director, officer or beneficial
owner, as the case may be. Unless otherwise indicated below, the persons named
below have sole voting and investment power with respect to the number of shares
set forth opposite their names.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON
STOCK
BENEFICIALLY OWNED
NUMBER OF ---------------------------
SHARES OF PRIOR TO AFTER
NAME OF BENEFICIAL OWNER COMMON STOCK OFFERING OFFERING
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
The Connecticut Future Fund Limited Partnership
265 Church Street, Suite 1004
New Haven, Connecticut 06510 ........................... 865,811 (1) 21.9% 14.6%
John R. Cullinane, Jr.
The Connecticut Future Fund Limited Partnership
265 Church Street, Suite 1004
New Haven, Connecticut 06510 ........................... 865,811 (2) 21.9% 14.6%
Cupertino Ventures Partnership II, L.P.
20300 Stevens Creek Boulevard
Cupertino, California 95014 ............................ 838,722 (3) 21.1% 14.0%
W. Gordon Kruberg, M.D.
Cupertino Ventures Partnership II, L.P.
20300 Stevens Creek Boulevard
Cupertino, California 95014 ............................ 838,722 (4) 21.1% 14.0%
Aspen Venture Partners, L.P.
1 Post Office Square
Boston, Massachusetts 02109 ............................ 693,322 (5) 17.7% 11.7%
Kontron Instruments Holding N.V.
Julianaplein 22
Curacao, Netherlands Antilles .......................... 499,826 (6) 12.7% 8.4%
James W. Biondi, M.D. ................................... 371,673 9.6% 6.3%
Connecticut Seed Ventures Limited Partnership
242 Trumbull Street
Hartford, Connecticut 06103 ............................ 219,326 (7) 5.6% 3.7%
Connecticut Innovations, Incorporated
40 Cold Spring Road
Rocky Hills, Connecticut 06067 ......................... 200,000 (8) 5.0% 3.3%
Douglas M. Johnston ..................................... 169,286 (9) 4.3% 2.9%
Thomas J. Abbenante
Ivy Biomedical Systems, Inc.
11 Business Park Drive
Branford, Connecticut 06405 ............................ 135,300 (10) 3.5% 2.3%
Gerhardt P. Schroeder ................................... 81,200 (11) 2.1% 1.4%
N. Nicoll Snow .......................................... 32,000 (12) * *
Directors and officers as a group (9 persons) ........... 2,493,992 (13) 60.7% 40.8%
</TABLE>
- ----------
* Less than 1%.
(1) Includes 60,000 shares issuable upon exercise of warrants. See "Certain
Transactions."
38
<PAGE>
(2) Represents shares held by The Connecticut Future Fund Limited Partnership.
Mr. Cullinane is a general partner of Marsh Point Partners II, the general
partner of The Connecticut Future Fund Limited Partnership. Mr. Cullinane
disclaims beneficial ownership of such shares except to the extent of his
ownership therein.
(3) Includes 79,800 shares issuable upon exercise of warrants. See "Certain
Transactions."
(4) Represents shares held by Cupertino Ventures Partnership II, L.P. Dr.
Kruberg is a general partner of Horn Venture Partners, the general partner
of Cupertino Ventures Partnership II, L.P. Dr. Kruberg disclaims beneficial
ownership of such shares except to the extent of his ownership therein.
(5) Includes 36,500 shares issuable upon exercise of warrants. See "Certain
Transactions."
(6) Includes 60,000 shares issuable to Kontron upon exercise of warrants,
16,000 shares held by employees of Kontron and a company controlled by an
employee of Kontron and 16,000 shares issuable upon exercise of warrants
held by employees of Kontron and a company controlled by an employee of
Kontron. See "Certain Transactions."
(7) Includes 30,000 shares issuable upon exercise of warrants.
(8) Includes 100,000 shares issuable upon exercise of warrants.
(9) Includes 13,600 shares issuable upon exercise of options that are
exercisable within 60 days of May 20, 1996.
(10) Includes 105,300 shares held by Ivy Biomedical Systems, Inc., of which Mr.
Abbenante is President.Mr. Abbenante disclaims beneficial ownership of such
shares except to the extent of his ownership therein.
(11) Includes 47,000 shares issuable upon exercise of options that are
exercisable within 60 days of May 20, 1996.
(12) Includes 16,000 shares issuable upon exercise of warrants. See "Certain
Transactions."
(13) Includes 805,811 shares held by The Connecticut Future Fund Limited
Partnership, 758,922 shares held by Cupertino Ventures Partnership II,
L.P., 105,300 shares held by Ivy Biomedical Systems, Inc., 60,600 shares
issuable upon exercise of options that are exercisable within 60 days of
May 20, 1996 and 155,800 shares issuable upon exercise of warrants.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering and the filing of the amendment referred
to below to the Company's Certificate of Incorporation, the Company's authorized
capital stock will consist of 10,000,000 shares of Common Stock, $.01 par value,
and 1,000,000 shares of Preferred Stock, $.01 par value (the "Preferred Stock"),
issuable in series with rights and preferences as designated by the Board of
Directors.
As of May 20, 1996, there were: 1,279,759 shares of Common Stock
outstanding which were held by 26 stockholders; 3,030,501 shares of Series A
Convertible Preferred Stock outstanding, which were held of record by five
stockholders; 2,196,183 shares of Series B Convertible Preferred Stock
outstanding, which were held of record by four stockholders; and 1,304,348
shares of Series C Convertible Preferred Stock outstanding, which were held of
record by five stockholders. Based upon the number of shares of Common Stock
outstanding as of that date, and giving effect to the issuance of the 2,000,000
shares of Common Stock offered by the Company hereby and the automatic
conversion of the outstanding convertible preferred stock into shares of Common
Stock, there will be 5,892,166 shares of Common Stock outstanding upon the
closing of this offering. See "--Preferred Stock."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and other
liabilities of the Company and any preferential amounts to be distributed to
holders of Preferred Stock. The outstanding shares of Common Stock are, and the
shares offered by the Company in this offering will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to and may be adversely affected by the
rights of the holders of any series of Preferred Stock which the Company may
designate and issue in the future.
PREFERRED STOCK
The Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock are entitled to various
preferences and rights in the event of a liquidation, dissolution or winding-up
of the Company and upon a declaration by the Board of Directors of the payment
of dividends. Each share of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock is
convertible into 0.4 shares of Common Stock, and upon the closing of this
offering, all of the outstanding shares of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
will be converted automatically into an aggregate of 1,212,199 shares, 878,471
shares and 521,737 shares of Common Stock, respectively. The holders of Common
Stock, Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock have approved an amendment to the
Company's Certificate of Incorporation (the "Amendment"), which will be filed
with the Secretary of State of Delaware immediately following the closing of
this offering. The Amendment will, among other things, eliminate all references
to Series A Convertible Preferred Stock, Series B Convertible Preferred Stock
and Series C Convertible Preferred Stock.
The Amendment also will give the Board of Directors the authority to issue
up to 1,000,000 shares of Preferred Stock. The Board of Directors has the
authority to issue Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions, including dividend, conversion,
voting, redemption (including sinking fund provisions), and other rights,
liquidation preferences, and the number of shares constituting any series and
the designations of such series, without any further vote or action by the
stockholders of the Company. Because the terms of the Preferred Stock may be
fixed by the Board of Directors of the Company without stockholder action, the
Preferred Stock could be issued to defeat a proposed takeover of the Company or
to make the removal of the management of the Company more difficult. Under
certain circumstances, this would have the effect of decreasing the market price
of the Common Stock. The Company has no present plans to issue any Preferred
Stock. See "Risk Factors--Possible Adverse Impact of Issuance of Preferred
Stock; Certain Anti-Takeover Effects."
40
<PAGE>
No holder of any shares of any class or series of stock or securities
convertible into or exchangeable for shares of any class or series of stock of
the Company has any preemptive right to purchase or subscribe for any unissued
stock of any class or series.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Amended and Restated Certificate of Incorporation of
the Company (the "Certificate") and the Bylaws of the Company (the "Bylaws")
summarized in the succeeding paragraphs, may be deemed to have certain
anti-takeover effects which may make more difficult, time-consuming or costly,
or otherwise discourage, a tender offer, merger proposal, proxy contest or other
attempt to take control of the Company or its Board of Directors that a
stockholder might consider to be in such stockholder's best interest, including
an attempt that might result in a premium over the then-current market price for
the Common Stock.
Authorized but Unissued Stock. The authorized but unissued shares of Common
Stock and Preferred Stock are available for future issuance without further
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public or private offerings to raise
additional capital, corporate acquisitions and employee benefit plans. The
Company's stockholders or holders of options, warrants or other rights to
purchase shares of any class or series of stock or of other securities of the
Company do not have any preemptive right to purchase or subscribe for any
unissued stock of any class or series.
Such authorized and unissued shares also could be used to create voting or
other impediments or to frustrate a person seeking to obtain control of the
Company by means of a merger, tender offer, proxy contest or other means.
Although the Company does not currently contemplate taking such action, shares
of Common Stock or one or more series of Preferred Stock could be issued for the
purposes and effects described above and the Board of Directors reserves its
rights (if consistent with its fiduciary responsibilities) to issue such stock
for such purposes.
Limitations on Stockholder Actions. The Certificate provides that the
stockholders cannot take action by written consent without a meeting, and the
Bylaws provide that special meetings of stockholders may be called only by the
directors or an officer on the instruction of the directors. Such provisions may
have the effect of delaying consideration of a stockholder proposal until the
next annual meeting. In addition, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Board of Directors by
calling a special meeting of stockholders prior to the time the Board of
Directors believed such consideration to be appropriate.
Advance Notice Requirements for Stockholder Nominations of Directors. The
Bylaws establish advance notice procedures with respect to nominations by
stockholders of candidates for election as directors. Although the notice
provisions do not give the Board of Directors any power to approve or disapprove
of stockholders' nominations, they may have the effect of precluding a contest
for the election of directors without regard to whether consideration of such
nominees or proposal might be harmful or beneficial to the Company and its
stockholders.
Requirement to Remain in Connecticut. Pursuant to the terms of an agreement
between the Company and Connecticut Innovations, Incorporated, the Company would
be required to repurchase Common Stock and common stock purchase warrants from
Connecticut Innovations, Incorporated, for the greater of the fair market value
of such securities or the original issue price of $500,000 plus a 25% compounded
annual rate of return, if the Company ceased to maintain its principal place of
business and a majority of its employees in the State of Connecticut at any time
prior to the date such Common Stock and common stock purchase warrants are
registered under the Act or may be offered and sold pursuant to Rule 144(k).
These restrictions might make the Company less attractive to a potential
acquiror outside the State of Connecticut.
DIRECTORS' LIABILITY
As authorized by the Delaware General Corporation Law (the "GCL"), the
Certificate provides that no director of the Company shall be personally liable
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases or (iv) for any transaction from which the director
derived an improper personal benefit. The effect of the provision in the
Certificate is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a
41
<PAGE>
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the Certificate
provides that if the GCL is amended to authorize the further elimination or
limitation of the liability of a director, then the liability of the directors
shall be eliminated or limited to the fullest extent permitted by the GCL as so
amended. These provisions will not alter any liability of directors under
federal securities laws.
The Company has entered into indemnification agreements with each of its
directors and executive officers providing for the Company, among other things,
to indemnify its directors and executive officers against any judgements,
penalties, fines, amounts paid in settlement and expenses incurred in connection
with any actual or threatened action, suit, arbitration, alternative dispute
resolution mechanism, investigation, administrative hearing or any other actual,
threatened or completed proceeding and to advance the expenses of defending any
of the foregoing.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, or otherwise, 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 Securities Act and
is, therefore, unenforceable.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the GCL. That
section provides, with certain exceptions, that a Delaware corporation may not
engage in any of a broad range of business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding certain employee stock ownership plans);
or (iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 66-2/3% of the corporation's outstanding voting stock
at an annual or special meeting, excluding shares owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (i)
the owner of 15% or more of the outstanding voting stock of the corporation or
(ii) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
LIABILITY INSURANCE
The Company intends to procure and maintain a policy of insurance under
which the directors and officers of the Company will be insured, subject to the
limits of the policy, against certain losses arising from claims made against
such directors and officers by reason of any acts or omissions covered under
such policy in their respective capacities as directors or officers, including
liabilities under the Securities Act.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 5,892,166 shares of
Common Stock outstanding. The 2,000,000 shares sold in this offering (2,300,000
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction under the Securities Act, except for any
such shares held at any time by an "affiliate" of the Company, as that term is
defined in Rule 144 ("Rule 144") under the Securities Act. The remaining
3,892,166 shares outstanding after completion of this offering will be
"restricted securities" and will be freely tradeable only if registered under
the Securities Act or sold in accordance with an applicable exemption from
registration, including an exemption pursuant to Rule 144.
The Company and its directors and executive officers and certain other
stockholders holding an aggregate of 3,619,166 shares of Common Stock have
agreed that, without the prior written consent of the Representatives, they
42
<PAGE>
will not directly or indirectly offer to sell, sell or otherwise dispose of any
of their shares of Common Stock, or any securities convertible into or
exchangeable for Common Stock, for a period of 180 days from the date of this
Prospectus, subject to certain limited exceptions except that the Company may
grant options and issue shares of Common Stock subject to currently outstanding
options under the Company's Option Plan and Non-Employee Director Plan. Upon
expiration of these lockup agreements, 2,737,488 of such 3,892,166 shares will
be eligible for sale in the public market subject to volume and other
limitations pursuant to Rule 144. In addition, holders of stock options could
exercise their options and sell certain of the shares issued upon exercise as
described below.
In general, under Rule 144, as currently in effect, a person who has
beneficially owned restricted shares for at least two years, including an
"affiliate" as that term is defined in Rule 144, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock (approximately 58,922 shares
immediately following this offering) or the average weekly trading volume of the
Common Stock in the Nasdaq National Market during the four calendar weeks
preceding a sale by such person. Sales under Rule 144 are subject to certain
manner of sale limitations, notice requirements and the availability of current
public information about the Company. Rule 144(k) provides that a person who is
not an "affiliate" of the issuer at any time during the three months preceding a
sale and who has beneficially owned shares for at least three years is entitled
to sell those shares at any time under Rule 144 without having to comply with
the public information, volume limitation, manner of sale and notice provisions
of Rule 144. The Securities and Exchange Commission has proposed an amendment to
Rule 144 which would reduce the holding period required for shares subject to
Rule 144 to become eligible for sale in the public market from two years to one
year, and from three years to two years in the case ofRule 144(k).
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such shares after the 90th day following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period. If all the requirements of Rule 701 are
met, an aggregate of 159,900 shares subject to outstanding vested stock options
may be sold pursuant to such rule, upon the expiration of the lock-up agreements
described above.
As of May 20, 1996, there were outstanding options to purchase an aggregate
of 438,400 shares of Common Stock. As of May 20, 1996, 110,300 of these options
were vested; the remainder are subject to vesting restrictions which lapse at
various times from 1996 to 2000.
Prior to this offering there has been no public market for the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public market
could adversely affect the market price of Common Stock.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Approximately 3,087,707 shares of outstanding Common Stock and
approximately 475,300 shares of Common Stock underlying outstanding warrants are
subject to certain rights with respect to the registration of such shares under
the Securities Act. Such rights were granted pursuant to an agreement between
the Company and the holders of such shares and warrants. Under the terms of the
agreement, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or the account of other security
holders exercising registration rights, such holders are entitled to notice of
such registration and subject to certain conditions, generally, are entitled to
include their shares of Common Stock in such registration. Among other
conditions, the underwriters in the applicable offering, including this
offering, generally have the right to limit the number of such shares to be
included in the registration. In addition, subject to the terms and conditions
of the agreement, such holders also have certain "demand" registration rights,
pursuant to which such holders may require the Company to register their shares
of Common Stock and shares of Common Stock underlying outstanding warrants even
if the Company does not otherwise propose to register shares of its Common
Stock.
No securities subject to registration rights will be included in this
offering.
In addition, the Company has granted certain registration rights to the
Representatives of the Underwriters in connection with 100,000 shares of Common
Stock issuable upon exercise of the Representatives' Warrants. See
"Underwriting."
43
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below (the "Underwriters"), for whom Advest,
Inc. and Cruttenden Roth Incorporated are acting as Representatives, have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement (the "Underwriting Agreement"), to purchase from the Company, and the
Company has agreed to sell to the Underwriters on a firm commitment basis, the
respective numbers of shares of Common Stock set forth opposite their names
below. The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent, and that the Underwriters are committed
to purchase and pay for all shares if any shares are purchased.
UNDERWRITER NUMBER OF SHARES
----------- ----------------
Advest, Inc. ...................................
Cruttenden Roth Incorporated ...................
---------
Total .......................................... 2,000,000
=========
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $. per share. The Underwriters
may allow, and such dealers may reallow, a concession to certain other dealers
(who may include the Underwriters) not in excess of $. per share. After the
commencement of this offering to the public, the public offering price,
concession and reallowance may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 300,000 additional shares of Common Stock at the initial public offering
price per share, less underwriting discounts and commissions, set forth on the
cover page of this Prospectus. Such option may be exercised only for the purpose
of covering over-allotments, if any, incurred in the sale of Common Stock
offered hereby. To the extent the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock to
be purchased by such Underwriter, as shown in the above table, bears to the
total shown. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 2,000,000 shares are being offered.
In connection with this offering, the Company has agreed to sell to the
Representatives warrants to purchase an aggregate of 100,000 shares of Common
Stock (the "Representatives' Warrants") for nominal consideration. The
Representatives' Warrants will be exercisable in whole or in part from time to
time during the period commencing one year and ending five years after the
effective date of the registration statement of which this Prospectus is a part
at an exercise price of 120% of the public offering price set forth on the cover
page of this Prospectus. The Representatives have certain rights with respect to
registration under the Securities Act of the Common Stock underlying the
Representatives' Warrants. For the life of the Representatives' Warrants, the
Representatives will have the opportunity to profit from a rise in the market
price of the Common Stock. If the Representatives' Warrants are
44
<PAGE>
exercised, the interests of the Company's stockholders may be diluted. The
exercise price and the number of shares issuable under the Representatives'
Warrants are subject to adjustment pursuant to anti-dilution provisions in the
Representatives' Warrants. The Representatives' Warrants also contain certain
anti-dilution provisions which may cause the exercise price to decrease and the
number of underlying shares of Common Stock to increase if the Company hereafter
takes certain actions with respect to the Common Stock. These actions include a
distribution of debt, cash, property or other assets to the holders of Common
Stock, a stock dividend, reclassification, subdivision or combination with
respect to the Common Stock, the issuance for cash of Common Stock or rights,
options or warrants exercisable for or securities convertible into Common Stock
at a price less than the lesser of the then market price or the then applicable
warrant exercise price or the entering into of a reorganization, merger or
consolidation transaction. The Representatives' Warrants do not confer upon the
holder any voting rights or other stockholder rights. For a period of year
following the closing of this offering, the Representatives' Warrants are not
transferable except to officers of Advest, Inc. and Cruttenden Roth
Incorporated, to successors of their businesses, or by will or pursuant to the
laws of descent and distribution.
In the Underwriting Agreement, the Company will agree to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
this offering, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make with respect thereof.
The Company and its directors and executive officers and certain other
stockholders have agreed that, without the prior written consent of the
Representatives, they will not directly or indirectly offer to sell, sell or
otherwise dispose of any of their shares of Common Stock, or any securities
convertible into or exchangeable for Common Stock, for a period of 180 days from
the date of this Prospectus, subject to certain limited exceptions except that
the Company may grant options and issue shares of Common Stock subject to
currently outstanding options under the Company's 1994 Stock Option Plan and
Non-Employee Director Stock Option Plan.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price of the
Common Stock will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, the operating results of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company and the Representatives believe to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant. The Company will
apply to have the Common Stock approved for quotation on the Nasdaq Stock Market
under the symbol "CPCP."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fulbright & Jaworski L.L.P., New York, New York. A
partner of Fulbright & Jaworski L.L.P. serves as Assistant Secretary of the
Company. Certain legal matters in connection with the underwriting will be
passed upon for the Underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for each of
the two years in the period ended December 31, 1995 and for the period from
inception (March 4, 1988) through December 31, 1995 included in this Prospectus
have been so included in reliance on the report (which contains an explanatory
paragraph relating to the Company's plans for funding future operations as
described in Note 2 of the Notes to the Company's Financial Statements) of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting. The report of Price Waterhouse LLP for the
period from inception (March 4, 1988) through December 31, 1995 was based in
part on the report of other independent accountants as referred to in the
following paragraph.
The statements of operations of common stock and other stockholders'
deficit and cash flows for the year ended December 31, 1993 and for the period
from January 1, 1991 through December 31, 1993, included in this Prospectus and
elsewhere in the registration statement have been audited by Deloitte & Touche
LLP, independent public accountants, as indicated in their report with respect
thereto (which report expresses an unqualified opinion with an
45
<PAGE>
explanatory paragraph as to an uncertainty surrounding the Company's ability to
continue as a going concern), and have been so included herein in reliance upon
the report of said firm given upon their authority as experts in accounting and
auditing.
The statements respecting the laws and regulations administered by the
United States Food and Drug Administration included in this Prospectus under the
captions "Risk Factors--Government Regulation" and "Business--Government
Regulation" have been reviewed and approved by King & Spalding, Washington,
D.C., regulatory counsel for the Company, as experts on such matters, and are
included herein in reliance upon that review and approval.
In December 1994, the Company retained Price Waterhouse LLP as its
independent accountants and dismissed the Company's former auditors, Deloitte &
Touche LLP. The change in independent accountants has been ratified by the
Company's Board of Directors. Deloitte & Touche LLP audited the Company's
financial statements for the years ended December 31, 1991, 1992 and 1993 and as
such, their report on the Company's financial statements for the year ended
December 31, 1993 covers financial statements of the Company included in this
Prospectus. Such report did not contain an adverse opinion or disclaimer of
opinion, but was modified as to uncertainty surrounding the Company's ability to
continue as a going concern. There were no disagreements with the former
auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure related to the financial
statements which Deloitte & Touche LLP reported on at the time of their
dismissal or with respect to the Company's financial statements which Deloitte &
Touche LLP reported on for fiscal years 1991, 1992 and 1993, which, if not
resolved to the former auditors' satisfaction, would have caused them to make
reference to the subject matter of the disagreement in connection with their
report. Prior to retaining Price Waterhouse LLP, the company had not consulted
with Price Waterhouse LLP regarding accounting principles. The Company has
authorized Deloitte & Touche LLP to respond fully to the inquiries of Price
Waterhouse LLP respecting the former's dismissal.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act, with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and financial statement
schedules thereto. For further information with respect to the Company and the
shares of Common Stock offered hereby, reference is made to the Registration
Statement and the exhibits and schedules thereto. Statements made in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each case reference is made to the copies 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. A copy of the Registration Statement may be inspected without charge
at the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Seven World Trade
Center, 13th Floor, New York, New York 10048, and at 500 West Madison Street,
Northwestern Atrium Center, Suite 1400, Chicago, Illinois 60661-2511. Copies of
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent accountants and
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
46
<PAGE>
CARDIOPULMONARY CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF PRICE WATERHOUSE LLP .......................................... F-2
REPORT OF DELOITTE & TOUCHE LLP ......................................... F-3
FINANCIAL STATEMENTS:
Balance sheet at December 31, 1994 and 1995 and March 31, 1996
(unaudited) and pro forma at March 31, 1996 ........................... F-4
Statement of operations for the years ended December 31, 1993, 1994
and 1995, for the period from inception (March 4, 1988) through
December 31, 1995, for the three months ended March 31, 1995
(unaudited) and 1996 (unaudited), and for the period from inception
(March 4, 1988) through March 31, 1996 (unaudited) .................... F-5
Statement of changes in common stock and other stockholders' deficit
for the period from inception (March 4, 1988) through December 31,
1995 and for the three months ended March 31, 1996 (unaudited) ........ F-6
Statement of cash flows for the years ended December 31, 1993, 1994
and 1995, for the period from inception (March 4, 1988) through
December 31, 1995, for the three months ended March 31, 1995
(unaudited) and 1996 (unaudited), and for the period from inception
(March 4, 1988) through March 31, 1996 (unaudited) .................... F-8
NOTES TO FINANCIAL STATEMENTS ........................................... F-10
- --------
Note: All supplementary schedules are omitted since they are not applicable or
the required information can be obtained from the financial statements.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cardiopulmonary Corp.
In our opinion, based on our report and the report of other independent
accountants, the accompanying balance sheet and the related statements of
operations, of common stock and other stockholders'deficit and of cash flows
present fairly, in all material respects, the financial position of
Cardiopulmonary Corp. (a development stage enterprise) at December 31, 1994 and
1995, and the results of its operations and its cash flows for the years then
ended and, for the period from inception (March 4, 1988) through December 31,
1995, in conformity with generally accepted accounting principles. 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 did not audit the financial statements of Cardiopulmonary Corp.
for the period from January 1, 1991 to December 31, 1993, which statements
reflect 38% of the cumulative net loss and 35%, 28%, and 43% of the cumulative
net cash flows from operating, investing, and financing activities,
respectively, from January 1, 1991 to December 31, 1993. These statements were
audited by other auditors whose report thereon has been furnished to us, and our
opinion, insofar as it relates to the amounts for the period from January 1,
1991 to December 31, 1993 is based solely on the report of the other auditors.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other independent accountants provide a reasonable
basis for the opinion expressed above.
As discussed in Note 2, the Company anticipates that it will require
additional financing to fund its future operations.
PRICE WATERHOUSE LLP
BOSTON, MASSACHUSETTS
May 21 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cardiopulmonary Corp.
Milford, Connecticut
We have audited the accompanying statements of operations, of common stock and
other stockholders' deficit and cash flows of Cardiopulmonary Corp. (a
development stage enterprise) for the year ended December 31, 1993 and for the
period from January 1, 1991 through December 31, 1993. The statements of
operations and cash flows for the period from January 1, 1991 through December
31, 1993 are not included separately herein. 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 results of operations and cash flows of
Cardiopulmonary Corp. (a development stage enterprise) for the year ended
December 31, 1993 and for the period from January 1, 1991 through December 31,
1993 in conformity with generally accepted accounting principles.
The accompanying financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
14 to the financial statements, the Company incurred substantial net losses from
inception through December 31, 1993. This matter raises substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to this matter are described in Note 14 to the financial statements. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Deloitte & Touche LLP
Hartford, Connecticut
March 19, 1994 (May 17, 1996 as to Note 10 with respect to the 2 for 5 reverse
stock split)
F-3
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA AT
DECEMBER 31, MARCH 31,
------------------- MARCH 31, 1996
1994 1995 1996 (NOTE 9)
---- ---- ---- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 428,104 $1,256,991 $ 525,139 $ 525,139
Accounts receivable from related parties (Note 12) ............. -- 66,658 86,560 86,560
Inventories .................................................... -- 184,232 103,946 103,946
Prepaid expenses and other current assets ...................... 37,877 4,394 19,435 19,435
---------- ---------- ---------- ----------
Total current assets ......................................... 465,981 1,512,275 735,080 735,080
Fixed assets, net ............................................... 33,822 157,526 201,875 201,875
Patents, net .................................................... 110,147 127,368 138,994 138,994
Other assets .................................................... 3,706 4,677 4,677 4,677
---------- ---------- ---------- ----------
$ 613,656 $1,801,846 $1,080,626 $1,080,626
========== ========== ========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON STOCK
AND OTHER STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable .................................................. $ -- $1,114,891 $1,230,611 $1,230,611
Deferred revenue ............................................... -- 182,908 265,468 265,468
Accounts payable ............................................... 59,432 341,366 189,697 189,697
Accrued expenses ............................................... 94,837 236,926 357,561 357,561
Current portion of capital lease obligation .................... -- 6,354 6,171 6,171
---------- ---------- ---------- ----------
Total current liabilities .................................... 154,269 1,882,445 2,049,508 2,049,508
---------- ---------- ---------- ----------
Long-term portion of capital lease obligation ................... -- 7,573 6,204 6,204
---------- ---------- ---------- ----------
Redeemable convertible preferred stock, $.01 par value:
Series A--3,200,000 shares authorized; 3,030,501 shares
issued and outstanding at issuance cost plus accumulated
accretion of $27,503 at December 31, 1994 and 1995 and
March 31, 1996 (unaudited), none outstanding pro forma ........ 3,339,419 3,339,419 3,339,419 --
Series B--2,200,000 shares authorized; 2,196,183 shares
issued and outstanding at issuance cost plus accumulated
accretion and dividends of $243,458, $415,337 and $458,307
(unaudited) at December 31, 1994 and 1995 and March 31,
1996, respectively, none outstanding pro forma ................ 2,187,864 2,359,743 2,402,713 --
Series C--1,350,000 shares authorized; 1,304,348 shares
issued and outstanding at issuance cost plus accumulated
accretion and dividends of $105,279 and $138,526
(unaudited) at December 31, 1995 and March 31, 1996,
respectively, none outstanding pro forma ...................... -- 1,562,538 1,595,785 --
---------- ---------- ---------- ----------
Total redeemable preferred stock ............................. 5,527,283 7,261,700 7,337,917 --
---------- ---------- ---------- ----------
Common Stock and Other Stockholders' Deficit:
Common stock, $.01 par value; 10,000,000 shares authorized;
804,459 shares issued and outstanding at December 31, 1994
and 1995 and March 31, 1996 (unaudited) and 3,416,867
shares issued and outstanding pro forma ....................... 8,045 8,045 8,045 34,169
Additional paid-in capital ..................................... 235,050 549,175 558,335 7,870,128
Deficit accumulated during the development stage ............... (5,297,393) (7,904,069) (8,879,383) (8,879,383)
Deferred compensation .......................................... (13,598) (3,023) -- --
---------- ---------- ---------- ----------
Total common stock and other stockholders' deficit ........... (5,067,896) (7,349,872) (8,313,003) (975,086)
---------- ---------- ---------- ----------
Commitments (Note 13) ...........................................
---------- ---------- ---------- ----------
$ 613,656 $1,801,846 $1,080,626 $1,080,626
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 4, (March 4,
1988) THREE MONTHS ENDED 1988)
DECEMBER 31, THROUGH MARCH 31, THROUGH
------------------------------ DECEMBER 31, ------------------------ March 31,
1993 1994 1995 1995 1995 1996 1996
---- ---- ---- ------------ ---- ---- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Costs and expenses:
Research and development ........ $542,302 $1,075,173 $1,717,515 $5,405,832 $301,504 $524,516 $5,930,348
General and administrative ...... 72,067 183,916 580,141 1,832,241 127,085 272,084 2,104,325
-------- ---------- ---------- ---------- -------- -------- ----------
Loss from operations ........... 614,369 1,259,089 2,297,656 7,238,073 428,589 796,600 8,034,673
Interest (income) ................ (14,832) (37,690) (34,440) (262,316) (4,119) (10,928) (273,244)
Interest expense ................. 93,284 -- 66,302 380,193 -- 113,425 493,618
-------- ---------- ---------- ---------- -------- -------- ----------
Net loss ........................ $692,821 $1,221,399 $2,329,518 $7,355,950 $424,470 $899,097 $8,255,047
======== ========== ========== ========== ======== ======== ==========
Unaudited pro forma net loss
per share assuming conversion
of convertible preferred stock
(Note 9) ........................ $0.56 $0.11 $0.22
===== ===== =====
Shares used in computing net
loss per share .................. 4,036,592 4,036,592 4,036,592
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
STATEMENT OF CHANGES IN COMMON STOCK AND OTHER STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (MARCH 4, 1988) THROUGH DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT TOTAL
COMMON STOCK ACCUMULATED COMMON STOCK
----------------- ADDITIONAL DURING THE RECEIVABLE AND OTHER
NUMBER OF PAR PAID-IN DEVELOPMENT FROM DEFERRED STOCKHOLDERS'
SHARES VALUE CAPITAL STAGE STOCKHOLDER COMPENSATION DEFICIT
------ ----- ------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock ................... 240,000 $2,400 $3,600 $ 6,000
Net loss for the period from inception
(March 4, 1988) through February 28, 1989 $(185,185) (185,185)
------- ------ ------ --------- ----------
Balance at February 28, 1989 ........... 240,000 2,400 3,600 (185,185) (179,185)
------- ------ ------ --------- ----------
Accretion of redeemable convertible
preferred stock to redemption value ... (5,500) (5,500)
Issuance of common stock to employees .. 60,000 600 900 $(1,500)
Amortization of unearned compensation .. 733 733
Net loss ............................... (243,564) (243,564)
------- ------ ------ --------- ------- ----------
Balance at February 28, 1990 ........... 300,000 3,000 4,500 (434,249) (767) (427,516)
Accretion of redeemable convertible
preferred stock to redemption value ... (5,500) (5,500)
Issuance of common stock to employees .. 96,000 960 1,440 (2,400)
Amortization of unearned compensation .. 1,412 1,412
Net loss ............................... (573,529) (573,529)
------- ------ ------ --------- ------- ----------
Balance at December 31, 1990 ........... 396,000 3,960 5,940 (1,013,278) (1,755) (1,005,133)
Accretion of redeemable convertible
preferred stock to redemption value ... (5,500) (5,500)
Amortization of unearned compensation .. 1,300 1,300
Net loss ............................... (1,092,015) (1,092,015)
------- ------ ------ --------- ------- ----------
Balance at December 31, 1991 ........... 396,000 3,960 5,940 (2,110,793) (455) (2,101,348)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
STATEMENT OF CHANGES IN COMMON STOCK
AND OTHER STOCKHOLDERS' DEFICIT -- (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MARCH 4, 1988) THROUGH DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT TOTAL
COMMON STOCK ACCUMULATED COMMON STOCK
----------------- ADDITIONAL DURING THE RECEIVABLE AND OTHER
NUMBER OF PAR PAID-IN DEVELOPMENT FROM DEFERRED STOCKHOLDERS'
SHARES VALUE CAPITAL STAGE STOCKHOLDER COMPENSATION DEFICIT
------ ----- ------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accretion of redeemable convertible
preferred stock to redemption value .... (5,500) (5,500)
Issuance of common stock ................ 96,000 960 1,440 (2,400)
Exercise of stock options ............... 4,500 45 68 (113)
Amortization of unearned compensation ... 2,100 2,100
Net loss ................................ (1,017,919) (1,017,919)
------- ------ -------- ----------- ------- ----- -----------
Balance at December 31, 1992 ............ 496,500 4,965 7,448 (3,134,212) (113) (755) (3,122,667)
Issuance of common stock for services ... 28,000 280 174,928 175,208
Exercise of stock options ............... 43,500 435 652 (1,087)
Amortization of unearned compensation ... 755 755
Accretion of redeemable convertible
preferred stock to redemption value .... (10,099) (10,099)
Net loss ................................ (692,821) (692,821)
------- ------ -------- ----------- ------- ----- -----------
Balance at December 31, 1993 ............ 568,000 5,680 183,028 (3,837,132) (1,200) -- (3,649,624)
Accrual of cumulative dividends on
redeemable convertible preferred stock and
accretion to redemption value .......... (238,862) (238,862)
Issuance of common stock to employees ... 236,459 2,365 52,022 (54,387)
Amortization of unearned compensation ... 40,789 40,789
Repayment of receivable from stockholder 1,200 1,200
Net loss ................................ (1,221,399) (1,221,399)
------- ------ -------- ----------- ------- ----- -----------
Balance at December 31, 1994 ............ 804,459 8,045 235,050 (5,297,393) -- (13,598) (5,067,896)
Accrual of cumulative dividends on
redeemable convertible preferred stock and
accretion to redemption value .......... (277,158) (277,158)
Issuance of common stock warrants ....... 314,125 314,125
Amortization of unearned compensation ... 10,575 10,575
Net loss ................................ (2,329,518) (2,329,518)
------- ------ -------- ----------- ------- ----- -----------
Balance at December 31, 1995 ............ 804,459 8,045 549,175 (7,904,069) -- (3,023) (7,349,872)
Accrual of cumulative dividends
on redeemable convertible preferred stock
and accretion to redemption value (unaudited) (76,217) (76,217)
Amortization of unearned compensation
(unaudited) ............................ 3,023 3,023
Issuance of common stock warrants
(unaudited) ............................ 9,160 9,160
Net loss (unaudited) .................... (899,097) (899,097)
------- ------ -------- ----------- ------- ----- -----------
Balance at March 31, 1996 (unaudited) ... 804,459 $8,045 $558,335 $(8,879,383) $ -- $ -- $(8,313,003)
======= ====== ======== =========== ======= ===== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 4, (March 4,
1988) THREE MONTHS ENDED 1988)
YEAR ENDED DECEMBER 31, THROUGH MARCH 31, THROUGH
------------------------------ DECEMBER 31, ------------------- March 31,
1993 1994 1995 1995 1995 1996 1996
---- ---- ---- ------------ ---- ---- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................ $(692,821) $(1,221,399) $(2,329,518) $(7,355,950) $(424,470) $(899,097) $(8,255,047)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization ..... 40,154 31,943 118,840 283,894 10,381 107,101 390,995
Loss on sale and abandonment of
property and equipment ........... -- -- -- 26,649 -- -- 26,649
Conversion of interest on debt to
equity ........................... 308,914 -- -- 308,914 -- -- 308,914
Compensation expense for stock
issued ........................... 175,963 40,789 10,575 232,872 2,643 3,023 235,895
Changes in operating assets and
liabilities:
Increase in accounts receivable
from related parties ............ -- -- (66,658) (66,658) -- (19,902) (86,560)
(Increase) decrease in inventories -- -- (184,232) (184,232) (7,585) 80,286 (103,946)
(Increase) decrease in prepaid
expenses and other current assets (20,061) (17,116) 33,483 (4,394) 4,200 (15,041) (19,435)
Increase in other assets ......... (2,315) (1,391) (971) (4,677) -- -- (4,677)
Increase in deferred revenue ..... -- -- 182,908 182,908 -- 82,560 265,468
Decrease in accrued interest
payable ......................... (219,352) -- -- -- -- -- --
(Decrease) increase in accounts
payable ......................... (2,005) (49,941) 281,934 341,366 77,891 (151,669) 189,697
(Decrease) increase in accrued
expenses ........................ (19,279) (15,434) 142,089 236,926 87,039 120,635 357,561
-------- ---------- ---------- ---------- -------- -------- ----------
Net cash used by operating
activities ...................... (430,802) (1,232,549) (1,811,550) (6,002,382) (249,901) (692,104) (6,694,486)
Cash flows used in investing activities:
Purchases of fixed assets ........... (24,090) (11,437) (160,150) (370,844) (54,189) (64,949) (435,793)
Additions to patents ................ (4,746) (17,448) (22,741) (150,232) -- (13,247) (163,479)
-------- ---------- ---------- ---------- -------- -------- ----------
Net cash used in investing
activities ...................... (28,836) (28,885) (182,891) (521,076) (54,189) (78,196) (599,272)
-------- ---------- ---------- ---------- -------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
STATEMENT OF CASH FLOWS--(CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 4, (MARCH 4,
1988) THREE MONTHS ENDED 1988)
YEAR ENDED DECEMBER 31, THROUGH MARCH 31, THROUGH
------------------------------ DECEMBER 31, ------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
---- ---- ---- ------------ ---- ---- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Payment of capital lease
obligations ........................ -- -- (5,431) (5,431) -- (1,552) (6,983)
Proceeds from issuance of
common stock ....................... -- -- -- 8,513 -- -- 8,513
Proceeds from issuance of common
stock warrants ..................... -- -- 314,125 314,125 -- 9,160 323,285
Proceeds from convertible debt ...... 161,000 -- 1,057,375 2,437,880 -- 30,840 2,468,720
Proceeds from issuance of Series A
redeemable convertible preferred
stock, net of issuance costs ....... -- -- -- 1,472,497 -- -- 1,472,497
Proceeds from issuance of Series B
redeemable convertible preferred
stock, net of issuance costs ....... 1,944,406 -- -- 1,944,406 -- -- 1,944,406
Proceeds from issuance of Series C
redeemable convertible preferred
stock, net of issuance costs ....... -- -- 1,457,259 1,457,259 1,457,259 -- 1,457,259
Loans from stockholders ............. -- -- -- 150,000 -- -- 150,000
Repayment of receivable from
stockholder ........................ -- 1,200 -- 1,200 -- -- 1,200
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities ...................... 2,105,406 1,200 2,823,328 7,780,449 1,457,259 38,448 7,818,897
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents .................... 1,645,768 (1,260,234) 828,887 1,256,991 1,153,169 (731,852) 525,139
Cash and cash equivalents, beginning
of period ........................... 42,570 1,688,338 428,104 -- 428,104 1,256,991 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Cash and cash equivalents,
end of period .......................$ 1,688,338 $ 428,104 $ 1,256,991 $ 1,256,991 $ 1,581,273 $ 525,139 $ 525,139
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the year ended December 31, 1995 and the three months ended March 31,
1996, the Company paid cash for interest of approximately $1,197 and $256
(unaudited), respectively.
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
During fiscal year 1990, the Company issued 150,000 shares of Series A
redeemable convertible preferred stock to two stockholders in exchange for
forgiveness of $150,000 of loans due to those stockholders.
On July 30, 1993, the Company issued 1,380,501 shares of Series A redeemable
convertible preferred stock to three stockholders in exchange for convertible
debt and unpaid accrued interest which aggregated $1,689,419. Also on July
30, 1993, the Company issued 28,000 shares of common stock valued at $175,208
to three stockholders in exchange for services.
During the year ended December 31, 1995, the Company entered into a capital
lease of $19,358 for certain operating system software.
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardiopulmonary Corp. (the "Company") was incorporated in the State of
Delaware on March 4, 1988. The Company was formed to research, develop and
commercialize cardiopulmonary support systems and disposables to provide life
support for intensive care and anesthesia patients in hospitals and sub-acute
facilities.
The Company's primary activities since incorporation have been locating and
outfitting a product development laboratory, business and financial planning,
raising capital and research and product development.
Significant accounting policies followed in the preparation of the
financial statements are as follows:
CASH AND CASH EQUIVALENTS
The Company invests its excess cash in a money market fund backed by U.S.
Government Securities. The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
As of January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). Under this statement, the Company is required to
classify its marketable securities into one or more of the following categories:
held-to-maturity, trading or available-for-sale. FAS 115 requires that, except
for debt securities classified as held-to-maturity, investments in debt and
equity securities should be reported at fair value. Upon the sale of securities
(the cost of which are determined based on the specific identification method),
realized gains and losses are recorded in the statement of operations. The
adoption of FAS 115 had no impact on the Company's financial position or on the
results of its operations. At December 31, 1994 and 1995 and March 31, 1996
(unaudited), all of the Company's marketable securities are classified as
available-for-sale.
CONCENTRATION OF CREDIT RISK
Substantially all of the Company's cash and cash equivalents are held in
one bank. The Company does not believe that it is subject to any unusual credit
risk beyond the normal credit risk attendant to operating its business.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
FIXED ASSETS
Fixed assets are recorded at cost and depreciated over their estimated
useful lives of two to five years using the straight-line method. Assets held
under capital leases are amortized over the shorter of the lease life or the
estimated useful life of the assets. Repairs and maintenance costs are expensed
as incurred.
PATENTS
Costs associated with patents are capitalized as incurred and amortized on
a straight-line basis over the legal lives or the estimated economic lives of
the patents, whichever is shorter.
SOFTWARE DEVELOPMENT COSTS
The Company incurs software development costs for the planning, design and
improvement of systems incorporated in the Company's products. Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," requires capitalization of
such software development costs incurred subsequent to the establishment of
technological feasibility of the software and the completion of all other
research and development activities associated with the product. Costs incurred
by the Company between completion of such activities and the point at which the
products incorporating the Company's software are ready for delivery to
customers have been insignificant.
F-10
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (FAS 109). FAS 109 prescribes an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred tax assets are
recognized, net of any valuation allowance, for deductible temporary differences
and operating loss and credit carryforwards. Deferred tax expense represents the
change in the deferred tax asset or liability balances.
REVENUE RECOGNITION
Revenue from product sales is recognized when the product has been shipped,
all significant contractual obligations have been satisfied and collection of
the related receivable is probable. To the extent that right of return
provisions exist, revenue is not recognized until the expiration of such rights.
UNAUDITED PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is determined by dividing the net loss
attributable to common stockholders by the weighted average number of common
stock and common stock equivalents outstanding during the period, assuming the
conversion of all convertible preferred stock which will occur upon the closing
of a qualified public offering of the Company's common stock as described in
Note 9.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
83, common stock equivalents, although anti-dilutive, issued at prices below the
offering price per share during the twelve months preceding the anticipated
public offering of the Company's common stock have been included in the
calculation of unauditedpro forma net loss per share using the treasury stock
method as if outstanding since the beginning of eachperiod presented.
Historical net loss per share has not been presented as the mandatorily
redeemable Series A, B and C convertible preferred stock would have been omitted
from the weighted average shares outstanding as they are anti-dilutive and were
issued more than twelve months prior to the anticipated public offering.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Company records impairment losses on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. No such significant impairments have occurred to date.
ESTIMATES
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 liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
INTERIM FINANCIAL DATA
The interim financial data as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 are unaudited; however, in the opinion of the
Company, the interim data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of the
interim periods.
2. BASIS OF FINANCIAL STATEMENTS
The accompanying financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The Company incurred net
F-11
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--Continued
losses of $692,821, $1,221,399 and $2,329,518 for the years ended December 31,
1993, 1994 and 1995, respectively, and at December 31, 1995 had an accumulated
deficit of $7,904,069. During the three month period ended March 31, 1996, the
Company incurred a net loss of $899,097 (unaudited), and at March 31, 1996 had
an accumulated deficit of $8,879,383 (unaudited).
The future viability of the Company is dependent on its ability to obtain
necessary additional financing and to generate cash from operations. If the net
proceeds from the offering described in this Prospectus are not received, and
other financing is not available, management believes the Company could continue
its operations at least through December 31, 1996 by delaying, scaling back or
eliminating certain of its planned expenditures, including but not limited to
research and development, clinical, marketing and manufacturing programs.
3. CASH EQUIVALENTS AND MARKETABLE SECURITIES
As of December 31, 1994 and 1995 and March 31, 1996, the Company's
investments in available-for-sale securities consist of money market fund
investments of $388,783, $1,237,211 and $525,139 (unaudited), respectively. The
contractual maturities of these money market investments are less than three
months. These investments are carried at cost, which approximates fair market
value due to the short maturity term of the money market funds. Gross unrealized
gains and losses as of December 31, 1994 and 1995 and March 31, 1996
(unaudited), and realized gains and losses for the periods then ended, are not
significant.
4. INVENTORIES
Inventories consist of the following:
DECEMBER 31, March 31,
1995 1996
-------- --------
(UNAUDITED)
Materials ........................ $106,872 $103,946
Finished goods .................. 77,360 --
-------- --------
$184,232 $103,946
======== ========
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
---- ---- ---------
(UNAUDITED)
Prepaid insurance ............... $30,923 $ -- $11,634
Other current assets ............ 6,954 4,394 7,801
------- ------ -------
$37,877 $4,394 $19,435
======= ====== =======
6. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIVES ------------------ MARCH 31,
IN YEARS 1994 1995 1996
-------- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Laboratory equipment .................................. 2-5 $145,006 $152,325 $152,325
Manufacturing equipment ............................... 5 -- 80,375 99,498
Computer and office equipment ......................... 5 20,301 92,757 138,583
Assets under capital lease ............................ lease term -- 19,358 19,358
-------- -------- --------
165,307 344,815 409,764
Less--accumulated depreciation and amortization ....... (131,485) (187,289) (207,889)
-------- -------- --------
$ 33,822 $157,526 $201,875
======== ======== ========
</TABLE>
F-12
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Depreciation and amortization expense on fixed assets was $35,007 in 1993,
$26,795 in 1994, $49,829 in 1995 and $9,000 (unaudited) and $20,600 (unaudited)
for the three months ended March 31, 1995 and 1996, respectively, of which
$5,975 in 1995 and $1,613 (unaudited) in the three months ended March 31, 1996
related to amortization of assets held under capital lease. Accumulated
amortization on assets under capital lease was $5,975 at December 31, 1995 and
$7,588 (unaudited) at March 31, 1996.
7. PATENTS
Patents consist of the following:
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
---- ---- ---------
(UNAUDITED)
Patents, approved and pending ......... $127,491 $150,232 $163,479
Less accumulated amortization ......... (17,344) (22,864) (24,485)
-------- -------- --------
$110,147 $127,368 $138,994
======== ======== ========
Amortization expense on patents was $5,147 in 1993, $5,148 in 1994, $5,520
in 1995 and $1,320 (unaudited) and $1,621 (unaudited) for the three months ended
March 31, 1995 and 1996, respectively.
8. CONVERTIBLE DEBT HELD BY STOCKHOLDERS AND RELATED PARTIES
The Company entered into various unsecured convertible debt note agreements
during 1991, 1992 and 1993 with three principal stockholders. Principal and
interest of 12% were payable to the stockholders beginning March 20, 1992 and
continuing through December 28, 1994. No interest payments were made. On July
30, 1993, all of the notes outstanding aggregating $1,380,505 and unpaid accrued
interest aggregating $308,914 were converted into 1,380,501 shares of Series A
redeemable convertible preferred stock.
On December 5, 1995, the Company issued convertible debt notes to five
principal stockholders, one of which is also a related distributor (see Note
12), and to a company which is controlled by an employee of the related
distributor. Principal on these notes totaled $1,371,500. In March 1996, two
additional notes in the aggregate principal amount of $40,000 (unaudited) were
issued to employees of the related distributor. In April 1996 an additional note
in the principal amount of $80,000 (unaudited) was issued to an officer of the
Company. The notes bear interest at 8% per annum, and are payable on the earlier
of one year from issuance or the closing of an initial public offering of the
Company's common stock. These notes were converted into 298,300 shares of the
Company's common stock on May 20, 1996.
WARRANTS
In connection with the issuance of convertible debt notes in December 1995,
March 1996 and April 1996, the Company granted warrants to purchase 274,300,
8,000 (unaudited) and 16,000 (unaudited) shares of common stock, respectively,
at an exercise price per share of $5.00. The number of warrants and exercise
price are to be adjusted for certain dilutive and anti-dilutive events. The
warrants are exercisable for a period of five years from the issuance date.
Warrant holders are entitled, upon exercise, to receive any cash or property
dividends declared on common stock subsequent to the warrant issuance date. No
such dividends have been declared to date.
Amounts of $314,125, $9,160 (unaudited) and $18,320 (unaudited) were
ascribed to the warrants issued in December 1995, March 1996 and April 1996,
respectively, which amounts were recorded as discounts from the face value of
the related notes. Amortization of this discount totaled $57,516 during 1995 and
$84,880 (unaudited) during the three months ended March 31, 1996, which amounts
are included in interest expense. The Company has reserved 300,000 shares of its
common stock for the exercise of these warrants.
F-13
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
ISSUANCES
During the period ended February 28, 1990, the Company issued 1,650,000
shares of Series A redeemable convertible preferred stock for cash proceeds of
$1,472,497 and the conversion of loans due to certain stockholders totaling
$150,000, net of issuance costs of $27,503. During the year ended December 31,
1993, convertible debt principal aggregating $1,380,505 plus accrued interest of
$308,914 was converted into 1,380,501 additional shares of Series A preferred
stock (see Note 8). Also, during the year ended December 31, 1993, the Company
issued 2,196,183 shares of Series B redeemable convertible preferred stock for
$1,944,406, net of issuance costs of $55,593. The Company issued 1,304,348
shares of Series C redeemable convertible preferred stock for $1,457,259, net of
issuance costs of $42,741, during the year ended December 31, 1995.
CONVERSION
Each preferred share is convertible into common stock at the option of the
preferred stockholder or automatically upon the closing of a public offering of
the Company's common stock in which proceeds equal or exceed $10,000,000. The
number of shares of common stock to which a holder of Series A, B and C
preferred stock shall be entitled upon conversion shall be based upon the
conversion rates as defined by the related stockholder agreements. As of
December 31, 1995 and March 31, 1996 (unaudited), Series A, B and C preferred
stock are convertible into a total of 2,612,407 common shares. The conversion
rates are to be adjusted for certain dilutive and antidilutive events.
REDEMPTION
On July 1 of each year commencing on July 1, 1998, at the request of any
preferred stockholder, the Company is required, unless waived in writing by
two-thirds of the holders of the preferred stock, to redeem 33 1/3 percent of
the Series A, B and C preferred stock at a redemption price equal to $1.00,
$0.91 and $1.15, respectively, per share plus accrued and unpaid dividends
through the redemption date. The Company has recorded the following charges to
accumulated deficit to reflect the accretion of Series A, B and C preferred
stock to redemption value:
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ MARCH 31,
1993 1994 1995 1996
---- ---- ---- ------------
(UNAUDITED)
Series A ............. $ 5,503 $ -- $ -- $ --
Series B ............. 4,596 11,118 11,118 2,780
Series C ............. -- -- 10,279 3,247
------- ------- ------- ------
$10,099 $11,118 $21,397 $6,027
======= ======= ======= ======
Required redemption amounts for each of the five years following December
31, 1995 for Series A, B and C preferred stock, excluding any cumulative and
unpaid dividends, are as follows:
REDEMPTION
YEAR AMOUNT
---- ------
1996 ...................................... $ --
1997 ...................................... --
1998 ...................................... 2,176,343
1999 ...................................... 2,176,343
2000 ...................................... 2,176,343
F-14
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
LIQUIDATION, DISSOLUTION OR WINDING UP OF THE COMPANY
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series A, B and C preferred stock are entitled to receive, on
a pro rata basis, $1.00, $0.91 and $1.15 per share, plus all accrued and unpaid
dividends, respectively. Any assets remaining after the initial distribution to
the preferred stockholders shall be available for distribution ratably among the
common and preferred stockholders.
VOTING, REGISTRATION AND OTHER RIGHTS
The holders of the preferred stock are entitled to vote, together with the
holders of common stock, as a single class on all matters. Each preferred
stockholder is entitled to the number of votes equal to the number of whole
shares of common stock into which such stockholder's shares could be converted.
DIVIDENDS
The holders of the Series A preferred stock are entitled to receive
noncumulative dividends at an annual rate of at least $0.10 per share. The
holders of Series B and Series C preferred stock are entitled to receive
cumulative dividends at an annual rate of 8% of the initial conversion prices of
$0.91 and $1.15, respectively. For Series A stockholders, dividends become
payable when and if declared by the Board of Directors and have preference over
common stock dividends. Series B and Series C stockholders are entitled to
receive dividends annually, whether or not declared by the Board of Directors,
which are payable upon liquidation, dissolution, winding-up or upon redemption
of the respective preferred stock. No dividends have been declared by the Board
of Directors on Series A, B and C preferred stock through December 31, 1995.
Cumulative and unpaid dividends on Series B preferred stock were $227,744 and
$388,505 at December 31, 1994 and 1995, respectively, and $428,695 (unaudited)
at March 31, 1996. Cumulative and unpaid dividends on Series C preferred stock
were $95,000 at December 31, 1995 and $125,000 (unaudited) at March 31, 1996.
UNAUDITED PRO FORMA BALANCE SHEET
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series A, B and C preferred stock (including accrued
dividends) will automatically convert into 2,612,407 shares of common stock,
exclusive of fractional shares. Such conversion has been reflected in the
unaudited pro forma balance sheet as of March 31, 1996.
10. COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
AMENDED CERTIFICATE OF INCORPORATION
On March 15, 1995, the Board of Directors and stockholders unanimously
approved an amendment to the Company's certificate of incorporation to authorize
4,800,000 shares of common stock, $.01 par value, 3,200,000 shares of Series A
redeemable convertible preferred stock, 2,200,000 of Series B redeemable
convertible preferred stock and 1,350,000 shares of Series C redeemable
convertible preferred stock. On May 17, 1996, the Company amended its
certificate of incorporation to increase authorized shares of common stock to
10,000,000.
Under the March 15, 1995 amended certificate of incorporation, the Company
has reserved approximately 2,700,000 shares of common stock for issuance upon
conversion of the Series A, B and C redeemable convertible preferred stock.
STOCK GRANTS
During the fiscal year ended February 28, 1990, the ten-month period ended
December 30, 1990 and the year ended December 31, 1992, the Company issued
52,000, 96,000 and 96,000 shares of common stock, respectively, to certain
employees. In connection with these grants, the Company recorded compensation
expense in the statement of operations for related amounts earned by the
employees. Additionally, the Company recorded deferred compensation expense as a
reduction in stockholders' equity for unvested shares.
F-15
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
STOCK RESTRICTIONS
The Company's 804,459 outstanding common shares at December 31, 1995 are
subject to stock restriction agreements. The agreements provide the Company with
a right of first refusal to repurchase shares offered for sale. The agreements
will terminate upon an initial public offering of the Company's common stock
that results in an aggregate of at least $10,000,000 in proceeds to the Company.
RESTRICTED STOCK
On July 30, 1993, the Company issued 236,459 shares of restricted common
stock to employees. The stock is restricted as to transferability, voting rights
and dividends. On July 30, 1994 and 1995, 78,820 shares each became unrestricted
under this plan, and on March 22, 1996, the remaining 78,819 (unaudited) shares
became unrestricted.
COMMON STOCK AND WARRANT ISSUANCES
In May 1996, the Company issued 177,000 (unaudited) shares of common stock
to certain new investors with warrants to purchase 177,000 (unaudited)
additional shares of common stock at an exercise price per share of $5.00.
Proceeds from this offering net of issuance costs were $867,000 (unaudited), of
which $152,023 (unaudited) has been ascribed to the common stock warrants. An
agreement between the Company and one of the new investors requires the Company
to repurchase common stock and common stock warrants from the new investor, for
the greater of the fair market value of such securities or the original issue
price of $500,000 plus a 25% compounded annual rate of return, if the Company
ceases to maintain its principal place of business and a majority of its
employees in the State of Connecticut at any time prior to the date such common
stock and common stock warrants are registered under the Securities Act of 1933
or may be offered and sold pursuant to Rule 144(k) under that act.
REVERSE STOCK SPLIT
A 2-for-5 reverse stock split of the Company's common stock became
effective on May 17, 1996. All shares of common stock, options, warrants and per
share amounts included in the accompanying financial statements have been
adjusted to give retroactive effect to the reverse stock split for all periods
presented.
NEWLY AUTHORIZED PREFERRED STOCK
On April 24, 1996, the Company's Board of Directors authorized 1,000,000
shares of $.01 par value preferred stock, which will become effective
immediately following the consummation of this offering. Preferred stock may be
issued at the discretion of the Board of Directors of the Company (without
stockholder approval) with such designations, rights and preferences as the
Board of Directors may determine from time to time. The preferred stock may have
dividend, liquidation, redemption, conversion, voting or other rights which may
be more expansive than the rights of the holders of common stock.
STOCK OPTION PLANS
On April 18, 1991, the Company adopted the Cardiopulmonary Corp. 1991 Stock
Option Plan (the "1991 Plan") which provided for the granting of both incentive
stock options and nonqualified stock options to employees, officers and
directors of the Company. The 1991 Plan allowed for a maximum of 48,000 options
to purchase shares of common stock to be issued prior to April 18, 2001. Options
granted to directors of the Company could not exceed 12,000 in the aggregate and
options granted to officers who were not members of the Board of Directors could
not exceed 36,000 in the aggregate. All options allowed under this plan were
granted and exercised prior to December 31, 1993.
On February 15, 1995, the Company adopted the 1994 Stock Option Plan (the
"1994 Plan") which provides for the granting of both incentive stock options and
nonqualified stock options to employees, directors and consultants of the
Company. The 1994 Plan originally allowed for a maximum of 260,000 options to
purchase shares of common
F-16
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
stock to be issued prior to December 20, 2004. Options granted to any employee
originally could not exceed 40,000 shares in any calendar year. In March 1996,
the 1994 Plan was amended to increase the maximum number of options which may be
granted under the plan to 400,000 (unaudited), and to increase the number of
options which may be granted to any employee in any calendar year to 60,000
(unaudited). In April 1996, the 1994 Plan was further amended to increase the
maximum number of options which may be granted to 600,000 (unaudited).
The exercise price of any incentive stock option granted under the 1991
Plan or 1994 Plan shall not be less than the fair value of the stock on the date
of grant or less than 110% of the fair value in the case of optionees holding
more than 10% of the total combined voting power of all classes of stock of the
Company. Options under both Plans are exercisable for ten years from the date of
grant, except for incentive stock options granted to optionees holding more than
10% of the total combined voting power of all classes of stock, which must be
exercised within five years.
On August 31, 1995, the Company adopted the Cardiopulmonary Corp. Stock
Option Plan for Non-Employee Directors (the "Non-Employee Director Plan") which
provides for the granting of non-qualified stock options to non-employee members
of the Company's Board of Directors. The Non-Employee Director Plan allows for a
maximum of 50,000 options to purchase shares of common stock to be issued prior
to August 31, 2005. The exercise price of options granted under the Non-Employee
Director Plan shall not be less than the fair value of the stock on the date of
grant, and the options are exercisable for ten years from the date of grant.
Activity under the 1991 Plan, 1994 Plan and Non-Employee Director Plan
since adoption is as follows:
NUMBER EXERCISE
OF SHARES PRICE
--------- ---------
Granted .................................... 18,000 $0.025
-------
Balance at December 31, 1991 ................ 18,000 $0.025
Granted .................................... 30,000 $0.025
Exercised .................................. (4,500) $0.025
-------
Balance at December 31, 1992 ................ 43,500 $0.025
Exercised .................................. (43,500) $0.025
-------
Balance at December 31, 1993 and 1994 ....... --
Granted .................................... 198,400 $0.23 to $.625
-------
Balance at December 31, 1995 ................ 198,400 $0.23 to $.625
Granted (unaudited) ........................ 112,000 $2.50 to $3.75
-------
Balance at March 31, 1996 (unaudited) ....... 310,400 $0.23 to $3.75
=======
Of the total options outstanding, 54,300 were exercisable at December 31,
1995 and March 31, 1996 (unaudited). If not exercised, these options will expire
at various dates through 2006. Options to purchase 101,600 and 129,600
(unaudited) shares of common stock were available for future grant under the
1994 Plan at December 31, 1995 and March 31, 1996, respectively. Under the
Non-Employee Directors Plan, options to purchase 10,000 shares of common stock
were available for future grant at December 31, 1995 and March 31, 1996
(unaudited), respectively. On May 20, 1996, the Company granted options under
the 1994 Plan to purchase an additional 128,000 (unaudited) shares of Common
Stock at an exercise price of $4.375 (unaudited) per share.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (FAS 123). The Company has elected to adopt FAS 123 in 1996
through disclosure only.
F-17
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. INCOME TAXES
The components of deferred income tax benefit follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Income tax benefit:
Federal ....................................... $ 234,000 $ 430,000 $ 724,000
State ......................................... 41,000 138,000 243,000
----------- ---------- ----------
275,000 568,000 967,000
Deferred tax asset valuation allowance ......... (275,000) (568,000) (967,000)
----------- ---------- ----------
$ -- $ -- $ --
=========== ========== ==========
</TABLE>
No federal or state income taxes were payable in any years as a result of
losses incurred.
The components of deferred tax assets and valuation allowance follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Capitalized research and development
costs, net .................................................. $1,063,000 $1,254,000
Nondeductible accrued expenses ............................... 28,000 143,000
Research and development credit
carryforwards ............................................... 206,000 238,000
Net operating loss carryforwards ............................. 685,000 1,312,000
Depreciation ................................................. 19,000 21,000
---------- ----------
Gross deferred tax assets .................................... 2,001,000 2,968,000
Deferred tax asset valuation allowance ....................... (2,001,000) (2,968,000)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
A reconciliation between the amount of reported income tax benefit and the
amount determined by applying the U.S. federal statutory rate of 34% to the
pre-tax loss follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Loss at statutory rate .......................... $ (236,000) $ (415,000) $ (792,000)
Federal research and development credit ......... (25,000) (69,000) (31,000)
Other, net ...................................... 26,000 7,000 16,000
State tax benefit, net of federal tax liability . (40,000) (91,000) (160,000)
----------- ----------- -----------
(275,000) (568,000) (967,000)
Benefit of loss not recognized, increase in
valuation allowance ........................... 275,000 568,000 967,000
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
The Company has provided a full valuation allowance for net deferred tax
assets, since the realization of these future benefits is not sufficiently
assured as of the end of each fiscal year due to the history of recurring losses
and the uncertainty surrounding future profitability. If the Company achieves
profitability, these deferred tax assets would be available to offset future
income tax liabilities and expense.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $3,274,000 and $2,674,000 for federal and state income tax
reporting purposes, respectively. In addition, at December 31, 1995, the Company
had federal research and development credit carryforwards of approximately
$238,000. These carryforwards will expire in the years 2000 through 2010 if not
utilized.
F-18
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of greater than 50% of a Company within a three-year period
will place an annual limitation on the Company's ability to utilize its existing
federal net operating loss and research and development tax credit
carryforwards. Such a change in ownership occurred in connection with the
Company's new equity financing during 1989. In connection with such transaction,
the annual limitation on the utilization of the Company's federal net operating
loss and tax credit carryforwards may be substantial and the Company may not
obtain material benefit from pre-change net operating losses beforethey expire.
12. RELATED PARTY TRANSACTIONS
In March 1995, the Company entered into an agreement which granted Kontron
Instruments Ltd. (the "Distributor") exclusive rights to distribute the
Company's Venturi Product in Europe and certain other countries. Inconnection
with the Company's Series C preferred stock offering (see Note 9), the
Distributor purchased 869,565 shares of the Company's Series C preferred stock.
The Company also issued $300,000 of the $1,371,500 private placement offering of
convertible debt notes to the Distributor, with a warrant to purchase 60,000
shares of the Company's Common Stock (see Note 8). Interest incurred on this
note during 1995 was $14,314 which includes amortization of debt discount
attributable to the detachable warrants of $12,581.
Also in conjunction with the private placement debt offering, the Company
issued a convertible debt note of $40,000 and a warrant to purchase 8,000 shares
of the Company's Common Stock to an entity under the control of an employee of
the Distributor. Interest expense on this note during 1995 was not significant.
In March 1996, the Company issued additional convertible debt notes in the
aggregate principal amount of $40,000 (unaudited) to two employees of the
Distributor and warrants to purchase a total of 8,000 shares of the Company's
Common Stock.
During the year ended December 31, 1995 and the three month period ended
March 31, 1996, the Company shipped testing and demonstration products to the
Distributor totaling $182,908 and $82,560 (unaudited), respectively. Because the
Distributor has the right to return these products at a stipulated depreciated
value in the event that the distribution agreement is terminated, the related
revenue has been deferred. Accounts receivable totaling $66,658 and $86,560
(unaudited) were due from the Distributor as of December 31, 1995 and March 31,
1996, respectively.
13. COMMITMENTS
The Company leases its facilities under an operating lease agreement. The
Company leases certain equipment and software under noncancelable capital and
operating lease agreements. Total rent expense under noncancelable operating
leases was approximately $36,000, $63,000 and $85,000 for the years ended
December 31, 1993, 1994 and 1995, respectively, and $16,000 (unaudited) and
$21,000 (unaudited) for the three months ended March 31, 1995 and 1996,
respectively. The approximate future minimum lease commitments under all
noncancelable leases at December 31, 1995 are as follows:
OPERATING CAPITAL
LEASES LEASES
------ ------
1996 ........................................ $ 75,377 $ 7,230
1997 ........................................ 48,377 7,230
1998 ........................................ 308 606
-------- -------
Total future payments ....................... $124,062 15,066
========
Less--Amount representing interest .......... 1,139
-------
Present value of minimum lease payments ..... $13,927
=======
F-19
<PAGE>
CARDIOPULMONARY CORP.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
14. GOING CONCERN BASIS--FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1993 AND FOR THE PERIOD FROM JANUARY 1, 1991 THROUGH DECEMBER 31, 1993
The accompanying statements of operations, of common stock and other
stockholders' deficit and cash flows for the year ended December 31, 1993 and
for the period from January 1, 1991 through December 31, 1993 have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. At the time of the
issuance of the independent auditors' report dated March 19, 1994 on these
financial statements, the Company had incurred substantial net losses during the
years ended December 31, 1993 and for the period from January 1, 1991 through
December 31, 1993, and the Company's continued existence was dependent upon its
ability to obtain regulatory approval, generate revenue, and pay its debts as
they become due. Accordingly, the independent auditors' report included a
reference to the uncertainty of the Company continuing as a going concern for a
reasonable period of time. Subsequent to December 31, 1993, the Company obtained
additional financing and obtained regulatory approval.
F-20
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR
ANY SALE PURSUANT TO THIS PROSPECTUS CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.
----------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ........................... 3
Risk Factors ................................. 6
Use of Proceeds .............................. 13
Dividend Policy .............................. 13
Dilution ..................................... 14
Capitalization ............................... 15
Selected Financial Data ...................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................... 17
Business ..................................... 20
Management ................................... 32
Certain Transactions ......................... 37
Principal Stockholders ....................... 38
Description of Capital Stock ................. 40
Shares Eligible for Future Sale .............. 42
Underwriting ................................. 44
Legal Matters ................................ 45
Experts ...................................... 45
Additional Information ....................... 46
Index to Financial Statements ................ F-1
----------
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 UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
2,000,000 SHARES
CARDIOPULMONARY
CORP.
COMMON STOCK
----------
PROSPECTUS
----------
ADVEST, INC.
CRUTTENDEN ROTH
INCORPORATED
----------
, 1996
================================================================================
<PAGE>
PART II
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the Company's estimates (other than the SEC
registration fee and the NASD filing fee) of the expenses in connection with the
issuance and distribution of the shares of Common Stock being registered, other
than underwriting discounts and commissions:
Securities and Exchange Commission registration fees ......... $ 8,724
NASD filing fee .............................................. 3,030
Nasdaq listing fee ........................................... 32,230
Printing and engraving expenses .............................. 85,000
Legal fees and expenses ...................................... 225,000
Accounting fees and expenses ................................. 140,000
Blue sky fees and expenses ................................... 15,000
Transfer agent and registrar fees ............................ 3,000
Directors and officers insurance fees ........................ 100,000
Miscellaneous expenses ....................................... 88,016
--------
Total ...................................................... $700,000
========
ITEM 14. Indemnification of Directors and Officers.
The Company's Amended and Restated Certificate of Incorporation provides
that the Company shall indemnify certain persons, including officers, directors,
employees and agents, to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware. The Company has also entered
into indemnification agreements with its current directors and executive
officers. Reference is made to the Certificate of Incorporation and Form of
Indemnification Agreement filed as Exhibits 3.1 and 10.15, respectively. The
Company's directors and officers are insured against losses arising from any
claim against them as such for wrongful acts or omissions, subject to certain
limitations.
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court
shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity
II-1
<PAGE>
or arising out of his status as such whether or not the corporation would have
the power to indemnify him against such liabilities under such Section 145.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its officers and directors on the one hand and the Underwriters
and their respective controlling persons on the other hand against certain
liabilities in connection with this offering, including liabilities under the
Securities Act of 1933, as amended.
ITEM 15. Recent Sales of Unregistered Securities.
On July 30, 1993, the Company issued and sold 2,196,183 shares of Series B
Preferred Stock to certain institutional investors for a purchase price of $0.91
per share. These shares will be converted automatically into 878,471 shares of
Common Stock upon the consummation of this offering for an effective price of
$2.28 per share of Common Stock.
On July 30, 1993, the Company issued an aggregate of 43,500 shares of
Common Stock to certain of its employees upon the exercise of options granted
under the 1991 Stock Option Plan at an exercise price of $0.03 per share.
Since February 1995, the Company has granted options to purchase an
aggregate of 438,400 shares of Common Stock under the Company's 1994 Stock
Option Plan at exercise prices ranging from $0.23 to $4.38 per share. To date,
no options have been exercised under the 1994 Stock Option Plan.
On March 17, 1995, the Company issued and sold 1,304,348 shares of Series C
Convertible Preferred Stock to certain institutional investors for a purchase
price of $1.15 per share. These shares will be converted automatically into
521,739 shares of Common Stock upon the consummation of this offering for an
effective price of $2.88 per share of Common Stock.
In December 1995, the Company issued 8% convertible debt notes to five
principal stockholders, including Kontron, and to a company controlled by an
employee of Kontron. Principal on these notes totaled $1,371,500. In March 1996,
two additional notes in the aggregate principal amount of $40,000 were issued to
employees of Kontron. In April 1996, an additional note in the principal amount
of $80,000 was issued to an officer of the Company. These notes were converted
into 298,300 shares of the Common Stock on May 20, 1996.
In connection with the issuance of the 8% convertible debt notes in
December 1995, March 1996 and April 1996, the Company granted warrants to
purchase 274,300, 8,000 and 16,000 shares of Common Stock, respectively, at an
exercise price per share of $5.00. The number of shares issuable upon exercise
of these warrants and the exercise price are to be adjusted for certain dilutive
and anti-dilutive events. The warrants are exercisable for a period of five
years from the issuance date.
On May 20, 1996, the Company issued and sold 177,000 shares of Common Stock
and common stock purchase warrants to purchase 177,000 shares of Common Stock at
an exercise price of $5.00 per share for aggregate consideration of $5.00 for
each unit of one share and a warrant to purchase one share.
The Securities issued by the Company in the foregoing transactions were not
registered under the Securities Act of 1933 in reliance upon exemptions
contained in Section 4(2) thereof.
ITEM 16. Exhibits.
1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation.
3.2 By-laws.
4 Specimen Common Stock Certificate.*
5 Opinion of Fulbright & Jaworski L.L.P.*
10.1 1994 Stock Option Plan.
10.2 Stock Option Plan for Non-Employee Directors.
10.3 Agreement of Lease, dated October 5, 1994, between SC Properties, LLC
and Cardiopulmonary Corp.
10.4 Employment Agreement, dated May 20, 1996, between James W. Biondi and
Cardiopulmonary Corp.
10.5 Employment Agreement, dated May 20, 1996, between N. Nicoll Snow and
Cardiopulmonary Corp.
II-2
<PAGE>
10.6 Employment Agreement, dated May 20, 1996, between Douglas M. Johnston
and Cardiopulmonary Corp.
10.7 Employment Agreement, dated May 20, 1996, between Gerhardt P.
Schroeder and Cardiopulmonary Corp.
10.8 Employment Agreement, dated May 20, 1996, between Robert Glinski and
Cardiopulmonary Corp.
10.9 Employment Agreement, dated May 20, 1996, between Donald D. Gilmore
and Cardiopulmonary Corp.
10.10 Employment Agreement, dated May 20, 1996, between Elliot Blank and
Cardiopulmonary Corp.
10.11 Distribution Agreement, dated as of March 17, 1995, between Kontron
Instruments, Ltd. and Cardiopulmonary Corp.+
10.12 Stock and Warrant Put Agreement, dated as of May 20, 1996, between
Cardiopulmonary Corp. and Connecticut Innovations, Incorporated.
10.13 Form of Common Stock Purchase Warrants.
10.14 Registration Rights Agreement, dated as of May 20, 1996.
10.15 Form of Directors Indemnification Agreement.
10.16 Form of Representatives' Warrant.
16 Letter from Deloitte & Touche LLP respecting change in certifying
accountant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of King & Spalding.
23.4 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5).
24 Power of Attorney (included on signature page).
27 Financial Data Schedule.
- ----------
+ Confidential treatment requested for certain portions of this agreement.
* To be filed by amendment.
ITEM 17. Undertakings.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
(3) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant 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 registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant 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
registrant 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 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MILFORD AND STATE OF
CONNECTICUT ON THE 22ND DAY OF MAY, 1996.
CARDIOPULMONARY CORP.
By: /s/ JAMES W. BIONDI
-------------------------------------
JAMES W. BIONDI, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James W. Biondi and N. Nicoll Snow, his true and
lawful attorney-in-fact, each acting alone, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments including post-effective amendments to
this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
their substitutes, each acting alone, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
/s/ JAMES W. BIONDI Chairman, Chief Executive May 22, 1996
- -------------------------- Officer and Director (Principal
JAMES W. BIONDI, M.D. Executive Officer)
/s/ N. NICOLL SNOW Vice President, Chief Financial May 22, 1996
- -------------------------- Officer and Secretary (Principal
N. NICOLL SNOW Financial and Accounting Officer)
/s/ THOMAS J. ABBENANTE Director May 22, 1996
- --------------------------
THOMAS J. ABBENANTE
/s/JOHN R. CULLINANE, JR. Director May 22, 1996
- --------------------------
JOHN R. CULLINANE, JR.
/s/ ALAN KESSMAN Director May 22, 1996
- --------------------------
ALAN KESSMAN
/s/ W. GORDON KRUBERG Director May 22, 1996
- --------------------------
W. GORDON KRUBERG, M.D.
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation.
3.2 By-laws.
4.1 Specimen Common Stock Certificate.*
5 Opinion of Fulbright & Jaworski L.L.P.*
10.1 1994 Stock Option Plan.
10.2 Stock Option Plan for Non-Employee Directors.
10.3 Agreement of Lease, dated October 5, 1994, between SC Properties, LLC
and Cardiopulmonary Corp.
10.4 Employment Agreement, dated May 20, 1996, between James W. Biondi and
Cardiopulmonary Corp.
10.5 Employment Agreement, dated May 20, 1996, between N. Nicoll Snow and
Cardiopulmonary Corp.
10.6 Employment Agreement, dated May 20, 1996, between Douglas M. Johnston
and Cardiopulmonary Corp.
10.7 Employment Agreement, dated May 20, 1996, between Gerhardt P.
Schroeder and Cardiopulmonary Corp.
10.8 Employment Agreement, dated May 20, 1996, between Robert Glinski and
Cardiopulmonary Corp.
10.9 Employment Agreement, dated May 20, 1996, between Donald D. Gilmore
and Cardiopulmonary Corp.
10.10 Employment Agreement, dated May 20, 1996, between Elliot Blank and
Cardiopulmonary Corp.
10.11 Distribution Agreement, dated as of March 17, 1995, between Kontron
Instruments, Ltd. and Cardiopulmonary Corp.+
10.12 Stock and Warrant Put Agreement, dated as of May 20, 1996, between
Cardiopulmonary Corp. and Connecticut Innovations, Incorporated.
10.13 Form of Common Stock Purchase Warrants.
10.14 Registration Rights Agreement, dated as of May 20, 1996.
10.15 Form of Directors Indemnification Agreement.
10.16 Form of Representatives' Warrants.
16 Letter from Deloitte & Touche LLP respecting change in certifying
accountant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of King & Spalding.
23.4 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5).
24 Power of Attorney (included on signature page).
27 Financial Data Schedule.
- ----------
+ Confidential treatment requested for certain portions of this agreement.
* To be filed by amendment.
UNDERWRITING AGREEMENT
2,000,000 Shares*
CARDIOPULMONARY CORP.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
(this "Agreement")
ADVEST, INC.
CRUTTENDEN ROTH INCORPORATED
As Representatives of the Several Underwriters
c/o Advest, Inc.
One Commercial Plaza
280 Trumbull Street
Hartford, Connecticut 06103
--------------------, 1996
Ladies and Gentlemen:
SECTION 1. INTRODUCTION. Subject to the terms and conditions hereof,
Cardiopulmonary Corp., a Delaware corporation (the "Company"), proposes to issue
and sell an aggregate of 2,000,000 shares (the "Firm Shares") of Common Stock,
$.01 par value (the "Common Stock"), to the several underwriters identified in
SCHEDULE A annexed hereto (collectively, the "Underwriters"), who are acting
severally and not jointly. In addition, the Company has agreed to grant to the
Underwriters an option to purchase up to 300,000 additional shares of Common
Stock (the "Option Shares") on the terms and for the purposes set forth in
Section 5. The Firm Shares and, to the extent such option is exercised, the
Option Shares are hereinafter collectively called the "Shares."
- --------
* Plus an option to acquire up to 300,000 additional shares of Common Stock from
the Company to cover over-allotments.
<PAGE>
You, as the representatives of the Underwriters (the "Representatives"),
have advised the Company that the Underwriters intend to make a public offering
of their respective portions of the Shares as soon hereafter as in your judgment
is advisable and that the public offering price of the Shares will be $[__] per
share.
The parties hereby agree as follows:
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to, and agrees with, the several
Underwriters as follows:
(a) The Company is a corporation duly organized and incorporated and
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full corporate power and authority to
own or lease the properties owned or leased by it and to conduct its businesses
as described in the Prospectus (as hereinafter defined). The Company is duly
licensed or qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the nature of the activities conducted
by the Company or the character of the assets owned or leased by the Company
makes such licensure or qualification necessary except where the failure to so
qualify would not have a material adverse effect upon the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company (a "Material Adverse Effect"). Complete
and correct copies of the Company's Certificate of Incorporation, as from time
to time amended (the "Charter") and By-laws, as from time to time amended (the
"By-laws") have been delivered to the Representatives, and no changes to the
Charter as in effect on the date hereof or By-laws other than the effectiveness
of the Amended and Restated Certificate of Incorporation that the Company
proposes to file on the First Closing Date and the amendment and restatement of
the By-laws (forms of which amendments have been delivered to the
Representatives) will be made subsequent to the date of this Agreement and prior
to the First Closing Date (as hereinafter defined) or, if later, the Second
Closing Date (as hereinafter defined).
(b) The Company is not in violation of any provision of its Charter. No
state of facts exists which, upon notice or lapse of time or both, would
constitute a violation of any provision of its Charter.
(c) At the time of delivery of the Shares to the Underwriters hereunder,
all of the issued and outstanding shares of capital stock of the Company will
have been duly authorized and validly issued, will be fully paid and
nonassessable, and the descriptions thereof contained in the Prospectus and the
Registration Statement (as hereinafter defined) will be complete and accurate in
all material respects. The shares of Common Stock issuable upon exercise of the
Warrants (as hereinafter defined), will, upon issuance and payment therefor, be,
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. The shares of Common Stock issuable upon exercise of the
Warrants
-2-
<PAGE>
have been duly and validly reserved for issuance. There are no preemptive,
preferential or other rights to subscribe for or purchase any of the Shares that
have not been validly waived, and no shares of Common Stock have been issued in
violation of any such rights. The Shares are duly authorized, and, when issued,
delivered and paid for pursuant to this Agreement, will be validly issued, fully
paid and nonassessable and will conform in all material respects to the
description thereof contained in the Prospectus and the Registration Statement.
Upon delivery to the Underwriters or upon the Representatives' order against
payment of the agreed consideration therefor in accordance with the provisions
of this Agreement, the Underwriters will acquire good title to the Shares, free
and clear of any lien, claim, security interest or other encumbrance or
restriction on transfer.
(d) No consent, approval, authorization or other order of any regulatory
agency is required for the execution or delivery of the Warrants, except as may
be required under the Securities Act of 1933, as amended (the "Act") or the
by-laws and rules of the National Association of Securities Dealers, Inc. (the
"NASD").
(e) Except as disclosed in the Prospectus, the Company has not issued (i)
any options, warrants or other rights of any description, contractual or
otherwise, entitling any person to purchase or receive any class of security
from the Company, or (ii) any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any shares of the Company's capital
stock, or any of such options, warrants, other rights or convertible securities
or obligations.
(f) The Common Stock has been approved for listing on the National
Association of Securities Dealers, Inc. Automated Quotation System (the
"Nasdaq") National Market, subject only to official notice of issuance.
(g) The Company has full corporate power and authority to execute, deliver
and perform this Agreement and the Warrants. The execution, delivery and
performance by and on behalf of the Company of this Agreement and the Warrants,
the performance of the Company's obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action; will not violate any provision of
the Charter or By-laws of the Company; will not result in the breach, or be in
contravention of, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of the Company pursuant to the terms or
provisions of (i) any provision of any lease, franchise, license, indenture,
loan agreement, mortgage, deed of trust, voting trust agreement or any other
contract, agreement or instrument to which the Company is a party or by which
the Company or any of its properties may be bound or affected, (ii) any statute,
order, rule or regulation applicable to the Company of any court or regulatory
body, administrative agency, authority or other governmental body having
jurisdiction over the Company or any of its properties or (iii) any order of any
court or regulatory body, administrative agency, authority or other governmental
body rendered in any proceeding to which the Company was or is now a party or by
which it and/or any of its properties is bound, except those, if any, described
-3-
<PAGE>
in the Prospectus or which would not have a "Material Adverse Effect". Each of
this Agreement and the Warrants is a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except as
rights to indemnity or contribution may be limited by applicable law and as
enforceability of this Agreement may be limited by the application of
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and by equitable principles being applied to the
discretion of a court before which any proceeding may be brought.
(h) No consent, approval, authorization or other order of, or filing or
declaration with, any court or regulatory body, administrative agency or other
governmental body of the United States or any other jurisdiction is necessary in
connection with the execution, delivery and performance of this Agreement and/or
the issuance and/or sale of the Shares by the Company pursuant to this Agreement
and/or the consummation of the transactions contemplated by this Agreement,
other than such as have been obtained or made by the Company on or before the
date of this Agreement, except the registration of the Shares under the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Rules and
Regulations (as hereinafter defined) and such consents, approvals,
authorizations, registrations or qualifications as may be required by the state
securities laws ("Blue Sky Laws") applicable to the public offering of the
Shares by the several Underwriters or the by-laws and rules of the NASD in
connection with the purchase and distribution by the several Underwriters of the
Shares.
(i) The Company has prepared a registration statement on Form S-1 (File No.
[333-______]) with respect to the Shares, including a form of preliminary
prospectus, in conformity with the requirements of the Act and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") promulgated thereunder and has filed such
registration statement with the Commission under the Act. The Company has
prepared and filed such amendments thereto and such amended preliminary
prospectuses as may have been required to the date hereof, and will file such
additional amendments thereto and such amended preliminary prospectuses as may
hereafter be required. The Company has delivered or caused to be delivered to
the Representatives without charge two (2) signed copies of such registration
statement and each amendment thereto together with two (2) copies of each
exhibit filed therewith; one (1) conformed copy of such registration statement
and each amendment thereto, but without exhibits, for each of the Underwriters
if requested; and such number of the related Preliminary Prospectus (as
hereinafter defined) and of the Prospectus as the Representatives heretofore
have reasonably requested. As used in this Agreement, the term "Preliminary
Prospectus" means each and every prospectus filed with the registration
statement and amendments thereto (except the Prospectus). Such registration
statement, as amended, has been declared effective by the Commission under the
Act and is not proposed to be further amended. If such registration statement,
as it may have been amended, omits information in accordance with Rule 430A
under the Act, promptly after the execution of this Agreement the Company will
file with the Commission a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such amendment shall have
been filed, in such registration
-4-
<PAGE>
statement) with such changes or insertions as are required by Rule 430A or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by the Representatives. Such registration statement, as finally amended and
revised at the time such registration statement is or was declared effective by
the Commission, and the information contained in the form of final prospectus,
filed with the Commission pursuant to Rule 424(b) and Rule 430A of the Rules and
Regulations and deemed to be part of the registration statement), is referred to
herein as the "Registration Statement." "Prospectus" means (a) the form of
prospectus first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations or (b) the last preliminary prospectus included in the
Registration Statement filed prior to the time it becomes effective or filed
pursuant to Rule 424(a) under the Act that is delivered by the Company to the
Underwriters for delivery to purchasers of the Shares, together with the term
sheet or abbreviated term sheet filed with the Commission pursuant to Rule
424(b)(7).
(j) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act.
(k) Neither the Commission nor the securities authority of any state or
other jurisdiction has issued any order preventing or suspending the use of any
Preliminary Prospectus, and no proceeding for that purpose has been instituted
or, to the best of the Company's knowledge after due inquiry, threatened by the
Commission or any such securities authority. No stop order suspending the
effectiveness of the Registration Statement or any part thereof has been issued
and no proceeding for that purpose has been instituted or, to the best of the
Company's knowledge after due inquiry, threatened or contemplated by the
Commission or any such securities authority. Each Preliminary Prospectus
complies with the requirements of the Act and the Rules and Regulations and did
not include any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Registration
Statement and the Prospectus contained therein, and any amendments or
supplements thereof, including without limitation the financial statements
included in such Prospectus, contained or will contain all statements that are
required to be stated therein in accordance with the Act and the Rules and
Regulations and conformed or will conform in all respects to the requirements of
the Act and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, included or will
include any untrue statement of a material fact or omitted or will omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading. When the Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to Rule 424(b) (or, if
the Prospectus or such amendment or supplement is not required to be so filed,
when the Registration Statement or amendment thereto containing such amendment
or supplement to the Prospectus was or is declared effective), the Prospectus,
as amended or supplemented at any such time, contained or will contain all
statements that are required to be stated therein in accordance with the Act and
the Rules and Regulations and conformed or will conform in all material respects
to the requirements of the Act and the Rules and Regulations and did not or will
not include any
-5-
<PAGE>
untrue statements of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made. No
representation or warranty in this Section 2(k) is made as to information
contained in or omitted from the Registration Statement, the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto. The Company hereby
acknowledges and agrees that the information set forth under the heading
"Underwriting" in the Prospectus constitutes the only written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto.
(l) Price Waterhouse LLP, who is certifying and has expressed its opinion
with respect to certain of the financial statements filed with the Commission as
a part of the Registration Statement and included or to be included, as the case
may be, in the Prospectus and in the Registration Statement, are independent
accountants with respect to the Company as required by the Act and the Rules and
Regulations.
(m) Deloitte & Touche LLP (together with Price Waterhouse LLP, the
"Accountants"), who is certifying and has expressed its opinion with respect to
certain of the financial statements filed with the Commission as a part of the
Registration Statement and included or to be included, as the case may be, in
the Prospectus and in the Registration Statement, are independent accountants
with respect to the Company as required by the Act and the Rules and
Regulations.
(n) Except as disclosed in the Prospectus, the financial statements and
related notes thereto included or to be included, as the case may be, in the
Registration Statement and the Prospectus present fairly the financial position
of the Company as of the respective dates thereof and the results of operations
and cash flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles consistently applied
throughout the entire period involved. No other financial statements or
schedules of the Company are required by the Act or the Rules and Regulations to
be included in the Registration Statement or the Prospectus. Except as disclosed
in the Prospectus, the summary financial and statistical data and the other
financial and numerical information included in the Registration Statement and
the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with the financial statements presented therein.
(o) The Company is not in default under any court or administrative order
or decree, or in default with respect to any provision of any lease, loan
agreement, indenture, commission sales agreement, license, permit or other
agreement or contractual obligation to which the Company is a party or by which
any of its properties are bound, and there does not exist any state of facts
which constitute an event of default as defined in any
-6-
<PAGE>
such document or which, upon notice or lapse of time or both, would constitute
such an event of default, where in any such case such default or event of
default by any party thereto has or is reasonably likely to have a Material
Adverse Effect.
(p) Except as disclosed in the Registration Statement and the Prospectus,
there are no actions, suits or proceedings pending or, to the best of the
Company's knowledge after due inquiry, threatened against or affecting the
Company or any property owned or leased by the Company or any of the Company's
officers or directors in their capacity as such, before or by any foreign,
federal, state, municipal or local court, commission, regulatory body,
administrative agency or other government body, which are required to be
disclosed in the Registration Statement or the Prospectus and are not so
disclosed, or which question the validity of this Agreement or any action taken
or to be taken pursuant hereto.
(q) The Company does not own any real property. The Company has good and
marketable title to all personal property and other assets reflected as owned by
the Company in the financial statements described above (or elsewhere in the
Registration Statement or the Prospectus), free and clear of all liens,
mortgages, pledges, charges, encumbrances or restrictions of every kind or
nature whatsoever except those, if any, reflected in such financial statements
(or elsewhere in the Registration Statement or the Prospectus), or which would
not have a Material Adverse Effect or which do not interfere in any material
respect with the use of the property or the conduct of the business of the
Company; all properties (including without limitation real property and
buildings) held or used by the Company under leases, licenses, franchises or
other agreements are held by the Company under valid, subsisting, binding and
enforceable leases, franchises, licenses or other agreements with respect to
which the Company is not in default, except to the extent that such defaults in
the aggregate do not have a Material Adverse Effect on the conduct of its
business or to the extent that the enforceability of the rights and remedies of
the Company under any such lease, franchise, license or other agreement may be
limited by the application of bankruptcy, reorganization, insolvency or other
laws generally affecting the rights of creditors and by equitable principles
being applied at the discretion of a court before which any proceeding may be
brought.
(r) Neither the Company nor any of its directors, officers, affiliates or
controlling persons has, directly or indirectly (i) taken any action designed,
or which might reasonably be expected, to cause or result in, or which has
constituted, or might reasonably be expected to constitute, stabilization or
manipulation, under the Act or the Exchange Act or otherwise, of the price of
any security of the Company to facilitate the sale or resale of any of the
Shares; or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased or paid any person any compensation for soliciting purchases of
the Shares or (B) paid or agreed to pay to any person any compensation for
soliciting another person to purchase any securities of the Company, except
pursuant to this Agreement.
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(s) Except as disclosed in the Registration Statement or the Prospectus,
since the respective dates as of which information is given in the Registration
Statement or the Prospectus and prior to the First Closing Date and Second
Closing Date:
(i) the Company has not incurred any material liabilities or
obligations, direct, indirect or contingent, or entered into any material
transactions, other than in the ordinary course of business or pursuant to this
Agreement and the transactions referred to herein;
(ii) the Company has not purchased any of its outstanding capital
stock or paid or declared or otherwise made any dividends or other distributions
of any kind with respect to any class of its capital stock, and the Company is
not delinquent in the payment of principal or interest on any outstanding
material debt obligation; and
(iii) there has not been (A) any change in the capital stock or
any material change in the indebtedness of the Company, or (B) any material
adverse change or any development involving a prospective material adverse
change in its business (resulting from litigation or otherwise), properties,
business prospects, condition (financial or otherwise), net worth or results of
operations.
(t) There is no contract or other document, transaction or relationship of
a character required to be described in the Prospectus or the Registration
Statement or to be filed as an exhibit to the Registration Statement that has
not been described, incorporated therein by reference or filed as required. All
such contracts to which the Company is a party have been duly authorized,
executed and delivered by the Company, constitute valid and binding agreements
of the Company and are enforceable against the Company in accordance with the
terms thereof, except as enforceability of any such agreement may be limited by
the application of bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors rights generally and by equitable principles being
applied at the discretion of a court before which any proceeding may be brought.
(u) Except as disclosed in the Prospectus, the Company has filed all
necessary foreign, federal, state, municipal and local income and franchise tax
returns and paid all taxes shown as due thereon as well as all other taxes,
assessments and governmental charges that are due and payable; and no tax
deficiency has been asserted or, to the best of the Company's knowledge after
due inquiry, threatened against the Company that would have a Material Adverse
Effect.
(v) To the best knowledge of the officers of the Company, neither the
Company nor any director, officer, employee or other person associated with or
acting on behalf of the Company has, directly or indirectly, at any time:
(i) made any unlawful contribution to any candidate for political
office or failed to disclose fully any contribution in violation of law; or
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(ii) made any payment to any foreign, federal, state, municipal or
local government officer or official, or any other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof or any applicable foreign
jurisdiction.
(w) The Company has in place and effective such policies of insurance, with
limits of liability in such amounts, as are customary and prudent in the
business in which it is engaged. The Company has no reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its businesses at a comparable cost.
(x) Except as disclosed in the Prospectus, the Company owns or has adequate
rights to use all trademarks, service marks, trade names, trademark
registrations, service mark registrations, patent rights, patent applications,
mask works and copyrights necessary for the conduct of its businesses and the
ownership of its properties, and the Company has no knowledge of any
infringement by it of any trademark, service mark, trade name right, patent
right, mask work, copyright, license, trade secret or other similar right of any
other person or entity, and there is no claim being made against the Company, or
to the best of the Company's knowledge, any employee of the Company, regarding
trademark, service mark, trade name, patent, mask work, copyright, license,
trade secret or other infringement.
(y) The Company holds and is in substantial compliance with all material
permits, certificates, licenses, approvals, registrations, franchises and
authorizations (collectively, the "Permits") required under all laws, rules and
regulations to own its properties and conduct its business in the manner
described in the Prospectus; and all of such Permits are in full force and
effect; the Company has fulfilled and performed all of its material obligations
with respect to such Permits; no event has occurred which allows or, after
notice or lapse of time or both, would allow revocation or termination of any
such Permit or result in any other material impairment of the Company's rights
under any such Permit; and such Permits contain no restrictions that materially
affect the Company's ability to conduct its business. There are no pending
proceedings, and the Company has not received notice of any threatened
proceedings, relating to the revocation, withdrawal, cancellation, modification,
suspension or non-renewal of any such Permit. The Company is not and has not
been (by virtue of any action, omission to act, contract to which it is a party
or by which it is bound, or any occurrence or state of facts whatsoever) in
violation of any applicable foreign, federal, state, municipal or local
statutes, laws, ordinances, rules, regulations and/or orders pursuant to
foreign, federal, state, municipal or local statutes, laws, ordinances, rules or
regulations (including without limitation those relating to environmental
protection, occupational safety and health and equal employment practices)
heretofore or currently in effect, except any such violations that have been
fully cured or satisfied without recourse or that are not, either individually
or collectively, reasonably likely to have a Material Adverse Effect.
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(z) Except for the Company's Pioneer Simplified Employee Pension Plan, the
Company does not maintain, contribute to, or sponsor any program or arrangement
that is an "employee benefit plan," an "employee welfare plan," or a
"multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The Company does not now, and has at no time previously,
maintained or contributed to a "defined benefit plan," as defined in Section
3(35) of ERISA.
(aa) The Company is not an "investment company," or a company "controlled"
by, or an "affiliated person" of, or a "promoter" or "principal underwriter"
for, an "investment company," within the meaning of the Investment Company Act
of 1940, as amended (the "1940 Act"), and upon the Company's receipt of any
proceeds from the sale of the Shares, it will not become or be deemed to be an
"investment company" under the 1940 Act.
(ab) The Company makes and keeps accurate books and records reflecting the
Company's assets and maintains internal accounting controls which provide
reasonable assurance that:
(i) transactions are executed with management's authorization; and
(ii) transactions are recorded as necessary to permit preparation of
the Company's consolidated financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
the assets of the Company; and
(iii) access to the assets of the Company is permitted only in
accordance with management's authorization; and
(iv) the reported amounts of the assets of the Company are compared
with the existing assets of the Company at reasonable intervals and
appropriate action is taken with respect to any differences.
(ac) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in (i) the
securities registered pursuant to the Registration Statement or (ii) any other
securities now or hereafter registered pursuant to any other registration
statement filed by the Company under the Act. Except as disclosed in the
Prospectus, no holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement, and all such holders, if any, have waived all such
rights as of the date hereof.
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(ad) Any certificate signed by any officer of the Company and delivered to
the Representatives or to counsel for the Underwriters at the Closing shall be
deemed a representation and warranty of the Company to the Underwriters as to
the matters covered thereby.
A certificate delivered by the Company to its counsel for purposes of
enabling such counsel to render the opinion referred to in Section 9(g)(i) or
9(g)(ii) will also be furnished to the Representatives and counsel for the
Underwriters and shall be deemed to be additional representations and warranties
to the Underwriters by the Company as to the matters covered thereby.
SECTION 3. REPRESENTATIVES OF UNDERWRITERS. The Representatives will act as
the representatives for the several Underwriters in connection with the
transactions contemplated by this Agreement, and any action under or in respect
of this Agreement taken by the Representatives will be binding upon all of the
Underwriters.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company that only the information set forth in the section in the Prospectus
entitled "Underwriting," was furnished to the Company by and on behalf of the
Underwriters for use in connection with the preparation of the Registration
Statement and the Prospectus, and that such information is correct and complete
in all material respects and does not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 5. PURCHASE, SALE AND DELIVERY OF SHARES.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to all of the terms and conditions
herein set forth, (i) the Company agrees to issue and to sell to the
Underwriters identified in SCHEDULE A a total of 2,000,000 Firm Shares and (ii)
each of the Underwriters agrees, severally and not jointly, to purchase from the
Company the respective number of Firm Shares set forth opposite the name of such
Underwriter in SCHEDULE A at the price per share of [$ ] at a closing described
in Section 5(d) below.
(b) Upon the basis of the representations, warranties, covenants and
agreements herein contained, but subject to all of the terms and conditions
herein set forth, the Company hereby grants an option (the "Option") to the
several Underwriters to purchase, severally and not jointly, from the Company up
to 300,000 Option Shares in the same proportion as the number of shares set
forth opposite their names on SCHEDULE A bears to the total number of Firm
Shares to be sold to the Underwriters hereunder, as adjusted by the
Representatives in such manner as the Representatives deem advisable to avoid
fractional shares, at the purchase price per share to be paid by the
Underwriters for the Firm Shares,
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for use solely in covering any over-allotments made by the Underwriters in the
sale and distribution of the Firm Shares. The Option may be exercised at any
time (but not more than once), in whole or in part, on or before the 30th day
after the date of this Agreement, upon written or telecopied notice (the "Option
Notice") by the Representatives to the Company no later than 5:00 p.m. eastern
time, setting forth the aggregate number of Option Shares as to which the
Underwriters are exercising the Option, the names and denominations in which the
certificates for such shares are to be registered, and the time and place at
which such certificates shall be delivered to and paid for by the Underwriters.
Such time of delivery may not be earlier than the First Closing Date, and is
herein called the "Second Closing Date." The Second Closing Date shall be
determined by the Representatives, but if at any time other than the First
Closing Date, shall not be earlier than three (3) nor later than ten (10) full
business days after delivery of the Option Notice unless otherwise agreed upon
by the Representatives and the Company. Certificates for the Option Shares
shall be made available for checking and packaging at 9:00 a.m., eastern time,
on the business day immediately preceding the Second Closing Date at a location
to be designated by the Representatives. On the Second Closing Date the Company
shall issue and sell to the Underwriters the number of Shares set forth in the
Option Notice, and each Underwriter will purchase the number of Option Shares
allocated to it pursuant to the first sentence of this Section 5(b). The MANNER
of payment for and delivery of (including the denominations of and the names in
which certificates are to be registered) the Option Shares shall be the same as
for the Firm Shares as specified in Section 5(d).
(c) The Representatives have advised the Company that each Underwriter has
authorized the Representatives to accept delivery of such Underwriter's Shares
and to make payment therefor. It is understood that the Representatives,
individually and not as representatives of the Underwriters, may (but shall not
be obligated to) make payment on behalf of any Underwriter whose funds shall not
have been received by the Representatives by the First Closing Date or the
Second Closing Date, as the case may be, for the account of such Underwriter,
but any such payment shall not relieve such Underwriter from any obligation
under this Agreement.
(d) At 9:00 a.m., eastern time, on the fourth business day after the date
of this Agreement, unless otherwise required by the Commission pursuant to Rule
15c6-1 of the Exchange Act or at such other time on such other day not later
than five business days after such fourth business day as the Representatives
and the Company may agree, the Company shall deliver to the Representatives, at
the offices of Advest, Inc., 40 Rector Street, New York, New York 10006, or
through the facilities of the Depository Trust Company, 55 Water Street, New
York, New York 10041, for the accounts of the several Underwriters, certificates
in definitive form representing the Firm Shares to be sold by them, against
payment in Hartford, Connecticut or such other location agreed upon by the
parties of the purchase price therefor by certified or bank cashier's check in
New York Clearing House (next day) funds payable to the order of the Company for
the shares to be sold by it. Such time of delivery against payment is referred
to herein as the "First Closing Date," and the First Closing Date and the Second
Closing Date are referred to herein individually as a
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"Closing Date." The certificates representing the Firm Shares to be delivered
shall be in denominations and registered in such names as the Representatives
request by notice to the Company prior to 9:00 a.m., eastern time, on the second
full business day preceding the First Closing Date, and shall be made available
for checking and packaging at 9:00 a.m., eastern time, on the business day
immediately preceding the First Closing Date at a location to be designated by
the Representatives.
(e) The Company shall bear the cost of original issue tax stamps, if any,
in connection with the issuance and delivery of the Company Firm Shares and the
Option Shares sold by the Company to the respective Underwriters. The Company
shall pay and save each Underwriter and any subsequent holder of each Share
harmless from any and all liabilities with respect to or resulting from any
failure or delay in paying foreign, federal and state stamp and other transfer
taxes, if any, which may be payable or determined to be payable in connection
with the original issuance or sale to such Underwriter of the Firm Shares and/or
the Option Shares.
SECTION 6. WARRANTS. In order to induce you to enter into this Agreement,
the Company shall execute and deliver to you, in your respective individual
capacities and not as the Representatives, warrants (the "Warrants") to purchase
an aggregate of 100,000 shares of Common Stock at an exercise price of
$____________ per share (120% of the price per share set forth in Section 1
hereof). The Warrants shall be exercisable in whole or in part from time to time
during the period commencing one year and ending five years after the effective
date of the Registration Statement. The Warrants shall be in the form of Exhibit
__ to the Registration Statement. Execution and delivery of the Warrants,
registered in your respective name or the names of such of your respective
officers as you shall notify the Company in writing, shall be made to you, at
the offices of Advest, Inc. at 40 Rector Street, New York, New York 10006, on
the Closing Date. The cost of original issue tax stamps, if any, in connection
with the execution and delivery of the Warrants shall be borne by the Company.
SECTION 7. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters that:
(a) The Company shall not during such period as the Prospectus is required
by law to be delivered in connection with sales of the Shares by an underwriter
or any dealer, file any amendment or supplement to the Registration Statement or
any Preliminary Prospectus or the Prospectus (including without limitation a
prospectus filed pursuant to Rule 424(b)), unless a copy thereof shall first
have been submitted to the Representatives within a reasonable period of time
prior to the filing thereof and the Representatives shall not have objected
thereto in good faith.
(b) The Company shall use its best efforts to cause the Registration
Statement to continue to be effective and each post-effective amendment thereto
to become effective, and shall notify the Representatives and counsel to the
Underwriters promptly, and
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shall confirm such advice in writing, (i) when any post-effective amendment to
the Registration Statement becomes effective; (ii) of any request by the
Commission or any securities authority of any other jurisdiction for amendments
or supplements to the Registration Statement or the Prospectus or for additional
information; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose or the threat thereof; (iv) of receipt by the
Company or any representative or attorney of the Company of any other
communication from the Commission relating to the Company, the Registration
Statement, any Preliminary Prospectus or the Prospectus (other than a
communication confirming the effectiveness of the Registration Statement); and
(v) of receipt by the Company of any notification of the suspension of
qualification of the Shares for sale in any jurisdiction or the initiation of
any proceedings for that purpose or threat thereof. The Company shall use its
best efforts to prevent the issuance of any such stop order or suspension.
(c) The Company shall comply with all the provisions of any undertakings
contained in the Registration Statement.
(d) The Company consents to the use of the Prospectus or any amendment or
supplement thereto by the several Underwriters and by all dealers to whom the
Shares may be sold, both in connection with the offering or sale of the Shares
and for any period of time thereafter during which the Prospectus is required by
law to be delivered in connection therewith.
(e) For a period of three years from the effective date of the Registration
Statement (the "Effective Date"), the Company shall furnish to its stockholders
as soon as practicable after the end of each fiscal year an annual report
(including without limitation a balance sheet and statements of income,
stockholders' equity and cash flow of the Company certified by independent
public accountants) and, as soon as practicable after the end of each of the
first three quarters of each fiscal year (beginning with the fiscal quarter
ending after the Effective Date), consolidated summary financial information of
the Company for such quarter in reasonable detail.
(f) The Company shall make generally available to holders of its securities
and the Representatives as soon as may be practicable, but in no event later
than the 45th day following the end of the first quarter first occurring after
the first anniversary of the Effective Date, an earnings statement (which need
not be audited but shall be in reasonable detail) satisfying the provisions of
Section 11(a) of the Act (including without limitation Rule 158 of the Rules and
Regulations).
(g) Neither the Company nor any of its officers, directors or affiliates
will at any time, directly or indirectly, (i) take any action designed, or which
might reasonably be expected to cause or result in, or which shall constitute,
or might reasonably be expected to constitute, stabilization or manipulation,
under the Act or the Exchange Act or otherwise, of the price of any security of
the Company to facilitate the sale or resale of any of the Shares,
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(ii) sell, bid for, purchase or pay any person any compensation for soliciting
purchases of the Shares or (iii) pay or agree to pay any person any compensation
for soliciting another person to purchase any securities of the Company, except
pursuant to this Agreement.
(h) The Company shall apply the net proceeds from the Offering and sale of
the Shares to be sold by it hereunder solely for the purposes set forth in the
Prospectus under "Use of Proceeds" and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(i) The Company shall not file with the Commission any registration
statement on Form S-8 relating to shares of its Common Stock prior to 90 days
after the Effective Date.
(j) If any information shall have been omitted from the Registration
Statement in reliance upon Rule 430A, the Company, at the earliest possible
time, shall furnish the Representatives with a copy of the Prospectus to be
filed by the Company with the Commission to comply with Rule 424(b) and Rule
430A under the Act, and, if the Representatives do not object to the contents
thereof, shall file such Prospectus with the Commission in compliance with such
Rules, provided that the Company shall file such prospectus with the Commission
not later than the earlier of (i) the second business day following the
execution and delivery of this Agreement or (ii) the fifteenth business day
after the Effective Date. Upon filing the Prospectus with the Commission in
compliance with such Rules, the Company shall so advise the Representatives
promptly.
(k) If, at any time when a prospectus relating to the Shares is required by
law to be delivered, any event occurs as a result of which the Prospectus or the
Registration Statement, as then amended or supplemented, would include an untrue
statement of a material fact, or would omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if it is
necessary at any time to amend or supplement the Prospectus, including any
amendment or supplement thereto, to comply with the Act, the Company promptly
shall advise the Representatives and counsel to the Underwriters thereof and
forthwith shall prepare and duly file with the Commission an appropriate
amendment or supplement that will correct such statement or omission or an
amendment that will effect such compliance and will furnish without charge to
each Underwriter and to any dealer in securities as many copies of such amended
or supplemented Prospectus as the Representatives may from time to time
reasonably request. If any Underwriter is required to deliver a prospectus nine
months or more after the Effective Date, the Company, upon request of the
Representatives but at the expense of the Company, shall prepare promptly such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act. Neither the Representatives'
consent to, nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any condition set forth in Section 9.
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(l) Except as contemplated by the Prospectus, the Company shall not, prior
to the Second Closing Date or thirty (30) days after the date of this Agreement,
whichever occurs first, incur any material liability or obligation, direct or
contingent, or enter into any material transaction or any transaction with a
related party which is required to be disclosed in the Prospectus pursuant to
Item 404 of Regulation S-K under the Act unless the Company gives the
Representatives adequate prior notice of any such transaction and, if the
Representatives reasonably request but at the Company's expense, files a
post-effective amendment to the Registration Statement to include the required
disclosure regarding any such transaction.
(m) Except as disclosed in the Prospectus, the Company shall not acquire
any of the Common Stock before the Second Closing Date or thirty (30) days after
the date of this Agreement, whichever occurs first; and the Company shall not
declare or pay any dividend or make any other distribution upon its Common Stock
payable to shareholders of record on a date prior to such earlier date.
(n) During such period as a prospectus is required by law to be delivered
in connection with sales by an Underwriter or any dealer, the Company shall
furnish or cause to be furnished to the Representatives, at the expense of the
Company, copies of the Registration Statement, the Prospectus, any Preliminary
Prospectus and all amendments and supplements to any such documents, in each
case as soon as available and in such quantities as the Representatives
reasonably may request for the purposes contemplated by the Act.
(o) Prior to any public offering of the Shares, the Company shall cooperate
with the Representatives and counsel to the Underwriters in qualifying or
registering the Shares for offer and sale under the Blue Sky Laws of such
jurisdictions as the Representatives reasonably may designate, provided the
Company shall not be required to qualify as a foreign corporation in any
jurisdiction where it is not now so qualified or to consent to general service
of process under the law of any state where it is not now so qualified (except
with respect to the offering and sale of the Shares), and the Company shall
continue such qualifications or registrations in effect so long as reasonably
requested by the Representatives to effect the distribution of the Shares. In
each jurisdiction where any of the Shares shall have been qualified as provided
above, the Company shall file such reports and statements as may be required to
continue such qualification in effect for so long a period as the
Representatives may reasonably request for a distribution of the Shares.
(p) During the period ending three (3) years after the date of this
Agreement, (i) as soon as practicable after the end of each of its fiscal years,
the Company shall furnish to the Representatives one (1) copy, of the annual
report of the Company containing the consolidated balance sheet of the Company
as of the close of such fiscal year and corresponding consolidated statements of
earnings, shareholders' equity and cash flows for the year then ended, such
consolidated financial statements to be under the certificate or opinion of the
Company's independent accountants, and (ii) the Company shall file promptly and
shall furnish to the Representatives at or before the filing thereof copies of
all reports
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and any definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Sections 13, 14 or 15 of the Exchange
Act. During such three-year period, the Company also shall furnish to the
Representatives one (1) copy of each of the following:
(A) as soon as practicable after the filing thereof, each report,
statement, or other document filed by the Company with the Commission;
(B) as soon as practicable after the filing thereof, all reports,
statements, other documents and financial statements furnished by the Company to
either the NASD or Nasdaq pursuant to requirements of or agreements with the
NASD or Nasdaq; and
(C) as soon as available, each report, statement or other document of the
Company mailed to its stockholders.
(q) The Company shall use its best efforts to satisfy or cause to be
satisfied the conditions to the obligations of the Underwriters in Section 9.
(r) The Company shall deliver the requisite notice of issuance to the NASD
and shall take all necessary or appropriate action within its power to maintain
the listing of the Common Stock on the Nasdaq National Market for a period of at
least thirty-six months after the date of the Agreement.
(s) The Company shall prepare and timely file with the Commission, from
time to time, such reports and statements as may be required to be filed by the
Exchange Act and/or the Rules and Regulations.
(t) The Company shall comply in all respects with the undertakings given by
the Company in connection with the qualification or registration of the Shares
for offering and sale under the Blue Sky Laws.
(u) Without the prior written consent of the Representatives, during the
period from the date of this Agreement until one hundred eighty (180) days from
the Effective Date: the Company shall not, directly or indirectly, grant, offer,
sell, contract to sell, issue, dividend, transfer or otherwise dispose of any
equity security of the Company, including without limitation shares of the
Company's Common Stock or any options, rights or warrants with respect to any
equity security of the Company, including without limitation shares of the
Company's Common Stock, except pursuant to this Agreement for the grant of
options with respect to shares of Common Stock pursuant to the Company's 1991,
1994, and Non-Employee Director Stock Option Plans ("Stock Option Plans") or
except upon the exercise of stock options or warrants outstanding on the date of
this Agreement to the extent that such stock options or warrants are disclosed
in the Prospectus or granted hereafter pursuant to the Company's Stock Option
Plans.
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SECTION 8. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated, or if this Agreement is terminated for
any reason, the Company shall pay, or reimburse the Representatives if paid by
the Representatives, for all costs, fees and expenses incurred by or on behalf
of the Company in connection with the public offering. Such costs, fees and
expenses to be paid by the Company include the following:
(a) All costs, fees and expenses (other than expenses customarily paid by
the Underwriters) incurred in connection with the performance of the Company's
obligations hereunder, including, without limiting the generality of the
foregoing, the reasonable fees and expenses of the Company's accountants and the
reasonable fees and expenses of counsel for the Company, all costs and expenses
incurred in connection with the preparation, printing, filing, and distribution
of the Registration Statement, each Preliminary Prospectus and the Prospectus
(including all exhibits and financial statements) and all agreements and
supplements provided for herein, and with the reproduction of this Agreement,
the Agreement Among Underwriters, the Selling Agreement, the Underwriters'
Questionnaire, various Underwriters' letters, and the Preliminary and all
Supplemental Blue Sky Memoranda. Except as set forth in Section 8(b), 10, 12 or
15, the Underwriters will pay all their own costs and expenses, including the
legal fees and disbursements of counsel for the Underwriters, stock transfer
taxes on resale of the Shares by any Underwriter and any travel, telephone and
advertising relating to any offers made by the Underwriters.
(b) All filing and registration fees and expenses, including without
limitation the legal fees and disbursements of counsel for the Underwriters,
incurred in connection with qualifying or registering all or any part of the
Shares for offer and sale under the Blue Sky Laws (including without limitation
the preparation of the Preliminary and all Supplemental Blue Sky Memoranda),
NASD filing fees and the listing of the Shares on the Nasdaq National Market.
(c) All fees and expenses of the Company's transfer agent, the cost of
printing and delivering the certificates representing the Shares, and all
transfer taxes, if any, with respect to the sale and delivery of the Shares to
the underwriters.
SECTION 9. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters under this Agreement shall be subject to
the accuracy of the representations and warranties on the part of the Company
herein set forth as of the date hereof and as of the First Closing Date or the
Second Closing Date, as the case may be; and to the performance by the Company
of its obligations hereunder theretofore to be performed; and to the following
additional conditions, except to the extent waived in writing by the
Representatives:
(a) The Representatives shall have been notified not later than 5:00 p.m.,
eastern time, on the date of this Agreement, that the Commission has declared
the Registration Statement effective. The Representatives shall also be notified
not later than the
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time specified in Section 7(j) hereof that all filings of the Company required
by Rule 424 and Rule 430A of the Rules and Regulations have been made.
(b) No stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceedings for such
purpose shall be pending before or, to the knowledge of the Company or the
Representatives, threatened or contemplated by the Commission. Any request for
additional information on the part of the staff of the Commission or any such
authority shall have been complied with to the satisfaction of the staff of the
Commission or such authority. After the date of this Agreement, no amendment or
supplement to the Registration Statement or the Prospectus shall have been filed
unless a copy thereof was first submitted to the Representatives and the
Representatives did not object thereto in good faith.
(c) The Shares shall have been qualified or registered for sale under the
Blue Sky Laws of such jurisdictions as shall have been reasonably specified by
the Representatives as contemplated by Section 7(o); each such qualification
shall be in effect and not subject to any stop order and no proceeding for such
purpose shall be pending before or, to the knowledge of the Company or the
Representatives, threatened or contemplated by the authorities of any such
jurisdiction on the applicable Closing Date; and the offering of the Shares
shall have been cleared by the NASD.
(d) The legality and sufficiency of the authorization, issuance and sale of
the Shares, the validity and form of the certificates representing the Shares,
the execution and delivery of this Underwriting Agreement, and all corporate
proceedings and other legal matters incident thereto, and the form of the
Registration Statement and the Prospectus (except financial statements and other
statistical or financial data included therein) shall have been approved by
Ropes & Gray, counsel for the Underwriters.
(e) The Representatives shall not have been advised by the Company that the
Registration Statement or Prospectus, or any amendment or supplement thereto,
contains a material untrue statement of fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(f) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus:
(i) There shall not have been any material adverse change or development in
the business (whether by reason of any court, legislative, other governmental
action, order or decree, or otherwise), business prospects, properties, general
affairs, management, condition (financial or otherwise), net worth or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, which has not been disclosed in or otherwise
contemplated by the Registration Statement or the Prospectus; and
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(ii) The Company shall not have sustained any material loss or interference
with its business or properties from any labor dispute, strike, fire, flood,
windstorm, accident or other calamity (whether or not covered by insurance) or
from any court or legislative or other governmental action, order or decree,
which is not set forth in the Registration Statement and the Prospectus, if any
such development or developments described in Section 9(f)(i) or Section
9(f)(ii), in the sole judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares on
the terms and in the manner contemplated in the Registration Statement, the
Prospectus and/or this Agreement.
(g) There shall have been furnished to the Representatives, as the
representatives of the Underwriters, on each Closing Date, except as otherwise
expressly provided below:
(i) An opinion of Fulbright & Jaworski L.L.P., counsel for the Company,
reasonably satisfactory to the Representatives and counsel for the Underwriters,
addressed to the Representatives as the representatives of the Underwriters and
dated the First Closing Date or the Second Closing Date, as the case may be, to
the effect that:
(A) The Company has been duly organized, is validly existing and is in
good standing as a corporation under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own or lease its
properties and to conduct its business as described in the Prospectus. To
the knowledge of such counsel, the Company does not own, directly or
indirectly any shares of capital stock of any corporation or have any
equity interest in any firm, partnership or joint venture. The Company is
qualified to do business as a foreign corporation in the State of
Connecticut; and
(B) The authorized capital stock of the Company consists of [ ] shares
of Common Stock, $.01 par value, and [ ] shares of Preferred Stock, $.01
par value, and all such stock, including the Shares, conformed in all
material respects as to legal matters to the descriptions thereof in the
Prospectus under the caption "Description of Capital Stock" as of the date
of the Prospectus; and
(C) To the best of counsel's knowledge after due inquiry, the Company
is not in violation of any provision of its Charter; and
(D) The authorized, issued and outstanding capital stock of the
Company is as set forth in the "Capitalization" table contained in the
Prospectus, except for issuances or forfeitures subsequent to the date of
the information provided in such table, if any, pursuant to [stock option
and other sources of subsequent issuances such as debt or preferred stock
conversions]. The Shares and the other shares of capital stock issued and
outstanding on this date have been duly authorized and validly issued and
are fully paid and nonassessable. To the best of counsel's
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knowledge after due inquiry, there are no preemptive, preferential or
other rights to subscribe for or purchase any of the Shares; and
(E) The Shares have been duly authorized; the certificates for the
Shares to be delivered hereunder are in due and proper form; and when the
certificates for the Shares to be sold by the Company are duly
countersigned by the Company's transfer agent and delivered to the
Representatives or upon the order of the Representatives against payment of
the agreed consideration therefor in accordance with the provisions of this
Agreement, the Common Stock represented thereby will be validly issued,
fully paid and nonassessable. Upon delivery to the Underwriters or upon the
Representatives' order against payment of the agreed consideration therefor
in accordance with the provisions of this Agreement, each Underwriter who
purchases shares in good faith and without knowledge of any adverse claim
(as defined in Section 8-302 of the New York Uniform Commercial Code) will
acquire good and valid title to the Shares being issued by the Company to
the Underwriters, free and clear of any adverse claim; and
(F) To the best of counsel's knowledge after due inquiry, except as
disclosed in the Prospectus, there are no outstanding (1) options, warrants
or other rights of any description, contractual or otherwise, entitling any
person to purchase or receive any class of security from the Company, or
(2) securities or obligations convertible into, or any contracts or
commitments to issue or sell, any shares of the Company's capital stock, or
any of such options, warrants, other rights or convertible securities or
obligations; and
(G) The Common Stock has been approved for listing on the Nasdaq
National Market, subject only to official notice of issuance; and
(H) The Company has full corporate power and authority to execute,
deliver and perform this Agreement. The execution, delivery and performance
by the Company of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action; will not violate any provision of its Charter; will not result in
the breach or be in violation of or result in the creation or imposition of
any lien, charge or encumbrance upon any of the assets of the Company
pursuant to the terms or provisions of (1) any lease, franchise, license,
indenture, loan agreement, mortgage, deed of trust, voting trust agreement
or any other contract, agreement or instrument listed as an exhibit to the
Registration Statement (2) any statute, order, rule or regulation
applicable to the Company of any court or regulatory body, administrative
agency, authority or other governmental body having jurisdiction over the
Company or any of its properties or (3) any order of which such counsel is
aware of any court or regulatory body, administrative agency, authority or
other governmental body rendered in any proceeding to which the Company was
or is now a party or by which
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it and/or any of its properties is bound. This Agreement has been duly
executed and delivered by the Company; and
(I) The Warrants have been duly authorized, executed, issued and
delivered by the Company and constitute the legal, valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms. The shares of Common Stock required to be issued by the
Company upon exercise of the Warrants have been duly authorized and
reserved for issuance, and, when issued and delivered upon payment of the
exercise price therefor as provided in the Warrants, will be duly
authorized, validly issued, fully paid and nonassessable.
(J) No consent, approval, authorization or other order of, or filing
or declaration with, any court or regulatory body, administrative agency or
other governmental body of the United States or any other jurisdiction is
necessary in connection with the execution, delivery and performance of
this Agreement and/or the issuance and/or sale of the Shares or the
Warrants, or the issuance of shares of Common Stock upon exercise of the
Warrants, by the Company pursuant to this Agreement and/or the consummation
of the transactions contemplated by this Agreement, other than such as have
been obtained or made by the Company on or before the date of this
Agreement, except the registration of the Shares under the Act, the
Exchange Act and the Rules and Regulations and such consents, approvals,
authorizations, registrations or qualifications as may be required by the
Blue Sky Laws applicable to the public offering of the Shares by the
several Underwriters (as to which such counsel need express no opinion) or
the by-laws and rules of the NASD in connection with the purchase and
distribution by the several Underwriters of the Shares (as to which such
counsel need express no opinion); and
(K) (1) The Registration Statement has become effective under the Act
and any required filing pursuant to Rule 424(b) has been made in the manner
and within the time period required by Rule 424(b); (2) to the best
knowledge of such counsel after due inquiry no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for such purpose are pending before or threatened by the
Commission; (3) the Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial statements and
other statistical or financial data included therein as to which such
counsel need express no opinion) as of their respective effective or issue
dates complied as to form in all material respects with the requirements of
the Act and the Rules and Regulations; and (4) such counsel does not know
of any actions, suits or legal or governmental proceedings pending, or, to
such counsel's best knowledge, after due inquiry, threatened against the
Company or any property owned or leased by the Company or any of the
Company's officers or directors in their capacity as such, before or by any
foreign, federal, state, municipal or local court, commission, regulatory
body, administrative agency or other governmental body, that are required
to be described in the Registration Statement or the Prospectus that are
not described
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<PAGE>
as required or which question the validity of this Agreement or any action
taken or to be taken pursuant hereto, nor is such counsel aware of any
contracts or other documents, transactions or relationships of a character
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not
described, incorporated therein or filed as required; and
(L) To the best of counsel's knowledge after due inquiry, there are no
pending or threatened proceedings relating to the revocation, withdrawal,
cancellation, modification, suspension or non-renewal of any material
permits, certificates, licenses, approvals, registrations and
authorizations of the Company; and
(M) The Company is not an "investment company," or a company
"controlled" by, or an "affiliated person" of, or a "promoter" or
"principal underwriter" for, an "investment company," within the meaning of
the 1940 Act, and upon the Company's receipt of any proceeds from the sale
of the Shares, it will not become or be deemed to be an "investment
company" under the 1940 Act; and
(N) To the best of counsel's knowledge after due inquiry, except as
disclosed in the Prospectus, there are no contracts or agreements between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in (1) the securities registered
pursuant to the Registration Statement or (2) any other securities now or
hereafter registered pursuant to any other registration statement filed by
the Company under the Act. To the best of counsel's knowledge after due
inquiry, except as disclosed in the Prospectus, no holder of securities of
the Company has rights to the registration of any securities of the Company
because of the filing of the Registration Statement, or all such holders,
if any, have waived all such rights as of the date hereof; and
(O) The description in the Registration Statement and the Prospectus
of statutes and contracts and other legal documents described therein are
fair summaries thereof and present fairly the information required to be
shown with respect to such matters.
Such counsel may rely as to factual matters on certificates of officers of
the Company and of state officials, in which case the opinion of counsel to the
Company shall state that they are so doing and copies of such certificates or
opinions shall be attached to such counsel's opinion.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that although such counsel has not undertaken, except
as otherwise indicated in their opinion, to determine independently, and does
not assume responsibility for, the accuracy or completeness of statements in the
Registration Statement or the
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<PAGE>
Prospectus, such counsel has participated in the preparation of the Registration
Statement and the Prospectus, including without limitation review and discussion
of the contents thereof, and no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or the
Prospectus, or any amendment or supplement to the Registration Statement or the
Prospectus, as of their respective effective or issue dates, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which such statements were made or that the
Prospectus, as amended or supplemented, if applicable, as of the First Closing
Date or the Second Closing Date, as the case may be, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which such statements were made (except for the
financial statements and other statistical or financial data included therein as
to which such counsel need express no opinion). Notwithstanding anything herein
to the contrary, it is understood and agreed that other counsel to the Company
are rendering opinions with respect to (i) the sections of the Prospectus
entitled "Risk Factors--Protection of Intellectual Property and Proprietary
Technology," "Business--Patents and Proprietary Information," and (ii) the
sections of the Prospectus relating to the FDA under sections entitled "Risk
Factors--Government Regulation" and "Business--Government Regulation," and
no opinions are expressed herein with respect to such sections or matters
notwithstanding the location of such matters in the Prospectus.
(ii) An opinion of Testa, Hurwitz & Thibeault, special patent counsel for
the Company, reasonably satisfactory to the Representatives and counsel to the
Underwriters, addressed to the Representatives as the representatives of the
Underwriters and dated the First Closing Date or the Second Closing Date, as the
case may be, to the effect that:
[THIS IS UNDER REVIEW PENDING COMPLETION OF PATENT DILIGENCE]
[_______________(A) [Record title in each of [______________]
(individually a "U.S. Patent," and collectively the "U.S. Patents") is
owned by the Company free and clear of any liens or interests therein held
by any other person or entity; and
(B) Record title in each of the following non-U.S. patents:
COUNTRY PATENT NO. DATE OF GRANT
------- ---------- -------------
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<PAGE>
(individually a "Foreign Patent," and collectively the "Foreign Patents")
is owned by the Company free and clear of any liens or interests therein
held by any other person or entity; and
(C) Record title in each of the following U.S. patent applications:
APPLICATION NO. DATE OF FILING
--------------- --------------
(individually a "U.S. Application" and collectively the "U.S.
Applications") is owned by the Company free and clear of any liens or
interests therein held by any other person or entity; and
(D) Record title in each of the following non-U.S. patent
applications:
COUNTRY APPLICATION NO. DATE OF FILING
------- --------------- --------------
(individually a "Foreign Application" and collectively the "Foreign
Applications") is owned by the Company free and clear of any liens or
interests therein held by any other person or entity; and
(E) Each of the U.S. Patents and Foreign Patents was duly and validly
issued and, on the basis of all information which has been made available
to us, is neither invalid nor unenforceable; and
(F) On the basis of information supplied by the Company, such counsel
has no reason to believe that any of the Company's products infringe any
rights of any third party; and
(G) On the basis of such counsel's knowledge and representations by
the Company, there is no pending or threatened litigation, administrative
or other proceeding or claim of any third party the outcome of which could
adversely affect the Company's rights in and to any U.S. or Foreign Patent
or any U.S. or Foreign Application; and
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<PAGE>
(H) The Company has not been charged or, to such counsel's knowledge
after due inquiry of the Company, been threatened to be charged with any
infringement of any patent, copyright, copyright registration, trade secret
or any other proprietary right of any other person or entity; and
(I) The Company owns or has adequate rights to use all patent rights
and all rights under mask works and copyrights necessary for the conduct of
its businesses, and, after due inquiry of the Company, such counsel has no
knowledge of any infringement by the Company of any patent, mask work
registration, copyright, license, trade secret or other similar right of
any other person or entity, and, after due inquiry of the Company, such
counsel has no knowledge of any claim being made against the Company or any
employee of the Company, regarding patent, mask work or copyright
infringement, breach of license, trade secret misappropriation or other
similar violation of a third party's rights materially affecting the
ability of the Company to conduct its business, except as set forth herein;
and
(J) Neither the execution, delivery and performance of this Agreement
nor the consummation of the transactions contemplated hereby will violate
any law, rule, regulation or order applicable to any U.S. Patent, Foreign
Patent or to any U.S. or Foreign Application; and
(K) Each of the hardware products being manufactured and sold by the
Company is covered by at least one claim of at least one of the U.S.
Patents, Foreign Patents or Foreign Applications; and
(L) Although such counsel has not undertaken, except as otherwise
indicated in their opinion, to determine independently, and does not assume
responsibility for, the accuracy or completeness of statements in the
Registration Statement or the Prospectus, such counsel has participated in
the preparation of the Registration Statement and the Prospectus, including
without limitation review and discussion of the contents thereof, and no
facts have come to the attention of such counsel which lead them to believe
that any of the portions of the Registration Statement or the Prospectus
under the captions "Risk Factors-Protection of Intellectual Property and
Proprietary Technology," "Business-Patents and Proprietary Information" or
any amendment or supplement to the Registration Statement or the Prospectus
relating to any of such portions of the Registration Statement or the
Prospectus, as of their respective effective or issue dates, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which such statements
were made or that the Prospectus, as amended or supplemented, if
applicable, as of the First Closing Date or the Second Closing Date, as the
case may be, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under
which such
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<PAGE>
statements were made (except for the financial statements and other
statistical or financial data included therein as to which such counsel
need express no opinion); and
(M) There are no amendments to the Registration Statement required to
be filed or any legal or governmental proceedings pending, or, to such
counsel's best knowledge, after due inquiry, threatened, that are required
to be described in the Prospectus that are not described as required, nor
are there any contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required, and
(N) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body
applicable to any U.S. Patent, Foreign Patent or any Foreign Application is
required for the issuance and/or sale of the Shares and/or the consummation
of the transactions contemplated by this Agreement, other than such as have
been obtained by the Company on or before the date of this Agreement,
except the registration of the Shares under the Act, and such consents,
approvals, authorizations, registrations or qualifications as may be
required under any Blue Sky Laws in connection with the purchase and
distribution of the Shares by the Underwriters and the clearance of the
offering contemplated by this Agreement with the NASD; and
(O) The description in the Registration Statement and the Prospectus
of statutes, legal and governmental proceedings, and contracts and other
legal documents described therein as they apply to each U.S. Patent,
Foreign Patent U.S. Application and Foreign Application present fairly the
information required to be shown.
Such counsel may rely as to factual matters on certificates of officers of
the Company and of governmental officials, in each case satisfactory to the
Representatives, in which case their opinion shall state that they are so doing
and that they have no reason to believe that any such certificate is not
complete and accurate, and copies of such certificates or opinions shall be
attached to such counsel's opinion.]
(iii) [AN OPINION OF KING & SPALDING, REGULATORY COUNSEL FOR THE COMPANY,
DATED THE CLOSING DATE AND ADDRESSED TO YOU, AS REPRESENTATIVES OF THE SEVERAL
UNDERWRITERS TO THE EFFECT THAT:
ANY STATEMENTS SET FORTH IN THE REGISTRATION STATEMENT AND THE PROSPECTUS
UNDER THE CAPTIONS "RISK FACTORS - GOVERNMENTAL REGULATION: AND "BUSINESS -
GOVERNMENT REGULATION" (COLLECTIVELY, THE "FDA PORTION") CONSTITUTE AN ACCURATE
SUMMARY IN ALL MATERIAL RESPECTS OF RESTRICTIONS APPLICABLE TO THE BUSINESS OF
THE COMPANY ARISING UNDER THE FEDERAL FOOD, DRUG, AND COSMETIC ACT (THE "FFDCA")
OR THE REGULATIONS THEREUNDER OR THE FDA REGULATION OF THE BUSINESS OR
OPERATIONS OF THE COMPANY, OR OF ANY LEGAL
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<PAGE>
MATTERS, DOCUMENTS OR PROCEEDINGS REFERRED TO THEREIN AND RELATING TO THE FFDCA
OR THE FDA'S REGULATION OF THE BUSINESS OR OPERATIONS OF THE COMPANY OR THE
COMPANY'S COMPLIANCE THEREWITH.
TO COUNSEL'S KNOWLEDGE, THE COMPANY HAS FILED WITH THE FDA FOR AND RECEIVED
APPROVAL OF ALL APPLICATIONS, LICENSES, REGISTRATIONS, AND PERMITS ("REGULATORY
AUTHORIZATIONS") NECESSARY TO CONDUCT THE BUSINESS OF THE COMPANY DESCRIBED IN
THE REGISTRATION STATEMENT AND THE PROSPECTUS; THE COMPANY IS IN THE PROCESS OF
COMING INTO COMPLIANCE WITH ALL SUCH REGULATORY AUTHORIZATIONS AND ALL
APPLICABLE FDA RULES, REGULATIONS, GUIDELINES AND POLICIES, INCLUDING BUT NOT
LIMITED TO, APPLICABLE FDA RULES, REGULATIONS AND POLICIES RELATING TO THE
DEVELOPMENT, TESTING, MANUFACTURE, LABELING, STORAGE, RECORD KEEPING, REPORTING,
OR MARKETING OF THE PRODUCTS OF THE COMPANY.
TO COUNSEL'S KNOWLEDGE, THE COMPANY HAS NO REASON TO BELIEVE THAT THE FDA
IS CONSIDERING TAKING ANY ACTION TO LIMIT, SUSPEND, REVOKE, OR WITHDRAW ANY SUCH
REGULATORY AUTHORIZATION.
BASED UPON A REVIEW OF THE FDA PORTION, COUNSEL HAS NO REASON TO BELIEVE
THAT THE INFORMATION CONTAINED IN THE FDA PORTION OF THE REGISTRATION STATEMENT
AND THE PROSPECTUS AT THE TIME IT BECAME EFFECTIVE CONTAINED ANY UNTRUE
STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL FACT REQUIRED TO BE
STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING OR
THAT ON THE FIRST CLOSING DATE THE INFORMATION CONTAINED IN THE FDA PORTION OF
THE PROSPECTUS OR ANY AMENDMENTS OR SUPPLEMENTS TO THE FDA PORTION OF THE
PROSPECTUS CONTAINS ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE
ANY MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN NOT
MISLEADING.]
(iv) Such opinion or opinions of Ropes & Gray, counsel for the
Underwriters, dated the First Closing Date or the Second Closing Date, as the
case may be, with respect to the incorporation of the Company, validity of the
Shares, the Registration Statement and the Prospectus, and other related matters
as the Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents and shall have exhibited to them such
papers and records as such counsel reasonably request for the purpose of
enabling them to pass upon such matters.
(v) Concurrently with the execution of this Agreement and on each Closing
Date, a certificate of the chief executive officer and the principal financial
officer of the Company, dated the date of this Agreement, the First Closing Date
or the Second Closing Date, as the case may be, in form and substance reasonably
satisfactory to the Representatives, to the effect that;
(A) Each of the representations and warranties of the Company set
forth in Section 2 are true and correct as of the date of this Agreement
and as of the First Closing Date or the Second Closing Date, as the case
may be; and
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(B) The Company has duly, timely and fully performed each of the
covenants required to be performed by it under this Agreement; and the
Company has duly, timely and fully satisfied or fulfilled each condition
required to be satisfied or fulfilled by it on or prior to the date of such
certificate; and
(C) To the best of such officers' information and belief after due
inquiry, the Commission has not issued an order preventing or suspending
the use of the Prospectus or any Preliminary Prospectus filed as a part of
the Registration Statement or any amendment thereto; no stop order
suspending the effectiveness of the Registration Statement has been issued;
and no proceedings for that purpose have been instituted or, to the best
knowledge of the respective signatories, are pending or contemplated under
the Act; and
(D) To the best of such officers' knowledge and belief after due
inquiry, no order suspending the qualification or registration of the
Shares under the Blue Sky Laws of any jurisdiction shall be in effect and
no proceeding for such purpose shall be pending before or, to the knowledge
of the Company or the Representatives, threatened or contemplated by the
authorities of any such jurisdiction; and
(E) Each of the respective signatories of the certificate has
carefully examined the Registration Statement and the Prospectus, and the
Registration Statement and the Prospectus and any amendment or supplement
thereto contain all statements and information required to be included
therein, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto includes any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make all statements therein not misleading in light of the
circumstances under which such statements were made, and since the date on
which the Registration Statement was initially filed with the Commission,
no event has occurred that was required to be set forth in an amended or
supplemented prospectus or in an amendment to the Registration Statement
that has not been so set forth; and
(F) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there, has not been any material
adverse change or development (or development involving a potential adverse
change) in the business, properties, financial condition or earnings of the
Company, whether or not arising from transactions in the ordinary course of
business, having a Material Adverse Effect, except as disclosed in or
otherwise contemplated by the Prospectus and the Registration Statement as
heretofore amended or (but only if the Representatives expressly consents
thereto in writing) as disclosed in an amendment or supplement thereto
filed with the Commission and delivered to the Representatives after the
execution of this Agreement; since such respective dates and except as so
disclosed the Company has not incurred any liability or obligation, direct
or indirect,
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or entered into any transaction that is material to the Company and was not
contemplated by the Prospectus; since such respective dates and except as
so disclosed there has not been any material change in the outstanding
capital stock of the Company, or any material change in the short-term debt
or long-term debt of the Company; since such respective dates and except as
to disclosed the Company has not acquired any of the Common Stock or other
capital stock of the Company nor has the Company declared or paid any
dividend, or made any other distribution not expressly consented to in
writing by the Representatives upon its outstanding Common Stock payable to
shareholders of record on a date prior to the First Closing Date or Second
Closing Date, as the case may be; since such respective dates and except as
so disclosed the Company has not incurred any material contingent
obligations, and no material litigation is pending or threatened against
the Company; and since such respective dates and except as so disclosed in
the Prospectus the Company has not sustained any material loss or
interference (1) from any strike, fire, flood, windstorm, accident or other
calamity or casualty (whether or not insured) or (2) from any court or
governmental action, order or decree.
(vi) Concurrently with the execution of this Agreement, each of the
Accountants shall have delivered to the Representatives a letter, dated the date
of this Agreement, addressed to the Representatives, as representatives of the
Underwriters and the directors of the Company , in form and substance reasonably
satisfactory to the Representatives, confirming that the Accountants are
independent accountants with respect to the Company as required by the Act and
the Rules and Regulations and with respect to certain financial and other
statistical and numerical information contained in the Registration Statement.
On the First Closing Date and, as to the Option Shares, the Second Closing Date,
the Accountants shall have furnished to the Representatives a letter, dated the
date of the applicable Closing Date, which shall confirm, on the basis of a
review in accordance with the procedures set forth in such letter from the
Accountants, that nothing has come to their attention during the period from the
date of this Agreement to a date (specified in such letter) not more than five
(5) days prior to the First Closing Date or the Second Closing Date, as the case
may be, which would require any change in their letter dated the date of this
Agreement if it were required to be dated and delivered at the First Closing
Date or the Second Closing Date, as applicable. There shall not have been any
change or decrease set forth in any of the letters referred to in this Section
9(g)(vi) that makes it impracticable or inadvisable in the reasonable judgment
of the Representatives to proceed with the public offering or purchase of the
Shares contemplated hereby.
(vii) Such further certificates and documents as the Representatives
reasonably may request (including without limitation certificates of officers of
the Company).
All such opinions, certificates, letters and documents shall be in
compliance with the provisions of this Agreement only if they are reasonably
satisfactory to the Representatives and to Ropes & Gray, counsel for the
Underwriters. The Company shall furnish the
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Representatives with such manually signed or conformed copies of such opinions,
certificates, letters and documents as the Representatives reasonably may
request.
(h) On the First Closing Date and the Second Closing Date the Common Stock
shall be listed on the Nasdaq National Market and no proceeding relating to
delisting the Common Stock from the Nasdaq National Market shall be pending.
(i) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company, or any of its officers or
directors in their capacities as such, for or by any foreign, federal, state,
municipal or local court, commission, regulatory body, administrative agency or
other governmental body, in which litigation or proceeding an unfavorable
ruling, decision or finding would have a Material Adverse Effect.
(j) Each of the representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects at the First
Closing Date and, with respect to the Option Shares, at the Second Closing Date,
and all covenants and agreements contained in this Agreement to be performed on
the part of the Company and all conditions contained herein to be fulfilled or
complied with by the Company at or prior to the First Closing Date and, with
respect to the Option Shares, at or prior to the Second Closing Date, shall have
been duly performed, fulfilled or complied with.
(k) On or prior to the First Closing Date the Representatives shall have
received the written agreement of each of its officers, directors, principal
shareholders and certain option holders evidencing their agreement not to engage
in certain transaction in the shares of capital stock of the Company for a
period of 180 days following the Effective Date in the form provided by counsel
to the Underwriters.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement, at
the Representatives' election, shall, upon notification of the Company,
terminate without liability on the part of any Underwriter, including without
limitation the Representatives, or the Company, except for the expenses to be
paid by the Company pursuant to Section 8 or reimbursed by the Company pursuant
to Section 10 and except to the extent provided in Section 12.
SECTION 10. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale to the
Underwriters of the Shares at the First Closing is not consummated because any
condition to the Underwriters' obligations under this Agreement is not satisfied
or because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof, the Company
agrees to reimburse the Representatives and the other Underwriters through you
upon demand for all reasonable out-of-pocket expenses (including without
limitation reasonable fees and disbursements of counsel) that shall have been
incurred by the Representatives and the other Underwriters in connection with
the
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proposed purchase and the sale of Shares up to a maximum of $50,000. Any such
failure of consummation shall be without liability of any party to any other
except that the provisions of this Section 10 and Sections 8 and 12 shall at all
times be effective and shall apply.
SECTION 11. MAINTENANCE OF EFFECTIVENESS OF REGISTRATION STATEMENT. The
Representatives and the Company shall use their respective best efforts to
prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement and, if any such stop order is issued, to obtain the
withdrawal of such order at the earliest possible moment.
SECTION 12. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter; the
directors, officers, employees and agents of each Underwriter, and each person,
if any, who controls any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act; from and against any losses, claims, damages,
expenses, liabilities or actions in respect thereof (including without
limitation any and all investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted) (collectively, "Claims"), whether
joint or several, to which any such Underwriter, person or controlling person
may become subject under the Act, the Exchange Act, any Blue Sky Law, or any
other federal or state statutory law or regulation, at common law or otherwise
(including without limitation payments made in settlement of any litigation, if
such settlement is effected with the written consent of the Company, which
consent shall not be unreasonably withheld), insofar as such Claims arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made,
and will reimburse each Underwriter, each such other person and each such
controlling person for any reasonable legal fees or other expenses reasonably
incurred by such Underwriter or any such other person party or any such
controlling person in connection with investigating, defending against or
appearing as a third witness in connection with any such Claim; provided,
however, that the Company will not be liable in any such case to the extent
that:
(i) any such Claim arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission to state a material
fact made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with the written information furnished by or on behalf of the
Underwriters to the Company pursuant to Section 4; or
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(ii) such untrue statement or alleged untrue statement or omission or
alleged omission to state a material fact was contained or made in any
Preliminary Prospectus and corrected in the Prospectus and (A) any such Claim
suffered or incurred by any Underwriter (or any person who controls any
Underwriter within the meaning of Section 15 of the Act of or Section 20 of the
Exchange Act) resulted from a Claim by any person who purchased Shares that are
the subject thereof from such Underwriter in the offering, and (B) such
Underwriter failed to deliver a copy of the Prospectus (as then amended if the
Company shall have amended the Prospectus) to such person at or prior to the
confirmation of the sale of such Shares in any case where such delivery is
required by the Act, unless such failure was due to failure by the Company to
provide copies of the Prospectus (as so amended) to the Underwriters as required
by this Agreement. The indemnification obligations of the Company pursuant to
this Section 12(a) are in addition to any liabilities the Company may otherwise
have.
The Company will not, without the prior written consent of the
Representatives, settle or compromise or consent to the entry of any judgment in
any pending or threatened Claim (or related cause of action or portion thereof)
in respect of which indemnification may be sought hereunder (whether or not any
Underwriter is a party to such Claim), unless such settlement, compromise or
consent includes an unconditional release of each Underwriter from all liability
arising out of such Claim (or related cause of action or portion thereof).
(b) Each Underwriter, severally and not jointly, agrees to indemnify and
hold harmless the Company, each of its directors, and each of its officers who
signs the Registration Statement, and each person who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
against any Claim to which the Company or any of its directors, officers or
controlling persons or person controlling such persons may become subject under
the Act, the Exchange Act, any Blue Sky Law or any other federal or state
statutory law or regulation, at common law or otherwise (including without
limitation payments made in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter and the Representatives,
which consent shall not be unreasonably withheld), insofar as such Claims arise
out of or are based upon any untrue or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement by such Underwriter to the Company pursuant to Section
4. Each Underwriter will severally reimburse any legal fees or other expenses
reasonably incurred by the Company, or any of its directors, officers or
controlling persons or any of the controlling persons of such persons in
connection with investigating or defending any such Claim, and from any and all
Claims resulting from failure of an Underwriter to deliver a copy of the
Prospectus, if the person asserting such Claim purchases Shares from such
Underwriter and a copy of the Prospectus
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(as then amended if the Company shall have amended the Prospectus) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended) would have
cured the defect giving rise to such Claim. The indemnification obligations of
each Underwriter pursuant to this Section 12(b) are in addition to any
liabilities any such Underwriter may otherwise have.
(c) Any party that proposes to assert its right to be indemnified under
this Section 11 shall, promptly after receipt of notice of the commencement of
any action against such party in respect of a Claim, if a Claim in respect
thereof is to be made against an indemnifying party under this Section 11,
notify each such indemnifying party in writing of the commencement thereof (a
"Commencement Notice"), and such Commencement Notice shall include a copy of all
papers served upon the notifying party, provided that the omission to so notify
such indemnifying party or parties shall only relieve the indemnifying party or
parties from any liability it or they may have to any indemnified party under
this Section 11 to the extent that such omission to give such notice results in
the loss of substantive rights or defenses by the indemnifying party. If any
such action is brought against any indemnified party, and such indemnified party
notifies an indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving a
Commencement Notice, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded (based on advice of counsel)
that there may be legal defenses available to the indemnified party and/or other
indemnified parties that are different from or in addition to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties in accordance with clause (d) hereof.
(d) Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election to assume the defense of such action
and upon approval by the indemnified party of counsel selected by the
indemnifying party, the indemnifying party shall not be liable to such
indemnified party under Section 12(a) or Section 12(b) for any legal fees or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with such defense,
unless:
(i) the indemnified party shall have employed separate counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the last sentence of Section 12(c) (it being understood, however, that the
indemnifying party shall not be liable for the legal fees and expenses of more
than one separate counsel, approved by the Representatives if one or more of the
Underwriters or their controlling persons are the indemnified parties); or
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(ii) the indemnifying party has authorized in writing the employment of
counsel at the expense of the indemnifying party; or
(iii) a conflict or potential conflict exists (based on advice of counsel
to the indemnified party) between the indemnified party and any indemnifying
party (in which case the indemnifying party shall not have the right to direct
the defense of such action on behalf of the indemnified party).
It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm admitted to practice in such jurisdiction at any one time for
all such indemnified party or parties. All such fees, disbursements and other
charges shall be reimbursed by the indemnifying party or parties promptly as
they are incurred. No indemnifying party shall be liable for any settlement of
any action or claim effected without such indemnifying party's written consent
(which consent shall not be unreasonably withheld).
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 12 is
applicable in accordance with its terms but for any reason is held to be
unavailable from the Company or the Underwriters, the Company and the
Underwriters shall contribute to the total losses, claims, liabilities, expenses
and damages (including without limitation any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any Claim, but after deducting any contribution received by the
Company from persons other than the Underwriters, such as persons who control
the Company within the meaning of the Act, officers of the Company who signed
the Registration Statement and directors of the Company, who also may be liable
for contribution) to which each indemnified party may be subject as a result of
such Claim:
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other hand
from the offering of the Shares; or
(ii) if the allocation provided by Section 12(e)(i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in Section 12(e)(i) above, but also the relative
fault of the Company on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such Claim, as well
as any other relevant equitable considerations.
The respective relative benefits received by the Company on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions and other compensation received by the
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Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other hand
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 12(e) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in this Section 12(e). The amount paid or payable by
an indemnified party as a result of the Claims referred to above shall be deemed
to include, subject to the limitations set forth in Sections 12(c) and 12(d),
any legal or other fees or expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim.
(f) Notwithstanding the other provisions of this Section 12, no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts and commissions and other compensation received by it, and no person
found guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 12 are several in proportion to the
respective number of Firm Shares set forth opposite their names in SCHEDULE A
(or such number of Firm Shares increased as set forth in Section 12) and not
joint. For purposes of this Section 12, any person who controls a party to this
Agreement within the meaning of the Act shall have the same rights to
contribution as that party, and each officer of the Company who signed the
Registration Statement shall have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 12. Any party
entitled to contribution, promptly after receipt of notice of commencement of
any action against any such party in respect of which a claim for contribution
may be made under this Section 12, shall notify any such party or parties from
whom contribution may be sought, but the omission so to notify shall not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have under this Section 12. No party shall be liable
for contribution with respect to any action or claim settled without its written
consent (which consent shall not be unreasonably withheld).
(g) The indemnity and contribution agreements contained in this Section 12
shall remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of the Underwriters, (ii) acceptance of any
of the Shares and payment therefor or (iii) any termination of this Agreement.
SECTION 13. SUBSTITUTION OF UNDERWRITERS. It shall be a condition to this
Agreement and to the obligations of the Company to sell and deliver the Shares
hereunder, and to the obligations of each Underwriter to purchase the Shares in
the manner as described
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herein, that, except as hereinafter provided in this Section 13, each of the
Underwriters shall purchase and pay for all of the Shares agreed to be purchased
by such Underwriter hereunder upon tender to the Representatives of all such
Shares in accordance with the terms hereof. If any Underwriter or Underwriters
defaults in its or their obligations to purchase Shares hereunder on either the
First Closing Date or the Second Closing Date and the aggregate number of Shares
that such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase does not exceed ten percent (10%) of the total number of Shares the
Underwriters are obligated to purchase on such Closing Date, the Representatives
may make arrangements for the purchase of such Shares by other persons,
including without limitation any of the Underwriters, but if no such
arrangements are made by such Closing Date the nondefaulting Underwriters shall
be obligated severally, in proportion to their respective commitments hereunder,
to purchase the Shares such defaulting Underwriters agreed but failed or refused
to purchase on such Closing Date, provided that in no event shall the maximum
number of Shares which any Underwriter has become obligated to purchase pursuant
to Section 5 be increased pursuant to this Section 13 by more than one-eleventh
of such number of Shares without the prior written consent of such Underwriter.
If any Underwriter or Underwriters so default and the aggregate number of Shares
with respect to which such default or defaults occur is greater than the above
percentage and arrangements satisfactory to the Representatives for the purchase
of such Shares by other persons are not made within thirty-six (36) hours after
such default, this Agreement shall terminate without liability on the part of
any nondefaulting Underwriter or the Company, except for the expenses to be paid
by the Company pursuant to Section 8 and except to the extent provided in
Section 12.
If the Shares to which such a default relates are to be purchased by the
nondefaulting Underwriters or by another party or parties, the Representatives
or the Company shall have the right to postpone the First or Second Closing
Date, as the case may be, for not more than seven (7) business days so that the
required changes in the Registration Statement, Prospectus and any other
documents, as well as any other arrangements, may be effected. The term
"Underwriter" shall include any person substituting for a defaulting Underwriter
hereunder. Nothing contained in this Agreement shall relieve a defaulting
Underwriter from liability for its default.
SECTION 14. EFFECTIVE DATE OF THIS AGREEMENT. This Agreement shall become
effective immediately upon the execution hereof on the date hereof.
SECTION 15. TERMINATION. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof, this Agreement may be
terminated by the Representatives prior to the First Closing Date and the
Option, if exercised, may be canceled by the Representatives at any time prior
to the Second Closing Date, prior to delivery of and payment for the applicable
Shares, if in the Representatives' sole judgment, payment for and delivery of
the Shares is rendered impracticable or inadvisable because:
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(a) additional government restrictions, not in force and effect on the date
hereof, shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established over-the-counter on the
Nasdaq Stock Market or on the New York Stock Exchange, or trading in securities
generally shall have been suspended or limited on the Nasdaq Stock Market or the
New York Stock Exchange; or
(b) a general banking moratorium shall have been established by federal,
New York or Connecticut authorities;
(c) any event shall have occurred or shall exist that makes untrue or
incorrect in any material respect any statement or information contained in the
Registration Statement or that is not reflected in the Registration Statement
but should be reflected therein to make the statements or information contained
therein not misleading in an material respect; or
(d) any outbreak or escalation of major hostilities or other national or
international calamity or crisis or any substantial change in political,
financial or economic conditions or any other event or events shall have
occurred or shall have accelerated to such extent, in the Representatives' sole
judgment, as to have a material adverse effect on the general financial and/or
securities markets of the United States or make it impracticable or inadvisable
to proceed with completion of the sale of and payment for the Shares as provided
in this Agreement; or
(e) trading in any of the equity securities of the Company shall have been
suspended by the Commission, by an exchange that lists the Shares or by the
Nasdaq Stock Market.
Any termination pursuant to this Section 15 shall be without liability on
the part of any Underwriter to the Company or on the part of the Company to any
Underwriter (except for expenses to be paid by the Company pursuant to Section 8
or reimbursed by the Company pursuant to Section 10 and except as to
indemnification to the extent provided in Section 12).
SECTION 16. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties, covenants and
other statements of the Company or its officer or directors and of the several
Underwriters set forth in or made by or on behalf of them pursuant to this
Agreement shall remain in full force and effect, regardless of (a) any
investigation made by or on behalf of any Underwriter, the Company or any of its
or their partners, officers, directors, or any controlling person, as the case
may be; (b) any termination of this Agreement; and (c) delivery of and payment
for the Shares sold hereunder.
SECTION 17. NOTICES. All communications hereunder shall be in writing and,
if sent to the Representatives, shall be mailed, delivered, telecopied (with
receipt confirmed) or
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telegraphed and confirmed to Advest, Inc. at One Commercial Plaza, 280 Trumbull
Street, Hartford, Connecticut 06103, Attention: Roger E. Linnemann, with a copy
to Steven A. Wilcox, Esq., Ropes & Gray, One International Place, Boston,
Massachusetts 02110; and if sent to the Company, shall be mailed, delivered,
telecopied (with receipt confirmed) or telegraphed and confirmed to the Company
at 200 Cascade Boulevard, Milford, Connecticut 06460, Attention: James Biondi,
President, with a copy to Paul Jacobs, Esq., Fulbright & Jaworski L.L.P., 666
Fifth Avenue, New York, NY 10103.
SECTION 18. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns, and
to the benefit of the officers and directors (and their personal representatives
and controlling persons referred to in Section 12), and no other person shall
acquire or have any right or obligation hereunder. The term successors and
assigns shall not include any purchaser of the Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 19. PARTIAL UNENFORCEABILITY. If any Section, subsection, clause or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
provision is invalid, illegal or incapable of being enforced, the parties
thereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible.
SECTION 20. WAIVER OF JURY TRIAL. The Company and the Underwriters each
hereby waive any right they may have to a trial by jury in respect of any claim
based upon or arising out of this Agreement or any of the transactions
contemplated hereby.
SECTION 21. APPLICABLE LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York. No
doctrine of choice of law shall be used to apply any law other than that of the
State of Connecticut, and no defense, counterclaim or right of set-off given or
allowed by the laws of any other state jurisdiction, or arising out of the
enactment, modification or repeal of any law, regulation, ordinance or decree of
any foreign jurisdiction, shall be interposed in any action upon or relating to
this Agreement.
SECTION 22. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and there are no agreements between the parties with respect
to such transactions other than as set forth, or provided for herein.
SECTION 23. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
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SECTION 24. HEADINGS FOR CONVENIENCE. The Section titles contained in this
Agreement are for convenience of reference only and shall be without substantive
meaning or content of any kind whatsoever and are not a part of the agreement
between the parties.
SECTION 25. CONSTRUCTION. The terms "hereof," "herein," "hereunder" and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Section, paragraph and Schedule
references are to this Agreement unless otherwise specified.
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If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon this
Agreement shall become a binding agreement among the Company and the several
Underwriters, including without limitation the Representatives, all in
accordance with its terms.
Very truly yours,
CARDIOPULMONARY CORP.
By:________________________________
Title:_____________________________
The foregoing Underwriting Agreement
is hereby confirmed and accepted by the
undersigned, acting as Representatives
of the several Underwriters (including
themselves) identified in SCHEDULE A
annexed hereto, as of the date first
above written
ADVEST, INC.
By:_____________________________
Title:__________________________
CRUTTENDEN ROTH INCORPORATED
By:_____________________________
Title:__________________________
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SCHEDULE A
Number of Firm
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
Advest, Inc..............................
Cruttenden Roth Incorporated.............
----------
Total: 2,000,000
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CARDIOPULMONARY CORP.
-------------------
CARDIOPULMONARY CORP., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation (hereinafter called the "corporation") is
CARDIOPULMONARY CORP. The date of filing of its original Certificate of
Incorporation with the Secretary of State was March 4, 1988.
2. This Restated Certificate of Incorporation restates and integrates and
further amends the Certificate of Incorporation of this corporation by: (i)
amending Article FOURTH to authorize 1,000,000 shares of preferred stock; (ii)
deleting Article FIFTH; (iii) renumbering Articles SIXTH through ELEVENTH; (iv)
amending renumbered Article SEVENTH to eliminate stockholder action by written
consent without a meeting; and (iii) amending renumbered Article NINTH to
clarify that amendments to the indemnification provision therein shall be
prospective only.
3. The text of the Certificate of Incorporation as amended or supplemented
heretofore is further amended hereby to read as herein set forth in full:
FIRST: The name of the corporation (hereinafter called the
"corporation") is CARDIOPULMONARY CORP.
SECOND: The address, including street, number, city, and county, of
the registered office of the corporation in the State of Delaware is 229
South State Street, City of Dover, County of Kent; and the name of the
registered agent of the corporation in the State of Delaware at such
address is The Prentice-Hall Corporation System, Inc.
THIRD: 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.
FOURTH: A description of each class of stock of the corporation and
the voting rights, designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof is as follows:
Section 1. CAPITAL STOCK.
1.1. GENERAL. The corporation shall have two classes of capital
stock ("Capital Stock"): Common Stock, $.01 par value ("Common Stock"),
and Preferred Stock, $.01 par value ("Preferred Stock"). The total
authorized number of shares of each class of Capital Stock is 10,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock. Unless
<PAGE>
specifically otherwise provided in this Article, all shares of Capital
Stock shall be identical and shall entitle the holders thereof to the same
powers, rights and privileges.
1.2. PREFERRED STOCK. The Preferred Stock may be issued from time to
time in one or more series. The Board of Directors of the corporation is
hereby authorized, within the limitations and restrictions stated in this
Certificate of Incorporation, to determine or alter the rights,
preferences, powers, privileges and the restrictions, qualifications and
limitations granted to or imposed upon any wholly unissued series and the
designation thereof; and to increase or decrease the number of shares
constituting any such series; and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but
not below the number of shares of such series then outstanding. The shares
then constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of
shares of such series.
1.3. COMMON STOCK. Except as otherwise required by law or as
otherwise provided in any Preferred Stock Designation, the holders of
Common Stock shall exclusively possess all voting power, and each share
of Common Stock shall have one vote."
FIFTH: The corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers appointed for
this corporation under ss. 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under ss. 279 of Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority
in number representing three fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this corporation as consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
corporation, as the case may be, and also on this corporation.
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SEVENTH: For the management of the business and for the conduct of
the affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further
provided:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws. The phase "whole Board"
and the phrase "total number of directors" shall be deemed to have the same
meaning, to wit, the total number of directors which the corporation would
have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of ss. 109 of the General Corporation Law of the State of
Delaware, and after the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the Bylaws of the corporation
may be exercised by the Board of Directors of the corporation; provided,
however, that any provision for the classification of directors of the
corporation for staggered terms pursuant to the provisions of subsection
(d) of ss. 141 of the General Corporation Law of the State of Delaware
shall be set forth in an initial Bylaw or in a Bylaw adopted by the
stockholders entitled to vote of the corporation unless provisions for such
classification shall be set forth in this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only one class
of stock, each outstanding share shall entitle the holder thereof to notice
of, and the right to vote at, any meeting of stockholders. Whenever the
corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under
the provisions of the certificate of incorporation shall entitle the holder
thereof to the right to vote at any meeting of stockholders except as the
provisions of paragraph (2) of subsection (b) of ss. 242 of the General
Corporation Law of the State of Delaware shall otherwise require; provided,
that no share of any such class which is otherwise denied voting power
shall entitle the holder thereof to vote upon the increase or decrease in
the number of authorized shares of said class.
4. No action required by the General Corporation Law of the State of
Delaware at any annual or special meeting of the stockholders of the
corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken by written consent without a
meeting.
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EIGHTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of
subjection (b) of ss. 102 of the General Corporation law of the State of
Delaware, as the same may be amended and supplemented.
NINTH: The corporation shall, to the fullest extent permitted by ss.
145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and
all of the expenses, liabilities, or other matters referred to in or
covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may
be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person. Any amendment to the indemnification
provision of this Article NINTH shall be prospective only, to the extent it
reduces the protection set forth herein.
TENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the
corporation by this certificate of incorporation are granted subject to the
provisions of this Article TENTH.
4. This Restated Certificate of Incorporation was duly adopted by written
consent of the stockholders in accordance with the applicable provisions of
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware and written notice of the adoption of this Restated Certificate of
Incorporation has been given as provided by Section 228 of the General
Corporation Law of the State of Delaware to every stockholder entitled to such
notice.
IN WITNESS WHEREOF, Cardiopulmonary Corp. has caused this Certificate to be
signed by James W. Biondi, M.D., President of the corporation, this ____ day of
_________ 1996.
CARDIOPULMONARY CORP.
------------------------------------
James W. Biondi, M.D.
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BYLAWS
OF
CARDIOPULMONARY CORP.
(a Delaware corporation)
-----------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the
<PAGE>
registered owner thereof any written notice prescribed by the General
Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon
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which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining the stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by the General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by the General Corporation Law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action. In
order that the corporation may determine the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
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<PAGE>
7. STOCKHOLDER MEETINGS.
-- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
-- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
-- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
Special meetings may not be called by the stockholders of the corporation,
whether individually or as a group.
-- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted
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<PAGE>
at, nor the purpose of, any regular or special meeting of the stockholders need
be specified in any written waiver of notice.
-- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
-- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
-- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
-- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon
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<PAGE>
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspectors at such meeting with strict impartiality and according
to the best of his ability. The inspectors, if any, shall determine the number
of shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots, or consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots, or consents, determine the result, and do such
acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the person presiding at the meeting, the inspector
or inspectors, if any, shall make a report in writing of any challenge,
question, or matter determined by him or them and execute a certificate of any
fact found by him or them.
-- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
-- VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of one person. Thereafter the number of
directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be one. The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
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3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
SECTION 3.1. NOTIFICATION OF NOMINATIONS. Subject to the rights of the
holders of any series of Preferred Stock, nominations for the election of
directors may be made by the Board of Directors or a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote
in the election of directors generally. However, any stockholder entitled
to vote in the election of directors generally may nominate one or more
persons for election as directors at a meeting only if written notice of
such stockholder's intent to make such nomination or nominations has been
given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation not later than (i) with
respect to an election to be held at an annual meeting of stockholders, 90
days in advance of such meeting, and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of directors,
the close of business on the seventh day following the date on which notice
of such meeting is first given to stockholders. Each such notice of the
stockholder's intent to so nominate shall set forth: (a) the name and
address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to
vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person of persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed
by such stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been
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nominated, or intended to be nominated, by the Board of Directors; and (e)
the consent of each nominee to serve as a director of the Corporation if so
elected. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing
procedure.
4. MEETINGS.
-- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
-- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
-- CALL. No call shall be required for regular meetings for which the
time and place have been fixed.
Special meetings may be called by or at the direction of the Chairman
of the Board, if any, the Vice-Chairman of the Board, if any, of the President,
or of a majority of the directors in office.
-- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
notice or written waiver of notice.
-- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a
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meeting of directors held to fill vacancies and newly created directorships in
the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
-- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
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<PAGE>
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
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CARDIOPULMONARY CORPORATION
1994 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Cardiopulmonary Corporation 1994 Stock
Option Plan (the "Plan") is to enable Cardiopulmonary Corporation (the
"Company") and its stockholders to secure the benefit of the incentives inherent
in common stock ownership by key personnel of the Company and its subsidiaries.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 6(a)
hereof, the Company may issue and sell a total of 650,000 shares of its common
stock, $.01 par value (the "Common Stock"), pursuant to the Plan. Such shares
may be either authorized and unissued or held by the Company in its treasury.
The maximum option grant which may be made in any calendar year to any employee
shall not cover more than 100,000 shares. New options may be granted under the
Plan with respect to shares of Common Stock which are covered by the unexercised
portion of an option which terminates or expires by its terms, by cancellation
or otherwise.
3. ADMINISTRATION. The Plan will be administered by a committee (the
"Committee") consisting of at least two directors appointed by and serving at
the pleasure of the Board of Directors of the Company (the "Board"). Unless the
Board determines otherwise, if the Company is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), then each
member of the Committee will be a "disinterested director" within
<PAGE>
the meaning and for the purposes of Rule 16b-3 issued by the Securities and
Exchange Commission under the Exchange Act ("Rule 16b-3"). Subject to the
provisions of the Plan, the Committee, acting in its sole and absolute
discretion, will have full power and authority to grant options under the Plan,
to interpret the provisions of the Plan, to fix and interpret the provisions of
option agreements made under the Plan, to supervise the administration of the
Plan, and to take such other action as may be necessary or desirable in order to
carry out the provisions of the Plan. A majority of the members of the Committee
will constitute a quorum. The Committee may act by the vote of a majority of its
members present at a meeting at which there is a quorum or by unanimous written
consent. The decision of the Committee as to any disputed question, including
questions of construction, interpretation and administration, will be final and
conclusive on all persons. The Committee will keep a record of its proceedings
and acts and will keep or cause to be kept such books and records as may be
necessary in connection with the proper administration of the Plan. The Company
shall indemnify and hold harmless each member of the Committee and any employee
or director of the Company or of a subsidiary to whom any duty or power relating
to the administration or interpretation of the Plan is delegated from and
against any loss, cost, liability (including any sum paid in settlement of a
claim with the approval of the Board), damage and expense (including legal and
other expenses incident thereto) arising out of or incurred in connection with
the Plan, unless and except to the extent attributable to such person's fraud or
wilful misconduct.
4. ELIGIBILITY. Options may be granted under the Plan to present or
future key employees of the Company or a subsidiary of the Company (a
"Subsidiary") within the meaning of Section 424(f) of the Internal Revenue Code
of 1986 (the "Code"), and to directors of and consultants to the Company or a
Subsidiary who are not employees. Subject to the provisions of the Plan, the
Committee may from time to time select the persons to whom options
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<PAGE>
will be granted, and will fix the number of shares covered by each such option
and establish the terms and conditions thereof, including, without limitation,
the exercise price, restrictions on exercisability of the option and/or on the
disposition of the shares of Common Stock issued upon exercise thereof, and
whether or not the option is to be treated as an incentive stock option within
the meaning of Section 422 of the Code (an "Incentive Stock Option").
5. TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Plan
will be evidenced by a written agreement in a form approved by the Committee.
Each such option will be subject to the terms and conditions set forth in this
paragraph and such additional terms and conditions not inconsistent with the
Plan as the Committee deems appropriate.
a. OPTION EXERCISE PRICE. In the case of an option which is not
treated as an Incentive Stock Option, the exercise price per share may not be
less than the par value of a share of Common Stock on the date the option is
granted; and, in the case of an Incentive Stock Option, the exercise price per
share may not be less than 100% of the fair market value of a share of Common
Stock on the date the option is granted (110% in the case of an optionee who, at
the time the option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or a Subsidiary (a
"ten percent shareholder")). For purposes hereof, the fair market value of a
share of Common Stock on any date will be equal to the closing sale price per
share as published by a national securities exchange on which shares of the
Common Stock are traded on such date or, if there is no sale of Common Stock on
such date, the average of the bid and asked prices on such exchange at the
closing of trading on such date or, if shares of the Common Stock are not listed
on a national securities exchange on such date, the closing price or, if none,
the average of the bid and asked prices in the over the counter market at the
close of trading on such date, or if the Common Stock is not traded on a
national securities exchange or the over the counter market, the fair
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<PAGE>
market value of a share of the Common Stock on such date as determined in good
faith by the Committee.
(b) OPTION PERIOD. The period during which an option may be
exercised will be fixed by the Committee and will not exceed ten years from the
date the option is granted (five years in the case of an Incentive Stock Option
granted to a "ten percent shareholder").
(c) EXERCISE OF OPTIONS.
(1) GENERAL. No option will become exercisable unless the
person to whom the option is granted remains in the continuous employ or service
of the Company or a Subsidiary for at least six months (or for such other period
as the Committee may designate) from the date the option is granted. The
Committee will determine and will set forth in the option agreement any vesting
or other restrictions on the exercisability of the option, subject to earlier
termination of the option as may be required hereunder, and any vesting or other
restrictions on shares of Common Stock acquired pursuant to the exercise of the
option. An option may be exercised by transmitting to the Company, in a manner
prescribed or approved by the Committee, (1) a written notice specifying the
number of shares to be purchased, and (2) payment of the exercise price in cash
or by personal check or by such other means or in such other manner of payment
as the Committee may permit, together with the amount, if any, deemed necessary
by the Company to enable the Company or a Subsidiary, as the case may be, to
satisfy its income tax withholding obligations with respect to such exercise
unless other arrangements acceptable to the Company are made with respect to the
satisfaction of such withholding obligations. Subject to the provisions of
applicable law, the Company may agree to retain and withhold a number of shares
of Common Stock sufficient to reimburse the Company for all or part of its
withholding tax obligation.
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<PAGE>
(2) STOCK REGISTRATION REQUIRED. Notwithstanding anything in
the Plan to the contrary, no option may be exercised unless and until a
registration statement covering the shares of Common Stock issuable upon
exercise of options granted hereunder has been filed with and declared effective
by the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
(d) PAYMENT OF EXERCISE PRICE. The purchase price of shares of
Common Stock acquired pursuant to the exercise of an option granted under the
Plan may be paid in cash and/or such other form of payment as may be permitted
under the option agreement, including, without limitation, previously-owned
shares of Common Stock and installment payments under the optionee's promissory
note.
(e) RIGHTS AS A STOCKHOLDER. No shares of Common Stock will be
issued in respect of the exercise of an option granted under the Plan until full
payment therefor has been made (and/or provided for if all or a portion of the
purchase price is being paid in installments). The holder of an option will have
no rights as a stockholder with respect to any shares covered by an option until
the date a stock certificate for such shares is issued to him or her. Except as
otherwise specifically provided herein, no adjustments shall be made for
dividends or distributions of other rights for which the record date is prior to
the date such stock certificate is issued.
(f) NONTRANSFERABILITY OF OPTIONS. No option shall be assignable
or transferrable except upon the optionee's death to a beneficiary designated by
the optionee in accordance with procedures established by the Committee or, if
no designated beneficiary shall survive the optionee, pursuant to the optionee's
will or by the laws of descent and distribution. During an optionee's lifetime,
options may be exercised only by the optionee or the optionee's guardian or
legal representative. Notwithstanding the foregoing provisions of this
subsection,
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<PAGE>
the Committee may permit an option to be transferred to and exercised by certain
transferees during the optionee's lifetime to the extent that such limited
transfer right is permitted by Rule 16b-3 or other applicable law.
(g) TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless extended by
the Committee, if an optionee ceases to be employed by or to perform services
for the Company and any Subsidiary for any reason other than death or disability
(defined below), then each outstanding option granted to him or her under the
Plan will terminate on the date three months after the date of such termination
of employment or service; provided, however, that if the optionee's employment
or service is terminated by the Company for cause (defined below) then the
option will terminate upon the date of such termination of employment or
service. If an optionee's employment or service is terminated by reason of the
optionee's death or disability (or if the optionee's employment or service is
terminated by reason of his or her disability and the optionee dies within one
year after such termination of employment or service), then each outstanding
option granted to the optionee under the Plan will terminate on the date one
year after the date of such termination of employment or service (or one year
after the later death of a disabled optionee) or, if earlier, the date specified
in the option agreement. For purposes hereof, the term "disability" means the
inability of an optionee to perform the customary duties of his or her
employment or other service for the Company or a Subsidiary by reason of a
physical or mental incapacity which is expected to result in death or be of
indefinite duration; and the term "cause" means (1) failure or refusal by
optionee to perform the duties of his or her employment with the Company, (2)
commission by the optionee of a crime involving moral turpitude, or (3) the
optionee's dishonesty or willful engagement in conduct which is injurious to the
business or reputation of the Company, all as determined by the Board in its
sole discretion.
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<PAGE>
(h) OTHER PROVISIONS. The Committee may impose such other
conditions with respect to the exercise of options, including, without
limitation, any conditions relating to the application of federal or state
securities laws, as it may deem necessary or advisable.
6. CAPITAL CHANGES, REORGANIZATION, SALE.
(a) ADJUSTMENTS UPON CHANGE IN CONTROL. If any event constituting
a "Change in Control of the Company" shall occur, all options granted under the
Plan which are outstanding at the time a Change of Control of the Company shall
occur shall immediately become exercisable. A "Change in Control of the Company"
shall be deemed to occur if (1) there shall be consummated (A) any consolidation
or merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's Common Stock would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Company's Common Stock immediately prior to
the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (B) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or (2)
the stockholders of the Company shall approve any plan or proposal for
liquidation or dissolution of the Company, or (3) any person (as such term is
used in Section 13(d) and 14(d)(2) of the Exchange Act) shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
40% or more of the Company's outstanding Common Stock other than pursuant to a
plan or arrangement entered into by such person and the Company, or (4) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the entire Board shall cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of
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<PAGE>
each new director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period;
provided, however, that stock ownership changes and changes in the composition
of the Board will not constitute a "change in control" for purposes hereunder if
and to the extent any such change occurs as a result of or in connection with a
public offering of the Company's stock. In the case of a merger, consolidation
or similar transaction which results in a replacement of the Company's Common
Stock with stock of another corporation but does not constitute Change in
Control of the Company, the Company will make a reasonable effort, but shall not
be required, to replace any outstanding options granted under the Plan with
comparable options to purchase the stock of such other corporation, or will
provide for immediate maturity of all outstanding options, with all options not
being exercised within the time period specified by the Board being terminated.
(b) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate
number and class of shares for which options may be granted under the Plan, the
maximum number of shares for which options may be granted to any individual in
any calendar year, the number and class of shares covered by each outstanding
option and the exercise price per share shall all be adjusted proportionately or
as otherwise appropriate to reflect any increase or decrease in the number of
issued shares of Common Stock resulting from a split-up or consolidation of
shares or any like capital adjustment, or the payment of any stock dividend,
and/or to reflect a change in the character or class of shares covered by the
Plan arising from a readjustment or recapitalization of the Company's capital
stock.
(c) FRACTIONAL SHARES. In the event of any adjustment in the
number of shares covered by any option pursuant to the provisions hereof, any
fractional shares resulting from such adjustment will be disregarded and each
such option will cover only the number of full shares resulting from the
adjusting.
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<PAGE>
(d) ADJUSTMENTS BY BOARD CONCLUSIVE. All adjustments under this
Section 6 shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
7. AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan; provided, however, that no such action may affect adversely any
outstanding option without the written consent of the optionee. Except as
otherwise provided in Section 6, any amendment which would increase the
aggregate number of shares of Common Stock as to which options may be granted
under the Plan, increase the number of shares with respect to which options may
be granted to any individual in any calendar year, materially increase the
benefits under the Plan, or modify the class of persons eligible to receive
options under the Plan shall be subject to the approval of the Company's
stockholders. The Committee may amend the terms of any stock option agreement
made hereunder at any time and from time to time (E.G., to accelerate vesting
upon a change of control); provided, however, that any amendment which would
adversely affect the rights of the optionee may not be made without the
optionee's prior written consent.
8. NO RIGHTS CONFERRED. Nothing contained herein will be deemed to give
any individual any right to receive an option under the Plan or to be retained
in the employ or service of the Company or any Subsidiary.
9. GOVERNING LAW. The Plan and each option agreement shall be governed
by the laws of the State of Delaware.
10. DECISIONS AND DETERMINATIONS OF COMMITTEE TO BE FINAL. Any decision
or determination made by the Board pursuant to the provisions hereof and, except
to the extent rights or powers under this Plan are reserved specifically to the
discretion of the Board, all decisions and determinations of the Committee are
final and binding.
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<PAGE>
11. TERM OF THE PLAN. The Plan shall be effective as of the date on
which it is adopted by the Board, subject to the approval of the stockholders of
the Company within one year from the date of adoption by the Board. The Plan
will terminate on the date ten years after the date of adoption, unless sooner
terminated by the Board. The rights of optionees under options outstanding at
the time of the termination of the Plan shall not be affected solely by reason
of the termination of the Plan and shall continue in accordance with the terms
of the option (as then in effect or thereafter amended) and the Plan.
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CARDIOPULMONARY CORP.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE.
The purpose of this Stock Option Plan for Non-Employee Directors (the
"PLAN") of Cardiopulmonary Corp. (the "CORPORATION") is to strengthen the
Corporation's ability to attract and retain the services of knowledgeable and
experienced persons who, through their efforts and expertise, can make a
significant contribution to the success of the Corporation's business by serving
as members of the Corporation's Board of Directors and to provide additional
incentive for such directors to continue to work for the best interests of the
Corporation and its stockholders through ownership of its Common Stock, $.01 par
value (the "COMMON STOCK"). Accordingly, the Corporation will grant to each
non-employee director options to purchase shares of the Corporation's Common
Stock on the terms and conditions hereafter established.
2. STOCK SUBJECT TO PLAN.
The Company may issue and sell a total of 125,000 shares of its Common
Stock pursuant to the Plan. Such shares may be either authorized and unissued or
held by the Company in its treasury. New options may be granted under the Plan
with respect to shares of Common Stock which are covered by the unexercised
portion of an option which has terminated or expired by its terms, by
cancellation or otherwise.
3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors of the
Corporation (the "BOARD"). The interpretation and construction by the Board of
any provisions of the Plan or of any other matters related to the Plan shall be
final. The Board may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem advisable. No member of the Board shall be
liable for any action or determination made in good faith with respect to the
Plan.
The Board of Directors may at any time amend, alter, suspend or
terminate the Plan; provided, however, that any such action would not impair any
option to purchase Common Stock theretofore granted under the Plan; and provided
further that without the approval of the Corporation's stockholders, no
amendments or alterations would be made which would (i) increase the number of
shares of Common Stock that may be purchased by each non-employee director under
the Plan (except as permitted by Paragraph 10), (ii) increase the aggregate
number
<PAGE>
of shares of Common Stock as to which options may be granted under the Plan
(except as permitted by Paragraph 10), (iii) decrease the option exercise price
(except as permitted by Paragraph 10), or (iv) extend the period during which
outstanding options granted under the Plan may be exercised; and provided
further that Paragraph 5 of the Plan shall not be amended more than once every
six months other than to comply with changes in the Internal Revenue Code of
1986, as amended, or the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
4. ELIGIBILITY.
All non-employee directors of the Corporation shall be eligible to
receive options under the Plan. Receipt of stock options under any other stock
option plan maintained by the Corporation or any subsidiary shall not, for that
reason, preclude a director from receiving options under the Plan.
5. GRANTS.
(i) Each non-employee director shall be issued an option to purchase
25,000 shares of the Corporation's Common Stock (the "INITIAL OPTION") on the
date of the earlier of his initial election or appointment to the Board of
Directors or the approval of this plan by the shareholders of the Corporation
(the "INITIAL GRANT DATE") at the following price for the following term and
otherwise in accordance with the terms of the Plan:
(a) The option exercise price per share of Common Stock shall be
the Fair Market Value (as defined below) of the Common Stock covered by
such Initial Option on the Initial Grant Date.
(b) Except as provided herein, the term of an Initial Option shall
be for a period of ten (10) years from the Initial Grant Date.
(ii) In addition, each non-employee director shall, on the fifth
anniversary and on each successive anniversary of the Initial Grant Date (each
and "ADDITIONAL GRANT DATE"), if he is still a non-employee director on such
date, be granted an option to purchase 1,000 shares of the Corporation's Common
Stock (an "ADDITIONAL OPTION") at the following price for the following term and
otherwise in accordance with the terms of the Plan:
(a) The option exercise price per share of Common Stock shall be
the Fair Market Value (as defined below) of the Common Stock covered by
such Additional Option on the Additional Grant Date.
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<PAGE>
(b) Except as provided herein, the term of an Additional Option
shall be for a period of ten (10) years from the Additional Grant Date.
(iii) "FAIR MARKET VALUE" shall mean, for each Grant Date, (A) if the
Common Stock is listed or admitted to trading on the New York Stock Exchange
(the "NYSE") or the American Stock Exchange (the "ASE"), the average of the high
and low sale price of the Common Stock on such date or, if no sale takes place
on such date, the average of the highest closing bid and lowest closing asked
prices of the Common Stock on such exchange, in each case as officially reported
on the NYSE or the ASE, or (B) if no shares of Common Stock are then listed or
admitted to trading on the NYSE or the ASE, the average of the high and low sale
prices of the Common Stock on such date on the NASDAQ National Market System or,
if no shares of Common Stock are then quoted on the NASDAQ National Market
System, the average of the closing bid and highest asked prices of the Common
Stock on such date on NASDAQ or, if no shares of Common Stock are then quoted on
NASDAQ, the average of the highest bid and lowest asked prices of the Common
Stock on such date as reported in the over-the-counter system. If no closing bid
and highest asked prices thereof are then so quoted or published in the
over-the-counter market, "Fair Market Value" shall mean the fair value per share
of Common Stock (assuming for the purposes of this calculation the economic
equivalence of all shares of classes of capital stock), as determined on a fully
diluted basis in good faith by the Board, as of a date which is 15 days
preceding such Grant Date.
6. REGULATORY COMPLIANCE AND LISTING.
The issuance or delivery of any Option may be postponed by the
Corporation for such period as may be required to comply with the Federal
securities laws, any applicable listing requirements of any applicable
securities exchange and any other law or regulation applicable to the issuance
or delivery of such Options, and the Corporation shall not be obligated to issue
or deliver any Options if the issuance or delivery of such options would
constitute a violation of any law or any regulation of any governmental
authority or applicable securities exchange.
7. RESTRICTIONS ON EXERCISABILITY AND SALE.
(i) Except as provided in Section 7(ii) below, and subject to
Section 7(iii) below, (a) each Initial Option granted under the Plan may be
exercisable as to 20% of the total number of shares issuable under such Initial
Option on each of the five successive anniversaries of the Grant Date of such
Initial Option, and (b) each Additional Option granted under the Plan may be
exercisable as to 100% of the total number of shares issuable under such
Additional Option on the first anniversary of the Grant Date of such Additional
Option.
(ii) If any event constituting a "Change in Control of the
Corporation" shall occur, all Options granted under the Plan which are
outstanding at the time a Change of
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<PAGE>
Control of the Corporation shall occur shall immediately become exercisable. A
"CHANGE IN CONTROL OF THE CORPORATION" shall be deemed to occur if (i) there
shall be consummated (x) any consolidation or merger of the Corporation in which
the Corporation is not the continuing or surviving corporation or pursuant to
which shares of the Corporation's Common Stock would be converted into cash,
securities or other property, other than a merger of the Corporation in which
the holders of the Corporation's Common Stock immediately prior to the merger
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (y) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Corporation, or (ii) the stockholders
of the Corporation shall approve any plan or proposal for liquidation or
dissolution of the Corporation, or (iii) any person (as such term is used in
Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT")), shall become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of 20% or more of the Corporation's
outstanding Common Stock other than pursuant to a plan or arrangement entered
into by such person and the Corporation, or (iv) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board of Directors shall cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by the
Corporation's stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at the
beginning of the period.
(iii) Notwithstanding anything herein to the contrary, no Option
granted hereunder may be exercised unless and until the Corporation has closed
an offering of shares of its Common Stock to the public pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
8. CESSATION AS DIRECTOR.
In the event that the holder of an Option granted pursuant to the Plan
shall cease to be a director of the Corporation for any reason such holder may
exercise any portion of the Option that is exercisable by him at the time he
ceases to be a director of the Corporation, but only to the extent such Option
is exercisable as of such date, within six months after the date he ceases to be
a director of the Corporation.
9. DEATH.
In the event that a holder of an Option granted pursuant to the Plan
shall die, his estate, personal representative or beneficiary may exercise any
portion of the Option that was exercisable by the deceased Optionee at the time
of his death, but only to the extent such Option is exercisable as of such date,
within twelve months after the date of his death.
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<PAGE>
10. STOCK SPLITS, MERGERS, ETC.
In the event of any stock split, stock dividend or similar transaction
which increases or decreases the number of outstanding shares of Common Stock,
(i) the number of options available under the Plan, (ii) the number of shares to
be granted pursuant to Section 5 of this Agreement and (iii) the number and
option exercise price per share of Common Stock which may be purchased under any
outstanding Options, each shall be adjusted automatically to the nearest whole
share (disregarding any fractional shares) to reflect such transaction. In the
case of a merger, consolidation or similar transaction which results in a
replacement of the Corporation's Common Stock and stock of another corporation
but does not constitute Change in Control of the Corporation, the Corporation
will make a reasonable effort, but shall not be required, to replace any
outstanding Options granted under the Plan with comparable options to purchase
the stock of such other corporation, or will provide for immediate maturity of
all outstanding Options, with all Options not being exercised within the time
period specified by the Board of Directors being terminated.
11. TRANSFERABILITY.
Options are not assignable or transferable, except upon the
optionholder's death to a beneficiary designated by the optionee in accordance
with procedures established the Board or, if no designated beneficiary shall
survive the optionholder, pursuant to the optionholder's will or by the laws of
descent and distribution, to the extent set forth in Section 9 and during the
optionholder's lifetime, may be exercised only by him.
12. EXERCISE OF OPTIONS.
An optionholder electing to exercise an Option shall give written
notice to the Corporation of such election and of the number of shares of Common
Stock that he has elected to acquire. An optionholder shall have no rights of a
stockholder with respect to shares of Common Stock covered by his Option until
after the date of issuance of a stock certificate to him upon partial or
complete exercise of his option.
13. PAYMENT.
The Option exercise price shall be payable in cash, check or in shares
of Common Stock upon the exercise of the Option. If the shares of Common Stock
are tendered as payment of the Option exercise price, the value of such shares
shall be the Fair Market Value as of the date of exercise. If such tender would
result in the issuance of fractional shares of Common Stock, the Corporation
shall instead return the difference in cash or by check to the employee.
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<PAGE>
14. OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation on the director to
exercise such option.
15. CONTINUANCE AS DIRECTOR.
Nothing in the Plan shall be deemed to create any obligation on the
part of the Board to nominate any director for reelection by the Corporation's
stockholders.
16. TERM OF PLAN.
The Plan shall be effective as of the date on which it is adopted by
the Board, subject to the approval of the stockholders of the Company within one
year from the date of adoption by the Board. The Plan will terminate on the date
ten years after the date of adoption by the Board, unless sooner terminated by
the Board. The rights of optionees under options outstanding at the time of the
termination of the Plan shall not be affected solely by reason of the
termination and shall continue in accordance with the terms of the option (as
then in effect or thereafter amended).
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LEASE OF OFFICE SPACE
AGREEMENT OF LEASE, made as of this 5th day of October, 1994, between SC
PROPERTIES, LLC, a _____________________ having its principal office at 70
CASCADE BOULEVARD, MILFORD, CT (the "Landlord"), and CARDIOPULMONARY
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware having its principal at 200 CASCADE BOULEVARD, MILFORD, CT (the
"Tenant").
WITNESSETH:
1. DEMISE OF PREMISES.
1.1 Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
that space consisting of 6,942 rentable square feet ("Rentable Square Feet")
contained in that certain building (the "Building"), as outlined in red on the
plan attached hereto as Exhibit A (said outlined area being hereafter referred
to as the "Demised Premises"), which Building is located on property known as
200 CASCADE BOULEVARD, MILFORD, Connecticut (the "Property"), all of which is a
part of Northbrook Business Park (the "Park"), to commence on AUGUST 1, 1994
(the "Commencement Date") and to expire THREE (3) year(s) and 0 months from the
Commencement Date (the "Expiration Date"), both dates inclusive (or until such
term shall sooner cease and expire as hereinafter provided). The Commencement
Date through the Expiration Date, or such earlier termination date in accordance
herewith, shall hereinafter be referred to as the "Term". The above
notwithstanding, if Landlord is unable to deliver possession of the Demised
Premises to Tenant on the Commencement Date due to holding over or retention of
the Demised Premises by prior tenants, or due to the fact that a certificate of
occupancy or a temporary certificate of occupancy is not available for the
Demised Premises on the Commencement Date, as applicable, or for any other
reason beyond Landlord's control this Lease shall remain in full force and
effect as to all terms and conditions, including the Expiration Date, except
that the Commencement Date shall be deemed to be the date on which possession of
the Demised Premises are delivered to Tenant, in accordance with written notice
from Landlord to Tenant. In such event, so long as Tenant is not responsible for
the delay in obtaining possession, rent shall be pro-rated to commence as of the
date of delivery of possession to Tenant. If the last day of the term of this
Lease, or any renewal thereof falls on a Saturday or Sunday this Lease shall
expire at noon on the preceding Friday.
2. USE OF PREMISES.
Tenant convenience and agrees to use the Demised Premises IN ACCORDANCE
WITH ANY USE THAT IS IN COMPLIANCE WITH ALL ZONING REGULATIONS UNDER THE CITY OF
MILFORD and for no other purpose. No retail sales shall be conducted from
Premises.
2.1 LANDLORD'S WARRANTY. Landlord warrants that it owns the property and
has the lawful right to lease the Leased Premises to Tenant; that they may be
used for
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the purposes authorized by Paragraph 2 above, that Landlord will defend Tenant's
right to quiet enjoyment of the Leased Premises from the claim of all persons
during the lease term and any renewal thereof, and that Landlord's insurance
policies are so rated as to provide for the uses by Tenant authorized in
Paragraph 2 above.
3. RENT.
3.1 BASE RENT.
a. Tenant shall pay rent to the Landlord in such amounts as specified in
Paragraph 3.1(c) herein (the "Base Rent"). Tenant agrees to pay the Base Rent in
lawful money of the United States, in equal monthly installments in advance on
the first day of each month during the Term, at the office of Landlord, C/O SC
PROPERTIES, LLC, PO BOX 3010, MILFORD, CT 06460 or such other place as Landlord
may designate, without any set off or deduction whatsoever, except as may be
provided for herein except that Tenant shall pay the first monthly installment
of Base Rent and Additional Rent as set forth in Paragraph 3.2(a), on the
execution hereof (unless this lease be a renewal), which payment shall be
applied to the first month of the Term.
b. In the event that the Commencement Date shall be on a day other than the
first day of the month, then on the first day of the first full calendar month
of the Term, Tenant shall pay to Landlord a pro-rated amount of the monthly
installment of Base Rent adjusted for the proportionate fraction of the
preceding month, from the Commencement Date to the end of such preceding month.
The final monthly installment shall be adjusted for the proportionate fraction
of thee whole month which is part of the Term.
c. Annual Base Rates (in addition to all sums of additional rent due
thereunder) shall be:
1. For the first 1 year(s) of the Term, Forty-Three Thousand, Three
Hundred Eighty-Seven and Fifty Cents ($43,387.50) per annum payable in
monthly installments of Three Thousand, Six Hundred Fifteen DOLLARS and
Sixth-Three Cents ($3,615.63) per month,
2. For the next 1 year(s) of the term, Forty-Five Thousand, One Hundred
Twenty-Three DOLLARS ($45,123) per annum payable in monthly
installments of Three Thousand Seven Hundred Sixty DOLLARS and
Twenty-Five CENTS ($3,760.25),
3. For the next one year(s) of the Term, Forty Six Thousand, Eight Hundred
Fifty-Eight DOLLARS and Fifty CENTS ($46,858.50) per annum payable in
monthly installments of Three Thousand Nine Hundred and Four DOLLARS
($3,904) per month.
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3.2 ADDITIONAL RENT. In addition to the payment of Base Rent in accordance
with Paragraph 3.1 above, Tenant shall make the following payments to Landlord,
which payments shall collectively hereafter be referred to as "Additional Rent".
Notwithstanding anything to the contrary contained in this Lease, the Additional
Rent to be paid by Tenant for the first year of the Lease, from August 1, 1994
through July 31, 1995 (the "Base Year") shall not exceed the sum of $2.66 per
square foot per year ($18,465.72). During the second year (August 1, 1994-July
31,1995) and the third year (August 1, 1996-July 31, 1997) of this Lease, the
Additional Rent to be paid by the Tenant shall not exceed the sum of $2.66 per
square foot per year ($18,465.72), plus the increase in real estate taxes and
snow plowing costs over the Base Year. The increases shall be calculated by
subtracting the total amount of real estate taxes and snow plowing charges due
and payable during the Base Year from the total amount of real estate taxes and
snow plowing charges due and payable for the applicable year of the Lease. The
product of the resulting sum and the Tenant's Proportionate Share shall be the
amount due and payable by Tenant in the applicable Lease Year. As used herein,
Tenant's Pro Rata Share shall mean 15.1% which percentage is computed based upon
the number of Rentable Square Feet hereof divided by 46,000 square feet, which
figure represents the total rentable square footage of the Building.
a. TAXES.
(i) Beginning on September 1, 1995, Tenant shall pay to the Landlord,
Tenant's Pro Rata Share of all increases in real estate taxes, municipal charges
for sewer service and assessments, and each and every installment from the Base
Year which shall or may during the second and third years of this Lease and any
extension hereof be charged, levied, assessed, or become due and payable with
respect to the Building and the Property. With respect to those increases in
real estate taxes, municipal charges for sewer service and assessments from the
Base Year which may be charged, levied or assessed with respect to the Park,
said taxes and assessments shall be considered a Common Area Expense as defined
in paragraph 3.2(c)(i) and the Landlord shall allocate a portion of such expense
to the Property. Tenant shall pay to Landlord all increases in municipal real
estate taxes and assessments in twelve equal monthly installments in advance
along with the regular monthly Base Rent. The final monthly installment shall be
adjusted for Tenant's period of occupancy if necessary. Tenant shall not be
responsible for increases in real property taxes occurring after the base year
which results from Landlord's improvements for another tenant or improvements to
the Building if such improvements are solely decorative in nature unless same as
required by this Lease Agreement.
(ii) If, at any time during the Term, the methods of taxation prevailing at
the Commencement Date shall be altered so that in lieu of, as a supplement to,
or a substitute for the whole or any part of the real estate taxes or
assessments now levied, assessed, or imposed on the Property, the Building, the
Park or the Demised Premises, there shall be levied, assessed, or imposed (1) a
tax, assessment, levy, imposition, or charge, wholly or partially as a capital
levy or otherwise, on the rents received therefrom or (2) a tax, assessment,
levy (including but not limited to any municipal,
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<PAGE>
state, or federal levy), imposition, or charge measured by or based in whole or
in part upon the Demised Premises and imposed upon the Landlord, or (3) a
license fee measured by the rent payable under this Lease, then all such taxes,
assessments, levies, impositions, and charges, or the part thereof so measured
or based, shall be deemed to be include in the general real estate taxes and
assessments payable by the Tenant pursuant to the terms of this Lease to the
extent that such taxes, levies, impositions, and charges would be payable if the
Demised Premises were the only property of the Landlord subject thereto, and the
Tenant shall pay and discharge the same as herein provided in respect to the
payment of general estate taxes and assessments. Tenant shall pay to Landlord
all of such substitute real estate tax with the monthly Base Rent in advance in
equal monthly installments throughout the term.
(iii) Tenant agrees to pay to Landlord, Tenant's Pro Rata Share of the
increases in the annual cost of real estate taxes evidenced by tax bills
received by Landlord during the second and third years of this Lease.
(iv) In the event Tenant effects any permanent improvements to the Demised
Premises in accordance with Paragraph 9 below, Tenant agrees, on request, to
furnish to the Landlord a list of the improvements made by Tenant to the Demised
Premises, together with the cost thereof, and Tenant agrees to pay to Landlord,
an amount equal to the taxes assessed on such permanent improvements computed on
the basis of the cost of such improvements (as adjusted by the equalization of
valuation used by such taxing authority) multiplied by the rate of taxation
against real property for each such lease year, or other reasonable method
designed by Landlord to fairly and reasonably reflect the actual taxes on such
improvements. An improvement shall be deemed "permanent" for purposes of this
paragraph unless such improvement shall be assessed against the Tenant by the
taxing authority as personal property.
(v) At Landlord's option, Landlord may at any time and from time to time,
commence an action or proceeding (1) to reduce the real estate taxes, (2) for a
refund of taxes and/or (3) for a reduction in taxes applicable to any tax year.
In the event that any such action is successful in reducing the real estate
taxes and if Landlord shall receive a refund for any tax year, Tenant shall be
entitled to that portion of any refund applicable to the Demised Premises
payment for which shall have been made by Tenant as Additional Rent (including
interest, if any, paid on such refund by the taxing authorities), but not in
excess of the amount of Additional Rent paid by Tenant for such tax year, after
deducting from such refund and interest that portion (or all, as the case may
be) of the cost and expenses (including experts' and attorneys' fees) of
obtaining such refund attributable to such refund or reduction benefiting the
Demised Premises; and Landlord shall be entitled to any remaining refund
(including interest, if any paid on such refund by the taxing authorities),
after deducting from such refund and interest that portion (or all, as the case
may be) of the costs and expenses (including experts' and attorneys' fees)
attributable to any such protest, action or proceeding referred to in this
Paragraph 3.2(a)(ii) which results in a reduction in taxes (other than where
Landlord receives a refund, from which such costs and expenses as Additional
Rent, unless such protest, action or proceeding pertains solely to a reduction
in taxes paid or
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<PAGE>
to be paid by Landlord, in which event Landlord shall be responsible for such
costs and expenses.
(vi) Tenant shall bear the sole responsibility for any and all personal
property taxes which may be assessed, or become due and payable, together with
all interest and penalties thereon, with respect to personal property at the
Demised Premises.
b. INSURANCE.
(i) Property Insurance: The Landlord shall at all times during the term of
the Lease maintain at a minimum, standard fire and extended coverage insurance
on a replacement cost basis covering the Building housing the Demised Premises;
inclusive of rental insurance and any other insurance deemed necessary by
Landlord.
(ii) Public Liability Insurance: The Landlord shall obtain public liability
insurance in a minimum amount of $2,000,000 covering the Demised Premises, the
Building, the Property and the Park.
(iii) Subject to the provisions of Article 3.2, Tenant shall pay to
Landlord Tenant's Pro Rata Share of the cost of Insurance. Landlord shall
provide Tenant with notice of the cost of said insurance policies. Tenant's
Pro-Rata Share thereof shall be payable monthly, in advance, along with the
regular monthly Base Rent.
(iv) In the event the operations or activities of the Tenant shall in any
manner result in an increase in the fire and/or liability insurance costs to
Landlord, then Tenant alone shall be responsible for such increased costs.
(v) The parties shall obtain from their respective insurance carriers
waivers of subrogation against the other party, agents, employees and, as to the
Tenant, invitees. Neither party shall be liable to the other for any loss or
damage caused by fire or any of the risks enumerated in a standard fire
insurance policy with an extended coverage endorsement if such insurance was
obtainable at the time of such loss or damage.
c. COMMON AREAS.
(i) Subject to the provisions of Paragraph 3.2, Tenant shall pay to the
Landlord Tenant's Pro Rata Share of the cost of maintenance, repair and
replacement of the common elements appurtenant to the Demised Premises, the
Building, the Property, and the Park, including but not limited to the
following: common lighting and lighting fixtures; common area electrical
service, snow removal and sanding; trash removal (except trash removal from the
Demised Premises which shall be a direct expense of Tenant); landscaped areas,
road, parking areas and common driveways; sprinkler systems; all common
utilities; HVAC maintenance and repair; management, administrative and legal
costs; water for normal lavatory use; and other reasonable expenses paid in
connection with the operation, repair, and maintenance of the
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<PAGE>
Building, the Property and the Park (the "Common Area Expenses"). With respect
to those Common Area Expenses attributable to the Park, Landlord shall, fairly
and reasonably allocate a portion of such expenses to the Building. Said
allocation shall be binding upon the parties.
(ii) Subject to the provisions of Paragraph 3.2, Tenant shall pay to
Landlord such additional rent as required to be paid pursuant to this
subparagraph (c), within thirty (30) days after Landlord's submission to Tenant
of a bill therefore which bill statement shall be fully itemized, and shall
include copies of supporting bill, Landlord shall have the right to bill Tenant
hereunder upon the basis of reasonable estimates prepared by Landlord. Tenant
agrees to pay to Landlord, together with the Base Rent, one-twelfth (1/12) of
Tenant's Pro Rata Share of such estimates and if such actual costs shall be more
than the amounts paid by Tenant to Landlord for such period, Tenant agrees to
pay such deficiency to Landlord within thirty (30) days after receipt by Tenant
of such statement, which bill statement shall be fully itemized and shall
include copies of supporting bills. If the amount paid by Tenant for such
preceding calendar year of the estimate annual costs shall be greater than such
annual costs for such period, Landlord agrees to reimburse Tenant within thirty
(30) days for such excess. If this Lease shall terminate prior to an anniversary
date of any year, then the annual costs payable by Tenant in the year of such
termination shall be adjusted on the basis of the number of months of such
calendar year in which this Lease shall be in effect.
(iii) Every bill furnished by Landlord pursuant to Paragraph 3.2(c)(ii)
hereof shall be conclusive and binding upon Tenant unless within thirty (30)
days after the receipt of such statement Tenant shall notify Landlord in writing
that it disputes the correctness of the statement is claimed to be incorrect. In
the event such dispute shall not have been settled by agreement within thirty
(30) days after receipt by Landlord of such notice from Tenant, the dispute
shall immediately be submitted to an independent certified public accountant
chosen by Landlord and Tenant, or failing agreement as to such accountant,
either party may request the Chairman of the Real Estate Section of the New
Haven County Bar Association to choose such accountant, whose decision shall be
made within twenty (20) days of such submission and whose decision shall be
final and binding on the parties. The cost of such accountant shall be shared
equally between the parties. Pending the determination of such dispute Tenant
shall, within ten (10) days after receipt of such bill, pay Additional Rent in
accordance with Landlord's bill, but such payment shall be without prejudice. If
the dispute shall be determined in Tenant's favor, Landlord shall, within five
(5) days after notice of such determination, pay Tenant the amount of Tenant's
overpayment of Common Area Expenses plus interest at Chase Manhattan Bank prime
rate of interest from the date of the overpayment. Landlord shall promptly
submit to Tenant copies of back-up documentation reasonably necessary to confirm
Common Area Expenses and reasonably and specifically requested by Tenant.
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<PAGE>
d. ADDITIONAL PAYMENTS.
In addition to the above, and subject to the limitation contained in
this Article 3.2, Tenant shall pay to Landlord as Additional Rent those amounts
as set forth in Paragraphs 5.2, 8.3, 9(a), 13.2(d) and 19.5 of this Lease as
applicable.
3.3 LATE CHARGES. If Tenant shall fail to pay when within ten (10) days of
due any installment or payment of Base Rent or Additional Rent, Tenant shall be
required to pay a late charge of six percent (6%) of such late installment or
payment. Such late charge is not a penalty but is intended to compensate
Landlord for additional expenses incurred by Landlord in processing such late
installment or payment. Nothing herein shall be intended to violate any
applicable laws, codes or regulations, and in all instances all such changes
shall be automatically reduced to any maximum applicable legal rate of charge.
Such charge shall be imposed monthly for each late payment.
4. TENANT'S OBLIGATION TO MAINTAIN AND REPAIR.
Except as provided in Paragraph 6 below, Tenant shall be responsible for
(a) all of the maintenance, repair and replacement of the Demised Premises,
including without limitation the exterior doors and windows, Loading Docks and
all interior and exterior glass of the Demised Premises, (b) the repair or
replacement of any damages caused by Tenant, its agents and employees, to any
part of the Demised Premises, the Building or the Property. Tenant shall keep
the Demised Premises free of refuse and rubbish, and shall return the Demised
Premises to Landlord on the Expiration Date or such earlier termination of this
Lease as provided herein (the "Termination Date"), in as good condition as
received by Tenant, ordinary wear and tear and casualty excepted. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
other termination of this Lease. All of Tenant's maintenance and repair shall be
equal in quality to the original work and Tenant shall promptly pay the expense
of such maintenance, repair or replacement. Tenant shall shire a cleaning
service from a list of not less than three (3) services approved by Landlord to
clean the Demised Premises and no other cleaning services other than those
reasonably approved by Landlord shall be permitted.
No articles shall be hung out of the Building or exposed or placed in
the outside walls, doors of the Building or on trees, and no sign, awning,
canopy shutter or antenna shall be affixed to or placed upon the exterior walls
or doors, roof or any part thereof or exposed on or at any window.
5. LANDLORD'S OBLIGATION TO MAINTAIN AND REPAIR.
5.1 Landlord shall be responsible for all structural repairs and necessary
repairs and replacements to the roof, foundation, the outside structure and the
HVAC and all plumbing and mechanical systems of the Demised Premises at
Landlord's expense. Landlord shall keep the Building and the common areas in
good repair and condition.
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<PAGE>
5.2 Landlord shall repair and maintain any roads, parking areas and other
common areas appurtenant to the Demised Premises, the Building, the Property and
Park, and the cost thereof shall be a part of the Common Area Expenses and paid
as set forth in Paragraph 3.2(c) hereof. However, if any such maintenance,
repair or replacement is necessitated by the negligence or misconduct of Tenant,
or Tenant's agent, Landlord shall effect said maintenance, repair or replacement
at Tenant's cost and expense. In the event Tenant fails to pay therefor, such
cost and expense shall be payable to Landlord as Additional Rent.
5.3 Landlord, at its sole cost and expense, shall furnish and install
signage for Tenant identification at the entrance to the Demised Premises and
the rear of the Building. Said signage shall be of a size, color, style and type
and at such location. Thereafter, said signage shall be maintained and repaired
by Landlord as necessary during the Term and the expense for said maintenance
and repair shall be a Common Area Expense. No other sign, advertisement, notice
or other lettering shall be exhibited, inscribed, painted or affixed by Tenant
on any part of the exterior of the Demised Premises or the Building, or on the
inside of the Demised Premises if the same is visible from the outside of the
Demised Premises. In the event of the violation of the foregoing by Tenant,
Landlord shall remove same without any liability to Tenant, and shall charge the
cost incurred by such removal to Tenant.
5.4 Except for the negligence or wrongful acts of the Landlord, its
employees, agents or contractors, the Landlord shall not be under any
responsibility or liability in any way for the quality, quantity, impairment,
stoppage, interruption, or other interference with the service involving water,
heat, gas, electric current for light and power, telephone, or any other
services or utilities.
5.5 Notwithstanding anything herein to the contrary, Landlord will not be
responsible for the failure of the HVAC system servicing the Building or the
Demised Premises to adequately service the Demised Premise if such failure
results from the occupancy of the Demised Premises with more than an average of
one person for each two hundred (200) square feet of the Leased Floor Space or
if Tenant installs and operates machines and appliances, the installed
electrical load of which when combined with the load of all lighting fixtures
exceeds five (5) watts per square foot of the Lease Floor Space in any one room
or other area.
6. UTILITIES.
6.1 Electrical energy and/or natural gas consumed by Tenant in the Demised
Premises shall be separately metered and purchased by Tenant from the utility
supplying electricity and/or natural gas to the Building. The electrical and/or
natural gas meters shall be supplied by Landlord at Landlord's expense.
6.2 Tenant convenience and agrees that at all time its use of electrical
current shall not exceed the capacity of existing feeders to the Demised
Premises or Building or the risers, conduits, or wiring installation in the
Demised Premises, and Tenant shall
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<PAGE>
not use any electrical equipment which, in Landlord's opinion reasonably
exercised, will overload such installations or interfere with the use thereof by
other tenants of the Building.
6.3 The change at any time of the character of electric service shall in no
way make Landlord liable or responsible to Tenant, for any loss, damages or
expenses which Tenant may sustain, except for the gross negligence or willful
misconduct of the Landlord, in employees, agents or contractors.
6.4 Water shall be supplied to the Demised Premises by Landlord and shall
be a Common Area Expense. However, in the event Tenant uses water for other than
ordinary lavatory purposes, Landlord reserves the right to meter the water
and/or Tenant shall purchase same from the utility supplying water to the
Building.
7. RUBBISH STORAGE AND REMOVAL.
7.1 RUBBISH STORAGE. No storage of trash shall be permitted in or outside
the Demised Premises or the Building in such a manner as to permit the spread of
fire or encouragement of vermin. No garbage cans or trash barrels shall be
placed outside the Demised Premises. No accumulation of rubbish, debris or
unsightly materials shall be permitted in the Park except in designated trash
storage containers.
7.2 RUBBISH REMOVAL. Rubbish container locations shall be designated by the
Landlord. Pickup will be from those locations only and shall be arranged for by
Landlord and the cost thereof shall be a Common Area Expense. Tenant shall be
responsible for removal of rubbish from the Demised Premises to the pickup
locations. Rubbish is to be deposited within that location and the area is to be
kept neat, clean and free of debris. Long term storage of rubbish in the Demised
Premises is forbidden.
8. PARKING.
8.1 Tenant shall, at no additional rent, be entitled to parking for 24
passenger vehicles in the uncovered parking lot adjacent to the Building;
provided, however, that twenty (20) of said parking spaces are unassigned and
Tenant's rights to said parking spaces are in common with other tenants of the
Building, and four (4) spaces are assigned to Tenant and marked for Tenant's
visitors. Said parking spaces shall be used in accordance with the Rules and
Regulations, as defined below. Tenant shall require its employees and invitees
to park their vehicles only in common parking spaces in said lot designated by
Landlord. Parking shall be on a "first come, first served" basis. Landlord
reserves the right at all times to designate common or assigned parking spaces.
Tenant, its employees and invitees, shall not at any time park any trucks or
delivery vehicles in any of the parking areas not so designated.
8.2 Except for the negligence or wrongful acts of the Landlord, its
employees, agents or contractors, all parking spaces and any other parking
areas, roadways, and driveways used by Tenant, its personnel and visitors will
be at their own risk, and
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Landlord shall not be liable for any injury to person or property, or for loss
or damage to any vehicle or its contents or any injury to any person resulting
from theft, collision, vandalism or any other cause whatsoever. Landlord shall
have no obligation whatsoever to provide a guard or any other personnel or
device to patrol, monitor, guard or secure any parking area; if Landlord does so
provide it shall be solely for Landlord's convenience, and Landlord shall in no
way whatsoever be liable for any acts or omissions of such personnel or device
in failing to prevent any such theft, vandalism or loss or damage by other
cause, except for the negligence or wrongful acts of the Landlord, its
employees, agents or contractors.
8.3 There shall be no overnight parking except in that portion, if any, of
the parking area designated by Landlord for overnight parking ("Overnight
Parking Area"), and Tenant shall, and shall cause its employees and invitees to,
remove their vehicles from the parking area except the Overnight Parking Area at
the end of the working day. If any automobile owned by Tenant or by its
employees or invitees remains in the Parking Area overnight, except in the
Overnight Parking Area, and the same interferes with the cleaning or maintenance
of said area (snow or otherwise), any cost or liabilities incurred by Landlord
in removing said vehicle to effectuate cleaning or maintenance, or any damages
resulting to said vehicle or to Landlord's equipment or equipment owned by
others by reason of the presence or of removal of said vehicle during such
cleaning or maintenance shall be paid by Tenant to Landlord, as Additional Rent
on the rent payment date next following the submission of a bill therefor.
8.4 Vehicles may not be parked in such manner as to consume more than one
space, block access to parking spaces, fire hydrants, sidewalks running
perpendicular to drives, pedestrian crossing areas, designated fire lanes, or
clear two lane passage by vehicles on roads and drives. Vehicles in violation
will be towed after reasonable efforts to contact the person to whom the vehicle
is registered. In addition, a $25.00 per day fine may be levied against the
person to whom the vehicle is registered.
9. TENANT ALTERATIONS.
Tenant may not make any alterations, installations, changes, additions or
improvements to the Demised Premises (collectively the "Improvements") without
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Any Improvements as Landlord consents to shall be subject to and
conditional upon the following:
a. Tenant shall provide to Landlord such plans of and specifications
prepared by a licensed architect or engineer for the Improvements which plans
and specifications shall be approved also, at Tenant's sole cost and expense, by
all applicable governmental authorities which have jurisdiction over the
Improvements and/or the Demised Premises. With respect to any such Improvement
which is not performed by Landlord, Tenant shall pay to Landlord as Additional
Rent upon demand ten percent (10%) of the cost of such improvement for
Landlord's supervision, indirect costs and the coordination of the work
performed.
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b. All Improvements shall be con-structural and shall not affect utility
service, plumbing or electrical lines in or to the interior of the Demised
Premises or to any part of the Building or Property.
c. Tenant shall only utilize duly licensed contractors and other related
personnel to perform the Improvements and shall cause such contractors and
subcontractors to carry worker's compensation, general liability and personal
and property damage insurance.
d. The Improvements shall be performed in a first class, workmanlike manner
and shall not weaken nor impair the structural strength nor lessen the value of
the Demised Premises or of the Building.
e. Tenant shall, at its own cost and expense, obtain all permits,
approvals, licenses and certificates required by any governmental or
quasi-governmental agencies, with respect to the Improvements, including without
limitation final certificates of occupancy and shall deliver promptly duplicates
of all such approvals to Landlord.
f. At the Expiration Date, or at the end of the Term, the Improvements and
partitions, except movable trade fixtures, shall become the property of the
Landlord. Tenant shall repair, at its own expense, all damage resulting from the
removal of its movable furniture which are not affixed to the Demised Premises.
g. Landlord, at its option, may require Tenant to remove any Improvement.
In such event, Tenant shall remain liable to restore and repair the Demised
Premises to its former condition prior to the installation of the Improvements.
In the event Tenant fails to restore and repair the Demised Premises to its
former condition prior to the installation of the Improvements, Landlord shall
have the right to perform such restorative and repair work at Tenant's cost.
h. Tenant shall furnish Landlord with waivers of Mechanics' Liens and other
reasonable security to insure Landlord or its mortgagee that all work performed
and material supplied have been paid and all construction will comply with
provisions of this Lease.
10. TENANT'S ACCEPTANCE OF DEMISED PREMISES.
On the Commencement Date, which Date shall not be before issuance of a
Certificate of Occupancy or Temporary Certificate of Occupancy is available for
the Demised Premises, Landlord and Tenant shall execute an agreement
acknowledging the Commencement Date, and execution thereof shall be conclusive
evidence that Tenant has inspected the Demised Premises and the Building and
accepts them as is, except for the latent defects which are not determinable at
the time of the inspection and which may appear during the period beginning on
the Commencement Date and ending nine (9) months thereafter. It is agreed that
on the Commencement Date the Demised Premises shall be substantially complete so
as to allow reasonable conduct of Tenant's
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business. In any event, Landlord makes no representation as to the condition of
the Demised Premises and Tenant agrees to accept the same subject to violations,
whether or not of record. Tenant agrees that the taking of possession is
conclusive evidence that the Demised Premises and the Building area in good and
satisfactory condition. Tenant agrees that Landlord has made no representation
or promises with respect to the Demised Premises, the Building or the Property
except as specifically set forth herein. This Lease may only be modified or
amended in writing signed by the parties hereof.
11. TENANT'S COVENANTS.
11.1 COMPLIANCE WITH LAWS. Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders, rules and regulations
of all state, federal, municipal and local governments, departments, commissions
and boards and any direction of any public officer pursuant to law, and all
orders, rules and regulations of any body which shall impose any violation,
order or duty upon Tenant with respect to the Demised Premises arising out of
Tenant's use or manner of use thereof. Tenant shall provide Landlord immediately
with any and all notices, violations, orders or the like which it receives with
respect to the Demised Premises or the Building. Tenant may, after securing
Landlord's written consent and providing Landlord with adequate security, to
Landlord's satisfaction to protect Landlord against all damages, interest,
penalties and expenses, including, but not limited to reasonable attorneys'
fees, contest and appeal any such laws, ordinances, orders, rules, regulations
or requirements provided same is done with all reasonable promptness and
provided such appeal shall not subject Landlord to prosecution for a criminal
offense or constitute a default under any lease or mortgage under which Landlord
may be obligated, or cause the Demised Premises or any part thereof to be
condemned or vacated. Notwithstanding anything herein to the contrary, and
without by way of limitation, Tenant shall comply with all environmental laws,
rules and regulations, and, to the extent of any violation thereof by Tenant,
Landlord shall have, at its sole option, the right to immediately terminate this
Lease by ten (10) days' written notice to Tenant, notwithstanding any provision
set forth at Paragraph 20. Tenant shall indemnify Landlord and hold it harmless
from any and all liabilities, obligations, or claim arising out of Tenant's
failure to comply with this provision.
11.2 FIRE INSURANCE RATES. Tenant shall not keep any hazardous, or
flammable material in nor about the Demised Premises except as now or hereafter
specifically permitted by the Fire Department or authority having jurisdiction,
and then only in such quantity so as not to increase the rate for fire or
liability insurance applicable to the Demised Property or the Building, nor use
the Demised Premises in a manner which will increase the insurance rate for the
Building or any portion thereof over that in effect prior to the Commencement
Date. Tenant shall pay all costs, expenses, fines, penalties, or damages, which
may be imposed upon Landlord by reason of Tenant's failure to comply with the
provisions of this paragraph.
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11.3 FLOOR LOADS. Tenant shall not place a live load upon any floor of the
Demised Premises exceeding one hundred fifty (15) pounds per square foot area.
Landlord reserves the right to prescribe the weight and position of all safes,
business machines and mechanical equipment. Such installations shall be placed
and maintained by Tenant, at Tenant's expense, in settings sufficient, in
Landlord's judgment, to absorb and prevent vibration, noise and annoyance.
11.4 OBLIGATIONS RE USE OF DEMISED PREMISES. Tenant shall not suffer or
permit the Demised Premises or any part thereof to be used in any manner, or
anything to be done therein, or suffer or permit anything to be brought into or
kept therein, which would in any way (i) violate any of the provisions of any
grant, lease or mortgage to which this Lease is subordinate, (ii) cause or in
Landlord's reasonable opinion, be likely to cause physical damage to the Demised
Premises or the Building or any part thereof, (iii) constitute a public or
private nuisance, (iv) impair in the reasonable opinion of the Landlord the
appearance, character or reputation of the Building, (v) result in members of
the general public loitering in, on or about the Building or the Property, (vi)
discharge objectionable fumes, vapors, or odors into the Building HVAC system or
into Building flues or vents not designated to receive them or otherwise in such
manner as may unreasonably offend other occupants, (vii) impair or interfere
with any of the Building services or the proper and economic heating, cleaning,
air conditioning or other servicing of the Building or the Demised Premises or
impair or interfere with the use of any of the other areas of the Building or
the Property by, or occasion discomfort, annoyance or inconvenience to, Landlord
or any of the other tenants or occupants of the Building, or (viii) cause Tenant
to default in any of its other obligations under this Lease.
12. SUBORDINATION.
This Lease is subject and subordinate to all ground or underlying leases
and to all mortgages which may now or hereafter affect such leases or the
Property and to all renewals, modifications, consolidations, replacements and
extensions of any such underlying leases and mortgages. This clause shall be
self-operative and no further instrument of subordination shall be required by
any ground or underlying lessor or by any mortgagee, affecting any lease or
Property. In confirmation of such subordination, Tenant shall execute promptly
any document that Landlord may request. Landlord shall obtain a Non-Disturbance
agreement for Tenant from Landlord's current lender, The Chase Manhattan Bank,
NA; Landlord shall make all reasonable and diligent effort to obtain a
Non-Disturbance Agreement for Tenant from all future lenders.
13. PROPERTY LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY.
13.1 LIMITATION OF LANDLORD'S LIABILITY. Landlord or its agents shall not
be liable for any damage to property of Tenant nor for loss of or damage to any
property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any abuse of whatsoever nature, unless caused
by or due to the negligence of Landlord, its agents, servants or employees and
not otherwise covered by
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insurance as required herein. The Landlord shall further not be responsible for
the loss of or damage to property (including property of the Tenant) or injury
to persons occurring in or about or appurtenant to the Demised Premises (or any
of the Property including all common areas and all parking areas), by reason of
any existing condition, defect, matter or thing in said Demised Premises or the
Property nor for the acts, omissions or negligence of any other persons or
tenants which may occur in or about the said Property.
13.2 TENANT'S INSURANCE.
a. Tenant shall at Tenant's sole cost and expense at all times during the
term of the Lease maintain standard fire and extended coverage insurance on a
replacement cost basis covering Tenant's personal property inclusive of any
Tenant's improvements and betterments to the Demised Premises. Notwithstanding
the foregoing, Tenant may self-insure such risk provided that there shall be no
material adverse change in Tenant's financial condition after the date hereof
and further provided that Tenant shall not be in default with respect to the
terms and conditions of this Lease.
b. The Tenant shall, at Tenant's sole cost and expense, obtain public
liability insurance to protect both the Landlord and the Tenant against any
liability for damages or injuries to persons or property incident to the use or
resulting from any accident in or about the Demised Premises and the Building in
a minimum amount of $2,000,000 on a form of coverage acceptable to Landlord.
c. Tenant shall provide a Certificate of Insurance evidencing the above
required fire insurance, liability insurance and in addition, Worker's
Compensation insurance, to Landlord on a timely basis. The Tenant shall obtain a
written obligation on the part of the insurance carriers to notify the Landlord
in writing at least ten (10) days prior to the cancellation of any said
insurance policies.
d. In the event Tenant shall fail to procure and place any such insurance,
the Landlord may, but shall not be obligated to, procure and place same, in
which event the amount of the premium paid shall be refunded by Tenant to
Landlord, upon demand and shall in each instance be collectible on the first day
of the month or any subsequent month following the date of payment by Landlord,
in the same manner as though said sums were Additional Rent reserved hereunder.
Tenant's failure to provide and keep in force the aforementioned insurance shall
be regarded as a material default hereunder entitling Landlord to exercise any
or all of the remedies as provided in this Lease in the event of Tenant's
default.
14. DESTRUCTION, FIRE AND OTHER CASUALTY.
14.1 NOTICE. If the demised Premises or any part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate notice thereof to
Landlord and this Lease shall continue in full force and effect at Landlord's
option as hereinafter set
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forth. Landlord shall determine in its sole discretion whether the Demised
Premises are partially or totally damaged or rendered unusable and whether
Landlord elects to repair or restore same.
14.2 PARTIAL DAMAGE. If the Demised Premises are partially damaged or
rendered partially unusable by fire or other casualty, the damages thereto shall
be repaired by and at the expense of Landlord and the rent, until such repair
shall be substantially completed, shall be apportioned from the date following
the casualty according to the part of the Demised Premises which is usable.
The damage to all of Tenant's fixtures, equipment, improvements and other
personal property installed by Tenant shall be promptly repaired by and at
Tenant's expense. The Rent, until such repairs required to be made by Landlord
shall be completed, shall be apportioned according to according to the part of
the Demised Premises which is used by Tenant.
14.3 TOTAL DAMAGE. If the Demised Premises are totally damaged or rendered
wholly unusable by fire or other casualty, and the Landlord elects to restore
same, then the rent shall be proportionately paid up to the time of the casualty
and thenceforth shall cease until the date when the Demised Premises shall have
been repaired and restored by Landlord, subject to Landlord's right to elect not
to restore the same as hereinafter provided. If the Demised Premises are totally
damaged or wholly unusable and the Landlord elects not to restore same, then,
Landlord may elect to terminate this Lease by written notice to Tenant, given
within ninety (90) days after such fire or casualty, specifying a date for the
expiration of the Lease, which date shall not be more than sixty (60) days after
giving of such notice, and upon the date specified in such notice the term of
this Lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this Lease and Tenant shall forthwith
quit, surrender and vacate the Demised Premises. Nothing herein however shall
prejudice Landlord's rights and remedies against Tenant under the lease
provisions in effect prior to such termination, and any rent or other monies
owing by Tenant shall be paid up to such date and any payments of rent made by
Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. Unless Landlord shall serve a termination notice as provided
for herein, Landlord shall make repairs and restorations under the conditions of
13.1 and 13.2 hereof, with all reasonable expedition, subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Landlord's
control. After any such casualty, Tenant shall cooperate with Landlord's
restoration by removing from the Demised Premises as promptly as reasonably
possible, all of Tenant's salvageable inventory and movable equipment,
furniture, and other property. Tenant's liability for rent shall resume five (5)
days after the Premises are substantially ready for Tenant's occupancy.
15. EMINENT DOMAIN.
If the whole or any part of the Demised Premises shall be acquired or
condemned by Eminent Domain for any public or quasi-public use or purpose, then
and in that
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event, the term of this Lease shall cease and terminate from the date of title
vesting in such proceeding and Tenant shall have no claim for the value of any
unexpired term of said lease and hereby assigns to Landlord Tenant's entire
interest in any such award; provided, however, that nothing contained herein
shall be construed to preclude Tenant from prosecuting any claim directly
against the condemning authority in such condemnation proceedings for loss of
business or depreciation to, damage to, or cost of removal of, or for the value
of stock, trade fixtures, furniture, or other personal property, belonging to
Tenant; provided, however, that no such claim shall adversely affect the
Landlord's award.
16. ASSIGNMENT, MORTGAGE, ETC.
16.1 Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this Lease, nor sublet,
or suffer or permit the Demised Premises or any part thereof to be used by
others without the consent of Landlord, which consent shall not be unreasonably
withheld or delayed.
Notwithstanding anything to the contrary contained in this Lease, Landlord
agrees that Tenant may assign this Lease or sublet or share all or any portion
of the Demised Premises to an "affiliated corporation" (as hereinafter defined),
or a corporation or other entity into or with which Tenant is merged or
consolidated or to which Tenant is sold, or with an entity to which
substantially all of Tenant's assets are transferred, provided such merger,
consolidation or transfer of assets is for a good business purpose and not
principally for the purposes of transferring the leasehold estate created
hereby. Such transfers shall be permitted under this Lease without the consent
of the Landlord as required under this Article 16.1.
For purposes of this Article 16.1 an affiliated corporation means (i) a
corporation controlled by, controlling or under common control with Tenant or
(ii) a partnership or joint venture in which Tenant or an affiliated corporation
is a general partner.
16.2 Tenant shall give written notice to Landlord immediately upon its
intent to assign or sublet, thereafter Tenant shall give written notice to
Landlord at least one hundred twenty (120) days prior to affecting any proposed
assignment or sublet (the "Notice"). Said Notice shall contain the name and
address of the proposed assignee or subtenant, the terms and conditions of the
proposed assignment or sublease, and the nature of the business to be conducted
on the Demised Premises.
The provisions of this Paragraph 16.2 shall apply to each such proposed
subletting, none of which shall be effective until all of the foregoing shall
have been complied with. Notwithstanding any subletting, Tenant and any future
sublessor shall remain liable for the full performance of all the terms and
conditions of this Lease on the part of the Tenant to be performed.
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Landlord's failure to give Tenant consent to the proposed sublet within
fifteen (15) days of the receipt of the Sublet Notice shall be deemed to be
refusal to give said consent. The consent by Landlord of a subletting shall not
in any way be construed to relieve Tenant from obtaining the express consent in
writing of Landlord to any further subletting.
17. ACCESS TO PREMISES.
17.1 Landlord or Landlord's agents shall have the right (but shall not be
obligated) to enter the Demised Premises in any emergency at any time, and, at
other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Landlord may deem necessary and reasonably
desirable to the Demised Premises, the Building or the Property or which
Landlord may elect to perform as may be necessary for the safety and
preservation thereof, or for any other reasonable purpose. Landlord or
Landlord's agents shall have the right to enter the Demised Premises during
normal business hours to show the Demised Premises to prospective tenants during
the six (6) months preceding the Expiration Date.
17.2 Landlord reserves all necessary rights to enter onto and over the
Demised Premises to repair or maintain any installations sewer, water, electric
and other utility services, or for any other purpose in any way related to or
arising out of the construction by Landlord of any improvements or buildings on
the Property. Landlord shall exercise this right in such a way so as to minimize
interference with Tenant's use of the Demised Premises; however, Tenant shall
not be entitled to any adjustment in rent if Landlord's reasonable exercise of
this interferes with Tenant's use of the Demised Premises.
17.3 The Landlord, the manager or its designated agent, shall retain a pass
key and/or access code for electronic entry devices to the Demised Premises and
the Building for use in emergency situations only. Tenant shall not alter any
lock or install a new lock on any door of the Demised Premises or the Building
without immediately providing the Landlord, the manager or its agent, with a key
and/or access code therefor. Tenant shall, upon the termination of its tenancy,
restore to Landlord all keys, either furnished to, or otherwise procured by
Tenant, and in the event of the loss of any keys so furnished, Tenant shall pay
to Landlord the cost therefor. The Demised Premises may have closets, safes or
vaults not exceeding 50 cubic feet in capacity which can be locked without
access.
18. BANKRUPTCY.
18.1 If at any time during the Term the Tenant shall make any assignment
for the benefit of creditors, file bankruptcy proceedings or have a bankruptcy
proceeding files against it (which Tenant does not have dismissed within
forty-five [45] days from the date of filing), or if a receiver shall be
appointed for the Tenant, then the Landlord may, at its option, terminate this
Lease, the exercise of such option to be evidenced by notice to that effect
served upon the assignee, receiver, trustee or other person in
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charge of the liquidation of the property of the Tenant or the Tenant's estate,
but such termination shall not release or discharge any payment of Base Rent and
Additional Rent or other amounts payable hereunder and then accrued, or any
liability then accrued by Tenant or the Tenant's legal representatives, pursuant
to this Lease.
18.2 In the event of the termination of this Lease pursuant to 18.1 above,
Landlord shall forthwith, notwithstanding any other provisions of this Lease to
the contrary, be entitled to recover from Tenant as liquidated damages an amount
equal to the difference between the rent reserved hereunder for the unexpired
portion of the Term and the fair and reasonable rental value of the Demised
Premises for the same period. In the computation of such damages the difference
between any installment of Base Rent and Additional Rent becoming due hereunder
after the date of termination and the fair and reasonable rental value of the
Demised Premises for the period for which such installment was payable shall be
discounted to the date of termination at the rate of four percent (4%) per
annum. If the Demised Premises or any part thereof be relet by the Landlord for
the unexpired term of the Lease, or any part thereof, before presentation of
proof of such liquidated damages to any court or adjudicator, the amount of rent
reserved upon such relating shall be deemed to be fair and reasonable rental
value for the part or the whole of the Demised Premises so re-let during the
term of the re-letting. Nothing herein contained shall limit or prejudice the
right of the Landlord to prove for and obtain as liquidated damages by reason of
such termination, an amount equal to the maximum allowed by any statute or rule
of law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
19. DEFAULT; REMEDIES.
19.1 If Tenant (a) defaults in making any payment of Base Rent due
hereunder within seven (7) calendar days of its due date, or defaults in making
any payment of Additional Rent due hereunder within fifteen (15) days of its due
date, and if either such default continues for five (5) days after notice of
said default from Landlord; or (b) defaults in the performance of any
non-monetary obligation or covenant contained herein and said default continues
for thirty (30) days after notice of said default from Landlord; provided,
however, if said default is not subject to cure within said thirty day period,
no Event of Default pursuant hereto shall be claimed so long as Tenant is
diligently pursuing said cure, but in no event shall said default continue for
more than sixty (60) days following said notice; or (c) if the Demised Premises
become deserted; or (d) if any execution or attachment shall be issued against
Tenant or any of Tenant's property and the Demised Premises shall be taken or
occupied by someone other than Tenant; or (e) if this Lease be rejected under $
235 of Title 11 of the US Code (Bankruptcy Code); or (f) if Tenant shall fail to
move into or take possession of the Demised Premises within fifteen (15) days
after the Commencement Date (any of the above being an "Event of Default") then,
in any one or more of such Events of Default, Landlord may serve a written three
(3) days' notice of cancellation of this Lease upon Tenant, and upon the
expiration of said three (3) days this Lease and the Term shall
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end and expire as fully and completely as if the expiration of such three (3)
day period were the day herein definitely fixed for the end and expiration of
this Lease and Tenant shall then quit and surrender the Demised Premises to the
Landlord but Tenant shall remain liable as hereinafter provided.
19.2 Upon the occurrence of any Event of Default Landlord may without
notice, reenter the Demised Premises either by force or otherwise and dispossess
Tenant by summary proceedings or otherwise, and the legal representative of
Tenant or other occupant of the Demised Premises and remove its effects and hold
the Demised Premises as if this Lease had not been made.
19.3 In case of any Event of Default, (a) Tenant shall be obligated to pay
all rent and monies in accordance with the terms and conditions of this Lease;
(b) Landlord may re-let the Demised Premises or any part or parts thereof,
either in the name of Landlord or otherwise, for a term or terms, which may at
Landlord's option be less than or exceed the period which would otherwise have
constituted the balance of the term of this Lease and may grant concessions or
free rent or charge a higher rental than in this Lease; and/or (c) Tenant or the
legal representatives of Tenant shall also pay Landlord as liquidated damages
for the failure of Tenant to observe and perform said Tenant's convenience
herein contained, any deficiency between the rent hereby reserved and/or
covenanted to be paid and the net amount, if any, of the rents collected on
account of the lease or leases of the Demised Premises for each month of the
period which would otherwise have constituted the balance of the term of this
Lease. The failure of Landlord to re-let the Demised Premises or any part or
parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Landlord may reasonably incur in connection with re-letting,
such as legal expenses, attorneys' fees, brokerage, advertising and for keeping
the Demised Premises in good order or for preparing the same for re-letting. In
no event shall Tenant be entitled to receive any excess, if any, of such net
rents collected in the event of a sublet over the sums payable by Tenant to
Landlord hereunder. Tenant hereby waives any notice to quit which may be
required by statute or otherwise prior to the commencement of an action to
obtain possession of the Demised Premises by summary proceeding or otherwise.
19.4 In the event of an Event of Default or threatened Event of Default by
Tenant, Landlord shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if reentry, summary proceedings and other
remedies were not herein provided. Reference in this Lease of any particular
remedy, shall not preclude Landlord from any other remedy, in law or in equity.
19.5 If Tenant shall default in the observance or performance of any term
or covenant contained herein Landlord may at its sole discretion after
reasonable notice to Tenant perform the obligation of Tenant thereunder. No
notice shall be required for emergency repairs or actions undertaken by
Landlord. In the event that Landlord makes any expenditures or incurs any
obligations for the payment of money hereunder
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including but not limited to attorney's fees in instituting, prosecuting or
defending any action or proceeding then Tenant will reimburse Landlord for such
sums so paid or obligations incurred with interest and costs. If Tenant requests
Landlord to review or execute documents (including without limitation, any
sublease or occupying documents) in connection then Tenant shall reimburse
Landlord, as Additional Rent, for the expense of attorneys' fees and
disbursements thereby incurred by Landlord, so far as the same are reasonable.
The foregoing expenses incurred by reason of Tenant's default or otherwise shall
be deemed to be Additional Rent hereunder and shall be paid by Tenant to
Landlord within five (5) days of rendition of any bill or statement to Tenant
therefor. If Tenant's lease term shall have expired at the time of making of
such expenditures or incurring of such obligations, such sums shall be
recoverable by Landlord as damages.
20. LANDLORD'S CONTROL RE BUILDING.
Landlord shall have the right at any time, without the same constituting an
eviction and without incurring liability to Tenant therefor, to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, stairs, or other public parts of the Building and to change the name,
number or designation by which the Building may be known. There shall be no
allowance to Tenant for diminution of rental value and no liability on the part
of Landlord by reason of inconvenience, annoyance or injury to business arising
from Landlord or other tenants making any repairs in the Building or any such
alterations, additions and improvements. Furthermore, Tenant shall not have any
claim against Landlord by reason of Landlord's imposition of such controls of
the manner of access to the Building by Tenant's invitees as the Landlord may
deem necessary for the security of the Building and its occupants.
21. QUIET ENJOYMENT.
Landlord convenience and agrees with Tenant that upon Tenant paying the
Base Rent and Additional Rent and observing and performing all other terms,
convenience and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the Demised Premises subject,
nevertheless, to the terms and conditions of this Lease. Landlord will hold
Tenant harmless from any claim disputing Landlord's right or authority to enter
into this Lease including without limitation, any claims as to Landlord's
ownership of the Property.
22. NO WAIVER.
The failure of Landlord to seek redress for violation of, or to insist upon
the strict performance of any covenant or condition of this Lease or of any of
the Rules or Regulations, set forth or hereafter adopted by Landlord, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. Landlord's
receipt of rent with knowledge of the breach of any covenant of this Lease shall
not be deemed a waiver of Landlord's rights
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pursuant to the other terms of this lease unless such waiver be in writing and
signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly rent herein stipulated shall be deemed to be other than
on account of the earliest stipulated rent, nor shall any endorsement or
statement of any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy in this Lease provided. No act or thing done by
Landlord or Landlord's agents during the Term shall be deemed an acceptance of a
surrender of the Demised Premises, and no agreement to accept such surrender
shall be valid unless in writing signed by Landlord. No employee of Landlord or
Landlord's agent shall have any power to accept the keys of the Demised Premises
prior to the termination of the Lease and the delivery of keys to any such agent
or employee shall not operate as a termination of the Lease or a surrender of
the Demised Premises.
23. INABILITY TO PERFORM.
This Lease and the obligation of Tenant to pay rent and perform all of the
other convenience and agreements hereunder shall in no way be affected, impaired
or excused because Landlord is unable to fulfill any of its obligations under
this Lease or is unable to supply or is delayed in supplying any service or is
unable to make, or is delayed in making any repairs, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment of
fixtures if Landlord is prevent or delayed from so doing by reason of strike or
labor troubles or any other cause including, but not limited to, government
preemption in order or regulation of any department or subdivision thereof any
government agency or by reason of the conditions of supply and demand which have
been or are affected by war or other emergency.
24. BROKER.
Tenant represents that the only broker with whom it dealt or who was
instrumental in connection with this Lease is CB COMMERCIAL REAL ESTATE GROUP,
INC., and based thereupon Landlord agrees to pay a brokerage commission in
accordance with a separate agreement between Landlord and said broker. Tenant
agrees to and hereby does indemnify and hold Landlord harmless from and against
all cost, expenses (including attorneys' fees and disbursements), losses and
liabilities incurred by Landlord in connection with any such claim with respect
to any broker other than as specifically provided herein.
25. ESTOPPEL CERTIFICATE.
Tenant shall at its own cost and expense, upon not less than ten (10) days
prior notice from Landlord, execute, acknowledge and deliver to Landlord a
statement in writing addressed to Landlord or such other party as Landlord may
designate, setting forth the Commencement Date, the Expiration Date, the Base
Rent, current payments of Additional Rent and certifying (a) that this Lease is
unmodified and in full force and
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effect (or if there has been any modification, that the same is in full force
and effect as modified and stating the modification), (b) the dates to which the
Base Rent and Additional Rent have been paid in advance, if any, (c) whether or
not to Tenant's knowledge Landlord is in default in performance of any of its
obligations under this Lease and, if so, specifying each such default of this
Tenant may have knowledge, (d) whether Tenant has accepted possession of the
Demised Premises, (e) whether Tenant has made any claim against the Landlord
under this Lease and, if so, the nature thereof and the dollar amount, if any,
of such claim, (f) whether there exists any offsets or defenses against
enforcement of any of the terms of this Lease upon the part of Tenant to be
performed, and, if so, specifying the same and (g) such further information with
respect to this Lease or the Demised Premises as Landlord may reasonably
request, it being intended that any such statement delivered pursuant hereto
shall be binding upon Tenant, and may be relied upon by any prospective
purchaser from Landlord, by any mortgagee or prospective mortgagees thereof, by
and lessor or prospective lessor thereof, or by any prospective assignee of any
mortgage thereof.
26. HOLDOVER.
26.1 Tenant hereby indemnifies and agrees to hold Landlord harmless from
and against any loss, cost, liability, claim, damage, fine, penalty, and
expense, including attorneys' fees and disbursements, resulting from delay by
Tenant in surrendering the Demised Premises upon the Termination Date, said
indemnification and hold harmless to attached to any claims made by any
succeeding tenant or prospective tenant founded upon such delay.
26.2 Landlord will attempt to accommodate an extension of this Lease of up
to four (4) months after the scheduled Termination Date on reasonable terms if
no other tenant is requiring delivery of the Demised Premises. However,
notwithstanding the foregoing, in the event Tenant remains in possession of the
Demised Premises after the Termination Date without the execution of a new Lease
or short-term extension, at the option of Landlord, shall be deemed to be
occupying the Demised Premises as a tenant from month to month, at a monthly
rental equal to two times the Base Rent and Additional Rent payable during the
last month of the Term, subject to all of the other terms and conditions of this
Lease insofar as the same are applicable to a month-to-month tenancy.
27. MORTGAGES.
27.1 If, in connection with obtaining, continuing or renewing financing for
which the Building, Property, leasehold or any interest therein represents
collateral in whole or in part, a banking, insurance or other lender shall
request reasonable modifications of this Lease as a condition of such financing,
Tenant shall forthwith consent thereto provided that such modifications do not
increase the obligations of Tenant hereunder or adversely affect to a material
degree the Tenant's leasehold interest hereby created.
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27.2 Tenant agrees to give any mortgagees by registered or certified mail,
return receipt requested, a copy of any notice of default served upon the
Landlord, provided that prior to such notice, Tenant has been notified, in
writing, (by way of notice of assignment of rents and leases, or otherwise) of
the address of such mortgagees. Tenant further agrees that if Landlord shall
have failed to cure such default within the time provided for in this Lease,
then the mortgagees shall have an additional thirty (30) days within which to
cure such default or if such default cannot be cured within that time, then such
additional time as may be necessary if within such thirty (30) days, any
mortgagee has commenced and is diligently pursuing the remedies necessary to
cure such default (including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure) in which event this Lease shall
not be terminated while such remedies are being so diligently pursued.
28. RULES AND REGULATIONS.
Tenant and Tenant's servants, employees, agents, visitors, and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations as
set forth on Exhibit C, attached hereto and made a part hereof, and such other
and further reasonable Rules and Regulations as Landlord or Landlord's agents
may from time to time adopt. Notice of any additional rules or regulations shall
be given in such reasonable manner as Landlord may elect. Nothing in this Lease
contained shall be construed to impose upon Landlord any duty or obligation to
enforce the Rules and Regulations or terms, covenants or conditions in any other
lease, as against any other tenant and Landlord shall not be liable to Tenant
for violation of the same by any other tenant, its servants, employees, agents,
visitors or licenses.
29. MISCELLANEOUS.
29.1 BINDING NATURE. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord, Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this Lease, their assigns.
29.2 APPLICABLE LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of Connecticut.
29.3 NONRECOURSE. Tenant shall look solely to the estate and interest of
Landlord, it successors and assigns, in the Property for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord
in the event of any default by Landlord hereunder, and no other property or
assets of Landlord (or if Landlord is a partnership of any partner of Landlord)
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to either this Lease,
the relationship of Landlord and Tenant hereunder or Tenant's use and occupancy
of the Demised Premises.
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29.4 NO RECORDATION. Tenant expressly warrants and represents that it will
not record this Lease, but Landlord will, upon Tenant's request and at Tenant's
sole cost and expense, execute a Notice of Lease (setting forth only the minimum
requirements necessary for recording) which Tenant may record.
29.5 SEPARABILITY. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby.
29.6 CAPTIONS. The captions are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope of this
Lease or the intent of any provisions thereof.
29.7 NOTICE PROVISION. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given if delivered by hand or mailed, certified or
registered mail, with postage prepaid:
a. If to the Tenant, to:
Dr. James W. Biondi
Cardiopulmonary Corp.
200 Cascade
Milford, CT 06460
With a copy to:
Mimi M. Lines, Esq.
Robinson & Cole
One Commercial Plaza
Hartford, CT 06103-3597
or to such other person or address as Tenant shall furnish Owner in writing.
b. If to Landlord, to:
Controller
P.O. Box 3010
Milford, CT 06460
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IN WITNESS WHEREOF, the parties have hereunto set their hands and seals the
day and year first written above.
Signed in the presence of: (Landlord)
SC Properties LLC
/s/ By:/s/
- ---------------------------------- -------------------------------
- ----------------------------------
(Tenant)
Cardiopulmonary Corporation
/s/ By:/s/JAMES W. BIONDI, M.D.
- ---------------------------------- -------------------------------
- ----------------------------------
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EMPLOYMENT AGREEMENT
AGREEMENT (this "AGREEMENT") made as of May 20, 1996 but effective as of
the Employment Date (as hereinafter defined), between CARDIOPULMONARY CORP., a
Delaware corporation with an office at 200 Cascade Boulevard, Milford,
Connecticut (the "COMPANY"), and James W. Biondi, an individual residing at 1601
Ridge Road, North Haven, Connecticut 06473 (the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Company desires that the Executive be employed to serve in a
senior executive capacity with the Company, and the Executive desires to be so
employed by the Company, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations and covenants contained in this Agreement, the parties
agree as follows:
1. EMPLOYMENT.
The Company hereby employs the Executive and the Executive hereby
accepts such employment, subject to the terms and conditions set forth in this
Agreement, as its President and Chief Executive Officer.
2. TERM.
The term of employment under this Agreement shall begin as of the closing
date of the Company's initial public offering of Common Stock (the "EMPLOYMENT
DATE") and shall continue for a period of three (3) years from that date,
subject to prior termination in accordance with the terms of this Agreement;
provided, however, that this Agreement shall automatically be renewed on the
same terms for successive one-year terms, unless terminated by written notice
given by either party to the other at least ninety (90) days prior to the end of
the applicable term.
<PAGE>
3. DUTIES.
(a) The Executive shall perform the duties and functions normally
associated with the offices of President and Chief Executive Officer of a
corporation and shall report to the Board of Directors of the Company.
(b) The Executive agrees to devote all his working time, attention and
energies to the performance of the businesses of the Company and of any of its
affiliates by which he may be employed, and the Executive shall not, directly or
indirectly, alone or as a member of any partnership or other organization, or as
an officer, director or employee of any other corporation, partnership or other
organization, be actively engaged in or concerned with any other duties or
pursuits which materially interfere with the performance of his duties under
this Agreement, or which, even if non-interfering, may be contrary to the best
interests of the Company, except those duties or pursuits specifically
authorized by the Board of Directors of the Company. The Company acknowledges
that the Executive currently serves as a member of the Board of Directors of Ivy
Biomedical Systems, Inc. ("Ivy") and consents to such service; provided,
however, that the Executive shall recuse himself from participating on behalf of
Ivy in any actions as to which there may be a conflict of interest between Ivy
and the Company.
4. COMPENSATION.
As compensation for the employment services to be rendered by the Executive
under this Agreement, including any services as an officer or director of the
Company and any of its affiliates, the Company agrees to pay, or cause to be
paid, to the Executive, and the Executive agrees to accept, a minimum annual
compensation of $175,000.00, or such higher amount as the Board of Directors may
determine, payable in equal installments in accordance with Company practice.
5. EXPENSES.
The Company shall pay or reimburse the Executive, subject to prior approval
and upon presentment of such vouchers, receipts and other supporting information
as the Company may require, for all reasonable business and travel expenses
which may be incurred or paid by the Executive in connection with the employment
of the Executive by the Company in accordance with the Company's standard
policies then in effect. The Executive shall comply with such restrictions and
shall keep such records as the Company may require of its executives generally
to facilitate compliance with the requirements of the Internal Revenue Code of
1986, as amended from time to time, and regulations promulgated thereunder.
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6. INSURANCE AND OTHER BENEFITS.
The Executive shall be entitled to three (3) weeks annual vacation and to
participate in and receive any other benefits provided by the Company to other
executive employees generally (including any personal and sick days, 401(k) plan
participation, health insurance, dental coverage, life insurance and short and
long-term disability insurance plans in accordance with the terms of such
plans), all as determined from time to time by the Board of Directors of the
Company or appropriate committee thereof.
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.
(a) This Agreement shall terminate immediately upon the death of the
Executive. In such event, the estate of the Executive shall thereupon be
entitled to receive such portion of the Executive's annual salary and such
commissions as have been earned or accrued and remain unpaid through the date of
his death.
(b) The Company may terminate the Executive's employment in the Company's
sole discretion at any time, with or without Justifiable Cause (as hereinafter
defined), upon written notice to the Executive. In the event the Company seeks
to terminate the Executive's employment with Justifiable Cause in accordance
with subsections (g)(i), (g)(iii) or (g)(v), the Company shall first notify the
Executive in writing of such intention and afford the Executive a reasonable
period (as determined by the Board of Directors) in which to remedy the conduct
in question. If the conduct in question is not remedied in the time period
provided, the Company may terminate the Executive with Justifiable Cause,
provided that such termination is authorized and directed by a unanimous vote of
the members of the Board of Directors other than the Executive.
(c) The Company may terminate the Executive's employment if he has been
unable to perform his duties hereunder due to Disability (as hereinafter
defined) if he has not resumed on a full-time basis the performance of such
duties within thirty days after written notice from the Company of its intent to
terminate his employment due to Disability.
(d) The Executive may terminate his employment hereunder for Good Reason
(as hereinafter defined) upon written notice to the Company.
(e) In the event that the Executive's employment is terminated at any time
prior to a Change in Control (as hereinafter defined) either (i) by the Company
(except as a condition to or in anticipation of a Change in Control) for any
reason other than Justifiable Cause, Disability or death or (ii) by the
Executive for Good Reason, the Company shall pay the Executive his salary at his
then current rate (including an amount equal to any bonuses paid to the
Executive during the prior twelve (12) month period) for a period of twelve (12)
months, or, if greater, the remainder of the stated
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term of this Agreement, such payments to be made ratably over the term of the
Non-Compete Period (as hereinafter defined). Such payments shall be in lieu of
any and all other payments due and owing to the Executive under the terms of
this Agreement. The Company shall also provide to the Executive health insurance
until such time as Executive obtains new employment and is covered under the new
employer's health insurance plan but in no event longer than the Non-Compete
Period. The Executive shall not be required to seek other employment or to
otherwise mitigate the effects of such termination, and such payments shall not
be reduced by any income received from other sources.
(f) In the event that the Executive's employment is terminated at any time
following a Change in Control either (i) by the Company for any reason other
than Justifiable Cause, Disability or death, (ii) by the Executive for Good
Reason or (iii) by the Executive within ninety (90) days following the first day
on which the Change in Control occurs, the Company shall pay the Executive two
(2) times his salary at his then current rate (including an amount equal to any
bonuses paid to the Executive during the prior twenty-four (24) month period),
such payment to be made in one lump sum payment at the time of termination. Such
payments shall be in lieu of any and all other payments due and owing to the
Executive under the terms of this Agreement. The Company shall also provide to
the Executive health insurance for a period of two (2) years following
termination of the Executive's employment. The Executive shall not be required
to seek other employment or to otherwise mitigate the effects of such
termination, and such payments shall not be reduced by any income received from
other sources.
(g) For the purposes of this Agreement, the term "JUSTIFIABLE CAUSE" shall
mean: (i) intentional gross misconduct by the Executive in the performance of
his duties hereunder; (ii) the conviction of a felony; (iii) misuse of the
Company's position or knowledge of the Company's affairs for personal gain; (iv)
any other violation of law in connection with the Company's business which would
have a material effect on the Executive's ability to perform his duties
hereunder or on the Company's business; or (v) a breach of the Confidentiality
provision set forth in Section 10 below. "Intentional gross misconduct" shall
include personal dishonesty, willful misconduct or intentional failure to
perform stated duties.
(h) For the purposes of this Agreement, the term "DISABILITY" shall mean
the inability of the Executive, due to illness, accident or any other physical
or mental incapacity, to perform his duties in a normal manner for a period of
six (6) consecutive months during the term of this Agreement.
(i) For the purposes of this Agreement, the term "GOOD REASON" shall mean:
(i) a substantial reduction of the Executive's duties, position, authority or
responsibilities hereunder which is not corrected within thirty (30) days after
written notice from the Executive; (ii) material breach by the Company of its
obligations hereunder if not remedied within thirty (30) days after written
notice from Executive; (iii) a reduction in the Executive's compensation
(provided, however, that a Company-
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<PAGE>
wide salary reduction which is instituted with the concurrence of the Executive
shall not constitute Good Reason hereunder); (iv) a transfer of the Executive to
a location other than the Company's principal executive office at the time of a
Change in Control (unless such location is within sixty (60) miles of the
principal executive office at the time of the Change in Control); (v) a material
adverse change in the working conditions to which the Executive has been subject
or a material reduction in the discretionary fringe benefits the Executive has
been enjoying; (vi) the Executive is not the highest ranking officer of the
Company with the power to appoint and remove all other employees of the Company;
or (vii) retention of any senior executive officer by the Company or an offer to
pay compensation to any senior executive of the Company that in either case is
unacceptable to the Executive, in his reasonable judgment.
(j) For the purposes of this Agreement, a "CHANGE IN CONTROL" shall be
deemed to have occurred: (i) if any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), other than the Executive, who is not a shareholder of the
Company as of the date hereof, shall have become the beneficial owner, directly
or indirectly, of Common Stock representing thirty-three and one-third percent
(33-1/3%) or more of the combined voting power of the Company's then outstanding
securities, unless three-quarters of the Board of Directors, as constituted
immediately prior to the date of the Change in Control, decide in their
reasonable discretion that no Change in Control has occurred, the Executive not
being allowed to vote on such matter if he is then a Director; provided,
however, that if any such person other than the Executive (whether or not a
stockholder of the Company as of the date hereof) shall become the beneficial
owner, directly or indirectly, of Common Stock representing fifty percent (50%)
or more of the Company's then outstanding securities, a Change in Control shall
ipso facto have occurred; (ii) if at any time individuals who at the date of
this Agreement constitute a majority of the Board of Directors, or individuals
designated by such a majority as "continuing directors," cease, for any reason
other than death or voluntary resignation (being a resignation not requested by
any other person or persons), to constitute at least a majority of the Board of
Directors; or (iii) if there is a Change in Control of a nature that, in the
opinion of counsel for the Company, would be required to be reported in response
to Item 6(e) of Schedule 14A under the Exchange Act, unless three-quarters of
the Board of Directors, as constituted immediately prior to the date of the
Change in Control, decide in their reasonable discretion that no Change in
Control has occurred, the Executive not being allowed to vote on such matter if
he is then a Director.
8. REPRESENTATIONS AND AGREEMENTS OF THE EXECUTIVE.
(a) The Executive represents and warrants that he is free to enter into
this Agreement and to perform the duties required under this Agreement, and that
there are no employment contracts or understandings, restrictive covenants or
other restrictions, whether written or oral, preventing the performance of his
duties under this Agreement.
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<PAGE>
(b) The Executive agrees to submit on reasonable notice to a medical
examination (at the Company's expense) and to cooperate and supply such other
information and documents as are in Executive's possession as may reasonably be
required by any insurance company in connection with the Company's obtaining any
type of insurance or fringe benefit as the Company shall determine from time to
time to obtain for Executive. Executive shall be given a complete report of any
such examination.
9. NON-COMPETITION.
(a) The Executive acknowledges that his duties under this Agreement and the
services he will provide to the Company are of a special, unique, unusual and
extraordinary character, which gives this Agreement particular value to the
Company, and that it would be difficult to employ any individual or individuals
to replace the Executive in the performance of such duties and services.
Therefore, the Executive agrees that during his employment by the Company, and
for a period of two (2) years after termination of this Agreement for any
reason, including expiration of the term of this Agreement (the "NON-COMPETE
PERIOD"), the Executive shall not, directly or indirectly, as owner, partner,
joint venturer, stockholder, employee, broker, agent, principal, trustee,
corporate officer, director, or in any capacity whatsoever engage in, become
financially interested in, be employed by, render any consultation or business
advice with respect to, or have any connection with, any business engaged in the
design or manufacture of mechanical ventilators or anaesthesia equipment or
which are otherwise competitive with products or services with respect to which
the Company or any of its affiliates are actively engaged during the term of
this Agreement, in any geographic area where, at the time of the termination of
his employment, the business of the Company or any of its affiliates was being
conducted or was proposed to be conducted; provided, however, that the Executive
may own any securities of any corporation which is engaged in such business and
is publicly owned and traded but in an amount not to exceed at any one time two
percent (2%) of any class of stock or securities of such corporation. In
addition, the Executive shall not, directly or indirectly, during the
Non-Compete Period, request or cause contracting parties, suppliers or customers
with whom the Company or any of its affiliates has a business relationship to
cancel or terminate any such business relationship with the Company or any of
its affiliates or solicit, interfere with or entice from the Company any
employee (or former employee) of the Company.
(b) If any portion of the restrictions set forth in this Section 9 should,
for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) The Executive acknowledges that the Company intends to conduct business
on a world-wide basis, that its sales and marketing prospects are for continued
expansion into world markets and that, therefore, the territorial and time
limitations
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set forth in this Section 9 are reasonable and properly required for the
adequate protection of the business of the Company and its affiliates. In the
event any such territorial or time limitation is deemed to be unreasonable by a
court of competent jurisdiction, the Executive agrees to the reduction of the
territorial or time limitation to the area or period which such court deems
reasonable.
(d) The existence of any claim or cause of action by the Executive against
the Company shall not constitute a defense to the enforcement by the Company of
the foregoing restrictive covenants, but such claim or cause of action shall be
litigated separately.
10. CONFIDENTIALITY
(a) The Executive acknowledges that, during the course of his employment by
the Company, the Executive will have access to confidential or proprietary
information, documents and other materials relating to the Company, its
affiliates and their respective business which are not generally known to
persons outside the Company (whether conceived or developed by the Executive or
others) and confidential or proprietary information, documents and other
materials entrusted to the Company by third parties, including, without
limitation, any "know-how," trade secrets, customer lists, details of client or
consultant contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, business plans, acquisition
plans of the Company or its affiliates that are valuable and not generally known
to the competitors of the Company, whether or not in written or tangible form,
and including all memoranda, notes, plans, reports, records, documents and other
evidence thereof ("CONFIDENTIAL INFORMATION"). Neither the Executive nor any
entity affiliated with the Executive will, directly or indirectly, during the
term of the Executive's employment by the Company and/or thereafter, disclose to
anyone, or use or otherwise exploit for the Executive's own benefit or for the
benefit of anyone other than the Company or its affiliates, any Confidential
Information. Confidential Information shall not include information which (i)
the Executive can show was already in the possession of the Executive prior to
employment with the Company, and which was not acquired or obtained from the
Company or any of its affiliates (whether received before or after the date of
this Agreement), or (ii) is or becomes generally available to the industry other
than as a result of a disclosure, directly or indirectly, by the Executive.
(b) The Executive agrees that all Confidential Information conceived,
discovered or made by the Executive during the term of employment belongs to the
Company. The Executive will promptly disclose such Confidential Information to
the Company and perform all actions reasonably requested by the Company to
establish and confirm such ownership.
(c) All Confidential Information relating to the Company and its affiliates
shall be the exclusive property of the Company and its affiliates, and the
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Executive shall use all reasonable efforts to prevent any publication or
disclosure thereof. Upon termination of the Executive's employment with the
Company, all documents, records, reports, writings and other similar documents
containing Confidential Information, including copies thereof, then in
Executive's possession or control shall be returned to and left with the
Company.
11. COPYRIGHTS, PATENTS, TRADEMARKS.
(a) All right, title and interest, of every kind whatsoever, in the United
States and throughout the world, in (i) any work, including the copyright
thereof (for the full terms and extensions thereof in every jurisdiction),
created by the Executive at any time during the term of this Agreement and all
material embodiments of the work subject to such rights (collectively, "Works")
and (ii) all inventions, ideas, discoveries, designs and improvements,
patentable or not (collectively, "Inventions"), which Works or Inventions are
made or conceived by the Executive at any time during the term of this
Agreement, and which either relate to the business of the Company, or are
created, made or conceived using the facilities of the Company (collectively,
"Company Works and Inventions"), shall be and remain the sole property of the
Company without payment of any further consideration to the Executive or any
other person, and each of the Company Works and Inventions shall, for purposes
of United States copyright law, be deemed created by the Executive pursuant to
his duties under this Agreement and within the scope of his employment and shall
be deemed a work made for hire; and the Executive agrees to assign, at the
Company's expense, and the Executive does hereby assign, all of his right, title
and interest in and to all Company Works and Inventions, patentable or not, and
any copyrights, letters patent, trademarks, trade secrets, and similar rights,
and the applications therefor, which may exist or be issued with respect
thereto. For the purposes of this Section 11, "WORKS" shall include all
materials created during the term of this Agreement, whether or not ever used by
or submitted to the Company, including, without limitation, any work which may
be the subject matter of a copyright under United States copyright law. In
addition to its other rights, the Company may copyright any such work in its
name in the United States in accordance with the requirements of the United
States copyright law and the Universal Copyright Convention and any other
convention or treaty to which the United States is or may become a party.
(b) Whenever the Company shall so request, whether during or after the term
of this Agreement, the Executive shall execute, acknowledge and deliver all
applications, assignments or other instruments; make or cause to be made all
rightful oaths; testify in all legal proceedings; communicate all known facts
which relate to Company Works and Inventions; perform all lawful acts and
otherwise render all such assistance as the Company may deem necessary to apply
for, obtain, register, enforce and maintain any copyrights, letters patent and
trademark registrations of the United States or any foreign jurisdiction or
under the Universal Copyright Convention (or any other convention or treaty to
which the United States is or may become a party), or otherwise to protect the
Company's interests therein, including any which the Company
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shall deem necessary in connection with any proceeding or litigation involving
the same. The Company shall reimburse the Executive for all reasonable
out-of-pocket costs incurred by the Executive in testifying at the Company's
request or in rendering any other assistance requested by the Company pursuant
to this Section 11. All registration and filing fees and similar expenses shall
be paid by the Company.
12. RIGHT TO INJUNCTION; REMEDIES.
(a) The Executive recognizes that the services to be rendered by him under
this Agreement are of a special, unique, unusual, extraordinary and intellectual
character involving skill of the highest order and giving them peculiar value
the loss of which cannot be adequately compensated for in damages. In the event
of a breach of Section 9, 10 or 11 of this Agreement by the Executive, the
Company shall be entitled to injunctive relief or any other legal or equitable
remedies. The remedies provided in this Agreement shall be deemed cumulative and
the exercise of one shall not preclude the exercise of any other remedy at law
or in equity for the same event or any other event.
(b) The Executive shall not incur any liability to the Company solely by
reason of the Executive's termination of his employment with the Company,
whether such termination is for Good Reason or otherwise.
13. ASSIGNMENT.
The rights and obligations of the Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of the
Company.
14. AMENDMENT OR ALTERATION.
No amendment or alteration of the terms of this Agreement shall be valid
unless made in writing and signed by both of the parties to this Agreement.
15. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Connecticut
applicable to agreements made and to be performed therein.
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16. SEVERABILITY.
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
17. NOTICES.
Any notices required or permitted to be given under this Agreement shall be
sufficient if in writing, and if delivered by hand, or sent by certified mail,
return receipt requested, to the addresses set forth above or such other address
as either party may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery or mailing.
18. WAIVER OR BREACH.
It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
19. ENTIRE AGREEMENT AND BINDING EFFECT.
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and shall be binding upon and inure to the benefit of
the parties to this Agreement and their respective legal representatives, heirs,
distributors, successors and assigns. Notwithstanding the foregoing, no prior
agreements between the Executive and the Company relating to the confidentiality
of information, trade secrets and patents shall be affected by this Agreement.
20. SURVIVAL.
The termination of the Executive's employment hereunder shall not affect
the enforceability of Sections 9, 10, 11 and 12 of this Agreement.
21. FURTHER ASSURANCES.
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
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22. HEADINGS.
The section headings appearing in this Agreement are for the purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, demand or affect its provisions.
23. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CARDIOPULMONARY CORP.
By: /s/ N. NICOLL SNOW
----------------------------------------
By: /s/ JAMES W. BIONDI, M.D.
----------------------------------------
James W. Biondi, M.D.
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EMPLOYMENT AGREEMENT
AGREEMENT (this "AGREEMENT") made as of May 20, 1996 but effective as of
the Employment Date (as hereinafter defined), between CARDIOPULMONARY CORP., a
Delaware corporation with an office at 200 Cascade Boulevard, Milford,
Connecticut (the "COMPANY"), and N. Nicoll Snow, an individual residing at 62
Turtle Bay Drive, Branford, Connecticut 06405 (the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Company desires that the Executive be employed to serve in a
senior executive capacity with the Company, and the Executive desires to be so
employed by the Company, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations and covenants contained in this Agreement, the parties
agree as follows:
1. EMPLOYMENT.
The Company hereby employs the Executive and the Executive hereby accepts
such employment, subject to the terms and conditions set forth in this
Agreement, as its Vice President, Chief Financial Officer and Secretary.
2. TERM.
The term of employment under this Agreement shall begin as of the closing
date of the Company's initial public offering of Common Stock (the "EMPLOYMENT
DATE") and shall continue for a period of two (2) years from that date, subject
to prior termination in accordance with the terms of this Agreement; provided,
however, that this Agreement shall automatically be renewed on the same terms
for successive one-year terms, unless terminated by written notice given by
either party to the other at least ninety (90) days prior to the end of the
applicable term.
<PAGE>
3. DUTIES.
(a) The Executive shall perform the duties and functions normally
associated with the offices of Vice President, Chief Financial Officer and
Secretary of a corporation and shall report to the Chief Executive Officer of
the Company or such other senior officer of the Company as may be designated by
the Chief Executive Officer.
(b) Until termination of his employment, the Executive agrees to devote all
his working time, attention and energies to the performance of the businesses of
the Company and of any of its affiliates by which he may be employed, and the
Executive shall not, directly or indirectly, alone or as a member of any
partnership or other organization, or as an officer, director or employee of any
other corporation, partnership or other organization, be actively engaged in or
concerned with any other duties or pursuits which materially interfere with the
performance of his duties under this Agreement, or which, even if
non-interfering, may be contrary to the best interests of the Company, except
those duties or pursuits specifically authorized by the Chief Executive Officer
of the Company.
4. COMPENSATION.
As compensation for the employment services to be rendered by the Executive
under this Agreement, including any services as an officer or director of the
Company and any of its affiliates, the Company agrees to pay, or cause to be
paid, to the Executive, and the Executive agrees to accept, a minimum annual
compensation of $150,000.00, or such higher amount as the Board of Directors may
determine, payable in equal installments in accordance with Company practice.
5. EXPENSES.
The Company shall pay or reimburse the Executive, subject to prior approval
and upon presentment of such vouchers, receipts and other supporting information
as the Company may require, for all reasonable business and travel expenses
which may be incurred or paid by the Executive in connection with the employment
of the Executive by the Company in accordance with the Company's standard
policies then in effect. The Executive shall comply with such restrictions and
shall keep such records as the Company may require of its executives generally
to facilitate compliance with the requirements of the Internal Revenue Code of
1986, as amended from time to time, and regulations promulgated thereunder.
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<PAGE>
6. INSURANCE AND OTHER BENEFITS.
The Executive shall be entitled to three (3) weeks annual vacation and to
participate in and receive any other benefits provided by the Company to other
executive employees generally (including any personal and sick days, 401(k) plan
participation, health insurance, dental coverage, life insurance and short and
long-term disability insurance plans in accordance with the terms of such
plans), all as determined from time to time by the Board of Directors of the
Company or appropriate committee thereof.
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.
(a) This Agreement shall terminate immediately upon the death of the
Executive. In such event, the estate of the Executive shall thereupon be
entitled to receive such portion of the Executive's annual salary and such
commissions as have been earned or accrued and remain unpaid through the date of
his death.
(b) The Company may terminate the Executive's employment in the Company's
sole discretion at any time, with or without Justifiable Cause (as hereinafter
defined), upon written notice to the Executive. In the event the Company seeks
to terminate the Executive's employment with Justifiable Cause in accordance
with subsections (g)(i), (g)(iii) or (g)(v), the Company shall first notify the
Executive in writing of such intention and afford the Executive a reasonable
period (as determined by the Company) in which to remedy the conduct in
question. If the conduct in question is not remedied in the time period
provided, the Company may terminate the Executive with Justifiable Cause.
(c) The Company may terminate the Executive's employment if he has been
unable to perform his duties hereunder due to Disability (as hereinafter
defined) if he has not resumed on a full-time basis the performance of such
duties within thirty days after written notice from the Company of its intent to
terminate his employment due to Disability.
(d) The Executive may terminate his employment hereunder for Good Reason
(as hereinafter defined) upon written notice to the Company.
(e) In the event that the Executive's employment is terminated at any time
prior to a Change in Control (as hereinafter defined) either (i) by the Company
(except as a condition to or in anticipation of a Change in Control) for any
reason other than Justifiable Cause, Disability or death or (ii) by the
Executive for Good Reason, the Company shall pay the Executive his salary at his
then current rate (including an amount equal to any bonuses paid to the
Executive during the prior six (6) month period) for a period of six (6) months,
such payments to be made ratably over the term of the Non-Compete Period (as
hereinafter defined). Such payments shall be in lieu of any and all other
payments due and owing to the Executive under the terms of this
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<PAGE>
Agreement. The Company shall also provide to the Executive health insurance
until such time as Executive obtains new employment and is covered under the new
employer's health insurance plan but in no event longer than the Non-Compete
Period. The Executive shall not be required to seek other employment or to
otherwise mitigate the effects of such termination, and such payments shall not
be reduced by any income received from other sources.
(f) In the event that the Executive's employment is terminated at any time
following a Change in Control either (i) by the Company for any reason other
than Justifiable Cause, Disability or death, (ii) by the Executive for Good
Reason or (iii) by the Executive within ninety (90) days following the first day
on which the Change in Control occurs, the Company shall pay the Executive two
(2) times his salary at his then current rate (including an amount equal to any
bonuses paid to the Executive during the prior twelve (12) month period), such
payment to be made in one lump sum payment at the time of termination. Such
payments shall be in lieu of any and all other payments due and owing to the
Executive under the terms of this Agreement. The Company shall also provide to
the Executive health insurance for a period of two (2) years following
termination of the Executive's employment. The Executive shall not be required
to seek other employment or to otherwise mitigate the effects of such
termination, and such payments shall not be reduced by any income received from
other sources.
(g) For the purposes of this Agreement, the term "JUSTIFIABLE CAUSE" shall
mean: (i) intentional gross misconduct by the Executive in the performance of
his duties hereunder; (ii) the conviction of a felony; (iii) misuse of the
Company's position or knowledge of the Company's affairs for personal gain; (iv)
any other violation of law in connection with the Company's business which would
have a material effect on the Executive's ability to perform his duties
hereunder or on the Company's business; or (v) a breach of the Confidentiality
provision set forth in Section 10 below. "Intentional gross misconduct" shall
include personal dishonesty, willful misconduct or intentional failure to
perform stated duties.
(h) For the purposes of this Agreement, the term "DISABILITY" shall mean
the inability of the Executive, due to illness, accident or any other physical
or mental incapacity, to perform his duties in a normal manner for a period of
six (6) consecutive months during the term of this Agreement.
(i) For the purposes of this Agreement, the term "GOOD REASON" shall mean:
(i) a substantial reduction of the Executive's duties, position, authority or
responsibilities hereunder which is not corrected within thirty (30) days after
written notice from the Executive; (ii) material breach by the Company of its
obligations hereunder if not remedied within thirty (30) days after written
notice from Executive; (iii) a reduction in the Executive's compensation
(provided, however, that a Company-wide salary reduction which is instituted
with the concurrence of the Executive shall not constitute Good Reason
hereunder); or (iv) a material adverse change in the working conditions to which
the Executive has been subject or a material reduction in the discretionary
fringe benefits the Executive has been enjoying.
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<PAGE>
(j) For the purposes of this Agreement, a "CHANGE IN CONTROL" shall be
deemed to have occurred: (i) if any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), other than the Executive, who is not a shareholder of the
Company as of the date hereof, shall have become the beneficial owner, directly
or indirectly, of Common Stock representing thirty-three and one-third percent
(33-1/3%) or more of the combined voting power of the Company's then outstanding
securities, unless three-quarters of the Board of Directors, as constituted
immediately prior to the date of the Change in Control, decide in their
reasonable discretion that no Change in Control has occurred, the Executive not
being allowed to vote on such matter if he is then a Director; provided,
however, that if any such person other than the Executive (whether or not a
stockholder of the Company as of the date hereof) shall become the beneficial
owner, directly or indirectly, of Common Stock representing fifty percent (50%)
or more of the Company's then outstanding securities, a Change in Control shall
ipso facto have occurred; (ii) if at any time individuals who at the date of
this Agreement constitute a majority of the Board of Directors, or individuals
designated by such a majority as "continuing directors," cease, for any reason
other than death or voluntary resignation (being a resignation not requested by
any other person or persons), to constitute at least a majority of the Board of
Directors; or (iii) if there is a Change in Control of a nature that, in the
opinion of counsel for the Company, would be required to be reported in response
to Item 6(e) of Schedule 14A under the Exchange Act, unless three-quarters of
the Board of Directors, as constituted immediately prior to the date of the
Change in Control, decide in their reasonable discretion that no Change in
Control has occurred, the Executive not being allowed to vote on such matter if
he is then a Director.
8. REPRESENTATIONS AND AGREEMENTS OF THE EXECUTIVE.
(a) The Executive represents and warrants that he is free to enter into
this Agreement and to perform the duties required under this Agreement, and that
there are no employment contracts or understandings, restrictive covenants or
other restrictions, whether written or oral, preventing the performance of his
duties under this Agreement.
(b) The Executive agrees to submit on reasonable notice to a medical
examination (at the Company's expense) and to cooperate and supply such other
information and documents as are in Executive's possession as may reasonably be
required by any insurance company in connection with the Company's obtaining any
type of insurance or fringe benefit as the Company shall determine from time to
time to obtain for Executive. Executive shall be given a complete report of any
such examination.
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<PAGE>
9. NON-COMPETITION.
(a) The Executive acknowledges that his duties under this Agreement and the
services he will provide to the Company are of a special, unique, unusual and
extraordinary character, which gives this Agreement particular value to the
Company, and that it would be difficult to employ any individual or individuals
to replace the Executive in the performance of such duties and services.
Therefore, the Executive agrees that during his employment by the Company, and
for a period of one (1) year after termination of this Agreement for any reason,
including expiration of the term of this Agreement (the "NON-COMPETE PERIOD"),
the Executive shall not, directly or indirectly, as owner, partner, joint
venturer, stockholder, employee, broker, agent, principal, trustee, corporate
officer, director, or in any capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business advice with
respect to, or have any connection with, any business engaged in the design or
manufacture of mechanical ventilators or anaesthesia equipment or which are
otherwise competitive with products or services with respect to which the
Company or any of its affiliates are actively engaged during the term of this
Agreement, in any geographic area where, at the time of the termination of his
employment, the business of the Company or any of its affiliates was being
conducted or was proposed to be conducted; provided, however, that the Executive
may own any securities of any corporation which is engaged in such business and
is publicly owned and traded but in an amount not to exceed at any one time two
percent (2%) of any class of stock or securities of such corporation. In
addition, the Executive shall not, directly or indirectly, during the
Non-Compete Period, request or cause contracting parties, suppliers or customers
with whom the Company or any of its affiliates has a business relationship to
cancel or terminate any such business relationship with the Company or any of
its affiliates or solicit, interfere with or entice from the Company any
employee (or former employee) of the Company.
(b) If any portion of the restrictions set forth in this Section 9 should,
for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) The Executive acknowledges that the Company intends to conduct business
on a world-wide basis, that its sales and marketing prospects are for continued
expansion into world markets and that, therefore, the territorial and time
limitations set forth in this Section 9 are reasonable and properly required for
the adequate protection of the business of the Company and its affiliates. In
the event any such territorial or time limitation is deemed to be unreasonable
by a court of competent jurisdiction, the Executive agrees to the reduction of
the territorial or time limitation to the area or period which such court deems
reasonable.
(d) The existence of any claim or cause of action by the Executive against
the Company shall not constitute a defense to the enforcement by the Company
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<PAGE>
of the foregoing restrictive covenants, but such claim or cause of action shall
be litigated separately.
10. CONFIDENTIALITY
(a) The Executive acknowledges that, during the course of his employment by
the Company, the Executive will have access to confidential or proprietary
information, documents and other materials relating to the Company, its
affiliates and their respective business which are not generally known to
persons outside the Company (whether conceived or developed by the Executive or
others) and confidential or proprietary information, documents and other
materials entrusted to the Company by third parties, including, without
limitation, any "know-how," trade secrets, customer lists, details of client or
consultant contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, business plans, acquisition
plans of the Company or its affiliates that are valuable and not generally known
to the competitors of the Company, whether or not in written or tangible form,
and including all memoranda, notes, plans, reports, records, documents and other
evidence thereof ("CONFIDENTIAL INFORMATION"). Neither the Executive nor any
entity affiliated with the Executive will, directly or indirectly, during the
term of the Executive's employment by the Company and/or thereafter, disclose to
anyone, or use or otherwise exploit for the Executive's own benefit or for the
benefit of anyone other than the Company or its affiliates, any Confidential
Information. Confidential Information shall not include information which (i)
the Executive can show was already in the possession of the Executive prior to
employment with the Company, and which was not acquired or obtained from the
Company or any of its affiliates (whether received before or after the date of
this Agreement), or (ii) is or becomes generally available to the industry other
than as a result of a disclosure, directly or indirectly, by the Executive.
(b) The Executive agrees that all Confidential Information conceived,
discovered or made by the Executive during the term of employment belongs to the
Company. The Executive will promptly disclose such Confidential Information to
the Company and perform all actions reasonably requested by the Company to
establish and confirm such ownership.
(c) All Confidential Information relating to the Company and its affiliates
shall be the exclusive property of the Company and its affiliates, and the
Executive shall use all reasonable efforts to prevent any publication or
disclosure thereof. Upon termination of the Executive's employment with the
Company, all documents, records, reports, writings and other similar documents
containing Confidential Information, including copies thereof, then in
Executive's possession or control shall be returned to and left with the
Company.
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<PAGE>
11. COPYRIGHTS, PATENTS, TRADEMARKS.
(a) All right, title and interest, of every kind whatsoever, in the United
States and throughout the world, in (i) any work, including the copyright
thereof (for the full terms and extensions thereof in every jurisdiction),
created by the Executive at any time during the term of this Agreement and all
material embodiments of the work subject to such rights (collectively, "Works")
and (ii) all inventions, ideas, discoveries, designs and improvements,
patentable or not (collectively, "Inventions"), which Works or Inventions are
made or conceived by the Executive at any time during the term of this
Agreement, and which either relate to the business of the Company, or are
created, made or conceived using the facilities of the Company (collectively,
"Company Works and Inventions"), shall be and remain the sole property of the
Company without payment of any further consideration to the Executive or any
other person, and each of the Company Works and Inventions shall, for purposes
of United States copyright law, be deemed created by the Executive pursuant to
his duties under this Agreement and within the scope of his employment and shall
be deemed a work made for hire; and the Executive agrees to assign, at the
Company's expense, and the Executive does hereby assign, all of his right, title
and interest in and to all Company Works or Inventions, patentable or not, and
any copyrights, letters patent, trademarks, trade secrets, and similar rights,
and the applications therefor, which may exist or be issued with respect
thereto. For the purposes of this Section 11, "WORKS" shall include all
materials created during the term of this Agreement, whether or not ever used by
or submitted to the Company, including, without limitation, any work which may
be the subject matter of a copyright under United States copyright law. In
addition to its other rights, the Company may copyright any such work in its
name in the United States in accordance with the requirements of the United
States copyright law and the Universal Copyright Convention and any other
convention or treaty to which the United States is or may become a party.
(b) Whenever the Company shall so request, whether during or after the term
of this Agreement, the Executive shall execute, acknowledge and deliver all
applications, assignments or other instruments; make or cause to be made all
rightful oaths; testify in all legal proceedings; communicate all known facts
which relate to Company Works and Inventions; perform all lawful acts and
otherwise render all such assistance as the Company may deem necessary to apply
for, obtain, register, enforce and maintain any copyrights, letters patent and
trademark registrations of the United States or any foreign jurisdiction or
under the Universal Copyright Convention (or any other convention or treaty to
which the United States is or may become a party), or otherwise to protect the
Company's interests therein, including any which the Company shall deem
necessary in connection with any proceeding or litigation involving the same.
The Company shall reimburse the Executive for all reasonable out-of-pocket costs
incurred by the Executive in testifying at the Company's request or in rendering
any other assistance requested by the Company pursuant to this Section 11. All
registration and filing fees and similar expenses shall be paid by the Company.
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<PAGE>
12. RIGHT TO INJUNCTION; REMEDIES.
(a) The Executive recognizes that the services to be rendered by him under
this Agreement are of a special, unique, unusual, extraordinary and intellectual
character involving skill of the highest order and giving them peculiar value
the loss of which cannot be adequately compensated for in damages. In the event
of a breach of Section 9, 10 or 11 of this Agreement by the Executive, the
Company shall be entitled to injunctive relief or any other legal or equitable
remedies. The remedies provided in this Agreement shall be deemed cumulative and
the exercise of one shall not preclude the exercise of any other remedy at law
or in equity for the same event or any other event.
(b) The Executive shall not incur any liability to the Company solely by
reason of the Executive's termination of his employment with the Company,
whether such termination if for Good Reason or otherwise.
13. ASSIGNMENT.
The rights and obligations of the Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of the
Company.
14. AMENDMENT OR ALTERATION.
No amendment or alteration of the terms of this Agreement shall be valid
unless made in writing and signed by both of the parties to this Agreement.
15. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Connecticut
applicable to agreements made and to be performed therein.
16. SEVERABILITY.
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
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<PAGE>
17. NOTICES.
Any notices required or permitted to be given under this Agreement shall be
sufficient if in writing, and if delivered by hand, or sent by certified mail,
return receipt requested, to the addresses set forth above or such other address
as either party may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery or mailing.
18. WAIVER OR BREACH.
It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
19. ENTIRE AGREEMENT AND BINDING EFFECT.
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and shall be binding upon and inure to the benefit of
the parties to this Agreement and their respective legal representatives, heirs,
distributors, successors and assigns. Notwithstanding the foregoing, no prior
agreements between the Executive and the Company relating to the confidentiality
of information, trade secrets and patents shall be affected by this Agreement.
20. SURVIVAL.
The termination of the Executive's employment hereunder shall not affect
the enforceability of Sections 9, 10, 11 and 12 of this Agreement.
21. FURTHER ASSURANCES.
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
22. HEADINGS.
The section headings appearing in this Agreement are for the purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, demand or affect its provisions.
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<PAGE>
23. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CARDIOPULMONARY CORP.
By: /S/ JAMES W. BIONDI, M.D.
---------------------------------
By: /s/ N. NICOLL SNOW
---------------------------------
N. Nicoll Snow
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EMPLOYMENT AGREEMENT
AGREEMENT (this "AGREEMENT") made as of May 20, 1996 but effective as of
the Employment Date (as hereinafter defined), between CARDIOPULMONARY CORP., a
Delaware corporation with an office at 200 Cascade Boulevard, Milford,
Connecticut (the "COMPANY"), and Douglas M. Johnston, an individual residing at
48 Winthrop Street, Winchester, Massachusetts 01890 (the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Company desires that the Executive be employed to serve in a
senior executive capacity with the Company, and the Executive desires to be so
employed by the Company, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations and covenants contained in this Agreement, the parties
agree as follows:
1. EMPLOYMENT.
The Company hereby employs the Executive and the Executive hereby accepts
such employment, subject to the terms and conditions set forth in this
Agreement, as its Vice President, Research and Development.
2. TERM.
The term of employment under this Agreement shall begin as of the closing
date of the Company's initial public offering of Common Stock (the "EMPLOYMENT
DATE") and shall continue for a period of two (2) years from that date, subject
to prior termination in accordance with the terms of this Agreement; provided,
however, that this Agreement shall automatically be renewed on the same terms
for successive one-year terms, unless terminated by written notice given by
either party to the other at least ninety (90) days prior to the end of the
applicable term.
3. DUTIES.
(a) The Executive shall perform the duties and functions normally
associated with the office of Vice President, Research and Development of a
corporation and shall report to the Chief Executive Officer of the Company or
such other senior officer of the Company as may be designated by the Chief
Executive Officer.
<PAGE>
(b) Until termination of his employment, the Executive agrees to devote all
his working time, attention and energies to the performance of the businesses of
the Company and of any of its affiliates by which he may be employed, and the
Executive shall not, directly or indirectly, alone or as a member of any
partnership or other organization, or as an officer, director or employee of any
other corporation, partnership or other organization, be actively engaged in or
concerned with any other duties or pursuits which materially interfere with the
performance of his duties under this Agreement, or which, even if
non-interfering, may be contrary to the best interests of the Company, except
those duties or pursuits specifically authorized by the Chief Executive Officer
of the Company.
4. COMPENSATION.
As compensation for the employment services to be rendered by the Executive
under this Agreement, including any services as an officer or director of the
Company and any of its affiliates, the Company agrees to pay, or cause to be
paid, to the Executive, and the Executive agrees to accept, a minimum annual
compensation of $130,000.00, or such higher amount as the Board of Directors may
determine, payable in equal installments in accordance with Company practice.
5. EXPENSES.
The Company shall pay or reimburse the Executive, subject to prior approval
and upon presentment of such vouchers, receipts and other supporting information
as the Company may require, for all reasonable business and travel expenses
which may be incurred or paid by the Executive in connection with the employment
of the Executive by the Company in accordance with the Company's standard
policies then in effect. The Executive shall comply with such restrictions and
shall keep such records as the Company may require of its executives generally
to facilitate compliance with the requirements of the Internal Revenue Code of
1986, as amended from time to time, and regulations promulgated thereunder.
6. INSURANCE AND OTHER BENEFITS.
The Executive shall be entitled to three (3) weeks annual vacation and to
participate in and receive any other benefits provided by the Company to other
executive employees generally (including any personal and sick days, 401(k) plan
participation, health insurance, dental coverage, life insurance and short and
long-term disability insurance plans in accordance with the terms of such
plans), all as determined from time to time by the Board of Directors of the
Company or appropriate committee thereof.
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<PAGE>
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.
(a) This Agreement shall terminate immediately upon the death of the
Executive. In such event, the estate of the Executive shall thereupon be
entitled to receive such portion of the Executive's annual salary and such
commissions as have been earned or accrued and remain unpaid through the date of
his death.
(b) The Company may terminate the Executive's employment in the Company's
sole discretion at any time, with or without Justifiable Cause (as hereinafter
defined), upon written notice to the Executive. In the event the Company seeks
to terminate the Executive's employment with Justifiable Cause in accordance
with subsections (f)(i), (f)(iii) or (f)(v), the Company shall first notify the
Executive in writing of such intention and afford the Executive a reasonable
period (as determined by the Company) in which to remedy the conduct in
question. If the conduct in question is not remedied in the time period
provided, the Company may terminate the Executive with Justifiable Cause.
(c) The Company may terminate the Executive's employment if he has been
unable to perform his duties hereunder due to Disability (as hereinafter
defined) if he has not resumed on a full-time basis the performance of such
duties within thirty days after written notice from the Company of its intent to
terminate his employment due to Disability.
(d) The Executive may terminate his employment hereunder for Good Reason
(as hereinafter defined) upon written notice to the Company.
(e) In the event that the Executive's employment is terminated at any time
either (i) by the Company for any reason other than Justifiable Cause,
Disability or death or (ii) by the Executive for Good Reason, the Company shall
pay the Executive his salary at his then current rate (including an amount equal
to any bonuses paid to the Executive during the prior twelve (12) month period)
for a period of twelve (12) months, such payments to be made ratably over the
term of the Non-Compete Period (as hereinafter defined) provided, however, that
termination by the Executive pursuant to subsection (h)(v) must occur within
ninety (90) days following the first day on which the Change in Control (as
hereinafter defined) occurs. Such payments shall be in lieu of any and all other
payments due and owing to the Executive under the terms of this Agreement. The
Company shall also provide to the Executive health insurance until such time as
Executive obtains new employment and is covered under the new employer's health
insurance plan but in no event longer than Non-Compete Period. The Executive
shall not be required to seek other employment or to otherwise mitigate the
effects of such termination, and such payments shall not be reduced by any
income received from other sources.
(f) For the purposes of this Agreement, the term "JUSTIFIABLE CAUSE" shall
mean: (i) intentional gross misconduct by the Executive in the performance of
his duties hereunder; (ii) the conviction of a felony; (iii) misuse of the
Company's position
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<PAGE>
or knowledge of the Company's affairs for personal gain; (iv) any other
violation of law in connection with the Company's business which would have a
material effect on the Executive's ability to perform his duties hereunder or on
the Company's business; or (v) a breach of the Confidentiality provision set
forth in Section 10 below. "Intentional gross misconduct" shall include personal
dishonesty, willful misconduct or intentional failure to perform stated duties.
(g) For the purposes of this Agreement, the term "DISABILITY" shall mean
the inability of the Executive, due to illness, accident or any other physical
or mental incapacity, to perform his duties in a normal manner for a period of
six (6) consecutive months during the term of this Agreement.
(h) For the purposes of this Agreement, the term "GOOD REASON" shall mean:
(i) a substantial reduction of the Executive's duties, position, authority or
responsibilities hereunder which is not corrected within thirty (30) days after
written notice from the Executive; (ii) material breach by the Company of its
obligations hereunder if not remedied within thirty (30) days after written
notice from Executive; (iii) a reduction in the Executive's compensation; (iv) a
material adverse change in the working conditions to which the Executive has
been subject or a material reduction in the discretionary fringe benefits the
Executive has been enjoying; or (v) a Change in Control.
(i) For the purposes of this Agreement, a "CHANGE IN CONTROL" shall be
deemed to have occurred: (i) if any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), other than the Executive, who is not a shareholder of the
Company as of the date hereof, shall have become the beneficial owner, directly
or indirectly, of Common Stock representing thirty-three and one-third percent
(33-1/3%) or more of the combined voting power of the Company's then outstanding
securities, unless three-quarters of the Board of Directors, as constituted
immediately prior to the date of the Change in Control, decide in their
reasonable discretion that no Change in Control has occurred, the Executive not
being allowed to vote on such matter if he is then a Director; provided,
however, that if any such person other than the Executive (whether or not a
stockholder of the Company as of the date hereof) shall become the beneficial
owner, directly or indirectly, of Common Stock representing fifty percent (50%)
or more of the Company's then outstanding securities, a Change in Control shall
ipso facto have occurred; (ii) if at any time individuals who at the date of
this Agreement constitute a majority of the Board of Directors, or individuals
designated by such a majority as "continuing directors," cease, for any reason
other than death or voluntary resignation (being a resignation not requested by
any other person or persons), to constitute at least a majority of the Board of
Directors; or (iii) if there is a Change in Control of a nature that, in the
opinion of counsel for the Company, would be required to be reported in response
to Item 6(e) of Schedule 14A under the Exchange Act, unless three-quarters of
the Board of Directors, as constituted immediately prior to the date of the
Change in Control, decide in their reasonable discretion that no
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<PAGE>
Change in Control has occurred, the Executive not being allowed to vote on such
matter if he is then a Director.
8. REPRESENTATIONS AND AGREEMENTS OF THE EXECUTIVE.
(a) The Executive represents and warrants that he is free to enter into
this Agreement and to perform the duties required under this Agreement, and that
there are no employment contracts or understandings, restrictive covenants or
other restrictions, whether written or oral, preventing the performance of his
duties under this Agreement.
(b) The Executive agrees to submit on reasonable notice to a medical
examination (at the Company's expense) and to cooperate and supply such other
information and documents as are in Executive's possession as may reasonably be
required by any insurance company in connection with the Company's obtaining any
type of insurance or fringe benefit as the Company shall determine from time to
time to obtain for Executive. Executive shall be given a complete report of any
such examination.
9. NON-COMPETITION.
(a) The Executive acknowledges that his duties under this Agreement and the
services he will provide to the Company are of a special, unique, unusual and
extraordinary character, which gives this Agreement particular value to the
Company, and that it would be difficult to employ any individual or individuals
to replace the Executive in the performance of such duties and services.
Therefore, the Executive agrees that during his employment by the Company, and
for a period of two (2) years after termination of this Agreement for any
reason, including expiration of the term of this Agreement (the "NON-COMPETE
PERIOD"), the Executive shall not, directly or indirectly, as owner, partner,
joint venturer, stockholder, employee, broker, agent, principal, trustee,
corporate officer, director, or in any capacity whatsoever engage in, become
financially interested in, be employed by, render any consultation or business
advice with respect to, or have any connection with, any business engaged in the
design or manufacture of mechanical ventilators or anaesthesia equipment or
which are otherwise competitive with products or services with respect to which
the Company or any of its affiliates are actively engaged during the term of
this Agreement, in any geographic area where, at the time of the termination of
his employment, the business of the Company or any of its affiliates was being
conducted or was proposed to be conducted; provided, however, that the Executive
may own any securities of any corporation which is engaged in such business and
is publicly owned and traded but in an amount not to exceed at any one time two
percent (2%) of any class of stock or securities of such corporation. In
addition, the Executive shall not, directly or indirectly, during the
Non-Compete Period, request or cause contracting parties, suppliers or customers
with whom the Company or any of its affiliates has a business
-5-
<PAGE>
relationship to cancel or terminate any such business relationship with the
Company or any of its affiliates or solicit, interfere with or entice from the
Company any employee (or former employee) of the Company.
(b) If any portion of the restrictions set forth in this Section 9 should,
for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) The Executive acknowledges that the Company intends to conduct business
on a world-wide basis, that its sales and marketing prospects are for continued
expansion into world markets and that, therefore, the territorial and time
limitations set forth in this Section 9 are reasonable and properly required for
the adequate protection of the business of the Company and its affiliates. In
the event any such territorial or time limitation is deemed to be unreasonable
by a court of competent jurisdiction, the Executive agrees to the reduction of
the territorial or time limitation to the area or period which such court deems
reasonable.
(d) The existence of any claim or cause of action by the Executive against
the Company shall not constitute a defense to the enforcement by the Company of
the foregoing restrictive covenants, but such claim or cause of action shall be
litigated separately.
(e) Notwithstanding anything to the contrary in this Section 9:
(i) The Executive may retain an interest in and may receive royalty
income from the partnership currently known as Square One Technology
(currently located in Alameda, California) for the projects listed on
attached SCHEDULE A.
(ii) Subject during the term of his employment to the provisions of
Section 3(b) hereof, the Executive may offer consulting assistance, which
may be paid or unpaid, to further the maintenance of such royalty income.
(iii) The Executive may, following the term of his employment, work
with and commercially exploit, directly or indirectly, the products and
technology described in SCHEDULE A attached hereto, and/or to perform work
for Square One Technology related to such products and technology.
10. CONFIDENTIALITY
(a) The Executive acknowledges that, during the course of his employment by
the Company, the Executive will have access to confidential or proprietary
information, documents and other materials relating to the Company, its
affiliates and their respective business which are not generally known to
persons
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<PAGE>
outside the Company (whether conceived or developed by the Executive or others)
and confidential or proprietary information, documents and other materials
entrusted to the Company by third parties, including, without limitation, any
"know-how," trade secrets, customer lists, details of client or consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business plans, acquisition plans of
the Company or its affiliates that are valuable and not generally known to the
competitors of the Company, whether or not in written or tangible form, and
including all memoranda, notes, plans, reports, records, documents and other
evidence thereof ("CONFIDENTIAL INFORMATION"). Neither the Executive nor any
entity affiliated with the Executive will, directly or indirectly, during the
term of the Executive's employment by the Company and/or thereafter, disclose to
anyone, or use or otherwise exploit for the Executive's own benefit or for the
benefit of anyone other than the Company or its affiliates, any Confidential
Information. Confidential Information shall not include information which (i)
the Executive can show was already in the possession of the Executive prior to
employment with the Company, and which was not acquired or obtained from the
Company or any of its affiliates (whether received before or after the date of
this Agreement), or (ii) is or becomes generally available to the industry other
than as a result of a disclosure, directly or indirectly, by the Executive.
(b) The Executive agrees that all Confidential Information conceived,
discovered or made by the Executive during the term of employment belongs to the
Company. The Executive will promptly disclose such Confidential Information to
the Company and perform all actions reasonably requested by the Company to
establish and confirm such ownership.
(c) All Confidential Information relating to the Company and its affiliates
shall be the exclusive property of the Company and its affiliates, and the
Executive shall use all reasonable efforts to prevent any publication or
disclosure thereof. Upon termination of the Executive's employment with the
Company, all documents, records, reports, writings and other similar documents
containing Confidential Information, including copies thereof, then in
Executive's possession or control shall be returned to and left with the
Company.
11. COPYRIGHTS, PATENTS, TRADEMARKS.
(a) All right, title and interest, of every kind whatsoever, in the United
States and throughout the world, in (i) any work, including the copyright
thereof (for the full terms and extensions thereof in every jurisdiction),
created by the Executive at any time during the term of this Agreement and all
material embodiments of the work subject to such rights (collectively, "Works")
and (ii) all inventions, ideas, discoveries, designs and improvements,
patentable or not (collectively, "Inventions"), which Works or Inventions are
made or conceived by the Executive at any time during the term of this
Agreement, and which either relate to the business of the Company, or are
created, made or conceived using the facilities of the Company (collectively,
"COMPANY WORKS
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<PAGE>
AND INVENTIONS"), shall be and remain the sole property of the Company without
payment of any further consideration to the Executive or any other person, and
each of the Company Works and Inventions shall, for purposes of United States
copyright law, be deemed created by the Executive pursuant to his duties under
this Agreement and within the scope of his employment and shall be deemed a work
made for hire; and the Executive agrees to assign, at the Company's expense, and
the Executive does hereby assign, all of his right, title and interest in and to
all Company Works and Inventions, patentable or not, and any copyrights, letters
patent, trademarks, trade secrets, and similar rights, and the applications
therefor, which may exist or be issued with respect thereto. For the purposes of
this Section 11, "WORKS" shall include all materials created during the term of
this Agreement, whether or not ever used by or submitted to the Company,
including, without limitation, any work which may be the subject matter of a
copyright under United States copyright law. In addition to its other rights,
the Company may copyright any such work in its name in the United States in
accordance with the requirements of the United States copyright law and the
Universal Copyright Convention and any other convention or treaty to which the
United States is or may become a party.
(b) Whenever the Company shall so request, whether during or after the term
of this Agreement, the Executive shall execute, acknowledge and deliver all
applications, assignments or other instruments; make or cause to be made all
rightful oaths; testify in all legal proceedings; communicate all known facts
which relate to Company Works and Inventions; perform all lawful acts and
otherwise render all such assistance as the Company may deem necessary to apply
for, obtain, register, enforce and maintain any copyrights, letters patent and
trademark registrations of the United States or any foreign jurisdiction or
under the Universal Copyright Convention (or any other convention or treaty to
which the United States is or may become a party), or otherwise to protect the
Company's interests therein, including any which the Company shall deem
necessary in connection with any proceeding or litigation involving the same.
The Company shall reimburse the Executive for all reasonable out-of-pocket costs
incurred by the Executive in testifying at the Company's request or in rendering
any other assistance requested by the Company pursuant to this Section 11. All
registration and filing fees and similar expenses shall be paid by the Company.
12. RIGHT TO INJUNCTION; REMEDIES.
(a) The Executive recognizes that the services to be rendered by him under
this Agreement are of a special, unique, unusual, extraordinary and intellectual
character involving skill of the highest order and giving them peculiar value
the loss of which cannot be adequately compensated for in damages. In the event
of a breach of Section 9, 10 or 11 of this Agreement by the Executive, the
Company shall be entitled to injunctive relief or any other legal or equitable
remedies. The remedies provided in this Agreement shall be deemed cumulative and
the exercise of one shall not preclude the exercise of any other remedy at law
or in equity for the same event or any other event.
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<PAGE>
(b) The Executive shall not incur any liability to the Company solely by
reason of the Executive's termination of his employment with the Company,
whether such termination is for Good Reason or otherwise.
13. ASSIGNMENT.
The rights and obligations of the Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of the
Company.
14. AMENDMENT OR ALTERATION.
No amendment or alteration of the terms of this Agreement shall be valid
unless made in writing and signed by both of the parties to this Agreement.
15. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Connecticut
applicable to agreements made and to be performed therein.
16. SEVERABILITY.
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
17. NOTICES.
Any notices required or permitted to be given under this Agreement shall be
sufficient if in writing, and if delivered by hand, or sent by certified mail,
return receipt requested, to the addresses set forth above or such other address
as either party may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery or mailing.
18. WAIVER OR BREACH.
It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
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<PAGE>
19. ENTIRE AGREEMENT AND BINDING EFFECT.
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and shall be binding upon and inure to the benefit of
the parties to this Agreement and their respective legal representatives, heirs,
distributors, successors and assigns. Notwithstanding the foregoing, no prior
agreements between the Executive and the Company relating to the confidentiality
of information, trade secrets and patents shall be affected by this Agreement
to the extent that such agreements relate to the confidentiality of information,
trade secrets or patents.
20. SURVIVAL.
The termination of the Executive's employment hereunder shall not affect
the enforceability of Sections 9, 10, 11 and 12 of this Agreement.
21. FURTHER ASSURANCES.
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
22. HEADINGS.
The section headings appearing in this Agreement are for the purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, demand or affect its provisions.
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<PAGE>
23. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CARDIOPULMONARY CORP.
By: /s/ JAMES W. BIONDI, M.D.
----------------------------------
By: /s/ DOUGLAS M. JOHNSTON
----------------------------------
Douglas M. Johnston
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<PAGE>
SCHEDULE A
1. An instrument to sense blood hematocrit and oxygen saturation using
multiple visible and infrared light sources and detectors. Exposure of
sources and detectors to blood may be by direct contact or via fiber optic
cables.
2. An on-airway gas composition and concentration sensing device using black
body infrared source and long wavelength detectors. The device is used to
sense carbon dioxide and other infrared absorbing gases.
3. An anesthetic vaporizer using a specially constructed micro-porous membrane
as the anesthetic agent flow control element. The surface area of the
exposed membrane, and the pressure differential across the membrane are
controlled to maximize the dynamic range of the controlled flow.
4. A device for non-contact sensing of infant or adult sleep apnea which
controls the flow of the subjects exhaled gas and senses the carbon dioxide
content of that gas.
5. A device for measuring the contour of the eye's corneal surface and
machining a custom content lens.
6. A device for automated test and calibration of pulse oximeters.
7. A non-contact REM sleep monitor for measuring anti-depressive effectiveness
and stages of sleep for an intelligent alarm.
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EMPLOYMENT AGREEMENT
--------------------
AGREEMENT (this "AGREEMENT") made as of May 20, 1996 but effective as of
the Employment Date (as hereinafter defined), between CARDIOPULMONARY CORP., a
Delaware corporation with an office at 200 Cascade Boulevard, Milford,
Connecticut (the "COMPANY"), and Gerhart P. Schroeder, an individual residing at
24 Seasons Lane, Londonderry, New Hampshire 03053 (the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Company desires that the Executive be employed to serve in a
senior executive capacity with the Company, and the Executive desires to be so
employed by the Company, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations and covenants contained in this Agreement, the parties
agree as follows:
1. EMPLOYMENT.
-----------
The Company hereby employs the Executive and the Executive hereby accepts
such employment, subject to the terms and conditions set forth in this
Agreement, as its Vice President, Engineering.
2. TERM.
-----
The term of employment under this Agreement shall begin as of the closing
date of the Company's initial public offering of Common Stock (the "EMPLOYMENT
DATE") and shall continue for a period of two (2) years from that date, subject
to prior termination in accordance with the terms of this Agreement; provided,
however, that this Agreement shall automatically be renewed on the same terms
for successive one-year terms, unless terminated by written notice given by
either party to the other at least ninety (90) days prior to the end of the
applicable term.
3. DUTIES.
-------
(a) The Executive shall perform the duties and functions normally
associated with the office of Vice President, Engineering of a corporation and
shall
<PAGE>
report to the Chief Executive Officer of the Company or such other senior
officer of the Company as may be designated by the Chief Executive Officer.
(b) Until termination of his employment, the Executive agrees to devote all
his working time, attention and energies to the performance of the businesses of
the Company and of any of its affiliates by which he may be employed, and the
Executive shall not, directly or indirectly, alone or as a member of any
partnership or other organization, or as an officer, director or employee of any
other corporation, partnership or other organization, be actively engaged in or
concerned with any other duties or pursuits which materially interfere with the
performance of his duties under this Agreement, or which, even if
non-interfering, may be contrary to the best interests of the Company, except
those duties or pursuits specifically authorized by the Chief Executive Officer
of the Company.
4. COMPENSATION.
-------------
As compensation for the employment services to be rendered by the Executive
under this Agreement, including any services as an officer or director of the
Company and any of its affiliates, the Company agrees to pay, or cause to be
paid, to the Executive, and the Executive agrees to accept, a minimum annual
compensation of $130,000.00, or such higher amount as the Board of Directors may
determine, payable in equal installments in accordance with Company practice.
5. EXPENSES.
---------
The Company shall pay or reimburse the Executive, subject to prior approval
and upon presentment of such vouchers, receipts and other supporting information
as the Company may require, for all reasonable business and travel expenses
which may be incurred or paid by the Executive in connection with the employment
of the Executive by the Company in accordance with the Company's standard
policies then in effect. The Executive shall comply with such restrictions and
shall keep such records as the Company may require of its executives generally
to facilitate compliance with the requirements of the Internal Revenue Code of
1986, as amended from time to time, and regulations promulgated thereunder.
6. INSURANCE AND OTHER BENEFITS.
-----------------------------
The Executive shall be entitled to three (3) weeks annual vacation and to
participate in and receive any other benefits provided by the Company to other
executive employees generally (including any personal and sick days, 401(k) plan
participation, health insurance, dental coverage, life insurance and short and
long-term disability insurance plans in accordance with the terms of such
plans), all as determined
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<PAGE>
from time to time by the Board of Directors of the Company or appropriate
committee thereof.
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.
-------------------------------------------------
(a) This Agreement shall terminate immediately upon the death of the
Executive. In such event, the estate of the Executive shall thereupon be
entitled to receive such portion of the Executive's annual salary and such
commissions as have been earned or accrued and remain unpaid through the date of
his death.
(b) The Company may terminate the Executive's employment in the Company's
sole discretion at any time, with or without Justifiable Cause (as hereinafter
defined), upon written notice to the Executive. In the event the Company seeks
to terminate the Executive's employment with Justifiable Cause in accordance
with subsections (f)(i), (f)(iii) or (f)(v), the Company shall first notify the
Executive in writing of such intention and afford the Executive a reasonable
period (as determined by the Company) in which to remedy the conduct in
question. If the conduct in question is not remedied in the time period
provided, the Company may terminate the Executive with Justifiable Cause.
(c) The Company may terminate the Executive's employment if he has been
unable to perform his duties hereunder due to Disability (as hereinafter
defined) if he has not resumed on a full-time basis the performance of such
duties within thirty days after written notice from the Company of its intent to
terminate his employment due to Disability.
(d) The Executive may terminate his employment hereunder for Good Reason
(as hereinafter defined) upon written notice to the Company.
(e) In the event that the Executive's employment is terminated at any time
either (i) by the Company for any reason other than Justifiable Cause,
Disability or death or (ii) by the Executive for Good Reason, the Company shall
pay the Executive his salary at his then current rate (including an amount equal
to any bonuses paid to the Executive during the prior twelve (12) month period)
for a period of twelve (12) months, such payments to be made ratably over the
term of the Non-Compete Period (as hereinafter defined) provided, however, that
termination by the Executive pursuant to subsection (h)(v) must occur within
ninety (90) days following the first day on which the Change in Control (as
hereinafter defined) occurs. Such payments shall be in lieu of any and all other
payments due and owing to the Executive under the terms of this Agreement. The
Company shall also provide to the Executive health insurance until such time as
Executive obtains new employment and is covered under the new employer's health
insurance plan but in no event longer than Non-Compete Period. The Executive
shall not be required to seek other employment or to otherwise mitigate the
effects of such termination, and such payments shall not be reduced by any
income received from other sources.
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<PAGE>
(f) For the purposes of this Agreement, the term "JUSTIFIABLE CAUSE" shall
mean: (i) intentional gross misconduct by the Executive in the performance of
his duties hereunder; (ii) the conviction of a felony; (iii) misuse of the
Company's position or knowledge of the Company's affairs for personal gain; (iv)
any other violation of law in connection with the Company's business which would
have a material effect on the Executive's ability to perform his duties
hereunder or on the Company's business; or (v) a breach of the Confidentiality
provision set forth in Section 10 below. "Intentional gross misconduct" shall
include personal dishonesty, willful misconduct or intentional failure to
perform stated duties.
(g) For the purposes of this Agreement, the term "DISABILITY" shall mean
the inability of the Executive, due to illness, accident or any other physical
or mental incapacity, to perform his duties in a normal manner for a period of
six (6) consecutive months during the term of this Agreement.
(h) For the purposes of this Agreement, the term "GOOD REASON" shall mean:
(i) a substantial reduction of the Executive's duties, position, authority or
responsibilities hereunder which is not corrected within thirty (30) days after
written notice from the Executive; (ii) material breach by the Company of its
obligations hereunder if not remedied within thirty (30) days after written
notice from Executive; (iii) a reduction in the Executive's compensation; (iv) a
material adverse change in the working conditions to which the Executive has
been subject or a material reduction in the discretionary fringe benefits the
Executive has been enjoying; or (v) a Change in Control.
(i) For the purposes of this Agreement, a "CHANGE IN CONTROL" shall be
deemed to have occurred: (i) if any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), other than the Executive, who is not a shareholder of the
Company as of the date hereof, shall have become the beneficial owner, directly
or indirectly, of Common Stock representing thirty-three and one-third percent
(331/3%) or more of the combined voting power of the Company's then outstanding
securities, unless three-quarters of the Board of Directors, as constituted
immediately prior to the date of the Change in Control, decide in their
reasonable discretion that no Change in Control has occurred, the Executive not
being allowed to vote on such matter if he is then a Director; provided,
however, that if any such person other than the Executive (whether or not a
stockholder of the Company as of the date hereof) shall become the beneficial
owner, directly or indirectly, of Common Stock representing fifty percent (50%)
or more of the Company's then outstanding securities, a Change in Control shall
ipso facto have occurred; (ii) if at any time individuals who at the date of
this Agreement constitute a majority of the Board of Directors, or individuals
designated by such a majority as "continuing directors," cease, for any reason
other than death or voluntary resignation (being a resignation not requested by
any other person or persons), to constitute at least a majority of the Board of
Directors; or (iii) if there is a Change in Control of a nature that, in the
opinion of counsel for the Company, would be required to be reported in response
to Item 6(e) of Schedule 14A under the Exchange
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<PAGE>
Act, unless three-quarters of the Board of Directors, as constituted
immediately prior to the date of the Change in Control, decide in their
reasonable discretion that no Change in Control has occurred, the Executive not
being allowed to vote on such matter if he is then a Director.
8. REPRESENTATIONS AND AGREEMENTS OF THE EXECUTIVE.
------------------------------------------------
(a) The Executive represents and warrants that he is free to enter into
this Agreement and to perform the duties required under this Agreement, and that
there are no employment contracts or understandings, restrictive covenants or
other restrictions, whether written or oral, preventing the performance of his
duties under this Agreement.
(b) The Executive agrees to submit on reasonable notice to a medical
examination (at the Company's expense) and to cooperate and supply such other
information and documents as are in Executive's possession as may reasonably be
required by any insurance company in connection with the Company's obtaining any
type of insurance or fringe benefit as the Company shall determine from time to
time to obtain for Executive. Executive shall be given a complete report of any
such examination.
9. NON-COMPETITION.
----------------
(a) The Executive acknowledges that his duties under this Agreement and the
services he will provide to the Company are of a special, unique, unusual and
extraordinary character, which gives this Agreement particular value to the
Company, and that it would be difficult to employ any individual or individuals
to replace the Executive in the performance of such duties and services.
Therefore, the Executive agrees that during his employment by the Company, and
for a period of two (2) years after termination of this Agreement for any
reason, including expiration of the term of this Agreement (the "NON-COMPETE
PERIOD"), the Executive shall not, directly or indirectly, as owner, partner,
joint venturer, stockholder, employee, broker, agent, principal, trustee,
corporate officer, director, or in any capacity whatsoever engage in, become
financially interested in, be employed by, render any consultation or business
advice with respect to, or have any connection with, any business engaged in the
design or manufacture of mechanical ventilators or anaesthesia equipment or
which are otherwise competitive with products or services with respect to which
the Company or any of its affiliates are actively engaged during the term of
this Agreement, in any geographic area where, at the time of the termination of
his employment, the business of the Company or any of its affiliates was being
conducted or was proposed to be conducted; provided, however, that the Executive
may own any securities of any corporation which is engaged in such business and
is publicly owned and traded but in an amount not to exceed at any one time two
percent (2%) of any class of stock or securities of such corporation. In
addition, the Executive shall not, directly or
-5-
<PAGE>
indirectly, during the Non-Compete Period, request or cause contracting parties,
suppliers or customers with whom the Company or any of its affiliates has a
business relationship to cancel or terminate any such business relationship with
the Company or any of its affiliates or solicit, interfere with or entice from
the Company any employee (or former employee) of the Company.
(b) If any portion of the restrictions set forth in this Section 9 should,
for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) The Executive acknowledges that the Company intends to conduct business
on a world-wide basis, that its sales and marketing prospects are for continued
expansion into world markets and that, therefore, the territorial and time
limitations set forth in this Section 9 are reasonable and properly required for
the adequate protection of the business of the Company and its affiliates. In
the event any such territorial or time limitation is deemed to be unreasonable
by a court of competent jurisdiction, the Executive agrees to the reduction of
the territorial or time limitation to the area or period which such court deems
reasonable.
(d) The existence of any claim or cause of action by the Executive against
the Company shall not constitute a defense to the enforcement by the Company of
the foregoing restrictive covenants, but such claim or cause of action shall be
litigated separately.
10. CONFIDENTIALITY
---------------
(a) The Executive acknowledges that, during the course of his employment by
the Company, the Executive will have access to confidential or proprietary
information, documents and other materials relating to the Company, its
affiliates and their respective business which are not generally known to
persons outside the Company (whether conceived or developed by the Executive or
others) and confidential or proprietary information, documents and other
materials entrusted to the Company by third parties, including, without
limitation, any "know-how," trade secrets, customer lists, details of client or
consultant contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, business plans, acquisition
plans of the Company or its affiliates that are valuable and not generally known
to the competitors of the Company, whether or not in written or tangible form,
and including all memoranda, notes, plans, reports, records, documents and other
evidence thereof ("CONFIDENTIAL INFORMATION"). Neither the Executive nor any
entity affiliated with the Executive will, directly or indirectly, during the
term of the Executive's employment by the Company and/or thereafter, disclose to
anyone, or use or otherwise exploit for the Executive's own benefit or for the
benefit of anyone other than the Company or its affiliates, any Confidential
Information. Confidential Information shall not include information which (i)
the Executive can show was already
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<PAGE>
in the possession of the Executive prior to employment with the Company, and
which was not acquired or obtained from the Company or any of its affiliates
(whether received before or after the date of this Agreement), or (ii) is or
becomes generally available to the industry other than as a result of a
disclosure, directly or indirectly, by the Executive.
(b) The Executive agrees that all Confidential Information conceived,
discovered or made by the Executive during the term of employment belongs to the
Company. The Executive will promptly disclose such Confidential Information to
the Company and perform all actions reasonably requested by the Company to
establish and confirm such ownership.
(c) All Confidential Information relating to the Company and its affiliates
shall be the exclusive property of the Company and its affiliates, and the
Executive shall use all reasonable efforts to prevent any publication or
disclosure thereof. Upon termination of the Executive's employment with the
Company, all documents, records, reports, writings and other similar documents
containing Confidential Information, including copies thereof, then in
Executive's possession or control shall be returned to and left with the
Company.
11. COPYRIGHTS, PATENTS, TRADEMARKS.
--------------------------------
(a) All right, title and interest, of every kind whatsoever, in the United
States and throughout the world, in (i) any work, including the copyright
thereof (for the full terms and extensions thereof in every jurisdiction),
created by the Executive at any time during the term of this Agreement and all
material embodiments of the work subject to such rights (collectively, "Works")
and (ii) all inventions, ideas, discoveries, designs and improvements,
patentable or not (collectively "Inventions"), which Works or Inventions are
made or conceived by the Executive at any time during the term of this
Agreement, and which either relate to the business of the Company, or are
created, made or conceived using the facilities of the Company (collectively,
"Company Works and Inventions"), shall be and remain the sole property of the
Company without payment of any further consideration to the Executive or any
other person, and each of the Company Works and Inventions shall, for purposes
of United States copyright law, be deemed created by the Executive pursuant to
his duties under this Agreement and within the scope of his employment and shall
be deemed a work made for hire; and the Executive agrees to assign, at the
Company's expense, and the Executive does hereby assign, all of his right, title
and interest in and to all Company Works or Inventions, patentable or not, and
any copyrights, letters patent, trademarks, trade secrets, and similar rights,
and the applications therefor, which may exist or be issued with respect
thereto. For the purposes of this Section 11, "WORKS" shall include all
materials created during the term of this Agreement, whether or not ever used by
or submitted to the Company, including, without limitation, any work which may
be the subject matter of a copyright under United States copyright law. In
addition to its other rights, the Company may copyright any such work in its
name in the United
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<PAGE>
States in accordance with the requirements of the United States copyright
law and the Universal Copyright Convention and any other convention or treaty to
which the United States is or may become a party.
(b) Whenever the Company shall so request, whether during or after the term
of this Agreement, the Executive shall execute, acknowledge and deliver all
applications, assignments or other instruments; make or cause to be made all
rightful oaths; testify in all legal proceedings; communicate all known facts
which relate to Company Works and Inventions; perform all lawful acts and
otherwise render all such assistance as the Company may deem necessary to apply
for, obtain, register, enforce and maintain any copyrights, letters patent and
trademark registrations of the United States or any foreign jurisdiction or
under the Universal Copyright Convention (or any other convention or treaty to
which the United States is or may become a party), or otherwise to protect the
Company's interests therein, including any which the Company shall deem
necessary in connection with any proceeding or litigation involving the same.
The Company shall reimburse the Executive for all reasonable out-of-pocket costs
incurred by the Executive in testifying at the Company's request or in rendering
any other assistance requested by the Company pursuant to this Section 11. All
registration and filing fees and similar expenses shall be paid by the Company.
12. RIGHT TO INJUNCTION; REMEDIES.
------------------------------
(a) The Executive recognizes that the services to be rendered by him under
this Agreement are of a special, unique, unusual, extraordinary and intellectual
character involving skill of the highest order and giving them peculiar value
the loss of which cannot be adequately compensated for in damages. In the event
of a breach of Section 9, 10 or 11 of this Agreement by the Executive, the
Company shall be entitled to injunctive relief or any other legal or equitable
remedies. The remedies provided in this Agreement shall be deemed cumulative and
the exercise of one shall not preclude the exercise of any other remedy at law
or in equity for the same event or any other event.
(b) The Executive shall not incur any liability to the Company solely by
reason of the Executive's termination of his employment with the Company,
whether such termination is for Good Reason or otherwise.
13. ASSIGNMENT.
-----------
The rights and obligations of the Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of the
Company.
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<PAGE>
14. AMENDMENT OR ALTERATION.
------------------------
No amendment or alteration of the terms of this Agreement shall be valid
unless made in writing and signed by both of the parties to this Agreement.
15. GOVERNING LAW.
--------------
This Agreement shall be governed by the laws of the State of Connecticut
applicable to agreements made and to be performed therein.
16. SEVERABILITY.
-------------
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
17. NOTICES.
--------
Any notices required or permitted to be given under this Agreement shall be
sufficient if in writing, and if delivered by hand, or sent by certified mail,
return receipt requested, to the addresses set forth above or such other address
as either party may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery or mailing.
18. WAIVER OR BREACH.
-----------------
It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
19. ENTIRE AGREEMENT AND BINDING EFFECT.
------------------------------------
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and shall be binding upon and inure to the benefit of
the parties to this Agreement and their respective legal representatives, heirs,
distributors, successors and assigns. Notwithstanding the foregoing, no prior
agreements between the Executive and the Company relating to the confidentiality
of information, trade secrets and patents shall be affected by this Agreement.
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<PAGE>
20. SURVIVAL.
---------
The termination of the Executive's employment hereunder shall not affect
the enforceability of Sections 9, 10, 11 and 12 of this Agreement.
21. FURTHER ASSURANCES.
-------------------
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
22. HEADINGS.
---------
The section headings appearing in this Agreement are for the purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, demand or affect its provisions.
23. COUNTERPARTS.
-------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CARDIOPULMONARY CORP.
By: /S/ JAMES W. BIONDI, M.D.
--------------------------
/S/ GERHART P. SCHROEDER
------------------------------
Gerhart P. Schroeder
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EMPLOYMENT AGREEMENT
AGREEMENT (this "AGREEMENT") made as of May 20, 1996 but effective as of
the Employment Date (as hereinafter defined), between CARDIOPULMONARY CORP., a
Delaware corporation with an office at 200 Cascade Boulevard, Milford,
Connecticut (the "COMPANY"), and Robert Glinski, an individual residing at 1440
Barnsley Walk, Snellville, Georgia 30278 (the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Company desires that the Executive be employed to serve in a
senior executive capacity with the Company, and the Executive desires to be so
employed by the Company, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations and covenants contained in this Agreement, the parties
agree as follows:
1. EMPLOYMENT.
The Company hereby employs the Executive and the Executive hereby accepts
such employment, subject to the terms and conditions set forth in this
Agreement, as its Vice President, Sales.
2. TERM.
The term of employment under this Agreement shall begin as of the closing
date of the Company's initial public offering of Common Stock (the "EMPLOYMENT
DATE") and shall continue for a period of two (2) years from that date, subject
to prior termination in accordance with the terms of this Agreement; provided,
however, that this Agreement shall automatically be renewed on the same terms
for successive one-year terms, unless terminated by written notice given by
either party to the other at least ninety (90) days prior to the end of the
applicable term.
3. DUTIES.
(a) The Executive shall perform the duties and functions normally
associated with the office of Vice President, Sales of a corporation and shall
report to
<PAGE>
the Chief Executive Officer of the Company or such other senior officer of the
Company as may be designated by the Chief Executive Officer.
(b) Until termination of his employment, the Executive agrees to devote all
his working time, attention and energies to the performance of the businesses of
the Company and of any of its affiliates by which he may be employed, and the
Executive shall not, directly or indirectly, alone or as a member of any
partnership or other organization, or as an officer, director or employee of any
other corporation, partnership or other organization, be actively engaged in or
concerned with any other duties or pursuits which materially interfere with the
performance of his duties under this Agreement, or which, even if
non-interfering, may be contrary to the best interests of the Company, except
those duties or pursuits specifically authorized by the Chief Executive Officer
of the Company.
4. COMPENSATION.
(a) As compensation for the employment services to be rendered by the
Executive under this Agreement, including any services as an officer or director
of the Company and any of its affiliates, the Company agrees to pay, or cause to
be paid, to the Executive, and the Executive agrees to accept, a minimum annual
compensation of $90,000.00, or such higher amount as the Board of Directors may
determine, payable in equal installments in accordance with Company practice.
(b) The Executive may receive bonuses based upon the achievement of the
Company's sales and performance goals, up to an aggregate amount of $30,000.00
in the first year. The Executive shall be allowed to make interim draws against
the potential bonus. The Executive acknowledges and agrees that the Company's
failure to pay all or a portion of these bonuses in the event such goals are not
achieved shall not constitute a reduction in the Executive's compensation under
Section 7(h)(iii) below.
5. EXPENSES.
The Company shall pay or reimburse the Executive, subject to prior approval
and upon presentment of such vouchers, receipts and other supporting information
as the Company may require, for all reasonable business and travel expenses
which may be incurred or paid by the Executive in connection with the employment
of the Executive by the Company in accordance with the Company's standard
policies then in effect. The Executive shall comply with such restrictions and
shall keep such records as the Company may require of its executives generally
to facilitate compliance with the requirements of the Internal Revenue Code of
1986, as amended from time to time, and regulations promulgated thereunder.
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<PAGE>
6. INSURANCE AND OTHER BENEFITS.
The Executive shall be entitled to three (3) weeks annual vacation and to
participate in and receive any other benefits provided by the Company to other
executive employees generally (including any personal and sick days, 401(k) plan
participation, health insurance, dental coverage, life insurance and short and
long-term disability insurance plans in accordance with the terms of such
plans), all as determined from time to time by the Board of Directors of the
Company or appropriate committee thereof. In addition, the Executive shall
receive an automobile allowance of at least $800.00 per month.
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.
(a) This Agreement shall terminate immediately upon the death of the
Executive. In such event, the estate of the Executive shall thereupon be
entitled to receive such portion of the Executive's annual salary and such
commissions as have been earned or accrued and remain unpaid through the date of
his death.
(b) The Company may terminate the Executive's employment in the Company's
sole discretion at any time, with or without Justifiable Cause (as hereinafter
defined), upon written notice to the Executive. In the event the Company seeks
to terminate the Executive's employment with Justifiable Cause in accordance
with subsections (f)(i), (f)(iii) or (f)(v), the Company shall first notify the
Executive in writing of such intention and afford the Executive a reasonable
period (as determined by the Company) in which to remedy the conduct in
question. If the conduct in question is not remedied in the time period
provided, the Company may terminate the Executive with Justifiable Cause.
(c) The Company may terminate the Executive's employment if he has been
unable to perform his duties hereunder due to Disability (as hereinafter
defined) if he has not resumed on a full-time basis the performance of such
duties within thirty days after written notice from the Company of its intent to
terminate his employment due to Disability.
(d) The Executive may terminate his employment hereunder for Good Reason
(as hereinafter defined) upon written notice to the Company.
(e) In the event that the Executive's employment is terminated at any time
either (i) by the Company for any reason other than Justifiable Cause,
Disability or death or (ii) by the Executive for Good Reason, the Company shall
pay the Executive his salary at his then current rate for a period of six (6)
months, such payments to be made ratably over the term of the Non-Compete Period
(as hereinafter defined) provided, however, that termination by the Executive
pursuant to subsection (h)(v) must occur within ninety (90) days following the
first day on which the Change in Control (as hereinafter defined) occurs. Such
payments shall be in lieu of any and all
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<PAGE>
other payments due and owing to the Executive under the terms of this Agreement.
The Company shall also provide to the Executive health insurance until such time
as Executive obtains new employment and is covered under the new employer's
health insurance plan but in no event longer than Non-Compete Period. The
Executive shall not be required to seek other employment or to otherwise
mitigate the effects of such termination, and such payments shall not be reduced
by any income received from other sources.
(f) For the purposes of this Agreement, the term "JUSTIFIABLE CAUSE" shall
mean: (i) intentional gross misconduct by the Executive in the performance of
his duties hereunder; (ii) the conviction of a felony; (iii) misuse of the
Company's position or knowledge of the Company's affairs for personal gain; (iv)
any other violation of law in connection with the Company's business which would
have a material effect on the Executive's ability to perform his duties
hereunder or on the Company's business; or (v) a breach of the Confidentiality
provision set forth in Section 10 below. "Intentional gross misconduct" shall
include personal dishonesty, willful misconduct or intentional failure to
perform stated duties.
(g) For the purposes of this Agreement, the term "DISABILITY" shall mean
the inability of the Executive, due to illness, accident or any other physical
or mental incapacity, to perform his duties in a normal manner for a period of
six (6) consecutive months during the term of this Agreement.
(h) For the purposes of this Agreement, the term "GOOD REASON" shall mean:
(i) a substantial reduction of the Executive's duties, position, authority or
responsibilities hereunder which is not corrected within thirty (30) days after
written notice from the Executive; (ii) material breach by the Company of its
obligations hereunder if not remedied within thirty (30) days after written
notice from Executive; (iii) a reduction in the Executive's compensation; (iv) a
material adverse change in the working conditions to which the Executive has
been subject or a material reduction in the discretionary fringe benefits the
Executive has been enjoying; or (v) a Change in Control.
(i) For the purposes of this Agreement, a "CHANGE IN CONTROL" shall be
deemed to have occurred: (i) if any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), other than the Executive, who is not a shareholder of the
Company as of the date hereof, shall have become the beneficial owner, directly
or indirectly, of Common Stock representing thirty three and one-third percent
(33-1/3%) or more of the combined voting power of the Company's then outstanding
securities, unless three-quarters of the Board of Directors, as constituted
immediately prior to the date of the Change in Control, decide in their
reasonable discretion that no Change in Control has occurred, the Executive not
being allowed to vote on such matter if he is then a Director; provided,
however, that if any such person other than the Executive (whether or not a
stockholder of the Company as of the date hereof) shall become the beneficial
owner, directly or indirectly, of Common Stock representing fifty percent
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<PAGE>
(50%) or more of the Company's then outstanding securities, a Change in
Control shall ipso facto have occurred; (ii) if at any time individuals who at
the date of this Agreement constitute a majority of the Board of Directors, or
individuals designated by such a majority as "continuing directors," cease, for
any reason other than death or voluntary resignation (being a resignation not
requested by any other person or persons), to constitute at least a majority of
the Board of Directors; or (iii) if there is a Change in Control of a nature
that, in the opinion of counsel for the Company, would be required to be
reported in response to Item 6(e) of Schedule 14A under the Exchange Act, unless
three-quarters of the Board of Directors, as constituted immediately prior to
the date of the Change in Control, decide in their reasonable discretion that no
Change in Control has occurred, the Executive not being allowed to vote on such
matter if he is then a Director.
8. REPRESENTATIONS AND AGREEMENTS OF THE EXECUTIVE.
(a) The Executive represents and warrants that he is free to enter into
this Agreement and to perform the duties required under this Agreement, and that
there are no employment contracts or understandings, restrictive covenants or
other restrictions, whether written or oral, preventing the performance of his
duties under this Agreement.
(b) The Executive agrees to submit on reasonable notice to a medical
examination (at the Company's expense) and to cooperate and supply such other
information and documents as are in Executive's possession as may reasonably be
required by any insurance company in connection with the Company's obtaining any
type of insurance or fringe benefit as the Company shall determine from time to
time to obtain for Executive. Executive shall be given a complete report of any
such examination.
9. NON-COMPETITION.
(a) The Executive acknowledges that his duties under this Agreement and the
services he will provide to the Company are of a special, unique, unusual and
extraordinary character, which gives this Agreement particular value to the
Company, and that it would be difficult to employ any individual or individuals
to replace the Executive in the performance of such duties and services.
Therefore, the Executive agrees that during his employment by the Company, and
for a period of one (1) year after termination of this Agreement for any reason,
including expiration of the term of this Agreement (the "NON-COMPETE PERIOD"),
the Executive shall not, directly or indirectly, as owner, partner, joint
venturer, stockholder, employee, broker, agent, principal, trustee, corporate
officer, director, or in any capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business advice with
respect to, or have any connection with, any business engaged in the design or
manufacture of mechanical ventilators or anaesthesia equipment or which are
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<PAGE>
otherwise competitive with products or services with respect to which the
Company or any of its affiliates are actively engaged during the term of this
Agreement, in any geographic area where, at the time of the termination of his
employment, the business of the Company or any of its affiliates was being
conducted or was proposed to be conducted; provided, however, that the Executive
may own any securities of any corporation which is engaged in such business and
is publicly owned and traded but in an amount not to exceed at any one time two
percent (2%) of any class of stock or securities of such corporation. In
addition, the Executive shall not, directly or indirectly, during the
Non-Compete Period, request or cause contracting parties, suppliers or customers
with whom the Company or any of its affiliates has a business relationship to
cancel or terminate any such business relationship with the Company or any of
its affiliates or solicit, interfere with or entice from the Company any
employee (or former employee) of the Company.
(b) If any portion of the restrictions set forth in this Section 9 should,
for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) The Executive acknowledges that the Company intends to conduct business
on a world-wide basis, that its sales and marketing prospects are for continued
expansion into world markets and that, therefore, the territorial and time
limitations set forth in this Section 9 are reasonable and properly required for
the adequate protection of the business of the Company and its affiliates. In
the event any such territorial or time limitation is deemed to be unreasonable
by a court of competent jurisdiction, the Executive agrees to the reduction of
the territorial or time limitation to the area or period which such court deems
reasonable.
(d) The existence of any claim or cause of action by the Executive against
the Company shall not constitute a defense to the enforcement by the Company of
the foregoing restrictive covenants, but such claim or cause of action shall be
litigated separately.
10. CONFIDENTIALITY
(a) The Executive acknowledges that, during the course of his employment by
the Company, the Executive will have access to confidential or proprietary
information, documents and other materials relating to the Company, its
affiliates and their respective business which are not generally known to
persons outside the Company (whether conceived or developed by the Executive or
others) and confidential or proprietary information, documents and other
materials entrusted to the Company by third parties, including, without
limitation, any "know-how," trade secrets, customer lists, details of client or
consultant contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, business plans, acquisition
plans of the Company or its affiliates that are valuable and
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<PAGE>
not generally known to the competitors of the Company, whether or not in written
or tangible form, and including all memoranda, notes, plans, reports, records,
documents and other evidence thereof ("CONFIDENTIAL INFORMATION"). Neither the
Executive nor any entity affiliated with the Executive will, directly or
indirectly, during the term of the Executive's employment by the Company and/or
thereafter, disclose to anyone, or use or otherwise exploit for the Executive's
own benefit or for the benefit of anyone other than the Company or its
affiliates, any Confidential Information. Confidential Information shall not
include information which (i) the Executive can show was already in the
possession of the Executive prior to employment with the Company, and which was
not acquired or obtained from the Company or any of its affiliates (whether
received before or after the date of this Agreement), or (ii) is or becomes
generally available to the industry other than as a result of a disclosure,
directly or indirectly, by the Executive.
(b) The Executive agrees that all Confidential Information conceived,
discovered or made by the Executive during the term of employment belongs to the
Company. The Executive will promptly disclose such Confidential Information to
the Company and perform all actions reasonably requested by the Company to
establish and confirm such ownership.
(c) All Confidential Information relating to the Company and its affiliates
shall be the exclusive property of the Company and its affiliates, and the
Executive shall use all reasonable efforts to prevent any publication or
disclosure thereof. Upon termination of the Executive's employment with the
Company, all documents, records, reports, writings and other similar documents
containing Confidential Information, including copies thereof, then in
Executive's possession or control shall be returned to and left with the
Company.
11. COPYRIGHTS, PATENTS, TRADEMARKS.
(a) All right, title and interest, of every kind whatsoever, in the United
States and throughout the world, in (i) any work, including the copyright
thereof (for the full terms and extensions thereof in every jurisdiction),
created by the Executive at any time during the term of this Agreement and all
material embodiments of the work subject to such rights (collectively, "Works")
and (ii) all inventions, ideas, discoveries, designs and improvements,
patentable or not (collectively, "Inventions"), which Works or Inventions are
made or conceived by the Executive at any time during the term of this
Agreement, and which either relate to the business of the Company, are created,
made or conceived using the facilities of the Company (collectively, "Company
Works and Inventions"), shall be and remain the sole property of the Company
without payment of any further consideration to the Executive or any other
person, and each of the Company Works and Inventions shall, for purposes of
United States copyright law, be deemed created by the Executive pursuant to his
duties under this Agreement and within the scope of his employment and shall be
deemed a work made for hire; and the Executive agrees to assign, at the
Company's expense, and the Executive does
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<PAGE>
hereby assign, all of his right, title and interest in and to all Company Works
or Inventions, patentable or not, and any copyrights, letters patent,
trademarks, trade secrets, and similar rights, and the applications therefor,
which may exist or be issued with respect thereto. For the purposes of this
Section 11, "WORKS" shall include all materials created during the term of this
Agreement, whether or not ever used by or submitted to the Company, including,
without limitation, any work which may be the subject matter of a copyright
under United States copyright law. In addition to its other rights, the Company
may copyright any such work in its name in the United States in accordance with
the requirements of the United States copyright law and the Universal Copyright
Convention and any other convention or treaty to which the United States is or
may become a party.
(b) Whenever the Company shall so request, whether during or after the term
of this Agreement, the Executive shall execute, acknowledge and deliver all
applications, assignments or other instruments; make or cause to be made all
rightful oaths; testify in all legal proceedings; communicate all known facts
which relate to Company Works and Inventions; perform all lawful acts and
otherwise render all such assistance as the Company may deem necessary to apply
for, obtain, register, enforce and maintain any copyrights, letters patent and
trademark registrations of the United States or any foreign jurisdiction or
under the Universal Copyright Convention (or any other convention or treaty to
which the United States is or may become a party), or otherwise to protect the
Company's interests therein, including any which the Company shall deem
necessary in connection with any proceeding or litigation involving the same.
The Company shall reimburse the Executive for all reasonable out-of-pocket costs
incurred by the Executive in testifying at the Company's request or in rendering
any other assistance requested by the Company pursuant to this Section 11. All
registration and filing fees and similar expenses shall be paid by the Company.
12. RIGHT TO INJUNCTION; REMEDIES.
(a) The Executive recognizes that the services to be rendered by him under
this Agreement are of a special, unique, unusual, extraordinary and intellectual
character involving skill of the highest order and giving them peculiar value
the loss of which cannot be adequately compensated for in damages. In the event
of a breach of Section 9, 10 or 11 of this Agreement by the Executive, the
Company shall be entitled to injunctive relief or any other legal or equitable
remedies. The remedies provided in this Agreement shall be deemed cumulative and
the exercise of one shall not preclude the exercise of any other remedy at law
or in equity for the same event or any other event.
(b) The Executive shall not incur any liability to the Company solely by
reason of the Executive's termination of his employment with the Company,
whether such termination is for Good Reason or otherwise.
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<PAGE>
13. ASSIGNMENT.
The rights and obligations of the Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of the
Company.
14. AMENDMENT OR ALTERATION.
No amendment or alteration of the terms of this Agreement shall be valid
unless made in writing and signed by both of the parties to this Agreement.
15. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Connecticut
applicable to agreements made and to be performed therein.
16. SEVERABILITY.
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
17. NOTICES.
Any notices required or permitted to be given under this Agreement shall be
sufficient if in writing, and if delivered by hand, or sent by certified mail,
return receipt requested, to the addresses set forth above or such other address
as either party may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery or mailing.
18. WAIVER OR BREACH.
It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
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19. ENTIRE AGREEMENT AND BINDING EFFECT.
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and shall be binding upon and inure to the benefit of
the parties to this Agreement and their respective legal representatives, heirs,
distributors, successors and assigns. Notwithstanding the foregoing, no prior
agreements between the Executive and the Company relating to the confidentiality
of information, trade secrets and patents shall be affected by this Agreement.
20. SURVIVAL.
The termination of the Executive's employment hereunder shall not affect
the enforceability of Sections 9, 10, 11 and 12 of this Agreement.
21. FURTHER ASSURANCES.
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
22. HEADINGS.
The section headings appearing in this Agreement are for the purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, demand or affect its provisions.
23. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CARDIOPULMONARY CORP.
By: /s/ JAMES W. BIONDI, M.D.
-------------------------------
By: /s/ ROBERT GLINSKI
-------------------------------
Robert Glinski
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EMPLOYMENT AGREEMENT
AGREEMENT (this "AGREEMENT") made as of May 20, 1996 but effective as of
the Employment Date (as hereinafter defined), between CARDIOPULMONARY CORP., a
Delaware corporation with an office at 200 Cascade Boulevard, Milford,
Connecticut (the "COMPANY"), and Donald D. Gilmore, an individual residing at 7
Eastburn, Brighton, Massachusetts 02135 (the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Company desires that the Executive be employed to serve in a
senior executive capacity with the Company, and the Executive desires to be so
employed by the Company, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations and covenants contained in this Agreement, the parties
agree as follows:
1. EMPLOYMENT.
The Company hereby employs the Executive and the Executive hereby accepts
such employment, subject to the terms and conditions set forth in this
Agreement, as its Director of Software Development.
2. TERM.
The term of employment under this Agreement shall begin as of the closing
date of the Company's initial public offering of Common Stock (the "EMPLOYMENT
DATE") and shall continue for a period of two (2) years from that date, subject
to prior termination in accordance with the terms of this Agreement; provided,
however, that this Agreement shall automatically be renewed on the same terms
for successive one-year terms, unless terminated by written notice given by
either party to the other at least ninety (90) days prior to the end of the
applicable term.
3. DUTIES.
(a) The Executive shall perform the duties and functions normally
associated with the office of Director of Software Development of a corporation
and
<PAGE>
shall report to the Chief Executive Officer of the Company or such other senior
officer of the Company as may be designated by the Chief Executive Officer.
(b) Until termination of his employment, the Executive agrees to devote all
his working time, attention and energies to the performance of the businesses of
the Company and of any of its affiliates by which he may be employed, and the
Executive shall not, directly or indirectly, alone or as a member of any
partnership or other organization, or as an officer, director or employee of any
other corporation, partnership or other organization, be actively engaged in or
concerned with any other duties or pursuits which materially interfere with the
performance of his duties under this Agreement, or which, even if
non-interfering, may be contrary to the best interests of the Company, except
those duties or pursuits specifically authorized by the Chief Executive Officer
of the Company.
4. COMPENSATION.
As compensation for the employment services to be rendered by the Executive
under this Agreement, including any services as an officer or director of the
Company and any of its affiliates, the Company agrees to pay, or cause to be
paid, to the Executive, and the Executive agrees to accept, a minimum annual
compensation of $110,000.00, or such higher amount as the Board of Directors may
determine, payable in equal installments in accordance with Company practice.
5. EXPENSES.
The Company shall pay or reimburse the Executive, subject to prior approval
and upon presentment of such vouchers, receipts and other supporting information
as the Company may require, for all reasonable business and travel expenses
which may be incurred or paid by the Executive in connection with the employment
of the Executive by the Company in accordance with the Company's standard
policies then in effect. The Executive shall comply with such restrictions and
shall keep such records as the Company may require of its executives generally
to facilitate compliance with the requirements of the Internal Revenue Code of
1986, as amended from time to time, and regulations promulgated thereunder.
6. INSURANCE AND OTHER BENEFITS.
The Executive shall be entitled to three (3) weeks annual vacation and to
participate in and receive any other benefits provided by the Company to other
executive employees generally (including any personal and sick days, 401(k) plan
participation, health insurance, dental coverage, life insurance and short and
long-term disability insurance plans in accordance with the terms of such
plans), all as determined
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<PAGE>
from time to time by the Board of Directors of the Company or appropriate
committee thereof.
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.
(a) This Agreement shall terminate immediately upon the death of the
Executive. In such event, the estate of the Executive shall thereupon be
entitled to receive such portion of the Executive's annual salary and such
commissions as have been earned or accrued and remain unpaid through the date of
his death.
(b) The Company may terminate the Executive's employment in the Company's
sole discretion at any time, with or without Justifiable Cause (as hereinafter
defined), upon written notice to the Executive. In the event the Company seeks
to terminate the Executive's employment with Justifiable Cause in accordance
with subsections (f)(i), (f)(iii) or (f)(v), the Company shall first notify the
Executive in writing of such intention and afford the Executive a reasonable
period (as determined by the Company) in which to remedy the conduct in
question. If the conduct in question is not remedied in the time period
provided, the Company may terminate the Executive with Justifiable Cause.
(c) The Company may terminate the Executive's employment if he has been
unable to perform his duties hereunder due to Disability (as hereinafter
defined) if he has not resumed on a full-time basis the performance of such
duties within thirty days after written notice from the Company of its intent to
terminate his employment due to Disability.
(d) The Executive may terminate his employment hereunder for Good Reason
(as hereinafter defined) upon written notice to the Company.
(e) In the event that the Executive's employment is terminated at any time
either (i) by the Company for any reason other than Justifiable Cause,
Disability or death or (ii) by the Executive for Good Reason, the Company shall
pay the Executive his salary at his then current rate (including an amount equal
to any bonuses paid to the Executive during the prior twelve (12) month period)
for a period of twelve (12) months, such payments to be made ratably over the
term of the Non-Compete Period (as hereinafter defined) provided, however, that
termination by the Executive pursuant to subsection (h)(v) must occur within
ninety (90) days following the first day on which the Change in Control (as
hereinafter defined) occurs. Such payments shall be in lieu of any and all other
payments due and owing to the Executive under the terms of this Agreement. The
Company shall also provide to the Executive health insurance until such time as
Executive obtains new employment and is covered under the new employer's health
insurance plan but in no event longer than Non-Compete Period. The Executive
shall not be required to seek other employment or to otherwise mitigate the
effects of such termination, and such payments shall not be reduced by any
income received from other sources.
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<PAGE>
(f) For the purposes of this Agreement, the term "JUSTIFIABLE CAUSE" shall
mean: (i) intentional gross misconduct by the Executive in the performance of
his duties hereunder; (ii) the conviction of a felony; (iii) misuse of the
Company's position or knowledge of the Company's affairs for personal gain; (iv)
any other violation of law in connection with the Company's business which would
have a material effect on the Executive's ability to perform his duties
hereunder or on the Company's business; or (v) a breach of the Confidentiality
provision set forth in Section 10 below. "Intentional gross misconduct" shall
include personal dishonesty, willful misconduct or intentional failure to
perform stated duties.
(g) For the purposes of this Agreement, the term "DISABILITY" shall mean
the inability of the Executive, due to illness, accident or any other physical
or mental incapacity, to perform his duties in a normal manner for a period of
six (6) consecutive months during the term of this Agreement.
(h) For the purposes of this Agreement, the term "GOOD REASON" shall mean:
(i) a substantial reduction of the Executive's duties, position, authority or
responsibilities hereunder which is not corrected within thirty (30) days after
written notice from the Executive; (ii) material breach by the Company of its
obligations hereunder if not remedied within thirty (30) days after written
notice from Executive; (iii) a reduction in the Executive's compensation; (iv) a
material adverse change in the working conditions to which the Executive has
been subject or a material reduction in the discretionary fringe benefits the
Executive has been enjoying; or (v) a Change in Control.
(i) For the purposes of this Agreement, a "CHANGE IN CONTROL" shall be
deemed to have occurred: (i) if any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), other than the Executive, who is not a shareholder of the
Company as of the date hereof, shall have become the beneficial owner, directly
or indirectly, of Common Stock representing thirty-three and one-third percent
(33-1/3%) or more of the combined voting power of the Company's then outstanding
securities, unless three-quarters of the Board of Directors, as constituted
immediately prior to the date of the Change in Control, decide in their
reasonable discretion that no Change in Control has occurred, the Executive not
being allowed to vote on such matter if he is then a Director; provided,
however, that if any such person other than the Executive (whether or not a
stockholder of the Company as of the date hereof) shall become the beneficial
owner, directly or indirectly, of Common Stock representing fifty percent (50%)
or more of the Company's then outstanding securities, a Change in Control shall
ipso facto have occurred; (ii) if at any time individuals who at the date of
this Agreement constitute a majority of the Board of Directors, or individuals
designated by such a majority as "continuing directors," cease, for any reason
other than death or voluntary resignation (being a resignation not requested by
any other person or persons), to constitute at least a majority of the Board of
Directors; or (iii) if there is a Change in Control of a nature that, in the
opinion of counsel for the Company, would be required to be reported in response
to Item 6(e) of Schedule 14A under the Exchange
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<PAGE>
Act, unless three-quarters of the Board of Directors, as constituted immediately
prior to the date of the Change in Control, decide in their reasonable
discretion that no Change in Control has occurred, the Executive not being
allowed to vote on such matter if he is then a Director.
8. REPRESENTATIONS AND AGREEMENTS OF THE EXECUTIVE.
(a) The Executive represents and warrants that he is free to enter into
this Agreement and to perform the duties required under this Agreement, and that
there are no employment contracts or understandings, restrictive covenants or
other restrictions, whether written or oral, preventing the performance of his
duties under this Agreement.
(b) The Executive agrees to submit on reasonable notice to a medical
examination (at the Company's expense) and to cooperate and supply such other
information and documents as are in Executive's possession as may reasonably be
required by any insurance company in connection with the Company's obtaining any
type of insurance or fringe benefit as the Company shall determine from time to
time to obtain for Executive. Executive shall be given a complete report of any
such examination.
9. NON-COMPETITION.
(a) The Executive acknowledges that his duties under this Agreement and the
services he will provide to the Company are of a special, unique, unusual and
extraordinary character, which gives this Agreement particular value to the
Company, and that it would be difficult to employ any individual or individuals
to replace the Executive in the performance of such duties and services.
Therefore, the Executive agrees that during his employment by the Company, and
for a period of two (2) years after termination of this Agreement for any
reason, including expiration of the term of this Agreement (the "NON-COMPETE
PERIOD"), the Executive shall not, directly or indirectly, as owner, partner,
joint venturer, stockholder, employee, broker, agent, principal, trustee,
corporate officer, director, or in any capacity whatsoever engage in, become
financially interested in, be employed by, render any consultation or business
advice with respect to, or have any connection with, any business engaged in the
design or manufacture of mechanical ventilators or anaesthesia equipment or
which are otherwise competitive with products or services with respect to which
the Company or any of its affiliates are actively engaged during the term of
this Agreement, in any geographic area where, at the time of the termination of
his employment, the business of the Company or any of its affiliates was being
conducted or was proposed to be conducted; provided, however, that the Executive
may own any securities of any corporation which is engaged in such business and
is publicly owned and traded but in an amount not to exceed at any one time two
percent (2%) of any class of stock or securities of such corporation. In
addition, the Executive shall not, directly or
-5-
<PAGE>
indirectly, during the Non-Compete Period, request or cause contracting parties,
suppliers or customers with whom the Company or any of its affiliates has a
business relationship to cancel or terminate any such business relationship with
the Company or any of its affiliates or solicit, interfere with or entice from
the Company any employee (or former employee) of the Company.
(b) If any portion of the restrictions set forth in this Section 9 should,
for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) The Executive acknowledges that the Company intends to conduct business
on a world-wide basis, that its sales and marketing prospects are for continued
expansion into world markets and that, therefore, the territorial and time
limitations set forth in this Section 9 are reasonable and properly required for
the adequate protection of the business of the Company and its affiliates. In
the event any such territorial or time limitation is deemed to be unreasonable
by a court of competent jurisdiction, the Executive agrees to the reduction of
the territorial or time limitation to the area or period which such court deems
reasonable.
(d) The existence of any claim or cause of action by the Executive against
the Company shall not constitute a defense to the enforcement by the Company of
the foregoing restrictive covenants, but such claim or cause of action shall be
litigated separately.
10. CONFIDENTIALITY
(a) The Executive acknowledges that, during the course of his employment by
the Company, the Executive will have access to confidential or proprietary
information, documents and other materials relating to the Company, its
affiliates and their respective business which are not generally known to
persons outside the Company (whether conceived or developed by the Executive or
others) and confidential or proprietary information, documents and other
materials entrusted to the Company by third parties, including, without
limitation, any "know-how," trade secrets, customer lists, details of client or
consultant contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, business plans, acquisition
plans of the Company or its affiliates that are valuable and not generally known
to the competitors of the Company, whether or not in written or tangible form,
and including all memoranda, notes, plans, reports, records, documents and other
evidence thereof ("CONFIDENTIAL INFORMATION"). Neither the Executive nor any
entity affiliated with the Executive will, directly or indirectly, during the
term of the Executive's employment by the Company and/or thereafter, disclose to
anyone, or use or otherwise exploit for the Executive's own benefit or for the
benefit of anyone other than the Company or its affiliates, any Confidential
Information. Confidential Information shall not include information which (i)
the Executive can show was already
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<PAGE>
in the possession of the Executive prior to employment with the Company, and
which was not acquired or obtained from the Company or any of its affiliates
(whether received before or after the date of this Agreement), or (ii) is or
becomes generally available to the industry other than as a result of a
disclosure, directly or indirectly, by the Executive.
(b) The Executive agrees that all Confidential Information conceived,
discovered or made by the Executive during the term of employment belongs to the
Company. The Executive will promptly disclose such Confidential Information to
the Company and perform all actions reasonably requested by the Company to
establish and confirm such ownership.
(c) All Confidential Information relating to the Company and its affiliates
shall be the exclusive property of the Company and its affiliates, and the
Executive shall use all reasonable efforts to prevent any publication or
disclosure thereof. Upon termination of the Executive's employment with the
Company, all documents, records, reports, writings and other similar documents
containing Confidential Information, including copies thereof, then in
Executive's possession or control shall be returned to and left with the
Company.
11. COPYRIGHTS, PATENTS, TRADEMARKS.
(a) All right, title and interest, of every kind whatsoever, in the United
States and throughout the world, in (i) any work, including the copyright
thereof (for the full terms and extensions thereof in every jurisdiction),
created by the Executive at any time during the term of this Agreement and all
material embodiments of the work subject to such rights (collectively, "Works")
and (ii) all inventions, ideas, discoveries, designs and improvements,
patentable or not (collectively "Inventions"), which Works or Inventions are
made or conceived by the Executive at any time during the term of this
Agreement, and which either relate to the business of the Company, or are
created, made or conceived using the facilities of the Company (collectively,
"COMPANY WORKS AND INVENTIONS"), shall be and remain the sole property of the
Company without payment of any further consideration to the Executive or any
other person, and each of the Company Works and Inventions shall, for purposes
of United States copyright law, be deemed created by the Executive pursuant to
his duties under this Agreement and within the scope of his employment and shall
be deemed a work made for hire; and the Executive agrees to assign, at the
Company's expense, and the Executive does hereby assign, all of his right, title
and interest in and to all Company Works or Inventions, patentable or not, and
any copyrights, letters patent, trademarks, trade secrets, and similar rights,
and the applications therefor, which may exist or be issued with respect
thereto. For the purposes of this Section 11, "WORKS" shall include all
materials created during the term of this Agreement, whether or not ever used by
or submitted to the Company, including, without limitation, any work which may
be the subject matter of a copyright under United States copyright law. In
addition to its other rights, the Company may copyright any such work in its
name in the United
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<PAGE>
States in accordance with the requirements of the United States copyright law
and the Universal Copyright Convention and any other convention or treaty to
which the United States is or may become a party.
(b) Whenever the Company shall so request, whether during or after the term
of this Agreement, the Executive shall execute, acknowledge and deliver all
applications, assignments or other instruments; make or cause to be made all
rightful oaths; testify in all legal proceedings; communicate all known facts
which relate to Company Works and Inventions; perform all lawful acts and
otherwise render all such assistance as the Company may deem necessary to apply
for, obtain, register, enforce and maintain any copyrights, letters patent and
trademark registrations of the United States or any foreign jurisdiction or
under the Universal Copyright Convention (or any other convention or treaty to
which the United States is or may become a party), or otherwise to protect the
Company's interests therein, including any which the Company shall deem
necessary in connection with any proceeding or litigation involving the same.
The Company shall reimburse the Executive for all reasonable out-of-pocket costs
incurred by the Executive in testifying at the Company's request or in rendering
any other assistance requested by the Company pursuant to this Section 11. All
registration and filing fees and similar expenses shall be paid by the Company.
12. RIGHT TO INJUNCTION; REMEDIES.
(a) The Executive recognizes that the services to be rendered by him under
this Agreement are of a special, unique, unusual, extraordinary and intellectual
character involving skill of the highest order and giving them peculiar value
the loss of which cannot be adequately compensated for in damages. In the event
of a breach of Section 9, 10 or 11 of this Agreement by the Executive, the
Company shall be entitled to injunctive relief or any other legal or equitable
remedies. The remedies provided in this Agreement shall be deemed cumulative and
the exercise of one shall not preclude the exercise of any other remedy at law
or in equity for the same event or any other event.
(b) The Executive shall not incur any liability to the Company solely by
reason of the Executive's termination of his employment with the Company,
whether such termination is for Good Reason or otherwise.
13. ASSIGNMENT.
The rights and obligations of the Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of the
Company.
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<PAGE>
14. AMENDMENT OR ALTERATION.
No amendment or alteration of the terms of this Agreement shall be valid
unless made in writing and signed by both of the parties to this Agreement.
15. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Connecticut
applicable to agreements made and to be performed therein.
16. SEVERABILITY.
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
17. NOTICES.
Any notices required or permitted to be given under this Agreement shall be
sufficient if in writing, and if delivered by hand, or sent by certified mail,
return receipt requested, to the addresses set forth above or such other address
as either party may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery or mailing.
18. WAIVER OR BREACH.
It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
19. ENTIRE AGREEMENT AND BINDING EFFECT.
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and shall be binding upon and inure to the benefit of
the parties to this Agreement and their respective legal representatives, heirs,
distributors, successors and assigns. Notwithstanding the foregoing, no prior
agreements between the Executive and the Company relating to the confidentiality
of information, trade secrets and patents shall be affected by this Agreement.
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<PAGE>
20. SURVIVAL.
The termination of the Executive's employment hereunder shall not affect
the enforceability of Sections 9, 10, 11 and 12 of this Agreement.
21. FURTHER ASSURANCES.
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
22. HEADINGS.
The section headings appearing in this Agreement are for the purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, demand or affect its provisions.
23. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CARDIOPULMONARY CORP.
By: /s/ JAMES W. BIONDI, M.D.
----------------------------
By: /s/ DONALD D. GILMORE
----------------------------
Donald D. Gilmore
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EMPLOYMENT AGREEMENT
--------------------
AGREEMENT (this "Agreement") made as of May 20, 1996 but effective as of
the Employment Date (as hereinafter defined), between CARDIOPULMONARY CORP., a
Delaware corporation with an office at 200 Cascade Boulevard, Milford,
Connecticut (the "COMPANY"), and Elliot Blank, an individual residing at 192
Sharon Drive, Cheshire, Connecticut 06410 (the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Company desires that the Executive be employed to serve in a
senior executive capacity with the Company, and the Executive desires to be so
employed by the Company, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations and covenants contained in this Agreement, the parties
agree as follows:
1. EMPLOYMENT.
-----------
The Company hereby employs the Executive and the Executive hereby accepts
such employment, subject to the terms and conditions set forth in this
Agreement, as its Director of Manufacturing.
2. TERM.
-----
The term of employment under this Agreement shall begin as of the closing
date of the Company's initial public offering of Common Stock (the "EMPLOYMENT
DATE") and shall continue for a period of two (2) years from that date, subject
to prior termination in accordance with the terms of this Agreement; provided,
however, that this Agreement shall automatically be renewed on the same terms
for successive one-year terms, unless terminated by written notice given by
either party to the other at least ninety (90) days prior to the end of the
applicable term.
3. DUTIES.
-------
(a) The Executive shall perform the duties and functions normally
associated with the office of Director of Manufacturing of a corporation and
shall report
<PAGE>
to the Chief Executive Officer of the Company or such other senior officer of
the Company as may be designated by the Chief Executive Officer.
(b) Until termination of his employment, the Executive agrees to devote all
his working time, attention and energies to the performance of the businesses of
the Company and of any of its affiliates by which he may be employed, and the
Executive shall not, directly or indirectly, alone or as a member of any
partnership or other organization, or as an officer, director or employee of any
other corporation, partnership or other organization, be actively engaged in or
concerned with any other duties or pursuits which materially interfere with the
performance of his duties under this Agreement, or which, even if
non-interfering, may be contrary to the best interests of the Company, except
those duties or pursuits specifically authorized by the Chief Executive Officer
of the Company.
4. COMPENSATION.
-------------
As compensation for the employment services to be rendered by the Executive
under this Agreement, including any services as an officer or director of the
Company and any of its affiliates, the Company agrees to pay, or cause to be
paid, to the Executive, and the Executive agrees to accept, a minimum annual
compensation of $95,000.00, or such higher amount as the Board of Directors may
determine, payable in equal installments in accordance with Company practice.
5. EXPENSES.
---------
The Company shall pay or reimburse the Executive, subject to prior approval
and upon presentment of such vouchers, receipts and other supporting information
as the Company may require, for all reasonable business and travel expenses
which may be incurred or paid by the Executive in connection with the employment
of the Executive by the Company in accordance with the Company's standard
policies then in effect. The Executive shall comply with such restrictions and
shall keep such records as the Company may require of its executives generally
to facilitate compliance with the requirements of the Internal Revenue Code of
1986, as amended from time to time, and regulations promulgated thereunder.
6. INSURANCE AND OTHER BENEFITS.
-----------------------------
The Executive shall be entitled to three (3) weeks annual vacation and to
participate in and receive any other benefits provided by the Company to other
executive employees generally (including any personal and sick days, 401(k) plan
participation, health insurance, dental coverage, life insurance and short and
long-term disability insurance plans in accordance with the terms of such
plans), all as determined
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<PAGE>
from time to time by the Board of Directors of the Company or appropriate
committee thereof.
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.
-------------------------------------------------
(a) This Agreement shall terminate immediately upon the death of the
Executive. In such event, the estate of the Executive shall thereupon be
entitled to receive such portion of the Executive's annual salary and such
commissions as have been earned or accrued and remain unpaid through the date of
his death.
(b) The Company may terminate the Executive's employment in the Company's
sole discretion at any time, with or without Justifiable Cause (as hereinafter
defined), upon written notice to the Executive. In the event the Company seeks
to terminate the Executive's employment with Justifiable Cause in accordance
with subsections (f)(i), (f)(iii) or (f)(v), the Company shall first notify the
Executive in writing of such intention and afford the Executive a reasonable
period (as determined by the Company) in which to remedy the conduct in
question. If the conduct in question is not remedied in the time period
provided, the Company may terminate the Executive with Justifiable Cause.
(c) The Company may terminate the Executive's employment if he has been
unable to perform his duties hereunder due to Disability (as hereinafter
defined) if he has not resumed on a full-time basis the performance of such
duties within thirty days after written notice from the Company of its intent to
terminate his employment due to Disability.
(d) The Executive may terminate his employment hereunder for Good Reason
(as hereinafter defined) upon written notice to the Company.
(e) In the event that the Executive's employment is terminated at any time
either (i) by the Company for any reason other than Justifiable Cause,
Disability or death or (ii) by the Executive for Good Reason, the Company shall
pay the Executive his salary at his then current rate (including an amount equal
to any bonuses paid to the Executive during the prior six (6) month period) for
a period of six (6) months, such payments to be made ratably over the term of
the Non-Compete Period (as hereinafter defined); provided, however, that
termination by the Executive pursuant to subsection (h)(v) must occur within
ninety (90) days following the first day on which the Change in Control (as
hereinafter defined) occurs. Such payments shall be in lieu of any and all other
payments due and owing to the Executive under the terms of this Agreement. The
Company shall also provide to the Executive health insurance until such time as
Executive obtains new employment and is covered under the new employer's health
insurance plan but in no event longer than Non-Compete Period. The Executive
shall not be required to seek other employment or to otherwise mitigate the
effects of such termination, and such payments shall not be reduced by any
income received from other sources.
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<PAGE>
(f) For the purposes of this Agreement, the term "JUSTIFIABLE CAUSE" shall
mean: (i) intentional gross misconduct by the Executive in the performance of
his duties hereunder; (ii) the conviction of a felony; (iii) misuse of the
Company's position or knowledge of the Company's affairs for personal gain; (iv)
any other violation of law in connection with the Company's business which would
have a material effect on the Executive's ability to perform his duties
hereunder or on the Company's business; or (v) a breach of the Confidentiality
provision set forth in Section 10 below. "Intentional gross misconduct" shall
include personal dishonesty, willful misconduct or intentional failure to
perform stated duties.
(g) For the purposes of this Agreement, the term "DISABILITY" shall mean
the inability of the Executive, due to illness, accident or any other physical
or mental incapacity, to perform his duties in a normal manner for a period of
six (6) consecutive months during the term of this Agreement.
(h) For the purposes of this Agreement, the term "GOOD REASON" shall mean:
(i) a substantial reduction of the Executive's duties, position, authority or
responsibilities hereunder which is not corrected within thirty (30) days after
written notice from the Executive; (ii) material breach by the Company of its
obligations hereunder if not remedied within thirty (30) days after written
notice from Executive; (iii) a reduction in the Executive's compensation; (iv) a
material adverse change in the working conditions to which the Executive has
been subject or a material reduction in the discretionary fringe benefits the
Executive has been enjoying; or (v) a Change in Control.
(i) For the purposes of this Agreement, a "CHANGE IN CONTROL" shall be
deemed to have occurred: (i) if any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), other than the Executive, who is not a shareholder of the
Company as of the date hereof, shall have become the beneficial owner, directly
or indirectly, of Common Stock representing thirty-three and one-third percent
(33-1/3%) or more of the combined voting power of the Company's then outstanding
securities, unless three-quarters of the Board of Directors, as constituted
immediately prior to the date of the Change in Control, decide in their
reasonable discretion that no Change in Control has occurred, the Executive not
being allowed to vote on such matter if he is then a Director; provided,
however, that if any such person other than the Executive (whether or not a
stockholder of the Company as of the date hereof) shall become the beneficial
owner, directly or indirectly, of Common Stock representing fifty percent (50%)
or more of the Company's then outstanding securities, a Change in Control shall
ipso facto have occurred; (ii) if at any time individuals who at the date of
this Agreement constitute a majority of the Board of Directors, or individuals
designated by such a majority as "continuing directors," cease, for any reason
other than death or voluntary resignation (being a resignation not requested by
any other person or persons), to constitute at least a majority of the Board of
Directors; or (iii) if there is a Change in Control of a nature that, in the
opinion of counsel for the Company, would be required to be reported in response
to Item 6(e) of Schedule 14A under the Exchange
-4-
<PAGE>
Act, unless three-quarters of the Board of Directors, as constituted
immediately prior to the date of the Change in Control, decide in their
reasonable discretion that no Change in Control has occurred, the Executive not
being allowed to vote on such matter if he is then a Director.
8. REPRESENTATIONS AND AGREEMENTS OF THE EXECUTIVE.
------------------------------------------------
(a) The Executive represents and warrants that he is free to enter into
this Agreement and to perform the duties required under this Agreement, and that
there are no employment contracts or understandings, restrictive covenants or
other restrictions, whether written or oral, preventing the performance of his
duties under this Agreement.
(b) The Executive agrees to submit on reasonable notice to a medical
examination (at the Company's expense) and to cooperate and supply such other
information and documents as are in Executive's possession as may reasonably be
required by any insurance company in connection with the Company's obtaining any
type of insurance or fringe benefit as the Company shall determine from time to
time to obtain for Executive. Executive shall be given a complete report of any
such examination.
9. NON-COMPETITION.
----------------
(a) The Executive acknowledges that his duties under this Agreement and the
services he will provide to the Company are of a special, unique, unusual and
extraordinary character, which gives this Agreement particular value to the
Company, and that it would be difficult to employ any individual or individuals
to replace the Executive in the performance of such duties and services.
Therefore, the Executive agrees that during his employment by the Company, and
for a period of one (1) year after termination of this Agreement for any reason,
including expiration of the term of this Agreement (the "NON-COMPETE PERIOD"),
the Executive shall not, directly or indirectly, as owner, partner, joint
venturer, stockholder, employee, broker, agent, principal, trustee, corporate
officer, director, or in any capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business advice with
respect to, or have any connection with, any business engaged in the design or
manufacture of mechanical ventilators or anaesthesia equipment or which are
otherwise competitive with products or services with respect to which the
Company or any of its affiliates are actively engaged during the term of this
Agreement, in any geographic area where, at the time of the termination of his
employment, the business of the Company or any of its affiliates was being
conducted or was proposed to be conducted; provided, however, that the Executive
may own any securities of any corporation which is engaged in such business and
is publicly owned and traded but in an amount not to exceed at any one time two
percent (2%) of any class of stock or securities of such corporation. In
addition, the Executive shall not, directly or
-5-
<PAGE>
indirectly, during the Non-Compete Period, request or cause contracting parties,
suppliers or customers with whom the Company or any of its affiliates has a
business relationship to cancel or terminate any such business relationship with
the Company or any of its affiliates or solicit, interfere with or entice from
the Company any employee (or former employee) of the Company.
(b) If any portion of the restrictions set forth in this Section 9 should,
for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) The Executive acknowledges that the Company intends to conduct business
on a world-wide basis, that its sales and marketing prospects are for continued
expansion into world markets and that, therefore, the territorial and time
limitations set forth in this Section 9 are reasonable and properly required for
the adequate protection of the business of the Company and its affiliates. In
the event any such territorial or time limitation is deemed to be unreasonable
by a court of competent jurisdiction, the Executive agrees to the reduction of
the territorial or time limitation to the area or period which such court deems
reasonable.
(d) The existence of any claim or cause of action by the Executive against
the Company shall not constitute a defense to the enforcement by the Company of
the foregoing restrictive covenants, but such claim or cause of action shall be
litigated separately.
10. CONFIDENTIALITY
---------------
(a) The Executive acknowledges that, during the course of his employment by
the Company, the Executive will have access to confidential or proprietary
information, documents and other materials relating to the Company, its
affiliates and their respective business which are not generally known to
persons outside the Company (whether conceived or developed by the Executive or
others) and confidential or proprietary information, documents and other
materials entrusted to the Company by third parties, including, without
limitation, any "know-how," trade secrets, customer lists, details of client or
consultant contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, business plans, acquisition
plans of the Company or its affiliates that are valuable and not generally known
to the competitors of the Company, whether or not in written or tangible form,
and including all memoranda, notes, plans, reports, records, documents and other
evidence thereof ("CONFIDENTIAL INFORMATION"). Neither the Executive nor any
entity affiliated with the Executive will, directly or indirectly, during the
term of the Executive's employment by the Company and/or thereafter, disclose to
anyone, or use or otherwise exploit for the Executive's own benefit or for the
benefit of anyone other than the Company or its affiliates, any Confidential
Information. Confidential Information shall not include information which (i)
the Executive can show was already
-6-
<PAGE>
in the possession of the Executive prior to employment with the Company,
and which was not acquired or obtained from the Company or any of its affiliates
(whether received before or after the date of this Agreement), or (ii) is or
becomes generally available to the industry other than as a result of a
disclosure, directly or indirectly, by the Executive.
(b) The Executive agrees that all Confidential Information conceived,
discovered or made by the Executive during the term of employment belongs to the
Company. The Executive will promptly disclose such Confidential Information to
the Company and perform all actions reasonably requested by the Company to
establish and confirm such ownership.
(c) All Confidential Information relating to the Company and its affiliates
shall be the exclusive property of the Company and its affiliates, and the
Executive shall use all reasonable efforts to prevent any publication or
disclosure thereof. Upon termination of the Executive's employment with the
Company, all documents, records, reports, writings and other similar documents
containing Con- fidential Information, including copies thereof, then in
Executive's possession or control shall be returned to and left with the
Company.
11. COPYRIGHTS, PATENTS, TRADEMARKS.
--------------------------------
(a) All right, title and interest, of every kind whatsoever, in the United
States and throughout the world, in (i) any work, including the copyright
thereof (for the full terms and extensions thereof in every jurisdiction),
created by the Executive at any time during the term of this Agreement and all
material embodiments of the work subject to such rights (collectively, "Works")
and (ii) all inventions, ideas, discoveries, designs and improvements,
patentable or not (collectively, "Inventions"), which Works or Inventions are
made or conceived by the Executive at any time during the term of this
Agreement, and which either relate to the business of the Company, or are
created, made or conceived using the facilities of the Company (collectively,
"Company Works and Inventions"), shall be and remain the sole property of the
Company without payment of any further consideration to the Executive or any
other person, and each of the Company Works and Inventions shall, for purposes
of United States copyright law, be deemed created by the Executive pursuant to
his duties under this Agreement and within the scope of his employment and shall
be deemed a work made for hire; and the Executive agrees to assign, at the
Company's expense, and the Executive does hereby assign, all of his right, title
and interest in and to all Company Works or Inventions, patentable or not, and
any copyrights, letters patent, trademarks, trade secrets, and similar rights,
and the applications therefor, which may exist or be issued with respect
thereto. For the purposes of this Section 11, "WORKS" shall include all
materials created during the term of this Agreement, whether or not ever used by
or submitted to the Company, including, without limitation, any work which may
be the subject matter of a copyright under United States copyright law. In
addition to its other rights, the Company may copyright any such work in its
name in the United
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<PAGE>
States in accordance with the requirements of the United States copyright
law and the Universal Copyright Convention and any other convention or treaty to
which the United States is or may become a party.
(b) Whenever the Company shall so request, whether during or after the term
of this Agreement, the Executive shall execute, acknowledge and deliver all
applications, assignments or other instruments; make or cause to be made all
rightful oaths; testify in all legal proceedings; communicate all known facts
which relate to Company Works and Inventions; perform all lawful acts and
otherwise render all such assistance as the Company may deem necessary to apply
for, obtain, register, enforce and maintain any copyrights, letters patent and
trademark registrations of the United States or any foreign jurisdiction or
under the Universal Copyright Convention (or any other convention or treaty to
which the United States is or may become a party), or otherwise to protect the
Company's interests therein, including any which the Company shall deem
necessary in connection with any proceeding or litigation involving the same.
The Company shall reimburse the Executive for all reasonable out-of-pocket costs
incurred by the Executive in testifying at the Company's request or in rendering
any other assistance requested by the Company pursuant to this Section 11. All
registration and filing fees and similar expenses shall be paid by the Company.
12. RIGHT TO INJUNCTION; REMEDIES.
------------------------------
(a) The Executive recognizes that the services to be rendered by him under
this Agreement are of a special, unique, unusual, extraordinary and intellectual
character involving skill of the highest order and giving them peculiar value
the loss of which cannot be adequately compensated for in damages. In the event
of a breach of Section 9, 10 or 11 of this Agreement by the Executive, the
Company shall be entitled to injunctive relief or any other legal or equitable
remedies. The remedies provided in this Agreement shall be deemed cumulative and
the exercise of one shall not preclude the exercise of any other remedy at law
or in equity for the same event or any other event.
(b) The Executive shall not incur any liability to the Company solely by
reason of the Executive's termination of his employment with the Company,
whether such termination is for Good Reason or otherwise.
13. ASSIGNMENT.
-----------
The rights and obligations of the Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of the
Company.
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<PAGE>
14. AMENDMENT OR ALTERATION.
------------------------
No amendment or alteration of the terms of this Agreement shall be
valid unless made in writing and signed by both of the parties to this
Agreement.
15. GOVERNING LAW.
--------------
This Agreement shall be governed by the laws of the State of
Connecticut applicable to agreements made and to be performed therein.
16. SEVERABILITY.
-------------
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
17. NOTICES.
--------
Any notices required or permitted to be given under this Agreement shall be
sufficient if in writing, and if delivered by hand, or sent by certified mail,
return receipt requested, to the addresses set forth above or such other address
as either party may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery or mailing.
18. WAIVER OR BREACH.
-----------------
It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
19. ENTIRE AGREEMENT AND BINDING EFFECT.
------------------------------------
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and shall be binding upon and inure to the benefit of
the parties to this Agreement and their respective legal representatives, heirs,
distributors, successors and assigns. Notwithstanding the foregoing, no prior
agreements between the Executive and the Company relating to the confidentiality
of information, trade secrets and patents shall be affected by this Agreement.
-9-
<PAGE>
20. SURVIVAL.
---------
The termination of the Executive's employment hereunder shall not
affect the enforceability of Sections 9, 10, 11 and 12 of this Agreement.
21. FURTHER ASSURANCES.
-------------------
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
22. HEADINGS.
---------
The section headings appearing in this Agreement are for the purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, demand or affect its provisions.
23. COUNTERPARTS.
-------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CARDIOPULMONARY CORP.
By: /s/ JAMES W. BIONDI, M.D.
-----------------------------
/s/ ELLIOT BLANK
--------------------------------
Elliot Blank
-10-
DISTRIBUTION AGREEMENT
Between:
CARDIOPULMONARY CORP., a Delaware corporation, having its principal
corporate office at 200 Cascade Boulevard, Milford, Connecticut 06460, USA,
hereinafter called "CPC", duly represented by James Biondi, Chief Executive
Officer,
and
KONTRON INSTRUMENTS LTD., a British company having its registered corporate
office at Blackmoor Lane, Croxley Business Park, Watford WD1 8XQ, Hertfordshire,
UK, hereinafter called "KONTRON INSTRUMENTS", duly represented by Leslie Smith,
Chairman.
Witnesseth:
Whereas CPC develops, manufactures and sells, intensive care ventilators,
accessories and consumables;
Whereas Kontron Instruments and its sister companies within Kontron
Instruments Group manufacture, sell and service medical and bioanalytical
instruments and also sell and service medical equipment manufactured by third
parties;
Whereas both CPC and Kontron Instruments agree that Kontron Instruments
shall sell and service products as exclusive distributor to CPC in the Territory
(as hereinafter defined) in the field of intensive care ventilation;
Whereas both parties desire to specify the rights and obligations of each
party in this Agreement;
Now therefore, the parties mutually agree as follows:
1. DEFINITIONS
1.1 As used in this Agreement, the terms below shall have the meaning
as specified in the following:
"PRODUCTS": the intensive care ventilators specified in ANNEX A
hereto, together with associated consumables, disposables and
spare parts.
"TERRITORY": [ ** ]
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
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<PAGE>
"TRANSFER PRICES": the prices of products charged by CPC to
Kontron Instruments as detailed in ANNEX B hereto, net of the
discount as detailed in ANNEX C hereto.
"ECU": European Currency Unit.
"EXCHANGE RATE": the rate of exchange between in ECU and the
US dollar published daily on the International Herald Tribune in
the Cross-Rates table on its first Business page.
"KONTRON INSTRUMENTS GROUP": the companies listed on ANNEX D
hereto or any of them, as the context requires; provided, however,
that Kontron Instruments shall be responsible to CPC for all
obligations of the Kontron Instruments Group under this
Agreement.
2. APPOINTMENT AND AUTHORITY OF KONTRON INSTRUMENTS
2.1 Subject to the terms and conditions stated herein, including
without limitation the provisions of Paragraph 8.1 hereof, CPC
appoints Kontron Instruments as CPC's exclusive distributor for
the Products in the Territory. Kontron Instruments shall have a
right to purchase products from CPC and to resell them, repair and
generally service them in the Territory; provided, however, that
Kontron Instruments shall not alter Products without prior written
consent from CPC, and then only according to written instructions
from CPC.
2.2 The products shall be marked and sold within the Territory with
both Kontron Instruments' and CPC's brand names in a manner to be
agreed from time to time by the parties to this Agreement.
2.3 CPC and Kontron Instruments may agree in writing to extend this
Agreement, in total or in part, to cover products sold by CPC in
addition to those listed on ANNEX A. It is the present intention
of CPC to consider Kontron Instruments when selecting a
distributor in the Territory for such future CPC products within
Kontron Instruments' fields of expertise.
2.4 Except as otherwise provided in Section 7.3 of this Agreement,
Kontron Instruments does not become an agent of CPC by virtue of
this Agreement, but rather shall purchase and sell in its own name
and for its own account, and is not entitled to act, and shall not
act, in the name of CPC or to obligate CPC in any form towards any
third party.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
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<PAGE>
2.5 Kontron Instruments shall safeguard the interests of CPC with the
due diligence of a responsible businessman and keep CPC informed
as to its activities.
2.6 Kontron Instruments may appoint local distributors for the sale of
CPC products in the Territory but shall notify CPC promptly of
such appointments and shall terminate any such appointment which
CPC believes in good faith is prejudicial to the interests of CPC.
2.7 Kontron Instruments shall not solicit offers for Products from
customers outside the Territory; provided, however, that Kontron
Instruments may solicit offers for Products with the prior consent
of CPC on a case-by-case basis except in locations in which CPC
has granted exclusive rights to a third party.
2.8 CPC may, by written notice to Kontron Instruments during the month
of January 1997 and each January thereafter, terminate the rights
of Kontron Instruments hereunder in any country within Territory,
except for [ ** ], in which CPC reasonably believes there has been
insufficient progress in establishing distribution channels for
the Products.
3. PROMOTION OF PRODUCTS
3.1 Kontron Instruments shall diligently promote CPC's Products in
each country in the Territory. The details of such promotion
activities shall be coordinated with CPC, but the cost of these
activities shall be borne exclusively by Kontron Instruments,
unless specifically agreed otherwise.
3.2 Kontron Instruments shall inform CPC in advance as to its intended
participation in trade and exhibition programmes. CPC personnel
will endeavor to attend major meetings and events at its expense.
3.3 Kontron Instruments shall inform CPC of the market and competitive
situation in the Territory at least once every quarter, and shall
provide such information as may be required of CPC by the United
States Food and Drug Administration for post-market surveillance.
In addition, Kontron Instruments will use reasonable efforts to
provide names and addresses of customers, date of sale, serial
number and a contact person for each unit sold. CPC shall provide
Kontron Instruments such information as may be reasonably required
by regulatory authorities in the Territory.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
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<PAGE>
3.4 Kontron Instruments shall expend an amount equalling at least US
$1,000,000 for promotion, advertisement and selling of the
Products. Of this amount, Kontron Instruments shall spend at least
US $[ ** ] during 1995, at least US $[ ** ] during the twelve
months following the date regulatory approvals have been obtained
in [ ** ] and at least US $[ ** ] during the twelve months
following the date regulatory approvals have been received in
[ ** ] and the with respect to the [ ** ]. Kontron Instruments may
credit toward these minimums the costs of regulatory approvals;
recruitment, salaries and benefits of incremental personnel;
qualification and appointment of local distributors and
independent agents; sales and technical training; reasonable
commissions for independent agents in [ ** ] and [ ** ];
brochures, exhibitions and point-of-sale promotional materials;
market research and translations; and clinical and user preference
trials.
4. ORDER FORECAST AND DELIVERIES
4.1 Kontron Instruments shall provide CPC with a six-month rolling
forecast of order volume and requested shipping dates, to be
updated every month.
4.2 CPC shall use all reasonable efforts to ship Products within
forty-five (45) days from receipt of purchase orders, subject to
Paragraphs 4.3 and 4.4 below.
4.3 CPC shall inform Kontron Instruments, within three business days
of receiving the monthly orders and shipment forecasts, of its
ability to respect forecast shipment requirements. If delivery
conditions change, CPC shall inform Kontron Instruments as soon as
feasible.
4.4 Any requests by Kontron Instruments for shipment above 120% of the
quantity forecast by Kontron Instruments three months earlier will
be shipped on a best available date basis.
4.5 All Products shipped by CPC shall conform to CPC's specifications
therefor, and CPC shall make all reasonable efforts to conform to
relevant governmental technical, quality and regulatory standards
specified from time to time by Kontron Instruments. CPC shall
notify Kontron Instruments prior to making material changes in
Product specifications.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
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<PAGE>
5. SALES AND SERVICE SUPPORT
5.1 CPC shall furnish Kontron Instruments with operating and service
manuals for Products in the English language at CPC's cost.
Kontron Instruments may translate, at its own expense, such
materials and literature into appropriate languages for use in the
Territory. Kontron Instruments shall furnish CPC, at no charge,
with reasonable quantities of such translations.
5.2 CPC shall furnish Kontron Instruments, at no charge, with
reasonable quantities of photographic artwork, videos and
technical text in English that CPC has produced in the course of
its business.
5.3 CPC shall make available in the USA sales, application and service
training courses to selected personnel of the Kontron Instruments
Group free of charge. Travel and living expenses for Kontron
Instruments employees or agents attending such courses shall be
borne by Kontron Instruments.
5.4 CPC staff will travel to Europe to support Kontron Instruments'
efforts to obtain important reference sites during the first
eighteen months of this Agreement, according to a programme to be
agreed Kontron Instruments and CPC. All expenses related to such
visits by CPC staff will be borne by CPC.
6. WARRANTY AND SERVICE
6.1 For a period of eighteen months from date of shipment -- the
"WARRANTY PERIOD" -- CPC warrants that the products delivered to
Kontron Instruments:
(a) conform to their specifications in effect at the time of
confirmation of the purchase order,
(b) are free from defects in design, material and workmanship
under normal use and service, and
(c) if used as directed in the Instructions for Use and product
specifications are fit for the specific purposes set forth in
the Instructions for Use and product specifications, but CPC
makes no such warranties for use for any other purpose.
6.2 Kontron Instruments will provide CPC a bi-monthly summary of
service calls in a form mutually acceptable to CPC and Kontron
Instruments. Any claim by Kontron Instruments that a Product
contains defective materials shall be made in writing to CPC
within the Warranty Period.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
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<PAGE>
6.3 CPC shall supply replacement parts free of charge upon return by
Kontron Instruments under the terms of the Warranty set forth in
Paragraph 6.1. Material transport charges shall be borne by the
shipping party and duties and taxes shall be borne by the
receiving party. Kontron Instruments shall supply labor for
warranty repair (at either the hospital or a Kontron Instruments
site in Europe) free of charge; provided, however, that CPC will
reimburse members of the Kontron Instruments Group promptly for
50% of such labor costs during the twelve months following the
first sale by Kontron Instruments under this Agreement, up to a
maximum of 5% of CPC's revenues under this Agreement during that
period.
6.4 Products or parts thereof supplied within the scope of Paragraph
6.3 are warranted for the remainder of the original Warranty
Period for the replaced Product, or for a period of 90 days from
installment of the replacing Product, whichever is longer.
6.5 THE WARRANTIES SET FORTH ABOVE RELATING TO
PRODUCTS ARE IN LIEU OF ALL OTHER WARRANTIES
EXPRESSED OR IMPLIED.
6.6 Kontron Instruments shall provide maintenance service, including
warranty service for Products in the Territory. Such service shall
be performed in accordance with CPC's service guidelines, as
amended from time to time.
6.7 CPC shall keep the Kontron Instruments Group indemnified and
harmless against any liability or damages caused by any claim of a
third party relating to the manufacture of a Product furnished to
Kontron Instruments by CPC which did not meet the specifications
in effect at the time of confirmation of the purchase order, or
from the negligence or other wrongdoing of CPC or any employee or
agent of CPC (other than the Kontron Instruments Group). The
Kontron Instruments Group shall keep CPC indemnified and harmless
against any liability or damages caused by packaging by the
Kontron Instruments Group, registration, distribution, promotion
of the Products for use outside their specifications or against
their specific warnings, precautions or contraindications, use of
the Products outside specifications or against specific warnings,
precautions or contraindications by the Kontron Instruments Group,
or from the negligence, failure to comply with instructions
regarding use of the Product, or other wrongdoing of the Kontron
Instruments Group or any employee or agent of the Kontron
Instruments Group. In the event that other damages
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
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<PAGE>
which arise out of transactions related to this Agreement are
alleged against either CPC or the Kontron Instruments Group or
both, then CPC and Kontron Instruments shall cooperate to defend
against and defeat such allegations, but if such damages should be
found and allowed against either CPC or the Kontron Instruments
Group or both, then CPC and the Kontron Instruments Group shall
indemnify each other against the same, such that the parties shall
bear the damages and the costs of defence equally.
7. OTHER OBLIGATIONS OF DISTRIBUTOR
7.1 The Kontron Instruments Group shall observe the rules of fair
competition.
7.2 The Kontron Instruments Group shall maintain, at its own expense,
an inventory of CPC's consumables, accessories and spare parts,
purchased directly from CPC, sufficient to provide satisfactory
service to customers.
7.3 Kontron Instruments or other members of the Kontron Instruments
Group shall act as CPC's agent to obtain, with CPC's assistance
but at Kontron Instruments' expense, all manner of registrations,
clearances and approvals required for CPC's Products in each
country in the Territory. Except as mutually agreed, such
registrations, clearances and approvals shall be in the name of
CPC. If engineering or software changes are required to obtain
such approvals in the Territory, CPC shall make all reasonable
efforts to implement them promptly; provided, however, that CPC
shall not be required to expend more than $[ ** ] in total for all
such changes. Import licenses and/or distribution licenses, if
required, shall be obtained by Kontron Instruments at its own
expense and with assistance from CPC if necessary. Kontron
Instruments shall provide CPC a detailed report of all direct
expenses incurred by Kontron Instruments in obtaining such
clearances, approvals and licenses in each jurisdiction.
7.4 The Kontron Instruments Group shall maintain knowledgeable
personnel and develop the use of the Product in the Territory.
Such personnel shall promote the Products in accordance with their
specifications and shall not promote the Product against its
warnings, precautions or contraindications.
7.5 The Kontron Instruments Group shall maintain records to the
training, service and Product that customers have received to the
end that customers may readily be notified of pertinent
information
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
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<PAGE>
or that it may be established that the customers were
appropriately trained in the safe and effective use of the
Product.
7.6 The Kontron Instruments Group shall not manufacture or distribute
competing products in the Territory during the term of this
Agreement. Kontron shall be free to distribute products specified
as non-competing products in ANNEX A.
8. PRICES AND PAYMENT TERMS
8.1 CPC shall charge Kontron Instruments the Transfer Prices listed in
ANNEX B hereto for CPC's current Venturi products. Transfer prices
and purchase schedules for future products listed on ANNEX A,
including Venturi IIcs and Venturi IIas products, and prices after
1997 for the current products, shall be negotiated by the CPC and
Kontron Instruments in good faith. If the parties are unable to
reach agreement on the transfer price of any such products,
Cardiopulmonary Corp. may offer such products to third parties on
terms substantially the same as the best offer which Kontron
Instruments rejected.
8.2 Kontron Instruments shall be responsible for all freight and
insurance for Products from the time of delivery thereof in a
common carrier at the manufacturing site for shipment to Kontron
Instruments.
8.3 Kontron Instruments shall bear all import and excise duties and
Value Added Tax, if any is due, in the Territory.
8.4 Kontron Instruments shall bear all other costs related to selling,
servicing and distributing the Product, unless otherwise specified
in this Agreement or in written modification thereof.
8.5 CPC invoices to Kontron Instruments shall be due within thirty
(30) days from date of shipment during the first eighteen months
of this agreement and within sixty (60) days from date of shipment
thereafter. The payment terms specified in this paragraph 8.5
shall be deemed material terms of this Agreement.
8.6 Title to Products and risk of loss thereof shall pass to Kontron
Instruments at the time of the delivery by CPC to a common carrier
for shipment to Kontron Instruments.
8.7 Kontron Instruments shall align delivery and warranty terms to its
customers with those obtained from CPC.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-8-
<PAGE>
8.8 CPC and Kontron Instruments agree to negotiate in good faith with
respect to price adjustments if the exchange rate of the US dollar
to the ECU varies by more than 7.5% from that in effect on the
date a price is agreed.
9. TERMS OF AGREEMENT AND TERMINATION PROCEDURE
9.1 This Distribution Agreement enters into effect upon the execution
by both parties and shall be valid until terminated according to
the procedures outlined below.
9.2 Ordinary termination shall require thirty-six (36) months' written
notice by either party.
9.3 Exceptional termination shall be allowed in the following
circumstances only:
(a) Upon twenty-four (24) month's notice by either party given
during any month of January, if Kontron Instruments and CPC
have failed to agree by the end of the prior year on a
purchase schedule for the upcoming three years to update the
purchase schedule set forth on ANNEX B hereto.
(b) Upon six month's notice by either party given during any month
of January beginning in January 1996, if Kontron Instruments
has failed to order from CPC in the previous year at least the
minimum amount of Products set forth in the mutually agreed
schedule for the prior year, contained in ANNEX B hereto and
its future updates, except where such failure is due to CPC's
inability to deliver Products.
(c) automatically and without notice in case of dissolution or
liquidation of CPC or of Kontron Instruments.
(d) immediately upon notice by CPC if Kontron Instruments, other
than for reasons of force majeure set forth in Paragraph 13.5
hereof, shall fail to make any payment due CPC under this
Agreement for a period of 60 days following the date such
payment is due; provided, however, that the provisions of this
paragraph 9.3(d) shall not apply to obligations Kontron
Instruments has disputed in good faith, and that CPC shall be
required to provide ten (10) business days' notice prior to
termination under this paragraph 9.3(d).
(e) Upon six month's notice by either party in case a competitor
of either party acquires direct or indirect control of the
other party, in which case the right to exceptional
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-9-
<PAGE>
termination can be exercised only by the party not being so
acquired.
10. MUTUAL OBLIGATIONS AT TERMINATION
10.1 The termination of this Agreement shall not release either party
from any liability or obligation which existed as of the date of
notice of such termination.
10.2 If the Agreement is terminated, Kontron Instruments shall return
to CPC, within thirty (30) days from the date of effective
termination, all written materials, designs, drawings, formulae or
other technical information regarding Products. Kontron
Instruments shall not make or retain copies of such materials or
of any confidential information provided to it by CPC. CPC shall
continue to supply such information as may be required by
regulatory bodies within the Territory.
10.3 Upon termination, CPC shall be obligated to repurchase from the
Kontron Instruments Group and the Kontron Instruments Group shall
be obligated to resell to CPC all demonstration units and spare
parts inventories in Kontron Instruments' stock, within thirty
(30) days from the date of effective termination, to be paid for
within ninety (90) days of CPC's receipt of the same, and at a
price determined as follows:
a) 100% of the Transfer Price paid by the Kontron Instruments
Group to CPC for unused spare parts.
b) the value on the books of the Kontron Instruments Group,
depreciated by twenty percent (20%) per each full year or
portion thereof since purchase by the Kontron Instruments
Group for those systems which have been used in
demonstrations or clinical trials. Such systems must be in
good operating condition, Kontron Instruments' property,
and be delivered to CPC within thirty (30) days of
termination of this agreement.
c) otherwise as mutually agreed by the parties.
10.4 Upon ordinary termination initiated by CPC pursuant to Paragraph
9.2 of this Agreement or extraordinary termination pursuant to
Paragraph 9.3(c), (d) or (e) as a result of events affecting CPC,
CPC shall assume all reasonable supply obligations of the Kontron
Instruments Group to customers in the Territory to whom Products
have been delivered or are to be delivered under orders already
accepted by CPC, including but not limited to
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-10-
<PAGE>
pricing and servicing commitments. Upon any other extraordinary
termination pursuant to Paragraph 9.3 or upon ordinary termination
initiated by Kontron Instruments, CPC shall be at liberty to
assume or not assume some, none or all of Kontron Instruments'
foregoing obligations, CPC having to decide within sixty (60) days
of termination.
10.5 Upon ordinary termination pursuant to Paragraph 9.2, but only if
such is initiated by CPC, or extraordinary termination pursuant to
Paragraph 9.3(c), (d) or (e) as a result of events affecting CPC,
and for a twelve month period thereafter, CPC shall refrain from
hiring people who are employed directly or indirectly as "agenti
mono-mandatari", at that time, or in the previous twelve months by
the Kontron Instruments Group, unless specifically exempted in
writing from this requirement by Kontron Instruments.
10.6 Upon termination, the Kontron Instruments Group shall transfer to
CPC, and CPC shall reimburse the Kontron Instruments Group within
180 days for the reasonable direct costs that were sustained by
the Kontron Instruments Group in obtaining, the registrations,
clearances or approvals, as well as the import/distribution
licenses obtained as described in Paragraph 7.3, up to a maximum
of $[ ** ].
11. CONFIDENTIALITY AND BUSINESS SECRETS
11.1 Neither CPC nor the Kontron Instruments Group shall disclose to
any third party, even after termination of this Agreement, any
business or company secrets, manufacturing and control procedures,
drawings, specifications, software and any other information that
is confidential or of substantial value to the other party and
which CPC and the Kontron Instruments Group came to know by virtue
of their relationship described in this Agreement.
11.2 The confidentiality obligation described in Paragraph 11.1 shall
not extend to information which:
a) was validly in possession of either party prior to the initial
negotiations for the relationship described in this
Agreement;
b) is or becomes a part of the public domain or of the public
knowledge through no fault of either party;
c) is obtained by either party to this Agreement from any third
party, provided this third party has the right to disclose and
has not imposed any obligation of confidentiality;
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-11-
<PAGE>
d) is independently developed by either party and where such
independent development can be documented;
e) is, as a common practice or in the course of normal business,
disclosed by either party; or
f) is required to be disclosed under the terms of a valid and
effective subpoena or order issued by a court of competent
jurisdiction or by a governmental body.
11.3 Neither CPC nor the Kontron Instruments Group shall assert any
rights, even after termination of this Agreement, to any
intellectual property of the other party.
11.4 The provisions of this Section 11 shall survive the expiration or
termination of this Agreement.
12. TRADEMARKS AND PATENTS
12.1 The Kontron Instruments Group shall be obligated at all times to
observe the trademark and intellectual property rights of CPC and
not to register for itself or any third party similar or
conflicting trademarks or otherwise assert rights to any
intellectual property of CPC during or after the expiry of this
Agreement.
12.2 The Kontron Instruments Group shall use the trademarks of CPC, and
may also use its own trademarks, for the promotion and sale of
Products during the term of this Agreement. The Kontron
Instruments Group shall discontinue the use of CPC marks promptly
upon the termination of this Agreement.
12.3 The Kontron Instruments Group shall inform CPC as soon as any
suspected infringement of a CPC patent by a third party occurs in
the Territory or a patent lawsuit is brought against the Kontron
Instruments Group for infringement of patents related to the
Products. CPC may prosecute, but shall defend, as the case may be,
these infringements, at its own expense and the Kontron
Instruments Group shall assist CPC in all manner possible in such
proceedings.
13. CHOICE OF LAW, ARBITRATION AND FORCE MAJEURE
13.1 This Agreement, including the arbitration clause, shall be
interpreted and construed in accordance with the internal laws of
England, it being expressly understood that International
conventions on the sale of goods shall not apply.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-12-
<PAGE>
13.2 Any difference or disputes arising from this Agreement or from
agreements regarding its performance shall be settled by an
amicable effort on the part of both parties to the Agreement by
their respective Chief Executive Officers or their delegates. An
attempt to arrive at a settlement shall be deemed to have failed
as soon as one of the parties to this agreement notifies the other
party in writing.
13.3 If an attempt to settlement has failed, the disputes shall be
finally settled in English language under the Rules of the London
Court of International Arbitration by three arbitrators appointed
in accordance with the Rules, the place of arbitration being
London.
13.4 The arbitral award shall be substantiated in writing. The arbitral
tribunal shall decide on the matter of costs of the arbitration.
13.5 Neither party shall be liable for failure to perform obligations
under this Agreement if the failure results from force majeure,
such as fire, explosion, acts of warfare, or hostilities of any
nature, accident, refusal of license, or other governmental act
(including regulatory approvals and export/import licenses),
industrial dispute, or anything manifestly beyond the parties'
control.
14. MISCELLANEOUS
14.1 No modification, alternation, addition, or change in the terms of
this Agreement shall be binding on either party hereto unless in
writing and signed by the duly authorized representatives of each
party. This applies also to the waiver of written form.
14.2 Kontron Instruments may assign its rights under this Agreement to
any member of the Kontron Instruments Group which is at least
fifty (50%) percent owned by Kontron Instruments NV or Kontron
Instruments Holding BV; provided, however, that notwithstanding
any such assignment Kontron Instruments shall remain liable to CPC
for its obligations under this Agreement. Kontron Instruments may
not otherwise assign or extend this Agreement without the prior
written consent of CPC, which may be withheld for any reason or
for no reason.
14.3 Any failure of either party to enforce, at any time or for any
period of time, any of the provisions under this Agreement shall
not be construed as a waiver of the right of the party to enforce
such provisions.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-13-
<PAGE>
14.4 Any notice to be given by either party to this Agreement shall be
made by registered mail, telefax, or teletext and, if addressed to
CPC at the principal office listed above, to the attention of the
CEO and, if addressed to Kontron Instruments, to its registered
office listed above, to the attention of the Chairman. Either
party may change the designated address or recipient upon proper
notice of the same to the other party.
14.5 In case one or more of the provisions of this Agreement is or
becomes legally invalid or unenforceable in any country within the
Territory, such provision shall be ineffective without
invalidating the remaining provisions hereof, provided that the
parties shall through mutual negotiations attempt to agree upon a
new provision which, by being legal in all segments, shall follow
the intent of the original provisions as closely as possible.
14.6 This Agreement supersedes any discussions preceding this
Agreement, and incorporates the parties' whole understanding and
undertakings.
15. COMPLETION
In witness whereof, the parties hereto, intending to be legally bound, have
executed this Agreement to be effective as of this 17th day of March, 1995.
CARDIOPULMONARY CORP. KONTRON INSTRUMENTS LTD.
by: by:
/s/ JAMES BIONDI /s/ LESLIE SMITH
- -------------------------------- -----------------------------
James Biondi Leslie Smith
Chief Executive Officer Chairman
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-14-
<PAGE>
ANNEX A
PRODUCTS COVERED BY THE AGREEMENT
1. CPC Venturi
2. CPC Venturi IIcs
3. CPC Venturi IIas
4. Any upgrades of or new developments included in the products listed
above. For purposes of this Agreement, such upgrades and new
developments shall include any Cardiopulmonary Corp. intensive care
ventilation product with flow and pressure delivery characteristics
substantially equivalent to those included in the current CPC Venturi
ventilators.
NON-COMPETING PRODUCTS
The following products currently distributed by Kontron Instruments shall not be
considered competing products for the purposes of paragraph 7.6 of this
Agreement:
Hamilton and Seachrist ventilators with a unit selling price of less than
$20,000, excluding taxes.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-15-
<PAGE>
ANNEX B
TRANSFER PRICES AND PURCHASE SCHEDULES FOR CURRENT VENTURI PRODUCTS
1995: [ ** ] Venturi Units ([ ** ] units for resale plus [ ** ]
demonstration units and [ ** ] clinical trial units)
$[ ** ] per unit
1996: [ ** ] Venturi Units
$[ ** ] per unit
1997: [ ** ] Venturi Units
$[ ** ] unit
Schedules for future years shall be negotiated by the parties in good faith. For
1998 and 1999, CPC may not require an increase of more than [ ** ]% per year
from the unit sales numbers set forth above; for 2000 and subsequent years the
sales numbers shall not decrease from those in the prior year.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-16-
<PAGE>
ANNEX C
VARIATIONS TO TRANSFER PRICES
Sales demo units: [ ** ]% discount on current transfer price
Clinical trial units: [ ** ]% discount on current transfer price
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-17-
<PAGE>
ANNEX D
MEMBERS OF THE KONTRON INSTRUMENTS GROUP
Kontron Instruments Ltd.
Kontron Instruments S.A. (incorporated in France)
Kontron Instruments S.A. (incorporated in Spain)
Kontron Instruments SpA
Kontron Instruments AG
Kontron Instruments GmbH
Kontron Instruments F.L.A.
Kontur S.A.
[ ** ] indicates confidential portions omitted and filed separately with the
Commission.
-18-
STOCK AND WARRANT PUT AGREEMENT
THIS STOCK AND WARRANT PUT AGREEMENT (this "Agreement") dated as of May 20,
1996 between Cardiopulmonary Corp. (the "Company"), a corporation organized
under the laws of the State of Delaware, and Connecticut Innovations,
Incorporated (the "Holder").
WHEREAS, the Holder is today purchasing from the Company (A) One Hundred
Thousand (100,000) shares of the Company's common stock (the "Common Stock"),
$0.01 par value per share (together with any securities issued or issuable
directly or indirectly in respect of such shares of Common Stock in payment of a
dividend or in connection with a stock split, recapitalization or similar event,
the "Shares") and (B) a Warrant pursuant to which the Holder is given the right
to purchase certain shares of the Common Stock (together with any warrant or
warrants issued upon any replacement, exchange or transfer of such Warrant, the
"Warrant"), in each case pursuant to a Stock Purchase Agreement of even date
herewith between the Company and the Holder (the "Purchase Agreement"); and
WHEREAS, the Holder has required, as a condition to its purchase of the
Shares and the Warrant pursuant to the Purchase Agreement, that the Company make
certain covenants relating to maintaining its operations in the State of
Connecticut and that the Holder shall have the right to sell the Shares, the
Warrant Shares and the Warrant to the Company if the Company fails to comply
with such covenants;
NOW THEREFORE, each of the parties hereto, in consideration of the mutual
covenants set forth herein, agrees as follows:
SECTION 1. DEFINITIONS For all purposes of this Agreement, the following
terms shall have the meanings set forth below or in the Section of this
Agreement following such term.
CLOSING DATE - shall mean any Put Date.
COMMON STOCK FAIR MARKET VALUE - at any date of one share of Common Stock
shall be deemed the average of the daily closing prices of the Common Stock for
the 30 consecutive business days ending no more than 15 business days before the
day in question (as adjusted for any stock dividend, split, combination or
reclassification that took effect during such 30 business day period). The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sales took place on such day, the average of the
last reported bid and asked prices regular way, in either way, in either case on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading (or if the Common Stock is not at the time listed or
admitted for trading on any such exchange, then such price as shall be equal to
the average of the last reported bid and asked prices, as reported by the
National Association of Securities Dealers Automated Quotations System
("Nasdaq") on
<PAGE>
such day, or if, on any day in question, the security shall not be quoted on the
Nasdaq, then such price shall be equal to the average of the last reported bid
and asked prices on such day as reported by The National Quotation Bureau
Incorporated or any similar reputable quotation and reporting service, if such
quotation is not reported by The National Quotation Bureau Incorporated);
provided, however, that if the Common Stock is not traded in such manner that
the quotations referred to herein are available for the period required
hereunder, the Common Stock Fair Market Value shall be determined in good faith
by the Board of Directors of the Company or, if such determination cannot be
made or is reasonably objected to by the Holder within twenty (20) days of its
notification thereof, by a nationally recognized independent investment banking
firm selected by the Board of Directors of the Company (or if such selection
cannot be made or is reasonably objected to by the Holder within (20) days of
its notification thereof, by a nationally recognized independent investment
banking firm selected by the American Arbitration Association in accordance with
its rules).
IPO - shall mean the first underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
covering the offering and sale of Common Stock for the account of the Company on
a firm commitment basis.
NOTICE OF PUT - Section 3.2.
ORIGINAL ISSUE PRICE - shall mean $5.00 per share of Common Stock, as
adjusted to reflect stock dividends, stock splits and stock capitalizations or
recapitalizations.
PUT - Section 3. The term "Put", when used as a verb, shall also mean the
Holder's exercise of the Put.
PUT DATE - Section 4.
PUT PRICE - shall equal the greater of (i) the Common Stock Fair Market
Value of the Shares and Warrant Shares made subject to a Put, plus the Warrant
Fair Market Value, and (ii) an amount which yields a return equal to the
aggregate amount of the Original Issue Price, plus an amount calculated to yield
to the Holder the Required Rate of Return on such Original Issue Price.
REQUIRED RATE OF RETURN - shall equal twenty-five percent (25%) compounded
annually.
TERMINATION DATE - shall mean the earlier of (i) the date on which the
Holder no longer holds any Common Stock, Warrants or Warrant Shares, and (ii)
the first date after an IPO and the expiration or termination of the term of any
related "lock-up" agreement applicable to the Shares or the Warrant Shares, on
which all Shares and Warrant Shares then held by the Holder may be offered and
sold by the Holder to any number of offerees and purchasers pursuant to (A) Rule
144(k) under the
-2-
<PAGE>
Securities Act of 1933 (or any similar rule hereafter adopted by the Securities
and Exchange Commission), or (B) an effective registration statement filed under
the Securities Act of 1933.
WARRANT FAIR MARKET VALUE - at any date shall be an amount equal to the
difference the Common Stock Fair Market Value and the Warrant Price (as defined
in the Warrant and from time to time adjusted in accordance with the terms of
the Warrant), in each case with respect to all shares of Common Stock then
issuable upon exercise of the Warrant.
WARRANT SHARES - shares of Common Stock held by the Holder and issued
upon the exercise of the Warrant, together with any securities issued or
issuable directly or indirectly in respect of such shares of Common Stock in
payment of a dividend or in connection with a stock split, recapitalization or
similar event.
SECTION 2. MAINTENANCE OF CONNECTICUT PRESENCE. The Company agrees that at all
times prior to the Termination Date it will maintain a "Connecticut Presence". A
Connecticut Presence shall mean (a) maintaining the Company's principal place of
business (including its executive offices and officers) in the State of
Connecticut, (b) basing a majority of its employees and those of its
subsidiaries in the State of Connecticut, and (c) conducting a majority of its
operations and those of its subsidiaries, in the State of Connecticut. It shall
not constitute a violation of this covenant for the Company to purchase goods
and services, participate in clinical trails of its products, sell its products
and services or engage distributors outside the State of Connecticut.
SECTION 3. RIGHT TO PUT COMMON STOCK
3.1 RIGHT TO PUT. If the Company shall fail to maintain a Connecticut
Presence at any time prior to the Termination Date, The Holder shall have the
right to sell to the Company, and the Company agrees to purchase from the
Holder, all, but not less than all, of the Shares, the Warrant Shares and the
Warrant for the Put Price and on the other terms and conditions herein set forth
(the "Put").
3.2 METHOD OF EXERCISE. On the terms and conditions herein set forth, the
Holder may exercise its rights hereunder to sell to the Company its Shares,
Warrant Shares and Warrant by delivering to the Company, at the address referred
to in Section 17 of the Purchase Agreement, a notice of Put (a "Notice of Put")
in the form attached hereto as Annex A.
SECTION 4. PUT CLOSING
(a) The closing (the "Put Closing") of any purchase and sale of Shares,
Warrant Shares and Warrant pursuant to Section 3 hereof shall be held
on the date (the "Put Date") which is the thirtieth (30th) business
day after delivery of the Notice of Put.
-3-
<PAGE>
(b) At the Put Closing, the Holder will deliver to the Company
certificates evidencing the Shares and the Warrant Shares made the
subject of the Notice to Put, together with the Warrant and the
Company will deliver to the Holder the Put Price for the Shares, the
Warrant Shares and the Warrant made the subject of the Notice of Put
(in cash, certified or bank check, or by wire transfer).
SECTION 5. NOTICES. All communications under this Agreement shall be delivered
in the manner set forth in the Purchase Agreement.
SECTION 6. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Connecticut.
SECTION 7. HEADINGS. The section headings appear as a matter of convenience only
and do not constitute a part of this Agreement and shall not affect the
construction hereof.
SECTION 8. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
and be binding upon, the successors and assigns of each of the parties hereto;
provided that the Company may not assign its rights or delegate its obligations
hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their behalf this 20th day of May, 1996.
CARDIOPULMONARY CORP.
By: /s/ JAMES W. BIONDI
---------------------------------------
Title: President
CONNECTICUT INNOVATIONS,
INCORPORATED
By: /s/ VICTOR R. BUDNICK
---------------------------------------
Title: President and Executive Director
-4-
<PAGE>
ANNEX A
NOTICE OF PUT
1. In accordance with a Stock and Warrant Put Agreement (the "Put Agreement")
dated as of May ___, 1996, between the undersigned (the "Holder") and
Cardiopulmonary Corp. (the "Company"), the undersigned hereby exercises its
right to sell, and does hereby sell upon receipt of the Put Price as
defined in the Put Agreement, _______________________________
(___________________) shares of Common Stock and a Warrant, dated May __,
1996 to purchase shares of Common Stock, in each case issued by the Company
in the name of the undersigned.
2. Attached hereto is a certificate or certificates evidence said shares of
Common Stock and the Warrant.
3. The Put Price is to be paid in the manner set forth in the Put Agreement.
4. All capitalized terms used herein and not otherwise defined herein shall
have the respective meanings assigned to them in the Put Agreement.
5. Other Instructions:
CONNECTICUT INNOVATIONS,
INCORPORATED
By:______________________________
Title:___________________________
Dated:___________________________
-5-
THIS WARRANT AND ANY SECURITIES ISSUED UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND ANY SECURITIES ISSUED UPON EXERCISE HEREOF MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT AND ANY SECURITIES ISSUED
UPON EXERCISE HEREOF UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO CARDIOPULMONARY CORP. THAT SUCH
REGISTRATION IS NOT REQUIRED. ALL SECURITIES ISSUED UPON EXERCISE HEREOF SHALL
CONTAIN A LEGEND SUBSTANTIALLY IN THE FORM HEREOF.
Right to Purchase up
to __________ Shares
of Common Stock of
Cardiopulmonary Corp.
(as adjusted herein)
No. W-
CARDIOPULMONARY CORP.
Common Stock Purchase Warrant
CARDIOPULMONARY CORP., a Delaware corporation (the "COMPANY") hereby
certifies that, for value received, ____________________, or its successors or
registered assigns (the "HOLDER"), is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time before 5:00
p.m., Eastern time, on the Expiration Date (as hereinafter defined), that number
of fully paid and nonassessable shares of Common Stock of the Company as shall
be equal to the Warrant Number (as hereinafter defined), at a purchase price per
share (as the same may be adjusted from time to time, the "PURCHASE PRICE")
equal to $5.00. The number of such shares of Common Stock and the Purchase Price
are subject to adjustment as provided in this Warrant.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "COMMON STOCK" includes (i) the Company's Common Stock as
authorized on the Issue Date, (ii) any other capital stock of any class or
classes (however designated) of the Company, authorized on or after such
date, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating
<PAGE>
dividends after the payment of dividends and distributions on any
shares entitled to preference, and (iii) any other securities into which or
for which any of the securities described in clause (i) or (ii) of this
subsection may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(b) The term "COMPANY" shall include Cardiopulmonary Corp. and any
corporation that shall succeed to or assume the obligations of
Cardiopulmonary Corp. hereunder.
(c) The term "EXPIRATION DATE" shall mean May 17, 2001.
(d) The term "ISSUE DATE" shall mean May 17, 1996.
(e) The term "OTHER SECURITIES" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate
or otherwise) which the Holder at any time shall be entitled to receive, or
shall have received, on the exercise of the Warrant, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
(f) The term "WARRANT NUMBER" shall mean, subject to adjustment as
provided in Section 6 below, the number of shares of Common Stock for which
this Warrant is exercisable, as set forth above.
(g) The term "WARRANT SHARES" shall mean shares of Common Stock
issuable upon exercise of this Warrant.
1. EXERCISE OF WARRANT.
This Warrant may be exercised in full or in part at any time or from time
to time from the Issue Date until the Expiration Date by the Holder by surrender
of this Warrant and the subscription form annexed hereto (duly executed) by the
Holder, to the Company at its principal office, accompanied by payment, in cash
or by certified or official bank check payable to the order of the Company, in
the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the Holder in the subscription form by (b) the Purchase Price then
in effect. Payment may also be made by delivery of shares of the Company's
Common Stock or Preferred Stock having an aggregate fair market value (as
determined in good faith by the Board of Directors) equal to the Purchase Price
on the date of exercise. On any partial exercise the Company at its expense will
forthwith issue and deliver to or upon the order of the Holder a new Warrant or
Warrants of like tenor, in the name of the Holder or as the Holder (upon payment
by the Holder of any applicable transfer taxes) may request, providing in the
aggregate on the face or faces thereof for the number of shares of Common Stock
for which such Warrant or Warrants may still be exercised.
-2-
<PAGE>
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable after
the exercise of this Warrant, and in any event within ten days thereafter, the
Company at its expense (including the payment by it of any applicable issue or
stamp taxes) will cause to be issued in the name of and delivered to the Holder,
or as the Holder (upon payment by the Holder of any applicable transfer taxes)
may direct, a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock (or Other Securities) to which the Holder
shall be entitled on such exercise, in such denominations as may be requested by
the Holder, plus, in lieu of any fractional share to which the Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value (as determined in good faith by the Board of Directors), of
one full share (less such fractional exercise price with respect to such
shares), together with any other stock or other securities and property
(including cash, where applicable) to which the Holder is entitled upon such
exercise pursuant to Section 1 or otherwise.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK OR PROPERTY; RECLASSIFICATION.
In case at any time or from time to time the holders of Common Stock (or Other
Securities) shall have received, or (on or after the record date fixed for the
determination of shareholders eligible to receive) shall have become entitled to
receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder, on the exercise hereof
as provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property (including cash in the cases referred to in
subsections (b) and (c) of this Section 3) which the Holder would hold on the
date of such exercise if on the Issue Date the Holder had been the holder of
record of the number of shares of Common Stock called for on the face of this
Warrant and had thereafter, during the period from the Issue Date to and
including the date of such exercise, retained such shares and all such other or
additional stock and other securities and property (including cash in the cases
referred to in subsections (b) and (c) of this Section 3) receivable by him as
aforesaid during such period, giving effect to all adjustments called for during
such period by Section 4.
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<PAGE>
4. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER.
(a) In case at any time or from time to time, the Company shall (i) effect
a reorganization or (ii) consolidate with or merge into any other person, then,
in each such case, the Holder, on the exercise hereof as provided in Section 1
at any time after the consummation of such reorganization, consolidation or
merger, as the case may be, shall receive, in lieu of the Common Stock (or Other
Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which the Holder would have been entitled upon such consummation as the case may
be, if the Holder had so exercised this warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Sections 3 and 5.
(b) Upon any reorganization, consolidation or merger referred to in this
Section 4 (except as set forth in the second parenthetical in Section 6(c)),
this Warrant shall continue in full force and effect and the terms hereof shall
be applicable to the shares of stock and other securities and property
receivable on the exercise of this Warrant after the consummation of such
reorganization, consolidation or merger, as the case may be, and shall be
binding upon the issuer of any such stock or other securities.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that the Company shall
(a) issue additional shares of the Common stock as a dividend or other
distribution on outstanding Common stock, (b) subdivide or reclassify its
outstanding shares of Common Stock, or (c) combine its outstanding shares of
Common stock into a smaller number of shares of Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 5.
The Holder shall thereafter, on the exercise hereof as provided in Section 1, be
entitled to receive that number of shares of Common Stock determined by
multiplying the number of shares of Common Stock which would be issuable on such
exercise as of immediately prior to such issuance by a fraction of which (i) the
numerator is the Purchase Price in effect immediately prior to such issuance and
(ii) the denominator is the Purchase Price in effect on the date of such
exercise.
6. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, or any other similar voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder
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<PAGE>
against impairment due to such event. Without limiting the generality of
the foregoing, the Company (a) will not increase the par value of any shares of
stock receivable on the exercise of the Warrant above the amount payable
therefor on such exercise, (b) will take all action that may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock, free from all taxes, liens and charges with
respect to the issue thereof, on the exercise of all of the Warrants from time
to time outstanding, and (c) will not consolidate with or merge into any other
person or permit any such person to consolidate with or merge into the Company
(if the Company is not the surviving person), unless such other person shall,
pursuant to Section 5 hereof, expressly assume in writing and will be bound by
all the terms of this Warrant (except where the consideration with respect to
such merger is cash or publicly-listed securities).
7. CHIEF FINANCIAL OFFICERS' CERTIFICATE AS TO ADJUSTMENTS. In each case of
any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Chief Financial
Officer of the Company will promptly compute such adjustment or readjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment or readjustment, the Purchase Price resulting therefrom
and the increase or decrease, if any, or the number of shares purchasable at
such price upon exercise of the Warrant, and showing in detail the facts and
computation upon which such adjustment or readjustment is based. The Company
will forthwith mail a copy of each such certificate to each registered holder of
this Warrant, and will, on the written request at any time of the Holder,
furnish to the Holder a like certificate setting forth the Purchase Price at the
time in effect and showing how it was calculated.
8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all
or substantially all the assets of the Company to, or consolidation or
merger of the Company with or into, any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or deliver or cause to be
mailed or delivered to the registered holder of this Warrant a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or
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<PAGE>
right, and stating the amount and character of such dividend, distribution or
right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up, and (iii) the amount and character of any stock or other securities,
or rights or options with respect thereto, proposed to be issued or granted, the
date of such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant is to be offered or made. Such notice shall also
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), or a favorable vote of stockholders if either is
required. Such notice shall be mailed at least 20 days prior to the date
specified in such notice on which any such action is to be taken or the record
date, whichever is earlier.
9. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company will
at all times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, all shares of Common Stock (or Other Securities) from
time to time issuable on the exercise of this Warrant.
10. TRANSFER OF WARRANT. Subject to applicable federal and state securities
laws, the transfer of this Warrant and all rights hereunder, in whole or in
part, is registrable at the office or agency of the Company referred to below by
the Holder in person or by the Holder's duly authorized attorney, upon surrender
of this Warrant properly endorsed. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that this Warrant, when endorsed
in blank, shall be deemed negotiable, and that the holder hereof, when this
Warrant shall have been so endorsed, may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner and holder hereof for
any purpose and as the person entitled to exercise the rights represented by
this Warrant, or to the registration of transfer hereof on the books of the
Company; and until due presentment for registration of transfer on such books
the Company may treat the registered holder hereof as the owner and holder for
all purposes, and the Company shall not be affected by notice to the contrary.
11. REGISTER OF WARRANTS. The Company shall maintain, at its principal
office (or such other office as it may designate by notice to the Holder), a
register for the Warrants, in which the Company shall record the name and
address of the person in whose name a Warrant has been issued, as well as the
name and address of each transferee and each prior owner of such Warrant.
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<PAGE>
12. EXCHANGE OF WARRANTS. This Warrant is exchangeable, upon the surrender
hereof by the Holder at the office or agency of the Company referred to in
Section 11, for one or more new Warrants of like tenor representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by the Holder at the time of such surrender.
13. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor;
provided, however, if the registered holder of this Warrant is the original
holder of this Warrant on the Issue Date, its nominee, or any of its officers,
directors or general partners, and this Warrant is lost, stolen or destroyed,
the affidavit of the President, a director or a general partner of the
registered holder setting forth the circumstances with respect to such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
indemnity bond or other security shall be required as a condition to the
execution and delivery by the Company of a new Warrant in replacement of such
lost, stolen or destroyed Warrant other than the registered holder's written
agreement to indemnify the Company.
14. WARRANT AGENT. The Company may, by written notice to the registered
holder of this Warrant, appoint an agent having an office in the United States,
for the purpose of issuing Common Stock (or Other Securities) on the exercise of
the Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section
12, and replacing this Warrant pursuant to Section 13, or any of the foregoing,
and thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
15. REGISTRATION RIGHTS. The Warrant Shares shall have registration rights
in accordance with the terms and provisions of that certain Registration Rights
Agreement dated as of May ___, 1996, which agreement shall be deemed
incorporated into this Warrant.
16. REMEDIES. The Company stipulates that the remedies at law of the Holder
in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
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<PAGE>
17. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any Warrant or of any shares of Common Stock issued or
issuable upon the exercise of any Warrant in any manner which interferes with
the timely exercise of this Warrant.
18. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This warrant shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Purchase Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
19. NOTICES. All notices and other communications from the Company to the
registered holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, or delivered by a nationally-recognized
overnight courier service, at the address of the Holder as shown on the books of
the Company or such other address as may have been furnished to the Company in
writing by the Holder.
20. INVESTMENT REPRESENTATIONS. The Holder (and each subsequent Holder by
accepting this Warrant) represents to the Company that this Warrant is being
acquired for the Holder's own account and for the purpose of investment and not
with a view to, or in connection with, the resale, transfer or other
distribution thereof, nor with any present intention of reselling, transferring
or otherwise distributing the Warrant or the Common Stock issuable upon exercise
of the Warrant. The Holder acknowledges that the Holder has been afforded the
opportunity to meet with the management of the Company and to ask questions of,
and receive answers from, such management and the Company's counsel about the
business and affairs of the Company and concerning the terms and conditions of
the offering of this Warrant, and to obtain any additional information, to the
extent that the Company possessed such information or could acquire it without
unreasonable effort or expense, necessary to verify the accuracy of the
information otherwise obtained by or furnished to the Holder in connection with
the offering of this Warrant. The Holder agrees that the Company has furnished
to the Holder all information which the Holder considered necessary to form a
decision concerning the purchase of this Warrant, and no valid request to the
Company by the Holder for information of any kind about the Company has been
refused or denied by the Company or remains unfulfilled as of the date hereof.
The Holder asserts that it may be considered to be a sophisticated investor, is
familiar with the risks inherent in speculative investments such as in the
Company, has such knowledge and experience in financial business matters that it
is capable of evaluating the merits and risks of the investment in this Warrant
and the Common Stock issuable upon exercise of the Warrant, and is able to bear
the economic risk of the investment. The Holder (and each subsequent Holder by
accepting this Warrant) also represents and warrants that
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<PAGE>
it is an "accredited investor" within the meaning of Regulation D promulgated
under the Securities Act.
21. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be governed by and construed in accordance with the
general corporate laws of the State of Delaware and the internal domestic laws
of the State of New York. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
Dated: May 17, 1996 CARDIOPULMONARY CORP.
By:
---------------------------------
James W. Biondi
Chief Executive Officer
Attest:
By:
----------------------------------
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<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
CARDIOPULMONARY CORP.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder,
________________ shares of Common Stock of CARDIOPULMONARY CORP. and herewith
makes payment of $__________________ therefor in cash, and requests that the
certificates for such shares be issued in the name of, and delivered to
_______________________ whose address is________________________________________
____________________________.
Dated:
--------------------------------------
(Signature must conform to name of
holder as specified on the face of the
Warrant)
--------------------------------------
--------------------------------------
(Address)
Signed in the presence of:
- -------------------------------
-------------------------
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto ______________________________________ the right represented by
the within Warrant to purchase ________________ shares of Common Stock of
CARDIOPULMONARY CORP. to which the within Warrant relates, and appoints
_________________________ Attorney to transfer such right on the books of
CARDIOPULMONARY CORP. with full power of substitution in the premises.
Dated:
(Signature must conform to name of
holder as specified on the face of the
Warrant)
---------------------------------------
---------------------------------------
(Address)
Signed in the presence of:
- -------------------------------
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT")is made as of the 20th day
of May, 1996, by and among CARDIOPULMONARY CORP., a Delaware corporation (the
"CORPORATION"), and the investors in the Corporation's securities executing
counterparts of this Agreement (collectively, the "INVESTORS" and individually
an "INVESTOR").
RECITALS
WHEREAS, certain of the Investors (the "PRIOR INVESTORS") hold shares of
the Corporation's securities with respect to which the Corporation has granted
registration rights pursuant to the terms of that certain Stock Purchase
Agreement dated as of March 17, 1995, as amended by an Amendment dated as of
November 15, 1995 (as so amended, the "1995 STOCK PURCHASE AGREEMENT");
WHEREAS, the Corporation and certain of the Investors are entering into a
Stock Purchase Agreement dated as of the date hereof (the "1996 STOCK PURCHASE
AGREEMENT") for the purchase of (a) shares (the "SHARES") of the Corporation's
common stock, $.01 par value (the "COMMON STOCK"), and (b) common stock purchase
warrants (the "WARRANTS"), to purchase Common Stock;
WHEREAS, the Corporation wishes to grant the New Investors registration
rights pari passu with the Prior Investors, and the Corporation and the
Investors wish to set forth in a single agreement the registration rights with
respect to the securities of the Corporation held by the Investors;
NOW, THEREFORE, in consideration of the agreements, representations and
warranties hereinafter set forth, the Corporation and the Investors agree as
follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission.
"COVERED SHARES" shall mean all shares of the Corporation's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock; the shares of Common Stock into which
shares of the Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock are convertible;
the shares of Common Stock issuable upon the conversion of the
Corporation's 8% Convertible Promissory Notes and the exercise of the
common stock purchase warrants issued in conjunction with the 8%
Convertible Promissory Notes; the Shares; the shares of Common Stock
issuable upon exercise of the Warrants and any shares
<PAGE>
of capital stock received in respect thereof, whether by reason of a stock
split or share reclassification thereof, a stock dividend thereon or
otherwise.
"RESTRICTED SECURITIES" shall mean the Covered Shares which have not
been sold to the public pursuant to (a) registration under the Securities
Act or (b) Rule 144 (or similar or successor rule) promulgated under the
Securities Act subsequent to the Corporation's initial public offering of
securities registered under the Securities Act.
"RESTRICTED SHARES" shall mean shares of Common Stock constituting
Restricted Securities.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
SECTION 2. REQUIRED REGISTRATION. If at any time after the date hereof, the
Corporation shall be requested by the holders of at least twenty percent (20%)
of all Restricted Shares at the time outstanding (assuming the conversion of all
of the Corporation's preferred stock) to effect the registration under the
Securities Act of Restricted Shares, the Corporation shall promptly give written
notice of such proposed registration to all holders of outstanding Restricted
Securities, and thereupon the Corporation shall promptly use all reasonable
efforts to effect the registration under the Securities Act of the Restricted
Shares which the Corporation has been requested to register for disposition
described in the request of said holder or holders and in any response received
within 30 days after the giving of the written notice by the Corporation;
provided, however, that the Corporation shall not be obligated to use such
efforts to effect any registration under the Securities Act except in accordance
with the following provisions:
(a) The expected gross proceeds from any such registration shall be at
least $750,000;
(b) The Corporation shall not be obligated to file (1) more than two
registration statements in which Restricted Shares are registered under the
Securities Act and sold thereunder or (2) any registration statement within
a period of six months following the initial public offering of the
Corporation's common stock or within a period of twelve months after the
effective date of any previous registration statement filed by the
Corporation and with respect to which the holders of Restricted Securities,
pursuant to this Section 2 or Section 3, were given the opportunity to
include therein all Restricted Shares which were requested to be included
therein; and
(c) Anything contained herein to the contrary notwithstanding, with
respect to each registration requested pursuant to this Section 2, the
Corporation may include in such registration any authorized but unissued
shares of Common Stock for sale by the Corporation or any issued and
outstanding shares of Common Stock for sale by others; provided, however,
that if the number of
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<PAGE>
shares of Common Stock so included pursuant to this clause (ii) exceeds the
number of Restricted Shares registered by the holder or holders of
outstanding Restricted Securities requesting such registration, then such
registration shall be deemed to be a registration in accordance with and
pursuant to Section 3; provided further, that the inclusion of such
previously authorized but unissued shares by the Corporation or issued and
outstanding shares of Common Stock by others in such registration shall not
prevent the holders of outstanding Restricted Securities requesting such
registration from registering the entire number of Restricted Shares
requested by them and, in the event the registration is, in whole or in
part, an underwritten public offering and the managing underwriter
determines and advises in writing that the inclusion of all Restricted
Shares proposed to be included in such registration and such previously
authorized but unissued shares of Common Stock by the Corporation and/or
issued and outstanding shares of Common Stock by persons other than the
holders or Restricted Securities proposed to be included in such
registration would interfere with the successful marketing (including
pricing) of such securities, then such other previously authorized but
unissued shares of Common Stock proposed to be included by the Corporation
and issued and outstanding shares of Common Stock proposed to be included
by persons other than the holders of Restricted Securities shall be reduced
or excluded from such registration (as the case may be).
SECTION 3. INCIDENTAL REGISTRATION. If the Corporation at any time proposes
for any reason to register any of its securities under the Securities Act (other
than the initial public offering of the Corporation's common stock or
registrations on Forms S-4 or S-8 or any similar or successor form), other than
pursuant to Section 2 hereof, it shall each such time promptly give written
notice to all holders of outstanding Restricted Securities of its intention so
to do, and, upon the written request, given within 30 days after receipt of any
such notice, of any holder or holders of the Restricted Securities then
outstanding, to register any Restricted Shares (which request shall specify the
Restricted Shares intended to be sold or disposed of by such holders and shall
state the intended method of disposition of such Restricted Shares by the
prospective seller), the Corporation shall use all reasonable efforts to cause
all such Restricted Shares to be registered under the Securities Act promptly
upon receipt of the written request of such holders for such registration, all
to the extent requisite to permit the sale or other disposition (in accordance
with the intended methods thereof, as aforesaid) by the prospective seller or
sellers of the Restricted Shares so registered. In the event that the proposed
registration by the Corporation is, in whole or in part, an underwritten public
offering of securities of the Corporation, any request pursuant to this Section
3 to register Restricted Shares shall specify that such shares are to be
included in the underwriting (a) on the same terms and conditions as the shares
of Common Stock, if any, otherwise being sold through underwriters under such
registration or (b) on terms and conditions comparable to those normally
applicable to offerings of Common Stock in reasonably similar circumstances in
the event that no other shares of Common Stock are being sold through
underwriters under such registration; provided, however, that if the managing
underwriter determines and
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<PAGE>
advises in writing that the inclusion of all shares of Common Stock proposed to
be included therein by the Corporation for sales by holders other than holders
of Restricted Shares (the "OTHER SHARES") would interfere with the successful
marketing (including pricing) of such securities, then the number of Other
Shares and such Restricted Shares to be included in the underwritten public
offering shall be reduced FIRST, pro rata among the holders of Other Shares
until the aggregated anticipated offering value of the shares of Common Stock
proposed to be included by the Investors is $8,905,528, and then SECOND, pro
rata among the holders of Restricted Shares (based upon the total number of
Restricted Shares then outstanding). Those shares of Common Stock which are
excluded from the underwritten public offering (either because such shares were
not requested by the holders thereof to be included therein or which were
excluded pursuant to the immediately preceding sentence or in connection with a
registration pursuant to Section 2 hereof) shall be withheld from the market by
the holder thereof for a period, not to exceed 120 days, which the managing
underwriter reasonably determines as necessary in order to effect the
underwritten public offering.
SECTION 4. PREPARATION AND FILING. If and whenever the Corporation is under
an obligation pursuant to the provisions of this Agreement to use all reasonable
efforts to effect the registration of any Restricted Shares, the Corporation
shall, as expeditiously as practicable:
(a) prepare and file with the Commission a registration statement with
respect to such Restricted Shares and use all reasonable efforts to cause
such registration statement to become and remain effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least six months and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all Restricted Shares covered by such registration
statement;
(c) furnish to each selling stockholder such number of copies of a
summary prospectus or other prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such other
documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of such Restricted Shares;
(d) use all reasonable efforts to register or qualify the Restricted
Shares covered by such registration statement under the securities or blue
sky laws of such jurisdictions as each such seller (or, in the case of an
underwritten offering, the managing underwriter) shall reasonably request,
but not more than ten (provided, however, that the Corporation shall not be
required to consent to general service of process for all purposes in any
jurisdiction where it is not then qualified or to register or qualify the
Restricted Shares covered by such
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<PAGE>
registration statement in any jurisdiction which would require the
Corporation to amend its certificate of incorporation or by-laws of
covenant or undertake to do any other act or make any other change
regarding its capitalization or share ownership prior to the effectiveness
of such registration or qualification);
(e) notify each seller of Restricted Shares covered by such
registration statement, at any time when a prospectus relating to the
Restricted Shares covered by such registration statement is required to be
delivered under the Securities Act within the appropriate period mentioned
in clause (b) of this Section 4, of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of such seller, prepare and furnish to such
seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(f) at the request of any holder or holders requesting registration of
Restricted Shares pursuant to this Agreement, if such Restricted Shares are
being sold through underwriters, furnish to the underwriters on the date
that such Restricted Shares are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement, or, if such
Restricted Shares are not being sold through underwriters, furnish to such
holder or holders on the date that the registration statement with respect
to such Restricted Shares becomes effective, (i) an opinion, dated such
date, of the counsel representing the Corporation for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering, addressed to the underwriters, if any,
and to the holder or holders making such request; and (ii) a letter dated
such date, from the independent certified public accountants of the
Corporation, in form and substance as is customarily given by independent
certified public accountants to underwriters in any underwritten public
offering, addressed to the underwriters, if any, and to the holder or
holders making such request.
SECTION 5. EXPENSES. All expenses incurred by the Corporation in complying
with Section 4, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), fees and expenses of complying with securities and
blue sky laws, printing expenses and fees and disbursements of counsel including
with respect to each registration effected pursuant to Sections 9.5 and 9.6,
reasonable fees and disbursements of not more than one counsel for the sellers
requesting registration hereunder to the Corporation, and of the independent
certified public accountants for the Corporation (including the
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<PAGE>
expense of any special audits in connection with any such registration) shall be
paid by the Corporation; provided, however, that all underwriting discounts and
selling commissions applicable to the Restricted Shares covered by such
registration shall be borne by the seller or sellers, in proportion to the
number of Restricted Shares sold by such seller or sellers.
SECTION 6. INDEMNIFICATION. In connection with any registration of any
Restricted Shares under the Securities Act pursuant to this Agreement, the
Corporation shall indemnify and hold harmless the seller of such Restricted
Shares, each underwriter, broker or any other person acting on behalf of such
seller and each other person, if any, who controls any of the foregoing persons
within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which any of
the foregoing persons may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement under which
such Restricted Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Restricted Shares, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or, with respect to any prospectus, necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
or any violation by the Corporation of the Securities Act or state securities or
blue sky laws applicable to the Corporation and relating to action or inaction
required of the Corporation in connection with such registration or
qualification under such state securities or blue sky laws; and the Corporation
shall reimburse such seller, such underwriter, such broker or such other person
acting on behalf of such seller and each such controlling person for any legal
or other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Corporation shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, preliminary prospectus,
final prospectus, amendment, supplement or document incident to registration or
qualification of any Restricted Shares in reliance upon and in conformity with
written information furnished to the Corporation through an instrument duly
executed by such seller or underwriter specifically for use in the preparation
thereof.
In connection with any registration of Restricted Shares under the
Securities Act pursuant to this Agreement, each seller of Restricted Shares
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph of this Section 6) the Corporation and each
officer and director of the Corporation who shall sign such registration
statement, each underwriter, broker or other person acting on behalf of such
seller, each person who controls any of the
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<PAGE>
foregoing within the meaning of the Securities Act and each other seller of
Restricted Shares under such registration statement with respect to any
statement or omission from such registration statement, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the
commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Restricted Shares, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Corporation or such underwriter through an instrument duly
executed by such seller specifically for use in connection with the preparation
of such registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document or any failure to deliver any registration
statement, preliminary prospectus, final prospectus, amendment, supplement or
document; provided, however, that the maximum amount of liability in respect of
such indemnification (including, but not limited to, attorneys' fees and
expenses) shall be limited, in the case of each seller of Restricted Shares, to
an amount equal to the net proceeds actually received by such seller from the
sale of Restricted Shares effected pursuant to such registration.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 6, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that if any indemnified party shall have
reasonably concluded that there may be one or more legal or equitable defenses
available to such indemnified party which are additional to or conflict with
those available to the indemnifying party, or that such claim or litigation
involves or could have an effect upon matters beyond the scope of the indemnity
agreement provided in this Section 6, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
and such indemnifying party shall reimburse such indemnified party and any
person controlling such indemnified party for that portion of the reasonable
fees and expenses of any counsel retained by the indemnified party which is
reasonably related to the matters covered by the indemnity agreement provided in
this Section 6.
If the indemnification provided for in this Section 6 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, claim, damage, liability or action referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative
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<PAGE>
fault of the indemnifying party on the one hand and for the indemnified party on
the other in connection with the statements or omissions which resulted in such
loss, claim, damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
SECTION 7. INFORMATION BY HOLDER. Each holder of Restricted Shares included
in any registration effected pursuant to this Agreement shall furnish to the
Corporation such information with respect to such holder and the proposed
distribution by such holder as the Corporation shall request in writing on a
timely basis and as shall, in the reasonable opinion of Counsel for the
Corporation, be required by Federal or applicable state securities laws in
connection with such registration effected pursuant to this Agreement.
SECTION 8. LOCK-UP. In connection with any underwritten registration of
shares by the Corporation, each Investor agrees to execute a customary and
reasonable "lock-up" agreement if requested by the Corporation and underwriter,
which agreement shall in no event provide for a lock-up in excess of six (6)
months.
SECTION 9. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the Corporation and the Investors and each other person who shall
become a registered holder of Covered Shares and the respective successors,
heirs, personal representatives and permitted assigns of the Corporation, the
Investors and each such other person.
SECTION 10. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior or contemporaneous arrangements or understandings with respect thereto.
Without limiting the generality of the foregoing, this Agreement shall supersede
and replace the provisions of Sections 9.5 (Required Registration), 9.6
(Incidental Registration), 9.7 (Preparation and Filing), 9.8 (Expenses), 9.9
(Indemnification), 9.11 (Information by Holder) and 9.12 (Lock-Up) of the 1995
Stock Purchase Agreement.
SECTION 11. NOTICES. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument and shall be deemed to have been duly given
when delivered in person or transmitted by telegram, telex or telecopy (with
confirmation in writing) or, if mailed, three days after such notice has been
sent by first class certified mail, postage prepaid and return receipt
requested, addressed to such party at the address set forth below or such other
address as may hereafter be designated in writing by the addressee to the
addresser listing all parties:
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<PAGE>
(a) if to the Corporation, to:
Cardiopulmonary Corp.
200 Cascade Blvd.
Milford, CT 06460
Attention: Chief Financial Officer
(b) if to an Investor, at his or its address set forth on SCHEDULE 1
attached hereto.
SECTION 12. CHANGES. The terms and provisions of this Agreement may not be
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, except pursuant to the written consent of the party against whom
the enforcement of any modification, amendment or waiver is sought.
SECTION 13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 14. HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 15. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 16. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered on and as of the date first written above.
CARDIOPULMONARY CORP.
By: /S/ JAMES W. BIONDI
-----------------------------------
James W. Biondi
President
/S/ JAMES W. BIONDI, M.D.
-----------------------------------
James W. Biondi, M.D.
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<PAGE>
/S/ THOMAS ABBENANTE
-----------------------------------
Thomas Abbenante
KONTRON INSTRUMENTS HOLDING N.V.
By: /S/ MANUEL C. FRIAS
-----------------------------------
Title:
THE CONNECTICUT FUTURE FUND
LIMITED PARTNERSHIP
By: Marsh Point Partners II,
Its General Partner
By: /S/ JOHN R. CULLINANE, JR.
-----------------------------------
CUPERTINO VENTURES PARTNERSHIP II, L.P.
f/k/a GRACE VENTURES PARTNERSHIP II
By: Horn Venture Partners,
A General Partner
By: /S/ W. GORDON KRUBERG
-----------------------------------
A General Partner
ASPEN VENTURE PARTNERS, L.P.
By: Aspen Venture Associates, L.P.,
Its General Partner
By: /S/ MICHAEL DuCROS
-----------------------------------
A General Partner
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0283673
<PAGE>
CONNECTICUT SEED VENTURES
LIMITED PARTNERSHIP
By: Connecticut Venture Associates
Limited Partnership, Its General Partner
By: /S/ SAMUEL F. McKAY
-----------------------------------
Samuel F. McKay
Its Managing General Partner
OLIVE BRANCH CORPORATION
By: /S/ VINCENZO MORELLI
-----------------------------------
/S/ MANUEL C. FRIAS
-----------------------------------
Manuel C. Frias
/S/ PIETRO TORRUSIO
-----------------------------------
Pietro Torrusio
/S/ N. NICOLL SNOW
-----------------------------------
N. Nicoll Snow
CONNECTICUT INNOVATIONS, INCORPORATED
By: /S/ VICTOR R. BUDNICK
-----------------------------------
Victor R. Budnick
President and Executive Director
/S/ KENT ELLISON
-----------------------------------
Kent Ellison
/S/ STEPHAN G. HEROLD
-----------------------------------
Stephan G. Herold
/S/ DANIEL LEITNER
-----------------------------------
Daniel Leitner
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<PAGE>
/S/ JOHN CHOPYK
-----------------------------------
John Chopyk
/S/ C.W. HOULE
-----------------------------------
C.W. Houle
/S/ EARL CLEMANTS
-----------------------------------
Earl Clemants
/S/ SUNIL SAPATNEKAR
-----------------------------------
Sunil Sapatnekar
/S/ HAROLD BJORKLUND
-----------------------------------
Harold Bjorklund
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<PAGE>
SCHEDULE 1
INVESTORS
All common stock and common stock purchase warrant share numbers included
in this Schedule refer to shares following the effectiveness of the
Corporation's five-into-two reverse stock split.
Common
Stock
Common Preferred Purchase
Name And Address Of Investor Stock Stock Warrants
- ---------------------------- ------ --------- --------
Dr. James Biondi -- 75,000 --
c/o Cardiopulmonary Corp.
200 Cascade Blvd.
Milford, CT 06460
Mr. Thomas Abbenante -- 75,000 --
c/o Ivy Biomedical Systems, Inc.
11 Business Park Drive
Branford, CT 06405
Cupertino Ventures Partnership II, L.P. 79,800 1,697,809 79,800
20300 Stevens Creek Boulevard
Cupertino, California 95014
Connecticut Seed Ventures 30,000 398,319 30,000
242 Trumbull Street
Hartford Connecticut 06103
Aspen Venture Partners, L.P. 36,500 1,550,810 36,500
One Post Office Square, Suite 3320
Boston, Massachusetts 02109
The Connecticut Future Fund 60,000 1,864,529 60,000
265 Church Street, Suite 1004
New Haven, CT 06510
Kontron Instruments Holding N.V 60,000 869,565 60,000
346 Kensington High Street
London W14 8NS
Olive Branch Corporation 8,000 -- 8,000
c/o Mr. Vincenzo Morelli
Kontron Instruments Holding N.V
346 Kensington High Street
London W14 8NS
Dr. Manuel C. Frias 4,000 -- 4,000
Flat 3, Chelsea House
24 Lowndes Street
London SW1X 9JE
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<PAGE>
Common
Stock
Common Preferred Purchase
Name And Address Of Investor Stock Stock Warrants
- ---------------------------- ------ --------- --------
Dr. Pietro Torrusio 4,000 -- 4,000
45, Via San Vittore
20123 - Milano
Mr. N. Nicoll Snow 16,000 -- 16,000
c/o Cardiopulmonary Corp.
200 Cascade Blvd.
Milford, CT 06460
Connecticut Innovations Incorporated 100,000 -- 100,000
40 Cold Spring Road
Rocky Hill, Connecticut 06067
Kent Ellison 12,000 -- 12,000
1401 Sioux Dr.
Pipestone, MN 56164
Stephan G. Herold 25,000 -- 25,000
10790 Spoon Ridge
Eden Prairie, MN 55437
Daniel Leitner 12,000 -- 12,000
20980 Heath Ave. N.
Forest Lake, MN 55025
John Chopyk 8,000 -- 8,000
3807 Xerxes Ave. So.
Minneapolis, MN 55410
C.W. Houle 4,000 -- 4,000
5585 Wood Duck Ct.
Shoreview, MN 55126
Earl Clemants 4,000 -- 4,000
7400 Edinborough Way, #5202
Edina, MN 55435
Sunil Sapatnekar 8,000 -- 8,000
710 - 1st Ave. N.E.
Buffalo, MN 55313
Harold Bjorklund 4,000 -- 4,000
710 - 1st Ave. N.E.
Buffalo, MN 55313
475,300 6,513,032 475,300
TOTAL:
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INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "AGREEMENT") is made May ____, 1996
between Cardiopulmonary Corp., a Delaware corporation (the "COMPANY"), and
__________________________ (collectively with such person's heirs, executors,
administrators and other personal representatives, the "INDEMNITEE"), an
officer, director, employee or agent of the Company.
WHEREAS, the Indemnitee is currently serving as an officer or director of
the Company and the Company wishes the Indemnitee to continue in such capacity;
and
WHEREAS, the Board of Directors has concluded that the Company's officers,
directors, employees and agents should be provided with reasonable and
appropriate protection against inordinate risks in order to insure that the most
capable persons will be attracted to, and will continue to serve in, such
positions, and therefore has determined to contractually obligate itself to
indemnify in a reasonable and adequate manner its officers and directors and
certain of its employees and agents, and to assume for itself liability for
expenses and damages in connection with claims lodged against such persons as a
result of their service to the Company;
WHEREAS, applicable law empowers corporations to indemnify a person who
serves as an officer, director, employee or agent of the corporation or a person
who serves at the request of the corporation as an officer, director, employee
or agent of another corporation, partnership, joint venture, trust, or other
enterprise; and
WHEREAS, in order to induce the Indemnitee to serve or continue to serve as
an officer or director of the Company, the Company has determined and agreed to
enter into this Agreement with the Indemnitee.
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties agree as follows:
1. SERVICE BY INDEMNITEE. The Indemnitee will serve and/or continue to
serve as an officer or director of the Company faithfully and to the best of his
or her ability so long as the Indemnitee is duly elected or qualified in
accordance with the Bylaws of the Company or until such time as the Indemnitee
tenders his or her resignation in writing. The Indemnitee may at any time and
for any reason resign from such position (subject to any other contractual
obligation or other obligation imposed by operation of law), in which event the
Company shall have no obligation under this Agreement to continue the Indemnitee
in any such position. Nothing in this Agreement shall confer upon the Indemnitee
the right to continue in the employ or other service of the Company or affect
the right of the Company to terminate the Indemnitee's employment or other
service at any time in the sole discretion of the Company, with or without
cause.
<PAGE>
2. INDEMNIFICATION. The Company shall indemnify the Indemnitee and hold the
Indemnitee harmless against any judgments, penalties, fines, amounts paid in
settlement and Expenses (as hereinafter defined) incurred in connection with any
actual or threatened Proceeding (as hereinafter defined) to the full extent
permitted by the Company's Certificate of Incorporation (the "CERTIFICATE"),
By-Laws (the "BY-LAWS") and the Delaware General Corporation Law as in effect on
the date hereof and to such greater extent as the Delaware General Corporation
Law may hereafter from time to time permit ("DELAWARE LAW"), and shall advance
to Indemnitee Expenses incurred in connection therewith as such expenses are
incurred. It is the intent of the Company to indemnify Indemnitee hereunder to
the same extent as such person would be indemnified under the Certificate and
Delaware Law if he or she were an officer or director of the Company, whether or
not Indemnitee is serving as such. "PROCEEDING" includes, without limitation,
any action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other actual, threatened or
completed proceeding, whether civil, criminal, administrative or investigative,
whether by a third party, by or in the right of the Company or by Indemnitee to
enforce any rights under this Agreement or otherwise against the Company or its
affiliates. The right to indemnification or advancement of Expenses under this
Agreement is intended to be retroactive and shall be available with respect to
Proceedings which relate to events occurring prior to the date of this
Agreement.
3. INTERIM EXPENSES. Expenses (including reasonable attorneys' fees)
incurred by Indemnitee in defending any civil, criminal, administrative, or
investigative action, suit or proceeding for which Indemnitee may be entitled to
indemnification hereunder shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of Indemnitee to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Company
hereunder. "EXPENSES" means all reasonable attorneys' fees and expenses,
retainers, court costs, transcript costs, duplicating costs, fees of experts,
fees of witnesses, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage and delivery fees, service fees, all other
costs and expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating or being
or preparing to be a witness in a Proceeding.
4. FAILURE TO INDEMNIFY. (a) If a claim under this Agreement, under any
statute, or under any provision of the Certificate or By-Laws providing for
indemnification, is not paid in full by the Company within thirty (30) days
after a written request for payment thereof has first 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, if successful
in whole or in part, Indemnitee shall also be entitled to be paid for
Indemnitee's reasonable expenses, including attorneys' fees, actually and
reasonably incurred in connection with successfully establishing the right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the Company.
(b) It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any action, suit or
-2-
<PAGE>
proceeding in advance of its final disposition) that Indemnitee has not met the
standards of conduct which make it permissible under Delaware 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 3 of this
Agreement unless and until such defense may be finally adjudicated by court
order or judgment from which no further right of appeal exists.
5. CERTAIN AGREEMENTS OF INDEMNITEE. (a) Indemnitee agrees to do all
things reasonably requested by the Board of Directors of the Company to enable
the Company to coordinate Indemnitee's defense with, if applicable, the
Company's defense; provided, however, that Indemnitee shall not be required to
take any action that would in any way prejudice his or her defense or waive any
defense or position available to him or her in connection with any action;
(b) Indemnitee agrees to do all things reasonably requested by the Board of
Directors of the Company to subrogate to the Company any rights of recovery
(including rights to insurance or indemnification from persons other than the
Company) which Indemnitee may have with respect to amounts paid by the Company
with respect to any action;
(c) Indemnitee agrees to be represented in any action by a law firm
selected by the Company; provided however, that Indemnitee shall have the right
to employ his or her counsel in any Proceeding, but the Expenses of such counsel
shall be borne by the Indemnitee unless (i) the employment of counsel by the
Indemnitee has been authorized by the Company, (ii) the Indemnitee reasonably
shall have concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of the defense of such Proceeding (in
which case the Company shall not have the right to direct the defense of such
Proceeding on behalf of the Indemnitee) or (iii) the Company shall not in fact
have employed counsel to assume the defense of such Proceeding, in each of which
cases the Expenses of counsel shall be borne by the Company; and
(d) Indemnitee agrees to cooperate with the Company and its counsel and
maintain any confidences revealed to him or her by the Company in connection
with the Company's defense of any action. The Company agrees to cooperate with
Indemnitee and his or her counsel and maintain any confidences revealed to it by
Indemnitee in connection with Indemnitee's defense of any action.
6. 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.
7. 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
Certificate or By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
-3-
<PAGE>
8. INDEMNITEE'S OBLIGATIONS. Indemnitee shall advise the Company in writing
upon being notified of the institution of any investigation, claim, action,
suit, or proceeding which is or may be subject to this Agreement and generally
keeps the Company informed of, and consult with the Company with respect to, the
status of any such investigation, claim, action, suit or proceeding; provided,
however, that the failure to comply with this Section 8 shall not affect
Indemnitee's entitlement to indemnification or other payments hereunder unless
such failure to comply materially adversely affects the ability of the Company
to defend such investigation, claim, action, suit or proceeding.
9. SEVERABILITY. Should any provision or paragraph of this Agreement, or
any clause hereof, be held to be invalid, illegal or unenforceable, in whole or
in part, the remaining provisions, paragraphs and clauses of this Agreement
shall remain fully enforceable and binding on the parties.
10. CHOICE OF LAW. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Delaware.
11. CONTINUATION OF INDEMNIFICATION. The indemnification under this
Agreement shall continue as to Indemnitee even though he or she may have ceased
to be an officer, director, employee and/or agent of the Company and shall inure
to the benefit of the heirs and personal representatives of the Indemnitee. The
Company acknowledges that, in providing services to the Company, Indemnitee is
relying on this Agreement. Accordingly, the Company agrees that its obligations
hereunder will survive (a) any actual or purported termination of this Agreement
by the Company or its successors or assigns whether by operation or law or
otherwise, (b) any change in the Certificate or By-Laws and (c) termination of
the Indemnitee's services to the Company (whether such services were terminated
by the Company or the Indemnitee), whether or not a claim is made or an action
or Proceeding is threatened or commenced before or after the actual or purported
termination of this Agreement, change in the Certificate or By-Laws or
termination of Indemnitee's services.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
------------------------------------
Indemnitee
CARDIOPULMONARY CORP.
By:
--------------------------------
Name:
Title:
-4-
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK FOR WHICH IT IS
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND NO
TRANSFER OR ASSIGNMENT OF THIS WARRANT OR THE SHARES ISSUABLE UPON ITS EXERCISE
MAY BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF SUCH ACT
IN RESPECT OF SUCH TRANSFER OR ASSIGNMENT.
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK FOR WHICH IT IS
EXERCISABLE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED BY
ANY PERSON BEFORE THE EXERCISE COMMENCEMENT DATE EXCEPT AS SET FORTH IN SECTION
2 OF THIS WARRANT.
STOCK PURCHASE WARRANT
CARDIOPULMONARY CORP.
COMMON STOCK
($.01 Par Value)
Dated ________, 1996
______ Shares Void After ________, 2001
This certifies that, for good and valuable consideration, [the
Representative] is entitled, upon the due exercise hereof at any time during the
four-year period commencing on the date which is the first anniversary (the
"Exercise Commencement Date") of the date on which the Registration Statement
(as such term is defined below) is declared effective (the "Effective Date") and
terminating at 5:00 p.m. E.S.T. on the fifth anniversary of the Effective Date
(the "Expiration Date") to purchase _______________________ shares of Common
Stock (as hereinafter defined), $.01 par value, of Cardiopulmonary Corp.
(hereinafter called the "Company"), such number of shares being subject to
adjustment upon the occurrence of the contingencies set forth in this Warrant.
The purchase price payable upon the exercise of this Warrant shall be $____ per
share (120% of the public offering price) (hereinafter referred to as the
"Exercise Price"), subject to adjustment upon the occurrence of the
contingencies set forth in this Warrant. This Warrant is originally issued
pursuant to an underwriting agreement (the "Underwriting Agreement") between the
Company and Advest, Inc. and Cruttenden Roth Incorporated as representatives of
the several underwriters, in connection with the public offering of 2,000,000
shares of the Company's Common Stock pursuant to a Registration Statement (File
No. [333- ]) (the "Registration Statement") filed under the
<PAGE>
Securities Act of 1933, as amended (the "Act"). (Hereinafter, (i) said common
stock, together with any other equity securities which may be issued by the
Company with respect thereto or in substitution therefor, is referred to as the
"Common Stock," (ii) the shares of the Common Stock purchasable hereunder or
under any other Warrant (as hereinafter defined) are referred to as the "Warrant
Shares," (iii) this Warrant, the Warrant issued to [the Other Representative]
for ______ shares on the date hereof, and all Warrants hereafter issued in
exchange or substitution for these Warrants are referred to as the "Warrants"
and (iv) the holder of this Warrant is referred to as the "Holder" and the
holder of this Warrant and all other Warrants or Warrant Shares issued upon the
exercise of any Warrant are referred to as the "Holders.")
Upon delivery of this Warrant with the subscription form annexed hereto,
duly executed, together with payment of the Exercise Price for the shares of
Common Stock thereby purchased, at the offices of The First National Bank of
Boston, Transfer Agent for the Common Stock of the Company (hereinafter called
the "Warrant Agent"), or at such other address as the Company may designate by
notice in writing to the Holder, the Holder shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. The
Exercise Price shall be paid either (a) in cash, by wire transfer or by
certified or official bank check payable to the Company; (b) by delivery of
shares of Common Stock or other securities of the Company having a Market Price
on the business day immediately preceding the applicable exercise equal to the
aggregate Exercise Price; or (c) by surrender of rights under this Warrant to
receive a number of Warrant Shares equal to the Exercise Price multiplied by the
number of Warrant Shares to be purchased pursuant to the applicable exercise,
divided by the Market Price of the Company's Common Stock on the business day
immediately preceding the applicable exercise. For purposes of this Warrant, the
term "Market Price" shall mean, on any business day, the average of the closing
"bid" and "asked" prices for the Company's Common Stock on such business day as
reported on the National Association of Securities Dealers, Inc.'s Automated
Quotation system, or such other exchange on which the Company's Common Stock is
listed on such business day.
This Warrant is subject to the following terms and conditions:
1. EXERCISE OF WARRANT. This Warrant may be exercised during the four-year
period beginning on the Exercise Commencement Date, and ending at 5:00 p.m.
E.S.T. on the Expiration Date, in whole at any time or in part from time to
time, but not as to a fractional share of Common Stock. In case of any partial
exercise of this Warrant, the Company shall execute and deliver a new Warrant of
like tenor and date for the balance of the shares of Common Stock purchasable
hereunder.
2. EXCHANGE AND TRANSFER OF WARRANT. Prior to the Exercise Commencement
Date, this Warrant may not be sold, transferred, assigned or hypothecated except
(i) to and among officers or partners of [the Representative] or (ii) at any
such officer's or partner's death, pursuant to will, trust or the laws of
intestate succession, and may not be further transferred by any such transferee
prior to the
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Exercise Commencement Date except as set forth in clauses (i) and (ii) of this
sentence. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof at the office of the Warrant
Agent, for other warrants of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Common Stock
purchasable hereunder. Except as limited herein, this Warrant and all rights
hereunder are transferable by the Holder in person or by duly authorized
attorney on the books of the Company upon surrender of this Warrant at the
offices of the Warrant Agent, together with the form of transfer authorization
attached hereto duly executed. Absent any such transfer, the Company may deem
and treat the Holder at any time as the absolute owner hereof for all purposes
and shall not be affected by any notice to the contrary.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE HEREUNDER.
The Exercise Price and the number of Warrant Shares purchasable upon the
exercise of this Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 3.
(a) In case the Company shall at any time after the date of this Agreement
(i) declare a dividend on the Common Stock payable in shares of its capital
stock (whether in shares of Common Stock or of capital stock of any other
class), (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), the Exercise Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, shall be proportionately adjusted
so that the Holder shall be entitled to receive the aggregate number and kind of
shares of capital stock which, if this Warrant had been exercised immediately
prior to such date, the Holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall issue rights or warrants to all holders of
Common Stock entitling them (for a period expiring within 45 calendar days after
the date of issuance) to subscribe for or to purchase Common Stock or any stock
or securities convertible or exchangeable into Common Stock (such convertible or
exchangeable stock or securities being herein called "Convertible Securities"),
whether or not such rights or warrants or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such rights or warrants
or upon conversion or exchange of such Convertible Securities (determined by
dividing (I) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or warrants, plus the aggregate
amount of additional consideration payable to the Company upon the exercise of
all such rights or warrants, plus, with respect to Convertible Securities, the
minimum aggregate
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amount of additional consideration, if any, payable upon the conversion or
exchange thereof, by (II) the total maximum number of shares of Common Stock
issuable, upon the exercise of such rights or warrants or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
rights or warrants) shall be less than the current market price per share of
Common Stock (as defined in Section 3(d)) on the record date mentioned below,
the Exercise Price to be in effect after such record date shall be determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
that the aggregate offering price for the total shares of Common Stock so to be
offered (or the sum of the purchase price of the Convertible Securities and the
aggregate initial conversion price of the Convertible Securities so to be
offered) would purchase at the then current market price per share of Common
Stock (as defined in Section 3(d)) and the denominator of which shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock to be offered for subscription or purchase (or into
which the Convertible Securities so to be offered are initially convertible). In
case such subscription price may be paid in consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company and described
in a statement filed with the Warrant Agent. Shares of Common Stock owned by or
held for the account of the Company or any majority-owned subsidiary shall not
be deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights or warrants are not so issued or exercised prior to their
expiration, the Exercise Price shall again be adjusted to be the Exercise Price
that would then be in effect if such record date had not been fixed, but such
subsequent adjustment shall not affect the number of Warrant Shares issued upon
any exercise of this Warrant prior to the date such adjustment is made.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in Common Stock or capital stock that are subject
to Section 3(a)) or subscription rights or warrants (other than rights or
warrants described in Section 3(b)), the Exercise Price to be in effect after
such record date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the current market price per share of Common Stock (as defined in
Section 3(d)), on such record date, less the fair market value (as determined in
good faith by the Board of Directors of the Company and described in a statement
filed with the Warrant Agent) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one share of Common Stock and the denominator of which shall be
such current market price per share of Common
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Stock. Such adjustment shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made or such rights or
warrants are not exercised prior to their expiration, the Exercise Price shall
again be adjusted to be the Exercise Price which would then be in effect if such
record date had not been fixed, but such subsequent adjustment shall not affect
the number of Warrant Shares issued upon any exercise of this Warrant prior to
the date such adjustment is made.
(d) For the purpose of any computation under Section 3(b) or Section 3(c),
the current market price per share of Common Stock on any date shall be deemed
to be the average of the daily closing prices for the 15 consecutive trading
days immediately preceding the date of determination. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices regular way,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if the Common stock is not listed or admitted
to trading on any national securities exchange, the average of the highest
reported bid and lowest reported asked prices reported on Nasdaq (or, if the
securities are included in the Nasdaq National Market System, the last sale
price, if a sale takes place on such day) or, if the Common Stock is not listed
or admitted to trading on any national securities exchange, or is not included
in Nasdaq, as furnished by the National Quotation Bureau or similar organization
if the National Quotation Bureau is no longer reporting such information, then
the current market price per share of Common Stock shall be deemed to be the
amount most recently determined by the Board of Directors to represent the fair
market value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
stock under an employee benefit plan of the Company).
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($.10)
per Warrant Share; provided, however, that any adjustments which by reason of
this Section 3(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section 3
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
(f) If, as a result of an adjustment made pursuant to Section 3(a), the
Holder shall become entitled to receive any shares of capital stock of the
Company other than shares of Common Stock, the number of such other shares so
receivable upon exercise of this Warrant shall be subject thereafter to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Warrant.
(g) Whenever this Section 3 shall require that an adjustment in the
Exercise Price be effective as of a record date for a specified event, and the
Holder elects to exercise this Warrant after such record date, but before the
occurrence of
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such event, the Company may elect to delay issuing to the Holder until the
occurrence of such event such additional Warrant Shares and other capital stock
of the Company, if any, issuable upon such exercise over and above the Warrant
Shares and other capital stock of the Company, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(h) Upon each adjustment of the Exercise Price as a result of the
calculations made in Section 3(a), Section 3(b) or Section 3(c), this Warrant
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
Warrant Shares (calculated to the nearest hundredth) obtained by (A) multiplying
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior to such adjustment of the number of Warrant Shares by the
Exercise Price in effect immediately prior to such adjustment of the Exercise
Price and (B) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.
(i) In case of any capital reorganization of the Company, or of any
reclassification of the Common Stock (other than a change in par value, or from
no par value to par value, or from par value to no par value, or as a result of
a dividend on the Common Stock payable in shares of capital stock of the
Company, a subdivision or combination), or in case of the consolidation of the
Company with or the merger of the Company with any other corporation (other than
a consolidation or merger in which (i) the Company is the continuing corporation
and (ii) the holders of the Company's Common Stock immediately prior to such
merger or consolidation continue as holders of Common Stock after such merger or
consolidation) or of the sale of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation, this Warrant shall after
such reorganization, reclassification, consolidation, merger or sale be
exercisable, upon the terms and conditions specified in this Agreement, for the
number of shares of stock or other securities or property to which a holder of
the number of Warrant Shares purchasable (at the time of such reorganization,
reclassification, consolidation, merger or sale) upon exercise of such Warrant
would have been entitled in connection with such reorganization,
reclassification, consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this Section 3 with respect to the rights
and interests thereafter of the Holder shall be appropriately adjusted so as to
be applicable, as nearly as may reasonably be, to any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant.
The Company shall not effect any such consolidation, merger or sale, unless
prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets or other appropriate
corporation or entity shall assume, by written instrument executed and delivered
to the Warrant Agent, the obligation to deliver to the Holder such shares of
stock, securities or assets as, in
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accordance with the foregoing provisions, the Holder may be entitled to purchase
and the other obligations under this Agreement.
4. FRACTIONAL SHARES. Notwithstanding an adjustment in the number of
Warrant Shares purchasable upon the exercise of this Warrant pursuant to Section
3(h), the Company shall not be required to issue fractions of Warrant Shares
upon exercise of this Warrant or to distribute certificates which evidence
fractional Warrant Shares. In lieu of fractional Warrant Shares, there shall be
paid to the Holder at the time such Warrant is exercised, as herein provided, an
amount in cash equal to the same fraction of the then current market value of a
share of Common Stock. For purposes of this Section 4, the current market value
of a share of Common Stock shall be the closing price of a share of Common Stock
(as determined pursuant to the second sentence of Section 3(d)) for the trading
day immediately prior to the date of such exercise or, if no such price is
reported, the average of the highest reported bid and lowest reported asked
price (as determined pursuant to the second sentence of Section 3(d)).
5. CHARGES, TAXES AND EXPENSES. The issuance of certificates of shares of
Common Stock upon any exercise of this Warrant shall be made without charge to
the Holder for any tax or other expense in respect to the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company.
6. COVENANTS OF ISSUER. The Company covenants and agrees that all shares
that may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof (other than taxes in respect
of any transfer occurring contemporaneously with such issue). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock and, if
applicable, other capital stock to provide for the exercise in full of the
rights represented by this Warrant. The Company will provide to, or make
available to, as the case may be, the Holder the same information, reports and
notices as it shall provide to, or make available to, the holders of its Common
Stock. The Company will not, by amendment of its Certificate of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets, or
by any other voluntary act or deed, avoid or seek to avoid the performance or
observance of any of the covenants, stipulations or conditions to be performed
or observed by the Company, but will at all times in good faith, assist, insofar
as it is able, in the carrying out of all provisions of this Warrant and in the
taking of all other action that may be necessary in order to protect the rights
of the Holder. Without limiting the generality of the foregoing, the Company
agrees that it will not establish or increase the par value of the shares of
Common Stock that are at the time issuable upon exercise of this Warrant above
the then prevailing Exercise Price hereunder and that, before taking any action
that would cause an adjustment reducing the Exercise Price hereunder below the
then par value of the shares of Common Stock issuable upon exercise hereof, the
Company will take any corporate action that may, in the
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<PAGE>
opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of such Common Stock at the
Exercise Price as so adjusted.
7. REGISTRATION UNDER SECURITIES ACT OF 1933.
(a) The Company agrees that if, at any time during the period commencing on
the Exercise Commencement Date and ending on 5:00 p.m. E.S.T. on the fourth
anniversary of said date, the Holder and/or the Holders of any other Warrants
and/or Warrant Shares who or which shall hold not less than 50% of the Warrants
and/or Warrant Shares initially issued or issuable hereunder shall request that
the Company file a registration statement under the Securities Act of 1933 (the
"Act") covering not less than 50% of the Warrant Shares issuable upon the
exercise of the Warrants and not previously sold under this Section or under
Rule 144 under the Act, the Company will (i) promptly notify each Holder of the
Warrants and each holder of Warrant Shares not so previously sold that such
registration statement will be filed and that the Warrant Shares which are then
held, and/or may be acquired upon exercise of the Warrants by the Holder and
such Holders will be included in such registration statement at the Holder's and
such Holders' request, (ii) cause such registration statement to cover all
Warrant Shares which it has been so requested to include, (iii) use its best
efforts to cause such registration statement to become effective as soon as
practicable and (iv) take all other action necessary under any Federal or state
law or regulation of any governmental authority to permit all Warrant Shares
which it has been so requested to include in such registration statement to be
sold or otherwise disposed of, and will maintain such compliance with each such
Federal and state law and regulation of any governmental authority for the
period necessary for such Holders to effect the proposed sale or other
disposition, but in no event to exceed 120 days. The Company shall be required
to effect a registration or qualification pursuant to this Subsection 7(a) on
one occasion only. Notwithstanding the foregoing, the Company shall not be
required to effect a registration under this Subsection 7(a) when it would
become effective prior to 90 days following the effective date of any
registration statement with respect to which the Holders shall have had the
opportunity to register Warrant Shares pursuant to Subsection 7(b) hereof or
(ii) for a period of 60 days following the date of the request under this
Subsection 7(a) if the Board of Directors of the Company determines in good
faith that the filing of a registration statement would, if not deferred for
such period, adversely effect a then proposed or pending corporate change,
acquisition, merger or corporate reorganization.
(b) The Company agrees that if, at any time and from time to time during
the period commencing on the Exercise Commencement Date and ending on 5:00 p.m.
E.S.T. on the sixth anniversary of said date, the Board of Directors of the
Company shall authorize the filing of a registration statement (any such
registration statement being hereinafter called a "Subsequent Registration
Statement") under the Act (otherwise than pursuant to Subsection 7(a) hereof, or
other than a registration statement on Form S-8 or other form which does not
include
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<PAGE>
substantially the same information as would be required in a form for the
general registration of securities) in connection with the proposed offer of any
of its securities by it or any of its stockholders, the Company will (i)
promptly notify the Holder and each of the Holders, if any, of other Warrants
and/or Warrant Shares not previously sold pursuant to this Section 7 that such
Subsequent Registration Statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of the
Warrants, by the Holder and such Holders, will, at the Holder's and such
Holders' request, be included in such Subsequent Registration Statement, (ii)
upon the written request of a Holder made within 20 days after the giving of
such notice by the Company, include in the securities covered by such Subsequent
Registration Statement all Warrant Shares which it has been so requested to
include, (iii) use its best efforts to cause such Subsequent Registration
Statement to become effective as soon as practicable and (iv) take all other
action necessary under any Federal or state law or regulation of any
governmental authority to permit all Warrant Shares which it has been so
requested to include in such Subsequent Registration Statement to be sold or
otherwise disposed of, and will maintain such compliance with each such Federal
and state law and regulation of any governmental authority for the period
necessary for the Holder and such Holders to effect the proposed sale or other
disposition, but in no event to exceed 120 days. There are no limitations on the
number or times the Holder and such Holders may exercise such piggyback rights.
Notwithstanding the foregoing, if the offering is underwritten and the
underwriter managing the offering reasonably believes in good faith that the
inclusion of any or all of the Warrant Shares (the "Requested Warrant Shares")
so requested by the Holder and such Holders to be included in such offering
would materially and adversely affect such offering then the Holder and such
Holders and other holders of securities entitled to include them in such
registration shall participate in the registration pro rata based upon their
total ownership of shares of Common Stock. If any holder would thus be entitled
to include more securities than such holder requested to be registered, the
excess shall be allocated among other requesting holders pro rata in the manner
described in the preceding sentence.
(c) Whenever the Company is required pursuant to the provisions of this
Section 7 to include Warrant Shares in a registration statement the Company
shall (i) furnish each Holder of any such Warrant Shares and each underwriter of
such Warrant Shares with such copies of the prospectus, including the
preliminary prospectus conforming to the Act (and such other documents as each
such Holder or each such underwriter may reasonably request) in order to
facilitate the sale or distribution of the Warrant Shares, (ii) use its best
efforts to register or qualify such Warrant Shares under the blue sky laws (to
the extent applicable) of such jurisdiction or laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such Warrant Shares
and each underwriter of Warrant Shares being sold by such Holders shall
reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold.
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<PAGE>
(d) The Company shall pay all expenses incurred in connection with any
registration statement or other action pursuant to the provisions of this
Section 7, other than underwriting discounts and applicable transfer taxes
relating to the Warrant Shares and the out-of-pocket expenses incurred by the
Holders in connection with such registration statement or other action.
(e) The Company will indemnify the Holders of Warrant Shares which are
included in each Subsequent Registration Statement referred to in Subsections
7(a) and 7(b), and the underwriters of such Warrant Shares, substantially to the
same extent as the company has indemnified the underwriters (the "Underwriters")
of its public offering of Common Stock pursuant to the Underwriting Agreement,
and such Holders will indemnify the Company (and the underwriters, if
applicable) with respect to information furnished by them in writing to the
Company for inclusion therein substantially to the same extent as the
Underwriters have indemnified the Company.
8. HOLDER'S RIGHTS. The Holder, as such, shall not be entitled to vote or
receive dividends or be deemed to be a shareholder of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, as such, any rights as a shareholder of the Company or any
right to vote, give or withhold consent to any corporate action, receive notice
of meetings, receive dividends, or subscription rights, or otherwise.
9. NOTICES. If there shall be any adjustment as provided above in Section
3, or if securities or property other than shares of Common Stock of the Company
shall become purchasable in lieu of shares of such Common Stock upon exercise of
this Warrant, the Company shall forthwith cause written notice thereof to be
sent by registered mail, postage prepaid, to the Holder at the address of the
Holder shown on the books of the Warrant Agent, which notice shall be
accompanied by an explanation prepared by the Company setting forth in
reasonable detail the basis for the Holder's becoming entitled to purchase such
shares and the number of shares which may be purchased and the Exercise Price
thereof, or the facts requiring any such adjustment and the Exercise Price and
number of shares purchasable after such adjustment, or the kind and amount of
any such securities or property so purchasable upon the exercise of this
Warrant, as the case may be. The Company will promptly provide the Holder, at
the Holder's request, a written confirmation of such calculation by independent
certified public accountants of recognized national standing (which may be the
Company's independent certified public accountants). At the request of the
Holder and upon surrender of this Warrant, the Company shall reissue this
Warrant in a form conforming to such adjustments.
10. DISSOLUTION OR LIQUIDATION. In the event of any proposed dissolution or
total liquidation of the Company, other than in connection with a consolidation,
merger or sale of all, or substantially all, of its property, assets, business
and goodwill as an entirety, the Company shall forthwith cause written notice
thereof to be sent by registered mail, postage prepaid, to the Holder at the
address of the Holder shown on the books of the Company. Such notice shall be
given not later
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than 30 days prior to any record date fixed for the purpose of determining
shareholders entitled to participate in any liquidating distribution.
11. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANTS. If this Warrant shall
become lost, stolen, mutilated, or destroyed, the Company shall, on such
reasonable terms as to indemnity or otherwise as it may in its discretion
impose, issue a new warrant of like denomination, tenor, and date as this
Warrant so lost, stolen, mutilated, or destroyed. Any such new warrant shall
constitute an original contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated, or destroyed Warrant shall be at any time
enforceable by anyone.
12. APPLICABLE LAW. The validity, interpretation, and performance of this
Warrant shall be governed by the laws of the State of Connecticut.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Company, the Holder and, as to Section 7, the holder of the shares of Common
Stock issued upon the exercise hereof, and shall be enforceable by any such
holder.
14. HEADINGS. Headings of the sections in this Warrant are for convenience
and reference only and shall not, for any purpose, be deemed a part of this
Warrant.
THE NEXT PAGE IS THE SIGNATURE PAGE
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and its corporate seal to be affixed hereto.
Dated: _______, 1996.
CARDIOPULMONARY CORP.
(CORPORATE SEAL) By:______________________________
James W. Biondi, M.D.
Its Chairman
ATTEST:
- -----------------------------
N. Nicoll Snow
Its Secretary
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<PAGE>
EXHIBIT A
[Subscription form to be executed upon exercise of Warrants]
The undersigned, registered holder or assignee of such registered holder of
the within Warrant, hereby (1) subscribes for __________ shares which the
undersigned is entitled to purchase under the terms of the within Warrant, (2)
makes the payment therefor called for by the within Warrant, and (3) directs
that the shares issuable upon exercise of said Warrant be issued as follows:
------------------------------------
(Name)
------------------------------------
(Address)
Signature __________________________
Date: ________________, 199_
<PAGE>
EXHIBIT B
Assignment
(To be executed by the Holder to effect a transfer of the within Warrant)
FOR VALUE RECEIVED __________________________ hereby sells, assigns, and
transfers unto ______________________________, of ________________________, the
right to purchase ______________ shares evidenced by the within Warrant, and
does hereby irrevocably constitute and appoint ______________________ to
transfer such right on the books of the Company, with full power of
substitution.
Date: ________________, 199_
----------------------------------
(Signature)
EXHIBIT 16
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madams:
We have read and agree with the comments contained in the "Experts" section
on pages 45 and 46 of Form S-1 of Cardiopulmonary Corp. dated May 21, 1996 made
in response to Item 304 of Regulation S-K regarding the change in independent
accountants.
Yours truly,
DELOITTE & TOUCHE LLP
Hartford, Connecticut
May 21, 1996
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 21, 1996, relating to
the financial statements of Cardiopulmonary Corp., which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected Financial
Data."
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 21, 1996
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Cardiopulmonary Corp.
We consent to the incorporation by reference in the registration statement
on Form S-1 of Cardiopulmonary Corp. of our report dated March 19, 1994, (May
17, 1996 as to Note 10 with respect to the 2 for 5 reverse stock split) (which
includes an explanatory paragraph relating to the Company's ability to continue
as a going concern), relating to the financial statements in the Registration
Statement No. 333-_____ on Form S-1 contained on pages F-4 to F-20 for the year
ended December 31, 1993 and for the period from January 1, 1991 through December
31, 1993. The statements of operations and cash flows for the period from
January 1, 1991 through December 31, 1993 are not included in the Registration
Statement.
We also consent to the reference to our firm under the headings "Experts"
in this registration statement.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
May 21 , 1996
EXHIBIT 23.3
CONSENT OF FDA COUNSEL
We consent to the reference made to us under the caption "Experts" in the
Prospectus included in this Registration Statement.
KING & SPALDING
JESS H. STRIBLING
For the Firm
Washington, D.C.
May 21, 1996
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