<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1997
REGISTRATION NO. 333-23209
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CARDIMA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 3845 94-3177883
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
47266 BENICIA STREET
FREMONT, CA 94538
(510) 354-0300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
PHILLIP C. RADLICK, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CARDIMA, INC.
47266 BENICIA STREET
FREMONT, CA 94538
(510) 354-0300
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
JOSHUA L. GREEN ROBERT V. GUNDERSON, JR.
ROBERT V. W. ZIPP BENNETT L. YEE
ARNOLD E. BROWN II BRETT A. PLETCHER
VENTURE LAW GROUP GUNDERSON DETTMER STOUGH
A PROFESSIONAL CORPORATION VILLENEUVE FRANKLIN & HACHIGIAN, LLP
2800 SAND HILL ROAD 155 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025 MENLO PARK, CALIFORNIA 94025
(415) 854-4488 (415) 321-2400
---------------
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 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 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>
===========================================================================================
AMOUNT PROPOSED PROPOSED
TITLE OF EACH CLASS OF TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share....... 2,616,250 $12.00 $31,395,000 $9,514(2)
===========================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a).
(2) The Registrant previously paid a fee in the amount of $8,712.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 APRIL 22, 1997
PROSPECTUS
2,275,000 SHARES
[LOGO OF CARDIMA]
COMMON STOCK
-----------
All of the 2,275,000 shares of Common Stock, $0.001 par value per share (the
"Common Stock"), offered hereby are being sold by Cardima, Inc. ("Cardima" or
the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $10.00 and $12.00. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for listing of its
Common Stock on the Nasdaq National Market under the symbol "CRDM."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total(3)................................... $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $950,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 341,250 additional shares at the Price to Public, less Underwriting
Discounts and Commissions, 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."
-----------
The shares of Common Stock are being offered severally by the Underwriters,
subject to prior sale, when, as and if accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the shares will be made at the offices of Bear, Stearns & Co. Inc.,
245 Park Avenue, New York, New York 10167, on or about , 1997.
-----------
BEAR, STEARNS & CO. INC. DAIN BOSWORTH
INCORPORATED
-----------
The date of this Prospectus is , 1997
<PAGE>
[CARDIMA LOGO]
CARDIMA MICROCATHETER SYSTEMS
The Company's proprietary microcatheter systems are designed to map
(diagnose) and ablate (treat) atrial fibrillation (AF) and ventricular
tachycardia (VT), the two most common forms of abnormal heart rhythms, in a
minimally invasive procedure using a single catheter.
[Graphic A] CARDIMA'S MICROCATHETER SYSTEMS FOR
[DEPICTION OF CROSS AF
SECTION OF HUMAN
HEART WITH CARDIMA Cardima's microcatheter systems for
MICROCATHETER AF are designed to be placed
SYSTEMS FOR AF] securely against the wall of the
upper chamber of the heart (the
atrium) in order to deliver
radiofrequency (RF) energy to the
atrial tissue to create long, thin,
continuous, linear, transmural
(across the heart wall) lesions that
restore the heart's normal
electrical function.
[Graphic B] CARDIMA'S MICROCATHETER SYSTEMS FOR
[DEPICTION OF VT
CARDIAC VEINS WITH
CARDIMA Cardima's microcatheter systems for
MICROCATHETER VT are designed to safely locate and
SYSTEMS FOR VT] ablate the VT causing tissue with RF
energy from within the cardiac
veins.
Cardima's microcatheter system for
mapping of VT has received 510(k)
clearance from the FDA for sale in
the United States and includes the
Cardima Pathfinder microcatheter and
Venaport guiding catheter. Cardima's
other microcatheter systems are
under development and have not been
approved by the FDA for sale in the
United States. Approval by the FDA
could take several years, and there
can be no assurance that such
approval will ever be obtained or,
if obtained, that the Company's
microcatheter systems will achieve
market acceptance. See "Risk
Factors--No Assurance of Obtaining
Required Regulatory Approvals;
Government Regulation."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING TRANSACTIONS. SEE
"UNDERWRITING."
Cardima(R) and the Company's logo are registered trademarks of the Company.
This Prospectus also contains the trademarks of other companies.
2
<PAGE>
CARDIMA MICROCATHETER SYSTEMS FOR AF
AF, the most common irregular electrical problem in the heart, is
characterized by chaotic electrical activity throughout both upper chambers of
the heart (right and left atria) that results in disorganized and quivering
spasms of atrial tissue that can lead to blood clots, stroke and even death.
[PICTURE OF CARDIMA PATHFINDER AF MICROCATHETER HELD IN HUMAN HAND]
CARDIMA PATHFINDER AF MICROCATHETER
[PICTURE OF ATRIAL ABLATION] [PICTURE OF ATRIAL ABLATION]
RIGHT ATRIAL ABLATION LEFT ATRIAL ABLATION
CARDIMA PATHFINDER AF MICROCATHETER DESIGN BENEFITS:
. Single catheter for mapping and ablation
. Thin profile for right and left atrial access
. Variable stiffness design for high flexibility and maximum
surface contact
. Multiple, flexible electrodes for optimal effect
. Compatible with existing signal display systems for low cost
of use
<PAGE>
CARDIMA MICROCATHETER SYSTEMS FOR VT
VT is a potentially fatal, abnormally fast heartbeat originating from within
the walls of the lower chambers of the heart (right and left ventricles). It
is caused by electrical changes in the tissue of the ventricular wall,
typically resulting from coronary artery disease or prior heart attack.
[Graphic F]
CARDIMA PATHFINDER 1.5 FR. INTRAVASCULAR MICROCATHETER
PASSING THROUGH EYE OF NEEDLE (PICTURE MAGNIFIED)
[Picture of Cardima Pathfinder 1.5 Fr. Intravascular Microcatheter Passing
Through Eye of Needle (picture magnified)]
[Graphic G]
CARDIMA TRACER VT INTRAVASCULAR OVER-THE-WIRE MICROCATHETER
[Picture of Cardima Tracer VT Intravascular Over-The-Wire Microcatheter]
MAPPING AND ABLATING VT
Cardima VT microcatheters are [Graphic H]
designed to access the veins of the
ventricular wall and safely and
accurately locate and ablate the VT
causing tissue.
[Depiction of Mapping and Ablating Veins of Ventricular Wall]
CARDIMA VT MICROCATHETERS DESIGN BENEFITS:
. Single catheter for mapping and ablation
. Varying degrees of flexibility to enhance access to the
vasculature of the heart
. Multiple configurations of electrodes to facilitate accurate
mapping and focused ablation
. Intravascular, curative approach
. Compatible with existing signal display systems for low cost of
use
Cardima's microcatheter system for mapping of VT has received 510(k)
clearance from the FDA for sale in the United States and includes the Cardima
Pathfinder microcatheter and Venaport guiding catheter. Cardima's other
microcatheter systems are under development and have not been approved by the
FDA for sale in the United States. Approval by the FDA could take several
years, and there can be no assurance that such approval will ever be obtained
or, if obtained, that the Company's microcatheter systems will achieve market
acceptance. See "Risk Factors--No Assurance of Obtaining Required Regulatory
Approvals; Government Regulation."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information contained in this
Prospectus (i) assumes that the Underwriters' over-allotment option is not
exercised and (ii) assumes the conversion of the Company's Preferred Stock into
Common Stock upon the closing of the Offering.
THE COMPANY
Cardima, Inc. designs, develops, manufactures and markets minimally invasive,
single-use, microcatheter-based systems for the mapping and ablation of the two
most common forms of cardiac arrhythmias: atrial fibrillation ("AF") and
ventricular tachycardia ("VT"). Arrhythmias are abnormal electrical heart
rhythms that adversely affect the mechanical activities of the heart and can
potentially be fatal. The Company is developing microcatheter systems designed
to provide enhanced access to arrhythmia causing tissue, to diagnose the
arrhythmia by locating its origin ("mapping") and to restore normal heart
rhythms by isolating and destroying the arrhythmia causing sites ("ablation")
using radiofrequency ("RF") energy. The Company's microcatheters incorporate
multiple electrodes in the catheter tip that are designed to receive electrical
signals for mapping and to emit RF energy for ablation, allowing physicians to
both map and ablate using a single catheter. Cardima's microcatheters are
designed with variable stiffness and a highly flexible distal tip to allow
enhanced access to the vasculature of the heart. In addition, they are designed
to be compatible with existing signal display systems and RF generators,
eliminating the need for significant new investment in capital equipment. The
Company's microcatheter technology was originally conceived at Advanced
Cardiovascular Systems, Inc. ("ACS," now a division of Guidant Corporation),
from 1979 to 1982. Target Therapeutics, Inc. ("Target," now a division of
Boston Scientific Corporation) purchased this technology in 1985 from ACS for
use in neurological applications. In 1993, Target granted Cardima an exclusive,
royalty-free license to use the microcatheter technology in the treatment of
electrophysiological diseases affecting areas other than the central nervous
system.
AF is characterized by the irregular and very rapid beating of the heart's
atrial chambers and results when the normal electrical conduction malfunctions,
leading to irregular, disorganized and quivering spasms of atrial tissue. These
spasms may lead to reduced blood flow, blood clots, stroke and even death. AF
affects an estimated two million people in the United States alone, with
160,000 new cases being diagnosed each year. Drug therapy is the most common
treatment for AF, but is often associated with severe side effects and becomes
less effective over time, with approximately 50% of patients eventually
developing resistance to drug therapy. The Company believes that the only
curative therapy for AF in use today is an open heart operation, often referred
to as the "maze" procedure, which is used infrequently because of the high
risks and costs associated with open heart surgery. The Company is developing
the Cardima Pathfinder AF microcatheter system to provide a minimally invasive
ablation procedure that mimics the results of the maze procedure by isolating
and containing the arrhythmia causing tissue. The Company believes this
procedure will restore the normal electrical function of the heart by
controlling and reorganizing the random, chaotic electrical activity that
characterizes AF. Cardima's microcatheter systems have been designed to deliver
a small amount of RF energy and to create thin lesions, thus preserving a
greater amount of atrial tissue for improved atrial and heart function
following the procedure. The Company believes this approach has the potential
to be as effective as the open heart surgical cure for AF, but with
significantly less trauma, fewer complications, reduced pain, shorter hospital
stays and lower procedure costs.
VT is a life-threatening condition in which heartbeats are improperly
initiated from within the ventricular wall, thus bypassing the heart's normal
conduction system. VT affects an estimated 450,000 people in the United States.
Similar to AF, current treatments for VT are primarily supportive and are
intended to alleviate the symptoms rather than to cure the condition
("palliative"). Antiarrhythmic drugs are the most common treatment, although
these drugs have been shown to have a number of unwanted side effects, and in
some circumstances may actually induce VT. A recent study has demonstrated that
the implantable cardiac defibrillator is a more
3
<PAGE>
effective treatment for VT than antiarrythmic drugs, but it also is a
palliative treatment and is associated with a number of undesirable
characteristics, including the high cost of the implantation procedure.
Existing catheter technology is also being tested for the treatment of VT;
however, the Company believes that this endocardial approach (i.e., applied
from within the heart's chamber) is suboptimal because the normal ventricular
wall is up to 20 millimeters thick, requiring the use of large amounts of RF
energy which increases the amount of ventricular tissue destroyed in the
procedure. The Company's intravascular approach (i.e., accessed from within the
veins of the heart wall) for the treatment of VT is designed to allow the
microcatheters to be positioned in close proximity to the arrhythmia causing
tissue, permitting accurate and precise mapping, and the creation of small,
focused lesions using RF energy. Once positioned, the Cardima Pathfinder AF and
Tracer VT microcatheter systems have the ability to map and ablate using the
same catheter, which the Company believes should result in a short, cost-
effective procedure.
The Company's microcatheter systems are being developed to offer the
following advantages: (i) a minimally invasive curative approach to AF and VT;
(ii) the ability to map and ablate arrhythmias using a single catheter; (iii)
smaller diameter catheters incorporating Target variable stiffness technology
and a highly flexible distal tip to allow enhanced access to the vasculature of
the heart; (iv) microcatheters designed with large numbers of electrodes to
gather more information; (v) compatibility with existing electrophysiology
signal display systems and RF ablation generators; and (vi) shorter procedure
times resulting in reduced exposure to fluoroscopy and more cost effective
treatment.
In January 1997, the Cardima Pathfinder microcatheter system received 510(k)
clearance from the United States Food and Drug Administration ("FDA") for use
in mapping VT, and it is currently being marketed for this application in the
United States, Europe, Japan, Australia and Canada. Also in January 1997, the
Company filed an Investigational Device Exemption ("IDE") for clinical testing
of the Cardima Pathfinder AF microcatheter system for the mapping and ablation
of AF and subsequently received conditional approval from the FDA to begin the
mapping phase of the feasibility study. In March 1997, the Company submitted a
510(k) premarket notification for the Cardima Pathfinder AF for atrial mapping.
The Company expects to file an IDE for its Tracer VT microcatheter system for
the ablation of VT in late 1997.
THE OFFERING
Common Stock offered by
the Company........................ 2,275,000 shares
Common Stock to be outstanding
after the Offering (1)............. 8,076,541 shares
Use of proceeds..................... To fund preclinical and clinical trials
of its microcatheter systems, research
and new product development, to continue
to expand its marketing and sales force,
to fund capital equipment investment to
increase manufacturing capabilities and
for working capital. See "Use of
Proceeds."
Proposed Nasdaq National
Market symbol...................... CRDM
- --------
(1) Excludes, as of March 31, 1997, (i) 877,570 shares of Common Stock issuable
upon exercise of outstanding options with a weighted average price of $1.28
per share, (ii) 513,745 shares of Common Stock issuable upon exercise of
outstanding warrants with a weighted average exercise price of $1.62 per
share, and (iii) 467,276 shares of Common Stock reserved for future
issuance under the Company's equity incentive plans. See "Management--Stock
Option and Incentive Plans" and "Description of Capital Stock."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12,
1992
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------
1993(1) 1994 1995 1996
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................... $ -- $ 86 $ 362 $ 593
Cost of goods sold.................. -- 211 830 1,413
------- ------- ------- -------
Gross profit...................... -- (125) (468) (820)
Operating expenses:
Research and development.......... 1,083 2,205 2,581 3,319
Selling, general and
administrative................... 491 1,309 2,046 3,690
------- ------- ------- -------
Total operating expenses........ 1,574 3,514 4,627 7,009
------- ------- ------- -------
Operating loss...................... (1,574) (3,639) (5,095) (7,829)
Interest and other income (expense),
net................................ 33 (16) (105) 75
------- ------- ------- -------
Net loss............................ $(1,541) $(3,655) $(5,200) $(7,754)
======= ======= ======= =======
Pro forma net loss per share(2)..... $ (1.23)
=======
Shares used in computing pro forma
net loss per share(2).............. 6,325
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 907 $11,155 $33,478
Working capital (deficit)............... (2,150) 9,780 32,103
Total assets............................ 3,964 14,212 36,535
Capital lease obligation, noncurrent
portion................................ 722 722 722
Total stockholders' equity (net capital
deficiency)............................ (10,368) 11,302 33,625
</TABLE>
- --------
(1) The Company's financial data for 1992 and 1993 is not presented separately
as the Company's operations from November 12, 1992 (inception) to December
31, 1992 were immaterial.
(2) See Note 1 of Notes to Financial Statements for information concerning
calculation of the pro forma net loss per share.
(3) Reflects (a) the completion of the sale of 2,356,741 shares of Series E
Preferred Stock in March 1997 for approximately $10.3 million in cash and
the conversion of approximately $3.3 million of outstanding short term
debt, $1.6 million of which was incurred after December 31, 1996 and (b)
the conversion of all outstanding shares of Preferred Stock, including the
Series E Preferred Stock, into Common Stock.
(4) Adjusted to reflect the sale of the 2,275,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per
share and the use of the estimated net proceeds therefrom. See "Use of
Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the risk factors set forth
below in evaluating an investment in the shares of Common Stock offered
hereby.
DEVELOPMENT STAGE COMPANY; HISTORY OF LOSSES AND EXPECTATION OF SUBSTANTIAL
FUTURE LOSSES
The Company is a development stage company and, since inception in November
1992, has engaged primarily in research and development of microcatheter
systems for the mapping and ablation of AF and VT. To date, sales of its
Cardima Pathfinder, Cardima Pathfinder AF and Tracer microcatheter systems
have been limited. The Company had net losses of approximately $5.2 million
and $7.8 million for 1995 and 1996, respectively, and an accumulated deficit
of approximately $18.2 million at December 31, 1996. The Company expects to
incur substantial net losses for the foreseeable future as a result of
research and product development, clinical trials, manufacturing, sales,
marketing and other expenses expected to be incurred as the Company further
develops, tests and distributes its microcatheter systems. The Company's
limited operating history makes accurate prediction of future operating
results difficult or impossible. There can be no assurance that the Company
will ever generate substantial net sales or achieve profitability. Failure by
the Company to generate substantial revenues or to reduce the research and
development, marketing, and manufacturing expenses below net sales would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NO ASSURANCE OF SAFETY AND EFFECTIVENESS; EARLY STAGE OF PRODUCT DEVELOPMENT
The Company is currently developing versions of its Cardima Pathfinder and
Tracer microcatheter systems for mapping AF and VT. To date, the Company has
completed only one clinical trial and has received 510(k) premarket clearance
only with respect to its Cardima Pathfinder microcatheter system for venous
mapping of VT, including the Cardima Pathfinder microcatheter and Venaport
guiding catheter. While the Cardima Pathfinder AF microcatheter system for
mapping AF is currently being sold in certain foreign markets, the Company has
not received 510(k) clearance for sale of this product in the United States.
There can be no assurance that 510(k) clearance for the Cardima Pathfinder AF
mapping system will be obtained in a timely manner, or at all. Failure to
obtain such clearance on a timely basis would have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company is in the early stage of developing, testing and obtaining
regulatory approval for its microcatheter systems designed for ablation of AF
and VT. The Company is currently developing the Cardima Pathfinder AF
microcatheter system for ablation of AF and the Tracer VT microcatheter system
for ablation of VT. The Company has not conducted any human clinical studies
of the use of its microcatheter systems for the ablation of AF or VT. The
Company is required to obtain an Investigational Device Exemption ("IDE") from
the FDA prior to conducting human clinical trials of its microcatheter systems
for ablation. The Company recently filed an IDE for the Cardima Pathfinder AF
microcatheter system for mapping and ablation, which was conditionally
approved by the FDA for Phase I, which will consist of a feasibility study for
AF mapping. The FDA has not approved any studies for ablation, and the Company
will be required to submit the results of the Phase I mapping study prior to
conducting clinical studies for ablation. There is no assurance that the
Company will successfully complete its Phase I study, that the results will
permit the Company to file an IDE for the ablation of AF or that the FDA will
approve any filed IDE for the ablation of AF. Except for the IDE the Company
filed for the Cardima Pathfinder AF microcatheter system for mapping and
ablation, the Company has not filed IDEs or begun clinical trials for its
microcatheter systems under development for ablation. The Company must
complete these clinical trials prior to the filing of a Premarket Approval
Application ("PMA"), and must receive PMA approval prior to marketing such
products for ablation in the United States. Clinical trials of the Company's
microcatheter systems will require substantial financial and management
resources of the Company and the completion of such trials will take several
years. There can be no assurance that necessary IDEs will be granted by the
FDA, that human clinical trials, if initiated, will be completed or that these
clinical studies will validate the results of the Company's preclinical animal
studies or demonstrate that such products are safe and effective. In addition,
the clinical trials may identify significant technical or other obstacles to be
6
<PAGE>
overcome prior to obtaining necessary regulatory approvals or market
acceptance. The failure of the Company to initiate and complete clinical
trials, demonstrate product safety and clinical effectiveness, or obtain
regulatory approval for the Cardima Pathfinder AF for AF ablation or the
Tracer VT for VT ablation would have a material adverse effect on the
Company's business, financial condition and results of operations. See "--No
Assurance of Obtaining Required Regulatory Approvals; Government Regulation"
and "Business--Government Regulation."
UNCERTAINTY OF PRODUCT AND PROCEDURE ACCEPTANCE
The Company's microcatheter systems represent a novel approach to the
mapping and ablation of AF and VT. Acceptance of the Company's products and
procedures by physicians, patients and health care payors will be necessary in
order for the Company to be successful. The Company's microcatheter systems
for the mapping and ablation of AF and VT are new technologies that must
compete with more established treatments such as drugs, external electrical
cardioversion and defibrillation, implantable defibrillation, purposeful
destruction of the Atrio-Ventricular ("AV") node followed by implantation of a
pacemaker, and open heart surgery. It is likely that physicians will not
recommend the use of the Company's microcatheter systems unless they conclude,
based on clinical data and other factors, that these systems provide a safe,
effective and cost-efficient alternative to established or emerging approaches
to the mapping and ablation of AF and VT. Except for the Cardima Pathfinder
microcatheter system for mapping VT, none of the products currently being
developed by Cardima for the mapping and ablation of AF and VT has obtained
regulatory clearance or approval in the United States. Even if the Company's
products are successfully developed and the required regulatory clearance or
approval is obtained, there can be no assurance that such products and the
associated procedures will ultimately gain any significant degree of market
acceptance. Since the Company's sole product focus is to design and market
microcatheter systems to map and ablate AF and VT, the failure to successfully
commercialize these systems would materially and adversely affect the
Company's business, financial condition and results of operations.
Risks Regarding Products and Procedures Designed for Mapping and Ablating
AF. Cardima is developing its Cardima Pathfinder AF microcatheter system for
mapping and ablation of AF. Currently, there is considerable clinical debate
about the need for mapping AF prior to ablation, and no mapping is performed
during the open heart surgical maze procedure. However, the Company believes
that mapping prior to ablation may be useful to identify different segments of
the AF population, each of which could require slightly different mapping and
ablation procedures. For example, some electrophysiologists believe most AF
patients will need to be mapped and ablated in both the left and right atria,
while others believe only the right atrial intervention is warranted. Market
acceptance of this product for mapping will depend largely on a determination
that there is a clinical need for diagnostic mapping prior to ablation of AF.
The Cardima Pathfinder AF ablation procedure requires the use of RF energy in
the right and left atria to produce lesions. In general, the use of RF energy
in the left atrium has the potential to create blood clots, which could travel
through the vasculature to the brain and cause a stroke. Consequently,
physicians may not recommend this procedure, in which event the Cardima
Pathfinder AF would be unlikely to gain market acceptance. The failure of the
Company to complete development of the Cardima Pathfinder AF or to gain
regulatory approval, demonstrate safety, clinical effectiveness or cost
effectiveness, gain wide market acceptance or successfully commercialize the
Cardima Pathfinder AF for the mapping and ablation of AF would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Risks Regarding Products and Procedures Designed for Mapping and Ablating
VT. The Cardima Pathfinder and Tracer microcatheter systems for VT mapping are
designed for use inside the vasculature of the heart wall and to provide
access to the vasculature of the heart through the venous system.
Microcatheters are not currently used inside the vasculature of the heart wall
for diagnostic purposes. To achieve market acceptance, the Company will need
to demonstrate the safety, clinical effectiveness and cost effectiveness of
the Cardima Pathfinder and Tracer microcatheter systems for VT mapping, of
which there can be no assurance. In addition, electrophysiologists will need
to be specially trained to perform this procedure, which may further impede
market acceptance. There can be no assurance that the Cardima Pathfinder or
Tracer microcatheter systems for VT mapping will ever achieve market
acceptance, or in the case of the Tracer microcatheter system, be cleared for
marketing by U.S. regulatory authorities, or be successfully commercialized in
the United States
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or internationally. The inability of the Company to gain wide market
acceptance or successfully commercialize the Cardima Pathfinder and Tracer
microcatheter systems for VT mapping would have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's Tracer VT microcatheter system is being developed for ablation
of VT using RF energy, which could cause damage to the arteries and veins of
the heart, potentially leading to myocardial infarction and even death.
Consequently, physicians may not recommend this procedure, in which event the
Tracer VT would be unlikely to gain market acceptance. Failure of the Company
to gain market acceptance or successfully commercialize the Tracer VT would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "--Early Stage of Product Development; No
Assurance of Safety and Effectiveness," "--No Assurance of Obtaining Required
Regulatory Approvals; Government Regulation," "--Rapid Technological Change;
Significant Competition" and "--Limited Sales, Marketing and Distribution
Experience."
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from quarter
to quarter or year to year depending upon a number of factors, including
actions relating to regulatory matters, progress of preclinical and clinical
trials, the extent to which the Company's products gain market acceptance, the
scale-up of manufacturing capabilities, the expansion of sales and marketing
activities, competition, the timing of new product introductions by the
Company or its competitors and the ability of the Company to market its
products successfully in the United States and internationally. Although the
Cardima Pathfinder and Tracer microcatheter systems are labeled for single use
only, the Company is aware that some physicians in international markets are
reusing these products. Reuse of the Company's microcatheter systems would
reduce revenues from product sales and could have a material adverse effect on
future performance and periodic operating results. Due to such fluctuations in
operating results, period to period comparisons of the Company's revenues and
operating results are not necessarily meaningful and should not be relied upon
as indicators of likely future performance or annual operating results.
NO ASSURANCE OF OBTAINING REQUIRED REGULATORY APPROVALS; GOVERNMENT REGULATION
The preclinical and clinical testing, manufacturing, labeling, distribution
and promotion of the Company's products are subject to extensive and rigorous
government regulation in the United States and other countries. Noncompliance
with applicable requirements can result in enforcement actions by the FDA
including, among other things, fines, injunctions, civil penalties, recall or
seizure of products, refusal of the FDA to grant premarket clearances or
approvals, withdrawal of marketing approvals and criminal prosecution. Any
such action would have a material adverse affect on the Company's business,
financial condition and results of operations.
The Company is prohibited from marketing its products in the United States
unless it obtains 510(k) clearance or PMA approval from the FDA. The Company
believes that it usually takes from four to 12 months from submission to
obtain 510(k) clearance, but that it can take longer. The Cardima Pathfinder
microcatheter system for mapping VT has received 510(k) clearance. The Company
believes that its current mapping products will also be eligible for 510(k)
clearance, and has submitted a 510(k) premarket notification for the Cardima
Pathfinder AF and intends to seek 510(k) clearance for the Cardima Pathfinder
1.5 Fr. and Tracer products. These submissions may need to include clinical
trial data. There can be no assurance, however, that any of these products
will receive 510(k) clearance in a timely fashion, if at all. Delays in market
introduction resulting from the 510(k) clearance process could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company will be required to seek PMA approval for its ablation products,
including the Cardima Pathfinder AF and the Tracer VT microcatheters for
ablation. The process of obtaining PMA approval is much more costly, lengthy
and uncertain than the 510(k) clearance process. The Company believes that the
FDA's review of a PMA application after filing can last from one to three
years, or even longer. In order to prepare a PMA application, the Company will
be required to complete clinical trials to demonstrate the safety and
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effectiveness of these products. To date, the Company has not conducted any
human clinical studies of the use of its microcatheter systems for the
ablation of AF or VT. In January 1997, the Company submitted an IDE for the
Cardima Pathfinder AF microcatheter system for mapping and ablation of AF and
received conditional approval from the FDA to begin its Phase I feasibility
study for mapping AF. The FDA has not approved any clinical studies for
ablation, and the Company will be required to submit the results of the Phase
I mapping study prior to conducting clinical studies for ablation. The Company
expects to begin Phase I clinical trials for the Cardima Pathfinder AF
microcatheter system in the first half of 1997 and to file an additional IDE
and begin its clinical trials for the Tracer VT microcatheter system in the
second half of 1997. There can be no assurance that any clinical study that
the Company proposes will be permitted by the FDA, will be completed or, if
completed, will provide data and information that supports additional clinical
investigations of the type necessary to obtain PMA approval. The Company
expects that a PMA application will not be submitted for at least two years,
if at all. No assurance can be given that the Company will ever be able to
obtain PMA approval for any of its ablation products. Failure of the Company
to obtain timely PMA approval would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is subject to periodic inspection by the FDA and the California
Department of Health Services, and must comply with various other regulatory
requirements that apply to medical devices marketed in the United States,
including labeling regulations, the Quality System Regulation ("QSR"), the
Medical Device Reporting regulation (which requires that a manufacturer report
to the FDA certain types of adverse events involving its products), and the
FDA's prohibitions against promoting approved products for unapproved ("off-
label") uses. The Company's failure to comply with applicable regulatory
requirements could result in enforcement action by the FDA, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Sales of medical devices outside the United States are subject to
international regulatory requirements that vary from country to country. The
time required for approval varies from country to country and may be longer or
shorter than the time required in the United States. The Company has obtained
the requisite approvals by means of the CE mark to sell the Cardima
Pathfinder, Cardima Pathfinder 1.5 Fr., Cardima Pathfinder AF, Tracer and
Venaport for mapping in the European Union ("EU") and Australia, to sell the
Cardima Pathfinder, Cardima Pathfinder 1.5 Fr., Cardima Pathfinder AF and
Tracer in Japan and to sell the Cardima Pathfinder, Tracer and Venaport in
Canada. The Company plans to commence clinical trials in the EU, Canada and
Japan for its ablation products, including certification to enable CE marking.
There can be no assurance the Company will be successful in obtaining such
approvals. Failure to receive approval to affix the CE mark would prohibit the
Company from selling these products in member countries of the EU, and would
require significant delays in obtaining individual country approvals. No
assurance can be given that such approvals will ever be obtained. In such
event, the Company's business, financial condition and results of operations
would be materially and adversely affected. See "Business--Government
Regulation."
RAPID TECHNOLOGICAL CHANGE; SIGNIFICANT COMPETITION
The medical device industry is characterized by rapid and significant
technological change. Accordingly, the Company's success will depend in part
on its ability to respond quickly to medical and technological changes,
including changes in the capital equipment with which the Company's
microcatheter systems are designed to be compatible. Product development
involves a high degree of risk, and there can be no assurance that the
Company's new product development efforts will result in any commercially
successful products. Failure by the Company to respond to and develop new
technologies could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Research and New
Product Development."
The Company's microcatheter systems for the mapping and ablation of AF and
VT are new technologies that must compete with more established treatments
such as drugs, external electrical cardioversion and defibrillation,
implantable defibrillation, purposeful destruction of the AV node followed by
implantation of a pacemaker, and open heart surgery. In the market for cardiac
mapping and ablation devices, the Company believes that the primary
competitive factors are safety, effectiveness, ease of use and overall system
cost. In
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addition, the length of time required for products to be developed and to
receive regulatory and, in some cases, reimbursement approval are important
competitive factors. Several of the Company's competitors are currently
marketing and selling catheters in the United States and internationally that
map and ablate a type of arrhythmia known as supraventricular tachycardia
("SVT"). In addition, several competitors are also developing new approaches
and new products for the mapping and/or ablation of AF and VT. These
approaches include mapping systems using contact mapping, single-point spatial
mapping and non-contact, multisite electrical mapping technologies, and
ablation systems using RF, ultrasound, microwave, laser and cryoablation
technologies. In addition, companies are developing surgical procedures that
could potentially be used by physicians to perform the open heart surgical
maze procedure for the treatment of AF in a minimally invasive manner.
Many of the Company's competitors have an established presence in the field
of interventional cardiology and electrophysiology, including Boston
Scientific Corporation ("Boston Scientific"), C.R. Bard, Inc., Johnson &
Johnson, through its Cordis division, St. Jude Medical, Inc., through its Daig
division, and Medtronic, Inc. These competitors have substantially greater
financial and other resources than the Company, including larger research and
development staffs and more experience and capabilities in conducting research
and development activities, testing products in clinical trials, obtaining
regulatory approvals, and manufacturing, marketing and distributing products.
In addition, other companies are developing proprietary systems for the
diagnosis and/or treatment of cardiac arrhythmias, including Biosense, Inc.,
Cardiac Pathways, Inc. and Endocardial Solutions, Inc. Other companies
develop, market and sell alternative approaches to the treatment of AF and VT,
including Guidant, Medtronic, Inc., and Ventritex Inc., the leading
manufacturers of implantable defibrillators. There can be no assurance that
the Company will succeed in developing and marketing technologies and products
that are more clinically effective and cost-effective than the more
established treatments or the new approaches and products being developed and
marketed by its competitors. Furthermore, there can be no assurance that the
Company will succeed in developing new technologies and products that are
available prior to its competitors' products. Failure of the Company to
demonstrate the competitive advantages of its products would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Competition."
FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE
AVAILABLE
The Company's future liquidity and capital requirements will depend on
numerous factors, including the progress of the Company's clinical research
and product development programs; the receipt of, and the time required to
obtain, regulatory clearances and approvals; the costs and timing of expansion
of product development, manufacturing and sales and marketing activities; the
extent to which the Company's products gain market acceptance; competitive
developments; and other factors. The timing and amount of such capital
requirements cannot be accurately predicted. In addition, if unforeseen
difficulties arise in the course of developing its products, performing
clinical trials, obtaining necessary regulatory clearances and approvals or
other aspects of the Company's business, the Company may be required to invest
greater-than-anticipated funds. Consequently, although the Company believes
that the proceeds of this Offering, together with available cash and cash
generated from operations, will be sufficient to meet the Company's operating
expenses and capital requirements through at least the end of 1998, the
Company may be required to raise additional funds through public or private
debt or equity financings, collaborative relationships, bank facilities or
other arrangements. If additional financing is needed, there can be no
assurance that it will be available on terms acceptable to the Company, if at
all. Any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
DEPENDENCE ON PATENTS AND PROPRIETARY AND LICENSED TECHNOLOGY; RISK OF PATENT
INFRINGEMENT
The Company's success will depend in part on its ability to obtain patent
protection for its products and processes, to preserve its trade secrets,
trademarks and copyrights and to operate without infringing or violating the
proprietary rights of others. The Company's strategy is to actively pursue
patent protection in the United States and foreign jurisdictions for
technology that it believes to be proprietary and that offers a potential
competitive advantage for its products. The patent positions of medical device
companies, including the
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Company, are uncertain and involve complex and evolving legal and factual
questions. The coverage sought in a patent application either can be denied or
significantly reduced before or after the patent is issued. In addition, the
U.S. patent laws were recently amended to exempt physicians, other health care
professionals and affiliated entities from infringement liability for medical
and surgical procedures performed on patients. The Company cannot predict
whether this amendment might have a material adverse effect on the Company's
ability to protect its proprietary methods and procedures.
In addition, there can be no assurance that competitors will not seek to
apply for and obtain patents that will prevent, limit or interfere with the
Company's ability to make, use or sell its products either in the United
States or internationally. Further, the laws of certain foreign countries do
not protect the Company's intellectual property rights to the same extent as
do the laws of the United States. In addition to patents, trademarks and
copyrights, the Company relies on trade secrets and proprietary know-how to
compete, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. There can be no
assurance that proprietary information or confidentiality agreements with
employees, consultants and others will not be breached, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known to, or independently developed by,
competitors. The Company also relies on certain license agreements through
which it licenses certain technology from others, including technology of
Target that is integrated into the Company's microcatheter systems for mapping
and ablation. The Company has also licensed a proprietary surface coating
material used on certain of its catheters. There can be no assurance that
these licenses will continue to be available to the Company. The loss of or
inability to maintain any of these licenses could result in delays in
commercial shipments by the Company until equivalent technology could be
developed internally or identified, licensed and integrated, which would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "--Influence of Boston Scientific Company/Target
Therapeutics, Inc." and "--Risks Associated with International Sales."
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain
a competitive advantage. While the Company's patents have not been the subject
of any litigation, the Target patent that relates to the variable stiffness
design of Target's Tracker microcatheters (the "Tracker Patent") has been the
subject of four reexamination proceedings in the United States Patent and
Trademark Office ("USPTO"). Following the completion of the first such
proceeding, the USPTO issued a reexamination certificate and confirmed the
patentability of the patent claims set forth in the certificate. Requests for
second, third and fourth reexamination of the Tracker Patent were initiated by
one of Target's competitors, SciMed Life Systems, Inc. ("SciMed"), a
subsidiary of Boston Scientific, and after the USPTO's review of such
petitions, Target received notice from the USPTO that it had reaffirmed the
patentability of the claims of the Tracker Patent.
In addition, the Company is aware that in 1994 Target filed a lawsuit
against SciMed and Cordis Endovascular Systems, Inc. (now a division of
Johnson & Johnson) in the U.S. District Court, seeking damages and preliminary
and permanent injunctive relief against further infringing sales. After
various court actions, the Court of Appeals has temporarily stayed the
preliminary injunction, which had been granted prohibiting Cordis and SciMed
from infringing on the Tracker Patent, while it considers a motion opposing
the injunction filed by Cordis and SciMed. In April 1997, Target merged with a
wholly-owned subsidiary of Boston Scientific. It is expected that this merger
will result in the termination of the lawsuit between Target and SciMed. If
the lawsuit is not terminated and if the Tracker Patent is ultimately
determined to be invalid, the Company's proprietary rights in the variable
stiffness technology could be compromised, and the Company's competitors could
have the ability to incorporate such technology in their products. The erosion
of this competitive advantage could have a material adverse effect on the
Company's business, financial condition and results of operations.
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Although the Company has not received any significant letters from others
threatening to enforce intellectual property rights against the Company, there
can be no assurance that the Company will not become subject to patent
infringement claims or litigation, to interference proceedings in the USPTO to
determine the priority of inventions or to oppositions to patent grants in
foreign jurisdictions. An adverse determination in litigation, interference or
opposition proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties, require disputed
rights to be licensed from third parties or require the Company to cease using
such technology. Under the Company's license agreement with Target, the
Company is not indemnified against claims brought by third parties alleging
infringement of patent rights. Consequently, the Company could bear the
liability resulting from such claims. There can be no assurance that the
Company will have the financial resources to protect and defend its
intellectual property, as such defense is often costly and time consuming.
Failure of the Company to protect its patent rights, trade secrets, know-how
or other intellectual property could have a material adverse effect on the
Company's business, financial condition and results of operations.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions and, therefore, may be highly uncertain.
There can be no assurance that any issued patent or patents based on pending
patent applications or any future patent application will exclude competitors
or provide competitive advantages to the Company, that any of the Company's
patents or patents in which it has licensed rights will be held valid if
subsequently challenged or that others will not claim rights in or ownership
of the patents and other proprietary rights held or licensed by the Company.
There can be no assurance that others have not developed or will not develop
similar products, duplicate any of the Company's products or design around any
patents issued to or licensed by the Company or that may be issued in the
future to the Company. Since patent applications in the United States are
maintained in secrecy until patents issue, the Company cannot be certain that
others were not the first to file applications for inventions covered by the
Company's pending patent applications, nor can the Company be certain that it
will not infringe any patents that may issue to others on such applications.
The Company periodically reviews the scope of patents of which it is aware.
Although Cardima does not believe that it infringes patents known to the
Company, the question of patent infringement involves complex legal and
factual issues and there can be no assurance that any conclusion reached by
the Company regarding infringement will be consistent with the resolution of
any such issues by a court. See "Business--Patents and Proprietary Rights."
INFLUENCE OF BOSTON SCIENTIFIC CORPORATION/TARGET THERAPEUTICS, INC.
Upon completion of this Offering, Target will beneficially own approximately
9.7% of the Company's outstanding Common Stock. In addition, Target currently
has a representative on the Company's Board of Directors, as it has since the
Company's inception. In April 1997, Boston Scientific completed the
acquisition of Target, by merging Target with a wholly-owned subsidiary. As a
result of the acquisition, Boston Scientific will exercise control over a
significant portion of the Company's outstanding Common Stock. Accordingly,
Boston Scientific may be able to exercise influence over the business and
financial affairs of the Company. Boston Scientific develops, markets and
sells cardiac electrophysiology products that compete directly with the
microcatheter products being developed by the Company. There can be no
assurance that Boston Scientific will not take actions or engage in activities
that could have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company and Target have entered into a license agreement (the "Target
License Agreement"), pursuant to which Target has granted the Company an
exclusive license (the "Target License") under certain issued United States
patents to certain technologies upon which the Company's products are based.
The Target License covers the diagnosis and treatment of electrophysiological
disorders in areas other than the central nervous system. The Target License
will terminate upon the expiration or invalidation of all claims under the
underlying patents. In addition, the Company has obtained a non-exclusive
license to use Target's technology, provided it has made a substantial
improvement of such technology, for the diagnosis or treatment of diseases of
the heart, other than using balloon angioplasty. Under the Target License
Agreement, Cardima has granted Target an exclusive, royalty-free license to
use any technology developed by Cardima prior to May 1996 in the fields of
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neurology, interventional neuroradiology, interventional radiology, diagnosis
and treatment of male and female reproductive disorders and vascular
prostheses. The Target License Agreement imposes various commercialization,
sublicensing, insurance, royalty, product liability, indemnification, non-
competition and other obligations on the Company. Failure by the Company to
comply with certain of these requirements could result in a termination of the
Target License. The loss of the Company's exclusive rights to the Target-based
microcatheter technology would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Patents and Proprietary Rights" and "Certain Transactions."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales have accounted for virtually all of the Company's
revenues to date and will continue to account for a substantial portion of the
Company's revenues for the foreseeable future. A number of risks are inherent
in international transactions. International sales may be limited or disrupted
by the imposition of government controls, export license requirements,
economic or political instability, trade restrictions, changes in tariffs or
difficulties in staffing and management. Additionally, although the Company's
sales are denominated in U.S. dollars, Cardima's business, financial condition
and results of operations may be adversely affected by fluctuations in
currency exchange rates as well as increases in duty rates and difficulties in
obtaining export licenses. The financial condition, expertise and performance
of the Company's international distributors and any future international
distributors could affect sales of the Company's products internationally and
could have a material adverse effect on the Company's business, financial
condition and results of operations. The international nature of the Company's
business also subjects it and its representatives, agents and distributors to
laws and regulations of the international jurisdictions in which they operate
or in which the Company's products may be sold. The regulation of medical
devices in a number of such jurisdictions, particularly in the EU, continues
to develop, and there can be no assurance that new laws or regulations will
not have an adverse effect on the Company's business, financial condition and
results of operations. Foreign regulatory agencies often establish product
standards different from those in the United States and any inability to
obtain foreign regulatory approvals on a timely basis could have a material
adverse effect on the Company's international business and its financial
condition and results of operations. In addition, the laws of certain foreign
countries do not protect the Company's intellectual property rights to the
same extent as do the laws of the United States. There can be no assurance
that the Company will be able to successfully commercialize any of its current
microcatheter products, including the Cardima Pathfinder and Tracer
microcatheter systems, or any future product in any foreign market. See
"Business--Marketing and Distribution."
UNCERTAINTY RELATED TO THIRD-PARTY REIMBURSEMENT
U.S. health care providers, including hospitals and physicians, that
purchase medical devices generally rely on third-party payors, principally
federal Medicare, state Medicaid and private health insurance plans, to
reimburse all or a part of the costs and fees associated with the procedures
performed using these devices. The Company's success will depend upon, among
other things, the ability of health care providers to obtain satisfactory
reimbursement from third-party payors for medical procedures in which the
Company's microcatheter systems are used. Third-party payors may deny
reimbursement if they determine that a prescribed device has not received
appropriate regulatory clearances or approvals, is not used in accordance with
cost-effective treatment methods as determined by the payor, or is
experimental, unnecessary or inappropriate. If FDA clearance or approval is
received, third-party reimbursement would also depend upon decisions by the
United States Health Care Financing Administration for Medicare, as well as by
individual health maintenance organizations, private insurers and other
payors. Reimbursement systems in international markets vary significantly by
country and by region within some countries, and reimbursement approvals may
be obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
devices and procedures. In most markets, there are private insurance systems
as well as government managed systems. There can be no assurance that
reimbursement for the Company's products will be available or, if available,
that such reimbursement will be available in sufficient amounts in the United
States or in international markets under either government or private
reimbursement systems, or that physicians will support and advocate
reimbursement for procedures using the Company's products. Failure by
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hospitals and other users of the Company's products to obtain reimbursement
from third-party payors or changes in government and private third-party payor
policies toward reimbursement for procedures employing the Company products
would have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, the Company is unable to
predict what additional legislation or regulation, if any, relating to the
heath care industry or third-party coverage and reimbursement may be enacted
in the future, or what effect such legislation or regulation would have on the
Company. See "Business--Third-Party Reimbursement."
LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK; NEED TO COMPLY WITH UNITED
STATES MANUFACTURING STANDARDS; DEPENDENCE ON KEY SUPPLIERS
The Company has only limited experience in manufacturing its microcatheter
systems. The Company currently manufactures its microcatheter systems in
limited quantities for U.S. and international sales and preclinical and
clinical trials. The Company has no experience manufacturing its products in
the volumes that will be necessary for the Company to achieve significant
commercial sales, and there can be no assurance that reliable, high-volume
manufacturing capacity can be established or maintained at commercially
reasonable costs. The Company has recently increased the number of
microcatheters manufactured and expects that, if U.S. sales for the Cardima
Pathfinder microcatheter system increase or if the Company receives FDA
clearance or approvals for other products, it will need to expend significant
capital resources and develop manufacturing expertise to establish large-scale
manufacturing capabilities. Manufacturers often encounter difficulties in
scaling up production of new products, including problems involving production
yields, quality control and assurance, component supply shortages, shortages
of qualified personnel, compliance with FDA regulations, and the need for
further FDA approval of new manufacturing processes. In addition, the Company
believes that substantial cost reductions in its manufacturing operations will
be required for it to commercialize its microcatheter systems on a profitable
basis. Any inability of the Company to establish and maintain large-scale
manufacturing capabilities would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's manufacturing facilities are subject to periodic inspection by
regulatory authorities, and its operations must either undergo QSR compliance
inspections conducted by the FDA or receive an FDA exemption from such
compliance inspections in order for the Company to be permitted to produce
products for sale in the United States. The Company's facilities and
manufacturing processes have recently successfully undergone a combined
inspection by the FDA and by the State of California and an annual
reinspection by TUV. The Company has demonstrated compliance with ISO 9001 (EN
46001) quality standards, as well as compliance with 93/42/EEC, the Medical
Device Directive and is in compliance with procedures to produce products for
sale in Europe. Any failure by the Company to comply with QSR requirements or
to maintain its compliance with ISO 9001 (EN 46001) standards may result in
the Company being required to take corrective actions, such as modification of
its policies and procedures. In addition, the Company may be required to cease
all or part of its operations for some period of time until it can demonstrate
that appropriate steps have been taken to comply with QSR or ISO 9001 (EN
46001) standards. There can be no assurance that the Company will be found in
compliance with QSR by regulatory authorities, or that it will continue to
comply with ISO 9001 (EN 46001) standards in future audits or that the Company
will not experience difficulties in the course of developing its manufacturing
capability. Any failure of the Company to comply with state or FDA QSR
requirements or to maintain compliance with ISO 9001 (EN 46001) standards, or
to develop its manufacturing capability in compliance with such standards,
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company purchases certain key components of its products, including the
hydrophilic coating for certain of its microcatheters, from sole, single or
limited source suppliers. For certain of these components there are relatively
few alternative sources of supply. Establishing additional or replacement
suppliers for any of the numerous components used in the Company's products,
if required, may not be accomplished quickly and could involve significant
additional costs. Any supply interruption from vendors or failure of the
Company to obtain alternative vendors for any of the numerous components used
to manufacture the Company's products would
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limit the Company's ability to manufacture its products and would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Manufacturing."
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE
The Company has only limited experience marketing and selling its products
in commercial quantities. Expanding the Company's marketing and sales
capability to adequately support sales in commercial quantities will require
substantial effort and require significant management and financial resources.
There can be no assurance that the Company will be able to continue to build a
marketing staff or sales force, that expanding such a marketing staff or sales
force will be cost-effective or that the Company's sales and marketing efforts
will be successful. The Company's Cardima Pathfinder, Cardima Pathfinder AF
and Tracer microcatheter systems for mapping of AF and VT have obtained
regulatory approval in certain international markets, and sales and marketing
of these products is conducted primarily through distributors. The Company
currently has a number of exclusive distributors that cover certain European
countries and Japan and has sold only a limited number of Cardima Pathfinder,
Cardima Pathfinder AF and Tracer microcatheter systems through these
distributors. The Company does not have written agreements with certain of its
exclusive distributors. Consequently, the terms of such arrangements, such as
length of arrangements and minimum purchase obligations are uncertain. In
addition, the laws in certain international jurisdictions may make it
difficult for the Company to terminate such distribution arrangements absent
specific written termination terms. There can be no assurance that these
distributors will be able to market and sell the Company's products in these
markets. There can be no assurance that the Company will be able to enter into
additional agreements with desired distributors on a timely basis or at all,
or that such distributors will devote adequate resources to selling the
Company's products. Failure to establish an adequate sales force or to
establish and maintain appropriate distribution relationships would have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business--Marketing and Distribution."
DEPENDENCE UPON KEY PERSONNEL
The Company's ability to operate successfully depends in significant part
upon the continued service of certain key scientific, technical, clinical,
regulatory and managerial personnel, and its continuing ability to attract and
retain additional highly qualified personnel in these areas. Competition for
such personnel is intense, especially in the San Francisco Bay Area, and there
can be no assurance that the Company can retain such personnel or that it can
attract or retain other highly qualified scientific, technical, clinical,
regulatory and managerial personnel in the future, including key sales and
marketing personnel. See "Management--Limitation of Liability and
Indemnification Matters."
RISK OF PRODUCT LIABILITY; ADEQUACY OF INSURANCE COVERAGE
The development, manufacture and sale of the Company's microcatheter systems
may expose the Company to product liability claims. Although the Company has
not experienced any claims to date, there can be no assurance that the Company
will not experience losses due to product liability claims in the future.
Although the Company currently has general liability insurance with coverage
in the amount of $1.0 million per occurrence, subject to a $2.0 million annual
limitation, and product liability insurance with coverage in the amount of
$5.0 million per occurrence, subject to a $5.0 million annual limitation,
there can be no assurance that such coverage will continue to be available to
the Company on reasonable terms, if at all. In addition, there can be no
assurance that all of the activities encompassed within the Company's business
are or will be covered under the Company's policies. Although the Cardima
Pathfinder and Tracer products are labeled for single use only, the Company is
aware that some physicians are reusing such products. Moreover despite
labeling of the Company's microcatheters for diagnostic use only, the Company
believes that physicians are using such mapping microcatheters for ablation.
Multiple use or "off-label" use of the Company's microcatheters could subject
the Company to increased exposure to product liability claims, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company may require additional product
liability coverage if the Company significantly expands commercialization of
its products. Such additional
15
<PAGE>
coverage is expensive, difficult to obtain and may not be available in the
future on acceptable terms, if at all. Any claims or series of claims against
the Company, regardless of their merit or eventual outcome, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Product Liability and Insurance."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market for the
Common Stock will develop or be sustained. The initial public offering price
of the Common Stock will be determined by negotiations between the Company and
the representatives of the Underwriters. The factors considered in making such
determination will include the prevailing market conditions, the Company's
financial and operating history and condition, its prospects and the prospects
for its industry in general, the management of the Company and the market
price of securities for companies in businesses similar to that of the
Company. The securities markets have, from time to time, experienced
significant price and volume fluctuations that may be unrelated to the
operating performance of particular companies. These fluctuations often
substantially affect the market price of a company's common stock. The market
prices for securities of medical device companies have in the past been, and
can in the future be expected to be, particularly volatile. The market price
of the Common Stock may be subject to volatility from quarter to quarter
depending upon announcements regarding the results of regulatory approval
filings, clinical studies or other testing, technological innovations or new
commercial products by the Company or its competitors, government regulations,
developments or disputes concerning proprietary rights, changes in
reimbursement levels, public concern as to the safety of products developed by
the Company or others, changes in health care policy in the United States and
internationally, the issuance of stock market analyst reports and
recommendations, and economic and other external factors, as well as continued
operating losses by the Company and fluctuations in the Company's financial
results. See "--Fluctuations in Operating Results" and "Underwriting."
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this Offering, officers and directors of the Company,
together with entities affiliated with them, will beneficially own
approximately 48.1% of the Common Stock (approximately 46.3% if the
Underwriters' over-allotment option is exercised in full). These stockholders,
acting as a group, will continue to be able to control the election of all
members of the Company's Board of Directors and to determine all corporate
actions after the sale of the shares offered hereby. The voting power of these
stockholders could also have the effect of delaying or preventing a change in
control of the Company. See "-- Influence of Boston Scientific
Corporation/Target Therapeutics, Inc.," "Principal Stockholders" and
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering and based on the shares outstanding as of
March 31, 1997, there will be 8,076,541 shares of Common Stock outstanding. Of
these shares, the 2,275,000 shares sold in this Offering (assuming no exercise
of the underwriters' over-allotment option) will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 of the Securities Act. The
remaining 5,801,541 shares will be "restricted securities" as that term is
defined under Rule 144 (the "Restricted Shares").
Of the Restricted Shares, an aggregate of 3,953,712 shares of Common Stock
(including 508,912 shares issuable upon exercise of vested stock options) will
be eligible for sale in the public market subject to Rule 144 and Rule 701
under the Securities Act after expiration of a contractual lock-up beginning
180 days after the date of the Prospectus, unless earlier released, in whole,
or in part, by Bear, Stearns & Co. Inc. In addition, an aggregate of 2,356,741
shares of Common Stock will become eligible for resale in the public market,
upon expiration of a one-year holding period, subject to certain volume and
resale restrictions set forth in Rule 144, in the first quarter of 1998.
16
<PAGE>
The Company intends to register on a Form S-8 registration statement under
the Securities Act, during the 180-day lockup period, the resale of 1,344,846
shares of Common Stock reserved for issuance under its equity incentive plans
or currently subject to outstanding options. See "Shares Eligible For Future
Sale."
After the Offering, the holders of 5,793,208 shares of Common Stock and the
holders of warrants to acquire 489,968 additional shares of Common Stock are
entitled to certain rights with respect to registration of such shares under
the Securities Act. Registration of such shares under the Securities Act would
result in such shares becoming freely tradeable without restriction under the
Securities Act (except for shares purchased by affiliates of the Company)
immediately upon the effectiveness of such registration. If such holders, by
exercising their demand registration rights, cause a large number of
securities to be registered and sold in the public market, such sales could
have an adverse effect on the market price for the Common Stock. If the
Company were to include in a Company-initiated registration, any Registrable
Securities pursuant to the exercise of piggyback registration rights, such
sales may have an adverse effect on the Company's ability to raise needed
capital. See "Description of Capital Stock--Registration Rights."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire, control of the
Company. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of the Common Stock. Certain of these
provisions allow the Company to issue Preferred Stock without any vote or
further action by the stockholders, and eliminate the right of stockholders to
act by written consent without a meeting. Certain provisions of Delaware law
applicable to the Company could also delay or make more difficult a merger,
tender offer or proxy contest involving the Company, including Section 203 of
the Delaware General Corporation Law, which prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for
a period of three years unless certain conditions are met. See "Description of
Capital Stock."
SUBSTANTIAL DILUTION AND ABSENCE OF DIVIDENDS
Purchasers of shares of Common Stock in the Offering will experience
immediate and substantial dilution of $6.66 in the net tangible book value per
share of Common Stock from the initial public offering price. In addition, the
exercise of outstanding options and warrants will result in further dilution.
The Company has never paid any cash dividends and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. See "Dilution"
and "Dividend Policy."
17
<PAGE>
THE COMPANY
The Company was incorporated in November 1992 in the State of Delaware. The
Company's principal executive offices are located at 47266 Benicia Street,
Fremont, California 94538, and its telephone number is (510) 354-0300.
USE OF PROCEEDS
The net proceeds from the sale of the 2,275,000 shares of Common Stock
offered hereby, assuming an initial public offering price of $11.00 per share,
are estimated to be approximately $22.3 million ($25.8 million if the
overallotment option is exercised in full), after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company.
The Company currently intends to use approximately 25% of the net proceeds
from this Offering to fund preclinical and clinical trials of its
microcatheter systems, approximately 25% to fund research and new product
development, approximately 10% to continue to expand its marketing and sales
force in the United States, and approximately five percent to fund capital
equipment investment to increase manufacturing capabilities. The balance of
the net proceeds will be added to working capital and used for general
corporate purposes. The portion of the net proceeds actually expended for each
purpose may vary depending upon a number of factors, including the progress of
the Company's research and clinical development programs, the time required to
obtain regulatory clearances and approvals, the extent to which the Company's
products achieve market acceptance, the resources the Company devotes to
developing, manufacturing and marketing its products, the ability to continue
to establish a sales force and other factors.
The Company estimates the net proceeds of this Offering, together with its
existing capital resources, will be sufficient to fund the Company's
requirements at least through the end of 1998. The Company may also use a
portion of the net proceeds to acquire or invest in businesses, products and
technologies that are complementary to those of the Company, although no such
acquisitions or investments are planned or being negotiated as of the date of
this Prospectus, and no portion of the net proceeds has been allocated for any
specific acquisition or investment. Pending such uses, the Company intends to
invest the net proceeds from this Offering in short-term, government
securities and other investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition,
results of operations, capital requirements and such other factors as the
Board of Directors deems relevant.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock as of December 31,
1996, was $12.7 million, or approximately $2.19 per share. Pro forma net
tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by 5,801,541 shares of
Common Stock outstanding after giving effect to (i) the sale of 2,356,741
shares of Series E Preferred Stock in March 1997 for approximately $10.3
million in cash and the conversion of approximately $3.3 million of
outstanding short-term debt, $1.6 million of which was incurred after
December 31, 1996, and (ii) the conversion of all outstanding shares of
Preferred Stock, including the Series E Preferred Stock, into Common Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in this Offering and the pro forma net tangible book value per share of
Common Stock immediately after this Offering. After giving effect to the sale
of the 2,275,000 shares of Common Stock in this Offering at an assumed initial
public offering price of $11.00 per share, and after deducting underwriting
discounts and commission and estimated offering expenses payable by the
Company, the Company's pro forma net tangible book value at December 31, 1996,
would have been $35.0 million, or $4.34 per share. This represents an
immediate increase in pro forma net tangible book value of $2.15 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $6.66 per share to new investors purchasing Common Stock in this
Offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $11.00
Pro forma net tangible book value per share at December 31,
1996........................................................... $2.19
Increase per share attributable to new investors................ 2.15
-----
Pro forma net tangible book value after the Offering.............. 4.34
------
Pro forma net tangible book value dilution to new investors....... $ 6.66
======
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1996, after giving effect to (i) the sale of 2,356,741 shares of Series E
Preferred Stock in March 1997 for approximately $10.3 million and the
conversion of approximately $3.3 million of outstanding short-term debt, $1.6
million of which was incurred after December 31, 1996, and (ii) the conversion
of all outstanding shares of Preferred Stock, including the Series E Preferred
Stock, into Common Stock, the number of shares purchased from the Company, the
total consideration paid and the average price per share paid by existing
stockholders and by new investors (at an assumed initial public offering price
of $11.00 per share before deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 5,801,541 71.8% $31,166,000 55.5% $ 5.37
--------- ---- ----------- ---- ------
New investors.......... 2,275,000 28.2 25,025,000 44.5 11.00
--------- ---- ----------- ---- ------
Total................ 8,076,541 100% $56,191,000 100%
========= ==== =========== ====
</TABLE>
The foregoing computations assume no exercise of outstanding options or
warrants. At December 31, 1996, 810,690 shares of Common Stock were issuable
upon exercise of outstanding options at a weighted average exercise price of
$1.25, and 513,745 shares of Common Stock were issuable upon exercise of
outstanding warrants at a weighted average exercise price of $1.62. If all
options and warrants outstanding at December 31, 1996 were exercised for cash,
the pro forma net tangible book value per share immediately after completion
of the Offering would be $3.92. See "Management--Executive Compensation,"
"Certain Transactions" and "Description of Capital Stock."
19
<PAGE>
CAPITALIZATION
The following table sets forth at December 31, 1996 (i) actual
capitalization of the Company, (ii) such capitalization on a pro forma basis
to reflect the gross proceeds of approximately $13.6 million from the sale of
2,356,741 shares of Series E Preferred Stock in March 1997 for approximately
$10.3 million in cash and the conversion of approximately $3.3 million of
outstanding short-term debt, $1.6 million of which was incurred after
December 31, 1996, and the conversion of all outstanding shares of the
Company's Preferred Stock, including the Series E Preferred Stock, into Common
Stock, and (iii) such pro forma capitalization as adjusted to reflect the sale
of the 2,275,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $11.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses, and the application
of the estimated net proceeds therefrom. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and related Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable--current......................... $ 1,682 $ -- $ --
Capital lease obligation-current portion....... 329 329 329
Capital lease obligation-noncurrent portion.... 722 722 722
Series D redeemable Convertible Preferred
Stock, 1,919,052 shares issued and
outstanding; no shares issued and outstanding,
pro forma and as adjusted..................... 9,740 -- --
Stockholders' equity:
Convertible Preferred Stock, $0.001 par value,
5,141,436 shares authorized, issuable in
series, of which Series D and Series E are
redeemable convertible preferred stock;
5,000,000 shares authorized, pro forma and as
adjusted; 1,220,145 shares issued and
outstanding, no shares issued and
outstanding, pro forma or as adjusted........ 7,713 -- --
Common Stock, $0.001 par value, 7,500,000
shares authorized, 74,999 issued and
outstanding; 25,000,000 shares authorized,
pro forma and as adjusted, 5,801,541 shares
issued and outstanding, pro forma and
8,076,541 shares issued and outstanding, as
adjusted(1).................................. 595 31,580 53,903
Deferred compensation......................... (526) (526) (526)
Deficit accumulated during development stage.. (18,150) (18,150) (18,150)
-------- -------- --------
Total stockholders' equity (net capital
deficiency)................................. (10,368) 12,904 35,227
-------- -------- --------
Total capitalization......................... $ 2,105 $ 13,955 $ 36,278
======== ======== ========
</TABLE>
- --------
(1) Excludes, as of March 31, 1997, (i) 877,570 shares of Common Stock
issuable upon exercise of outstanding options with a weighted average
price of $1.28 per share, (ii) 513,745 shares of Common Stock issuable
upon exercise of outstanding warrants with a weighted average exercise
price of $1.62 per share, and (iii) 467,276 shares reserved for future
issuance under the Company's equity incentive plans. See "Management--
Stock Option Plans" and "Description of Capital Stock."
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements
and Notes thereto included elsewhere in this Prospectus. The statements of
operations data set forth below for each of the years ended December 31, 1994,
1995 and 1996 and for the period from November 12, 1992 (inception) to
December 31, 1996 and the balance sheet data at December 31, 1995 and 1996 are
derived from, and are qualified by reference to, the Financial Statements,
which have been audited by Ernst & Young LLP, independent auditors, included
elsewhere in this Prospectus and should be read in conjunction with those
Financial Statements and the Notes thereto. The statement of operations data
set forth below for the period from November 12, 1992 (inception) to December
31, 1993 and the balance sheet data at December 31, 1993 and 1994 are derived
from the Company's audited financial statements not included in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12, PERIOD FROM
1992 NOVEMBER 12,
(INCEPTION) TO YEAR ENDED DECEMBER 31, 1992 (INCEPTION)
DECEMBER 31, ------------------------- TO DECEMBER 31
1993(1) 1994 1995 1996 1996
-------------- ------- ------- ------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales............... $ -- $ 86 $ 362 $ 593 $ 1,041
Cost of goods sold...... -- 211 830 1,413 2,454
------- ------- ------- ------- --------
Gross profit........... -- (125) (468) (820) (1,413)
Operating expenses:
Research and
development........... 1,083 2,205 2,581 3,319 9,188
Selling, general and
administrative........ 491 1,309 2,046 3,690 7,536
------- ------- ------- ------- --------
Total operating
expenses............. 1,574 3,514 4,627 7,009 16,724
------- ------- ------- ------- --------
Operating loss.......... (1,574) (3,639) (5,095) (7,829) (18,137)
Interest and other
income (expense), net.. 33 (16) (105) 75 (13)
------- ------- ------- ------- --------
Net loss................ $(1,541) $(3,655) $(5,200) $(7,754) $(18,150)
======= ======= ======= ======= ========
Pro forma net loss per
share(2)............... $ (1.23)
=======
Shares used in computing
pro forma net loss per
share(2)............... 6,325
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1993 1994 1995 1996
------- ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 1,472 $ 713 $ 2,993 $ 907
Working capital (deficit).................. 1,318 571 2,647 (2,150)
Total assets............................... 1,701 2,284 4,735 3,964
Capital lease obligation, noncurrent
portion................................... 50 308 317 722
Deficit accumulated during the development
stage..................................... (1,541) (5,196) (10,396) (18,150)
Total stockholders' equity (net capital
deficiency)............................... 1,412 1,316 (2,675) (10,368)
</TABLE>
- --------
(1) The Company's financial data for 1992 and 1993 is not presented separately
as the Company's operations from November 12, 1992 (inception) to December
31, 1992 were immaterial.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
computation of pro forma net loss per share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis contains certain statements of a forward-
looking nature relating to future events or the future financial performance
of the Company. Such statements are only predictions and the actual events or
results may differ materially from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors" as well as
those discussed elsewhere in this Prospectus. The historical results set forth
in this discussion and analysis are not necessarily indicative of trends with
respect to any actual or projected future financial performance of the
Company. This discussion and analysis should be read in conjunction with the
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
OVERVIEW
Since its incorporation in November 1992, Cardima has been engaged in the
design, research and development, manufacturing and testing of microcatheter
systems for the mapping and ablation of cardiac arrhythmias. The Company has a
limited history of operations and has experienced significant operating losses
since inception. The Company has never been profitable and, as of December 31,
1996, had an accumulated deficit of $18.2 million. Cardima expects that its
operating losses will continue for the foreseeable future as the Company
continues to invest substantial resources in product development, preclinical
and clinical trials, obtaining regulatory approval, sales and marketing and
manufacturing.
To date, Cardima has generated limited revenues, substantially all of which
have been in Europe and Japan, from sales of the Cardima Pathfinder and Tracer
for VT mapping and the Cardima Pathfinder AF for AF mapping. The Company has
obtained the right to affix the CE mark to its Cardima Pathfinder, Tracer and
Cardima Pathfinder AF microcatheter systems, permitting the Company to market
these products in the member countries of the EU. The Company's international
sales are made through distributors who sell the Company's products to
physicians and hospitals. In January 1997, the Company received a 510(k)
clearance in the United States and began to market and sell the Cardima
Pathfinder system for VT mapping. In order to begin shipping the Tracer
microcatheter systems for VT mapping or the Cardima Pathfinder AF for AF
mapping in the United States, the Company will need to receive 510(k)
clearance for these products from the FDA. The Company has submitted a 510(k)
premarket notification for the Cardima Pathfinder AF and intends to seek
510(k) clearance for its other mapping products, including the Cardima
Pathfinder 1.5 Fr. and Tracer products. The Company will be required to
conduct clinical trials, demonstrate safety and effectiveness, and obtain PMA
approval from the FDA for any of the Company's products designed for ablation
of AF or VT. Specifically, PMA approval will be required prior to the
introduction in the United States of the Cardima Pathfinder AF microcatheter
system for ablation of AF or Tracer VT microcatheter system for ablation of
VT. In January 1997, the Company submitted an IDE for the Cardima Pathfinder
AF microcatheter system for mapping and ablation of AF and received
conditional approval from the FDA to begin a Phase I feasibility study for
mapping AF. The Company expects to begin Phase I clinical trials for its
Cardima Pathfinder AF microcatheter system in the first half of 1997 and to
file an additional IDE and begin clinical trials for its Tracer VT
microcatheter system in the second half of 1997.
There can be no assurance that the Company's research and development
efforts will be successful. Given that testing is at an early stage, there can
be no assurance that any of the Company's microcatheter systems will be shown
to be safe or effective. Accordingly, the Company is unable to predict the
likelihood that its products, other than the Cardima Pathfinder microcatheter
system for venous mapping of VT, including the Cardima Pathfinder
microcatheter and Venaport guiding catheter, which has received 510(k)
clearance, will be cleared or approved for marketing by the FDA and there can
be no assurance that such approvals will be obtained or that any of the
Company's microcatheter systems or any other product developed by the Company
will be successfully introduced or achieve any significant degree of market
acceptance. There can be no assurance that the Company will ever achieve
either significant revenues from sales of any of its microcatheter systems or
ever achieve or sustain profitability.
22
<PAGE>
Future revenues and results of operations may fluctuate significantly from
quarter to quarter or year to year and will depend upon numerous factors,
including actions relating to regulatory approvals, the progress of
preclinical and clinical trials, the extent to which the Company's products
gain market acceptance, the scale-up of manufacturing capabilities, the
expansion of sales and marketing activities, competition, the timing and
success of new product introductions by the Company or its competitors and the
ability of the Company to market its products successfully in the United
States and internationally. Due to fluctuations in operating results, quarter
to quarter comparisons of the Company's operating results are not necessarily
meaningful and should not be relied upon as indicators of likely future
performance or annual operating results. The Company expects to increase its
research and development activities in connection with the need for additional
clinical evaluations and supervision during clinical trials. The Company also
expects to increase its sales and marketing capacity and continue to expand
its direct sales force in the United States in order to support future sales
of its microcatheter systems. In addition, the Company expects to increase
manufacturing operations in order to meet future product demand, control
product costs and increase gross margins. The Company's limited operating
history makes accurate prediction of future operating results difficult or
impossible.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net Sales
Net sales increased to $593,000 for 1996, from $362,000 in 1995 and $86,000
in 1994. The increase in net sales in 1996 compared with 1995 was primarily
due to increased international sales of the Cardima Pathfinder and Tracer
microcatheter systems and reflects a growing user base for the Company's
microcatheter systems in Europe and Japan. The increase in product sales in
1995 compared with 1994 was due primarily to the fact that product sales did
not begin until July 1994, and was also attributable to an increase in the
average selling price of the Company's products in 1995, resulting from the
introduction of the Cardima Pathfinder AF, and the growing market for and
increased sales of the Company's products in Europe and Japan.
Research and Development Expenses
Research and development expenses consist primarily of personnel costs,
consulting costs, costs related to preclinical studies and facilities costs.
The Company's research and development expenses increased to $3.3 million in
1996, from $2.6 million and $2.2 million in 1995 and 1994, respectively. The
increase in research and development expenses in 1996 compared with 1995 was
primarily due to increases in regulatory and quality systems' personnel and,
to a lesser extent, to an increase in expenses associated with preclinical
studies. The increase in 1995 compared with 1994 was primarily due to the
hiring of additional engineering personnel, expenses associated with the
development of product prototypes and expenses associated with preclinical and
clinical studies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $3.7 million in
1996, from $2.0 million and $1.3 million in 1995 and 1994, respectively. The
increase in selling, general and administrative expenses in 1996 compared with
1995 was primarily due to expenses associated with increased sales and
marketing activities, including the hiring of additional personnel to support
growth of the Company's sales and marketing efforts. The increase in selling,
general and administrative expenses in 1995 compared with 1994 was primarily
due to the addition of personnel.
Loss from Operations
For the reasons stated above, loss from operations increased to $7.8 million
in 1996 from $5.1 million and $3.6 million in 1995 and 1994, respectively.
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Interest and Other Income, Interest Expense
Interest and other income increased to $132,000 in 1996 from $12,000 and
$15,000 in 1995 and 1994, respectively. The increase in interest and other
income was primarily due to an increase in the average investment balances as
a result of the Series D Preferred Stock financing in December 1995 and
February 1996. Interest expense decreased to $57,000 in 1996 from $117,000 in
1995, primarily as a result of decreased borrowing in 1996. Interest expense
was $31,000 in 1994.
Deferred Compensation Expense
The Company records and amortizes over the related vesting periods deferred
compensation representing the difference between the exercise price of options
granted and the deemed fair market value of its Common Stock at the time of
grant. Options generally vest over four years. Deferred compensation of
approximately $580,000, primarily associated with option grants in May and
September 1996, was recorded in the year ended December 31, 1996, of which the
Company amortized deferred compensation expenses of approximately $54,000 for
the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date principally through private
placements of equity securities which had yielded net proceeds of $17.5
million as of December 31, 1996, together with interest income on proceeds
from such financings, and equipment leases (which have totalled $1.3 million
to acquire certain capital equipment). As of December 31, 1996, the Company
had approximately $1.2 million in cash and cash equivalents, of which $275,000
was restricted in order to secure letters of credit issued in connection with
the Company's facilities lease. In March 1997, the Company sold 2,356,741
shares of Series E Preferred Stock for approximately $10.3 million in cash and
the conversion of approximately $3.3 million of short-term debt, $1.6 million
of which was incurred after December 31, 1996.
Net cash used in operating activities was approximately $6.6 million, $4.5
million and $4.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively, resulting primarily from losses incurred during such periods.
Net cash used in investing activities was approximately $388,000, $78,000 and
$184,000 for the years ended December 31, 1996, 1995 and 1994, respectively,
attributable primarily to capital expenditures during such periods. Net cash
provided by financing activities was approximately $5.0 million, $6.9 million
and $3.5 million during the years ended December 31, 1996, 1995 and 1994,
respectively, attributable primarily to the sale of equity securities in
private placement transactions and proceeds from bridge loans during such
periods.
The Company believes that the net proceeds from this Offering, together with
available cash and cash generated from operations, will be sufficient to meet
the Company's operating expenses and capital requirements at least through the
end of 1998. There can be no assurance, however, that the Company will not
require additional financing during that period, or that if required, such
additional financing will be available on terms acceptable to the Company, if
at all. In any event, the Company may in the future seek to raise additional
funds through bank facilities, debt or equity offerings or other sources of
capital. The Company's future liquidity and capital requirements will depend
upon numerous factors, including the progress of the Company's product
development efforts, the progress of the Company's clinical trials, actions
relating to regulatory matters, the costs and timing of expansion of product
development, manufacturing, sales and marketing activities, the extent to
which the Company's products gain market acceptance, and competitive
developments. The Company may be required to raise additional funds through
public or private financing, collaborative relationships or other
arrangements. There can be no assurance that such additional funding, if
needed, will be available on terms acceptable to the Company, if at all.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve restrictive covenants.
Collaborative arrangements, if necessary to raise additional funds, may
require the Company to relinquish its rights to certain of its technologies,
products or marketing territories. The failure of the Company to raise capital
when needed would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Development
Stage Company; History of Losses and Expectation of Substantial Future
Losses," "--Uncertainty of Product and Procedure Acceptance," "--Fluctuations
in Operating Results" and "--No Assurance of Obtaining Required Regulatory
Approvals; Government Regulation."
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At December 31, 1996, the net operating losses available to offset future
taxable income for federal income tax purposes were approximately $17.5
million. Utilization of the net operating losses and credits may be subject to
a substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
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BUSINESS
OVERVIEW
Cardima, Inc. designs, develops, manufactures and markets minimally
invasive, single-use, microcatheter-based systems for the mapping and ablation
of the two most common forms of cardiac arrhythmias: atrial fibrillation
("AF") and ventricular tachycardia ("VT"). Arrhythmias are abnormal electrical
heart rhythms that adversely affect the mechanical activities of the heart and
can potentially be fatal. The Company is developing microcatheter systems
designed to provide enhanced access to arrhythmia causing tissue, to diagnose
the arrhythmia by locating its origin ("mapping") and to restore normal heart
rhythms by isolating and destroying the arrhythmia causing sites ("ablation")
using radiofrequency ("RF") energy. The Company's microcatheters incorporate
multiple electrodes in the catheter tip that are designed to both receive
electrical signals for mapping and to emit RF energy for ablation, allowing
physicians to both map and ablate using a single catheter. Cardima's
microcatheters are designed with variable stiffness and a highly flexible
distal tip to allow enhanced access to the vasculature of the heart. In
addition, they are designed to be compatible with existing signal display
systems and RF generators, eliminating the need for significant new investment
in capital equipment. The Company's microcatheter technology was originally
conceived at Advanced Cardiovascular Systems, Inc. ("ACS," now a division of
Guidant Corporation), from 1979 to 1982. Target Therapeutics, Inc. ("Target,"
now a division of Boston Scientific Corporation) purchased this technology in
1985 from ACS for use in neurological applications. In 1993, Target granted
Cardima an exclusive, royalty-free license to use the microcatheter technology
in the treatment of electrophysiological diseases affecting areas other than
the central nervous system.
In January 1997, the Cardima Pathfinder microcatheter system received 510(k)
clearance from the United States Food and Drug Administration ("FDA") for use
in mapping VT, and it is currently being marketed for this application in the
United States, Europe, Japan, Australia and Canada. Also in January 1997, the
Company filed an Investigational Device Exemption ("IDE") for clinical testing
of the Cardima Pathfinder AF microcatheter system for the mapping and ablation
of AF and subsequently received conditional approval from the FDA to begin the
mapping phase of the feasibility study. In March 1997, the Company submitted a
510(k) premarket notification for the Cardima Pathfinder AF for atrial
mapping. The Company expects to file an IDE for its Tracer VT microcatheter
system for the ablation of VT in late 1997.
DISCUSSION OF THE HEART AND ARRHYTHMIC DISORDERS
The heart is an electro-mechanical pump that relies on self-generated
electrical signals to contract its muscle fibers and pump blood throughout the
body. It is divided into four chambers: the two upper chambers called the
atria, and the two lower chambers called the ventricles. The heart consists of
two pumps working side by side, each with its own atrium and ventricle. The
pump on the right side collects venous blood from the body and sends it to the
lungs for oxygenation. The pump on the left side receives the oxygenated blood
from the lungs and pumps it through the body. The process is repeated as
venous blood returns to the right side of the heart.
The heart, as with any other organ, requires oxygen and nutrients to
function. Because the heart has large oxygen and nutrient demands, it requires
an extensive, well developed vascular network to bring blood to and carry
blood away from its tissue. This coronary vascular network is located
throughout the majority of the heart's walls to nourish the heart tissue
directly. This network is comprised of an arterial system and a venous system,
both of which originate on the epicardium, or outer surface, of the ventricles
and penetrate into the tissues of the ventricular walls. Thus, the anatomy of
the ventricular walls consists of a thick mass of contracting muscle cells
with a framework of coronary blood vessels.
The heart's pumping action is controlled by an electrical conduction system
comprised of a specialized network of cells within the heart muscle tissue
(see Figure 1 below). This conduction system allows electrical signals to
propagate through the heart in a systematic and organized way. These
specialized conduction cells are placed throughout the walls of the chambers,
from just underneath the inner, or endocardial, surface of the heart to the
outer, or epicardial, surface. This conduction system carries electrical
signals, in a properly timed sequence, to the muscle cells throughout the
heart. The electrical conduction cycle that results in a normal heart beat
starts in the right atrium, which contains a specialized group of cells called
the Sino-Atrial ("SA") node.
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The SA node is the heart's "natural pacemaker," regularly discharging an
electrical signal that, under normal circumstances, is responsible for setting
the heart rate, usually 60 to 100 beats per minute. The signal generated in
the SA node is propagated through the atria until it is delayed in the Atrio-
Ventricular ("AV") node. This delay provides enough time for the atria to fill
the ventricles with blood before they contract.
FIGURE 1: THE NORMAL HUMAN CARDIAC CONDUCTION SYSTEM
[DEPICTION OF HEART AND CONDUCTION SYSTEM]
Once the electrical signal exits the AV node, it is rapidly conducted down
the His Bundle, and is distributed widely throughout both ventricles via the
Purkinje Fibers, delivering the electrical signal to both ventricles at the
same time, causing them to contract in unison. Since the ventricles pump blood
to the lungs and the body (while the atria only pump blood to the ventricles),
the ventricles are composed of a larger amount of muscle tissue than the
atria. The left ventricle, in particular, is the stronger of the two
ventricles, generating higher pressure and working harder in order to pump
oxygenated blood through the entire body against a high vascular resistance.
In the normal heart, the four chambers work in rhythm with each other to
ensure that properly oxygenated blood is delivered throughout the body.
ARRHYTHMIAS
Arrhythmias are abnormal electrical heart rhythms that adversely affect the
mechanical activities of the heart. Arrhythmias result in insufficient blood
flow, which may cause dizziness, inadequate function of important organs in
the body, stroke or even death. Arrhythmias have numerous causes, including
congenital defects, tissue damage from heart attacks or arteriosclerosis and
other conditions that accelerate, delay or redirect the normal transmission of
electrical activity, thereby disrupting the normal coordinated contractions of
heart muscle cells. There are two general types of arrhythmias: tachycardia, a
fast resting heart rate, typically more than 100 beats per minute, and
bradycardia, a slow resting heart rate, typically less than 60 beats per
minute. Tachycardias fall into one of two major categories: supraventricular
tachycardia ("SVT"), which has its origin above the ventricles (typically in
the atria) with AF being the most common form of SVT, and VT, which has its
origin in the wall of the ventricles. Generally, arrhythmias degenerate and
worsen over time.
Atrial Fibrillation
AF is characterized by the irregular and very rapid beating of the heart and
results when the normal electrical conduction system of the atria
malfunctions, leading to irregular and chaotic electrical signals. During
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AF, the regular pumping action of the atria is replaced by irregular,
disorganized and quivering spasms of atrial tissue. Symptoms of AF typically
include a rapid and irregular heartbeat, palpitations, discomfort and
dizziness. This malfunction results in the failure of the atria to fill the
ventricles completely and, consequently, the failure of the heart to pump
adequate amounts of blood to the body. Once AF becomes symptomatic, it is
typically associated with significant morbidity related to reduced blood flow.
Often, the greatest concern is that the reduced cardiac output can lead to
blood pooling in the atria and the formation of blood clots. Blood clots in
the left atrium can dislodge and travel through the bloodstream to the brain,
resulting in stroke and even death.
In the United States, AF affects an estimated two million people, with
approximately 160,000 new cases being diagnosed each year. It is estimated
that about 1.5 million outpatient visits per year in the United States are
associated with AF and there are more than 200,000 admissions to hospitals for
AF each year. The American Heart Association estimates that AF is responsible
for over 70,000 strokes each year in the United States. The Company estimates
that the cost of treating these patients is more than $3.6 billion annually.
The cost of drug treatment for AF alone is estimated to be in excess of $400
million worldwide each year.
AF is routinely diagnosed using an electrocardiogram, in which electrodes
are placed on the skin to record the irregular beating of the heart. However,
electrocardiograms are unable to locate the origin, or focus, of the AF.
Another diagnostic method, called mapping, involves placing catheters with
electrodes on their tips inside the chambers of the heart to record the
electrical signals generated by the heart in order to locate the focus of the
arrhythmia. Since AF is an arrhythmia that typically affects both the right
and left atria at the same time, the Company believes that optimal mapping of
AF requires the simultaneous evaluation of electrophysiological information
from both atria. The Company believes electrophysiologists do not routinely
map AF because currently available catheters are inadequate to map either the
entire right or left atrium, or both simultaneously.
Current AF treatments are directed at trying to reestablish a normal
heartbeat and prevent stroke, and are primarily supportive and palliative,
rather than curative. Antiarrhythmic and anticoagulant drugs, the most common
treatment for AF, are typically used to attempt to control AF by restoring the
heart's natural rhythm and limiting the natural clotting mechanism of the
blood. However, antiarrhythmic drug therapy often becomes less effective over
time, with approximately half of the patients eventually developing
resistance. In addition, antiarrhythmic drugs can have severe side effects,
including pulmonary fibrosis and impaired liver function. Another palliative
procedure for AF is external cardioversion, or the application of strong
electrical current under general anesthesia. This treatment is usually
effective for a limited period of time as well. Implantable atrial
defibrillators are being investigated to detect the onset of AF internally and
then deliver an electrical shock to convert the heart back to normal rhythm.
Although the preliminary results of clinical studies indicate that this
approach may be feasible, AF is not cured with this approach. There are
significant problems including pain tolerance, reversion to AF and creation of
VT as a result of the electrical shock. Purposeful destruction of the AV node
followed by implantation of a pacemaker is typically a treatment of last
resort for AF patients, but does not cure or treat the AF itself. Since atrial
function remains poor following the procedure, chronic anticoagulant therapy
is generally required.
The Company believes that the only curative therapy for AF used today is an
open heart operation. The most common procedure is the "maze" procedure, in
which a surgeon makes several slices through the wall of the atrium with a
scalpel and then sews the cuts back together creating a scar pattern. The
scars isolate and contain the chaotic electrical impulses to control and
channel the electrical signal emanating from the SA node. This open heart
operation is expensive and associated with long hospital stays and high
morbidity and mortality. Although this approach is not commonly used because
it is highly invasive, containing the movement of the chaotic impulses in the
atrium through scar creation is generally considered effective in controlling
AF.
Electrophysiologists are also experimenting with less invasive, catheter-
based ablation procedures that attempt to mimic the results of the maze
procedure. Although these procedures offer the benefit of a minimally invasive
approach, they are difficult to perform because of the shortcomings of
existing catheter technology and appear unable to create lesions that
effectively isolate portions of the atria where the arrhythmia causing tissue
is located.
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Ventricular Tachycardia
VT is a life-threatening condition in which heartbeats are improperly
initiated from within the ventricular wall, rather than from the SA node, thus
bypassing the heart's normal conduction system. The typical VT patient has
experienced a myocardial infarction, or heart disease, which leads to the
formation of a scar or electrical barrier inside the ventricular wall,
resulting in improper electrical conduction in the cells immediately bordering
the scar. During episodes of VT, the ventricles beat at such an abnormally
rapid rate that they are unable to fill completely with blood, thus impairing
the ventricles' ability to pump oxygenated blood throughout the body. The
resulting reduction in the amount of oxygen transported to the tissues and
organs of the body can cause dizziness and loss of consciousness. VT can often
progress into ventricular fibrillation ("VF"), which is an irregular, chaotic
and ineffective spasming of the ventricles. VF is fatal within a few minutes
of its occurrence, unless orderly contractions of the ventricles are restored.
It is estimated that more than 300,000 people in the United States suffer
from sudden cardiac death each year. Of these, approximately 50,000 people
survive, primarily through emergency defibrillation. These survivors are at
risk of developing VT or subsequently VF. The Company estimates that each year
over 100,000 people in the United States who have never suffered VF are
diagnosed with symptomatic VT. The American Heart Association estimates that
approximately 1.5 million people in the United States suffer myocardial
infarctions each year, of which approximately one million survive.
Approximately 30% of the survivors of a myocardial infarction suffer an
episode of VT within the following year. The Company believes all of these
individuals are potential candidates for a safe and cost-effective mapping and
ablation procedure.
VT may be diagnosed using a standard electrocardiogram in a manner similar
to the diagnosis of AF. The cardiac electrophysiologist typically attempts to
map VT to locate the focus of the arrhythmia within the heart's structure.
However, locating the arrhythmia causing tissue, which can occur at any point
in the thickness of the ventricular wall (see Figure 2 below), from the
endocardium, or inner surface of the heart wall, to the intramyocardium,
inside of the heart wall itself, to the epicardium, or outer surface of the
heart wall, can be difficult.
FIGURE 2: CROSS SECTION OF THE HEART SHOWING THE VENTRICULAR WALL
[DEPICTION OF CROSS SECTION OF HUMAN HEART AND ARRYTHMIA CAUSING TISSUE]
Similar to AF, current treatments for VT are primarily supportive and
palliative. Antiarrhythmic drugs are the most common treatment, although these
drugs have been shown to have a number of unwanted side effects,
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and in some circumstances may actually induce VT. A recent study has
demonstrated that the implantable cardiac defibrillator is a more effective
treatment for VT than antiarrythmic drugs, but it also is a palliative
treatment and is associated with a number of undesirable characteristics, such
as patient reliance on an implantable device with a limited battery life, the
high cost of the implantation procedure and the risks associated with
implanting foreign objects. In addition, the implantable cardioverter is only
palliative and does not cure the VT or destroy the arrhythmia causing tissue.
Similar to the treatment of AF, electrophysiologists are also experimenting
with less invasive, catheter-based ablation procedures for the treatment of
VT. However, access limitations and shortcomings of existing endocardial
catheter technology for ablation have limited the use of catheter technology
to treat VT.
Limitations of Current Catheter-Based Diagnosis and Therapy
The demonstrated medical benefits and cost efficiency of minimally invasive
surgical procedures have encouraged electrophysiologists to seek a means of
employing new, minimally invasive techniques for the diagnosis and treatment
of arrythmias. In the case of AF, electrophysiologists are experimenting with
a treatment technique, often referred to as the "drag and burn procedure," in
which conventional RF ablation catheters are dragged along the inside surface
of an atrium while applying RF energy. However, creating continuous, linear,
transmural lesions to isolate portions of the atria using this experimental
procedure with standard catheters has proven time consuming and difficult.
Endocardial catheter technology is also being tested for the treatment of VT.
The Company believes that an endocardial approach is suboptimal because the
muscle tissue of the ventricles is significantly thicker than the muscle
tissue in the atria, requiring the use of large amounts of RF energy. As a
consequence, the endocardial approach generates larger, less focused lesions,
increasing the amount of ventricular tissue destroyed in the procedure.
The Company believes that the disadvantages of existing catheter based
approaches for AF and VT are attributable not to the minimally invasive
approach of the procedure, but instead to existing catheter technology. The
catheters currently used are relatively large (typically six to seven French
in diameter) and stiff, increasing the risk of trauma to the heart during the
procedure, and restricting access primarily to the chambers of the heart. When
attempting to diagnose and treat VT using standard electrophysiology
catheters, the electrophysiologist is unable to access smaller blood vessels
within the ventricular wall. As a result, generally only signals generated
within one to two millimeters of the inner wall can be recorded. The current
technology is inadequate because the normal ventricular wall is five to 20
millimeters thick, and arrhythmia causing tissue, especially tissue causing
VT, can reside anywhere within that thickness. In addition, the information
generated by the endocardial diagnostic procedure is limited, as the
electrophysiologist can observe and evaluate only a limited number of signals
in a confined area. In order to observe more signals, the user must
mechanically manipulate the catheter to change its location. As a result, the
standard endocardial electrophysiology procedure is extremely laborious and
time consuming, in some cases requiring up to 15 or more RF energy deliveries
per treatment. Although there are endocardial basket-type catheters in
development that enable the electrophysiologist to record information from
multiple points in the ventricle at once, the Company believes that these
catheters suffer the same access limitations to arrhythmia causing tissue
located in the intramyocardium and epicardium as standard endocardial
catheters and often require additional investments in capital equipment.
Based on experience with standard endocardial catheters,
electrophysiologists recognize the need to record and evaluate a greater
amount of electrical information from various areas in the heart
simultaneously during AF or VT procedures. In the case of AF, the Company
believes there is a need for catheters that are able to map both right and
left atria at the same time, if warranted, and then immediately and
appropriately ablate the AF causing tissue. In the case of VT, the Company
believes there is a need for catheters that are able to map safely the entire
thickness of the ventricular wall, not just the endocardial surface, and
appropriately ablate the VT causing tissue with minimal trauma to normal
conducting heart tissue.
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THE CARDIMA MICROCATHETER SYSTEM SOLUTION
The primary clinical goal in the diagnosis and treatment of AF and VT is
precise mapping and effective, less destructive ablation. To achieve this, the
electrophysiologist must be able to access areas of the heart that are
currently inaccessible, using techniques that are easy to perform and that do
not increase the trauma to the patient. The Company's microcatheter systems
are designed to achieve this goal by providing enhanced access to the
arrhythmia causing tissue, by mapping the location of the arrhythmia and then
ablating the arrhythmia causing tissue using RF energy to cure the patient,
all in one procedure using the same catheter. The Company's microcatheter
systems are designed to offer the following advantages:
. MINIMALLY INVASIVE APPROACH. The Cardima microcatheter systems are
designed to provide a minimally invasive approach to the treatment of
both AF and VT, resulting in decreased procedure time, shorter hospital
stays, lower procedure costs and fewer complications than the surgical
procedures currently in use.
. SINGLE CATHETER FOR RAPID MAPPING AND ABLATION. By using microcatheters
that can map, as well as ablate, the Company believes the
electrophysiologist need only access the arrhythmia causing tissue once
in order to map it, verify that it is causing the arrhythmia and then,
using the same device, ablate the tissue to cure the patient. The
Company believes this single catheter, dual function characteristic of
its microcatheter systems will decrease procedure times and improve
treatment of both AF and VT.
. ENHANCED ACCESS TO THE VASCULATURE OF THE HEART. Cardima's
microcatheters feature a significantly smaller diameter than standard
electrophysiology catheters, and incorporate Target variable stiffness
technology and a highly flexible distal tip. As a result, the Company's
microcatheters are more flexible and torqueable than standard
electrophysiology catheters and have varying degrees of flexibility at
the distal end to allow enhanced access to the vasculature of the heart,
to conform easily to the contours of the heart wall and to maintain
controlled, regular contact even in a fast beating heart.
. ABILITY TO GATHER MORE INFORMATION. The Company's microcatheter system
designs include a large number (up to 16) of narrow electrodes, while
maintaining a high degree of flexibility. The Company believes that this
design permits the electrophysiologist to acquire and evaluate far more
information in a mapping procedure than is available using standard
electrophysiology catheters, which typically incorporate fewer
electrodes. The increased amount of information recorded using the
microcatheter approach should enable the electrophysiologist to target
the arrhythmia causing tissue with greater precision, in order to permit
effective ablation.
. CURATIVE TREATMENT FOR AF. The Cardima Pathfinder AF microcatheter
system is designed to treat AF by creating long, thin, continuous,
linear, transmural lesions in both the right and left atria to isolate
and contain the arrhythmia causing tissue, thereby restoring normal
electrical function by controlling and reorganizing the random, chaotic
electrical activity that characterizes AF. In animal studies, the
Company's microcatheter systems have required less RF energy and created
significantly thinner lesions than standard electrophysiology catheters,
preserving a greater amount of atrial tissue following the procedure.
The Company believes this will result in a significant improvement in
atrial function and a reduction in the risk of blood clotting, reducing
or eliminating the need for chronic anticoagulant therapy. The Company
believes this approach has the potential to offer the effectiveness of
the open heart surgical cure for AF, but with significantly less trauma,
fewer complications, reduced pain, shorter hospital stays and lower
procedure costs.
. CURATIVE APPROACH FOR VT. The Company's microcatheter systems for the
mapping and ablation of VT are designed for use inside the vasculature
of the heart wall, facilitating access to arrhythmia causing tissue
through the venous system. Cardima believes that at least half of VT
foci are located in the intramyocardium and the epicardium, areas that
are ineffectively accessed using standard endocardial catheters or
basket type catheters in development. The intravascular approach to VT
ablation should permit the microcatheters to be positioned in close
proximity to the arrhythmia causing tissue, facilitating the creation of
smaller, more focused lesions. The Company believes that this approach
has the potential to be more effective than standard endocardial
ablation procedures, with
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reduced destruction of surrounding healthy tissue, thus maximizing and
optimizing the normal function of the heart after the procedure. The
Company is not aware of any epicardial mapping catheters other than the
Cardima Pathfinder and Tracer under development.
. COMPATIBLE WITH EXISTING CAPITAL EQUIPMENT. The Company's microcatheter
systems are designed to be compatible with leading electrophysiology
signal display systems and RF generators, in order to eliminate the need
for significant new investment in additional capital equipment. By
facilitating the rapid and precise location of the arrhythmia causing
tissues using a system that is compatible with standard laboratory
equipment, the Company believes its products will be rapidly adopted by
electrophysiologists.
. REDUCED PROCEDURE AND RADIATION EXPOSURE TIMES. The Company believes
that its microcatheter systems will reduce procedure times and thereby
decrease cumulative x-ray exposure to both patients and lab personnel.
Standard electrophysiology procedures, in many cases, expose both the
patient and the lab personnel to over one hour of accumulated x-ray time
during flouroscopy, which is used to visualize the placement of the
catheters. The Company believes that the total procedure and fluoroscopy
time associated with the use of its microcatheter systems are less than
those using standard electrophysiology catheters, thereby reducing
procedure costs and the risk of disease resulting from extended exposure
to x-ray flouroscopy.
STRATEGY
Cardima's objective is to establish its microcatheter systems as the
standard of electrophysiological care for mapping and ablating AF and VT. To
achieve its objective, the Company is pursuing the following strategies:
DEVELOP MICROCATHETER TECHNOLOGY TO ADDRESS UNMET CLINICAL NEEDS FOR BOTH
MAPPING AND ABLATION. Cardima is developing microcatheter systems to address
clinical needs that are not adequately addressed by current technology.
Cardima is focused on both endocardial access for AF and intravascular access
for VT, and provides a microcatheter systems approach to addressing AF and VT.
Cardima has designed systems incorporating variable stiffness technology
originally developed at Target, including guiding catheters, fixed-wire and
over-the-wire systems, in order to optimize the physician's ability to access
the areas of interest in the heart easily and safely. By using microcatheters
that can map as well as ablate, the Company believes the electrophysiologist
need only access the arrhythmia causing tissue once in order to map it, verify
that it is causing the arrhythmia and then ablate the tissue using the same
catheter.
PROVIDE MICROCATHETER SYSTEMS THAT LOWER THE COST OF TREATING
ELECTROPHYSIOLOGICAL DISORDERS. The Company's microcatheter systems are
designed to reduce the average time required for AF and VT diagnostic and
treatment procedures significantly. As a result, time spent in high cost
electrophysiology laboratories should be reduced, lowering the overall cost of
AF or VT treatments. The shorter procedure time that the Company believes will
result from the use of its microcatheter systems should enable physicians to
perform a greater number of AF or VT procedures and reduce the overall cost
per procedure. In addition, the Company intends to use data derived from its
clinical studies to establish reimbursement for AF and VT procedures using the
Company's microcatheter systems. The Company believes that its microcatheter
systems will appeal to patients and third party payors seeking a cost-
effective solution to the diagnosis and treatment of AF and VT.
ACCELERATE ACCEPTANCE AND ADOPTION OF THE COMPANY'S MICROCATHETER SYSTEMS BY
LEADING ELECTROPHYSIOLOGISTS. The Company has formed relationships with
leading medical centers in the United States, and is formalizing relationships
with centers in Europe and Japan, to perform clinical trials of its
microcatheter systems for the diagnosis and treatment of AF and VT. In the
United States, the Company is formalizing arrangements with Massachusets
General Hospital and Stanford University Medical Center to perform the mapping
phase of the Company's feasibility study of the Cardima Pathfinder AF
microcatheter system for mapping and ablation of AF. Cardima believes that
successful acceptance and adoption of these systems by widely recognized
experts in the field of electrophysiology is a critical step in the overall
market acceptance of its microcatheter systems. In addition, the Company has
established a Scientific Advisory Board composed of
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leading electrophysiologists at medical centers in the United States to
consult with the Company concerning the preclinical and clinical development
of the Company's microcatheter systems. The Company intends to continue to
work with leading physicians and medical centers and to initiate clinical
trials to demonstrate the safety and effectiveness of its microcatheter
systems and ultimately to establish broad market acceptance. In addition,
Cardima intends to accelerate physician education and adoption through peer-
reviewed publications concerning the clinical trials of the Company's
microcatheter systems.
BUILD MARKET LEADERSHIP THROUGH STAGED INTRODUCTION OF MICROCATHETER
SYSTEMS. In the United States, the Company intends to first introduce
microcatheter systems for mapping while continuing to develop its
microcatheter systems for ablating AF and VT. The Company has received 510(k)
premarket clearance for its Cardima Pathfinder microcatheter system for VT
mapping in January 1997 and submitted a 510(k) premarket notification for the
Cardima Pathfinder AF microcatheter system for AF mapping in March 1997. The
Company expects to establish the benefits of its microcatheter systems by
encouraging their use initially as a diagnostic complement to standard
ablation catheters. As a result, the Company's strategy is to establish the
utility of these diagnostic systems in advance of regulatory approval for the
Company's microcatheter systems for the treatment of AF and VT.
INCREASE SALES BY FURTHER PENETRATING INTERNATIONAL MARKETS. The Company
intends to devote significant resources to further penetrate international
markets, given their substantial size and the relatively lower regulatory
barriers. The Company has received ISO 9001 (EN 46001) Quality Systems
certification, as well as the right to affix the CE Mark to a number of its
products. The Company has received regulatory approval in the United States,
Europe, Japan, Australia and Canada for the Cardima Pathfinder microcatheter
system for mapping VT and has received regulatory approval in Europe, Japan
and Australia for the Cardima Pathfinder AF microcatheter system for mapping
AF. The Company is pursuing additional regulatory approvals in Europe, Canada
and Japan necessary to market its microcatheter systems for ablation. In
addition, the Company has trained electrophysiologists in Europe, Canada and
Japan in the use of its products.
PRODUCTS
Cardima is developing the Cardima Pathfinder and Tracer families of
microcatheter systems for the diagnosis and treatment of AF and VT. These
systems are designed, in the case of AF, to access both the right and left
atria and, in the case of VT, to be positioned within the coronary vasculature
using a guiding catheter in a system similar to that used in angioplasty
procedures. Cardima's microcatheter systems are designed to be used
endocardially in the atria to map and then ablate AF through the creation of
long, thin, continuous, linear, transmural lesions to treat AF. For VT, these
systems are designed to provide intravascular access to the heart to map and
ablate within the wall of the ventricles. The Cardima Pathfinder and Tracer
families of microcatheters are available in a variety of electrode numbers,
electrode spacing configurations and outer diameters. These microcatheter
systems are smaller in diameter and are designed to be more flexible and
torqueable than standard electrophysiology catheters, providing better
steerability for the electrophysiologist. In addition, these systems have a
series of electrodes at their distal ends that can both receive electrical
signals for mapping and emit RF energy for ablation. The Company's Cardima
Pathfinder and Tracer microcatheters are designed for single use. The Company
is designing its products to be used with existing electrophysiology computer
systems and RF ablation generators. The Company's ancillary products,
including guidewires and connecting cables, support these families of
microcatheter systems.
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The following table describes the Company's products and their intended
indications and regulatory status:
<TABLE>
<CAPTION>
INTERNATIONAL
AF PRODUCTS DESCRIPTION INDICATION U.S. REGULATORY STATUS(1) REGULATORY STATUS(1)
----------- ------------------- ---------- ------------------------- --------------------
<S> <C> <C> <C> <C>
Cardima Fixed-wire multi- Mapping 510(k) Approved in Europe
Pathfinder electrode submission filed in (CE Mark) and
AF microcatheter March 1997. Japan.
system designed to
create long, thin,
continuous, linear,
transmural lesions
in both right and
left atria.
Ablation IDE submission European and
filed in January Japanese ablation
1997. Conditional submissions
approval for Phase necessary for
I (mapping) clinical trials
obtained in January expected in 1997.
1997.
<CAPTION>
INTERNATIONAL
VT PRODUCTS DESCRIPTION INDICATION U.S. REGULATORY STATUS(1) REGULATORY STATUS(1)
----------- ------------------- ---------- ------------------------- --------------------
<S> <C> <C> <C> <C>
Cardima Fixed-wire multi- Mapping 510(k) clearance Approved in Europe
Pathfinder electrode obtained. (CE Mark) and
microcatheter Japan.
system designed for
accessing coronary
vasculature to
locate the
arrhythmia causing
tissue.
Cardima Smallest Cardima Mapping 510(k) submission Approved in Europe
Pathfinder Pathfinder expected in first (CE Mark) and
1.5 Fr. microcatheter (1.5 half of 1997. Japan.
French) designed to
provide more distal
access to smaller
blood vessels in
the heart wall.
Tracer Over-the-wire Mapping 510(k) submission Approved in Europe
and multi-electrode expected in first (CE Mark) and
Tracer VT microcatheter half of 1997 for Japan.
system designed to mapping using
be used in the Tracer.
veins of the heart
wall over a
steerable
guidewire.
Ablation IDE submission European and
expected in late Japanese ablation
1997 for ablation submissions
using Tracer VT. necessary for
clinical trials
expected in 1997.
<CAPTION>
INTERNATIONAL
ANCILLARY PRODUCT DESCRIPTION INDICATION U.S. REGULATORY STATUS(1) REGULATORY STATUS(1)
- ----------------- ------------------- ---------- ------------------------- --------------------
<S> <C> <C> <C> <C>
Venaport Coronary sinus Venous 510(k) clearance Approved in Europe
guiding catheters access obtained. (CE Mark). Japanese
with a family of submission expected
curved shapes and first half of 1997.
lengths. Designed
to deliver Cardima
Pathfinder and
Tracer
microcatheter
systems to desired
coronary veins.
</TABLE>
- --------
(1) The regulatory status of the Company's microcatheter systems reflects the
Company's current estimates of the timing of regulatory submission in the
Unites States, Europe or Japan. See "--Government Regulation." The actual
submission times could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including
failure to complete development of microcatheter systems or to demonstrate
safety or effectiveness in clinical studies, as well as the other factors
set forth under "Risk Factors" and elsewhere in this Prospectus.
34
<PAGE>
Products Designed for Mapping and Ablating AF
The Company believes its microcatheter systems can access the right and left
atria in a minimally invasive procedure and are designed to effectively ablate
AF by creating long, thin, continuous, linear, transmural lesions in the
atria.
Cardima Pathfinder AF for AF Mapping. The Cardima Pathfinder AF
microcatheter system is designed to facilitate mapping of both the right and
left atria. The Cardima Pathfinder AF is a thin, flexible, multi-electrode
microcatheter. The Cardima Pathfinder AF microcatheter system utilizes a three
French diameter microcatheter that incorporates Target variable stiffness
technology that both permits access to any area of the atria and enhances
contact to surrounding heart tissue, and also has three millimeter long
platinum coil electrodes for added flexibility. Because the Cardima Pathfinder
AF is one of the smallest electrophysiology catheters ever developed, the
Company believes several catheters can be positioned in the right atrium and
the left atrium at the same time to map both atria simultaneously. This
microcatheter system is being sold for mapping AF in Europe and Japan. In
March 1997, the Company submitted a 510(k) premarket notification for this
microcatheter system for mapping AF, based in part on results of the Company's
laboratory and animal studies.
There is considerable clinical debate regarding the need for mapping AF
prior to ablation, because, among other reasons, the electrical
characteristics of the arrhythmia causing tissue cannot be assessed adequately
using current technology. No mapping is performed during the open heart
surgical maze procedure. However, the Company believes that mapping prior to
ablation may be useful to identify different segments of the AF population,
each of which could require slightly different mapping and ablation
procedures. For example, some electrophysiologists believe most AF patients
will need to be mapped and ablated in both the left and right atria, while
others believe only right atrial intervention is warranted. The Company
believes that its products will have clinical utility in either of these
situations.
Cardima Pathfinder AF for AF Ablation. The multiple electrodes of the
Cardima Pathfinder AF microcatheter are closely grouped and can be used to
create a continuous lesion that extends through the thickness of the atrial
wall. The Company believes that the electrophysiologist will be able to use
the Cardima Pathfinder AF microcatheter system to create long, thin,
continuous, linear, transmural lesions in both the right and left atria,
thereby restoring normal electrical function in the atria by isolating the
arrhythmia causing tissue in a manner similar to the open heart surgical maze
procedure, without the associated risk and expense. Unlike other proposed
catheter-based ablation techniques, such as the "drag and burn" approach, the
Cardima approach does not involve resetting the catheter position during the
linear ablation procedure. As a result, the Cardima Pathfinder AF may have the
ability to more effectively and rapidly ablate the arrhythmia causing tissue.
The Cardima Pathfinder AF microcatheters are designed with narrow electrodes
that are able to deliver ablation level energy to the atrial tissue at much
lower power settings than documented with standard electrophysiology
catheters. The Company's animal studies have demonstrated the ability of the
Cardima Pathfinder AF to create the thinnest linear lesions that the Company
believes have ever been documented and presented generally to the
electrophysiology community. The Company has designed its Cardima Pathfinder
AF microcatheter system to be used with leading cardiac electrophysiology RF
generators and electrophysiology mapping computer systems.
The Company filed an IDE with the FDA for the Cardima Pathfinder AF
microcatheter system for mapping and ablation of AF in January 1997. The
protocol for this feasibility study was divided into two parts, one focusing
on mapping and one focusing on ablation. The Company has subsequently received
conditional approval for the mapping phase of the study and expects to begin
human mapping clinical trials in the first half of 1997. This feasibility
study will not be sufficient to support a PMA, and the Company will need to
conduct additional studies prior to submission of a PMA application. The
Company expects to submit an IDE for the Phase II pivotal clinical trials for
the Cardima Pathfinder AF microcatheter system for ablation in the second half
of 1997. The Company believes that PMA approval will be required before the
Cardima Pathfinder AF for atrial ablation can be marketed in the United
States. See "--Government Regulation."
Products Designed for Mapping and Ablating VT
The Company's intravascular approach allows its microcatheters to be
positioned in close proximity to the VT causing tissue and provides stable
positioning within the vascular system. The Company believes this
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<PAGE>
approach will result in greater accuracy of diagnosis and more effective
treatment. The Company is not aware of any other epicardial mapping catheters
in development.
Cardima Pathfinder and Tracer for VT Mapping. The Company's microcatheter
systems used for diagnosing and treating VT are designed to be positioned
within the coronary vasculature using a guiding catheter in a system similar
to that used in angioplasty procedures and also have a series of electrodes at
their distal ends in order to perform as electrophysiology catheters. The
Cardima Pathfinder and Tracer microcatheter systems can be used to subselect
vessels and access the small veins located at the apex (lower tip) of the
heart. The Cardima Pathfinder microcatheter systems are configured with either
four, eight or 16 electrodes, that enable the physician to perform a narrow
focus evaluation using a smaller number of electrodes, if there is reason to
believe the VT causing tissue is located in a specific area, or a wider focus
evaluation using larger number of electrodes, if there is little indication
regarding the location of the VT causing tissue.
The Company received 510(k) clearance for the Cardima Pathfinder
microcatheter system for VT in January 1997 and has begun marketing and
selling the product in the United States. The Company is also currently
selling the Cardima Pathfinder product for VT mapping in Europe, Japan,
Australia and Canada. The Company's animal studies have shown that the Cardima
Pathfinder can safely map via the vessels of the coronary venous system and
have demonstrated the ability to simultaneously position five different
Cardima Pathfinders in various vessels of the coronary system. To date, the
Cardima microcatheter systems have been used to map VT in more than 30
patients in Europe, South America and Japan. See "--Government Regulation."
Cardima Pathfinder 1.5 Fr. for VT Mapping. The Cardima Pathfinder 1.5 Fr.,
the Company's smallest microcatheter system, is being developed for VT mapping
in the venous system. The Cardima Pathfinder 1.5 Fr. is 1.5 French in diameter
(the typical catheter is six or seven French) and provides more distal access
to smaller vasculature of the heart. Similar to the Cardima Pathfinder
microcatheter, the Cardima Pathfinder 1.5 Fr. microcatheter is constructed
around a finely ground core-wire to provide the steerability necessary to
access distal vasculature. The Cardima Pathfinder 1.5 Fr. microcatheter has a
flexible platinum tip coil and contains a variable number of electrodes with
different spacing options. The Company expects to submit a 510(k) premarket
notification for this product in the first half of 1997.
Tracer VT for VT Ablation. The Company's epicardial approach to VT ablation
is intended to address the shortcomings of standard endocardial ablation
catheters. Once a VT focus has been identified as being epicardial or
intramyocardial, the electrophysiologist must decide whether or not to attempt
to ablate that focus from the endocardial side of the heart wall. Physicians
using existing ablation systems are faced with a fundamental problem: the
further the VT focus is from the endocardial side of the heart wall, the
larger the lesion size necessary to cure the condition. Traditionally,
electrophysiologists have had to use catheters and generators capable of
making larger lesions since they can only ablate the arrhythmia causing tissue
from the endocardial side. A large number of VT ablation cases required
multiple endocardial RF energy deliveries (up to 30 or more in one
electrophysiology study). Increased endocardial RF energy in ablation may
result in greater risk that the patient will develop blood clots, which may
dislodge and travel to the brain causing stroke and decreased cardiac output.
Cardima's microcatheter systems are intended to offer an alternative approach
to current ablation techniques by facilitating access to the arrhythmia
causing tissue and providing greater ablation accuracy using less RF energy.
The Company is not aware of any epicardial RF ablation catheter other than its
Tracer VT microcatheter system under development.
The Tracer VT microcatheter tracks over a guidewire in the coronary veins
and can access the important distal vasculature regions of the heart and
deliver RF energy to the epicardium. The Tracer VT is designed to map, locate
and ablate the VT focus using RF energy directly applied through the veins.
The Company is currently conducting animal studies to demonstrate the ability
of the Tracer VT to access the distal venous system and safely release RF
energy with no damage to the adjacent arteries. In these experiments the
Tracer VT has required significantly less energy to ablate VT than standard
endocardial catheters.
36
<PAGE>
The Company believes that it will submit an IDE for the Tracer VT
microcatheter system in 1997 and begin clinical trials if the IDE is approved.
The Company expects that PMA approval will be required before the Tracer VT
for VT ablation can be marketed in the United States. See "--Government
Regulation."
The Company's intravascular electrophysiology catheters are coated with a
hydrophilic coating. This coating has been used on Target's products designed
to access the vessels of the brain. The Company believes the coating
significantly improves mechanical function. The Company has an exclusive
license to use the hydrophilic coating technology in products designed to map
and ablate cardiac arrhythmias while positioned within coronary vasculature.
Cardima's microcathether system for venous mapping of VT has received 510(k)
clearance from the FDA for sale in the United States and includes the Cardima
Pathfinder microcatheter and Venaport guiding catheter. The Company's other
microcatheter systems for mapping or ablation have not received FDA clearance
or approval for marketing and distribution in the United States. The Company's
microcatheter systems for ablation are at an early stage of testing. There can
be no assurance that the results of the Company's human clinical studies will
validate the results of its animal studies. The Company has not received
approval to begin clinical trials of any of its microcatheter systems for
ablation and there can be no assurance that any such approvals will be
received. See "Risk Factors--Early Stage of Product Development; No Assurance
of Safety and Effectiveness" and "--No Assurance of Obtaining Required
Regulatory Approvals; Government Regulation."
RESEARCH AND NEW PRODUCT DEVELOPMENT
The Company believes its future success will depend in large part on its
ability to develop and introduce clinically advanced diagnostic and
therapeutic systems that are effective, easy to use, safe and reliable. The
Company's research and new product development department focuses on the
continued development and refinement of its existing diagnostic devices,
systems and procedures, as well as on the development of new devices, systems
and procedures for treating cardiac arrhythmias. The Company's primary
research and development programs involve completing the development of
microcatheter systems for AF and VT ablation and developing smaller second
generation microcatheter systems for multi-catheter mapping of VT.
Research and development expenses for the years ended December 31, 1994,
1995 and 1996, were $2.2 million, $2.6 million and $3.3 million, respectively.
The Company intends to make significant investments in research and new
product development for the foreseeable future.
MARKETING AND DISTRIBUTION
The Company markets and sells its Cardima Pathfinder, Tracer and Venaport
microcatheter systems internationally through medical device distributors, and
currently sells its approved devices in the United States through a direct
sales force. The Company believes there are between 500 and 600 hospitals in
the United States and an additional 600 hospitals internationally that perform
electrophysiology procedures on a routine basis. Further, the Company believes
there are over 600 board certified electrophysiologists in the United States,
and an equal number of practicing electrophysiologists internationally. The
Company believes that a small sales force can serve its target market
effectively due to the relatively small number of physicians performing a
significant percentage of electrophysiology procedures.
United States
The Company's sales strategy in the United States involves the use of both
direct sales representatives and clinical specialists. The Company intends to
use its clinical specialists to support U.S. clinical trials for the AF and VT
microcatheter systems. The Company currently sells the Cardima Pathfinder for
VT mapping through a direct sales force in the United States consisting of
five sales personnel and two clinical specialists.
The Company is currently establishing relationships with regional training
hospitals in the United States in order to provide physicians with both a
clinical perspective on the use of the Company's products as well as the
37
<PAGE>
appropriate technical training for the handling of its products. The Company
intends to continue to develop relationships with key academic institutions
and physicians who are well recognized in the field of electrophysiology for
the quality of their research and their ability to influence medical opinion.
The Company intends to utilize these product champions in the United States,
as it is internationally, to assist it in gaining broad market acceptance and
adoption of its products. Several of these physicians have been involved in
the development of the Company's products, and the Company intends to continue
to build these relationships through its Scientific Advisory Board,
participation in regional training centers and physician-oriented symposia.
International
The Company's international distributors are experienced in cardiovascular
products and many have prior experience with electrophysiology. The Company
currently uses distributors in Germany, France, Italy, Spain, Portugal, the
United Kingdom, Belgium, The Netherlands and Japan. These countries accounted
for 70% of the Company's total sales in 1995 and 91% of total sales in 1996.
In addition, the Company has distribution in other countries in Europe and the
Pacific Rim.
The Company operates under written distribution agreements in Germany,
Spain, Portugal, Belgium, The Netherlands and Japan. These agreements grant
exclusive rights to sell the Company products within a defined territory for
periods ranging from approximately two to three years. These agreements
generally reserve for the Company the right to terminate the distribution
agreement for cause, which includes failure to meet specified minimum
performance obligations, or the failure of the distributor to obtain required
governmental approvals to distribute the Company's products in the territory.
The Company has retained the right to terminate the distribution agreement
should the distributor begin to market medical devices that compete directly
with those of the Company. In France, Italy and the United Kingdom, where
there are significant sales of the Company's products, the Company is
currently negotiating distribution agreements on similar terms; however, there
can be no assurance that the Company will be able to complete these
negotiations and enter into agreements with these distributors on commercially
reasonable terms. In other countries where the Company's products are sold,
the Company's distributors operate under letter or oral arrangements. In the
territories where the Company does not have written agreements with its
exclusive distributors, the terms of the arrangements, such as length of
arrangements and minimum purchase obligations are uncertain. In addition, the
laws in certain international jurisdictions may make it difficult for the
Company to terminate such distribution arrangements absent specific written
termination terms. These distributors also sell medical products manufactured
by other companies. Distributors typically purchase the Company's products at
a discount to list price and resell the products to hospitals and physicians
at a price determined by the distributor. Sales to the international
distributors are denominated in U.S. dollars.
The Company currently has a limited sales organization. The Company's Vice
President, World Wide Sales and the Company's Director, European Sales manage
distributor relationships on a worldwide basis. In addition, the Company has
hired two clinical specialists (based in the United States) to support the
global sales effort.
Establishing a sales organization with the ability to support sales in
significant volumes will require significant management and financial
resources. To date, the Company has not established all of the international
distribution alliances necessary to fully market these products on a worldwide
basis, nor does the Company have written distribution agreements with all of
its international distributors. There can be no assurance the Company will be
able to enter into agreements with the desired distributors on a timely basis,
or that such distributors will devote adequate resources to selling the
Company's products.
Since the Company introduces its products initially in foreign markets, the
Company expects to continue to derive a substantial portion of its revenues
from international sales. The Company expects that international sales will
continue to account for a significant portion of the Company's total revenues
for the foreseeable future. As a result, a significant portion of the
Company's revenues will be subject to the risks associated with international
sales. See "Risk Factors--Risk of International Sales."
38
<PAGE>
MANUFACTURING
The Company fabricates certain proprietary components of the Company's
products and assembles, inspects, tests and packages most components into
finished products. Designing and manufacturing its products from raw materials
allows the Company to maintain greater control of quality and manufacturing
process changes and the ability to limit outside access to its proprietary
technology.
The Company believes its custom-designed, proprietary process equipment is
an important component of its manufacturing strategy. In some cases, the
Company has developed proprietary enhancements for existing production
machinery to facilitate the manufacture of its products to exacting standards.
The Company has also developed core manufacturing technologies and processes,
including proprietary extrusion techniques and equipment, polymer processing
capabilities, including composite lamination, welding of dissimilar materials,
balloon forming and proprietary precision guidewire grinding techniques
enabling fabrication of a large variety of guidewire core profiles.
Furthermore, the Company's technological expertise includes braiding,
hydrophilic coating, material cleaning and surface preparation.
The manufacture of catheters is a complex operation involving a number of
separate processes and components. Catheters are assembled and tested by the
Company prior to sterilization. The manufacturing process for the connecting
cable consists primarily of packaging and testing purchased units. The Company
has no experience manufacturing its products in the volumes that will be
necessary for the Company to achieve significant commercial sales, and there
can be no assurance that reliable, high-volume manufacturing capacity can be
established or maintained at commercially reasonable costs. If the Company
receives additional FDA clearance or approval for its products, it will need
to expend significant capital resources and develop additional manufacturing
expertise to establish large-scale manufacturing capabilities.
Components and raw materials are purchased from various qualified suppliers
and subjected to stringent quality specifications. The Company expects to
conduct supplier quality audits and is establishing a supplier certification
program. A number of the components such as the laminate tubing, core wiring
mandrels, connector components and hydrophilic coating are provided by sole
source suppliers. For certain of these components, there are relatively few
alternative sources of supply, and establishing additional or replacement
suppliers for such components, particularly the laminate tubing, could not be
accomplished quickly. The Company plans to qualify additional suppliers if and
as future production volumes increase. Because of the long lead time for some
components which are currently available from a single source, a supplier's
inability to supply such components in a timely manner could have a material
adverse effect on the Company's ability to manufacture products and therefore
on its business, financial condition and ability to test or market its
products on a timely basis.
The Company's manufacturing facilities are subject to periodic inspection
from regulatory authorities, and its operations must undergo QSR and ISO 9001
(EN 46001) compliance inspections conducted by the FDA and TUV, a notified
body (a regulatory agency) in the European Union ("EU"), respectively. In
addition, the Company has obtained ISO 9001 (EN 46001) Quality Systems
certification from TUV and has obtained the right to affix the CE Mark to its
electrophysiology mapping catheters and accessories. The Company's facilities
and manufacturing processes have recently successfully undergone a combined
inspection by the FDA and California Department of Health Services and an
annual reinspection by TUV. See "--Government Regulation."
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain patent
and copyright protection for its products and processes, to preserve its trade
secrets and to operate without infringing or violating the proprietary rights
of third parties. The Company's strategy is to actively pursue patent
protection in the United States and foreign jurisdictions for technology it
believes to be proprietary and which offers a potential competitive advantage
for its products. The Company has filed and intends to continue to file patent
applications, both in the United States and selected international markets, to
seek protection for proprietary aspects of the technology. No assurance can be
given that these patent applications will provide competitive advantages for
the Company's products or that any patent application filed by the Company
will issue as a patent. In addition, there can be no assurance any of the
Company's patents or patent applications will not be challenged, invalidated,
or circumvented in the future. There can also be no assurance that
competitors, many of whom have greater
39
<PAGE>
resources than the Company and have substantial investments in competing
technologies, will not apply for and obtain patents which will prevent, limit
or interfere with the Company's ability to make, use, or sell its products
either in the United States or internationally.
The Company has also obtained rights to certain technology by entering into
license arrangements. Pursuant to a license agreement with Target (the
"License Agreement"), the Company obtained an exclusive, royalty-free,
worldwide license under certain patents issued in the United States and
corresponding international patents to use Target's technology and to make,
use and sell or otherwise distribute products for the diagnosis and treatment
of electrophysiological diseases in the body, other than in the central
nervous system, including the brain. The exclusive license applies to any
Target technology developed through May 1996 and will terminate on April 23,
2013, the expiration date of the last-to-issue licensed patents issued prior
to May 21, 1996. In addition, the Company has obtained a non-exclusive license
to use Target's technology, provided it has made a substantial improvement on
such technology, for the diagnosis or treatment of diseases of the heart other
than using balloon angioplasty. As defined in the License Agreement, a
substantial improvement is any modification, improvement or enhancement of
Target technology that results in a material change in the function, purpose
or application of a particular product incorporating Target technology. The
Company believes that the incorporation of electrodes in its microcatheter
systems, together with other modifications, satisfies the substantial
improvement requirements.
Under the License Agreement, Cardima granted back to Target an exclusive,
royalty-free, worldwide license to use technology developed by Cardima through
May 1996 in the fields of neurology, interventional neurology, interventional
reproductive disorders and vascular prostheses (the "Target Field"). In
addition, the Company agreed not to conduct material research and development,
acquire corporate entities or make or sell products in the Target Field or to
sell products, other than products utilizing Target's technology, for use in
diagnosis or treatment of diseases related to the production of electrical
current in tissue located in areas of the body other than the heart, without
first notifying Target and negotiating a distribution agreement. Cardima also
agreed that it would not sell products utilizing Target's technology for use
in diagnosis or treatment of diseases related to the production of electrical
current in tissue located in areas of the body other than the heart without,
if selling to a distributor, first notifying Target and offering Target the
right of first refusal with respect to the terms of the distribution, or if
selling directly to the consumer, paying to Target an amount equal to 40% of
the gross profit for such product.
In April 1997, Boston Scientific completed the acquisition of Target, by
merging Target with a wholly-owned subsidiary. As a result of the acquisition,
Boston Scientific will exercise control over a significant portion of the
Company's outstanding Common Stock. Accordingly, Boston Scientific may be able
to exercise influence over the business and financial affairs of the Company.
Boston Scientific develops, markets and sells cardiac electrophysiology
products that compete directly with the microcatheter products being developed
by the Company. There can be no assurance that Boston Scientific will not take
actions or engage in activities that could have a material adverse effect on
the Company's business, financial condition or results of operations. See
"Risk Factors--Influence of Boston Scientific Corporation/Target Therapeutics,
Inc."
The Company obtained rights to its biocompatible hydrophilic coating
material and process through an exclusive, royalty bearing license to use the
hydrophilic coating technology in products designed to map and ablate cardiac
arrhythmias while positioned within the coronary arteries and coronary veins.
The license will terminate upon the later of 15 years from first commercial
sale of catheters treated with the coating material or the expiration of the
last-to-issue licensed patent, unless terminated earlier for material breach.
In addition to patents and licenses, the Company also relies upon trade
secrets, technical know-how and continuing technical innovation to develop and
maintain its competitive position. The Company typically requires its
employees, consultants, and advisors to execute confidentiality and assignment
of invention agreements in connection with their employment, consulting or
advisory relationships with the Company. There can be no assurance, however,
that the agreements will not be breached or that the Company will have
adequate remedies for any breach. Furthermore, no assurance can be given that
competitors will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the
Company's
40
<PAGE>
proprietary knowledge, or that the Company can meaningfully protect its rights
in unpatented proprietary technology.
Patent applications in the United States Patent and Trademark Office
("USPTO") are maintained in secrecy until patents issue, and patent
applications in the patent offices of foreign countries are maintained in
secrecy for a period of 18 months from the priority date. Publication of
discoveries in the scientific or patent literature tend to lag behind actual
discoveries and related patent applications, and the large number of patents
and applications and the fluid state of the Company's development activities
make comprehensive patent searches and analysis impractical or not cost-
effective. Although the Company has made patent and publication searches in
the United States and in foreign countries to determine whether materials,
processes or designs used by it or its potential products infringe or will
infringe third-party patents, such searches have not been comprehensive.
Patents issued and patent applications filed relating to medical devices are
voluminous and there can be no assurance that current and potential
competitors and other third parties have not filed or will not file
applications for, or have not received or will not receive, patents and will
not obtain additional proprietary rights relating to products, materials or
processes used or proposed to be used by the Company.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain
a competitive advantage. While the Company's patents have not been the subject
of any litigation, the Target patent which relates to the variable stiffness
design of Target's Tracker microcatheters (the "Tracker Patent") has been the
subject of four reexamination proceedings in the USPTO. Following the
completion of the first such proceeding, the USPTO issued a reexamination
certificate and confirmed the patentability of the patent claims set forth in
the certificate. Requests for second, third and fourth reexaminations of the
Tracker Patent were initiated by one of Target's competitors, SciMed, a
subsidiary of Boston Scientific. After the USPTO's review of such petitions,
Target received notice from the USPTO that it had reaffirmed the patentability
of the claims of the Tracker Patent.
In addition, the Company is aware that in 1994 Target filed a lawsuit
against SciMed and Cordis Endovascular Systems, Inc. (now a division of
Johnson & Johnson) in the U.S. District Court, seeking damages and preliminary
and permanent injunctive relief against further infringing sales. After
various court actions, the Court of Appeals has temporarily stayed the
preliminary injunction, which had been granted prohibiting Cordis and SciMed
from infringing on the Tracker Patent, while it considers a motion opposing
the injunction filed by Cordis and SciMed. In April 1997, Target merged with a
wholly-owned subsidiary of Boston Scientific. It is expected that this merger
will result in the termination of the lawsuit between Target and SciMed. If
the lawsuit is not terminated and if the Tracker Patent is ultimately
determined to be invalid, the Company's proprietary rights in the variable
stiffness technology could be compromised, and the Company's competitors would
have the ability to incorporate such technology in their products. This
erosion of this competitive advantage could have a material adverse effect on
the Company's business, financial condition and results of operations.
Although there are no claims against the Company, any such claims, whether
with or without merit, could be time-consuming and expensive to respond to and
could divert the Company's technical and management personnel. If any claims
of third party patents are upheld as valid and enforceable in any litigation
or administrative proceeding, the Company could be prevented from practicing
the subject matter claimed in such patents, or could be required to obtain
licenses from the patent owners of each patent, or redesign its products or
processes to avoid infringement. There can be no assurance the licenses will
be available or, if available, will be available on terms acceptable to the
Company or that the Company will be successful in any attempt to redesign its
products or processes to avoid infringement. Accordingly, an adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling
its products, which would have a material adverse effect on the Company's
business, financial condition, and results of operations. The Company intends
to vigorously protect and defend its intellectual property. Costly and time-
consuming litigation brought by the Company may be necessary to enforce
patents
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issued to the Company, to protect trade secrets or know-how owned by the
Company or to determine the enforceability, scope and validity of the
proprietary rights of others.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions and, therefore, may be highly uncertain.
There can be no assurance that any issued patent or patents based on pending
patent applications or any future patent application will exclude competitors
or provide competitive advantages to the Company, that any of the Company's
patent or patents in which it has licensed rights will be held valid if
subsequently challenged or that others will not claim rights in or ownership
of the patents and other proprietary rights held or licensed by the Company.
There can be no assurance that others have not developed or will not develop
similar products, duplicate any of the Company's products or design around any
patents issued to or licensed by the Company or that may be issued in the
future to the Company. Since patent applications in the United States are
maintained in secrecy until the patent issues, the Company also cannot be
certain that others did not first file applications for inventions covered by
the Company's pending patent applications, nor can the Company be certain that
it will not infringe any patents that may issue to others on such
applications. The Company periodically reviews the scope of patents of which
it is aware. Although Cardima does not believe that it infringes patents known
to the Company, the question of patent infringement involves complex legal and
factual issues and there can be no assurance that any conclusion reached by
the Company regarding infringement will be consistent with the resolution of
any such issues by a court.
In addition, the U.S. patent laws were recently amended to exempt
physicians, other heath care professionals and affiliated entities from
infringement liability for medical and surgical procedures performed on
patients. The Company cannot predict whether this amendment might have a
material adverse effect on the Company's ability to protect its proprietary
methods and procedures.
COMPETITION
The Company believes it currently has the only intravascular approach to VT.
The Company considers its primary competitors to be companies engaged in the
development and marketing of more established, but the Company believes, less
effective therapies for the treatment of AF and VT, such as drugs, external
electrical cardioversion and defibrillation, implantable defibrillators and
purposeful destruction of the AV node, followed by implantation of a pacemaker
and open heart surgery. Several competitors are also developing new approaches
and new products for the mapping and/or ablation of AF and VT. These
approaches include mapping systems using contact mapping, single-point spacial
mapping and non-contact, multisite electrical mapping technologies and
ablation systems using ultrasound, microwave, laser and cryoablation
technologies. In addition, companies are developing surgical procedures that
could potentially be used by physicians to perform the open heart surgical
maze procedure in a minimally invasive manner.
Many of the Company's competitors have an established presence in the field
of interventional cardiology and electrophysiology, including Boston
Scientific, C.R. Bard, Inc., Johnson & Johnson, through its Cordis division,
St. Jude Medical, Inc., through its Daig division, and Medtronic, Inc. These
competitors have substantially greater financial and other resources than the
Company, including larger research and development staffs and more experience
and capabilities in conducting research and development activities, testing
products in clinical trials, obtaining regulatory approvals, and
manufacturing, marketing and distributing products. Other companies are
developing proprietary systems for the diagnosis and treatment of cardiac
arrhythmias, including Biosense, Inc., Cardiac Pathways, Inc. and Endocardial
Solutions, Inc. Other companies develop, market and sell alternative
approaches to the treatment of AF and VT, including Guidant, Medtronic, Inc.,
and Ventritex Inc., the leading manufacturers of implantable defibrillators.
There can be no assurance that the Company will succeed in developing and
marketing technologies and products that are more clinically effective and
cost-effective than the more established treatments or the new approaches and
products being developed and marketed by its competitors. Furthermore, there
can be no assurance that the Company will succeed in developing new
technologies and products that are available prior to its competitors'
products. Failure of the Company to demonstrate the competitive advantages of
its products would have a material adverse effect on the Company's business,
financial condition and results of operations.
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In the market for cardiac mapping and ablation devices, the Company believes
that the primary competitive factors are safety, clinical effectiveness, ease
of use and overall cost to the health care system. In addition, the length of
time required for products to be developed and to receive regulatory and, in
some cases, reimbursement approval is an important competitive factor. The
medical device industry is characterized by rapid and significant
technological change. Accordingly, the Company's success will depend in part
on its ability to respond quickly to medical and technological changes through
the development and introduction of new products. Product development involves
a high degree of risk and there can be no assurance that the Company's new
product development efforts will result in any commercially successful
products. The Company believes it competes favorably with respect to these
factors, although there is no assurance that it will be able to continue to do
so. See "Risk Factors--Rapid Technological Change; Significant Competition."
GOVERNMENT REGULATION
The preclinical and clinical testing, manufacturing, labeling, distribution
and promotion of the Company's products are subject to extensive and rigorous
government regulation in the United States and other countries. Noncompliance
with applicable requirements can result in enforcement action by the Food and
Drug Administration ("FDA") or comparable foreign regulatory bodies including,
among other things, fines, injunctions, civil penalties, recall or seizure of
products, refusal to grant premarket clearances or approvals, withdrawal of
marketing approvals and criminal prosecution.
United States
A medical device may be marketed in the United States only with the FDA's
prior authorization. Devices classified by the FDA as posing less risk are
placed either in Class I or II and require the manufacturer to seek 510(k)
clearance from the FDA prior to marketing. Such clearance generally is granted
when submitted information establishes that a proposed device is
"substantially equivalent" in intended use and safety and effectiveness to a
Class I or II device already legally on the market or to a "preamendment"
Class III device (i.e., one that has been in commercial distribution since
before May 28, 1976) for which the FDA has not called for PMA applications.
The FDA recently has been requiring a more rigorous demonstration of
substantial equivalence than in the past, including in some cases requiring
clinical trial data. The Company believes that it usually takes from four to
12 months from the date of submission to obtain 510(k) clearance, but it may
take longer, and there can be no assurance that 510(k) clearance will ever be
obtained. During this process, the FDA may determine that it needs additional
information or that a proposed device is precluded from receiving clearance
because it is not substantially equivalent to a legally marketed Class I or II
device. After a device receives clearance, any modification that could
significantly affect its safety or effectiveness, or would constitute a major
change in the intended use of the device, will require a new 510(k)
submission.
The Company believes that its current mapping products, including the
Cardima Pathfinder, will be Class II devices and will require 510(k) clearance
prior to marketing. To date, the Company has received 510(k) clearance for its
Cardima Pathfinder microcatheter system for mapping VT, Venaport guiding
catheter and certain cabling systems and has submitted a 510(k) premarket
notification for the Cardima Pathfinder AF microcatheter system for mapping.
The Company also intends to seek 510(k) clearance for its Cardima Pathfinder
1.5 Fr. and Tracer products for mapping uses. These submissions may need to
include clinical trial data, which could lengthen the time necessary to
prepare a 510(k) submission and in which the Company could receive 510(k)
clearance. There can be no assurance that any of these products will receive
510(k) clearance in a timely fashion, or at all. Delays in market introduction
resulting from the 510(k) clearance process would have a material adverse
effect on the Company's business, financial condition and results of
operation.
A device that does not qualify for 510(k) clearance is placed in Class III,
which is reserved for devices classified by the FDA as posing the greatest
risk (e.g., life-sustaining, life-supporting or implantable devices, or
devices that are not substantially equivalent to a legally marketed Class I or
Class II device). A Class III device generally must receive PMA approval,
which requires the manufacturer to establish the safety and effectiveness of
the device to the FDA's satisfaction. A PMA application must provide extensive
preclinical and clinical trial data and also include information about the
device and its components regarding, among other things,
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manufacturing, labeling and promotion. As part of the PMA review, the FDA will
inspect the manufacturer's facilities for compliance with the Quality System
Regulation ("QSR"), which includes elaborate testing, control, documentation
and other quality assurance procedures.
Upon submission, the FDA determines if the PMA application is sufficiently
complete to permit a substantive review, and, if so, the application is
accepted for filing. The FDA then commences an in-depth review of the PMA
application, which the Company believes typically takes one to three years,
but may take longer. The review time is often significantly extended as a
result of the FDA asking for more information or clarification of information
already provided. The FDA also may respond with a "not approvable"
determination based on deficiencies in the application and require additional
clinical trials that are often expensive and time consuming and can delay
approval for months or even years. Recently, the FDA has heightened its
scrutiny of clinical trial data submitted in support of PMA applications.
During the review, an FDA advisory committee, typically a panel of clinicians,
likely will be convened to review the application and recommend to the FDA
whether, or upon what conditions, the device should be approved. Although the
FDA is not bound by the advisory panel decision, the panel's recommendation is
important to the FDA's overall decision making process.
If the FDA's evaluation of the PMA application is favorable, the FDA
typically issues an "approvable letter" requiring the applicant's agreement to
comply with specific conditions (e.g., changes in labeling) or to supply
specific additional data (e.g., longer patient follow up) or information
(e.g., submission of final labeling) in order to secure final approval of the
PMA application. Once the approvable letter is satisfied, the FDA will issue a
PMA for the approved indications, which can be more limited than those
originally sought by the manufacturer. The PMA can include postapproval
conditions that the FDA believes necessary to ensure the safety and
effectiveness of the device including, among other things, restrictions on
labeling, promotion, sale and distribution. Failure to comply with the
conditions of approval can result in enforcement action, including withdrawal
of the approval, which in turn would have a material adverse effect on the
Company. The PMA process can be expensive and lengthy, and no assurance can be
given that any PMA application will ever be approved for marketing. Even after
approval of a PMA, a new PMA or PMA supplement generally is required for any
modification to the device, its labeling or its manufacturing process.
The Company anticipates that its ablation products, including the Cardima
Pathfinder AF and Tracer VT, will be Class III devices requiring PMA approval.
There can be no assurance that a PMA application will be submitted for any
such products or that, once submitted, the PMA application will be accepted
for filing, found approvable, or, if found approvable, will not take longer
than expected to obtain, or will not include unfavorable restrictions.
A clinical trial in support of a 510(k) submission or PMA application
generally requires an IDE application approved in advance by the FDA for a
specific number of patients. The IDE application must be supported by
appropriate data, such as animal and laboratory testing results. Clinical
trials may begin if the IDE application is approved by the FDA and by the
appropriate institutional review boards at the clinical trial sites. During a
clinical trial, the Company would be permitted to sell products used for the
study for an amount that does not exceed recovery of the costs of manufacture,
research, development and handling. The Company's failure to adhere to
regulatory requirements generally applicable to clinical trials and to the
conditions of an IDE approval could result in a material adverse effect on the
Company, including an inability to obtain marketing clearance or approval for
its products.
In January 1997, the Company submitted an IDE for the Cardima Pathfinder AF
microcatheter system for mapping and ablation of AF and received conditional
approval from the FDA to begin its Phase I feasibility study for mapping AF.
The Company expects to begin its Phase I clinical trials for its Cardima
Pathfinder AF microcatheter system in the first half of 1997 and to file an
additional IDE and begin its clinical trials for its Tracer VT microcatheter
systems in the second half of 1997. These studies are not expected to supply
pivotal evidence of safety and effectiveness; rather, they are intended to
generate data to help finalize the device's design and determine its potential
for further development, if any. Additional clinical trials will be necessary
to support PMA applications by the Company. There can be no assurance that any
clinical study proposed by the
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Company will be approved by the FDA, will be completed or, if completed, will
provide data and information that supports PMA approval or additional clinical
investigations of the type necessary to obtain PMA approval.
Any devices manufactured or distributed by the Company pursuant to FDA
clearances or approvals will be subject to pervasive and continuing regulation
by the FDA and certain state agencies. The Company will be subject to
inspection by the FDA and the California Department of Health Services and,
once it commences marketing products, will have to comply with various other
regulatory requirements that usually apply to medical devices marketed in the
United States, including labeling regulations, the QSR, the Medical Device
Reporting ("MDR") regulation (which requires that a manufacturer report to the
FDA certain types of adverse events involving its products), and the FDA's
prohibitions against promoting approved products for unapproved ("off-label")
uses. In addition, Class II devices, such as the Company's mapping products,
can be subject to additional special controls (e.g., performance standards,
postmarket surveillance, patient registries, and FDA guidelines) that do not
apply to Class I devices. The Company's failure to comply with applicable
regulatory requirements could result in enforcement action by the FDA, which
could have a material adverse effect on the Company.
Unanticipated changes in existing regulatory requirements, failure of the
Company to comply with such requirements or adoption of new requirements could
have a material adverse effect on the Company. The Company also 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 hazardous substance disposal. There can be no assurance 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 business, financial
condition and results of operations.
International
In order for the Company to market its products in Europe and certain other
foreign jurisdictions, the Company must obtain required regulatory approvals
and clearances and otherwise comply with extensive regulations regarding
safety and manufacturing processes and quality. These regulations, including
the requirements for approvals or clearance to market and the time required
for regulatory review, vary from country to country. In addition, there may be
foreign regulatory barriers other than premarket approval. There can be no
assurance the Company will obtain regulatory approvals in such countries or
that it will not be required to incur significant costs in obtaining or
maintaining its foreign regulatory approvals. Under certain circumstances, FDA
approval is required for the Company to export its products. Delays in receipt
of approvals to market the Company's products, failure to receive these
approvals or loss of previously received approvals could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The EU has promulgated rules that require medical products to bear the CE
mark by mid-1998. The CE mark is recognized by the EU as a symbol of adherence
to strict quality systems requirements set forth in the ISO 9001 (EN 46001)
quality standards, as well as compliance with 93/42/EEC, the Medical Device
Directive. A CE mark allows the Company to avoid the costly and cumbersome
requirements to obtain approvals in each EU country. In December 1995, the
Company received ISO 9001 (EN 46001) Quality Systems certification for its
manufacturing facilities in Fremont, California. This certification provides
approval for the Company to apply the CE mark to the Tracer and Cardima
Pathfinder mapping products and to the Venaport guiding catheter.
The Company plans to commence clinical trials in the EU, Canada and Japan
for its ablation products. Although the Company intends to seek international
approvals for its ablation products, including certification to enable CE
marking, there can be no assurance the Company will be successful in obtaining
such approvals. Failure to receive approval to affix the CE mark would
prohibit the Company from selling these products in member countries of the
EU, and would require significant delays in obtaining individual country
approvals. There can be no assurance that such approvals will ever be
obtained. In such event, the Company would be materially and adversely
affected. See "Risk Factors--No Assurance of Obtaining Required Regulatory
Approvals; Government Regulation."
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THIRD-PARTY REIMBURSEMENT
In the United States, health care providers, including hospitals and
physicians, that purchase medical products for treatment of their patients,
generally rely on third-party payors, principally federal Medicare, state
Medicaid and private health insurance plans, to reimburse all or a part of the
costs and fees associated with the procedures performed using these products.
The Company's success will be dependent upon, among other things, the ability
of health care providers to obtain satisfactory reimbursement from third-party
payors for medical procedures in which the Company's products are used. Third-
party payors may deny reimbursement if they determine that a prescribed device
has not received appropriate regulatory clearances or approvals, is not used
in accordance with cost-effective treatment methods as determined by the
payor, or is experimental, unnecessary, inappropriate or used for a
nonapproved indication. If FDA clearance or approval is received, third-party
reimbursement would also depend upon decisions by the U.S. Health Care
Financing Administration ("HCFA") for Medicare, as well as by individual
health maintenance organizations, private insurers and other payors.
Government agencies, private insurers and other payors determine whether to
provide coverage for a particular procedure based on its medical necessity for
the patient in question. The Federal Medicare Program, many state Medicaid
programs and other payors reimburse health care providers for medical
treatment at a fixed rate based on, or adapted from the diagnosis-related
group ("DRG") established by the HCFA. The fixed rate of reimbursement is
typically based on the patient's diagnosis and the procedure performed, and
unrelated to the specific type or number of devices used in a procedure. The
Company intends to seek an appropriate Medicare DRG assignment by HCFA for
procedures performed using its devices. As part of this process, during
clinical trials the Company intends to collect economic data regarding
resources expended in performing procedures with the devices. The Company
expects to use this data to document differences in resource use between
procedures performed with the Company's devices and procedures currently
categorized under existing DRGs. The Company intends to meet with HCFA policy
staff to request and support development of appropriate hospital payment
policies for the procedures performed using the Company's devices. In
addition, the Company may also collect resource use data regarding physician
services to support establishment of appropriate fee schedules by third-party
payers. The Company believes these efforts may also support reimbursement
among private payors. However, there can be no assurance that reimbursement
for the Company's products will be available in sufficient amounts if, at all,
or that future reimbursement policies of payors will not adversely affect the
Company's ability to sell its products on a profitable basis
In addition, Medicare traditionally has considered items or services
involving devices that have not been approved or cleared for marketing by FDA
to be precluded from Medicare coverage. However, under a new policy which has
been in effect since November 1, 1995, Medicare coverage will not be precluded
for items and related services involving devices that have been classified by
FDA as "non-experimental/investigational" (Category B) devices and that are
furnished in accordance with the FDA-approved IDE governing clinical trials.
Even with items or services involving Category B devices, however, Medicare
coverage may be denied if any other coverage requirements are not met, for
example if the treatment is not medically needed for the specific patient.
There can be no assurance that the Company's systems will be covered when they
are used in clinical trials and, if covered, whether the payment amounts for
their use will be considered to be adequate by hospitals and physicians. If
the devices are not covered or the payments are considered to be inadequate,
the Company may need to bear additional costs to sponsor such trials, and such
costs could have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, there is proposed federal legislation that would change the
traditional Medicare payment system by creating a new visit-based payment
system called ambulatory patient groups ("APG") that establishes fixed
payments for specific medical procedures that are performed on an outpatient
basis. If the Company's products increase the cost per procedure above the
fixed rate under the APG system, market acceptance of such products could be
impaired.
Reimbursement systems in international markets vary significantly by country
and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
products and procedures. In most markets, there are private insurance systems
as well as government managed systems.
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Market acceptance of the Company's products will depend on the availability
and level of reimbursement in international markets targeted by the Company.
There can be no assurance that the Company will obtain reimbursement in any
country within a particular time, for a particular time, for a particular
amount, or at all.
Regardless of the type of reimbursement system, the Company believes that
physician advocacy of the Company's products will be required to obtain
reimbursement. The Company believes that less invasive procedures generally
provide less costly overall therapies as compared to conventional drug,
surgery and other treatments. In addition, the Company believes that a
patient's underlying arrhythmia should typically not recur after treatment
with the Company's procedures. The Company anticipates that hospital
administrators and physicians would justify the use of the Company's products
by the attendant cost savings and clinical benefits that the Company believes
would be derived from the use of its products. However, there can be no
assurance this will be the case. There can be no assurance reimbursement for
the Company's products will be available in the United States or in
international markets under either government or private reimbursement
systems, or that physicians will support and advocate reimbursement for
procedures using the Company's products. Failure by hospitals and other users
of the Company's products to obtain reimbursement from third-party payors, or
changes in government and private third-party payors' policies toward
reimbursement for procedures employing the Company's products, would have a
material adverse effect on the Company's business, financial condition and
results of operations.
PRODUCT LIABILITY AND INSURANCE
The development, manufacture and sale of the Company's microcatheter systems
may expose the Company to product liability claims. Although to date no claim
has been asserted against the Company, there can be no assurance that the
Company will not experience losses due to product liability claims in the
future. Although the Company currently has general liability insurance with
coverage in the amount of $1.0 million per occurrence, subject to a $2.0
million annual limitation, and product liability insurance with coverage in
the amount of $5.0 million per occurrence, subject to a $5.0 million annual
limitation, there can be no assurance that such coverage will be available to
the Company in the future on reasonable terms, if at all. In addition, there
can be no assurance that all of the activities encompassed within the
Company's business are or will be covered under the Company's policies.
Although the Cardima Pathfinder and Tracer products are labeled for single use
only, the Company is aware that some physicians are reusing such products.
Moreover, despite labeling of the Company's microcatheters for diagnostic use
only, the Company believes physicians are using such mapping microcatheters
for ablation. Multiple use or "off-label" use of the Company's microcatheters
could subject the Company to increased exposure to product liability claims,
which could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company may require
additional product liability coverage if the Company significantly expands
commercialization of its products. Such additional coverage is expensive,
difficult to obtain and may not be available in the future on acceptable
terms, if at all. Any claims or series of claims against the Company,
regardless of their merit or eventual outcome, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Risk of Product Liability; Adequacy of
Insurance Coverage."
EMPLOYEES
At March 31, 1997, the Company had 74 employees, 16 of whom were engaged
directly in research and new product development, seven in regulatory affairs,
quality assurance and clinical activities, 25 in manufacturing, 14 in sales
and marketing and 12 in finance and administration. The Company maintains
compensation, benefit, equity participation, and work environment policies
intended to assist in attracting and retaining qualified personnel. The
Company believes the success of its business will depend, in significant part,
on its ability to attract and retain such personnel. No employee of the
Company is represented by a collective bargaining agreement, nor has the
Company experienced any work stoppage. The Company considers its relations
with its employees to be good. See "Risk Factors--Dependence on Key
Personnel."
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FACILITIES
The Company leases approximately 44,000 square feet in Fremont, California.
The Company's facility includes a 4,000 square foot cleanroom, a machine shop
for prototyping and tooling, extrusion and braiding capability, wire grinding
operations, general assembly/test/inspection areas, and a materials area. The
Company is currently subleasing approximately 6,700 square feet of this
facility to Target under a sublease expiring in November 1997. The facility is
leased through November 1999, at which time the Company has the option to
extend the lease for an additional five-year term. The Company believes this
facility will be adequate to meet its requirements for the foreseeable future.
SCIENTIFIC ADVISORY BOARD
The Company has established a Scientific Advisory Board consisting of
medical, clinical and scientific advisors to consult with the Company's
scientists and research staff and to advise the Company on its research and
development program, the design of its products and on other medical and
scientific matters relating to the Company's business. Each member of the
Scientific Advisory Board has entered into an agreement with the Company,
pursuant to which he agrees to provide services to the Company on an as-needed
basis. Members receive a fee for each meeting of the Scientific Advisory Board
attended, except for Dr. Wang who receives no fee, and are compensated for
reasonable out-of-pocket expenses incurred in connection with such attendance.
In addition, members of the Scientific Advisory Board generally receive
options to purchase shares of the Company's Common Stock, subject to vesting
and other customary restrictions. Most members of the Scientific Advisory
Board are employed by institutions other than the Company and may have
commitments to, or consulting or advisory agreements with, other entities that
may limit their availability to the Company. The Company's advisors include
the following individuals:
Tim A. Fischell, M.D., Director of Cardiovascular Research at Heart
Institute at Borgess Medical Center, Kalamazoo, Michigan, Professor of
Medicine at Michigan State University, formerly Research Director,
Cardiovascular Interventions at Vanderbilt University.
Laszlo Littmann, M.D., Medical Director of Cardiology Unit at Carolinas
Medical Center, Charlotte, North Carolina, Director of Experimental
Electrophysiology Research, Laser & Applied Technologies Laboratory at
Carolinas Medical Center.
Jeremy N. Ruskin, M.D., Director Cardiac Arrhythmia Service and
Electrophysiology Laboratory, Massachusetts General Hospital, Committee
Member, American College of Cardiology, Committee on Electrocardiology and
Electrophysiology.
William G. Stevenson, M.D., Co-Director, Cardiac Arrhythmias Service and
Clinical Electrophysiology Laboratory, Brigham and Women's Hospital.
Ruey J. Sung, M.D., Professor and Director of Cardiac Electrophysiology,
Stanford University School of Medicine, formerly Associate Professor and
Director of Cardiac Electrophysiology, San Francisco General Hospital.
Paul J. Wang, M.D., Attending Physician, Pratt Medical Group/New England
Medical Center, Boston, Massachusetts.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
March 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Phillip C. Radlick, 59 President, Chief Executive Officer and Director
Ph.D. .................
Gabriel B. Vegh......... 57 Chief Operating Officer, Executive Vice President and Director
Allan L. Abati, Ph.D. .. 52 Vice President, Regulatory Affairs and Quality Assurance
Omar Amirana, M.D. ..... 32 Vice President, Marketing
Ronald E. Bourquin...... 46 Vice President and Chief Financial Officer
Duane D. Dickens........ 51 Vice President, New Product Development
David A. Smith.......... 43 Vice President, World Wide Sales
Joseph S. Lacob(1)(2)... 41 Chairman of the Board of Directors
Gary R. Bang............ 50 Director
Michael J.F. Du Cros 59 Director
(2)....................
Neal Moszkowski......... 31 Director
Charles P. Waite, Jr. 41 Director
(1)....................
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
The executive officers of the Company are elected annually by the Board of
Directors of the Company (the "Board") and serve at the discretion of the
Board.
Dr. Radlick has been the President, Chief Executive Officer and a Director
of Cardima since November 1994. Prior to joining the Company, from November
1992 until October 1994, Dr. Radlick was the President and Chief Executive
Officer of Hepatix, Inc., a start-up medical device company. From November
1986 until November 1992, Dr. Radlick was the President of Edwards
Cardiovascular Surgery Division, a division of Baxter Healthcare responsible
for the development, manufacture and sale of cardiovascular products. Dr.
Radlick received a B.S. in Chemistry and a Ph.D. in Organic Chemistry from
University of California, Los Angeles.
Mr. Vegh, the founder of the Company, has been a Director of Cardima since
November 1992. Mr. Vegh has been the Chief Operating Officer of Cardima since
November 1994, and the Executive Vice President since January 1995. From May
1993 until November 1994, Mr. Vegh was the Company's President, and from May
1993 until July 1996, he served as the Company's Chief Financial Officer.
Prior to joining the Company, from August 1985 until May 1993, Mr. Vegh was
the Vice President, Operations of Target, and from February 1983 until August
1985, Mr. Vegh was General Manager, Pilot Operations of Advanced
Cardiovascular Systems. Mr. Vegh received a B.S. in Mechanical Engineering
from the New Jersey Institute of Technology.
Dr. Abati has been the Vice President, Regulatory Affairs and Quality
Assurance of Cardima since February 1996. Prior to joining the Company, from
February 1992 until February 1996, Dr. Abati was the Vice President,
Regulatory Affairs and Quality Assurance of Johnson & Johnson Professional,
Inc., a manufacturer of neurosurgical and orthopaedic medical devices. From
August 1989 until February 1992, Dr. Abati was the Director, Regulatory and
Clinical Affairs of Shiley Inc., a Pfizer company and manufacturer of
interventional cardiology products. From June 1986 until August 1989, Dr.
Abati was the Manager, Regulatory Affairs and Clinical Programs, and from
November 1982 until June 1986 he was Senior Regulatory and Clinical Affairs
Specialist, of Edwards Critical-Care Division, a division of Baxter Healthcare
responsible for the development, manufacture and sale of critical care and
interventional cardiology products. Dr. Abati received a B.S. in Zoology and
an M.A. in Biology from California State University, Long Beach and a Ph.D. in
Physiology from Rutgers University.
49
<PAGE>
Dr. Amirana has been the Vice President, Marketing of Cardima since
September 1995. From June 1993 until September 1995, Dr. Amirana was the
Company's Director of Marketing, and from March 1993 until June 1993, he
served as a consultant to the Company. Prior to joining the Company, from May
1992 until November 1992, Dr. Amirana was the Program Manager of the Advanced
Development Group of EP Technologies, Inc. ("EPT"), an electrophysiology
catheter manufacturer that was acquired by Boston Scientific in January 1996.
Prior to that time, Dr. Amirana was enrolled at Eastern Virginia Medical
School. Dr. Amirana received a B.S. in Mechanical Engineering from Tufts
University and an M.D. from Eastern Virginia Medical School.
Mr. Bourquin has been the Vice President and Chief Financial Officer of
Cardima since July 1996. Prior to joining the Company, from July 1993 until
July 1996, Mr. Bourquin was the Corporate Controller of EPT, and from April
1993 until July 1993, he served as a consultant to EPT. From December 1991
until February 1993, Mr. Bourquin was the Controller of the Endoscopy Division
of Stryker Corporation, a medical instrument company. From January 1979 until
December 1991, Mr. Bourquin held various positions of increasing
responsibility at Coherent, Inc., a manufacturer of lasers, ultimately serving
as the Director of Finance of the Medical Group from November 1985 to December
1991. Mr. Bourquin is a Certified Management Accountant and received a B.A. in
Accounting and a M.B.A. in Finance from Golden Gate University.
Mr. Dickens has been the Vice President, New Product Development of Cardima
since May 1993. From March 1992 until June 1993, Mr. Dickens was the President
of Rhythmetrix, Inc., a medical device company. From September 1990 until
March 1992, Mr. Dickens was the Director of Science, Technology and Business
Development of Medtronic Inc., a medical device company. Mr. Dickens received
a B.S. in Mechanical Engineering from University of Nebraska.
Mr. Smith has been the Vice President, World Wide Sales of Cardima since
March 1996. Prior to joining the Company, from January 1994 until December
1995, Mr. Smith was the Director of Marketing of Baxter Healthcare,
International Cardiology Division, a manufacturer and distributor of
interventional cardiology products. From June 1991 until December 1993, Mr.
Smith was the Business Unit Manager, Germany, and from April 1990 until May
1991, he was the National Sales Manager, Endovascular Products, of Baxter
Healthcare, Less Invasive Surgery Division. Mr. Smith has a B.S. in Business
Administration from Michigan State University.
BOARD OF DIRECTORS
In addition to Messrs. Radlick and Vegh, the Board includes:
Mr. Lacob has served as Chairman of the Board of Directors of Cardima since
May 1993. Mr. Lacob has been a general partner of Kleiner Perkins Caufield &
Byers, a venture capital firm, since May 1992, and was a venture partner from
May 1987 until May 1992. Mr. Lacob serves as a director of several public
companies, including: CellPro, Incorporated, a medical systems company
("CellPro"); Heartport, Inc., a developer of systems and procedures for
minimally invasive cardiac surgery; Microcide Pharmaceuticals, Inc., a
developer of antibiotics for treatment of serious bacterial infections; and
Pharmacyclics, Inc., a developer of macrocylic chemistry for treatment of
diseases such as cancer and atherosclerosis, and for diagnostic imaging
procedures. Mr. Lacob received a B.S. in Biochemistry from University of
California, Irvine, a M.P.H. from University of California, Los Angeles and a
M.B.A. from Stanford University Graduate School of Business.
Mr. Bang has served as a Director of Cardima since April 1994. Since May
1993, Mr. Bang has been the President and Chief Executive Officer of Target.
Mr. Bang was also a director of Target from May 1993 until April 1997. Prior
to joining Target, Mr. Bang worked for Baxter International, a diversified
multinational manufacturer of health care products, for 19 years, most
recently serving from April 1990 to April 1993 as the President of the
Pharmaseal Surgical Division. Mr. Bang received a B.A. in Economics from
Northwestern University and a M.B.A. in Finance from University of Chicago.
Mr. Bang also serves as a director of the Spectranetics Corporation, a
publicly traded medical device company.
50
<PAGE>
Mr. Du Cros has served as a Director of the Company since March 1997. Mr. Du
Cros has served as a partner of Atlas Venture, a venture capital firm, since
1993, and as a general partner of Aspen Venture Partners, L.P., a limited
partnership formed to carry on the venture capital activities of 3i Ventures
in the United States, since 1991. Mr. Du Cros served as Chief Executive
Officer of Protein Databases, Inc., a life sciences instrumentation company,
from 1984 to 1988. Mr. Du Cros received a B.Sc. in Industrial Chemistry from
the City University of London.
Mr. Moszkowski has served as a Director of the Company since March 1997.
Since 1993, Mr. Moszkowski has been an associate in the Principal Investment
Area of Goldman, Sachs & Co. Prior to joining Goldman, Sachs & Co., Mr.
Moszkowski was enrolled in the Stanford University Graduate School of
Business. Mr. Moszkowski received a B.A. from Amherst College and a M.B.A.
from the Stanford Graduate School of Business.
Mr. Waite has served as a Director of Cardima since February 1996. Mr. Waite
joined Olympic Venture Partners, a venture capital firm, as a general partner
in 1987, having previously been a general partner at Hambrecht & Quist Venture
Partners from 1984 to 1987. Mr. Waite also serves as a director of CellPro and
Verity, Inc., which develops and markets tools for locating information on the
Internet and other databases. He received an A.B. in History from Kenyon
College and a M.B.A. from Harvard University.
In 1976, Dr. Radlick was convicted of a felony, conspiracy to manufacture a
controlled substance and was sentenced, following appeal, to five years
probation and 500 hours of community service. The Company's Board of Directors
has concluded that this incident has no material bearing on Dr. Radlick's
business integrity or his fitness to serve as an officer and director of the
Company.
The Company's Bylaws authorize the Board of Directors to determine the size
of the Company's Board. The Company's Board has authorized between four and
nine members of the Board and has set the exact number at nine. Currently, the
Company's Board consists of seven directors and there are two vacancies.
Directors hold office until their terms expire or until their successors have
been elected and qualified. The current directors were elected pursuant to a
voting agreement between the Company and certain stockholders of the Company,
which will terminate upon the completion of the Offering.
There are two standing committees of the Board of Directors, the Audit
Committee and Compensation Committee. The Audit Committee, which consists of
Messrs. Du Cros and Lacob, reviews the Company's annual audit and meets with
the Company's independent auditors to review the Company's internal controls
and financial management practices. The Compensation Committee, which consists
of Messrs. Lacob and Waite, makes recommendations to the Board regarding
compensation for certain of the Company's personnel and, together with the
Board of Directors, administers the Company's stock and option plans.
Directors are reimbursed for reasonable expenses incurred in attending Board
meetings. Nonemployee directors of the Company are eligible to participate in
the Company's 1997 Directors' Stock Option Plan. See " --Stock Option and
Incentive Plans--1997 Directors' Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. See "Certain Transactions."
51
<PAGE>
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to the Company's Chief Executive Officer and each of the
other most highly compensated executive officers who were serving as executive
officers on December 31, 1996 (the "Named Executive Officers") whose aggregate
annual compensation exceeded $100,000 for the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996 ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------- -------------------------------------
SECURITIES OTHER
NAME AND PRINCIPAL POSITION(1) SALARY($) BONUS($) UNDERLYING OPTIONS COMPENSATION($)(2)
- ------------------------------ ------------ ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
Phillip C. Radlick,
Ph.D.(3) .............. $ 177,832 $ 25,000 127,559 $29,718
President and Chief
Executive Officer
Gabriel B. Vegh(4)...... 166,561 60,000 127,559
Chief Operating Officer
and Executive Vice
President
Allan L. Abati,
Ph.D.(5)............... 116,383 60,696 111,884
Vice President,
Regulatory Affairs and
Quality Assurance
Omar Amirana, M.D. ..... 110,173 50,286
Vice President,
Marketing
Duane D. Dickens........ 109,292 42,115
Vice President, New
Product Development
</TABLE>
- --------
(1) Ronald Bourquin, the Company's Vice President and Chief Financial Officer,
joined the Company in July 1996 and currently receives an annual base
salary of $110,000, and David Smith, the Company's Vice President, World
Wide Sales, joined the Company in March 1996 and currently receives an
annual base salary of $125,000.
(2) Drs. Radlick and Abati were reimbursed for relocation expenses in the
amount of $29,718 and $111,884, respectively. Mr. Smith was reimbursed in
1996 for relocation expenses in the amount of $62,762.
(3) The Company has entered into an employment agreement with Dr. Radlick
which provides for, among other things, a current annual salary of
$175,000, bonus compensation as may from time to time be awarded by the
Board of Directors and participation in all employee benefit plans
sponsored by the Company. If Dr. Radlick's employment is terminated other
than for "good cause" (as defined in the agreement), Dr. Radlick will
enter into a six month consulting arrangement with the Company, and stock
options held by Dr. Radlick would continue to vest over such six month
period. Under this consulting arrangement, Dr. Radlick would be paid a
consulting fee in an amount equal to the salary in effect at the time of
his resignation, and would be eligible to continue to receive Company
benefits. If Dr. Radlick were to obtain new employment during such period,
the consulting fee payable to Dr. Radlick would be reduced by the amount
of compensation payable to Dr. Radlick under such new arrangement.
(4) The Company has entered into an employment agreement with Mr. Vegh which
provides for, among other things, an annual salary, bonus compensation as
may from time to time be awarded by the Board of Directors and
participation in all employee benefit plans sponsored by the Company. If
Mr. Vegh's employment is terminated other than for "good cause" (as
defined in the agreement), Mr. Vegh will enter into a six month consulting
arrangement with the Company, and stock options held by Mr. Vegh would
continue to vest over such six month period. Under this consulting
arrangement, Mr. Vegh would be paid a consulting fee in an amount equal to
the salary in effect at the time of his resignation, and would be eligible
to continue to receive Company benefits. If Mr. Vegh were to obtain new
employment during such period, the consulting fee payable to Mr. Vegh
would be reduced by the amount of compensation payable to Mr. Vegh under
such new arrangement and the continued vesting of his options would
terminate.
(5) Represents salary amounts paid to Dr. Abati in fiscal 1996 beginning from
February 1996, when he joined the Company.
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<PAGE>
The following table provides certain summary information concerning options
granted during the fiscal year ended December 31, 1996 to the Named Executive
Officers.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS GRANTED STOCK PRICE
SECURITIES TO EMPLOYEES APPRECIATION FOR
UNDERLYING IN FISCAL OPTION TERM ($)(2)
OPTIONS YEAR ENDED EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED DECEMBER 31, 1996(%) ($ PER SHARE) DATE 5% 10%
---- ---------- -------------------- -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Phillip C. Radlick,
Ph.D................... 127,559 19.0% $1.40 5/30/06 $ 72,723 $ 115,799
Gabriel B. Vegh......... 127,559 19.0 1.40 5/30/06 72,723 115,799
Allan L. Abati, Ph.D.... 52,667 7.8 0.56 3/13/06 37,747 60,106
8,029 1.1 1.40 5/30/06 4,577 7,289
Omar Amirana, M.D....... 50,286 7.5 1.40 5/30/06 28,669 45,650
Duane D. Dickens........ 42,115 6.2 1.40 5/30/06 24,010 38,232
</TABLE>
- --------
(1) Consists of stock options granted pursuant to the Company's 1993 Stock
Option Plan. Options generally become exercisable over a four-year period
subject to continued employment with the Company. The maximum term of each
option granted is ten years from the date of grant. The exercise price is
equal to the fair market value of the Common Stock on the grant date as
determined by the Board of Directors. See "--Stock Option and Incentive
Plans."
(2) The 5% and 10% assumed compounded annual rates of stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
The following table provides certain summary information concerning the
shares of Common Stock represented by outstanding stock options held by each
of the Named Officers as of December 31, 1996.
FISCAL 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END(1)(2) AT FISCAL YEAR-END($)(2)
------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE(3) UNEXERCISABLE
---- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Phillip C. Radlick,
Ph.D. ................. 194,226 -- $907,062 $--
Gabriel B. Vegh......... 127,559 -- 580,393 --
Allan L. Abati, Ph.D. .. 60,696 -- 320,407 --
Omar Amirana, M.D. ..... 73,144 -- 344,806 --
Duane D. Dickens........ 61,259 -- 292,129 --
</TABLE>
- --------
(1) No stock appreciation rights or options were exercised by the Named
Executive Officers during the fiscal year ended December 31, 1996.
(2) Options generally become exercisable over a four-year period subject to
continued employment with the Company. The maximum term of each option
granted is ten years from the date of grant. The exercise price is equal
to the fair market value of the Common Stock on the grant date as
determined by the Board of Directors. See "--Stock Option and Incentive
Plans."
(3) Based on the deemed fair market value of the option shares at December 31,
1996 ($5.95 per share as determined in good faith by the Board of
Directors), less the option exercise price payable for such shares.
53
<PAGE>
STOCK OPTION AND INCENTIVE PLANS
1993 Stock Plan
The Company's 1993 Stock Option Plan (the "1993 Stock Plan") was adopted by
the Board of Directors in June 1993 and approved by the Company's stockholders
in September 1993. The 1993 Stock Plan was amended in June 1996, subject to
stockholder approval, and in March 1997, subject to the effectiveness of the
Offering. An aggregate of 903,185 shares of Common Stock are authorized for
issuance under the 1993 Stock Plan. At March 31, 1997, 877,570 shares were
issuable on the exercise of outstanding options and 17,276 shares were
available for issuance. The number of authorized shares is subject to
automatic increase, on the first trading day of each of the five years from
1998 to 2002, in an amount equal to three percent of the number of shares of
Common Stock outstanding on December 31 of the immediately preceding calendar
year, up to a maximum of 300,000 shares each year--over the five year period.
The 1993 Stock Plan provides for the grant to employees (including officers
and employee directors) of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
for the grant to employees, non-employee directors and consultants of
nonstatutory stock options.
The 1993 Stock Plan may be administered by the Board of Directors or the
Compensation Committee of the Board (the "Administrator"). The Administrator
determines the terms of options granted under the 1993 Stock Plan, including
the number of shares subject to the option exercise price, term and
exercisability. However, in no event may any one person participating in the
1993 Stock Plan receive options for more than 500,000 shares beginning in any
calendar year beginning with the 1996 calendar year, subject to adjustment as
provided in the 1993 Stock Plan. The exercise price of all incentive stock
options granted under the 1993 Stock Plan must be at least equal to the fair
market value of the Common Stock on the date of grant. The exercise price of
nonstatutory stock options must be at least 85% of fair market value on the
date of grant. The exercise price of any incentive stock option granted to an
optionee who owns stock representing more than 10% of the voting power of the
Company's outstanding capital stock must equal at least 110% of the fair
market value of the Common Stock on the date of grant. Payment of the exercise
price may be made in cash, stock, promissory notes, or other consideration
determined by the Administrator. The Administrator determines the term of
options. With respect to any participant who owns stock possessing more than
10% of the voting power of the Company's outstanding capital stock, the
maximum term of an incentive stock option must not exceed five years. The term
of all other options may not exceed ten years.
If the Company consolidates or merges with another corporation, then each
option will accelerate so that each option will be fully exercisable for all
of the shares subject to such option immediately prior to the transaction and,
if not exercised or assumed by the successor corporation, each option will
terminate on the effective date of the transaction. In addition, upon the
occurrence of such a transaction, the 1993 Stock Plan provides that all of the
outstanding repurchase rights of the Company with respect to shares of Common
Stock acquired upon exercise of options granted under the 1993 Stock Plan will
terminate. If not terminated earlier, the 1993 Stock Plan will terminate in
2003. The Administrator has the authority to amend or terminate the 1993 Stock
Plan as long as such action does not adversely affect any outstanding option
and as long as stockholder approval is obtained, if required under applicable
law.
1997 Directors' Stock Option Plan
The 1997 Directors' Stock Option Plan (the "Directors' Plan") was adopted by
the Board of Directors in March 1997, subject to stockholder approval. A total
of 200,000 shares of Common Stock has been reserved for issuance under the
Directors' Plan. The Directors' Plan provides for the grant of nonstatutory
stock options to nonemployee directors of the Company. The Directors' Plan is
designed to operate automatically, without administration; however, to the
extent administration is necessary, the administrator will be the Board of
Directors. Any conflicts of interest will be addressed by abstention of the
interested director from both deliberations and voting regarding matters in
which he has a personal interest.
The Directors' Plan provides that each person who first becomes a
nonemployee director of the Company after the Offering will be granted a
nonstatutory stock option to purchase 20,000 shares of Common Stock (the
54
<PAGE>
"First Option") on the date on which the optionee first becomes a nonemployee
director of the Company. Thereafter, on the date of each subsequent annual
meeting of the Company's stockholders during the period in which a nonemployee
director is serving on the Board, each nonemployee director will be granted an
additional option to purchase 2,000 shares of Common Stock (a "Subsequent
Option") if, on such date, he has served on the Board for at least three
months.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one nonemployee director, but does
specify the number of shares that may be included in any grant and the method
of making a grant. No option granted under the Directors' Plan is transferable
by the optionee other than by will or the laws of descent or distribution or
pursuant to a qualified domestic relations order, and each option is
exercisable, during the lifetime of the optionee, only by such optionee or a
transferee permitted under the Directors' Plan. The Directors' Plan provides
that the First Option will become exercisable in installments as to 25% of the
total number of shares subject to the First Option on each of the first,
second, third and fourth anniversaries of its date of grant, and each
Subsequent Option will become exercisable in full on the first anniversary of
its date of grant. If a nonemployee director ceases to serve as a director, he
may, but only within 90 days after the date he ceases to be a director of the
Company, exercise options granted under the Directors' Plan to the extent that
he was entitled to exercise such options at the date of such termination. To
the extent he was not entitled to exercise any such option at the date of such
termination, or if he does not exercise such option (which he was entitled to
exercise) within such 90-day period, the option will terminate. In the event a
nonemployee director is unable to continue to serve as a director as a result
of his or her total and permanent disability, he or she may exercise his or
her option within six months from the date of such termination, but only to
the extent such option is exercisable. In the event of a director's death
while serving as a director or within three months of termination of such
service, options may be exercised at any time within six months following the
date of death, but only to the extent the right to exercise had accrued at the
time of death, unless the director died while serving on the Board, in which
case the option is exercisable to the extent of the right to exercise that
would have accrued had the director continued living and remained a director
without interruption for 12 months after the date of death. The exercise price
of all stock options granted under the Directors' Plan will be equal to the
fair market value of a share of the Common Stock on the date of grant of the
option. Options granted under the Directors' Plan have a term of ten years.
In the event of a merger of the Company with another corporation or a sale
of all or substantially all of the Company's assets, the Company will give to
each nonemployee director either (i) a reasonable time within which to
exercise the option, including any part of the option that would not otherwise
be exercisable, prior to the effectiveness of any such transaction at the end
of which time the option will terminate, or (ii) the right to exercise the
option, including any part of the option that would not otherwise be
exercisable (or grant a substitute option with comparable terms) as to an
equivalent number of shares of stock of the corporation succeeding the Company
or acquiring its business by reason of any such transaction. The Board of
Directors may amend or terminate the Directors' Plan; provided, however, that
no such action may adversely affect any outstanding option. If not terminated
earlier, the Directors' Plan will have a term of ten years.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in March 1997, subject to stockholder
approval. A total of 250,000 shares of Common Stock has been reserved for
issuance under the Purchase Plan.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of offering periods of 12 months
duration with new offering periods (other than the first offering period)
commencing on or about February 1 and August 1 of each year. Each offering
period will consist of two consecutive purchase periods of six months
duration, with the last day of each purchase period being designated a
purchase date. The first such offering period is expected to commence on the
date of this Offering and continue through July 31, 1998, with the first
purchase date occurring on January 31, 1998. The Purchase Plan will be
administered by the Board of Directors or by a committee appointed by the
Board. Employees (including officers
55
<PAGE>
and employee directors) of the Company, or of any majority-owned subsidiary
designated by the Board, are eligible to participate in the Purchase Plan if
they are employed by the Company or any such subsidiary for at least 20 hours
per week and more than five months per year. The Purchase Plan permits
eligible employees to purchase Common Stock through payroll deductions, which
may not exceed 10% of an employee's compensation (excluding payments for
overtime, shift premium, incentive compensation, bonuses, commissions and
other cash compensation), at a price equal to the lower of 85% of the fair
market value of the Common Stock at the beginning of the offering period or
the purchase date. If the fair market value of the Common Stock on a purchase
date is less than the fair market value at the beginning of the offering
period, a new 12-month offering period will automatically begin on the first
business day following the purchase date with a new fair market value.
Employees may end their participation in an offering period at any time within
ten days of the end of a purchase period during such offering period, and
participation ends automatically on termination of employment with the
Company.
The Purchase Plan provides that in the event of a consolidation or merger of
the Company with another corporation or a sale of substantially all of the
Company's assets, each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right substituted by the successor corporation,
unless the Board of Directors shortens the offering period so that employees'
rights to purchase stock under the Purchase Plan are exercised prior to the
merger or sale of assets. The Board of Directors has the power to amend or
terminate the Purchase Plan as long as such action does not adversely affect
any outstanding rights to purchase stock thereunder and provided that
stockholder approval is obtained, as required under applicable law. If not
terminated earlier, the Purchase Plan will have a term of 20 years.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (i)
any breach of their duty of loyalty to the Company or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify its directors and officers against any damages arising
from their actions as an agent of the Company to the fullest extent permitted
by Delaware law. The Bylaws further provide that the Company may similarly
indemnify its other employees and agents. In addition, each director has
entered into an indemnification agreement with the Company which may require
the Company, among other things, to indemnify its directors against certain
liabilities that may arise by reason of their status or service as directors
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them
as to which they could be indemnified, and to obtain directors' and officers'
insurance, if available on reasonable terms.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company in respect of which
indemnification would be required or permitted. The Company is not aware of
any threatened litigation or proceeding which might result in a claim for such
indemnification.
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<PAGE>
CERTAIN TRANSACTIONS
In June 1994 and July 1994, the Company sold an aggregate of 85,713 shares
of Series C Preferred Stock at $10.50 per share. Additionally, during the
period from September through November 1994, the Company issued convertible
promissory notes in the aggregate principal amount of $999,667 and warrants to
purchase an aggregate number of shares of Series A Preferred Stock to be
determined based upon a formula relating to the monthly principal amount
outstanding under the convertible promissory notes at an exercise price of
$7.00 per share. In December 1994, the convertible promissory notes, together
with the accrued interest, were cancelled and converted into an aggregate of
96,394 shares of Series C Preferred Stock and the warrants were cancelled and
reissued for an aggregate of 18,410 shares of Series A Preferred Stock at an
exercise price of $7.00 per share. At that time, an additional 165,863 shares
of Series C Preferred Stock were issued for $10.50 per share. From March 1995
through August 1995, the Company also issued an additional 85,666 shares of
Series C Preferred Stock at $10.50 per share.
During the period from April through December 1995, the Company issued
promissory notes in the aggregate principal amount of $2,263,000 and warrants
to purchase an aggregate number of shares of Common Stock to be determined
based upon a formula relating to the monthly principal dollar amount
outstanding under these notes at an exercise price of $1.05 per share. In
December 1995, the notes, together with the accrued interest, were cancelled
and converted into an aggregate of 423,402 shares of Series D Preferred Stock
at $5.11 per share and the warrants were cancelled and reissued for an
aggregate of 456,523 shares of Common Stock at an exercise price of $1.05 per
share, including a warrant reissued to Gabriel B. Vegh, an executive officer
and director of the Company, exercisable for 37,301 shares of Common Stock. At
that time, an additional 792,516 shares of Series D Preferred Stock were
issued and sold to certain investors at $5.11 per share, including 1,957
shares of Series D Preferred Stock to Omar Amirana, an executive officer of
the Company and 19,569 shares of Series D Preferred Stock to Gabriel B. Vegh.
In October 1996, the Company entered into a $2.5 million note purchase
agreement with certain of its existing investors, including Gabriel B. Vegh.
During the period from November 1996 to January 1997, the Company borrowed
$2.5 million under this note purchase agreement at an annual interest rate
equal to the applicable Internal Revenue Service imputed rate in effect at the
time of the borrowing. In March 1997, the holders of these notes converted the
principal amount of these notes, together with accrued interest, into 440,963
shares of Series E Preferred Stock.
In February 1997, the Company entered into a note purchase agreement with
certain investors and borrowed $750,000 under this note purchase agreement at
an annual interest rate of 5.66%. In March 1997, the holders of these notes
converted the principal amount of these notes, together with accrued interest,
into 130,955 shares of Series E Preferred Stock. At such time, an additional
1,784,823 shares of Series E Preferred Stock were issued and sold to certain
investors at $5.74 per share.
57
<PAGE>
The purchasers of the Company's Preferred Stock included, among others, the
following five percent stockholders and associated entities:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK PURCHASED OR ACQUIRED
-------------------------------------------------------
NAME SERIES A SERIES B SERIES C SERIES D SERIES E
- ---- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Kleiner Perkins Caufield
& Byers VI............. 285,714 -- 143,455 300,164 147,126
New Enterprise
Associates V, L.P. and
Catalyst Ventures
Limited Partnership.... 119,285 -- 82,087 85,941 47,060
Target Therapeutics,
Inc.................... -- 333,333 47,824 254,403 91,884
Atlas Venture Fund II,
L.P. and Atlas Venture
Europe Fund B.V........ -- -- -- 489,236 65,137
Olympic Venture Partners
III, L.P. and OVP III
Entrepreneur's Fund.... -- -- -- 391,389 52,111
GS Capital Partners II,
L.P. and affiliated
entities............... -- -- -- -- 1,132,050
Chase Venture Capital
Associates, L.P........ -- -- -- -- 505,069
</TABLE>
In addition, Kleiner Perkins Caufield & Byers VI was granted warrants to
purchase 9,245 shares of Series A Preferred Stock and warrants to purchase
308,512 shares of Common Stock, New Enterprise Associates V, L.P. was granted
a warrant to purchase 4,362 shares of Series A Preferred Stock and warrants to
purchase 79,340 shares of Common Stock and Catalyst Ventures Limited
Partnership was granted a warrant to purchase 857 shares of Series A Preferred
Stock and warrants to purchase 15,685 shares of Common Stock.
During the years 1994, 1995 and 1996 Target administered the Company's
employee benefit plans, and Cardima reimbursed Target for administrative
expenses incurred by Target on the Company's behalf. The Company has
terminated this administrative arrangement and currently administers its
employee benefit plans. During 1994, the Company occupied a portion of
Target's facilities and paid Target $1,000 per month for each Cardima employee
using the facility. In April 1994, the Company ended this facility sharing
arrangement, when it entered into a lease relating to its current facility. In
1994, 1995 and 1996, expenses incurred by the Company under these arrangements
totaled approximately $532,000, $183,000 and $194,000, respectively. All
amounts have been paid to Target under these arrangements. In December 1994,
Target agreed to sublet certain facilities from the Company for approximately
$3,000 per month. In November 1996, the Company subleased certain facilities
to Target for approximately $4,500 per month.
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by
a majority of the Board of Directors, including a majority of the independent
and disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of March 31, 1997, and as adjusted to reflect
the sale of shares offered by this Prospectus (i) by each person who is known
by the Company to beneficially own five percent or more of the Common Stock,
(ii) by each of the Company's directors and Named Executive Officers and (iii)
by all executive officers and directors as a group. Unless otherwise indicated
below, to the knowledge of the Company, all persons listed below have sole
voting and investment power with respect to their shares of Common Stock,
except to the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
SHARES -----------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED(1) OFFERING(%) OFFERING(%)
---------------- ------------ ----------- -----------
<S> <C> <C> <C>
Kleiner Perkins Caufield & Byers VI(2).. 1,252,056 20.5% 14.9%
2750 Sand Hill Road
Menlo Park, CA 94025
The Goldman Sachs Group, L.P.(3)........ 1,132,050 19.5 14.0%
85 Broad Street
New York, NY 10004
Target Therapeutics, Inc.(4)............ 786,381 13.5 9.7%
47201 Lakeview Blvd.
Fremont, CA 94537
Atlas Venture(5)........................ 554,373 9.6 6.9%
222 Berkeley Street
Boston, MA 02116
Chase Venture Capital Associates, 505,069 8.7 6.3%
L.P. ..................................
380 Madison Avenue, 12th Floor
New York, NY 10017
New Enterprise Associates V, L.P.(6).... 469,800 8.0 5.7%
1119 St. Paul Street
Baltimore, MD 21202
Olympic Venture Partners III, L.P.(7)... 443,500 7.6 5.5%
2420 Carillon Point
Kirkland, WA 98033
Phillip C. Radlick, Ph.D.(8)............ 194,226 3.2 2.3%
Gabriel B. Vegh(9)...................... 253,700 4.3 3.1%
Gary R. Bang(4)......................... 786,381 13.5 9.7%
Michael J.F. Du Cros (10)............... -- -- --
Joseph S. Lacob(2)...................... 1,252,056 20.5 14.9%
Neal Moszkowski(3)...................... 1,132,050 19.5 14.0%
Charles P. Waite, Jr.(7)................ 443,500 7.6 5.5%
Allan L. Abati, Ph.D.(11)............... 60,696 1.0 *
Omar Amirana, M.D.(12).................. 75,101 1.3 *
Duane D. Dickens(13).................... 61,259 1.0 *
All executive officers and directors as 4,351,227 64.2 48.1%
a group (12 persons)(14)...............
</TABLE>
- --------
* Less than one percent.
59
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In determining the number of shares
beneficially owned by a person, options or warrants to purchase Common
Stock held by that person that are currently exercisable, or become
exercisable within 60 days following March 31, 1997, are deemed
outstanding; however, such shares are not deemed outstanding for purposes
of computing the percentage ownership of any other person.
(2) Includes 317,321 shares issuable upon the exercise of outstanding
warrants exercisable within 60 days of March 31, 1997. Joseph S. Lacob,
the Chairman of the Board of Directors, is a general partner of KPCB VI
Associates, the general partner of Kleiner Perkins Caufield & Byers VI,
and, as such, may be deemed to share voting and investment power with
respect to such shares. Mr. Lacob disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest in such shares.
(3) Represents 1,132,050 shares owned by certain investment partnerships, of
which affiliates of The Goldman Sachs Group, L.P. ("GS Group") are the
general partner, managing general partner or investment manager. Includes
710,248 shares held of record by GS Capital Partners II, L.P. and 421,802
shares held by other investment partnerships. GS Group disclaims
beneficial ownership of the shares owned by such investment partnerships
to the extent attributable to partnership interests therein held by
persons other than GS Group and its affiliates. Each of such investment
partnerships shares voting and investment power with certain of its
respective affiliates. Mr. Moszkowski disclaims beneficial ownership of
such shares, except to the extent of his pecuniary interest in such
shares.
(4) Includes 13,370 shares issuable upon the exercise of outstanding warrants
exercisable within 60 days of March 31, 1997. Gary R. Bang, a director of
the Company, is the President and Chief Executive Officer of Target, and,
as such, may be deemed to share voting and investment power with respect
to such shares. Mr. Bang disclaims beneficial ownership of such shares.
In April 1997, Boston Scientific completed the acquisition of Target, by
merging Target with a wholly-owned subsidiary.
(5) Includes 304,907 shares held by Atlas Venture Fund II, L.P. and 249,466
shares held by Atlas Venture Europe Fund B.V. The shares of each of these
funds may be deemed to be beneficially owned by each other fund, because
the parent entity of Atlas Venture Europe Fund B.V., Atlas Investerings
Group N.V., holds an approximate 80% interest in Atlas Venture Fund II,
L.P. Mr. Du Cros, a director of the Company, is a limited partner of
Atlas Venture Associates II, L.P., the general partner of Atlas Venture
Fund II, L.P. Mr. Du Cros disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interests in such shares.
(6) Includes 400,494 shares held by New Enterprise Associates V, L.P. ("NEA
V") and 83,497 shares held by NEA V issuable upon the exercise of
outstanding warrants exercisable within 60 days of March 31, 1997. Also
includes 52,804 shares held by Catalyst Ventures Limited Partnership
("Catalyst") and 16,502 shares held by Catalyst issuable upon the
exercise of outstanding warrants exercisable within 60 days of March 31,
1997. Some of the general partners of NEA Partners V, Limited
Partnership, the general partner of NEA V, are also the general partners
of NEA Partners IV, Limited Partnership, the general partner of New
Enterprise Associates IV, Limited Partnership, which is a general partner
of Catalyst, and as such, may be deemed to share voting and investment
power with respect to such shares. Beneficial ownership of such shares is
disclaimed except to the extent of the respective pecuniary interests in
such shares.
(7) Includes 421,326 shares held by Olympic Venture Partners III, L. P. and
22,174 shares held by OVP III Entrepreneurs Fund. Mr. Waite, a director
of the Company, is a general partner OVMC III, L.P., the general partner
of Olympic Venture Partners III, L.P. and OVP III Entrepreneurs Fund,
and, as such, may be deemed to share voting and investment power with
respect to such shares. Mr. Waite disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest in such shares.
(8) Represents 194,226 shares issuable upon exercise of outstanding options
exercisable within 60 days of March 31, 1997, at which date 107,997
shares were fully vested.
(9) Includes 127,559 shares issuable upon exercise of an outstanding option
exercisable within 60 days of March 31, 1997, at which date 66,331 shares
were fully vested, and 37,301 shares issuable upon the exercise of an
outstanding warrant exercisable within 60 days of March 31, 1997.
60
<PAGE>
(10) Excludes 554,373 shares held by entities affiliated with Atlas Venture.
Mr. Du Cros, a director of the Company, is a limited partner of Atlas
Venture Associates II, L.P., the general partner of Atlas Venture Fund
II, L.P. Mr. Du Cros disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interests in such shares.
(11) Represents 60,696 shares issuable upon exercise of outstanding options
exercisable within 60 days of March 31, 1997, at which date 18,968 shares
were fully vested.
(12) Includes 73,144 shares issuable upon exercise of outstanding options
exercisable within 60 days of March 31, 1997, at which date 42,102 shares
were fully vested.
(13) Represents 61,259 shares issuable upon exercise of outstanding options
exercisable within 60 days of March 31, 1997, at which date 40,360 shares
were fully vested.
(14) Includes shares referred to in footnotes (2)-(5), (7)-(9) and (11)-(13).
Also includes 43,701 and 48,557 shares issuable upon exercise of
outstanding options held directly by Ronald E. Bourquin and David A.
Smith, respectively, executive officers of the Company, exercisable
within 60 days of March 31, 1997, at which date 9,104 and 14,162 shares,
respectively, were fully vested.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this Offering, after giving effect to the amendment of
the Company's Certificate of Incorporation to delete references to the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock and Series E Preferred Stock and to increase the authorized
number of shares of Common Stock, the authorized capital stock of the Company
will consist of 25,000,000 shares of Common Stock, par value $0.001 per share,
and 5,000,000 shares of Preferred Stock, par value $0.001 per share.
COMMON STOCK
As of March 31, 1997, there were 5,801,541 shares of Common Stock
outstanding (as adjusted to reflect the conversion of all outstanding shares
of Preferred Stock into an aggregate of 5,726,542 shares of Common Stock) held
of record by approximately 52 stockholders. After giving effect to this
Offering, there will be 8,076,541 shares of Common Stock outstanding (assuming
no exercise of the Underwriters' over-allotment option). The holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders. Subject to preferential rights with
respect to any outstanding Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights of any outstanding
Preferred Stock. The Common Stock has no preemptive or conversion rights or
other subscription rights, and there are no redemption or sinking fund
provisions available to the Common Stock. The outstanding shares of Common
Stock are, and the shares of Common Stock to be issued upon completion of this
Offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon completion of this Offering, the Board of Directors will be authorized
to issue 5,000,000 shares of Preferred Stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any such series, without further vote or action by the
stockholders. The issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of the Company without further
action by the stockholders. The issuance of Preferred Stock with voting and
conversion rights may adversely affect the voting power of the holders of
Common Stock, including the loss of voting control to others. At present, the
Company has no plans to designate or issue any shares of Preferred Stock.
WARRANTS AND OTHER RIGHTS
As of March 31, 1997, there were outstanding warrants to purchase 456,523
shares of Common Stock at an exercise price of $1.05 per share, 25,918 shares
of Common Stock at an exercise price of $5.11 per share and 31,303 shares of
Common Stock at an exercise price of $7.00 per share. In April 1997, the
Company issued a warrant to acquire 13,937 shares of Common Stock at an
exercise price of $5.74 per share to Comdisco, Inc. in connection with an
equipment financing agreement.
REGISTRATION RIGHTS
The holders of 5,793,208 shares of Common Stock and the holders of warrants
to acquire 489,968 additional shares of Common Stock (the "Registrable
Securities") or their transferees are entitled to certain rights with respect
to the registration of such shares under the Securities Act, under the terms
of an agreement between the Company and the holders of Registrable Securities
(the "Rights Agreement"). The holders of at least 25% of the Registrable
Securities may require, on three occasions at any time after six months
following the effective date of this Offering, that the Company use its best
efforts to register the Registrable Securities for public resale. The Company
may delay such registration by up to 120 days for business reasons (but not
more than once in any 12-month period). If the Company registers the sale of
any of its Common Stock either for its own account
62
<PAGE>
or for the account of other security holders, the holders of Registrable
Securities are entitled to include their shares of Common Stock in the
registration, subject to certain conditions and limitations, including lock-up
agreements restricting the sale of such shares for 180 days after the
effective date of the registration statement filed in connection with this
offering and the right of the underwriters to limit the number of shares
included in such registration. Holders of the Registrable Securities may also
require the Company, on no more than two occasions over any 12-month period,
to register the resale of all or a portion of their Registrable Securities on
Form S-3 when use of such form becomes available to the Company; provided,
among other limitations, that the proposed aggregate selling price is at least
$1.0 million. The right of holders of Registrable Securities to have the
resale of such shares registered on Form S-3 is subject to the right of any
underwriter of the offering to limit the number of shares included in such
registration. The Company may delay such registration on Form S-3 by up to 60
days for business reasons (but not more than once in any 12-month period). All
fees, costs and expenses of registrations effected pursuant to the Rights
Agreement must be borne by the Company, and all selling expenses (including
underwriting discounts and selling commissions) relating to Registrable
Securities must be borne by the holders of the securities being registered.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
Certain provisions of law, and the Company's Certificate of Incorporation
and Bylaws, as they will be amended effective upon the completion of this
Offering, could make more difficult the acquisition of the Company by means of
a tender offer, proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions include the authority of the Board of
Directors to designate and issue up to 5,000,000 shares of Preferred Stock.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with potential future financings, acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring, or preventing a change in control of the Company.
Furthermore, such Preferred Stock may have other rights, including economic
rights, senior to the Common Stock, and, as a result, the issuance of such
Preferred Stock could have a material adverse effect on the market value of
the Common Stock and may result in significant additional dilution to
purchasers in this Offering. The Company has no present plan to issue shares
of Preferred Stock. In addition, upon completion of this Offering, certain
provisions of the Company's charter documents, including a provision
eliminating the ability of stockholders to take actions by written consent,
may have the effect of delaying or preventing changes in control or management
of the Company, which could have an adverse effect on the market price of the
Common Stock.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporate Law. In general, the statute prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale or other
transaction resulting in a financial benefit to the stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's outstanding voting stock. This provision may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation. Its telephone number is (818) 502-1404.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering and based on the shares outstanding as of
March 31, 1997, there will be 8,076,541 shares of Common Stock outstanding. Of
these shares, the 2,275,000 shares sold in this Offering (assuming no exercise
of the underwriters' over-allotment option) will be freely tradeable without
restriction or further registration unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining 5,801,541 shares will be "restricted securities" as that term is
defined under Rule 144 (the "Restricted Shares"). Sales of Restricted Shares
in the public market, or the availability of such shares for sale, could
adversely affect the market price of the Common Stock.
Of the Restricted Shares, an aggregate of 3,953,712 shares of Common Stock
(including 508,912 shares issuable upon exercise of vested stock options) will
be eligible for sale in the public market subject to Rule 144 and Rule 701
under the Securities Act after expiration of a contractual lock-up beginning
180 days after the date of the Prospectus, unless earlier released, in whole
or in part, by Bear, Stearns & Co. Inc. In addition, an aggregate of 2,356,741
shares of Common Stock will become eligible for resale in the public market
upon expiration of a one-year holding period, subject to certain volume and
resale restrictions set forth in Rule 144, in the first quarter of 1998.
On April 29, 1997 an amendment to Rule 144 will become effective that
reduces the holding period requirements of Rule 144 to permit the resale of
limited amounts of restricted securities after a one-year, rather than a two-
year, holding period. Such amendment also permits unlimited resales of
restricted securities held by non-affiliates of an issuer after a holding
period of two years, rather than three years. In general, under the revised
Rule 144, beginning 90 days after the date of this Prospectus, a person (or
persons whose shares are aggregated) who has beneficially owned Restricted
Shares for at least one year, including persons who may be deemed to be
"affiliates" of the Company, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of: (i) one percent
of the number of shares of Common Stock then outstanding (which will equal
approximately 80,765 shares immediately after this Offering); or (ii) the
average weekly trading volume of the Common Stock as reported through the
Nasdaq National Market during the four calendar weeks preceding the filing of
a Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the Restricted Shares proposed to be sold for at least two years (including
the holding period of any prior owner except an affiliate), is entitled to
sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares issued pursuant to certain compensatory
benefit plans and contracts and prior to the date the issuer becomes subject
to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subject to certain limitations on the aggregate
offering price of a transaction and certain other conditions, commencing 90
days after the issuer becomes subject to the reporting requirements of the
Exchange Act, in reliance upon Rule 144, but without compliance with certain
restrictions, including the holding period requirements, contained in Rule
144. In addition, the Securities and Exchange Commission has indicated that
Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options (including exercises after
the date of this Prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this Prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its one-year
minimum holding period requirements.
The Company has agreed that it will not issue, sell or grant options to
purchase or otherwise dispose of any shares of its Common Stock or securities
convertible into or exchangeable for its Common Stock, except with respect to
options or other rights outstanding on the date of this Prospectus or pursuant
to the Company's stock plans, for a period of 180 days after the Effective
Date without the prior written consent of Bear, Stearns & Co. Inc.
64
<PAGE>
The Company intends to register on a Form S-8 registration statement under
the Securities Act, during the 180-day lockup period, the resale of 894,846
shares of Common Stock issuable upon exercise of outstanding options or
reserved for issuance under the 1993 Stock Plan, 200,000 shares of Common
Stock reserved for issuance under the 1997 Directors' Stock Option Plan and
250,000 shares reserved for issuance under the 1997 Employee Stock Purchase
Plan. Such registration will permit the resale of shares so registered by non-
affiliates in the public market without restriction under the Securities Act.
Prior to this Offering, there has been no public market for the Common
Stock, and any sale of substantial amounts of Common Stock in the open market
may adversely affect the market price of the Common Stock offered hereby. In
addition, after this Offering, the holders of 5,793,208 shares of Common Stock
and the holders of warrants to acquire 489,968 additional shares of Common
Stock are entitled to certain rights with respect to registration of such
shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by
affiliates of the Company) immediately upon the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights." If such
holders, by exercising their demand registration rights, cause a large number
of securities to be registered and sold in the public market, such sales could
have an adverse effect on the market price for the Common Stock. If the
Company were to include in a Company-initiated registration, any Registrable
Securities pursuant to the exercise of piggyback registration rights, such
sales may have an adverse effect on the Company's ability to raise needed
capital.
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company, Bear, Stearns & Co. Inc. and Dain Bosworth Incorporated as the
Representatives of the Underwriters, each of the Underwriters named below has
severally agreed to purchase from the Company, and the Company has agreed to
sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Bear, Stearns & Co. Inc..................................
Dain Bosworth Incorporated...............................
---------
Total.................................................. 2,275,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant
to the Underwriting Agreement, all such shares of Common Stock (other than
shares of Common Stock covered by the over-allotment option described below)
must be so purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of per share
of Common Stock to certain others dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of per share to certain
other dealers. After the public offering, the offering price and other selling
terms may be changed by the Underwriters. The Company's Common Stock will be
quoted on the Nasdaq National Market.
The Underwriters have been granted a 30-day over-allotment option to
purchase up to 341,250 additional shares of Common Stock of the Company
exercisable at the public offering price less the underwriting discount. If
the Underwriters exercise such over-allotment option, then each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof as the number of shares of
Common Stock to be purchased by it as shown in the above table bears to the
2,275,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of Common Stock offered hereby.
The officers and directors of the Company and certain holders of the Common
Stock have agreed not to offer, sell, transfer, assign or otherwise dispose of
any of the Common Stock owned by them prior to the expiration of 180 days from
the Effective Date without the prior written consent of Bear, Stearns & Co.
Inc. After such 180-day period, such persons will be entitled to sell,
distribute or otherwise dispose of the Common Stock that they hold subject to
the provisions of applicable securities laws.
66
<PAGE>
The Company has agreed that it will not issue, sell or grant options to
purchase or otherwise dispose of any shares of its Common Stock or securities
convertible into or exchangeable for its Common Stock, except with respect to
options or other rights outstanding on the date of this Prospectus or pursuant
to the Company's stock plans, for a period of 180 days after the Effective
Date without the prior written consent of Bear, Stearns & Co. Inc.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain civil
liabilities, including liabilities under the Securities Act, or will
contribute to payments that the Underwriters or any such controlling persons
may be required to make in respect thereof.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales in excess of five percent of the
number of shares of Common Stock offered hereby to accounts over which they
exercise discretionary authority.
Prior to this Offering, there was no public market for the Common Stock.
Consequently, the initial public offering price was determined by negotiations
among the Company and the Representatives. Among the factors considered in
such negotiations were the history of, and the prospects for, the Company and
the industry in which it competes, an assessment of the Company's management,
its past and present operations, its past and present earnings and the trend
of such earnings, the prospects for future earnings of the Company, the
present state of the Company's development, the general condition of the
economy and the securities markets at the time of this Offering, the market
conditions for new offerings of securities and the recent market prices and
price/earnings multiples of publicly traded common stocks of comparable
companies.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Venture Law Group, A Professional Corporation, Menlo Park,
California. As of the date of this Prospectus, a director and an employee of
Venture Law Group and an investment partnership of which certain employees of
Venture Law Group are general partners beneficially own an aggregate of 5,311
shares of Common Stock and options to purchase 11,430 shares of Common Stock.
Certain legal matters in connection with this Offering will be passed upon for
the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, Menlo Park, California.
EXPERTS
The financial statements of the Company included in this Prospectus and
elsewhere in the Registration Statement as of December 31, 1995 and 1996, for
each of the three years in the period ended December 31, 1996 and for the
period from inception (November 12, 1992) to December 31, 1996 have been
audited by Ernst & Young LLP, independent auditors (period from inception to
December 31, 1993 and as of December 31, 1993 and 1994 not separately
presented in this Prospectus or Registration Statement), as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The statements in this Prospectus under the captions "Risk Factors--
Dependence on Patents and Proprietary and Licensed Technology; Risk of Patent
Infringement" and "Business--Patents and Proprietary Rights" and other
references herein to intellectual property of the Company have been reviewed
and approved by Heller Ehrman White & McAuliffe, patent counsel for the
Company, as experts on such matters, and are included herein in reliance upon
that review and approval.
67
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby (the "Registration
Statement"). This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and such Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. Statements contained herein as to the contents of any
documents are not necessarily complete. In each instance, reference is made to
the copy of such document filed as an exhibit to the Registration Statement,
and each such statement is qualified in its entirety by such reference. Copies
of the Registration Statement, including exhibits and schedules filed
therewith, may be inspected without charge at the Commission's principal
office in Washington, D.C. or obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding companies that file electronically with the
Commission. The Company has filed the Registration Statement, including the
exhibits and schedules thereto, electronically with the Commission via the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
system. The Company intends to distribute to its stockholders annual reports
containing audited financial statements examined by an independent public
accountant and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
68
<PAGE>
CARDIMA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statements of Changes in Redeemable Preferred Stock and Stockholders'
Equity (Net Capital Deficiency).......................................... F-5
Statements of Cash Flows.................................................. F-7
Notes to Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cardima, Inc.
We have audited the accompanying balance sheets of Cardima, Inc. (a
development stage company) as of December 31, 1995 and 1996, and the related
statements of operations, changes in redeemable convertible preferred stock
and stockholders' equity (net capital deficiency), and cash flows for each of
the three years in the period ended December 31, 1996 and for the period from
inception (November 12, 1992) to December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cardima, Inc. (a
development stage company) at December 31, 1995 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996 and for the period from inception (November 12, 1992)
to December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Palo Alto, California
February 21, 1997
except as to Note 7, as to which the date is March 12, 1997
F-2
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------ DECEMBER 31,
1995 1996 1996
-------- -------- -------------
(NOTE 7)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 2,993 $ 907
Accounts receivable, net of allowance for
doubtful accounts of $30 at December 31,
1996 (none at December 31, 1995)............ 46 68
Receivable from Target Therapeutics, Inc..... 21 17
Inventory.................................... 268 377
Other current assets......................... 101 212
-------- --------
Total current assets...................... 3,429 1,581
Property and equipment, net.................. 747 1,400
Restricted cash.............................. 345 275
Other assets................................. 214 708
-------- --------
$ 4,735 $ 3,964
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET
CAPITAL DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable............................. $ 228 $ 1,113
Payable to Target Therapeutics, Inc.......... 31 42
Accrued compensation......................... 199 513
Other accrued liabilities.................... 59 52
Notes payable................................ -- 1,682
Capital lease obligation--current portion.... 265 329
-------- --------
Total current liabilities................ 782 3,731
Deferred rent................................ 129 139
Capital lease obligation--noncurrent
portion..................................... 317 722
COMMITMENTS
Redeemable convertible preferred stock at
amount paid in:
Series D redeemable convertible, 1,215,924
shares issued and outstanding at December
31, 1995 and 1,919,052 at December 31,
1996, respectively; aggregate liquidation
preference of $9,806 at December 31, 1996;
none pro forma............................. 6,182 9,740
Series D-1 redeemable convertible, none
issued and outstanding at December 31,
1996; none pro forma.......................
Stockholders' equity (net capital
deficiency):
Preferred stock, $0.001 par value, 5,155,158
shares authorized, aggregate liquidation
preference of $10,145 at December 31, 1996:
Series A convertible, 459,918 shares
authorized, 428,567 shares issued and
outstanding--amount paid in; none pro
forma...................................... 2,949 2,949 $ --
Series B convertible, 333,333 shares
authorized, issued and outstanding amount
paid in; none pro forma
Series C convertible, 458,245 shares
authorized, 458,245 shares issued and
outstanding at December 31, 1995 and
December 31, 1996 amount paid in; none pro
forma...................................... 4,764 4,764 --
Common stock, $0.001 par value, 7,500,000
shares authorized, 70,297 shares issued and
outstanding at December 31, 1995, 74,999 at
December 31, 1996 and 3,444,800 shares pro
forma...................................... 8 595 18,048
Deferred compensation....................... (526) (526)
Deficit accumulated during the development
stage...................................... (10,396) (18,150) (18,150)
-------- -------- --------
Total stockholders' equity (net capital
deficiency).............................. (2,675) (10,368) $ (628)
-------- -------- --------
$ 4,735 $ 3,964
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED DECEMBER 31, INCEPTION
---------------------------- (NOVEMBER 12, 1992) TO
1994 1995 1996 DECEMBER 31, 1996
-------- -------- -------- ----------------------
<S> <C> <C> <C> <C>
Net sales............... $ 86 $ 362 $ 593 $ 1,041
Cost of goods sold...... 211 830 1,413 2,454
-------- -------- -------- --------
Gross Profit............ (125) (468) (820) (1,413)
Operating expenses:
Research and
development........... 2,205 2,581 3,319 9,188
Selling, general and
administrative........ 1,309 2,046 3,690 7,536
-------- -------- -------- --------
Total operating
expenses............... 3,514 4,627 7,009 16,724
-------- -------- -------- --------
Operating loss.......... (3,639) (5,095) (7,829) (18,137)
Interest and other
income................. 15 12 132 192
Interest expense........ (31) (117) (57) (205)
-------- -------- -------- --------
Net loss................ $ (3,655) $ (5,200) $ (7,754) $(18,150)
======== ======== ======== ========
Pro forma net loss per
share.................. $ (1.23)
========
Shares used in computing
pro forma net loss per
share.................. 6,325
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
PERIOD FROM INCEPTION (NOVEMBER 12, 1992) TO DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
---------------------------------------------------------------------------------------------------
SERIES D TOTAL
REDEEMABLE DEFICIT STOCKHOLDERS'
CONVERTIBLE SERIES A SERIES B SERIES C ACCUMULATED EQUITY
PREFERRED CONVERTIBLE CONVERTIBLE CONVERTIBLE COMMON DEFERRED DURING THE (NET CAPITAL
STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK COMPENSATION DEVELOPMENT STAGE DEFICIENCY)
----------- --------------- --------------- --------------- ------ ------------ ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
66,666 shares
common stock to
founder for cash
at $0.07 per
share in May
1993............ $-- $ -- $-- $ -- $ 5 $-- $ -- $ 5
Issuance of
428,567 shares
of Series A
convertible
preferred stock
to investors for
cash at $7.00
per share in May
1993, net of
issuance costs
of $52.......... -- 2,948 -- -- -- -- -- 2,948
Issuance of
333,333 shares
of Series A
convertible
preferred stock
to Target
Therapeutics,
Inc. in
consideration of
the grant of a
fully paid
research license
in May 1993..... -- -- -- -- -- -- -- --
Issuance of
333,333 shares
of Series B
convertible
preferred stock
to Target
Therapeutics,
Inc. in June
1993 in exchange
for 333,333
shares of Series
A convertible
preferred stock
previously
issued.......... -- -- -- -- -- -- -- --
Issuance of a
warrant to
Target
Therapeutics,
Inc. to purchase
10,942 shares of
Series A
preferred stock
at $7.00 per
share in
connection with
a lease line
agreement in
December 1993,
for a
receivable...... -- 1 -- -- -- -- -- 1
Net loss........ -- -- -- -- -- -- (1,541) (1,541)
---- ------ ---- ------ --- ---- ------- -------
Balances at
December 31,
1993............ -- 2,949 -- -- 5 -- (1,541) 1,413
Issuance of
340,834 shares
of Series C
convertible
preferred stock
to investors for
cash and
conversion of
bridge loans at
$10.50 per share
in June, July
and December
1994, net of
issuance costs
of $21.......... -- -- -- 3,558 -- -- -- 3,558
Net loss........ -- -- -- -- -- -- (3,655) (3,655)
---- ------ ---- ------ --- ---- ------- -------
Balances at
December 31,
1994 (carried
forward)........ $-- $2,949 $-- $3,558 $ 5 $-- $(5,196) $ 1,316
</TABLE>
See accompanying notes.
F-5
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)(CONTINUED)
PERIOD FROM INCEPTION (NOVEMBER 12, 1992) TO DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
---------------------------------------------------------------------------------------------
DEFICIT TOTAL
SERIES D ACCUMULATED STOCKHOLDERS'
REDEEMABLE SERIES A SERIES B SERIES C DURING THE EQUITY
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE COMMON DEFERRED DEVELOPMENT (NET CAPITAL
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK COMPENSATION STAGE DEFICIENCY)
--------------- --------------- --------------- --------------- ------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1994 (brought
forward)........ $ -- $2,949 $-- $3,558 $ 5 $ -- $ (5,196) $ 1,316
Issuance of
117,411 shares
of Series C
convertible
preferred stock
to investors for
cash, exercise
of warrants and
conversion of
bridge loans at
$10.50 per share
in March and
July 1995, net
of issuance
costs of $27.... -- -- -- 1,206 -- -- -- 1,206
Issuance of
1,215,924 shares
of Series D
redeemable
convertible
preferred stock
to investors for
cash and
conversion of
bridge loans at
$5.11 per share
in December
1995, net of
issuance costs
of $31.......... 6,182 -- -- -- -- -- -- --
Issuance of
3,631 shares of
common stock
upon exercise of
employee stock
options for cash
at $0.70-$1.05
per share in
April, October
and December
1995............ -- -- -- -- 3 -- -- 3
Net loss........ -- -- -- -- -- -- (5,200) (5,200)
------ ------ ---- ------ ---- ----- -------- --------
Balances at
December 31,
1995............ 6,182 2,949 -- 4,764 8 -- (10,396) (2,675)
Issuance of
703,128 shares
of Series D
redeemable
convertible
preferred stock
to investors for
cash and
cancellation of
notes payable at
$5.11 per share
in February
1996, net of
issuance costs
of $35.......... 3,558 -- -- -- -- -- -- --
Issuance of
2,206 shares of
common stock for
cash upon
exercise of
employee stock
options at
$0.56-$2.10 per
share in
January-April,
July, September
and November.... -- -- -- -- 7 -- -- 7
Deferred
compensation
related to grant
of stock
options......... -- -- -- -- 580 (580) -- --
Amortization of
deferred
compensation.... -- -- -- -- -- 54 -- 54
Net loss........ -- -- -- -- -- -- (7,754) (7,754)
------ ------ ---- ------ ---- ----- -------- --------
Balance at
December 31,
1996............ $9,740 $2,949 $-- $4,764 $595 $(526) $(18,150) $(10,368)
====== ====== ==== ====== ==== ===== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEARS ENDED (NOVEMBER 12,
DECEMBER 31, 1992) TO
------------------------- DECEMBER 31,
1994 1995 1996 1996
------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS USED IN OPERATING
ACTIVITIES
Net loss.............................. $(3,655) $(5,200) $(7,754) $(18,150)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization........ 91 296 403 800
Amortization of deferred
compensation........................ -- -- 54 54
Loss on disposal of assets........... -- -- 15 15
Loss on sale/leaseback of capital
equipment -- -- 95 95
Issuance of preferred stock upon
conversion of various related party
payables and interest payable....... 12 339 -- 351
Changes in operating assets and
liabilities:
Accounts receivable.................. (44) (2) (22) (68)
Receivable from Target Therapeutics,
Inc................................. 17 31 4 62
Inventory............................ (268) -- (109) (377)
Other current assets................. (98) 11 (111) (212)
Restricted cash...................... (330) (15) 70 (275)
Other assets......................... (94) (128) (526) (784)
Accounts payable..................... 121 40 885 1,113
Payable to Target Therapeutics,
Inc................................. 9 (67) 11 42
Accrued compensation................. 106 52 314 513
Other accrued liabilities............ 10 19 1 42
Deferred rent........................ 22 107 10 139
------- ------- ------- --------
Cash flows used in operating
activities........................... (4,101) (4,517) (6,660) (16,640)
------- ------- ------- --------
CASH FLOWS USED IN INVESTING
ACTIVITIES
Capital expenditures.................. (184) (78) (388) (770)
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
Net cash proceeds from issuance of
preferred stock...................... 2,546 5,189 2,984 13,668
Proceeds from issuance of bridge
loans................................ 1,000 2,263 1,674 4,937
Payments of bridge loans.............. -- (403) -- (403)
Payments under capital lease
obligations.......................... (52) (153) (286) (491)
Proceeds from issuance of notes
payable.............................. 32 -- -- 32
Payments under notes payable.......... -- (24) -- (24)
Proceeds from issuance of common
stock................................ -- 3 7 15
Proceeds from sale/leaseback of
capital equipment.................... -- -- 583 583
------- ------- ------- --------
Cash flows provided by financing
activities........................... 3,526 6,875 4,962 18,317
------- ------- ------- --------
Net increase (decrease) in cash and
cash equivalents..................... (759) 2,280 (2,086) 907
Cash and cash equivalents at the
beginning of the period.............. 1,472 713 2,993 --
------- ------- ------- --------
Cash and cash equivalents at the end
of the period........................ $ 713 $ 2,993 $ 907 $ 907
======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION
Cash paid during the year for
interest............................. $ 28 $ 43 $ 49 $ 120
======= ======= ======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Receivable from Target Therapeutics,
Inc. recorded for sale-leaseback of
capital equipment and for issuance
for a warrant to purchase Series A
preferred stock...................... $ 52 $ -- $ -- $ 121
======= ======= ======= ========
Equipment acquired under capital
leases............................... $ 432 $ 286 $ 746 $ 1,464
======= ======= ======= ========
Conversion of various related party
payables, bridge loans and capital
lease obligations and related accrued
interest to convertible preferred
stock................................ $ 1,012 $ 2,199 $ 574 $ 3,785
======= ======= ======= ========
</TABLE>
See accompanying notes.
F-7
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Cardima, Inc., (the "Company" or "Cardima") a development stage company, was
incorporated in the State of Delaware on November 12, 1992. The Company
designs, develops, manufactures and markets minimally invasive, single use,
microcatheter-based systems for the mapping and ablation of the two most
common forms of cardiac arrhythmias: atrial fibrillation and ventricular
tachycardia. The Company has licensed its microcatheter technology for use in
the treatment for electrophysiological diseases affecting areas other than the
central nervous system from a major stockholder, Target Therapeutics, Inc.
("Target").
The Company's activities to date have consisted principally of raising
capital, arranging for facilities, acquiring equipment and intellectual
property, recruiting managerial and technical personnel, conducting research
and development efforts, establishing a sales and marketing group, and minimal
sales of initial products. Accordingly, the Company is considered to be in the
development stage.
Since inception, the Company has accumulated a deficit of approximately
$18.2 million. Management expects to incur additional losses to complete
product development and commercialization, as necessary, and recognizes the
need to raise additional funds from outside sources. In March 1997, the
Company successfully consummated the sale of 2,356,741 shares of Series E
redeemable convertible preferred stock, from which the Company received gross
cash proceeds of approximately $10.3 million and converted approximately $3.3
million of outstanding short term debt, $1.6 million of which was incurred
after December 31, 1996. Management believes that it will be able to obtain
additional funds through either public or private equity or debt financings,
collaborative and other arrangements with corporate partners or from other
sources. If adequate funds are not available, the Company may be required to
reduce its level of spending, or eliminate one or more of its research and
development programs.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized when products are shipped. To date, product sales
have been to distributors primarily in Europe, Japan and South America. One
distributor accounted for approximately 45% and two distributors each
accounted for 31% of the Company's net sales during the years ended December
31, 1995 and December 31, 1996, respectively. No one distributor accounted for
more than 10% of the Company's net sales during the year ended December 31,
1994. All of the Company's sales since inception have been export sales.
Research and Development
Research and development costs, which include clinical and regulatory costs,
are charged to expense as incurred.
Net Loss Per Share
Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares from
stock options and warrants are excluded from the computation as their effect
is antidilutive, except that, pursuant to the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletins, common and common equivalent
shares (stock options, convertible notes
F-8
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
payable and convertible preferred stock) issued during the 12 months prior to
the initial filing of the registration statement relating to the proposed
offering at prices below the assumed public offering price have been included
in the calculation as if they were outstanding for all periods presented
(using the treasury stock method for stock options and warrants).
Historical loss per share information is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net loss per share................................... $(1.22) $(1.73) $(2.57)
------ ------ ------
Shares used in computing net loss per share.......... 3,007 3,008 3,013
====== ====== ======
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect, pursuant to SEC staff policy, to the conversion of convertible
preferred shares issued within 12 months from the proposed initial public
offering that will be converted upon completion of the initial public offering
(using the if-converted method) from the original date of issuance.
Cash Equivalents
The Company considers all highly liquid investments purchased with maturity
of three months or less at the date of acquisition to be cash equivalents. The
Company places its cash with high-credit-quality financial institutions and
invests primarily in money market accounts. By policy, the Company limits the
amount of credit exposure in any one financial instrument or institution. The
Company had no short term investments at year end. Cash and cash equivalents
are with a major financial institution and consist of money markets and
certificate of deposits.
Inventory
Inventories are stated at the lower of cost or market. Cost is based on
actual costs computed on a first-in, first-out basis. Inventories consist of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Raw material................................................... $ 110 $ 145
Work-in-process................................................ 40 131
Finished goods................................................. 118 101
------ ------
$ 268 $ 377
====== ======
</TABLE>
Property and Equipment
Property and equipment is stated at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
----- ------
<S> <C> <C>
Machinery and equipment....................................... $ 956 $1,927
Furniture and fixtures........................................ 77 81
Leasehold improvements........................................ 67 93
----- ------
1,100 2,101
Less accumulated depreciation and amortization................ (353) (701)
----- ------
$ 747 $1,400
===== ======
</TABLE>
F-9
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Depreciation is provided using the straight-line method over the shorter of
their estimated useful lives or lease term of the respective assets, generally
three to five years. Property and equipment financed under a capital lease
include $787,000 and $1,523,000 at December 31, 1995 and 1996, respectively
(see Note 6). Accumulated amortization related to leased assets was $282,000
and $564,000 at December 31, 1995 and 1996, respectively. Amortization related
to capital leases are included in depreciation expense.
Concentrations of Risk
The Company purchases certain key components of its products, including the
hydrophilic coating for certain of its microcatheters, from sole, single or
limited source suppliers. For certain of these components there are relatively
few alternative sources of supply. Establishing additional or replacement
suppliers for any of the numerous components used in the Company's products,
if required, may not be accomplished quickly and could involve significant
additional costs. Any supply interruption from vendors or failure of the
Company to obtain alternative vendors for any of the numerous components used
to manufacture the Company's products would limit the Company's ability to
manufacture its products and would have a material adverse effect on the
Company's business, financial condition and results of operations.
Patents
Patents are amortized using the straight-line method over seven years,
beginning at their effective dates or over the remainder of such periods from
the dates acquired.
Reclassification
Certain prior period amounts have been reclassified to conform with current
period presentation.
2. LEASES
The Company leases facilities under an operating lease which commenced in
August 1994 and expires November 1999. The Company also leases certain
equipment under a noncancelable capital lease (see Note 6). Following is a
schedule of future minimum lease payments under both operating and capital
leases at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Years ending December 31:
1997..................................................... 360 425
1998..................................................... 360 425
1999..................................................... 314 383
2000..................................................... -- 44
------ -----
Total minimum payments required............................ $1,034 1,277
======
Less amount representing interest.......................... (226)
-----
Present value of future lease payments..................... 1,051
Less current portion....................................... (329)
-----
Noncurrent portion......................................... $ 722
=====
</TABLE>
Rent expense, net of rental income was approximately $45,000 in 1994,
$312,000 in 1995, $295,000 in 1996 and $652,000 for the period from inception
to December 31, 1996 (see Note 5). In connection with its facilities lease
arrangements, the Company issued letters of credit to lessors which are
collateralized by certificates of deposit totaling approximately $275,000.
Accordingly, this restricted cash amount has been classified as a noncurrent
asset.
F-10
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In January 1996, the Company entered into a lease line agreement with a
stockholder for $1,500,000 to finance capital expenditures, approximately
$1,236,000 of which was utilized as of December 31, 1996. As partial
consideration for this arrangement, a warrant to purchase 23,777 shares of
Series D convertible preferred stock was issued to the lender. The warrant is
exercisable at $5.11 per share for a period of ten years or five years from
the effective date of the Company's initial public offering, whichever is
longer.
3. STOCKHOLDERS' EQUITY
Stock Split
On October 3, 1996, the Company effected a 1-for-7 share reverse stock split
of its common stock and preferred stock. All share and per share amounts in
the accompanying financial statements have been retroactively adjusted to
reflect this event.
Convertible Preferred Stock and Redeemable Convertible Preferred Stock
Each share of Series A and B preferred stock has a liquidation preference of
$7.00 per share plus declared but unpaid dividends. Series C preferred stock
has a liquidation preference of $10.50 per share plus declared but unpaid
dividends. Series D preferred stock has a liquidation preference of $5.11 per
share plus declared but unpaid dividends, and is senior to Series A, B and C
preferred stock with respect to liquidation. Series A and C preferred stock
are senior to the Series B preferred stock with respect to liquidation.
Series A, B, C and D preferred stockholders are entitled to noncumulative
dividends at the rate of $0.70, $0.70, $1.05 and $0.511 per share,
respectively, per annum, if declared by the board of directors, in preference
to common stock dividends. No dividends have been declared to date.
Each share of Series A, B, C and D preferred stock automatically converts
into approximately 0.9533, 1.0661, 1.50 and 1.00 common shares, respectively,
in the event of an underwritten public offering of the Company's common stock
in which the aggregate proceeds are at least $10,000,000 and the price per
share is at least $10.00, subject to adjustment in the event of, among other
things, stock splits and stock dividends. The Company has amended and restated
its articles of incorporation to reserve sufficient shares of common stock for
issuance upon conversion of the Series A, B, C and D preferred stock.
Each share of Series D preferred stock is redeemable upon the request of at
least a majority of the holders of the then outstanding shares of Series D
preferred stock given at least 90 days prior to the seventh anniversary of the
date upon which any shares of Series D preferred stock were first issued. The
redemption is payable in three equal annual installments starting on the
seventh anniversary of the date upon which any shares of Series D preferred
stock were first issued. The redemption price is equal to the original
issuance price, plus all declared and unpaid dividends.
The holder of each share of preferred stock has voting rights equivalent to
the number of common shares assuming conversion.
In April and October 1996, the Company amended and restated its Certificate
of Incorporation to increase the total number of shares authorized to
12,641,436. Of the additional shares authorized, 1,944,970 were designated as
newly created Series D-1 preferred stock. The provisions regarding
liquidation, voting, dividends, redemption and conversion for the Series D-1
preferred stock are identical to the Series D preferred stock, except that the
Series D-1 preferred stock does not contain the protective antidilution
features of the Series D preferred stock. No Series D-1 preferred stock are
issued or outstanding.
Common Stock
In May 1993, 66,666 shares of common stock were issued to the Company's
founders at $0.07 per share. Certain of these shares were subject to
repurchase by the Company at the original issue price upon the occurrence of
certain events, including termination of employment. The Company's right of
repurchase expired ratably over three years. Shares subject to repurchase were
23,611 and 6,944 at December 31, 1994 and 1995, respectively. At December 31,
1996, no shares were subject to repurchase by the Company.
F-11
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1993 Stock Option Plan
During 1993, the board of directors adopted the 1993 Stock Option Plan (the
"Plan") and, as amended, has reserved 263,106 shares of common stock for
issuance under the Plan. The Plan provides for both incentive and nonstatutory
stock options to be granted to employees, directors and consultants.
Exercisability, option price, fair value and other terms are determined by the
board of directors; however, the exercise price of each incentive stock option
shall be not less than 100% of the fair market value of the stock issuable
upon exercise of the option on the date the option is granted. The exercise
price of each nonstatutory stock option shall be not less than 85% of the fair
value of the stock subject to the option on the date the option is granted.
All options are generally exercisable upon grant, but shares received upon
exercise prior to vesting are subject to repurchase upon the stockholder's
termination of service to the Company. Shares purchased upon exercise of
options generally vest at the rate of 12.5% after six months from the date of
grant, and monthly thereafter over the following 48 months. No option shall
have a maximum term in excess of ten years from the grant date and no option
granted to a 10% stockholder shall have a maximum term in excess of five years
from the grant date.
Activity under the 1993 Stock Option Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------
SHARES NUMBER OF
AVAILABLE SHARES PRICE PER SHARE
--------- --------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1994............ 133,200 129,906 $0.70-$2.10
Options granted......................... (41,903) 41,903 $0.56-$2.10
Options exercised....................... -- (3,631) $0.70-$1.05
Options canceled........................ 19,923 (19,923) $0.70-$1.05
-------- -------
Balance at December 31, 1995............ 111,220 148,255 $0.56-$2.10
Additional shares reserved.............. 640,079 -- --
Options granted......................... (733,778) 733,778 $0.56-$1.75
Options exercised....................... -- (4,708) $0.56-$2.10
Options canceled........................ 66,635 (66,635) $0.56-$2.10
-------- -------
Balance at December 31, 1996............ 84,156 810,690
======== =======
</TABLE>
From March to December 1996, options to purchase a total of 670,174 shares
were granted at prices ranging from $0.56 to $1.75 per share. Deferred
compensation of approximately $580,000 was recorded for these option grants
based on the deemed fair value of common stock (ranging from $1.00 to $5.95
per share). In the first quarter of 1997, the Company granted options to
purchase 67,268 shares of common stock at $1.75 per share for which deferred
compensation of $400,000 was recorded based on the deemed fair value of common
stock (ranging from $5.95 to $8.00 per share).
In December 1996, the Board of Directors approved the repricing of incentive
stock options granted in September and October 1996. During this period,
63,604 shares were granted at prices in excess of $5.60. Employees could elect
to exchange their outstanding options for the new exercise price of $1.75. The
exchange of such options is included in grants and cancellations and was also
included in the determination of deferred compensation discussed above.
Warrants
At December 31, 1996, the Company had the following warrants outstanding:
warrants to purchase 456,523 shares of common stock at $1.05 per share issued
to certain investors in connection with bridge loans; warrants to purchase
1,428 shares of common stock at $7.00 per share issued in connection with the
facility lease; warrants to purchase 1,999 shares of Series A preferred stock
at $7.00 per share and 2,142 shares of Series D preferred stock at $5.11 per
share issued in connection with a letter of credit; warrants to purchase
23,776 shares
F-12
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of Series D convertible preferred stock at $5.11 per share issued in
connection with a capital lease; and warrants to purchase 18,410 shares of
Series A preferred stock at $7.00 per share issued to certain investors in
connection with bridge financings. These warrants are exercisable immediately
and expire at the earliest of (i) between 3 to 10 years after the date of
grant or (ii) the closing of the Company's sale of all or substantially all of
its assets or (iii) the acquisition of the Company by another entity by means
of a merger or other transaction.
In December 1994, the Company also issued warrants to Target to purchase
24,610 shares of the Company's Series C preferred stock at $10.50 per share in
connection with a guarantee of a letter of credit. These warrants were
exercised in March 1995 for cash. Also in connection with a capital lease line
agreement, the Company issued to Target in December 1993 a warrant for $766 to
purchase 10,942 shares of the Company's Series A preferred stock at $7.00 per
share. This warrant is exercisable immediately and expires at the earlier of
December 9, 1998 or the disposition of substantially all of the Company's
assets or the acquisition of the Company by another entity by means of merger
or other transaction (see Note 6).
The Company has reserved shares of common stock for issuance upon exercise
of the warrants described above.
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair-value accounting provided for under FASB
Statement No. 123, ("Statement 123") "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant as determined by the Company's Board of
Directors, no compensation expense is recognized. However, as noted earlier in
this footnote, the Company has recorded deferred compensation expense based on
the deemed fair value of common stock which is higher than the originally
determined fair value.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994, under the fair-value method of that
Statement. The Company has evaluated the effects of Statement 123 and
determined that it does not have a material effect on the Company's statement
of operations or loss per share.
4. NOTES PAYABLE
In October 1996, the Company entered into a $2.5 million note purchase
agreement with certain of its existing investors. During November and December
1996, the Company borrowed approximately $1.7 million from the investors under
the note purchase agreement at an annual interest rate equal to the applicable
Internal Revenue Service imputed rate in effect at the time of the borrowing
(5.6%-5.8%). The notes mature on January 31, 1997 (see Note 7).
F-13
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
As of December 31, 1995 and December 31, 1996, the Company had federal net
operating loss carryforwards of approximately $10,100,000 and $17,500,000,
respectively. The Company also had federal research and development tax credit
carryforwards of approximately $200,000 as of December 31, 1995 and 1996. The
net operating loss and credit carryforwards will expire at various dates
beginning on December 31, 2008 through December 31, 2011, if not utilized.
Significant components of the Company's deferred tax assets as of December
31 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 3,700 $ 6,500
Research credits carryforwards (federal and state)......... 250 300
Capitalized research and development....................... 300 500
Other, net................................................. 200 200
------- -------
Total deferred tax assets.................................. 4,450 7,500
Valuation allowance for deferred tax assets................ (4,450) (7,500)
------- -------
$ -- $ --
======= =======
</TABLE>
The valuation allowance increased by $1,600,000, and $2,350,000 in 1994 and
1995, respectively.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
6. RELATED PARTY TRANSACTIONS
License Rights
In May 1993, Target granted the Company an exclusive royalty-free worldwide
license to use Target's technology and to make, use and sell or otherwise
distribute products for the diagnosis and treatment of electrophysiological
diseases in the body, other than in the central nervous system, including the
brain. The exclusive license grant applied to any Target technology developed
through May 1996 and will expire upon the expiration of the last of the
patents relating to the Target technology. Under the License Agreement,
Cardima granted back to Target an exclusive royalty-free license to use
technology developed through May 1996 in the fields of neurology,
interventional neurology, interventional reproductive disorders and vascular
prostheses (the "Target Field"). Such license will expire upon the expiration
of the last of the patents relating to the Target technology. Target granted
the Company a nonexclusive, royalty-free license to use Target technology to
make, use and sell or otherwise distribute the Company's products for use
within the cardiology field, provided the Company's products represent a
substantial improvement. A substantial improvement is any modification,
improvement or enhancement by the Company of Target technology in a particular
product that results in a material change in the function, purpose or
application of such product. The Company believes that the incorporation of
electrodes in its microcatheter systems, together with other modifications,
satisfies the substantial improvement requirements. As part of the same
agreement, the Company granted to Target an exclusive, royalty-free license to
use the Company's technology to make, have made, use and sell or otherwise
distribute products within the Target Field.
F-14
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In addition, the Company agreed not to conduct material research and
development, acquire corporate entities or make or sell products in the Target
Field or to sell products, other than products utilizing Target's technology,
for use in diagnosis or treatment of diseases related to the production of
electrical current in tissue located in areas of the body other than the
heart, without first notifying Target and negotiating a distribution
agreement. Cardima also agreed that it would not sell products utilizing
Target's technology for use in diagnosis or treatment of diseases related to
the production of electrical current in tissue located in areas of the body
other than the heart without, if selling to a distributor, first notifying
Target and offering Target the right of first refusal with respect to the
terms of the distribution, or if selling directly to the consumer, paying to
Target an amount equal to 40% of the gross profit for such product. In
exchange for the license, the Company initially issued 333,333 shares of
Series A preferred stock to Target. In June 1993, the Company effected a
recapitalization pursuant to which Target exchanged its existing shares of
Series A preferred stock for shares of newly created Series B preferred stock.
Series C and D Preferred Stock
In December 1994, the Company issued 23,216 shares of Series C preferred
stock to Target at $10.50 per share for cash and conversion of bridge loans.
The Company also issued to Target warrants to purchase 24,610 shares of the
Company's Series C preferred stock in connection with a guarantee of a letter
of credit which were exercised in March 1995 (see Note 3). In January 1995,
the Company issued an additional 7,143 shares of Series C preferred stock to
Target at $10.50 per share for cash and conversion of bridge loans.
In December 1995, the Company issued 142,029 shares of Series D preferred
stock to Target at $5.11 per share for cash and conversion of various payable
amounts and bridge loans. In February 1996, the Company issued an additional
112,374 shares of Series D preferred stock to Target at $5.11 per share in
exchange for the conversion of outstanding capital lease obligations.
Operations and Facilities
In May 1993, in the Company entered into an agreement with Target whereby
Target agreed to supply and/or manufacture such products and components
necessary to proceed with research and development activity pursuant to the
license mentioned above. This Agreement expired in May 1996. Target still
supplies the Company with products and components on an as-needed basis.
The Company occupied a portion of Target's facilities during 1994 prior to
occupying their own facility. As consideration, the Company paid $1,000 per
month for each employee using Target's facilities, as well as other
miscellaneous administrative expenses incurred by Target on the Company's
behalf.
As of December 31, 1996, $234,000 has been paid and $38,000 is owed to
Target under these arrangements (approximately $152,000 and $466,000 was paid
and $31,000 and $66,000 owed at December 31, 1995 and 1994, respectively) (see
Note 2).
Target has sublet certain facilities from the Company which can be renewed
annually. Net monthly rental income is approximately $4,500 (see Note 2).
Capital Lease Arrangement
In December 1993, the Company entered into a $1,000,000 capital lease line
agreement with Target. The lease line remained open until fully utilized or
until March 31, 1995, whichever occurred first. As of December 31, 1994 and
1995, $501,000 and $787,000, respectively, of the lease line was utilized for
capital equipment. In connection with this lease line agreement, the Company
issued to Target a warrant to purchase
F-15
<PAGE>
CARDIMA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10,942 shares of the Company's Series A preferred stock (see Note 3). In
January 1996, the outstanding capital lease obligation, plus accrued interest,
was converted into shares of Series D convertible preferred stock (see Note
3).
7. SUBSEQUENT EVENTS
On March 12, 1997, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public. If the offering
is consummated under terms presently anticipated, all of the currently
outstanding preferred stock will convert to 5,726,542 shares of common stock.
Unaudited pro forma stockholders' equity as adjusted for the matters described
above is set forth in the accompanying balance sheet. The board will also
approve an amendment to the Certificate of Incorporation to change the number
of authorized shares of common stock to 25,000,000 shares and preferred shares
to 5,000,000 shares upon the closing of the offering.
The Company received an additional $833,000 from Target Therapeutics, Inc.
and other investors in January 1997 under the note purchase agreement
discussed in Note 4. The notes were due on January 31, 1997, however, the
holders of the notes agreed to convert both principal and interest to Series E
preferred stock in March 1997. An additional $750,000 was received from
various investors in February 1997 in the form of bridge loans. The total of
these loans, plus the outstanding notes payable at December 31, 1996 and
accrued interest totalled approximately $3.3 million and was converted into
571,918 shares of Series E redeemable convertible preferred stock ("Series E
Preferred Stock").
In March 1997, entities affiliated with Goldman, Sachs & Co., Chase Venture
Capital Associates, L.P. and Premier Medical Partner Fund, L.P. purchased
1,784,823 shares of Series E redeemable preferred stock at a price of
approximately $5.74 per share. Total cash proceeds received in connection with
the purchase were approximately $10.3 million. In addition, the Company has
agreed to certain voting rights, including the right of the majority of the
Series E holders to designate a member on the Board of Directors. Each share
of Series E preferred stock is redeemable upon the request of at least a
majority of the holders of the then outstanding shares of Series E preferred
stock given at least 90 days prior to the seventh anniversary of the date upon
which any shares of Series E preferred stock were first issued. The redemption
is payable in three equal installments. The redemption price is equal to the
original issuance price, plus all declared and unpaid dividends.
1997 Directors' Stock Option Plan
In March 1997, the board of directors adopted the 1997 Directors' Stock
Option Plan (the "Directors' Plan), subject to stockholder approval. A total
of 200,000 shares of common stock has been reserved for issuance under the
Directors' Plan. The Plan provides for the grant of nonstatutory stock options
to nonemployee directors of the Company.
1997 Employee Stock Purchase Plan
In March 1997, the board of directors adopted the 1997 Employee Stock
Purchase Plan (the "Purchase Plan"), subject to stockholder approval. A total
of 250,000 shares of common stock has been reserved for issuance under the
Purchase Plan.
F-16
<PAGE>
[PICTURE OF VEINS AND ARTERIES OF HUMAN HEART]
VEINS (WHITE) AND ARTERIES (RED) WITHIN THE WALL OF AN ACTUAL HUMAN HEART
The wall of the heart. The vessels of this human heart have been injected
with a colored plastic polymer and the ventricular muscle has been eroded
away, exposing an extensive vascular network that provides access to most
areas of the ventricular wall for mapping and ablating VT using Cardima
microcatheters.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR 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 TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 18
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Dilution................................................................. 19
Capitalization........................................................... 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 26
Management............................................................... 49
Certain Transactions..................................................... 57
Principal Stockholders................................................... 59
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale.......................................... 64
Underwriting............................................................. 66
Legal Matters............................................................ 67
Experts.................................................................. 67
Additional Information................................................... 68
Index to Financial Statements............................................ F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,275,000 SHARES
CARDIMA, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
DAIN BOSWORTH
INCORPORATED
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee.............................................. $ 9,514
NASD filing fee................................................... 3,640
Nasdaq National Market listing fee................................ 38,538
Printing fees and expenses........................................ 150,000
Legal fees and expenses........................................... 450,000
Accounting fees and expenses...................................... 150,000
Blue Sky fees and expenses........................................ 15,000
Transfer Agent and Registrar fees................................. 10,000
Miscellaneous fees and expenses................................... 123,308
--------
Total........................................................... $950,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware Law authorizes a court to award, or a
corporation's Board of Directors to grant, indemnification to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act").
Article X of the Registrant's Amended and Restated Certificate of
Incorporation (Exhibit 3.1 hereto) provides for indemnification of its
directors and officers to the maximum extent permitted by the Delaware Law,
and Section 6 of Article VII of the Registrant's Bylaws (Exhibit 3.2 hereto)
provides for indemnification of its directors, officers, employees and other
agents to the maximum extent permitted by Delaware Law. As permitted by
Section 145 of the Delaware Law, the Registrant's Amended and Restated
Certificate of Incorporation also includes a provision that eliminates the
personal liability of its directors for monetary damages for breach or alleged
breach of their duty of care. In addition, the Registrant has entered into
Indemnification Agreements (Exhibit 10.4 hereto) with its directors and
officers. Reference is also made to Section 7 of the Underwriting Agreement,
contained in Exhibit 1.1 hereto, indemnifying officers and directors of the
Registrant against certain liabilities. The Indemnification Agreements include
provisions that are in some respects broader than the specific indemnification
provisions contained in the Delaware Law, and may require the Company, among
other things, to indemnify its directors against certain liabilities that may
arise by reason of their status or service as directors (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance,
if available on reasonable terms.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since December 31, 1993, the Company has sold and issued the following
unregistered securities (without payment of any selling commission to any
person), as adjusted to give effect to a one-for-seven reverse split of
outstanding shares of Preferred Stock and Common Stock effective October 1996:
(1) The Company has sold and issued 8,339 shares of its Common Stock at
prices per share ranging from $0.56 to $2.10 (an aggregate offering price
of $10,276) to employees and a former director pursuant to the exercise of
options under the 1993 Stock Plan.
II-1
<PAGE>
(2) In June 1994 and October 1994, the Company issued warrants to Silicon
Valley Bank to purchase 1,714 shares and 285 shares, respectively, of its
Series A Preferred Stock at an exercise price of $7.00 per share, and in
October 1995, the Company issued a warrant to Silicon Valley Bank to
purchase 2,142 shares of its Series D Preferred Stock at an exercise price
of $5.11 per share. All of these warrants were issued in connection with
letter of credit and equipment financing agreements.
(3) During the period from June 1994 through July 1994, the Company sold
and issued to certain accredited investors an aggregate of 85,713 shares of
its Series C Preferred Stock at a price per share of $10.50, for an
aggregate of $900,000 in cash.
(4) In July 1994, the Company issued a warrant to the State of California
Public Employees' Retirement System to purchase 1,428 shares of its Common
Stock at an exercise price of $7.00 per share in connection with its
facilities lease.
(5) During the period from September 1994 through November 1994, the
Company issued and sold to certain accredited investors convertible
promissory notes in the aggregate principal amount of $1.0 million and
warrants to purchase Series A Preferred Stock at an exercise price of $7.00
per share in an amount to be determined based upon a formula relating to
the monthly principal dollar amount outstanding under the convertible
promissory notes. In December 1994, the convertible promissory notes, and
accrued interest thereunder, were converted into an aggregate of 96,394
shares of Series C Preferred Stock, and the warrants were cancelled and
reissued as warrants to purchase an aggregate of 18,410 shares of Series A
Preferred Stock at an exercise price of $7.00 per share. At that time, an
additional 165,863 shares of Series C Preferred Stock were issued and sold
to certain accredited investors at a price per share of $10.50, for an
aggregate purchase price of $1.7 million in cash.
(6) During the period from March 1995 through August 1995, the Company
issued and sold to certain accredited investors an aggregate of 85,666
shares of its Series C Preferred Stock at a price per share of $10.50, for
an aggregate of $900,000 in cash.
(7) During the period from April 1995 through December 1995, the Company
issued and sold to certain accredited investors notes in the aggregate
principal amount of $2.3 million and warrants to purchase Common Stock at
an exercise price of $1.05 per share in an amount to be determined based
upon a formula relating to the monthly principal amount outstanding under
the notes. In December 1995, the outstanding principal amount of the notes,
and accrued interest thereon, were converted into an aggregate of 423,402
shares of Series D Preferred Stock, and the warrants were cancelled and
reissued as warrant to purchase an aggregate of 456,523 shares of Common
Stock at an exercise price of $1.05 per share. At that time, an additional
792,516 shares of Series D Preferred Stock were issued and sold to certain
accredited investors at a price per share of $5.11, for an aggregate
purchase price of $4.0 million in cash.
(8) In January 1996, the Company issued a warrant to Comdisco to purchase
23,776 shares of Series D Preferred Stock at an exercise price of $5.11 per
share and in April 1997, the Company issued a warrant to Comdisco to
purchase 13,937 shares of Series E Preferred Stock at an exercise price of
$5.74 per share, in connection with an equipment financing agreement.
(9) In February 1996, the Company issued and sold to certain accredited
investors an aggregate of 703,134 shares of Series D Preferred Stock at a
price per share of $5.11, for an aggregate purchase price of $3.6 million,
payable in cash and in cancellation of certain indebtedness.
(10) During the period from October 1996 through January 1997, the
Company issued and sold to certain accredited investors notes in the
aggregate principal amount of $2.5 million. In March 1997, the outstanding
principal amount of the notes, and accrued interest thereon, were converted
into an aggregate of 440,963 shares of Series E Preferred Stock.
(11) In February 1997, the Company issued and sold convertible notes to
certain accredited investors in the aggregate amount of $750,000. In March
1997, the outstanding principal amount of the notes, and accrued interest
thereon, were converted into an aggregate of 130,955 shares of Series E
Preferred Stock.
(12) In March 1997, the Company issued and sold to certain accredited
investors an aggregate of 1,784,823 shares of Series E Preferred Stock at a
price per share of $5.74, for an aggregate purchase price of approximately
$10.3 million in cash.
II-2
<PAGE>
The sales and issuances of securities in the transaction described in
paragraph 1 were deemed to be exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act"), by virtue of Rule 701
promulgated thereunder in that they were offered and sold either pursuant to
written compensatory benefit plans or pursuant to a written contract relating
to compensation, as provided by Rule 701. The sales and issuances of
securities in the transactions described in paragraphs 2 through 12 above were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of such Securities Act as transactions by an issuer not involving
any public offering.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. In all such transactions, all recipients of
securities represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and all recipients either received adequate information
about the Registrant or had access, through employment or other relationships,
to such information.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of Registrant.
3.2** Bylaws of Registrant.
3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to become effective upon closing of this Offering.
3.4 Form of Bylaws of Registrant to become effective upon closing of this
Offering.
4.1** Form of Common Stock Certificate.
5.1 Opinion of Venture Law Group, A Professional Corporation.
10.1** 1993 Stock Option Plan.
10.2** 1997 Directors' Stock Option Plan.
10.3** 1997 Employee Stock Purchase Plan.
10.4** Form of Indemnification Agreement.
10.5** Fourth Amended and Restated Stockholders' Rights Agreement dated March
7, 1997, between Registrant and certain stockholders of Registrant.
10.6+** License Agreement dated May 21, 1993, between Registrant and Target
Therapeutics, Inc.
10.7** Lease dated April 25, 1994, between Registrant and State of California
Public Employees' Retirement System.
10.8** Sublease dated November 14, 1996, between Registrant and Target
Therapeutics, Inc.
10.9 Master Lease Agreement dated January 26, 1996, between Registrant and
Comdisco, Inc.,together with the Purchase Agreements.
10.10** Warrant Purchase Agreement dated December 9, 1993, between Registrant
and Target Therapeutics, Inc., together with the Series A Preferred
Stock Warrant.
10.11** Series A Preferred Stock Warrant dated June 10, 1994, issued to
Silicon Valley Bank.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.12** Warrant Purchase Agreement dated July 1, 1994, between Registrant and
California Public Employees' Retirement System, together with the
Common Stock Warrant.
10.13** Series A Preferred Stock Warrant dated October 26, 1994, issued to
Silicon Valley Bank.
10.14** Form of Series A Preferred Stock Warrant issued to certain investors
in December 1994.
10.15** Series D Preferred Stock Warrant dated October 31, 1995, issued to
Silicon Valley Bank.
10.16** Form of Common Stock Warrant issued to certain investors from April
1995 to December 1995.
10.17** Warrant Agreement dated January 23, 1996, between Registrant and
Comdisco, Inc., together with the Series D Preferred Stock Warrant.
10.18+** Electrophysiology Catheter License Agreement dated May 17, 1994,
between Registrant and BSI Corporation, together with the Credit Pool
Agreement of same date.
10.19** Distribution Agreement dated June 15, 1995, between Registrant and
Paramedic Co., Ltd.
10.20** Distribution Agreement dated July 14, 1995, between Registrant and
Werfen Distribution AG, together with the May 15, 1996 letter
amendment.
10.21** Employment Agreement dated May 21, 1993, between Registrant and
Gabriel B. Vegh.
10.22** Employment Letter Agreement dated October 31, 1994, between
Registrant and Phillip C. Radlick, Ph.D.
10.23 Warrant Agreement dated April 7, 1997, between Registrant and
Comdisco, Inc.
10.24 Distribution Agreement dated April 1, 1997, between Registrant and
Cardiologic, GmbH.
11.1** Statement of Computation of Loss Per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Venture Law Group, A Professional Corporation (included in
Exhibit 5.1).
23.3** Consent of Heller Ehrman White & McAuliffe.
24.1** Power of Attorney.
</TABLE>
- --------
* To be supplied by amendment.
** Previously filed.
+ Certain portions of this Exhibit for which confidential treatment has been
requested, have been redacted and filed separately with the Securities and
Exchange Commission.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration
Statement 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
hereunder, 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
II-4
<PAGE>
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of 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
Rule 497(h) under the 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 Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF FREMONT, STATE OF CALIFORNIA ON THIS 22ND DAY OF APRIL, 1997.
Cardima, Inc.
By: /s/ Phillip C. Radlick
--------------------------------
PHILLIP C. RADLICK,PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities on April 22, 1997:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Phillip C. Radlick President, Chief Executive Officer and
- ------------------------------------- Director (Principal Executive
PHILLIP C. RADLICK Officer)
/s/ Ronald E. Bourquin * Vice President and Chief Financial
- ------------------------------------- Officer(Principal Financial and
RONALD E. BOURQUIN Accounting Officer)
/s/ Joseph S. Lacob * Chairman of the Board of Directors
- -------------------------------------
JOSEPH S. LACOB
/s/ Gary R. Bang Director
- -------------------------------------
GARY R. BANG
/s/ Michael J.F. Du Cros * Director
- -------------------------------------
MICHAEL J.F. DU CROS
/s/ Neal Moszkowski * Director
- -------------------------------------
NEAL MOSZKOWSKI
/s/ Gabriel B. Vegh * Director
- -------------------------------------
GABRIEL B. VEGH
/s/ Charles P. Waite, Jr. * Director
- -------------------------------------
CHARLES P. WAITE, JR.
*By: /s/ Phillip C. Radlick
---------------------------------
PHILLIP C. RADLICK,
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of Registrant.
3.2** Bylaws of Registrant.
3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to become effective upon closing of this Offering.
3.4 Form of Bylaws of Registrant to become effective upon closing of this
Offering.
4.1** Form of Common Stock Certificate.
5.1 Opinion of Venture Law Group, A Professional Corporation.
10.1** 1993 Stock Option Plan.
10.2** 1997 Directors' Stock Option Plan.
10.3** 1997 Employee Stock Purchase Plan.
10.4** Form of Indemnification Agreement.
10.5** Fourth Amended and Restated Stockholders' Rights Agreement dated
March 7, 1997, between Registrant and certain stockholders of
Registrant.
10.6+** License Agreement dated May 21, 1993, between Registrant and Target
Therapeutics, Inc.
10.7** Lease dated April 25, 1994, between Registrant and State of
California Public Employees' Retirement System.
10.8** Sublease dated November 14, 1996, between Registrant and Target
Therapeutics, Inc.
10.9 Master Lease Agreement dated January 26, 1996, between Registrant and
Comdisco, Inc., together with the Purchase Agreements.
10.10** Warrant Purchase Agreement dated December 9, 1993, between Registrant
and Target Therapeutics, Inc., together with the Series A Preferred
Stock Warrant.
10.11** Series A Preferred Stock Warrant dated June 10, 1994, issued to
Silicon Valley Bank
10.12** Warrant Purchase Agreement dated July 1, 1994, between Registrant and
California Public Employees' Retirement System, together with the
Common Stock Warrant.
10.13** Series A Preferred Stock Warrant dated October 26, 1994, issued to
Silicon Valley Bank.
10.14** Form of Series A Preferred Stock Warrant issued to certain investors
in December 1994.
10.15** Series D Preferred Stock Warrant dated October 31, 1995, issued to
Silicon Valley Bank.
10.16** Form of Common Stock Warrant issued to certain investors from April
1995 to December 1995.
10.17** Warrant Agreement dated January 23, 1996, between Registrant and
Comdisco, Inc., together with the Series D Preferred Stock Warrant.
10.18+** Electrophysiology Catheter License Agreement dated May 17, 1994,
between Registrant and BSI Corporation, together with the Credit Pool
Agreement of same date.
10.19** Distribution Agreement dated June 15, 1995, between Registrant and
Paramedic Co., Ltd.
10.20** Distribution Agreement dated July 14, 1995, between Registrant and
Werfen Distribution AG, together with the May 15, 1996 letter
amendment.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.21** Employment Agreement dated May 21, 1993, between Registrant and
Gabriel B. Vegh.
10.22** Employment Letter Agreement dated October 31, 1994, between Registrant
and Phillip C. Radlick, Ph.D.
10.23 Warrant Agreement dated April 7, 1997, between Registrant and
Comdisco, Inc.
10.24 Distribution Agreement dated April 1, 1997, between Registrant and
Cardiologic, GmbH.
11.1** Statement of Computation of Loss Per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Venture Law Group, A Professional Corporation (included in
Exhibit 5.1).
23.3** Consent of Heller Ehrman White & McAuliffe.
24.1** Power of Attorney.
</TABLE>
- --------
* To be supplied by amendment.
** Previously filed.
+ Certain portions of this Exhibit for which confidential treatment has been
requested, have been redacted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
--------------------
CERTIFICATE OF INCORPORATION
----------------------------
OF
--
CARDIMA, INC.
-------------
A Delaware corporation
(Pursuant to Sections 242 and 245
of the Delaware General Corporation Law)
CARDIMA, INC., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, hereby certifies as
follows:
FIRST: That the name of the corporation is Cardima, Inc. and that the
corporation was originally incorporated on November 12, 1992 pursuant to the
General Corporation Law.
SECOND: The Amended and Restated Certificate of Incorporation of this
corporation shall be restated to read in full as follows:
"ARTICLE I
The name of this corporation is Cardima, Inc.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware
19805. The name of its registered agent at such address is Corporation Service
Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The total number of shares which the Corporation is authorized to
issue is Thirty Million (30,000,000) shares. The number of shares of Common
Stock authorized to be issued is Twenty-Five Million (25,000,000), par value
$0.001 per share, and the number of shares of Preferred Stock authorized to be
issued is Five Million (5,000,000), par value $0.001 per share.
The Preferred Stock may be issued from time to time in one or more series,
without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of any wholly unissued series of Preferred Stock,
within the limitations and restrictions stated in this Amended and Restated
Certificate of Incorporation, to fix or alter the dividend rights, dividend
rate, conversion
<PAGE>
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them, 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. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
Except as otherwise provided in this Amended and Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend, and rescind any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the full extent permitted by the
Delaware General Corporation Law as it now exists or as it may hereafter be
amended, not be liable to this corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article, nor the adoption of any provision of this Amended and
Restated Certificate of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
<PAGE>
ARTICLE X
No action required to be taken or that may be taken at any annual or
special meeting of the stockholders of this corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
to the taking of any action is specifically denied.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) its
agents (and any other persons to which Delaware law permits this corporation to
provide indemnification) through Bylaw provisions, agreements with such agents
or other persons, vote of stockholders or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by Section
145 of the Delaware General Corporation Law, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect to actions
for breach of duty to this corporation, its stockholders, and others.
Any repeal or modification of any of the foregoing provisions of this
Article shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of this corporation with respect to any acts or
omissions of such director, officer, agent or other person occurring prior to
such repeal or modification.
ARTICLE XII
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation."
* * * *
THIRD: That thereafter said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and Section 245 of the Delaware
General Corporation Law by obtaining a majority vote of each of the Common Stock
and Preferred Stock, in favor of said amendment and restatement in the manner
set forth in Section 228 of the Delaware General Corporation Law.
<PAGE>
IN WITNESS WHEREOF, CARDIMA, INC. has caused this Amended and Restated
Certificate of Incorporation to be signed by its President and attested to by
its Secretary this ____ day of_______________, 1997.
CARDIMA, INC.
_____________________________________
Phillip C. Radlick, Ph.D.
President and Chief Executive Officer
ATTEST
_______________________________
Joshua L. Green, Secretary
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
CARDIMA, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
---------
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
---------
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
---------
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such date
---------
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
<PAGE>
Section 3. Written notice of the annual meeting stating the place,
---------
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
---------
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city 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.
Section 5. Special meetings of the stockholders, for any purpose or
---------
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of stockholders owning ten
percent (10%) of the voting power of the entire voting stock of the corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place,
---------
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
---------
shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued and
---------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum
-2-
<PAGE>
at all meetings of the stockholders for the transaction of business except as
otherwise provided by statute or by the certificate of incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
---------
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
----------
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Nominations for election to the Board of Directors must
----------
be made by the Board of Directors or by any stockholder of any outstanding class
of capital stock of the corporation entitled to vote for the election of
directors. Nominations, other than those made by the Board of Directors of the
corporation, must be preceded by notification in writing received by the
secretary of the corporation not less than twenty (20) days nor more than sixty
(60) days prior to any meeting of stockholders called for the election of
directors. Such notification shall contain the written consent of each proposed
nominee to serve as a director if so elected and the
-3-
<PAGE>
following information as to each proposed nominee and as to each person, acting
alone or in conjunction with one or more other persons as a partnership, limited
partnership, syndicate or other group, who participates or is expected to
participate in making such nomination or in organizing, directing or financing
such nomination or solicitation of proxies to vote for the nominee:
(a) the name, age, residence, address, and business address of each
proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of business
and address of the corporation or other organization in which such employment is
carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially, either
directly or indirectly, by each proposed nominee and each such person; and
(d) a description of any arrangement or understanding of each proposed
nominee and of each such person with each other or any other person regarding
future employment or any future transaction to which the corporation will or may
be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 12. At any meeting of the stockholders, only such business
----------
shall be conducted as shall have been brought before the meeting (a) pursuant to
the corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this bylaw.
For business to be properly brought before any meeting by a
stockholder pursuant to clause (c) of the first paragraph of this Section 12,
the stockholder must have given timely notice thereof in writing to the
secretary of the corporation. To be timely, a stockholder's notice
-4-
<PAGE>
must be delivered to or mailed and received at the principal executive offices
of the corporation not less than twenty (20) days nor more than sixty (60) days
prior to the date of the meeting. A stockholder's notice to the secretary shall
set forth as to each matter the stockholder proposes to bring before the meeting
(a) a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
behalf of whom the proposal is made, (c) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder of
record and by the beneficial owner, if any, on whose behalf the proposal is made
and (d) any material interest of such stockholder of record and the beneficial
owner, if any, on whose behalf the proposal is made in such business.
Notwithstanding anything in these bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 12. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 12, and if such person should so determine, such
person shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 12, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 12.
Section 13. Effective upon the closing of the corporation's initial
----------
public offering of securities pursuant to a registration statement filed under
the Securities Act of 1933, as amended, the stockholders of the corporation may
not take action by written consent without a meeting but must take any such
actions at a duly called annual or special meeting.
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<PAGE>
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
---------
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders; provided, however, that
no decrease in the number of directors shall have the effect of shortening the
term of an incumbent director. Each director elected shall hold office until
such director's successor is elected and qualified or until such director shall
resign, become disqualified or disabled, or be otherwise removed. Directors
need not be stockholders.
Section 2. Vacancies and new created directorships resulting from any
---------
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election, and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or
---------
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
---------
meetings, both regular and special, either within or without the State of
Delaware.
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Section 5. The first meeting of each newly elected Board of Directors
---------
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
---------
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
---------
president on two (2) days notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telegram; special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of two directors unless the board consists of only one
director, in which case special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of the sole
director.
Section 8. At all meetings of the board, a majority of the directors
---------
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the corporation's certificate of
incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Unless otherwise restricted by the certificate of
---------
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or
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<PAGE>
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
----------
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
----------
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the
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<PAGE>
bylaws of the corporation; and, unless the resolution or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
----------
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
----------
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
----------
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
---------
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 8 of Article III), but such notice may be
given in writing, by mail, addressed to such director or stockholder, at his
address as it appears on the records of the corporation, with postage thereon
prepaid, and such
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<PAGE>
notice shall be deemed to be given at the time when the same shall be deposited
in the United States mail. Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
---------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
---------
Board of Directors and shall be a president, a treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or
more vice-presidents, assistant treasurers and assistant secretaries. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
---------
annual meeting of stockholders shall choose a president, a treasurer and a
secretary and may choose vice-presidents.
Section 3. The Board of Directors may appoint such other officers and
---------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
---------
fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
---------
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
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<PAGE>
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
---------
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
---------
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief operating officer or
---------
chief executive officer of the corporation, and in the absence of the Chairman
and Vice Chairman of the Board he shall preside at all meetings of the
stockholders and the Board of Directors; he shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
Section 9. The president shall execute bonds, mortgages and other
---------
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
----------
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
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<PAGE>
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
----------
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one,
----------
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
----------
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He shall disburse the funds of the corporation as may be
----------
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so
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<PAGE>
requires, an account of all his transactions as treasurer and of the financial
condition of the corporation.
Section 15. If required by the Board of Directors, he shall give the
----------
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than
----------
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
---------
to have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice-Chairman of the Board of Directors, or the president or a vice-
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative,
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<PAGE>
participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 2. Any of or all the signatures on the certificate may be
---------
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
---------
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
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<PAGE>
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
---------
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. 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.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
---------
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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<PAGE>
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
---------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
---------
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
---------
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
---------
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
---------
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
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<PAGE>
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
---------
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation. The indemnification provided for in
this Section 6 shall: (i) not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) continue as to a person who has ceased to be a director, and (iii)
inure to the benefit of the heirs, executors and administrators of such a
person. The corporation's obligation to provide indemnification under this
Section 6 shall be offset to the extent of any other source of indemnification
or any otherwise applicable insurance coverage under a policy maintained by the
corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
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<PAGE>
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
---------
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is
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<PAGE>
conferred upon the Board of Directors by the certificate or incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
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EXHIBIT 5.1
April 22, 1997
Cardima, Inc.
47266 Benicia Street
Fremont, CA 94538
REGISTRATION STATEMENT ON FORM S-1; FILE NO. 333-23209
------------------------------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-
23209) (the "Registration Statement") filed by you, Cardima, Inc., with the
Securities and Exchange Commission on March 13, 1997 in connection with the
registration under the Securities Act of 1933, as amended, of shares of your
Common Stock (the "Shares"). As your counsel in connection with this
transaction, we have examined the proceedings taken and are familiar with the
proceedings proposed to be taken by you in connection with the sale and issuance
of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares when issued and sold in the manner
described in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and in any amendment thereto.
Very truly yours,
VENTURE LAW GROUP
A Professional Corporation
/s/ VENTURE LAW GROUP
<PAGE>
EXHIBIT 10.9
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated January 23, 1996 by and
between COMDISCO, INC. ("Lessor") and CARDIMA, INC. ("Lessee").
CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Summary
Equipment Schedule. In the event of a conflict, the terms of the applicable
Schedule prevail over this Master Lease.
2. Term.
On the Commencement Date, Lessee will be deemed to accept the Equipment,
will be bound to its rental obligations for each item of Equipment and the
term of a Summary Equipment Schedule will begin and continue through the
Initial Term and thereafter until terminated by either party upon prior
written notice received during the Notice Period. No termination may be
effective prior to the expiration of the Initial Term.
3. Rent and Payment.
Rent is due and payable in advance on the first day of each Rent Interval at
the address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment
and disclaims any reliance upon statements made by the Lessor,
other than as set forth in the Schedule.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee
that, so long as Lessee is not in default, Lessor will not disturb
Lessee's quiet and peaceful possession, and unrestricted use of the
Equipment. To the extent permitted by the manufacturer, Lessor
assigns to Lessee during the term of the Summary Equipment Schedule
any manufacturer's warranties for the Equipment. LESSOR MAKES NO
OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT
OR ITS FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible
for any /????/, claim, loss, damage or expense of any kind
(including strict liability in tort) caused by the Equipment except
for any loss or damage caused by the willful misconduct or
negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. Title; Relocation or Sublease; and Assignment.
5.1 Title. Lessee holds the Equipment subject and subordinate to the
rights of the Owner, Lessor, any Assignee and any Secured Party.
Lessee authorizes Lessor, as Lessee's agent, and at Lessor's
expense, to prepare, execute and file in Lessee's name
precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured
Party in the Equipment and to insert serial numbers in Summary
Equipment Schedules as appropriate, Lessee will, at its expense,
keep the Equipment free and clear from any liens or encumbrances of
any kind (except any caused by Lessor) and will indemnify and hold
the Owner, Lessor, any Assignee and Secured Party harmless from and
against any loss caused by Lessee's failure to do so, except where
such is caused by Lessor.
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<PAGE>
5.2 Relocation or Sublease. Upon prior written notice, Lessee may
relocate Equipment to any location within the continental United
States provided (i) the Equipment will not be used by an entity
exempt from federal income tax, and (ii) all additional costs
(including any administrative fees, additional taxes and insurance
coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule
have been fixed by Lessor in order to permit Lessor to sell and/or
assign or transfer its interest or grant a security interest in
each Schedule and/or the Equipment to a Secured Party or Assignee.
In that event, the term Lessor will mean the Assignee and any
Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and
will not materially change Lessee's duties or materially increase
the burdens or risks imposed on Lessee. The Lessee consents to and
will acknowledge such assignments in a written notice given to
Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The
Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and
the Secured Party continues to receive all Rent payable under the Schedule;
and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any defense
or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent
of the Secured Party's rights in that Equipment.
6. Net Lease; Taxes and Fees.
6.1 Net Lease. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder
is absolute and unconditional and is not subject to any abatement,
reduction, set-off, defense, counterclaim, interruption, deferment
or recoupment for any reason whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for
all taxes, fees or any other charges (together with any related
interest or penalties not arising from the negligence of Lessor)
accrued for or arising during the term of each Summary Equipment
Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and
franchise taxes on the capital or the net income of Lessor). Lessor
will file all personal property tax returns for the Equipment and
pay all such property taxes due. Lessee will reimburse Lessor for
property taxes within thirty (30) days of receipt of an invoice.
7. Care, Use and Maintenance; Inspection by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in
good operating order and appearance, protect the Equipment from
deterioration, other than normal wear and tear, and will not use
the Equipment for any purpose other than that for which it was
designed. If commercially available
2
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and considered common business practice for each item of Equipment,
Lessee will maintain in force a standard maintenance contract with
the manufacturer of the Equipment, or another party acceptable to
Lessor, and will provide Lessor with a complete copy of that
contract. If Lessee has the Equipment maintained by a party other
than the manufacturer or self maintains, Lessee agrees to pay any
costs necessary for the manufacturer to bring the Equipment to then
current release, revision and engineering change levels, and to re-
certify the Equipment as eligible for manufacturer's maintenance at
the expiration of the lease term, provided re-certification is
available and is required by Lessor. The lease term will continue
upon the same terms and conditions until recertification has been
obtained.
7.2 Inspection by Lessor. Upon reasonable advance notice, Lessee,
during reasonable business hours and subject to Lessee's security
requirements, will make the Equipment and its related log and
maintenance records available to Lessor for inspection.
8. Representations and Warranties of Lessee. Lessee hereby represents,
warrants and convenants that with respect to the Master Lease and each
Schedule executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in
good standing under the laws of the jurisdiction of its incorporation,
is duly qualified to do business in each jurisdiction (including the
jurisdiction where the Equipment is, or is to be, located) where its
ownership or lease or property or the conduct of its business requires
such qualification, except for where such lack of qualification would
not have a material adverse effect on the Company's business; and has
full corporate power and authority to hold property under the Master
Lease and each Schedule and to enter into and perform its obligations
under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by
all necessary corporate action on the part of the Lessee, and the
Master Lease and each Schedule are not inconsistent with the Lessee's
Articles of Incorporation or Bylaws, do not contravene any law or
governmental rule, regulation or order applicable to it, do not and
will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and the Master Lease and each Schedule
constitute legal, valid and binding agreements of the Lessee,
enforceable in accordance with their terms, subject to the effect of
applicable bankruptcy and other similar laws affecting the rights of
creditors generally and rules of law concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending
or, to the knowledge of the Lessee, threatened against or affecting
the Lessee in any court or before any governmental commission, board
or authority which, if adversely determined, shall have a materiel
adverse effect on the ability of the Lessee to perform its
obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities
and obligations of the Lessee as set forth in the Financial Statements
and liabilities and obligations which have occurred in the ordinary
course of business, and which have not been, in any case or in the
aggregate, materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all
patents, patent applications, trademarks, trade names, inventions,
franchises, licenses, permits, computer software and copyrights
necessary for the operations of its business as now conducted, with no
known infringement of, or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to which the
Lessee is a party are in full force and effect in all material
respects, and are valid, binding and enforceable by the Lessee in
accordance with
3
<PAGE>
their respective terms, subject to the effect of applicable
bankruptcy and other similar laws affecting the rights of creditors
generally, and rules of law concerning equitable remedies.
9. Delivery and Return of Equipment.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. Indemnity.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days prior
written notice to the Lessor of cancellation or expiration, and will insure
Lessor's interest regardless of any breach or violation by Lessee of any
representation, warranty or condition contained in such policies and will be
primary without right of contribution from any insurance effected by Lessor.
Upon the execution of any Schedule, the Lessee will furnish appropriate evidence
of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. Default, Remedies and Mitigation.
4
<PAGE>
13.1 Default. The occurrence of any one or more of the following
Events of Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee
when due if that failure continues for five (5) business days after written
notice; or
(b) Lessee's failure to perform any other term or condition of the
Schedule or the material inaccuracy of any representation or warranty made by
the Lessee in the Schedule or in any document or certificate furnished to the
Lessor hereunder if that failure or inaccuracy continues for ten (10) business
days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the
failure by Lessee to pay its debts when due, the insolvency of Lessee, the
filing by Lessee or the filing against Lessee of any petition under any
bankruptcy or insolvency law or for the appointment of a trustee or other
officer with similar powers, the adjudication of Lessee as insolvent, the
liquidation of Lessee, or the taking of any action for the purpose of the
foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its Assignee
or Secured Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payment stream of all Rent due under
the defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter on Lessee's premises to remove and
repossess the Equipment without being liable to Lessee for damages due to the
repossession, except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, lease or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term less the
Default Costs; or
5
<PAGE>
(b) if leased, the present value (discounted at 3 percent (3%) over the
U.S. Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. One representative of Lessor will have the
right to attend Lessee's corporate Board of Directors meetings and Lessee will
give Lessor reasonable notice in advance of any special Board of Directors
meeting, which notice will provide an agenda of the subject matter to be
discussed at such board meeting. Lessee will provide Lessor with a certified
copy of the minutes of each Board of Directors meeting within thirty (30) days
following the date of such meeting held during the term of this Master Lease.
14.2 Financial Statements. As soon as practicable at the end of each
month (and in any event within thirty (30) days), Lessee will provide to Lessor
the same information which Lessee provides to its Board of Directors, but which
will include not less than a monthly income statement, balance sheet and
statement of cash flows prepared in accordance with generally accepted
accounting principles, consistently applied (the "Financial Statements"). As
soon as practicable at the end of each fiscal year, Lessee will provide to
Lessor audited Financial Statements setting forth in comparative form the
corresponding figures for the fiscal year (and in any event within ninety (90)
days), and accompanied by an audit report and opinion of the independent
certified public accountants selected by Lessee. Lessee will promptly furnish
to Lessor any additional information (including, but not limited to, tax
returns, income statements, balance sheets and names of principal creditors) as
Lessor reasonably believes necessary to evaluate Lessee's continuing ability to
meet financial obligations. After the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee,
Lessor will not be obligated to lease any Equipment which would have a
Commencement Date after said notice if: (i) Lessee is in default under this
Master Lease or any Schedule; (ii) Lessee is in default under any loan
agreement, the result of which would allow the lender or any secured party to
demand immediate payment of any material indebtedness; (iii) there is a material
adverse change in Lessee's credit standing; or (iv) Lessor determines (in
reasonable good faith) that Lessee will be unable to perform its obligations
under this Master Lease or any Schedule.
14.4 Merger and Sale Provisions. Lessee will notify Lessor of any
proposed Merger at least sixty (60) days prior to the closing date. Lessor may,
in its discretion, either (i) consent to the assignment of the Master Lease and
all relevant Schedules to the successor entity, or (ii) terminate the Lease and
all relevant schedules. If Lessor elects to consent to the assignment, Lessee
and its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 Entire Agreement. This Master Lease and associated Schedules and
Summary Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver
6
<PAGE>
by Lessor or Lessee of a breach of any provision of this Master Lease or a
schedule will not operate or be construed as a waiver of any subsequent
breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including,
but not limited to those arising under Section 6.2, representations and
warranties contained in this Master Lease, any Schedule, Summary Equipment
Schedule or in any document delivered in connection with those agreements are
for the benefit of Lessor and any Assignee or Secured Party and survive the
execution, delivery, expiration or termination of this Master Lease.
14.9 Notices. Any notice, request or other communication to either
party by the other will be given in writing and deemed received upon the earlier
of (1) actual receipt or (2) three days after mailing if mailed postage prepaid
by regular or airmail to Lessor (to the attention of "the Comdisco Venture
Group") or Lessee, at the address set out in the Schedule, (3) one day after it
is sent by courier or (4) on the same day as sent via facsimile transmission,
provided that the original is sent by personal delivery or mail by the sending
party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE
WILL HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE
OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this
Master Lease or any Schedule is for any reason held invalid, illegal or
unenforceable, the remaining provisions of this Master Lease and any such
schedule will be unimpaired, and the invalid, illegal or unenforceable provision
replaced by a mutually acceptable valid, legal and enforceable provision that is
closest to the original intention of the parties.
14.12 Counterparts. This Master Lease and any Schedule may be executed
in any number of counterparts, each of which will be deemed an original, but all
such counterparts together constitutes one and the same instrument. If Lessor
grants a security interest in all or any part of a schedule, the Equipment or
sums payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 Licensed Products. Lessee will obtain no title to Licensed
Products which will at all times remain the property of the owner of the
Licensed Products. A license from the owner may be required and it is Lessee's
responsibility to obtain any required license before the use of the Licensed
Products. Lessee agrees to treat the Licensed Products as confidential
information of the owner, to observe all copyright restrictions, and not to
reproduce or sell the Licensed Products.
14.14 Secretary's Certificate. Lessee will, upon execution of this
Master Lease, provide Lessor with a secretary's certificate of incumbency and
authority. Upon the execution of each Schedule with a purchase price in excess
of $1,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel
in a form acceptable to Lessor regarding the representations and warranties in
Section 8.
14.15 Electronic Communications. Each of the parties may communicate
with the other by electronic means under mutually agreeable terms.
14.16 Landlord/Mortgagee Waiver. Lessee agrees to provide Lessor with
a Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.17 Equipment Procurement Charge/Progress Payments. Lessee hereby
agrees that Lessor shall not, by virtue of its entering into this Master Lease,
be required to remit any payments to any manufacturer or other third party until
Lessee accepts the equipment subject to this Master Lease.
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14.18 Definitions.
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
- -------
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
- --------
owner and Lessor of Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
- -------------
Casualty Value - means the greater of the aggregate Rent remaining to be paid
- --------------
for the balance of the lease term or the fair Market Value of the equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Date - is defined in each Schedule.
- -----------------
Default Costs - means reasonable attorney's fees and remarketing costs resulting
- -------------
from a Lessee default or Lessor's enforcement of its remedies.
Delivery Date -means date of delivery of Inventory Equipment to Lessee's
- -------------
address.
Equipment - means the property described on a Summary Equipment Schedule and any
- ---------
replacement for that property required or permitted by this Master Lease or a
Schedule.
Event of Default - means the events described in Subsection 13.1.
- ----------------
Fair Market Value - means the aggregate amount which would be obtainable in an
- -----------------
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
- ------------
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
Interim Rent - means the pro-rata portion of Rent due for the period from the
- ------------
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
Late Charge - means the lesser of five percent (5%) of the payment due or the
- -----------
maximum amount permitted by the law of the state where the Equipment is located.
Licensed Products - means any software or other licensed products attached to
- -----------------
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
- --------------
model, type, configuration and manufacture as Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
- ------
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
Notice Period - means not less than ninety (90) days nor more than twelve (12)
- -------------
months prior to the expiration of the lease term.
Owner - means the owner of Equipment.
- -----
Rent - means the rent Lessee will pay for each item of Equipment expressed in a
- ----
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
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Rent Interval - means a full calendar month or quarter as indicated on a
- -------------
Schedule.
Schedule - means either an Equipment Schedule or a Licensed Products Schedule
- --------
which incorporates all of the terms and conditions of this Master Lease.
Secured Party - means an entity to whom Lessor has granted a security interest
- -------------
for the purpose of securing a loan.
Summary Equipment Schedule - means a certificate provided by Lessor summarizing
- --------------------------
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
CARDIMA, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Phil Radlick By:
------------------------ -------------------------------
Title: Title:
----------------------- ----------------------------
9
<PAGE>
EQUIPMENT SCHEDULE VL-1
DATED AS OF JANUARY 23, 1996
TO MASTER LEASE AGREEMENT
DATED AS OF JANUARY 23, 1996 (THE "MASTER LEASE")
LESSEE: CARDIMA, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------- ------------------------
Dr. Phillip Radlick
Ph. (510)354-0153 6111 North River Road
Fax (510)657-4476 Rosemont, Illinois 60018
Attn.: Venture Group
Address for Notices:
- --------------------
47266 Benicia Street
P.O. Box 14172
Fremont, CA 94539-1372
Attn.:
Central Billing Location: Rent Interval: Monthly
- ------------------------- --------------
Same as above.
Attn.:
Lessee Reference No.:
----------------------
(24 digits maximum)
Location of Equipment: Initial Term: 42
- ---------------------- -------------
Same as above. (Number of Rent Intervals)
Lease Rate Factor: 2.815%
------------------
Attn.:
EQUIPMENT (as defined below): Advance: $42,225.00
--------
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period January 23, 1996 through January 23, 1997
("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $1,500,000
("Commitment Amount"); excluding custom use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling, "stand-
alone" software, application software bundled into computer hardware, hand held
items, molds and fungible items.
10
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1. Equipment Purchase
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in a value up to the Commitment
Amount referred to on the face of this Schedule. If the Equipment acquired is
of category (i), (ii) or (iii) below, the effectiveness of this Schedule as it
relates to those items of Equipment is contingent upon Lessee's acknowledgment
at the time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor for that
Equipment.
Lessor will finance only the acquisition of individual items of Equipment
with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may be
considered by Lessor for inclusion under this Lease (the "Sale-Leaseback
Transaction"). Any request for Sale-Leaseback Transaction must be submitted to
Lessor in writing (along with accompanying evidence of Lessee's Equipment
ownership satisfactory to Lessor for all Equipment submitted) no later than the
fifteenth day of the last month in each quarter and for equipment installed
after the date hereof (except for the Equipment submitted on the second Sale-
Leaseback Transaction) Lessor will not approve a Sale-Leaseback Transaction for
Equipment which arrives ninety (90) days after the original purchase of the
Equipment as evidenced by the invoice date. Further, the first Sale-Leaseback
of Equipment will be placed on lease subject to: (1) Lessor prior approval of
the Equipment; and (2) if approved, at Lessee's actual book value. The second
Sale-Leaseback Transaction will be placed on lease subject to values established
by Lessor based on the age of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to Lessor's prior
approval of the Equipment and at Lessor's appraised value for such used
Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new
or used Equipment from its inventory at rates provided by Lessor.
2. Commencement Date
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar quarter into
a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar quarter
thereafter. Each Summary Equipment Schedule will contain the Equipment
location, description, serial number(s) and cost and will incorporate the terms
and conditions of the Master Lease and this Schedule and will constitute a
separate lease.
3. Option to Extend
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event,
the rent to be paid during said extended period shall be mutually agreed upon
and if the parties cannot mutually agree, then the Summary Equipment Schedule
shall continue in full force and effect pursuant to the existing terms and
conditions until terminated in accordance with its terms. The Summary Equipment
Schedule will continue in effect following said extended period until terminated
by either party upon not less than ninety (90) days prior written notice, which
notice shall be effective as of the date of receipt.
11
<PAGE>
4. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for the
purchase price not to exceed twenty percent (20%) of the original cost of
Equipment and upon terms and conditions to be mutually agreed upon by the
parties following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the Initial Term or extended purchase price but,
in no event, earlier than the expiration of the fixed Initial Term of extended
term, if applicable. If the parties are unable to agree on the purchase price
or the terms and conditions with respect to said purchase, then the Summary
Equipment Schedule with respect to this Equipment shall remain in full force and
effect. Notwithstanding the exercise by Lessee of this option and payment of
the purchase price, until all obligations under the applicable Summary Equipment
Schedule have been fulfilled, it is agreed and understood that Lessor shall
retain a purchase money security interest in the Equipment listed therein and
the Summary Equipment Schedule shall constitute a Security Agreement under the
Uniform Commercial Code of the state in which the Equipment is located.
5. Special Terms
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
(a) Section 14.14. Secretary's Certificate
-----------------------
In line 3, delete the sentence beginning with the words "Upon the
execution".
(b) Section 14.16. Landlord/Mortgagee Waiver
-------------------------
To the beginning of this Section add the words "Upon request of Lessor and
within a reasonable timeframe,"
Master Lease: This schedule is issued pursuant to the Lease identified on page
1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations and
warranties set forth in Section 8) except as modified herein by this Schedule.
This Schedule may not be amended or rescinded except by a writing signed by both
parties.
CARDIMA, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Phil Radlick By:
------------------ -------------------------------
Title: Title:
--------------- -----------------------------
Date: Date:
---------------- -----------------------------
12
<PAGE>
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
--------------------------
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
-------------------- ----------
2. Initial Term Starts on: Initial Term:
---------------------- ------------
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
----------------------------
4. Lease Rate Factor:
-----------------
5. Rent:
----
6. Acceptance Doc Type:
-------------------
13
<PAGE>
ADDENDUM TO THAT EQUIPMENT SCHEDULE VL-1
DATED AS OF JANUARY 23, 1996 TO THE
MASTER LEASE AGREEMENT DATED AS OF JANUARY 23, 1996
BETWEEN CARDIMA, INC. AS LESSEE
AND COMDISCO, INC. AS LESSOR
The undersigned hereby agree that the terms and conditions of the above-
referenced Equipment Schedule are hereby modified and amended as follows:
1) Section 5.2. Relocation or Sublease.
----------------------
In the second paragraph, line 2, after the words "the Secured Party" insert
"such consent not to be reasonably withheld."
2) Section 9. Delivery and Return of Equipment.
--------------------------------
At the beginning of the first sentence add "As between Lessor and Lessee,"
and in line 7 after the words "and wear and tear" insert "subject to the
other terms of this agreement".
3) Section 11. Indemnity
---------
In line 9, after the words "negligent acts" insert the words "or willful
misconduct".
4) Section 13. Default
-------
In subparagraph (b), in line 4 after the words "after written notice"
insert "from Lessor".
In subparagraph (c), in line 1 after the words "of its creditors, the" add
"material".
5) Section 13.2. Remedies
--------
To the end of the last paragraph in this Section, add the following:
"Any such successive or cumulative exercise is not intended to provide
Lessor with a greater return than it would have received had Lessee fully
performed under the terms of the applicable Summary Equipment Schedule."
6) Section 14.1. Board Attendance
----------------
Delete the first sentence of this section.
14
<PAGE>
7) Section 14.2. Financial Statements
--------------------
In line 10, after the words "furnish to Lessor" add the words ",upon
request".
Delete the last 2 lines of this section and add "obligations of Lessee
under this Section shall cease".
8) Section 14.4. Merger and Sale Provisions.
In line 2, delete "sixty (60)" and replace with "twenty (20)".
CARDIMA, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Phil Radlick By:
-------------------- -------------------------
Title: Title:
------------------ ----------------------
Date: Date:
------------------- -----------------------
15
<PAGE>
COMDISCO, INC,COMDISCO, INC.
6111 North River Road PURCHASE AGREEMENT - Leaseback
Rosemont, Illinois 60018 (Installed Equipment)
This Agreement dated as of March 18, 1996 by and between COMDISCO, INC., a
Delaware corporation, having its principal place of business at 6111 North River
Road, Rosemont, Illinois 60018, hereinafter called BUYER and Cardima, Inc. a
corporation, having its principal place of business at 47266 Benicia Street, PO
Box 14172, Fremont, California 945390-1372 hereinafter called SELLER.
Witnesseth, that in consideration of the mutual undertaking herein
contained, the parties agree as follows:
1. SALE
----
SELLER agrees to sell and BUYER agrees to purchase from SELLER the
equipment listed below together with all additions, attachments, parts or
accessories incorporated or attached therein or associated therewith
(referred to as the "Equipment") in accordance with the terms and
conditions specified herein.
Item Machine Model/ Serial
Number Quantity Type Feature Description Number
- --------- -------- ------- ------- ----------- ------
SEE ATTACHED INVOICES
2. PURCHASE PRICE
--------------
BUYER shall purchase the installed Equipment for an amount equivalent to
$85,088.66. BUYER shall have the benefit of any prior or retroactive price
decrease which applies to the Equipment. SELLER shall provide BUYER with
all of the purchase documentation associated with SELLER's purchase of the
Equipment from the vendor (the "Equipment Vendor") including but not
limited to the purchase documentation, invoices and Bill of Sale to SELLER.
If SELLER has not yet paid the Equipment Vendor from whom SELLER is
purchasing the Equipment, BUYER shall pay said Purchase Price directly to
the Equipment Vendor, unless otherwise agreed.
3. DELIVERY
--------
SELLER shall deliver and BUYER shall accept delivery of the Equipment at
SELLER's premises on the Closing Date. Irrespective of any other provision
hereof, SELLER shall bear all risk of damage from fire, the elements or
otherwise until the full payment of the purchase price is paid.
4. CLOSING DATE
------------
The Closing shall take place on 4-22-96.
-------
5. LEASEBACK
---------
This Agreement is contingent upon SELLER leasing the Equipment from BUYER
pursuant to the Equipment Schedule No. VL-1 to the Master Lease Agreement
dated as of January 23, 1996 between SELLER, as Lessee, and BUYER, as
Lessor (collectively the "Lease").
SELLER represents and warrants to BUYER that the Equipment has been
installed, tested, inspected and accepted by SELLER from the Equipment
Vendor and that the Equipment is in good working order.
1
<PAGE>
6. MAINTENANCE/WARRANTIES
----------------------
(a) SELLER warrants that either (i) the Equipment under "new" equipment
warranty from the manufacturer or (ii) the Equipment has been
continuously under a maintenance contract and will be eligible for the
manufacturer's maintenance agreement as of the Closing Date and all
Equipment is at current manufacturer release, revision and/or
engineering change levels.
(b) SELLER shall and hereby does assign to BUYER the benefit of all rights
applicable to the Equipment in connection with warranties, servicing,
training, patent and copyright indemnities and the like including the
right to use and possess licensed products associated with the
Equipment provided by the manufacturer or Equipment Vendor.
7. TITLE
-----
Title shall pass from SELLER to BUYER on the date BUYER tenders payment of
the purchase price. SELLER shall provide BUYER with a Bill of Sale as
specified by BUYER upon payment of the full Purchase Price to evidence
passage of title to the Equipment from SELLER to BUYER free and clear of
all claims, liens and encumbrance
8. TAXES
-----
SELLER hereby indemnifies and holds BUYER harmless for any sales or other
tax arising from the transaction between the Manufacturer and SELLER.
BUYER warrants that it is in the business of buying and selling capital
equipment and that the purchase of the Equipment is for the purpose of
resale only. BUYER shall provide SELLER with a resale exemption
certificate upon request.
9. NOTICES
-------
Any notice provided for herein shall be in writing and sent by registered
or certified mail, postage prepaid, addressed to the party for which it is
intended at the address set forth in the first paragraph of this Agreement
or to such other address as either party shall from time to time indicate
in writing, and said notice shall be effective upon receipt or three days
from the date of mailing, whichever occurs first.
10. TAX BENEFITS
------------
SELLER hereby agrees that with respect to the Equipment, BUYER shall be
entitled to all the tax benefits that are afforded to an owner of equipment
under the Internal Revenue Code of 1986 (the "Code"), and its related
sections of the Code.
11. MISCELLANEOUS
-------------
(a) This constitutes the entire Agreement between SELLER and BUYER with
respect to the purchase and sale of the Equipment and no
representation or statement not contained herein shall be binding upon
SELLER or BUYER as a warranty or otherwise, unless in writing and
executed by the party to be bound thereby.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois including all matters of
construction, validity, performance and enforcement.
2
<PAGE>
(d) This Agreement is subject to acceptance by BUYER at its offices in
Rosemont, Illinois, and shall only become effective on the date
thereof.
(e) This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original and of equal force and effect.
(f) SELLER agrees to and shall indemnify and hold BUYER harmless from and
against all claims, liens, costs, loss, expenses or damages arising
out of the breach by SELLER of its obligations or out of any
misrepresentation by SELLER, hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and do hereby warrant and represent that its respective signatory whose
signature appears below has been and is on the date of this Agreement duly
authorized by all necessary and appropriate corporate action to execute this
Agreement.
CARDIMA, INC. COMDISCO, INC.
as Seller as Buyer
By: /s/ Gabriel B. Vegh By: /s/ Jill C. Hanses
--------------------- ---------------------------
Title: COO Title: Assistant Vice President
------------------- --------------------------
Date: 3/22/96 Date:
-------------------- ---------------------------
3
<PAGE>
COMDISCO, INC,COMDISCO, INC.
6111 North River Road PURCHASE AGREEMENT - Leaseback
Rosemont, Illinois 60018 (Installed Equipment)
This Agreement dated as of January 23, 1996 by and between COMDISCO, INC.,
a Delaware corporation, having its principal place of business at 6111 North
River Road, Rosemont, Illinois 60018, hereinafter called BUYER and CARDIMA,
INC., a Delaware corporation, having its principal place of business at 47266
Benicia Street, Fremont, California 94539, hereinafter called SELLER.
Witnesseth, that in consideration of the mutual undertaking herein
contained, the parties agree as follows:
1. SALE
----
SELLER agrees to sell and BUYER agrees to purchase from SELLER the
equipment listed below together with all additions, attachments, parts or
accessories incorporated or attached therein or associated therewith
(referred to as the "Equipment") in accordance with the terms and
conditions specified herein.
Item Machine Model/ Serial
Number Quantity Type Feature Description Number
- --------- -------- ------- ------- ----------- ------
SEE ATTACHED LIST
2. PURCHASE PRICE
--------------
BUYER shall purchase the installed Equipment for an amount equivalent to
$504,947.92. BUYER shall have the benefit of any prior or retroactive
price decrease which applies to the Equipment. SELLER shall provide BUYER
with all of the purchase documentation associated with SELLER's purchase of
the Equipment from the vendor (the "Equipment Vendor") including but not
limited to the purchase documentation, invoices and Bill of Sale to SELLER.
If SELLER has not yet paid the Equipment Vendor from whom SELLER is
purchasing the Equipment, BUYER shall pay said Purchase Price directly to
the Equipment Vendor, unless otherwise agreed.
3. DELIVERY
--------
SELLER shall deliver and BUYER shall accept delivery of the Equipment at
SELLER's premises on the Closing Date. Irrespective of any other provision
hereof, SELLER shall bear all risk of damage from fire, the elements or
otherwise until the full payment of the purchase price is paid.
4. CLOSING DATE
------------
The Closing shall take place on______________________.
5. LEASEBACK
---------
This Agreement is contingent upon SELLER leasing the Equipment from BUYER
pursuant to the Equipment Schedule No. VL-1 to the Master Lease Agreement
dated as of January 23, 1996 between SELLER, as Lessee, and BUYER, as
Lessor (collectively the "Lease").
SELLER represents and warrants to BUYER that the Equipment has been
installed, tested, inspected and accepted by SELLER from the Equipment
Vendor.
1
<PAGE>
6. MAINTENANCE/WARRANTIES
----------------------
(a) SELLER warrants that the Equipment has either been self maintained or
has been under a maintenance contract with the manufacturer or other
third party maintenance organization, and as such the Equipment is in
good operating order and appearance, other than normal wear and tear.
(b) SELLER shall and hereby does assign to BUYER the benefit of all rights
applicable to the Equipment in connection with warranties, servicing,
training, patent and copyright indemnities and the like including the
right to use and possess licensed products associated with the
Equipment provided by the manufacturer or Equipment Vendor.
7. TITLE
-----
Title shall pass from SELLER to BUYER on the date BUYER tenders payment of
the purchase price. SELLER shall provide BUYER with a Bill of Sale as
specified by BUYER upon payment of the full Purchase Price to evidence
passage of title to the Equipment from SELLER to BUYER free and clear of
all claims, liens and encumbrance
8. TAXES
-----
SELLER hereby indemnifies and holds BUYER harmless for any sales or other
tax arising from the transaction between the Manufacturer and SELLER.
BUYER warrants that it is in the business of buying and selling capital
equipment and that the purchase of the Equipment is for the purpose of
resale only. BUYER shall provide SELLER with a resale exemption
certificate upon request.
9. NOTICES
-------
Any notice provided for herein shall be in writing and sent by registered
or certified mail, postage prepaid, addressed to the party for which it is
intended at the address set forth in the first paragraph of this Agreement
or to such other address as either party shall from time to time indicate
in writing, and said notice shall be effective upon receipt or three days
from the date of mailing, whichever occurs first.
10. TAX BENEFITS
------------
SELLER hereby agrees that with respect to the Equipment, BUYER shall be
entitled to all the tax benefits that are afforded to an owner of equipment
under the Internal Revenue Code of 1986 (the "Code"), and its related
sections of the Code.
11. MISCELLANEOUS
-------------
(a) This constitutes the entire Agreement between SELLER and BUYER with
respect to the purchase and sale of the Equipment and no
representation or statement not contained herein shall be binding upon
SELLER or BUYER as a warranty or otherwise, unless in writing and
executed by the party to be bound thereby.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois including all matters of
construction, validity, performance and enforcement.
(d) This Agreement is subject to acceptance by BUYER at its offices in
Rosemont, Illinois, and shall only become effective on the date
thereof.
2
<PAGE>
(e) This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original and of equal force and effect.
(f) SELLER agrees to and shall indemnify and hold BUYER harmless from and
against all claims, liens, costs, loss, expenses or damages arising
out of the breach by such party of its obligations under this
agreement or out of any misrepresentation by such party, hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and do hereby warrant and represent that its respective signatory whose
signature appears below has been and is on the date of this Agreement duly
authorized by all necessary and appropriate corporate action to execute this
Agreement.
CARDIMA, INC. COMDISCO, INC.
as Seller as Buyer
By: /s/ Phil Radlick By:
------------------------ --------------------------
Title: Title:
--------------------- -----------------------
Date: Date:
---------------------- ------------------------
3
<PAGE>
EQUIPMENT SCHEDULE VL-2
DATED AS OF APRIL 7, 1997
TO MASTER LEASE AGREEMENT
DATED AS OF JANUARY 23, 1996 ("THE MASTER LEASE")
LESSEE: CARDIMA, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Dr. Phillip Radlick
Ph. (510) 354-0153 6111 North River Road
Fax (510) 657-4476 Rosemont, Illinois 60018
Attn>: Venture Group
Address for Notices:
- -------------------
47266 Benicia Street
P.O. Box 14172
Fremont, CA 94539-1372
Attn.:
Central Billing Location: Rent Interval: Monthly
- ------------------------ -------------
Same as above.
Attn.:
Lessee Reference No.:
-------------------
(24 digits maximum)
Location of Equipment: Initial Term: 42
- --------------------- ------------
Same as above. (Number of Rent Intervals)
Lease Rate Factor: 2.7753%
-----------------
Attn.:
EQUIPMENT (as defined below): Advance: $44,404.80
-------
Equipment (including installation and delivery charges) specifically
approved by Lessor, which shall be delivered to and accepted by Leasee
during the period April 7, 1997 through December 15, 1997 ("Equipment
Delivery Period"), for which Lessor receives vendor invoices approved for
payment, up to an aggregate purchase price of $1,600,000 ("Commitment
Amount") available immediately. Equipment shall exclude custom use
equipment, rolling stock, hand held items, molds and fungible items. In no
event shall software, lab benches, tenant improvements, installation,
delivery charges and tooling exceed 20% of the Commitment Amount
hereunder.
<PAGE>
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in a value up to the Commitment
Amount referred to on the face of this Schedule. If the Equipment acquired is of
category (i), (ii) or (iii) below, the effectiveness of this Schedule as it
relates to those items of Equipment is contingent upon Lessee's acknowledgment
at the time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor for that
Equipment.
Lessor will finance only the acquisition of individual items of Equipment
with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the "Sale-
Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than the fifteenth
day of the last month in each quarter and for Equipment installed
after the date hereof (except for the Equipment submitted on the
second Sale-Leaseback Transaction) Lessor will not approve a Sale-
Leaseback Transaction for Equipment which arrives ninety (90) days
after the original purchase of the Equipment as evidenced by the
invoice date. Further, the first Sale-Leaseback of Equipment will be
placed on lease subject to: (1) Lessor's prior approval of the
Equipment; and (2) if approved, will be placed on lease subject to
values established by Lessor based on the age of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new or
used Equipment from its inventory at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar month into a
Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar month thereafter.
Each Summary Equipment Schedule will contain Equipment location, description,
serial number(s) and cost and will incorporate the terms and conditions of the
Master Lease and this Schedule and will constitute a separate lease.
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than ninety (90) days prior to the expiration of the Initial Term of a
Summary Equipment Schedule, Lessee will have the right to extend the Initial
Term of such Summary Equipment Schedule for a period of one (1) year. In such
event, the rent to be paid during said extended period shall be mutually agreed
upon and if the parties cannot mutually agree, then the Summary Equipment
Schedule shall continue in full force and effect pursuant to the existing terms
and conditions until terminated in accordance with its terms. The Summary
Equipment Schedule will continue in effect following said extended period until
terminated by either party upon not less than ninety (90) days prior written
notice, which notice shall be effective as of the date of receipt.
<PAGE>
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed fifteen percent (15%) of the original cost of
Equipment and upon terms and conditions to be mutually agreed upon by the
parties following Lessee's written notice, plus any taxes applicable at
time of purchase. Said purchase price shall be paid to term. Title to the
Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to
agree on the purchase price or the terms and conditions with respect to said
purchase, then the Summary Equipment Schedule with respect to this Equipment
shall remain in full force and effect. Notwithstanding the exercise by Lessee
of this option and payment of the purchase price, until all obligations under
the applicable Summary Equipment Schedule have been fulfilled, it is agreed and
understood that Lessor shall retain a purchase money security interest in the
Equipment listed therein and the Summary Equipment Schedule shall constitute a
Security Agreement under the Uniform Commercial Code of the state in which the
Equipment is located.
5. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
a) Section 14.14. Secretary's Certificate
-----------------------
In line 3, delete the sentence beginning with the words "Upon the
execution".
b) Section 14.16. Landlord/Mortgagee Waiver
-------------------------
To the beginning of this Section add the words "Upon request of Lessor and
within a reasonable timeframe,"
Master Lease: This Schedule is issued pursuant to the Lease identified on page
1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representation and
warranties set forth in Section 8) except as modified herein by this Schedule.
This Schedule may not be amended or rescinded except by a writing signed by both
parties.
CARDIMA, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Ronald Bourquin By: /s/ Comdisco, Inc.
---------------------------- ---------------------------
Title: VP & CFO Title:
------------------------- ------------------------
Date: 4/8/97 Date:
-------------------------- --------------------------
<PAGE>
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
---------------------------
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
-------------------- ----------
2. Initial Term Starts on: Initial Term:
---------------------- ------------
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
----------------------------
4. Lease Rate Factor:
-----------------
5. Rent:
----
6. Acceptance Doc Type:
-------------------
<PAGE>
EXHIBIT 10.23
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR ANY OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series E Preferred Stock of
CARDIMA, INC.
Dated as of April 7, 1997 (the "Effective Date")
WHEREAS, Cardima, Inc., a Delaware corporation (the "Company") has entered
into a Master Lease Agreement dated as of January 23, 1996, Equipment Schedule
No. VL-2 dated as of April 7, 1997, and related Summary Equipment Schedules
(collectively, the "Leases") with Comdisco, Inc., a Delaware corporation (the
"Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series E Preferred Stock;
NOW THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company 13,937 fully paid and non-assessable
shares of Company's Series E Preferred Stock ("Preferred Stock") at a purchase
price of $5.74 per share (the "Exercise Price"). The number and purchase price
of such shares are subject to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement and
the right to purchase Preferred Stock as granted herein shall commence on the
Effective Date and shall be exercisable for a period of (i) ten (10) years or
(ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by the
Warrantholder, in whole or in part, at any time, or from time to time, prior to
the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise") duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i) by
cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined
below. If the Warrantholder elects the Net Issuance method, the Company will
issue Preferred Stock in accordance with the following formula:
-1-
<PAGE>
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Preferred
Stock shall mean with respect to each share of Preferred Stock:
(a) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement relating
to such public offering has been declared effective by the SEC, then the fair
market value per share shall be the product of (x) the initial "Price to Public"
specified in the final prospectus with respect to the offering and (y) the
number of shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(b) if this Warrant is exercised after, and not in connection with, the
Company's initial public offering and:
(i) if traded on a securities exchange, the fair market value shall
be deemed to be the product or (x) the average of the closing prices over a
twenty-one (21) day period ending three days before the day the current
fair market value of the securities is being determined and (y) the number
of shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise; or
(ii) if actively traded over-the-counter, the fair market value shall
be deemed to be the product of (x) the average of the closing bid and asked
prices quoted on the Nasdaq system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair market
value of the securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is convertible at the
time of such exercise;
(c) if at any time the Common Stock is not listed on any securities
exchange or quoted in the Nasdaq System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x) the
highest price per share which the Company could obtain from a willing buyer (not
a current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by its Board of
Directors and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise, unless the Company
shall become subject to a merger, acquisition or other consolidation pursuant to
which the Company is not the surviving party, in which case the fair market
value of Common Stock shall be deemed to be the value received by the holders of
the Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall promptly
issue an amended Warrant Agreement representing the remaining number of shares
purchasable hereunder. All other terms and conditions of such amended Warrant
Agreement shall be identical to those contained herein, including, but not
limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required
-2-
<PAGE>
by reason of any transfer involved in such conversion), or listing on any
domestic securities exchange, before such shares may be issued upon conversion,
the Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be issued
upon the exercise of the Warrant, but in lieu of such fractional shares the
Company shall make a cash payment therefor upon the basis of the Exercise Price
then in effort.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting rights
or other rights as a shareholder of the Company prior to the exercise of the
Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to
-3-
<PAGE>
such dividend or distribution, and (ii) the denominator of which shall be the
total number of all shares of the Company's stock outstanding immediately after
such dividend or distribution. The Warrantholder shall thereafter be entitled
to purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Preferred Stock (calculated to the nearest whole share) obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Preferred Stock issuable upon the exercise hereof
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to
-------------------
the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit __ (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter that affects the
Warrantholder's rights under the Charter. The Company shall provide
Warrantholder with prior written notice of any dilutive issuance of its stock or
other equity security as provided in the Charter to occur after the Effective
Date of this Warrant, which notice shall include (a) the price at which such
stock or security is to be sold, (b) the number of shares to be issued, and (c)
such other information as necessary for Warrantholder to determine if a dilutive
event has occurred.
(f) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) there shall be any Merger Event; (iv) there shall be an initial
public offering; or (iii) there shall be any voluntary or involuntary
dissolution, liquidation or winding up of the Company; then, in connection with
each such event, the Company shall send to the Warrantholder; (A) at least
twenty (20) days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
(specifying the date on which the holders of Preferred Stock shall be entitled
thereto) or for determining rights to vote in respect of such Merger Event,
dissolution, liquidation or winding up;(B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up); and (C) in the case of a public
offering, the Company shall give the Warrantholder at least twenty (20) days
written notice prior to the effective date hereof.
Each such written notice shall set forth, in reasonable detail, (i) the event
requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by
which such adjustment was calculated, (iv) the Exercise Price, and (v) the
number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date such notice is effectively given under Section 12(e) of this
Warrant Agreement.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
and the issuance and delivery of any certificate in a name other than that of
the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and
-4-
<PAGE>
the Leases and this Warrant Agreement are not inconsistent with the Company's
Charter or Bylaws, do not contravene any law or governmental rule, regulation or
order applicable to it, do not and will not contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument to which it is a party or by which it is bound, and the Leases and
this Warrant Agreement constitute legal, valid and binding agreements of the
Company, enforceable in accordance with their respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any securities were issued in full
compliance with all Federal and state securities laws. In addition, as of the
Effective Date:
(i) The authorized capital of the Company consists of (A) 8,500,000
shares of Common Stock, of which 74,999 shares are issued and outstanding,
and (B) 6,413,322 shares of preferred stock, of which 5,495,938 shares are
issued and outstanding and are convertible into shares of Common Stock
pursuant to Article IV, Section 8.4 of the Charter.
(ii) The Company has reserved (A) 894,846 shares of Common Stock for
issuance under its 1993 Stock Option Plan, under which 820,477 options are
outstanding, and (B) 527,677 shares of Common Stock for issuance under
outstanding warrants. There are no other options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the Company's capital stock
or other securities of the Company.
(iii) In accordance with the Company's Charter, no shareholder of the
Company has preemptive rights to purchase new issuances of the Company's
capital stock except as provided in Section 2.4 of the Cardima, Inc. Third
Amended and Restated Stockholders' Rights Agreement (the "Stockholders'
Agreement").
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
----------------------------------------
Warrant Agreement and the Stockholders' Agreement, the Company is not, pursuant
to the terms of any other agreement currently in existence, under any obligation
to register under the 1933 Act any of its presently outstanding securities or
any of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the
------------------------
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
-5-
<PAGE>
This Warrant Agreement has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption under the 1933 Act.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
--------------
is financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
---------
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
-6-
<PAGE>
transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State
of Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given
-------
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or five (5) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
Venture Group, cc: Legal Department attn: General Counsel, (and/or, if by
facsimile, (708) 518-5466 and (708) 518-5088) and (ii) to the Company at 47266
Benicia Street, Fremont, CA 94539-1372, attention: President (and/or if by
facsimile, (510) 657-4476) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performances for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that
it shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, 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
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
--------
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and the Warrantholder.
(k) Additional Documents. If the purchase price for the Leases
--------------------
referenced in the preamble of this Warrant Agreement exceeds $1,600,000,
the Company will also provide Warrantholder with an opinion from the Company's
-7-
<PAGE>
counsel with respect to those same representations, warranties and covenants.
The Company shall also supply such other documents as the Warrantholder may from
time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be
executed by its officers thereunto duly authorized as of the Effective Date.
Company: CARDIMA, INC.
By: /s/ Ronald Bourquin
--------------------------------------
Title: VP & CFO
----------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ Comdisco, Inc.
--------------------------------------
Title:
-----------------------------------
-8-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: ____________________
(1) The undersigned Warrantholder hereby elects to purchase _____________shares
of the Series______________ Preferred Stock of _________________, pursuant
to the terms of the Warrant Agreement dated the _____________ day of
______________, 19__ (the "Warrant Agreement") between ____________________
and the Warrantholder, and tenders herewith payment of the purchase price
for such shares in full, together with all applicable transfer taxes, if
any.
(2) In exercising its rights to purchase the Series __________ Preferred Stock
of __________________________, the undersigned hereby confirms and
acknowledges the investment representations and warranties made in Section
10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series ____________ Preferred Stock in the name of the undersigned or in
such other names as is specified below.
_____________________________
(Name)
_____________________________
(Address)
Warrantholder: COMDISCO, INC.
By:__________________________
Title:_______________________
Date:________________________
-9-
<PAGE>
EXHIBIT II
ACKNOWLEDGEMENT OF EXERCISE
The undersigned ______________________, hereby acknowledge receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase _____ shares of the Series
____ Preferred Stock of ____________________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that _____ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company: Cardima, Inc.
By:_______________________________
Title:____________________________
Date:_____________________________
-10-
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
_______________________________________________________
(Please Print)
whose address is_______________________________________
_______________________________________________________
Dated__________________________________
Holder's Signature_____________________
Holder's Address_______________________
Signature Guaranteed:__________________
NOTE: The signature to this Transfer Notice must correspond with
the name as it appears on the face of the Warrant Agreement,
without alteration or enlargement or any change whatever.
Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
-11-
<PAGE>
EXHIBIT 10.24
DISTRIBUTION AGREEMENT
----------------------
This agreement is made as of 1 day of April, 1997 between CARDIMA, INC., a
------
California corporation having its principal place of business at 47266 Benicia
Street, Fremont, CA 94538 ("Cardima") and Cardiologic, GmbH, having its
principal place of business at Rotwandweg 5a, 82024 Taufkirchen, Germany
("Distributor").
In consideration of the mutual promises contained herein, Cardima and
Distributor agree as follows:
1. DEFINITION. As used in this Agreement:
(a) "Products" shall mean those products listed in Exhibit A attached
---------
hereto, as it may be amended.
(b) "Standard Terms of Condition of Sale" means Cardima's terms and
conditions of sale of its products generally as modified by Cardima from time to
time.
(c) "Territory" means Germany.
2. APPOINTMENT AND AUTHORITY OF DISTRIBUTOR.
(a) Appointment. Subject to the terms and conditions of this
-----------
Agreement, Cardima hereby appoints Distributor, and Distributor accepts such
appointment, as Cardima's exclusive distributor in the Territory.
(b) Independent Contractors. It is understood that both parties
-----------------------
hereto are independent contractors and are engaged in the operation of their own
businesses. Neither party hereto is to be considered the agent of the other
party for any purpose whatsoever, and neither party has any authority to enter
into any contracts or assume any obligations for the other party or make any
warranties or representations on behalf of the other party, except as provided
for in Section 3 below.
3. OBLIGATIONS OF DISTRIBUTOR.
(a) Registration and Marketing of Products. Distributor agrees to use
--------------------------------------
its best effort to investigate, obtain government approval for, promote and
distribute the Products, at its own expense, in the Territory as soon as it is
feasible after the date of this Agreement, using generally the same channels and
methods, exercising the same diligence and adhering to the same standards which
it employs with respect to the other medical application products sold by
Distributor, as well as Distributor's own products,
<PAGE>
if any. Unless prohibited by local law, all such registrations and approvals
obtained by Distributor shall be in the name of Cardima. In particular,
Distributor shall, at its own expense:
(i) Exercise due diligence to promptly obtain and maintain government
approvals to import, register and market the Products in each jurisdiction in
the Territory and to diligently proceed to secure and maintain, as may be
required from time to time, government importing, registration and marketing
approvals, import and export licenses, customs clearances and currency
authorizations and any permits necessary in each jurisdiction in the Territory.
Distributor shall keep Cardima generally informed of the regulatory requirements
in each jurisdiction in the Territory and shall submit to the government health
authorities in each jurisdiction in the Territory where the sale of the Products
is planned a complete application for registration and marketing approval of the
Products by the date set forth in any marketing plan requited by Cardima below.
Distributor shall file for regulatory approval by the date or dates set forth on
Exhibit B attached hereto. If Cardima so requests, Distributor shall notify
Cardima each time it submits an application for government approval for the
Products and shall, at Cardima's request, supply with copies of or access to
Distributor's filings and clinical data and shall keep Cardima fully informed of
the progress of each such application. Cardima and Distributor agree to disclose
promptly to the other all reports and any information which they have available
or which become available to them relating to any deleterious physiological
effects caused by or related to the Products. In the event that all necessary
registrations, licenses and permits required to sell and distribute the Products
in the Territory for clinical use (if applicable) are not obtained within nine
(9) months after the effective date of this Agreement, Manufacturer may, in its
sole discretion, terminate this Agreement upon written notice to Distributor.
(ii) Prior to thirty (30) days after signing this agreement, Distributor
must submit to Cardima a complete and accurate marketing plan, prepared by
Distributor in good faith, which shall be subject to approval by Cardima, for
the Products in each jurisdiction in the Territory as well as a financial
statement acceptable to Cardima. If and as requested by Cardima, such plan shall
be updated and delivered to Cardima annually and shall include, at minimum,
information on competitive products; proposed labeling (including label, package
insert, introductory folder and advertising); estimated sales volume;
anticipated quantities of the Products to be purchased from Cardima;
distribution and promotional plans; schedule for submission of applications for
government registration and marketing approval; and marketing approval. All
Product labels, package inserts and claims, which are prepared for or by
Distributor, shall meet all legal requirements of the jurisdiction in which the
products are marketed and shall be subject to Cardima's prior review and
approval.
(iii) Commence marketing of the Products throughout the Territory
immediately after receipt of government health registration approvals.
<PAGE>
Distributor shall be deemed to have commenced the marketing of the Products only
when it shall have offered the Products regularly for sale.
(iv) Use its best efforts to distribute and sell the products for use
only by qualified individuals, as appropriate in the Territory, in compliance
with local laws and regulations and good commercial practice and for uses and
applications reasonably approved by Cardima for the Products. Distributor shall
be subject to performance criteria applied to distributors of the Products
generally and as governed by market opportunity, as communicated by Cardima from
time to time after discussion and agreement with the Distributor.
(v) Purchase or cause to be purchased from Cardima all quantities of
the Products required by Distributor in order to meet demand by purchasers and
potential purchasers of the Products in the Territory. Distributor shall not
distribute nor market products competitive with the Products in the Territory
during the term of this Agreement without the prior written consent of Cardima.
If Cardima does not approve the request for distribution of competitive
products, the Distributor must withdraw the competitive products from its market
place or this agreement is subject to termination in thirty (30) days at
Cardima's discretion. Distributor shall not make any changes, alterations,
modifications or additions to the Products without prior written approval of
Cardima.
(b) Purchase Commitment. Distributor hereby agrees to purchase from
-------------------
Cardima during the first calendar quarter periods commencing April 1, 1997
("Purchase Commitment") the dollar value in Products set forth on the Purchase
Commitment, Exhibit C, for the next four calendar quarter periods. Throughout
the term of this Agreement, if (i) the parties cannot agree on Purchase
Commitments, or (ii) Distributor fails to purchase Distributor's Purchase
Commitment in any given calendar quarter and Distributor's Purchase Commitment
in the next calendar quarter plus the deficit in Distributor's Purchase
Commitment from the preceding calendar quarter, then, without prejudice to
Cardima's other rights under this Agreement (including the right to terminate
this Agreement upon written notice to Distributor), Cardima may appoint one or
more additional distributors for sale of the Products in the Territory. Products
returned to cardima shall not count towards the fulfillment of Distributor's
relevant Purchase Commitment. Within first five (5) days of every month,
Distributor shall provide Cardima with a ninety (90) day rolling forecast
showing prospective orders by Product and Distributor's anticipated Products
purchase order submission date. Such rolling forecasts shall be non-binding and
shall be used by Cardima for information purposes only.
(c) Reports. Distributor shall, at is expense, submit regular reports to
-------
Cardima on a monthly basis (unless otherwise agreed) accurately describing the
sales of the Products by Distributor for the previous month (including prices,
unit sales and other information as may be reasonably requested by Cardima from
time to time) and
<PAGE>
forecasted sales on a as requested basis for the upcoming year in the Territory.
The Distributor's price list to their customers must be submitted once a year to
Cardima. Such reports shall be in a form reasonably acceptable to Cardima, see
Exhibit D.
(d) Prohibited Sales. Distributor agrees not to sell, and agrees to use
----------------
reasonable efforts to ensure that Distributor's agents and customers do not sell
or use, any of the Products outside of the Territory.
(e) Product Presentation. Distributor agrees to present the Products
--------------------
fairly to potential customers, not to disparage the Products, any Product
trademarks or Cardima in any way and to do all things reasonable to promote the
reputation of the Products and the value of any Product trademarks.
(f) Marketing Plan. Distributor agrees to provide Cardima with its
--------------
formal marketing plan intended for the marketing of the Products for the
duration of the contract. This marketing plan must be submitted at the time the
contract is signed and in a form reasonably acceptable to Cardima.
(g) Financial Statements. Distributor agrees to provide Cardima with an
--------------------
up to date financial statement at the time the contract is signed and in a form
reasonably acceptable to Cardima.
(h) Finances and Personnel. Distributor shall maintain a networth and
----------------------
working capital sufficient, in Cardima's reasonable judgment, to allow
Distributor to perform fully and faithfully Distributors obligations under this
Agreement. Distributor shall devote sufficient financial resources and
technically qualified sales and training personnel to the Products to fulfill
Distributor's responsibilities under this Agreement. Distributor shall maintain
a sales force of at least two sales people who will be completely dedicated to
electrophysiology. Distributor shall, at Distributor's own expense, maintain a
sufficient inventory of the products at all times during the term of this
Agreement as necessary in order to meet the requirements of any customer or
potential customer within the Territory.
(i) Pre-clinical and Clinical Trials. Distributor shall assist and
--------------------------------
support Cardima in organizing and conducting pre-clinical and clinical trials
required to obtain registrations, licenses and permits required to comply with
the laws and regulations of the Territory for sale and distribution of the
Products; provided, however, that no activities in connection with organizing
and conducting such trials shall be initiated by Distributor without Cardima's
prior written approval.
(j) Sales Force Involvement. Cardima shall have the right to review,
-----------------------
advise and direct the activities of Cardiologic's electrophysiology sales force
as they relate to the sales of Cardima products. The distributors sales force
will be directed to
<PAGE>
communicate openly and to coordinate their activities with Cardima's sales
management team.
4. Obligations of Cardima.
(a) Requirements by Distributor. Cardima shall supply Distributor's
---------------------------
requirements for the Products in the Territory, but subject to Distributor's
commitments to other Products purchasers and, consistent with Distributor's
forecasts of its expected requirements for the Products (as described in Section
3 above). If Cardima believes it will not be able to satisfy Distributor's
requirements for the Products, it shall promptly notify Distributor, specifying
the reasons for the expected delay and its duration. Notwithstanding the
foregoing, Cardima shall have no obligation to supply Products to Distributor
during any period for which Distributor's payments to Cardima hereunder are
thirty (30) days or more past due.
(b) Registration and Marketing Support. To assist Distributor in
----------------------------------
registering and marketing the Products in the Territory, Cardima shall:
(i) Provide Distributor with materials necessary to obtain
health registrations, to the extent practicable.
(ii) Provide Distributor with information on marketing and
promotional plans of Cardima for the Products as well as copies of marketing,
advertising, sales and promotional literature concerning the Products produced
by or for Cardima, if any.
(iii) Provide Distributor with certain certificates of analysis
concerning the Products purchased by Distributor, certificates of free sale,
trademark authorizations and any other documents which Distributor may require
for registration purposes, at Distributor's request and expense, if available.
5. TRADEMARKS AND TRADE NAMES.
(a) Use. During the term of this Agreement, Distributor shall have
---
the right to indicate to the public that Distributor is an authorized
distributor of Cardima's Products and to advertise within the Territory such
Products under the trademarks, marks, and trade names that Cardima may adopt
from time to time ("Cardima's Trademarks"). Distributor shall not alter or
remove any Cardima's Trademark applied to the Products at the factory. Except as
set forth in this Section 11, nothing contained in this Agreement shall grant to
Distributor any right, title or interest in Cardima's trademarks. At no time
during or after the term of this Agreement shall Distributor challenge or assist
others to challenge Cardima's Trademarks or the registration thereof
<PAGE>
or attempt to register any trademarks, marks or trade names confusingly similar
to those of the Cardima.
(b) Approval of Representations. All representations of Cardima's
---------------------------
Trademarks that Distributor intends to use shall first be submitted to Cardima
for approval which shall not be unreasonably withheld, of design, color, and
other details or shall be exact copies of those used by Cardima. If any of
Cardima's Trademarks are to be used in conjunction with another trademark on or
in relation to the Products, then Cardima's mark shall be presented equally
legibly, equally prominent, and of greater size than the other but nevertheless
separated from the other so that each appears to be a mark in its own right,
distinct from the other mark.
6. TERMS AND CONDITIONS OF SALE.
(a) Terms of Orders. All purchases of the Products by Distributor from
---------------
Cardima during the term of this Agreement shall be subject to the terms and
conditions of this Agreement and to Cardima's published Standard Terms and
Conditions of Sale as in effect at the time of such purchase, provided that in
the event of any conflict between the terms of this Agreement and the Standard
Terms and Conditions of Sale of Cardima then in effect, this Agreement shall be
controlling. Distributor's purchase order forms shall be deemed to have no terms
and conditions. Distributor disclaims any such terms and conditions and such
disclaimer shall be deemed to be a continuing disclaimer throughout the term of
this agreement. Without limiting the foregoing, all purchase orders submitted
by Distributor to Cardima shall be subject to acceptance by Cardima at its
offices in Fremont, California.
(b) Packaging. All quantities of the Products purchased from Cardima by
---------
Distributor shall be in the form of labeled, standard unit packages and in a
form and formulation consistent with the Products sold by Cardima for use in the
United States, unless otherwise agreed by Cardima and Distributor in writing,
which agreement by Cardima and Distributor will not be unreasonably withheld.
Cost of normal packaging of the Product for shipment to Distributor shall be
paid by Cardima; however, the cost of special packaging agreed by Cardima shall
be paid by Distributor.
(c) Order and Acceptance. All orders for Products submitted by
--------------------
Distributor shall be initiated by written purchase orders sent to Cardima and
requesting a delivery date during the term of this Agreement; provided however,
that an order may initially be place orally or by facsimile. A written
confirmation purchase order is to be received by Cardima within five (5) days
after an oral order is placed. No order shall be binding upon Cardima until
accepted by Cardima in writing, and Cardima shall have no liability to
Distributor with respect to purchase orders are not accepted. No partial
shipment of an order shall constitute the acceptance of the entire order, absent
the written acceptance of such entire order. Cardima shall use its own
reasonable best
<PAGE>
efforts to deliver Products at the times specified either in Cardima's quotation
or in Cardima's written acceptance of Distributor's purchase orders.
Notwithstanding the foregoing, Cardima shall have no obligation to supply
Products to Distributor during any period for which Distributor's payments to
Cardima hereunder are thirty (30) days or more past due.
(d) Shipping. All products delivered pursuant to the terms of this
--------
Agreement shall be suitably packed for air freight shipment in Cardima's
standard shipping cartons, marked for shipment at Cardima's manufacturing plant
to Distributor's address set forth above, and delivered to Distributor or
Distributor's carrier agent F.O.B. Cardima's Distribution Site, at which time
title to such Products and risk of loss shall pass to Distributor. All shipments
of Products shall include a Certificate of Sterilization for each lot. Cardima
shall deliver Products to the carrier selected by Distributor. In the event that
Distributor does not provide written notice of such carrier, Cardima shall
select the carrier. All freight, insurance, and other shipping expenses, as well
as any special packing expense, shall be paid by Distributor. Distributor shall
also bear all applicable taxes, duties, and similar charges that may be assessed
against the Products after delivery to the carrier at Cardima's Distribution
Site. Cardima's Distribution Site shall initially be its Fremont, California
facility and may be changed upon written notice from Cardima to Distributor.
(e) Price and Payment. Cardima shall sell Products to Distributor at prices
-----------------
communicated in writing by Cardima to its Product distributors generally from
time to time, including communication in the form of "newsletter". All costs of
transportation and insurance of the Products from Cardima's place of manufacture
to points of destination shall be the responsibility of, and borne by,
Distributor. All taxes, fees, duties and other charges with respect to the sale
by Cardima to Distributor of the Products shall be paid by Distributor or
reimbursed by Distributor to Cardima. All payments due Cardima pursuant to this
Agreement shall be paid, by any reasonable method specified by Cardima in
writing from time to time, within sixty (60) days after the date of shipment of
the Products to Distributor and in any case shall be made in US $. If
Distributor fails to make any payment to Cardima when due, Cardima may, without
affecting its rights under this Agreement, cancel or delay any future shipments
of the Products to Distributor. Any amount not paid when due shall be subject to
an interest charge of the lesser of (i) one and one-half percent (1 1/2%) per
month, computed on the unpaid daily balance and (ii) the maximum rate permitted
by law. All payments to Cardima pursuant to this Agreement shall be made in
United States currency in immediately available funds.
(f) Amendments to Schedule A. Cardima may, at its discretion, amend
------------------------
Schedule A hereto, by adding or subtracting Products due to new Product
introduction or Product deletion, upon sixty (60) days prior written notice to
Distributor in the form of a dated substituted Schedule A.
<PAGE>
(g) Property Rights. Distributor agrees that Cardima owns all right,
---------------
title, and interest in the product lines that include the Products and in all of
Cardima's patents, trademarks, trade names, inventions, copyrights, know-how,
and trade secrets relating to the design, manufacture, operation or service of
the Products. The use by Distributor of any of these property rights is
authorized only for the purposes herein set forth, and upon termination of this
Agreement for any reason such authorization shall cease. The Products are
offered for sale and are sold by Cardima subject in every case on the condition
that such sale does not convey any license, expressly or by implication, to
manufacture, duplicate or otherwise copy or reproduce any of the Products.
Distributor shall not make any changes, alterations, modifications or additions
to the Products without prior written approval of Cardima.
7. PRODUCT WARRANTY.
Cardima warrants that the Products sold to Distributor will at all
times comply with the requirements of and regulations adopted pursuant to the
US. Federal Food, Drug, and Cosmetic Act. Cardima will provide, when requested
by Distributor, certification that to the best of its knowledge it is in
compliance with U.S. laws, statutes, rules, regulations and relevant orders
relating to the manufacture, use, distribution and sale of the Product.
CARDIMA'S SOLE OBLIGATION UNDER THE FOREGOING WARRANTY SHALL BE, AT CARDIMA'S
SOLE ELECTION, TO EITHER REPLACE THE RELEVANT PRODUCT OR REFUND DISTRIBUTOR'S
PURCHASE PRICE FOR SUCH PRODUCT. IN NO EVENT SHALL CARDIMA BE LIABLE FOR THE
COST OF PROCUREMENT OF SUBSTITUTE GOODS BY THE CUSTOMER OR FOR ANY SPECIAL,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES FOR BREACH OF WARRANTY. Such obligation
shall be subject to Cardima being granted the reasonable opportunity to inspect
the allegedly defective Product at the location of its use or storage and, upon
request in accordance with Cardima's instruction, return of the Product to
Cardima at Cardima's cost. Any such replacement of Products may be made by
substitution of any similar product. NOTWITHSTANDING THE FOREGOING, CARDIMA
SHALL HAVE NO WARRANTY OR OTHER OBLIGATION WITH RESPECT TO ANY PRODUCT SOLD
HEREUNDER IF SUCH PRODUCT HAS EXPIRED CONSISTENT WITH LABELS OR OTHER
PUBLICATIONS BY CARDIMA OR HAS NOT BEEN USED, HANDLED OR STORED IN ACCORDANCE
WITH INDUSTRY PRACTICE AND GUIDELINES WHICH MAY BE COMMUNICATED BY CARDIMA.
EXCEPT AS EXPRESSLY PROVIDED ABOVE, CARDIMA GRANTS NO OTHER WARRANTIES OR
CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE, THIS AGREEMENT OR ANY COMMUNICATION
BY CARDIMA, REGARDING THE PRODUCT, THEIR FITNESS FOR ANY PARTICULAR PURPOSE,
THEIR QUALITY, THEIR MERCHANTABILITY OR OTHERWISE.
<PAGE>
8. CONFIDENTIALITY.
Distributor acknowledges that by reason of Distributor's relationship
to Cardima hereunder, Distributor will have access to certain information and
materials concerning Cardima's business plans, customers, technology, and
products that are confidential and of substantial value to Cardima, which value
would be impaired if such information were disclosed to third parties.
Distributor agrees that Distributor will not use in any way for Distributor's
own account or the account of any third party, nor disclose to any third party,
any such confidential information revealed to Distributor by Cardima.
Distributor shall take every reasonable precaution to protect the
confidentiality of such information. Upon request by Distributor, Cardima shall
advise whether or not Cardima considers any particular information to be
confidential. Distributor shall not publish any technical description of the
Products beyond the description published by Cardima (except to translate that
description into appropriate languages for the Territory). In the event of
termination of this Agreement, there shall be no use or disclosure by
Distributor of any confidential information of Cardima, and Distributor shall
not manufacture or have manufactured any compositions, devices, components or
assemblies utilizing any of Cardima's confidential information.
9. LIMITATION OF LIABILITY.
CARDIMA'S LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR SALE OF THE
PRODUCTS SHALL BE LIMITED TO THE AMOUNT PAID BY THE CUSTOMER FOR THE PRODUCTS.
IN NO EVENT SHALL CARDIMA BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS
BY ANYONE. IN NO EVENT SHALL CARDIMA BE LIABLE TO DISTRIBUTOR OR ANY OTHER
ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER
CAUSED, ON ANY THEORY OF LIABILITY, WHETHER OR NOT CARDIMA HAS BEEN ADVISED ON
THE POSSIBILITY OF SUCH DAMAGE.
<PAGE>
10. PATENT INDEMNITY.
(a) Indemnification. Distributor agrees that Cardima has the right
---------------
to defend, or at Cardima's option to settle, and Cardima agrees, at Cardima's
own expense, to defend or at Cardima's option to settle any claim, suit or
proceeding brought against Distributor or Distributor's customers on the issue
of infringement of any United States of America patent by the Products sold
hereunder or the use thereof, subject to the limitations hereinafter set forth.
Cardima shall have sole control of any such action or settlement negotiations,
and Cardima agrees to pay, subject to the limitations herein after set forth,
any final judgment entered against Distributor or Distributor's customer on such
issue in any such suit or proceeding defended by Cardima. Distributor agrees
that Cardima at Cardima's sole option shall be relieved of the foregoing
obligations unless Distributor or Distributor's customer notifies Cardima
promptly in writing of such claim, suit or proceeding and gives Cardima
authority to proceed as contemplated herein, and, at Cardima's expense, gives
Cardima proper and full information and assistance to settle and/or defend any
such claim, suit or proceeding. Cardima shall not be liable for any costs or
expenses incurred without Cardima's prior written authorization.
(b) Limitation. Notwithstanding the provisions of Subsection 10(a)
----------
above, Cardima assumes no liability for (i) infringements covering completed
equipment or any composition, assembly, circuit, combination, method or process
in which any of the Products may be used but not covering the Products when used
alone or (ii) infringements involving the modification or servicing of the
products, or any part thereof, unless such modification or servicing was done by
Cardima.
(c) Entire Liability. THE FOREGOING PROVISIONS OF THIS SECTION 10
----------------
STATE THE ENTIRE LIABILITY AND OBLIGATIONS OF CARDIMA AND THE EXCLUSIVE REMEDY
OF DISTRIBUTOR AND DISTRIBUTOR'S CUSTOMERS, WITH RESPECT TO ANY ALLEGED
INFRINGEMENTS OF PATENTS OR ANY PART THEREOF.
11. INDEMNIFICATION.
Cardima and Distributor each agree to indemnify and hold the other
party harmless from and against any and all claims made by any person or entity
arising out of the processing, marketing, distribution and sale of the Products,
where and to the extent such damages have been caused by the fault of such party
or its employees or agents. The indemnifying party shall have the right to
defend or, at its option, to settle such claims, and if it chooses exercise such
right, it shall have control over any such claim or settlement negotiations. The
indemnifying party shall be relieved of the foregoing obligations unless the
indemnified party gives prompt notice in writing of any such claim, suit or
proceeding and, at the indemnifying party's expense, gives the
<PAGE>
indemnifying party proper and full information and assistance to settle and/or
defend any such claims, suit or proceeding.
12. TERM AND TERMINATION.
(a) Term and Renewal. This agreement shall commence on the date first
----------------
set forth above and shall continue in force for the fixed term ending on
December 31, 1999, unless terminated earlier under the provisions of this
Section. At the end of the fixed term, this Agreement may be renewable for an
additional two (2) year period in accordance with the terms and conditions
agreed to by Cardima in writing not less than thirty (30) days in advance. The
parties shall be required to give notice to the other of its intention to
terminate this Agreement at least sixty (60) days prior to the expiration of the
fixed term hereof or of any renewal period.
(b) Termination. Either party may at its option, terminate this
-----------
Agreement by giving to the other not less than thirty (30) days prior written
notice in the event that the other party shall at any time commit a material
breach of any of its obligations hereunder and shall fail to correct any such
breach during the period of such notice. This Agreement shall terminate
automatically without further notice or action by either party if the other
party shall become insolvent, shall make or seek to make an arrangement with or
an assignment for the benefit of creditors, or if proceedings in voluntary or
involuntary bankruptcy shall be instituted by, on behalf of or against such
other party, or if a receiver or trustee of such other party's property shall be
appointed. This Agreement shall also terminate immediately upon written notice
if Distributor cannot provide evidence of its credit worthiness reasonably
satisfactory to Cardima upon Cardima's written request.
(c) Termination for Noncompliance with Purchase Commitment. In the event
------------------------------------------------------
that Distributor fails to meet the purchase commitment levels set forth in
Exhibit C by the end of the first year, then this Agreement shall terminate
automatically at such time without notice unless Cardima, at its sole
discretion, notifies Distributor in writing that this Agreement shall continue
in full force and effect notwithstanding Distributor's noncompliance with such
performance levels. Following the first year, if Distributor fails to meet the
purchase commitment levels set forth in Exhibit C for two (2) consecutive
quarters, as shown by Distributor's reports submitted in accordance with Section
3 (c) herein, then this Agreement shall terminate automatically at such time
without notice unless Cardima, at its sole discretion, notifies Distributor in
writing that this Agreement shall continue in full force and effect
notwithstanding Distributor's noncompliance with such performance levels.
(d) Effect of Termination. Distributor shall terminate all Product
---------------------
distribution activities in the Territory immediately upon any termination of
this Agreement. In addition, Distributor shall deliver to Cardima or destroy,
upon request,
<PAGE>
all Product materials supplied by Cardima and all Product descriptive and
marketing materials of any kind. The obligations of Cardima and Distributor
pursuant to Sections 8 (Confidentiality), 9 (Limitation on Liability), and 13
(General Provisions) of this Agreement shall survive any termination of this
Agreement. Nothing herein shall limit any remedies which a party may have for
the other's default, except as expressly provided herein. Neither party shall be
liable to the other for any damage in connection with such party's termination
of this Agreement by notice, in accordance with this Section. Distributor will
be permitted to return to Cardima all re-saleable goods and be reimbursed the
original purchase price plus freight and import duties (landed cost) of the
returned goods.
(e) Notwithstanding the above termination clauses 12(b), (c), and (d),
there will always be a granted period of thirty (30) days in which the
Distributor has the opportunity and possibility to rectify the cited cause of
termination. Any definitive termination will be served to the Distributor in
writing in the manner prescribed by 13(e) after discussion between the parties.
13. GENERAL PROVISIONS
(a) Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the internal laws of the State of California, United States of
America.
(b) Jurisdiction and Venue. The Federal and State courts within the
----------------------
state of California shall have exclusive jurisdiction and venue over any dispute
arising out of this Agreement, and Distributor hereby consents to the
jurisdiction of such courts. Notwithstanding the foregoing, the parties agree
to submit any dispute hereunder to binding arbitration under the rules and
auspices of the International Chamber of Commerce, to be held in San Jose,
California, before a single arbitrator; provided, that the parties may, without
limiting the authority of the arbitrator, seek injunctive relief from any court
having jurisdiction thereof, as above.
(c) Entire Agreement. This Agreement represents the entire agreement and
----------------
understanding of Cardima and Distributor with respect to distribution of the
Products, supersedes all previous agreements and understandings related thereto
and may only be amended or modified in writing signed by authorized
representatives of Distributor and Cardima.
(d) Assignment. Distributor shall not assign any of its rights or
----------
obligations pursuant to this Agreement without the prior written consent of
Cardima.
(e) Notices. All notices under this Agreement shall be in writing and
-------
shall be deemed given if sent by telex, telecopier or telegram (except for legal
process in
<PAGE>
each such case), certified or registered mail or commercial courier (return
receipt or confirmation of delivery requested), or by personal delivery to the
party to receive such notices or other communications called for by this
Agreement at the following addresses (or at such other address for a party as
shall be specified by such party by like notice):
CARDIMA:
- --------
Cardima, Inc.
47266 Benicia Street
Fremont, CA 94538
Attention: Mr. David Smith
DISTRIBUTOR:
- ------------
Cardiologic GmbH
Rotwandweg 5a
82024 Taufkirchen
Germany ("Distributor").
Attention: Mr. Frank Groenewegen
(g) Limitation of Damage. In no event shall either party be liable
--------------------
to the other for incidental or consequential damages, even if such party shall
have been advised of the possibility of the same.
(h) Force Majeure. Each of the parties hereto shall be excused from
-------------
performance of its obligations by force major, and such excuse shall continue so
long as the condition constituting such force majeure continues plus thirty days
after the termination of such condition. For the purposes of this Agreement,
"force majeure" is defined to include causes beyond the control of Distributor
or Cardima, including without limitation acts of God, acts, regulations or laws
of any government, war, civil commotion, destruction of production facilities or
materials by fire, earthquake or storm, labor disturbances, epidemic and failure
of public utilities or common carriers.
(i) Legal Expense. The prevailing party in any legal action brought
-------------
by one party against the other and arising out of this Agreement shall be
entitled, in addition to any other rights and remedies that such prevailing
party may have, to reimbursement for expenses incurred by such prevailing party,
including court costs and reasonable attorney's fees.
<PAGE>
(j) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(k) Partial Invalidity. If any provision of this Agreement is held to be
------------------
invalid, then the remaining provisions shall nevertheless remain in full force
and effect. The parties agree to renegotiate in good faith any term held
invalid and to be bound by the mutually agreed substitute provision.
(l) Waiver. The failure of either party to enforce at any time the
------
provisions of this Agreement shall in no way be constituted to be a present or
future waiver of such provisions, and shall not in any way affect the right of
either party to enforce each and every such provision thereafter.
By: /s/ CARDIMA, INC. /s/ CARDIOLOGIC GmbH
-------------------------- --------------------------
<PAGE>
Exhibit-A
---------
STANDARD PRODUCTS AND DESCRIPTIONS
<TABLE>
<CAPTION>
Part Number Description
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<S> <C>
01 . 04 1003 Pathfinder . 4 Non-Paired, 9-9-9, 150cm
01 . 04 1007 Pathfinder . 4 2 Pairs, 2-6-2, 150cm
01 . 08 1003 Pathfinder . 8 Non-Paired, 9-9-9, 150cm
01 . 08 1007 Pathfinder . 8 4 Pairs, 2-6-2, 150cm
01 . 16 1003 Pathfinder . 16 8 Pairs, 2-6-2, 150cm
01 . 04 3001 Pathfinder .020" . 4 Non-Paired, 2-2-2, 140cm
01 . 04 3002 Pathfinder .020" . 4 2 Pairs, 2-6-2, 140cm
01 . 04 3003 Pathfinder .020" . 4 Non-Paired, 2-2-2, 175cm
01 . 04 3004 Pathfinder .020" . 4 2 Pairs, 2-6-2, 175cm
01 . 08 2001 Pathfinder 3mm . 8 Non-Paired, 2-2-2, 150cm
02 . 04 1001 Tracer . 4 Non-Paired, 5-5-5, 145cm
02 . 04 1002 Tracer . 4 2 Pairs, 2-5-2, 145cm
02 . 08 1001 Tracer . 8 Non-Paired, 5-5-5, 145cm
02 . 08 1002 Tracer . 8 4 Pairs, 2-5-2, 145cm
02 . 16 1002 Tracer . 16 8 Pairs, 2-5-2, 145cm
05 . 00 1001 TheraStream 2mm OD, 135cm
08 . 00 1000 ForeRunner, Damato type, 90cm, 6F OD
08 . 00 1001 ForeRunner, Damato type, 65m, 6F OD
08 . 00 1005 ForeRunner, Hockey type, 90cm, 6F OD
08 . 00 1006 ForeRunner, Hockey type, 65cm, 6F OD
08 . 00 1010 ForeRunner, Josephson type, 90cm, 6F OD
08 . 00 1011 ForeRunner, Josephson type, 65cm, 6F OD
08 . 00 1015 ForeRunner, Multipurpose type, 90cm, 6F OD
08 . 00 1016 ForeRunner, Multipurpose type, 65cm, 6F OD
10 . 16 1001 Connecting Cable, 16 pin, 100cm
236710 Dasher-10 Steerable Guidewire, 195cm, 0.011in
</TABLE>
<PAGE>
EXHIBIT B
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CATHETERS
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Name Document # Submitted Cleared
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Distributor to be notified at appropriate time.
<PAGE>
EXHIBIT-C
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<PAGE>
EXHIBIT D
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MONTHLY DISTRIBUTOR REPORT FORMAT
1. Market Overview and Analysis. Note trends by product family in Cardiac
Electrophysiology Markets.
2. Competitive Information. Provide any/all information on new products
entering the local markets.
3. Pathfinder and Tracer catheter use update. Supply Cardima with the number
of cases to date by institution and any relevant information.
4. Regulatory Issues. Provide a list of all Target products pending local
government approval and all those pending filing.
5. Product Complaints. Note any/all complaints felt to be of added
significance.
6. Changes in Distributor Organization (if applicable).
7. Articles and Publications. Provide Cardima with articles and translated
summaries of all newly-published articles related to the electrophysiology
and Inverventional Cardiology markets.
8. Upcoming Local Events.
9. Comments and Issues of Interest.
10. End-customer Sales by customer, by Product Number. A computer print-out
will suffice.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 21, 1997 (except as to Note 7, as to
which the date is March 12, 1997), in the Amendment to the Registration
Statement (Form S-1) and related Prospectus of Cardima, Inc. for the
registration of 2,616,250 shares of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
April 22, 1997
