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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended June 30, 1998
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _________________ to _____________________.
COMMISSION FILE NUMBER: 0-22419
-------
CARDIMA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3177883
- ------------------------------------- --------------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
47266 BENICIA STREET, FREMONT, CA 94538-7330
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 354-0300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days. X Yes No
---- ----
As of July 31, 1998, there were 8,282,996 shares of Registrant's Common Stock
outstanding.
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CARDIMA, INC.
INDEX
PART I. FINANCIAL INFORMATION.................................................3
ITEM 1. FINANCIAL STATEMENTS.................................................3
Balance Sheets as of June 30, 1998 and December 31, 1997.....................3
Statements of Operations for the three and nine months ended
June 30, 1998 and 1997.....................................................4
Statements of Cash Flows for the three and nine months ended
June 30, 1998 and 1997.....................................................5
Notes to financial statements................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................24
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................24
ITEM 5. OTHER INFORMATION....................................................25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................25
SIGNATURES....................................................................26
INDEX TO EXHIBITS FOR FORM 10-Q...............................................27
EXHIBIT 27.1.................................................................28
2
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CARDIMA, INC.
BALANCE SHEETS
(In thousands except share amounts)
<TABLE>
<CAPTION>
(1)
June 30, December 31,
1998 1997
----------- -----------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,012 $ 8,578
Short-term investments - 4,270
Accounts receivable, net of allowances for doubtful accounts
of $26 at June 30, 1998 and $40 at December 31, 1997 455 268
Inventories 1,075 532
Other current assets 233 261
-------- --------
Total current assets 6,775 13,909
Property and equipment, net 2,917 2,488
Restricted cash 170 192
Other assets 724 1,085
-------- --------
Total assets $ 10,586 $ 17,674
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,040 $ 898
Accrued compensation 768 753
Other current liabilities 12 55
Notes payable - 7
Capital lease obligation - current portion 717 587
-------- --------
Total current liabilities 2,537 2,300
Deferred rent 66 90
Capital lease obligation - noncurrent portion 856 840
Commitments
Stockholders' equity
Common stock, $.001 par value; 25,000,000 shares authorized, 8,212,248 shares
issued and outstanding at June 30, 1998, 8,103,875 at December 31, 1997; at
amount paid in 45,790 45,597
Deferred compensation (604) (731)
Accumulated deficit (38,059) (30,422)
-------- --------
Total stockholders' equity 7,127 14,444
-------- --------
Total liabilities and stockholders' equity $ 10,586 $ 17,674
======== ========
</TABLE>
(1) The information in this column was derived from the Company's audited
financial statements as of December 31, 1997. See accompanying notes to
financial statements.
3
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CARDIMA, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 625 $ 319 $ 1,126 $ 536
Cost of goods sold 595 457 1,343 831
------- ------- ------- -------
Gross profit 30 (138) (217) (295)
Operating expenses:
Research and development 1,908 1,059 3,571 1,869
Selling, general and administrative 1,980 1,646 4,027 2,976
------- ------- ------- -------
Total operating expenses 3,888 2,705 7,598 4,845
------- ------- ------- -------
Operating loss (3,858) (2,843) (7,815) (5,140)
Interest and other income 110 110 254 135
Interest expense (40) (28) (76) (81)
------- ------- ------- -------
Net loss $(3,788) $(2,761) $(7,637) $(5,086)
======= ======= ======= =======
Basic and diluted net loss per share $ (0.46) $ (0.94)
======= =======
Shares used in computing basic and diluted net loss per
share 8,186 8,160
======= =======
Pro forma net loss per share $ (0.43) $ (1.03)
======= =======
Shares used in computing pro forma net loss per share 6,433 4,939
======= =======
</TABLE>
See accompanying notes to financial statements
4
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CARDIMA, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended
June 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,637) $(5,086)
Adjustments to reconcile net loss to net cash provided by
operations:
Depreciation and amortization 415 277
Amortization of deferred compensation 127 101
Loss on disposal of assets 12 -
Changes in operating assets and liabilities:
Accounts receivable (187) (93)
Inventories (543) (209)
Other current assets 28 (70)
Restricted cash 22 20
Other assets (17) 475
Accounts payable 142 (525)
Accrued compensation 15 60
Other current liabilities (43) 41
Deferred rent (24) (25)
------- -------
Net cash used in operating activities (7,690) (5,034)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (517) -
Maturities and sales of short-term investments 4,787 -
Capital expenditures (342) (717)
------- -------
Net cash used in investing activities 3,928 (717)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases (332) (210)
Net proceeds from issuance of preferred stock - 13,442
Payments under notes payable (7) (1,674)
Net proceeds from sale of common stock 194 13,765
Proceeds from sale/leaseback of capital equipment 341 -
------- -------
Net cash provided by financing activities 196 25,323
------- -------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (3,566) 19,572
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,578 907
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,012 $20,479
======= =======
</TABLE>
5
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CARDIMA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company according to the rules and regulations of the Securities and Exchange
Commission for interim financial information and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the financial information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The operating results for the three-month and six month periods ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1998. The accompanying financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
2. BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997/1/
----------------- -----------------
<S> <C> <C>
Inventories:
Raw materials $ 218 $ 209
Work-in-process 403 119
Finished goods 454 204
------- -------
$ 1,075 $ 532
======= =======
Property and equipment:
Equipment 4,512 3,715
Leasehold improvements 99 99
------- -------
$ 4,611 $ 3,814
Less accumulated depreciation (1,694) (1,326)
------- -------
$ 2,917 $ 2,488
======= =======
</TABLE>
- ----------
/1/ The information in this column was derived from the Company's audited
financial statements as of December 31, 1997.
6
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NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
3. NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share," ("SFAS 128"). SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effect of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
restated to conform to the SFAS 128 requirements. Effective February 3, 1998,
Staff Accounting Bulletin No. 98 ("SAB 98") was issued and amends the existing
SEC staff guidance primarily to give effect to SFAS 128. Topic 4.D of SAB 98
essentially eliminates the cheap stock (convertible preferred stock, redeemable
convertible preferred stock, common stock and common equivalent shares issued by
the Company at prices below the initial public offering price during the twelve-
month period prior to the offering) calculation from an initial public offering.
The Company has excluded all convertible debt, convertible preferred stock,
warrants and employee stock options from the computation of basic and diluted
earnings per share because all such securities are anti-dilutive for all periods
presented.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except for per share data):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $(3,788) $(2,761) $(7,637) $(5,086)
======= ======= ======= =======
Weighted average shares outstanding.... 8,186 2,280 8,160 1,178
------- ------- ------- -------
Shares used to compute basic and diluted
net loss per share....................... 8,186 2,280 8,160 1,178
======= ======= ======= =======
Basic and diluted net loss per share...... $ (0.46) $ (1.21) $ (0.94) $ (4.32)
======= ======= ======= =======
</TABLE>
Pro forma net loss per share for 1997 has been computed as described above and
also gives effect, pursuant to SEC staff policy, to the conversion of
convertible preferred shares not included above that were converted upon
completion of the Company's initial public offering (using the "if converted"
method) from the original date of issuance.
Pro forma basic and diluted net loss per share information for the three and six
month periods ended June 30, 1997 is as follows (in thousands except for per
share data):
7
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
---------------------- ----------------------
<S> <C> <C>
Net loss................................................ $(2,761) $(5,086)
======= =======
Shares used in computing basic and diluted net loss per
share.................................................. 2,280 1,178
Adjusted to reflect assumed conversion of preferred
stock at the date of issuance.......................... 4,153 3,761
-------
Shares used in computing pro forma basic and diluted
loss per share......................................... 6,433 4,939
======= =======
Pro forma basic and diluted net loss per share.......... $ (0.43) $ (1.03)
======= =======
</TABLE>
4. LINE OF CREDIT
In June 1998, the Company secured a $3.0 million line of credit which may be
used for general working capital purposes. The payment of the line of credit is
interest only for the first six months, interest and principal for months seven
through thirty-six and a balloon payment at the end of the term, if fully
utilized. As of June 30, 1998, $3.0 million of borrowing capacity remained
available to the Company under this line of credit.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q, including management's discussion and analysis of financial
condition and results of operations, contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including,
without limitation, statements regarding regulatory approvals, operating results
and capital requirements. Except for historical information, the matters
discussed in this Form 10-Q, are forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. Such factors include the Company's ability to
conduct successful clinical trials, obtain timely regulatory approvals and gain
acceptance from the marketplace for its products, as well as the risk factors
discussed below in "Factors Affecting Future Results" and those listed from time
to time in the Company's SEC reports. The Company assumes no obligation to
update the forward-looking statements included in this Form 10-Q.
OVERVIEW
The Company
Since its incorporation in November 1992, Cardima has been engaged in the
design, research, development, manufacturing and testing of microcatheter
systems for the mapping (diagnosis) and ablation (treatment) of cardiac
arrhythmias. Cardima has generated revenues of approximately $3.4 million from
inception to June 30, 1998, which until January 1997 were primarily in Europe
and Japan, from sales of the Cardima Pathfinder and Tracer microcatheter systems
for diagnosing Ventricular Tachycardia (VT) and the Revelation microcatheter
system for diagnosing Atrial Fibrillation (AF), as well as ancillary products
such as the Venaport guiding catheters. 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 diagnosing VT. As a result, the Company has derived a
majority of its revenues in 1997 and 1998 in the United States from sales of the
Cardima Pathfinder for diagnosis of VT. In November 1997, the Company received
a 510(k) clearance in the United States and began to market and sell the
Revelation microcatheter for diagnosing AF. To date, the Company's
international sales have been made primarily through distributors who sell the
Company's products to physicians and hospitals.
The Company has obtained the right to affix the CE mark to its Cardima
Pathfinder, Tracer and Cardima Revelation microcatheter systems, permitting the
Company to market these products in the member countries of the European Union
("EU"). The Company received 510(k) clearances for the Revelation microcatheter
for mapping of AF in November 1997, for the Vueport balloon guiding catheter in
July 1998, and the Cardima Pathfinder Mini microcatheter for mapping VT in July
1998. The Company is seeking 510(k) clearance for its Tracer mapping catheter
and its Naviport deflectable tip guiding catheter. The Company will be required
to conduct clinical trials, demonstrate safety and effectiveness and obtain PMA
approval from the FDA in order to sell any of the Company's products designed
for treatment of AF or VT in the United States. Specifically, PMA approval will
be required prior to the introduction in the United States of the Revelation Tx
microcatheter system for treatment of AF or Therastream microcatheter system for
treatment of VT.
The Company has a limited history of operations and has experienced significant
operating losses since inception. The Company expects that its operating losses
will continue for the foreseeable future as the
9
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Company continues to invest substantial resources in product development,
preclinical and clinical trials, obtaining regulatory approval, sales and
marketing and manufacturing.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED 1998 AND 1997
Net Sales
Net sales for the quarter ended June 30, 1998 increased 96% to $625,000 from
$319,000 in the same period in 1997. Net sales for the six month period ended
June 30, 1998 increased 110% to $1,126,000 from $536,000 in the same period in
1997. Each of these increases is primarily due to U.S. sales of the Cardima
Pathfinder and Revelation lines of microcatheters for diagnosis of VT and AF,
respectively, following FDA clearance in January 1997 and November 1997,
respectively. U.S. sales for the quarter ended June 30, 1998 increased 119% to
$451,000 from $206,000 in the same period in 1997. U.S. sales for the six month
period ended June 30, 1998 increased 155% to $829,000 from $325,000 in the same
period in 1997.
Cost of Goods Sold
Cost of goods sold primarily includes raw materials costs, catheter fabrication
costs, system assembly, test costs and manufacturing overhead. Cost of goods
sold for the quarter ended June 30, 1998 increased 30% to $595,000 from $457,000
in the same period in 1997. Cost of goods sold for the six month period ended
June 30, 1998 increased 62% to $1,343,000 from $831,000 in the same period in
1997. The increase is due primarily to the increase in sales volume and
associated manufacturing staff additions.
Research and Development Expenses
Research and development expenses for the quarter ended June 30, 1998 increased
80% to $1,908,000 from $1,059,000 in the same period in 1997. Research and
development expenses for the six month period ended June 30, 1998 increased 91%
to $3,571,000 from $1,869,000 in the same period in 1997. The increase is due
primarily to staff additions and associated expenses in research and development
and clinical and regulatory areas incurred as the Company increased human
resources to meet development program goals and increased expenses for clinical
trials in both Europe and the U.S.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended June 30, 1998
increased 20% to $1,980,000 from $1,646,000 in the same period in 1997.
Selling, general and administrative expenses for the six month period ended June
30, 1998 increased 35% to $4,027,000 from $2,976,000 in the same period in 1997.
Selling expenses for the quarter ended June 30, 1998 increased 47% to $853,000
from $582,000 in the same period in 1997. Selling expenses for the six month
period ended June 30, 1998 increased 70% to $1,793,000 from $1,057,000 in the
same period in 1997. The increase is due primarily to costs associated with the
expansion of the Company's U.S. sales force, the ongoing establishment of a
direct sales force in several major markets in Europe and the commencement of
clinical trials, which requires training of participating physicians by sales
and clinical specialists. General and administrative expenses for the quarter
ended June 30, 1998 decreased two percent to $620,000 from $631,000 in the same
period in 1997. General and administrative expenses for the six month period
ended June 30, 1998 increased 18% to $1,286,000 from $1,094,000 in the same
period in 1997. The decrease for the quarter ended June 30, 1998 is due
primarily to lower recruiting expenses in 1998 compared to expenses incurred
10
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in the same period in 1997. The increase for the six month period ended June 30,
1998 is due primarily to additional staff and expenses related to the
requirements of a public company. Marketing expenses for the quarter ended June
30, 1998 increased 17% to $507,000 from $433,000 in the same period in 1997.
Marketing expenses for the six month period ended June 30, 1998 increased 15% to
$948,000 from $825,000 in the same period in 1997. The increase is due primarily
to additional staff and expenses related to the development of marketing
materials and programs to address new product introductions.
Interest and Other Income
Interest and other income for the quarter ended June 30, 1998 remained at the
same level of $110,000 as in the same period in 1997. Interest and other
income for the six month period ended June 30, 1998 increased to $254,000 from
$135,000 in the same period in 1997. The increase for the six month period
ended June 30, 1998 is due primarily to larger cash and cash equivalent balances
as a result of the Company's initial public offering in June 1997.
Interest Expense
Interest expense for the quarter ended June 30, 1998 increased to $40,000 from
$28,000 in the same period in 1997. Interest expense for the six month period
ended June 30, 1998 decreased to $76,000 from $81,000 in the same period in
1997. The increase for the quarter ended June 30, 1998 is due primarily to
higher borrowing levels for purchases of capital equipment. The decrease for
the six month period ended June 30, 1998, compared to the same period in 1997 is
due primarily to the conversion of all Notes Payable into shares of series E
preferred stock in March 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date principally through private
placements of equity securities, which have yielded net proceeds of $32.1
million as of June 30, 1998, together with interest income on such proceeds, an
initial public offering of Common Stock in June 1997, which yielded net proceeds
of approximately $13.6 million, and equipment leases, which have totaled $2.6
million for the acquisition of certain capital equipment. As of June 30, 1998,
the Company had approximately $5.0 million in cash and cash equivalents.
Net cash used in operating activities was approximately $7.7 million and $5.0
million for the six months ended June 30, 1998 and 1997, respectively, resulting
primarily from operating losses incurred during such periods. Net cash provided
by investing activities was approximately $3.9 million for the six months ended
June 30, 1998, which was attributable primarily to maturities and sales of
short-term investments. Net cash used was approximately $717,000 for the six
months ended June 30, 1997, which was attributable primarily to capital
expenditures. Net cash provided by financing activities was approximately
$196,000 and $25.3 million for the six months ended June 30, 1998 and 1997,
respectively, resulting primarily from the Company's financing equipment through
its established lease line, the Company's sale of equity securities in private
placement transactions and the Company's initial public offering in June 1997.
In February 1998, the Company entered into an equipment lease that permits the
Company up to $1.5 million of financing for the purchase of office and
manufacturing equipment, software and custom-built equipment. In June 1998, the
Company secured a $3.0 million line of credit which may be used for general
11
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working capital purposes. As of June 30, 1998, $1.0 million and $3.0 million of
borrowing capacity remained available to the Company under these lines. 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
believes that available cash, a line of credit and lease lines will be
sufficient to meet the Company's operating expenses and capital requirements
through the balance 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. The Company may seek 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.
FACTORS AFFECTING FUTURE RESULTS
History of Losses and Expectation of Substantial Future Losses
Since inception, the Company has experienced losses and expects to experience
substantial net losses for the foreseeable future. To date, sales of the
Company's microcatheter systems have been limited. The Company had net losses
of approximately $12.3 million and $7.8 million for the Company's fiscal years
ended 1997 and 1996, respectively, and $7.6 million for the six months ended
June 30, 1998. As of June 30, 1998, the Company had an accumulated deficit of
approximately $38.1 million. The Company expects to incur substantial net
operating 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, seeks regulatory
approvals, 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 revenue or achieve profitability. Failure by the Company
to generate substantial revenues would have a material adverse effect on the
Company's business, financial condition and results of operations.
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. In February 1998, the
12
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Company entered into an equipment lease agreement that permits the Company to
finance up to $1.5 million of office and manufacturing equipment, software and
custom built equipment. In June 1998, the Company secured a $3.0 million line of
credit which may be used for general working capital purposes. As of June 30,
1998, $1.0 million and $3.0 million of borrowing capacity remained available to
the Company under these lines. The Company believes that available cash, a line
of credit and lease lines will be sufficient to meet the Company's operating
expenses and capital requirements through the balance of 1998. 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. As a consequence, the Company
will be required to raise additional funds through public or private debt or
equity financings, collaborative relationships, bank facilities or other
arrangements. There can be no assurance that, if additional financing is needed,
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.
No Assurance of Safety and Effectiveness; Early Stage of Product Development
To date, the Company has completed two clinical trials and has received three
510(k) pre-market clearances from the FDA with respect to its Cardima Pathfinder
and Pathfinder Mini microcatheter systems for venous mapping of VT and
Revelation microcatheter system for mapping and pacing of the atria. The
Company also received 510(k) clearance for the Vueport guiding catheter in June
1998 and is seeking 510(k) clearance for its Tracer mapping catheter and its
Naviport deflectable tip guiding catheter. Failure to obtain clearances for the
Company's other diagnostic products and guiding catheters under development 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 Revelation Tx microcatheter
system for ablation of AF and the Therastream microcatheter system for ablation
of VT. The Company is required to obtain an IDE from the FDA prior to
conducting human clinical trials of its microcatheter systems for ablation. The
Company filed an IDE for clinical testing of the Revelation microcatheter system
for the mapping and ablation of AF in January 1997. The Company completed the
mapping phase of this feasibility study in August 1997 and began treating the
first patient in the ablation phase with the Revelation Tx microcatheter system
in March 1998. The Company currently expects to file an IDE to begin clinical
testing of its Therastream microcatheter system for VT ablation in 1998. The
Company must complete these clinical trials and a pivotal trial, if initiated,
prior to the filing of a 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 pre-clinical
studies or demonstrate that such products are safe and effective. In addition,
the clinical trials may identify significant technical or other obstacles to be
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
use of the Company's microcatheter systems for the ablation of AF or VT would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Uncertainty of Product and Procedure Acceptance
13
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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 defibrillators, 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. Although the Company has received regulatory clearance to market the
Cardima Pathfinder and Pathfinder Mini microcatheter systems for mapping VT and
the Revelation microcatheter system for mapping AF, none of the products
currently being developed by Cardima for ablation of AF and VT has received
regulatory approval in the United States. Even if the Company's ablation
products are successfully developed and the required regulatory approvals are
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 have a material and adverse affect on the Company's
business, financial condition and results of operations.
Risks Regarding Products and Procedures Designed for Mapping and Ablation of AF
Cardima is developing its Revelation Tx 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 Revelation Tx ablation
procedure may require the use of RF energy in both 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 may cause a stroke. Consequently, physicians may not recommend
this procedure, in which event the Revelation Tx would be unlikely to gain
market acceptance. The failure of the Company to complete development of the
Revelation Tx or to gain regulatory approval with respect to the Revelation Tx
for ablation of AF, demonstrate safety, clinical effectiveness or cost
effectiveness, gain wide market acceptance or successfully commercialize the
Revelation Tx for the mapping and ablation of AF would have a material adverse
effect on the Company's business, financial condition and results of operations.
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Risks Regarding Products and Procedures Designed for Mapping and Ablation of 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. To achieve market
acceptance, the Company will need to demonstrate the safety 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 the FDA, or be successfully commercialized in the United States 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 Therastream 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
Therastream would be unlikely to gain market acceptance. Failure of the Company
to gain market acceptance or successfully commercialize the Therastream would
have a material adverse effect on the Company's business, financial condition
and results of operations.
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 pre-clinical 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 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 pre-clinical 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 pre-market clearances or
approvals, withdrawal of marketing approvals and criminal prosecution. Any such
action would have a material adverse effect 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 up to 12 months
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from submission to obtain 510(k) clearance, but that it can take longer. The
Cardima Pathfinder and Cardima Pathfinder Mini microcatheter systems for mapping
VT and Revelation microcatheter system for mapping AF have each received 510(k)
clearance. The Company believes that its other mapping products will also be
eligible for 510(k) clearance, and has submitted a 510(k) pre-market
notification for the Tracer product. The Company has also submitted a 510(k)
pre-market notification for the Naviport deflectable tip guiding catheter. These
submissions may need to include clinical trial data. There can be no assurance,
however, that any of these types of 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 Revelation Tx and the Therastream 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 effectiveness of these
products. The Company submitted an IDE for the Revelation microcatheter system
for mapping and ablation of AF in January 1997, and completed a mapping study at
Stanford University Hospital and Massachusetts General Hospital in September
1997. In addition, the Company received conditional IDE approval in January
1998 and full approval in March 1998 for a feasibility clinical study for AF
ablation using the Revelation Tx microcatheter system. The Company expects to
file an additional IDE and begin its clinical trials for the Therastream
microcatheter system in the second half of 1998. 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
one year, 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") (which
includes elaborate testing, control, documentation and other quality assurance
procedures), 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 and TGA approval to sell the Cardima
Pathfinder, Cardima Pathfinder Mini, Revelation and Tracer for mapping in the
European Union ("EU") and Australia, respectively, to sell the Cardima
Pathfinder, Cardima Pathfinder Mini, Revelation and Tracer in Japan and to sell
the Cardima Pathfinder, Tracer, Vueport and Naviport in Canada. The Company
also received CE mark approval on August 4, 1998 to sell the Revelation
microcatheter for treatment of AF in the EU. The Company has ongoing clinical
trials in the EU for its AF ablation products, and has submitted this data to
support its application for CE mark. There can be no assurance the Company will
be successful in obtaining such approvals.
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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.
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 discoveries 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.
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
defibrillators, 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 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 ablation of AF and VT. These approaches include mapping systems using
contact mapping, single-point spatial mapping and non-contact, multi-site
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. If any of these new approaches or new products prove
to be safe and effective, the Company's products could be rendered
noncompetitive or obsolete, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
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. In addition, other companies are developing
proprietary systems for the diagnosis and treatment of cardiac arrhythmias,
including Biosense, Inc. a division of Johnson and Johnson, Cardiac Pathways,
Inc. and Endocardial Solutions, Inc. Other companies develop, market and sell
alternative approaches to the treatment of AF and VT, including Guidant
Corporation, Medtronic, Inc., and Ventritex, Inc., a subsidiary of St. Jude,
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
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treatments or the new approaches and products being developed and marketed by
its competitors. Furthermore, there can be no assurance 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.
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, 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 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 United States 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.
The Company relies on certain license agreements through which it licenses
certain technology from others, including technology of Target Therapeutics,
Inc., a subsidiary of Boston Scientific Corporation, ("Target") that is
integrated into the Company's microcatheter systems for mapping and ablation.
Under a license agreement with Target (the "Target License Agreement"), the
Company has an exclusive license (the "Target License") under certain issued
United States patents. 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
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.
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.
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
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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 be issued 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 is infringing 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.
Risks Associated with International Sales
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
Company is in the process of hiring, training and establishing a direct sales
force in certain major European markets. The ability of the Company to
effectively operate a remote sales force will require additional resources, time
and expense 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 employees, 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 a material adverse effect on the Company's business,
financial
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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, Cardima Pathfinder
Mini, Revelation and Tracer microcatheter systems, or any future product in any
foreign market.
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 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's 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.
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 for pre-clinical 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 United States sales for the
Cardima Pathfinder and Revelation microcatheter systems increase, or if the
Company receives FDA clearance or approvals for other
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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 are subject to inspections from time to time by the FDA,
State of California and 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 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.
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. The Company
has terminated several distribution arrangements in Europe and is in the process
of hiring a direct sales force in France and Germany. The Company currently has
one salesman in Germany and there can be no assurance that the Company will be
able to build a European direct sales force, that establishing such a sales
force will be cost-effective or that the Company's European sales efforts will
be successful. The Cardima Pathfinder, Pathfinder Mini, Revelation and Tracer
microcatheter systems for
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mapping of AF and VT have obtained regulatory approval in certain international
markets, and sales and marketing of these products is often conducted through
distributors. The Company received CE mark approval on August 4, 1998 to sell
the Revelation microcatheter for treatment of AF in the EU. 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,
Revelation 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 and costly 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.
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.
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,
Pathfinder Mini, Revelation 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 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.
Impact of the Year 2000 Issue on the Company's Operations
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Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000 (the
"Year 2000 Issue"). The Company is in the process of performing an assessment
of the potential impact of the Year 2000 Issue on its operations. Management is
in the process of formalizing its assessment procedures and developing a plan to
address identified issues. The Company has evaluated its financial and
accounting and inventory tracking systems and concluded that they are not
materially affected by the Year 2000 Issue. The extent, if any, of the impact
of the Year 2000 Issue on the other systems and equipment is unknown. A
corporate-wide inventory of computer applications is being performed by the
Company and is expected to be completed by the end of fiscal year 1998, after
which time the Company will attempt to remedy any issues. The Company has also
begun communications with its facilities managers to determine the impact on
building security and related equipment. There can be no assurance that all
third parties will address the Year 2000 Issue in a timely fashion, if at all.
Any Year 2000 Issue compliance problems of either the Company, its business
partners or its customers could have a material adverse effect on the Company's
business, operating results and financial condition.
23
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Changes in Securities is incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
USE OF PROCEEDS FROM REGISTERED SECURITIES
On June 6, 1997, a Registration Statement on Form S-1 (No. 333-23209)
was declared effective by the SEC pursuant to which the Company issued
2,275,000 shares of common stock. The shares were sold for the
account of the Company at a price of $7.00 per share, generating
$15,925,000 in gross proceeds to the Company. The initial public
offering was managed by Bear Stearns & Company.
From the effective date of the Registration Statement to June 30,
1998, the Company incurred approximately $1,114,750 in underwriting
discounts and commissions and approximately $2,285,609 of expenses
paid to or for the underwriters and other related expenses. The net
proceeds of the offering, after deducting the foregoing expenses, were
approximately $13,639,391.
From the effective date of the Registration Statement to June 30,
1998, the Company has used approximately $8,545,693 to fund ongoing
operations.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On May 19, 1998, the Registrant held its Annual Meeting of
Stockholders.
(b) As listed below, all of management's nominees for directors were
elected at the meeting pursuant to proxies solicited pursuant to
Regulation 14 under the Securities and Exchange Act of 1934
<TABLE>
<CAPTION>
Name of Nominee No. of Votes For No. of Votes Withheld No. of Votes Abstain
<S> <C> <C> <C>
Phillip Radlick, Ph.D. 7,173,661 0 1,235
Gabriel Vegh 7,173,661 0 1,235
Michael J.F. Du Cros 7,173,661 0 1,235
Neal Moszkowski 7,173,661 0 1,235
Charles P. Waite, Jr. 7,173,661 0 1,235
</TABLE>
c) The appointment of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending December 31, 1998 was ratified
with 7,174,896 shares voting in favor, 0 voting against, 0 shares
abstaining.
24
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Index to Exhibits.
(b) No reports on Form 8-K were filed by the Registrant during the
quarter ended June 30, 1998.
25
<PAGE>
CARDIMA, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: August 12, 1998 CARDIMA, INC.
/s/ Phillip C. Radlick, Ph.D.
-------------------------------------------------
PHILLIP C. RADLICK, Ph.D.
President, Chief Executive Officer and Director
/s/ Ronald E. Bourquin
--------------------------------------------------
RONALD E. BOURQUIN
Vice President, Chief Financial Officer and
Secretary
26
<PAGE>
CARDIMA, INC.
INDEX TO EXHIBITS FOR FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1998
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
10.25 Master Loan and Security Agreement Dated June 19, 1998, between
Registrant and Transamerica Business Credit Corp.
27.1 Financial Data Schedule
27
<PAGE>
Exhibit 10.25
MASTER LOAN AND SECURITY AGREEMENT
THIS AGREEMENT dated as of June 19, 1998, is made by Cardima, Inc.
(the "Borrower"), a Delaware corporation having its principal place of business
and chief executive office at 47266 Benicia Street, Fremont, California, 94538
in favor of Transamerica Business Credit Corporation, a Delaware corporation
(the "Lender"), having its principal office at Riverway II, West Office Tower,
9399 West Higgins Road, Rosemont, Illinois 60018.
WHEREAS, the Borrower has requested that the Lender make Loans to it
from time to time; and
WHEREAS, the Lender has agreed to make such Loans on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Lender to extend credit, the Borrower hereby agrees with the Lender as follows:
SECTION 1. DEFINITIONS.
-----------
As used herein, the following terms shall have the following meanings,
and shall be equally applicable to both the singular and plural forms of the
terms defined:
Agreement shall mean this Master Loan and Security Agreement together with all
- ---------
schedules and exhibits hereto, as amended, supplemented, or otherwise modified
from time to time.
Applicable Law shall mean the laws of the State of Illinois (or any other
- --------------
jurisdiction whose laws are mandatorily applicable notwithstanding the parties'
choice of Illinois law) or the laws of the United States of America, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
Business Day shall mean any day other than a Saturday, Sunday, or public holiday
- ------------
or the equivalent for banks in New York City.
Code shall have the meaning specified in Section 8(d).
- ----
Collateral shall have the meaning specified in Section 2.
- ----------
Collateral Access Agreement shall mean any landlord waiver, mortgagee waiver,
- ---------------------------
bailee letter, or similar acknowledgement of any warehouseman or processor in
possession of any Collateral.
Effective Date shall mean the date on which all of the conditions specified in
- --------------
Section 3.3 shall have been satisfied.
Event of Default shall mean any event specified in Section 7.
- ----------------
Financial Statements shall have the meaning specified in Section 6.1.
- --------------------
GAAP shall mean generally accepted accounting principles in the United States of
- ----
America, as in effect from time to time.
Loans shall mean the loans and financial accommodations made by the Lender to
- -----
the Borrower in accordance with the terms of this Agreement and the Notes.
<PAGE>
Loan Documents shall mean, collectively, this Agreement, the Notes, and all
- --------------
other documents, agreements, certificates, instruments, and opinions executed
and delivered in connection herewith and therewith, as the same may be modified,
extended, restated, or supplemented from time to time.
Material Adverse Change shall mean, with respect to any Person, a material
- -----------------------
adverse change in the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
Material Adverse Effect shall mean, with respect to any Person, a material
- -----------------------
adverse effect on the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
Note shall mean each Promissory Note made by the Borrower in favor of the
- ----
Lender, as amended, supplemented, or otherwise modified from time to time.
Obligations shall mean all indebtedness, obligations, and liabilities of the
- -----------
Borrower under the Notes and under this Agreement, whether on account of
principal, interest, indemnities, fees (including, without limitation,
attorneys' fees, remarketing fees, origination fees, collection fees, and all
other professionals' fees), costs, expenses, taxes, or otherwise.
Permitted Liens shall mean such of the following as to which no enforcement,
- ---------------
collection, execution, levy, or foreclosure proceeding shall have been
commenced: (a) liens for taxes, assessments, and other governmental charges or
levies or the claims or demands of landlords, carriers, warehousemen, mechanics,
laborers, materialmen, and other like Persons arising by operation of law in the
ordinary course of business for sums which are not yet due and payable, or liens
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP; (b) deposits or pledges to secure the payment of
worker's compensation, unemployment insurance, or other social security benefits
or obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business; (c) licenses, restrictions, or covenants for or on
the use of the Collateral which do not materially impair either the use of the
Collateral in the operation of the business of the Borrower or the value of the
Collateral; and (d) attachment or judgment liens that do not constitute an Event
of Default.
Person shall mean any individual, sole proprietorship, partnership, limited
- ------
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, entity, party,
or government (including any division, agency, or department thereof), and the
successors, heirs, and assigns of each.
Schedule shall mean each Schedule in the form of Schedule A hereto delivered by
- --------
the Borrower to the Lender from time to time.
Solvent means, with respect to any Person, that as of the date as to which such
- -------
Person's solvency is measured:
(a) the fair saleable value of its assets is in excess of the total
amount of its liabilities (including contingent liabilities as valued in
accordance with GAAP) as they become absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
Taxes shall have the meaning specified in Section 5.5.
- -----
2
<PAGE>
SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. To the fullest
-----------------------------------------
extent permissible under Borrower's existing agreements, the Borrower hereby
assigns and grants to the Lender a continuing general lien on, and security
interest in, all the Borrower's right, title, and interest in and to the
collateral described in the next sentence (the "Collateral") to secure the
payment and performance of all the Obligations. The collateral consists of
(i) all present and future machinery, equipment, furniture,
fixtures, leasehold improvements, conveyors, tools, materials, storage
and handling equipment, hydraulic presses, cutting equipment, computer
equipment and hardware, including central processing units, terminals,
drives, memory units, printers, keyboards, screens, peripherals and
input or output devices, molds, dies, stamps, and other equipment of
every kind and nature and wherever situated now or hereafter owned and
held for use by the Borrower or in which the Borrower may have any
interest as lessee (to the extent of such interest as of the date
hereof), together with all additions and accessions thereto, all
replacements and all accessories and parts therefore, all manuals,
blueprints, know-how, warranties and records in connection therewith
(including, without limitation, any computer software, whether on
tape, disc, card, strip or cartridge or in any other form) and all
rights against suppliers, warrantors, manufacturers, and sellers or
others in connection therewith, together with all substitutes for any
of the foregoing;
(ii) all present and future goods intended for sale, lease or
other disposition by the Borrower including, without limitation, all
raw materials, work in process, systems, accessories, spare parts,
finished goods and other retail inventory, goods in the possession of
outside processors or other third parties, consigned goods (to the
extent of the consignee's interest therein), materials, parts and
supplies of any kind, nature or description which are or might be used
in connection with the manufacture, packing, shipping, advertising,
selling or finishing of any such goods, all documents of title or
documents representing the same and all records, files and writings
(including, without limitation, any computer software, whether on
tape, disc, card, strip or cartridge or in any other form) with
respect thereto;
(iii) all of the Borrower's present and future accounts
(including rights to receive payments for goods sold or services
rendered arising out of the sale or delivery of personal property or
work done or labor performed), contract rights, agreements,
understandings, open purchase and sale orders, promissory notes,
chattel paper, documents, tax refunds, rights to receive tax refunds,
bonds, certificates, insurance policies, insurance proceeds, patents,
patent applications, copyrights (registered and unregistered),
royalties, licenses, rights to receive fees, royalties and other
payments under license agreements, permits, franchise rights,
authorizations, customer and supplier lists, rights of
indemnification, contribution and subrogation, leases, computer tapes,
programs, discs and software, trade secrets, computer service
contracts, trademarks, trade names, service marks and names, logos,
goodwill, deposits, causes of action, chooses in action, judgments,
designs, blueprints, quotations and bids, plans, specifications, sales
literature, know-how, all other general intangibles, claims against
third parties of every kind or nature, investment securities, notes,
drafts, acceptances, letters of credit and rights to receive payments
under letters of credit, deposit accounts, book accounts, prepaid
expenses, credits and reserves and all forms of obligations whatsoever
owing, instruments, documents of title, leasehold rights, including in
any goods, books, ledgers, files (including credit and project files)
and records (including tax records) with respect to any collateral or
security, together with all right, title, security and guaranties with
respect to thereto, including any right of stoppage in transit; and
(iv) all proceeds of the foregoing.
SECTION 3. THE CREDIT FACILITY.
-------------------
SECTION 3.1. BORROWINGS. Each Loan shall be in an amount not less
than $1,000,000, and in no event shall the sum of the aggregate Loans made
exceed the amount of the Lender's written
3
<PAGE>
commitment to the Borrower in effect from time to time. Notwithstanding
anything herein to the contrary, the Lender shall be obligated to make the
initial Loan and each other Loan only after the Lender, in its sole discretion,
determines that the applicable conditions for borrowing contained in Sections
3.3 and 3.4 are satisfied. The timing and financial scope of Lender's
obligation to make Loans hereunder are limited as set forth in a commitment
letter executed by Lender and Borrower, dated as of March 27, 1998 and attached
hereto as Exhibit A (the "Commitment Letter").
SECTION 3.2. APPLICATION OF PROCEEDS. The Borrower shall use the
proceeds of the Loans for its general working capital purposes.
SECTION 3.3. CONDITIONS TO INITIAL LOAN.
(a) The obligation of the Lender to make the initial Loan is subject
to the Lender's receipt of the following, each dated the date of the initial
Loan or as of an earlier date acceptable to the Lender, in form and substance
reasonably satisfactory to the Lender and its counsel:
(i) completed requests for information (Form UCC-11) listing
all effective Uniform Commercial Code financing statements naming the
Borrower as debtor and all tax lien, judgment, and litigation searches
for the Borrower as the Lender shall deem necessary or desirable;
(ii) Uniform Commercial Code financing statements (Form UCC-1)
duly executed by the Borrower (naming the Lender as secured party and
the Borrower as debtor and in form acceptable for filing in all
jurisdictions that the Lender deems necessary or desirable to perfect
the security interests granted to it hereunder) and, if applicable,
termination statements or other releases duly filed in all
jurisdictions that the Lender deems necessary or desirable to perfect
and protect the priority of the security interests granted to it
hereunder in the Collateral;
(iii) a Note duly executed by the Borrower evidencing the amount
of such Loan;
(iv) an Intellectual Property Security Agreement duly executed
by the Borrower specifically identifying and granting to the Lender a
security interest in all of the Borrower's intellectual property;
(v) a Collateral Access Agreement duly executed by the lessor
or mortgagee, as the case may be, of each premises where the
Collateral is located;
(vi) certificates of insurance required under Section 5.4 of
this Agreement together with loss payee endorsements for all such
policies naming the Lender as lender loss payee and as an additional
insured;
(vii) a copy of the resolutions of the Board of Directors of the
Borrower (or a unanimous consent of directors in lieu thereof)
authorizing the execution, delivery, and performance of this
Agreement, the other Loan Documents, and the transactions contemplated
hereby and thereby, attached to which is a certificate of the
Secretary or an Assistant Secretary of the Borrower certifying (A)
that the copy of the resolutions is true, complete, and accurate, that
such resolutions have not been amended or modified since the date of
such certification and are in full force and effect and (B) the
incumbency, names, and true signatures of the officers of the Borrower
authorized to sign the Loan Documents to which it is a party;
(viii) the opinion of counsel for the Borrower covering such
matters incident to the transactions contemplated by this Agreement as
the Lender may reasonably require; and
(ix) such other agreements and instruments as the Lender deems
necessary in its sole and absolute discretion in connection with the
transactions contemplated hereby.
4
<PAGE>
(b) There shall be no pending or, to the knowledge of the
Borrower,threatened litigation, proceeding, inquiry, or other action (i) seeking
an injunction or other restraining order, damages, or other relief with respect
to the transactions contemplated by this Agreement or the other Loan Documents
or thereby or (ii) which affects or could affect the business, prospects,
operations, assets, liabilities, or condition (financial or otherwise) of the
Borrower, except, in the case of clause (ii), where such litigation, proceeding,
inquiry, or other action could not be expected to have a Material Adverse Effect
in the judgment of the Lender.
(c) The Borrower shall have paid all fees and expenses required to be
paid by it to the Lender as of such date.
(d) The security interests in the Collateral granted in favor of the
Lender under this Agreement shall have been duly perfected and shall constitute
first priority liens to the fullest extent permissible under Borrower's existing
agreements.
SECTION 3.4. CONDITIONS PRECEDENT TO EACH LOAN. The obligation of
the Lender to make each Loan is subject to the satisfaction of the following
conditions precedent:
(a) the Lender shall have received the documents, agreements, and
instruments set forth in Section 3.3(a)(i) through (v) applicable to such Loan,
each in form and substance satisfactory to the Lender and its counsel and each
dated the date of such Loan or as of an earlier date acceptable to the Lender;
(b) all representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct on and as of the date of such
Loan as if then made, other than representations and warranties that expressly
relate solely to an earlier date, in which case they shall have been true and
correct as of such earlier date;
(c) no Event of Default or event which with the giving of notice or
the passage of time, or both, would constitute an Event of Default shall have
occurred and be continuing or would result from the making of the requested Loan
as of the date of such request; and
(d) the Borrower shall be deemed to have hereby reaffirmed and
ratified all security interests, liens, and other encumbrances heretofore
granted by the Borrower to the Lender.
SECTION 3.5. RATE ADJUSTMENT. The Lender reserves the right to
increase the interest rate applicable to any Note as of the date of such Note
proportionally to the change in the weekly average of the interest rates of
like-term U.S. Treasury Securities from the week ending February 20, 1998 to the
week preceding the date of such Note, as published in The Wall Street Journal.
As of the date of each Note, the interest rate applicable thereto will be fixed
for the term.
SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
---------------------------------------------
SECTION 4.1. GOOD STANDING; QUALIFIED TO DO BUSINESS. The
Borrower (a) is duly organized, validly existing, and in good standing under the
laws of the State of its organization, (b) has the power and authority to own
its properties and assets and to transact the businesses in which it is
presently, or proposes to be, engaged, and (c) is duly qualified and authorized
to do business and is in good standing in every jurisdiction in which the
failure to be so qualified could have a Material Adverse Effect on (i) the
Borrower, (ii) the Borrower's ability to perform its obligations under the Loan
Documents, or (iii) the rights of the Lender hereunder.
SECTION 4.2. DUE EXECUTION, ETC. The execution, delivery, and
performance by the Borrower of each of the Loan Documents to which it is a party
are within the powers of the Borrower, do not contravene the organizational
documents, if any, of the Borrower, and do not (a) violate any law or
regulation, or any order or decree of any court or governmental authority, (b)
conflict with or result in a breach of, or constitute a default under, any
material indenture, mortgage, or deed of trust or any material lease, agreement,
or other
5
<PAGE>
instrument binding on the Borrower or any of its properties, or (c) require the
consent, authorization by, or approval of or notice to or filing or registration
with any governmental authority or other Person. This Agreement is, and each of
the other Loan Documents to which the Borrower is or will be a party, when
delivered hereunder or thereunder, will be, the legal, valid, and binding
obligation of the Borrower enforceable against the Borrower in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency, or
similar laws affecting creditors' rights generally and by general principles of
equity.
SECTION 4.3. SOLVENCY; NO LIENS. The Borrower is Solvent and will
be Solvent upon the completion of all transactions contemplated to occur
hereunder (including, without limitation, the Loan to be made on the Effective
Date); to Borrower's knowledge, the security interests granted herein constitute
and shall at all times constitute the first and only liens on the Collateral
other than Permitted Liens; and the Borrower is, or will be at the time
additional Collateral is acquired by it, the absolute owner of the Collateral
with full right to pledge, sell, consign, transfer, and create a security
interest therein, free and clear of any and all claims or liens in favor of any
other Person other than Permitted Liens.
SECTION 4.4. NO JUDGMENTS, LITIGATION. No judgments are
outstanding against the Borrower nor is there now pending or, to the best of the
Borrower's knowledge after diligent inquiry, threatened any litigation,
contested claim, or governmental proceeding by or against the Borrower except
judgments and pending or threatened litigation, contested claims, and
governmental proceedings which would not, in the aggregate, have a Material
Adverse Effect on the Borrower.
SECTION 4.5. NO DEFAULTS. To its knowledge, the Borrower is not
in default or has not received a notice of default under any material contract,
lease, or commitment to which it is a party or by which it is bound. The
Borrower knows of no dispute regarding any contract, lease, or commitment which
could have a Material Adverse Effect on the Borrower.
SECTION 4.6. COLLATERAL LOCATIONS. On the date hereof, each item
of the Collateral is located at the place of business specified in the
applicable Schedule.
SECTION 4.7. NO EVENTS OF DEFAULT. No Event of Default has
occurred and is continuing nor has any event occurred which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default.
SECTION 4.8. NO LIMITATION ON LENDER'S RIGHTS. To the Company's
knowledge, except as permitted herein, none of the Collateral is subject to
contractual obligations that may restrict or inhibit the Lender's rights or
abilities to sell or dispose of the Collateral or any part thereof after the
occurrence of an Event of Default.
SECTION 4.9. PERFECTION AND PRIORITY OF SECURITY INTEREST. This
Agreement creates a valid and, upon completion of all required filings of
financing statements, perfected, and, to the Borrower's knowledge, first
priority and exclusive, security interest in the Collateral, securing the
payment of all the Obligations.
SECTION 4.10. INTENTIONALLY LEFT BLANK.
SECTION 4.11. ACCURACY AND COMPLETENESS OF INFORMATION. All data,
reports, and information heretofore, contemporaneously, or hereafter furnished
by or on behalf of the Borrower in writing to the Lender or for purposes of or
in connection with this Agreement or any other Loan Document, or any transaction
contemplated hereby or thereby, are or will be true and accurate in all material
respects on the date as of which such data, reports, and information are dated
or certified and not incomplete by omitting to state any material fact necessary
to make such data, reports, and information not misleading at such time. There
are no facts now known to the Borrower which individually or in the aggregate
would reasonably be expected to have a Material Adverse Effect and which have
not been specified herein, in the Financial Statements, or in any certificate,
opinion, or other written statement previously furnished by the Borrower to the
Lender.
6
<PAGE>
SECTION 5. COVENANTS OF THE BORROWER.
-------------------------
SECTION 5.1. EXISTENCE, ETC. The Borrower shall: (a) retain its
existence and its current yearly accounting cycle, (b) maintain in full force
and effect all licenses, bonds, franchises, leases, trademarks, patents,
contracts, and other rights necessary or desirable to the profitable conduct of
its business unless the failure to do so could not reasonably be expected to
have a Material Adverse Effect on the Borrower, (c) continue in, and limit its
operations to, the same general lines of business as those presently conducted
by it, and (d) comply with all applicable laws and regulations of any federal,
state, or local governmental authority, except for such laws and regulations the
violations of which would not, in the aggregate, have a Material Adverse Effect
on the Borrower.
SECTION 5.2. NOTICE TO THE LENDER. As soon as possible, and in
any event within five days after the Borrower learns of the following, the
Borrower will give written notice to the Lender of (a) any proceeding instituted
or threatened to be instituted by or against the Borrower in any federal, state,
local, or foreign court or before any commission or other regulatory body
(federal, state, local, or foreign) involving a sum, together with the sum
involved in all other similar proceedings, in excess of $50,000 in the
aggregate, (b) any contract that is terminated or amended and which has had or
could reasonably be expected to have a Material Adverse Effect on the Borrower,
(c) the occurrence of any Material Adverse Change with respect to the Borrower,
and (d) the occurrence of any Event of Default or event or condition which, with
notice or lapse of time or both, would constitute an Event of Default, together
with a statement of the action which the Borrower has taken or proposes to take
with respect thereto.
SECTION 5.3. MAINTENANCE OF BOOKS AND RECORDS. The Borrower will
maintain books and records pertaining to the Collateral in such detail, form,
and scope as the Lender shall require in its commercially reasonable judgment.
The Borrower agrees that the Lender or its agents may enter upon the Borrower's
premises at any time and from time to time on reasonable notice during normal
business hours, and at any time upon the occurrence and continuance of an Event
of Default, for the purpose of inspecting the Collateral and any and all records
pertaining thereto.
SECTION 5.4. INSURANCE. The Borrower will maintain insurance on
the Collateral under such policies of insurance, with such insurance companies,
in such amounts, and covering such risks as are at all times satisfactory to the
Lender. All such policies shall be made payable to the Lender, in case of loss,
under a standard non-contributory "lender" or "secured party" clause and are to
contain such other provisions as the Lender may reasonably require to protect
the Lender's interests in the Collateral and to any payments to be made under
such policies. Certificates of insurance policies are to be delivered to the
Lender, premium prepaid, with the loss payable endorsement in the Lender's
favor, and shall provide for not less than thirty days' prior written notice to
the Lender, of any alteration or cancellation of coverage. If the Borrower
fails to maintain such insurance, the Lender may arrange for (at the Borrower's
expense and without any responsibility on the Lender's part for) obtaining the
insurance. Unless the Lender shall otherwise agree with the Borrower in
writing, the Lender shall have the sole right, in the name of the Lender or the
Borrower, to file claims under any insurance policies, to receive and give
acquittance for any payments that may be payable thereunder, and to execute any
endorsements, receipts, releases, assignments, reassignments, or other documents
that may be necessary to effect the collection, compromise, or settlement of any
claims under any such insurance policies for loss or damage to the Collateral.
SECTION 5.5. TAXES. The Borrower will pay, when due, all taxes,
assessments, claims, and other charges ("Taxes") lawfully levied or assessed
against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by the
Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof, or if any lien shall be claimed therefor, then,
without notice to the Borrower, but on the Borrower's behalf, the Lender may pay
such Taxes, and the amount thereof shall be included in the Obligations.
SECTION 5.6. BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS; FEES ON
7
<PAGE>
COLLATERAL. The Borrower will defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein.
The Borrower will not permit any notice creating or otherwise relating to liens
on the Collateral or any portion thereof to exist or be on file in any public
office other than Permitted Liens. The Borrower shall promptly pay, when
payable, all transportation, storage, and warehousing charges and license fees,
registration fees, assessments, charges, permit fees, and taxes (municipal,
state, and federal) which may now or hereafter be imposed upon the ownership,
leasing, renting, possession, sale, or use of the Collateral, other than taxes
on or measured by the Lender's income and fees, assessments, charges, and taxes
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP.
SECTION 5.7. NO CHANGE OF LOCATION, STRUCTURE, OR IDENTITY. The
Borrower will not (a) change the location of its chief executive office or
establish any place of business other than those specified herein or (b) move or
permit the movement of any item of Collateral from the location specified in the
applicable Schedule, except that the Borrower may change its chief executive
office and keep Collateral at other locations within the United States provided
that the Borrower has delivered to the Lender (i) prior written notice thereof
and (ii) duly executed financing statements and other agreements and instruments
(all in form and substance satisfactory to the Lender) necessary or, in the
opinion of the Lender, desirable to perfect and maintain in favor of the Lender
a first priority security interest in the Collateral. Notwithstanding anything
to the contrary in the immediately preceding sentence, the Borrower may keep any
Collateral consisting of motor vehicles or rolling stock at any location in the
United States provided that the Lender's security interest in any such
Collateral is conspicuously marked on the certificate of title thereof and the
Borrower has complied with the provisions of Section 5.9.
SECTION 5.8. USE OF COLLATERAL; LICENSES; REPAIR. The Collateral
shall be operated by competent, qualified personnel in connection with the
Borrower's business purposes, for the purpose for which the Collateral was
designed and in accordance with applicable operating instructions, laws, and
government regulations, and the Borrower shall use every reasonable precaution
to prevent loss or damage to the Collateral from fire and other hazards. The
Collateral shall not be used or operated for personal, family, or household
purposes. The Borrower shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals, and consents required by federal,
state, or local laws or by any governmental body, agency, or authority in
connection with the delivery, installation, use, and operation of the
Collateral.
SECTION 5.9. FURTHER ASSURANCES. The Borrower will, promptly upon
request by the Lender, execute and deliver or use its best efforts to obtain any
document required by the Lender (including, without limitation, warehouseman or
processor disclaimers, mortgagee waivers, landlord disclaimers, or subordination
agreements with respect to the Obligations and the Collateral), give any
notices, execute and file any financing statements, mortgages, or other
documents (all in form and substance satisfactory to the Lender), mark any
chattel paper, deliver any chattel paper or instruments to the Lender, and take
any other actions that are necessary or, in the opinion of the Lender, desirable
to perfect or continue the perfection and the first priority of the Lender's
security interest in the Collateral, to protect the Collateral against the
rights, claims, or interests of any Persons, or to effect the purposes of this
Agreement. The Borrower hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Borrower where permitted
by law. A carbon, photographic, or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. To the extent
required under this Agreement, the Borrower will pay all costs incurred in
connection with any of the foregoing.
SECTION 5.10. NO DISPOSITION OF COLLATERAL. The Borrower will not
in any way hypothecate or create or permit to exist any lien, security interest,
charge, or encumbrance on or other interest in any of the Collateral, except for
the lien and security interest granted hereby and Permitted Liens which are
junior to the lien and security interest of the Lender, and the Borrower will
not sell, transfer, assign, pledge, collaterally assign, exchange, or otherwise
dispose of any of the Collateral. In the event the Collateral, or any part
thereof, is sold, transferred, assigned, exchanged, or otherwise disposed of in
violation of these provisions, the security interest of the Lender shall
continue in such Collateral or part thereof notwithstanding such sale, transfer,
assignment, exchange, or other disposition, and the Borrower will hold the
proceeds thereof in a separate account for the benefit
8
<PAGE>
of the Lender. Following such a sale, the Borrower will transfer such proceeds
to the Lender in kind.
SECTION 5.11. NO LIMITATION ON LENDER'S RIGHTS. The Borrower will
not enter into any contractual obligations which could be reasonably expected to
restrict or inhibit the Lender's rights or ability to sell or otherwise dispose
of the Collateral or any part thereof.
SECTION 5.12. PROTECTION OF COLLATERAL. Upon reasonable notice to
the Borrower (provided that if an Event of Default has occurred and is
continuing the Lender need not give any notice), the Lender shall have the right
at any time to make any payments and do any other acts the Lender may deem
necessary to protect its security interests in the Collateral, including,
without limitation, the rights to satisfy, purchase, contest, or compromise any
encumbrance, charge, or lien which, in the reasonable judgment of the Lender,
appears to be prior to or superior to the security interests granted hereunder,
and appear in, and defend any action or proceeding purporting to affect its
security interests in, or the value of, any of the Collateral. The Borrower
hereby agrees to reimburse the Lender for all payments made and expenses
incurred under this Agreement including fees, expenses, and disbursements of
attorneys and paralegals (including the allocated costs of in-house counsel)
acting for the Lender, including any of the foregoing payments under, or acts
taken to protect its security interests in, any of the Collateral, which amounts
shall be secured under this Agreement, and agrees it shall be bound by any
payment made or act taken by the Lender hereunder absent the Lender's gross
negligence or willful misconduct. The Lender shall have no obligation to make
any of the foregoing payments or perform any of the foregoing acts.
SECTION 5.13. DELIVERY OF ITEMS. The Borrower will (a) promptly
(but in no event later than one Business Day) after its receipt thereof, deliver
to the Lender any documents or certificates of title issued with respect to any
property included in the Collateral, and any promissory notes, letters of credit
or instruments related to or otherwise in connection with any property included
in the Collateral, which in any such case come into the possession of the
Borrower, or shall cause the issuer thereof to deliver any of the same directly
to the Lender, in each case with any necessary endorsements in favor of the
Lender and (b) deliver to the Lender as soon as available copies of any and all
press releases and other similar communications issued by the Borrower.
SECTION 5.14. SOLVENCY. The Borrower shall be and remain
Solvent at all times.
SECTION 5.15. FUNDAMENTAL CHANGES. The Borrower shall not (a)
amend or modify its name, unless the Borrower delivers to the Lender thirty days
prior to any such proposed amendment or modification written notice of such
amendment or modification and within ten days before such amendment or
modification delivers executed Uniform Commercial Code financing statements (in
form and substance satisfactory to the Lender); (b) merge or consolidate with
any other entity, without the Lender's prior written consent which shall not be
unreasonably withheld; or (c) permit a change, other than a change which results
from the sale of newly issued securities to investors, in more than 35% of the
ownership of any equity interests of the Borrower on the date hereof without the
Lender's prior written consent which shall not be unreasonably withheld. In the
event that Lender declines in writing to consent to a proposed merger,
consolidation or change in ownership, then Borrower shall have the right to
prepay the Loans without penalty.
SECTION 5.16. RIGHT OF FIRST OFFER. If and when, before the
payment and satisfaction in full of all Obligations, Borrower seeks revolving
working capital financing secured by its accounts receivable, Borrower will so
notify Lender and permit Lender to make a proposal to provide such financing.
Lender must reply to Borrower's notice within 15 days of the date of such
notice, indicating whether Lender accepts or declines to make such proposal.
Borrower will be required to accept Lender's proposal if the terms and
conditions of the proposal are no less favorable to Borrower than any other
proposal received by Borrower.
SECTION 5.17. ADDITIONAL REQUIREMENTS. The Borrower shall take all
such further actions and execute all such further documents and instruments as
the Lender may reasonably request.
SECTION 6. FINANCIAL STATEMENTS. Until the payment and satisfaction
--------------------
in full of all Obligations, the Borrower shall deliver to the Lender the
following financial information:
9
<PAGE>
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. As soon as available,
but not later than 120 days after the end of each fiscal year of the Borrower
and its consolidated subsidiaries, the consolidated balance sheet, income
statement, and statements of cash flows and shareholders equity for the Borrower
and its consolidated subsidiaries (the "Financial Statements") for such year,
reported on by independent certified public accountants without an adverse
qualification; and
SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as
available, but not later than 60 days after the end of each of the first three
fiscal quarters in any fiscal year of the Borrower and its consolidated
subsidiaries, the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Borrower that such
Financial Statements have been prepared in accordance with GAAP and are fairly
stated in all material respects (subject to normal year-end audit adjustments).
SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the
-----------------
following events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within two days after notice of
failure to pay when due any amount required to be paid by the Borrower under or
in connection with any Note and this Agreement;
(b) any representation or warranty made or deemed made by the Borrower
under or in connection with any Loan Document or any Financial Statement shall
prove to have been false or incorrect in any material respect when made;
(c) the Borrower shall fail to perform or observe (i) any of the
terms, covenants or agreements contained in Sections 5.4, 5.7, 5.10, 5.14, or
5.15 hereof or (ii) any other term, covenant, or agreement contained in any Loan
Document (other than the other Events of Default specified in this Section 7)
and such failure remains unremedied for the earlier of thirty days from (A) the
date on which the Lender has given the Borrower written notice of such failure
and (B) the date on which the Borrower knew or should have known of such
failure;
(d) any provision of any Loan Document to which the Borrower is a
party shall for any reason cease to be valid and binding on the Borrower, or the
Borrower shall so state;
(e) dissolution, liquidation, winding up, or cessation of the
Borrower's business, failure of the Borrower generally to pay its debts as they
mature, admission in writing by the Borrower of its inability generally to pay
its debts as they mature, or calling of a meeting of the Borrower's creditors
for purposes of compromising any of the Borrower's debts;
(f) the commencement by or against the Borrower of any bankruptcy,
insolvency, arrangement, reorganization, receivership, or similar proceedings
under any federal or state law and, in the case of any such involuntary
proceeding, such proceeding remains undismissed or unstayed for forty-five days
following the commencement thereof, or any action by the Borrower is taken
authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made by the
Borrower, whether voluntary or involuntary, the appointment of a trustee,
custodian, receiver, or similar official for the Borrower or for any substantial
property of the Borrower, or any action by the Borrower authorizing any such
proceeding;
(h) the Borrower shall default in (i) the payment of principal or
interest on any indebtedness in excess of $50,000 (other than the Obligations)
beyond the period of grace, if any, provided in the instrument or agreement
under which such indebtedness was created; or (ii) the observance or performance
of any other agreement or condition relating to any such indebtedness or
contained in any instrument or agreement relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such indebtedness
to cause, with the giving of notice if required, such indebtedness to become due
prior to its stated maturity; or (iii) any loan or other agreement under which
the Borrower has received financing from Transamerica Corporation or any of its
affiliates;
10
<PAGE>
(i) the Borrower suffers or sustains a Material Adverse Change;
(j) any tax lien, other than a Permitted Lien, is filed of record
against the Borrower and is not bonded or discharged within five Business Days;
(k) any judgment which has had or could reasonably be expected to have
a Material Adverse Effect on the Borrower and such judgment shall not be stayed,
vacated, bonded, or discharged within sixty days;
(l) any material covenant, agreement, or obligation, as determined in
the sole discretion of the Lender, made by the Borrower and contained in or
evidenced by any of the Loan Documents shall cease to be enforceable, or shall
be determined to be unenforceable, in accordance with its terms; the Borrower
shall deny or disaffirm the Obligations under any of the Loan Documents or any
liens granted in connection therewith; or any liens granted on any of the
Collateral in favor of the Lender shall be determined to be void, voidable, or
invalid, or shall not be given the priority contemplated by this Agreement; or
(m) more than 35% of the equity interests of the Borrower on the date
hereof become subject to any contractual, judicial, or statutory lien, charge,
security interest, or encumbrance.
SECTION 8. REMEDIES. If any Event of Default shall have occurred
--------
and be continuing:
(a) The Lender may, without prejudice to any of its other rights under
any Loan Document or Applicable Law, declare all Obligations to be immediately
due and payable (except with respect to any Event of Default set forth in
Section 7(f) hereof, in which case all Obligations shall automatically become
immediately due and payable without necessity of any declaration) without
presentment, representation, demand of payment, or protest, which are hereby
expressly waived.
(b) The Lender may take possession of the Collateral and, for that
purpose may enter, with the aid and assistance of any person or persons, any
premises where the Collateral or any part hereof is, or may be placed, and
remove the same.
(c) The obligation of the Lender, if any, to make additional Loans or
financial accommodations of any kind to the Borrower shall immediately
terminate.
(d) The Lender may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein (or in any Loan Document) or
otherwise available to it, all the rights and remedies of a secured party under
the applicable Uniform Commercial Code (the "Code") whether or not the Code
applies to the affected Collateral and also may (i) require the Borrower to, and
the Borrower hereby agrees that it will at its expense and upon request of the
Lender forthwith, assemble all or part of the Collateral as directed by the
Lender and make it available to the Lender at a place to be designated by the
Lender that is reasonably convenient to both parties and (ii) without notice
except as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Lender's offices or
elsewhere, for cash, on credit, or for future delivery, and upon such other
terms as the Lender may deem commercially reasonable. The Borrower agrees that,
to the extent notice of sale shall be required by law, at least ten days' notice
to the Borrower of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification. The
Lender shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Lender may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.
(e) All cash proceeds received by the Lender in respect of any sale
of, collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Lender, be held by the Lender as collateral for,
or then or at any time thereafter applied in whole or in part by the Lender
against, all or any part of the Obligations in such order as the Lender shall
elect. Any surplus of such cash or cash proceeds held by the Lender and
remaining after the full and final payment of all the Obligations shall be paid
over to the Borrower
11
<PAGE>
or to such other Person to which the Lender may be required under applicable
law, or directed by a court of competent jurisdiction, to make payment of such
surplus.
SECTION 9. MISCELLANEOUS PROVISIONS.
------------------------
SECTION 9.1. NOTICES. Except as otherwise provided herein, all
notices, approvals, consents, correspondence, or other communications required
or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mail,
postage prepaid, if to the Lender, then to Transamerica Technology Finance
Division, 76 Batterson Park Road, Farmington, Connecticut 06032, Attention:
Assistant Vice President, Lease Administration, with a copy to the Lender at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department, and if to the Borrower, then to Cardima,
Inc., 47266 Benicia Street, , Fremont, California 94538, Attention: Chief
Financial Officer or such other address as shall be designated by the Borrower
or the Lender to the other party in accordance herewith. All such notices and
correspondence shall be effective when received.
SECTION 9.2. HEADINGS. The headings in this Agreement are for
purposes of reference only and shall not affect the meaning or construction of
any provision of this Agreement.
SECTION 9.3. ASSIGNMENTS. The Borrower shall not have the right
to assign any Note or this Agreement or any interest therein unless the Lender
shall have given the Borrower prior written consent (which may be withheld if,
in Lender's good faith business judgment, the credit-worthiness of the assignee
is not as strong as that of the Borrower on the date hereof) and the Borrower
and its assignee shall have delivered assignment documentation in form and
substance satisfactory to the Lender in its good faith business judgment.
Lender will not withhold its consent to an assignment if, in Lender's good faith
business judgment, the assignee is a successor in interest of the Borrower, and
the assignment therefore is not made to a third party. The Lender may assign
its rights and delegate its obligations under any Note or this Agreement upon
reasonable notice to Borrower.
SECTION 9.4. AMENDMENTS, WAIVERS, AND CONSENTS. Any amendment or
waiver of any provision of this Agreement and any consent to any departure by
the Borrower from any provision of this Agreement shall be effective only by a
writing signed by the Lender and shall bind and benefit the Borrower and the
Lender and their respective successors and assigns, subject, in the case of the
Borrower, to the first sentence of Section 9.3.
SECTION 9.5. INTERPRETATION OF AGREEMENT. Time is of the essence
in each provision of this Agreement of which time is an element. All terms not
defined herein or in a Note shall have the meaning set forth in the applicable
Code, except where the context otherwise requires. To the extent a term or
provision of this Agreement conflicts with any Note, or any term or provision
thereof, and is not dealt with herein with more specificity, this Agreement
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Agreement shall not be relevant in determining the meaning of this Agreement
even though the accepting or acquiescing party had knowledge of the nature of
the performance and opportunity for objection.
SECTION 9.6. CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until the indefeasible payment in full of the Obligations,
(ii) be binding upon the Borrower and its successors and assigns and (iii)
inure, together with the rights and remedies of the Lender hereunder, to the
benefit of the Lender and its successors, transferees, and assigns.
SECTION 9.7. REINSTATEMENT. To the extent permitted by law, this
Agreement and the rights and powers granted to the Lender hereunder and under
the Loan Documents shall continue to be effective or be reinstated if at any
time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been
12
<PAGE>
made.
SECTION 9.8. SURVIVAL OF PROVISIONS. All representations,
warranties, and covenants of the Borrower contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the full
and final payment and performance by the Borrower of the Obligations secured
hereby.
SECTION 9.9. INDEMNIFICATION. The Borrower agrees to indemnify
and hold harmless the Lender and its directors, officers, agents, employees, and
counsel from and against any and all costs, expenses, claims, or liability
(except costs incurred in negotiating and executing this Agreement) incurred by
the Lender or such Person hereunder and under any other Loan Document or in
connection herewith or therewith, unless such claim or liability shall be due to
willful misconduct or gross negligence on the part of the Lender or such Person.
SECTION 9.10. COUNTERPARTS; TELECOPIED SIGNATURES. This Agreement
may be executed in counterparts, each of which when so executed and delivered
shall be an original, but both of which shall together constitute one and the
same instrument. This Agreement and each of the other Loan Documents and any
notices given in connection herewith or therewith may be executed and delivered
by telecopier or other facsimile transmission all with the same force and effect
as if the same was a fully executed and delivered original manual counterpart.
SECTION 9.11. SEVERABILITY. In case any provision in or obligation
under this Agreement or any Note or any other Loan Document shall be invalid,
illegal, or unenforceable in any jurisdiction, the validity, legality, and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 9.12. DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or
omission of the Lender to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by the Lender of any right or remedy shall
preclude any other or further exercise thereof, or preclude any other right or
remedy.
SECTION 9.13. ENTIRE AGREEMENT. The Borrower and the Lender agree
that this Agreement, the Schedule hereto, and the Commitment Letter are the
complete and exclusive statement and agreement between the parties with respect
to the subject matter hereof, superseding all proposals and prior agreements,
oral or written, and all other communications between the parties with respect
to the subject matter hereof. Should there exist any inconsistency between the
terms of the Commitment Letter and this Agreement, the terms of this Agreement
shall prevail.
SECTION 9.14. SETOFF. In addition to and not in limitation of all
rights of offset that the Lender may have under Applicable Law, and whether or
not the Lender has made any demand or the Obligations of the Borrower have
matured, the Lender shall have the right to appropriate and apply to the payment
of the Obligations of the Borrower all deposits and other obligations then or
thereafter owing by the Lender to or for the credit or the account of the
Borrower.
SECTION 9.15. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.16. GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
13
<PAGE>
SECTION 9.17. VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF
THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING, (a) ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b) THE RIGHT TO
INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS
FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH
RESPECT TO RIGHTS AND REMEDIES.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Agreement
to be duly executed and delivered by its proper and duly authorized officer as
of the date first set forth above.
CARDIMA, INC.
BY: /s/ Ronald E. Bourquin
------------------------------
NAME: Ronald E. Bourquin
TITLE: VICE PRESIDENT AND CFO
FEDERAL TAX ID: 94-3177883
ACCEPTED AS OF THE
____ DAY OF JUNE, 1998
TRANSAMERICA BUSINESS CREDIT CORPORATION
BY:
NAME:
TITLE:
14
<PAGE>
[LETTERHEAD OF TRANSAMERICA BUSINESS CREDIT]
March 27, 1998
Revised
Mr. Ronald Bourquin Exhibit A
Chief Financial Officer
Cardima, Inc.
47266 Benicia Street
Fremont, CA 94538
Dear Ron:
Transamerica Business Credit Corporation - Technology Finance Division
("Lender") is pleased to offer financing for working capital purposes described
in this letter to Cardima, Inc. ("Borrower"). This Commitment supersedes all
prior correspondence, commitments, and oral or other communications relating to
financing arrangements between Borrower and Lender.
The outline of this offer is as follows:
Borrower: Carlima, Inc.
- ---------
Lender: Transamerica Business Credit Corporation -
- ------- Technology Finance Division, or its affiliates,
successors or assigns.
Use of Proceeds: Proceeds of the Loan outlined herein will be
- ---------------- used for general working capital purposes.
Anticipated Closing Date: The Closing Date(s) is anticipated to be on or
- ------------------------- after March 31, 1998, but in no event later than
March 31, 1999.
Loan Amount: Not to exceed $3,000,000, with each advance
- ------------ (except the last) to be not less than
$1,000,000.
Collateral: To secure the loan, Lender will require a
- ----------- perfected first lien and security interest in
all assets of Borrower, now owned or hereafter
acquired, including cash, accounts receivable,
inventory, machinery, equipment, furniture,
fixtures, tools, copyrights, licenses, patents,
trademarks, tradenames, other intellectual
property, leases, leasehold improvements,
general intangibles, and all other assets.
Subject to the right of first offer set forth
below, Lender agrees that it will subordinate
its interest in accounts receivable of Borrower,
if required by a qualified lender in connection
with a working capital line of credit subject to
a subordination agreement acceptable to Lender.
<PAGE>
Interest Rate: 11.50% per annum.
- -------------
Loan Payments: Payments of interest only shall be paid monthly in
- ------------- arrears for the first 6 months of the Loan. Thereafter,
30 equal payments of principal and interest shall be
paid monthly in arrears. A final balloon payment shall
be paid at the end of month 36. Assuming a single
advance of the entire $3,000,000, payments for each of
the first 6 months would be $28,750, payments for each
of the next 30 months would be $106,961.58 and the
balloon payment at the end of month 36 would be
$300,000.
Right of First Offer: If and when, during the term of the Loan, Borrower
- -------------------- seeks revolving working capital financing secured by
its accounts receivable, Borrower will so notify Lender
and permit Lender to make a proposal to provide such
financing. Lender must reply to Borrower's notice
within 15 days of the date of such notice, indicating
whether Lender accepts or declines to make such
proposal. Borrower will be required to accept Lender's
proposal if the terms and conditions of the proposal
are no less favorable to Borrower than any other
proposal received by Borrower.
Loan Prepayment: Borrower may prepay the Loan any time after the first
- --------------- 12 months of the term. A prepayment premium of 4% of
the principal amount being prepaid will be charged for
prepayments made during months 13-24 and 2% for
prepayments made during months 25-36.
Warrant Coverage: As an inducement to the Lender to enter into this
- ---------------- financing, the Borrower will provide to Lender warrants
to acquire shares of the Borrower's common stock having
an aggregate exercise price equal to $300,000. The
exercise price per share will be the trading price of
the shares at the close of the market on the date
hereof. The warrants will be exercisable for a period
of five years. Lender will have the option to exercise
the Warrants without payment of the exercise price and
receive only that number of shares which represents the
value of the difference between the fair market value
of the shares and the exercise price (i.e. "net
issuance" or "cashless exercise").
Conditions Precedent Each Loan will be subject to the following:
- -------------------- 1. No material adverse change in the financial
to Lending: condition, operations or prospects of the Borrower
- ---------- prior to funding.
2. Completion of the documentation and final terms of
the proposed financing satisfactory to Lender and
Lender's counsel.
3. Results of all legal due diligence, including lien,
judgment and tax search and other matters Lender
may request shall be satisfactory to Lender and
Lender's counsel.
4. Lender shall receive a valid and perfected first
priority lien and security interest in the
Collateral and Lender shall have received
satisfactory evidence that there are no liens on
the Collateral except as expressly permitted
herein.
Additional Covenants: There will be no actual or threatened conflict with, or
- -------------------- violation of, any regulatory statute, standard or rule
relating to the Lessee, its present or future
2
<PAGE>
operations, or the Equipment.
<TABLE>
<CAPTION>
<S> <C>
Fees and Expenses: The Borrower will be responsible for the Lender's reasonable expenses in
- ------------------ connection with the transaction, whether or not it closes.
Law: This letter and the proposed Loan are intended to be governed by and construed
- ---- in accordance with Illinois law without regard to its conflict of law provisions.
Indemnity: Borrower agrees to indemnify and to hold harmless Lender, and its officers,
- ---------- directors and employees against all claims, damages, liabilities and expenses
which may be incurred by or asserted against any such person in connection
with or arising out of this letter and the transactions contemplated hereby, other
than claims, damages, liability, and expense resulting from such person's gross
negligence or willful misconduct.
Confidentiality: This letter is delivered to you with the understanding that neither it nor its
- ---------------- substance shall be disclosed publicly or privately to any third person except
those who are in a confidential relationship to you (such as your legal counsel
and accountants); or where the same is required by law (including all applicable
federal and state securities laws), which conditions Borrower and its agents
agree to be bound by upon acceptance of this letter.
Borrower agrees to provide camera ready artwork of typestyles and logos of the
Borrower for use in promotional material by the Lender.
Conditions of Acceptance: This Commitment Letter is intended to be summary of the most important
- ------------------------- elements of the agreement to enter into a loan transaction with Borrower, and it
is subject to all requirements and conditions contained in Loan documentation
proposed by Lender or its counsel in the course of closing the Loans described herein.
Not every provision that imposes duties, obligations, burdens, or limitations on
Borrower is contained herein, but shall be contained in the final Loan documentation
satisfactory to Lender and its counsel.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY SUIT, ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATED
TO THIS LETTER OR THE TRANSACTION DESCRIBED IN THIS LETTER.
Commitment Fee: Simultaneously with the acceptance by the Borrower of this Commitment, a non-refundable
Commitment Fee equal to 1.0% of the Loan Amount will be due the Lender, to be retained
by the Lender as compensation for the Commitment. The Application Fee previously
paid by the Borrower shall be
</TABLE>
3
<PAGE>
applied to the Commitment Fee.
Commitment Expiration: This commitment shall expire on April 3, 1998,
- ---------------------- unless prior thereto either extended in writing
by the Lender or accepted as provided below by
the Borrower.
Should you have any questions, please call me. If you wish to accept this
Commitment, please so indicate by signing and returning the enclosed duplicate
copy of this letter to me by April 3, 1998.
Yours truly,
TRANSAMERICA BUSINESS CREDIT
CORP - TECHNOLOGY FINANCE
DIVISION
By /s/ Gerald A. Michaud
---------------------------------
Gerald A. Michaud
Senior Vice President - Marketing
Accepted this 1st day of April 1998
----- -----,
CARDIMA, INC.
By /s/ Ronald E. Bourquin
-----------------------
4
<PAGE>
SECRETARY'S CERTIFICATE
I, Ronald E. Bourquin, hereby state that I am the duly elected,
acting and qualified Secretary of Cardima, Inc., a Delaware corporation (the
"Company"), and that:
(a) Through a unanimous consent in lieu of a Board of Directors
meeting of the Company, proposed in accordance with its bylaws and the laws of
said State on the 16th day of March, 1998, signed by a quorum for
the transaction of business, the following resolutions were duly and regularly
adopted:
RESOLVED, that the form, terms and provisions of all of the documents
and instruments executed by the Company with and/or in favor of Transamerica
Business Credit Corporation (the "Agreements"), and the transactions
contemplated thereby be, and the same are, in all respects approved, and that
the President, each Vice President and each other officer of the Company (the
"Authorized Persons"), or any of them, be, and they hereby are, authorized,
empowered, and directed to execute and deliver the Agreements and any and all
other agreements, documents, instruments and certificates required or desirable
in connection therewith, if necessary or advisable, with such changes as they
may deem in the best interest of the Company, and their execution and delivery
of the Agreements, and all such other agreements, documents, instruments and
certificates, shall be deemed to be conclusive evidence that the same are in
all respects authorized and approved; and be it further
RESOLVED, that the actions of any Authorized Person heretofore taken in
furtherance of the Agreements be, and hereby are, approved, adopted and ratified
in all respects.
(i) The above resolutions: (a) are not contrary to the Articles or
Certificate of Incorporation or bylaws of the Company and (b) have not been
amended, modified, rescinded or revoked and are in full force and effect on the
date hereof.
(ii) The following persons are duly qualified and acting officers
of the Company, duly elected to the offices set forth opposite their respective
names, and the signature appearing opposite the name of each such officer is his
authentic signature.
<TABLE>
<CAPTION>
Name Office Signature
<S> <C> <C>
PHIL RADLICK President/CEO /s/ ^^
- ---------------------------------- ---------------------------- -----------------------------------------
ALLAN L. ABATI Vice President, RA&QA /s/ ^^
- ---------------------------------- ---------------------------- -----------------------------------------
DUANE DICKENS Vice President, Business
Development /s/ ^^
- ---------------------------------- ---------------------------- -----------------------------------------
</TABLE>
IN WITNESS WHEREOF, I have executed this Certificate, this 23rd day of
June, 1998.
Ronald E. Bourquin
Secretary
[CORPORATE SEAL]
-1-
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT is made and entered into
as of this 19th day of June, 1998 (this "Agreement"), between CARDIMA, INC., a
Delaware corporation (the "Grantor"), with and in favor of TRANSAMERICA BUSINESS
CREDIT CORPORATION, a Delaware corporation (the "Lender").
WHEREAS, the Grantor is entering into a Master Loan and Security
Agreement dated as of even date herewith (as amended, supplemented or otherwise
modified from time to time, the "Loan Agreement"; terms which are capitalized
herein and not otherwise defined shall have the meanings given to them in the
Loan Agreement) with the Lender, pursuant to which the Lender agreed to make
loans and advances to the Grantor, subject to the terms and conditions set forth
in the Loan Agreement; and
WHEREAS, under the Loan Agreement, the Grantor has granted to the
Lender a security interest in and lien on substantially all of its assets; and
WHEREAS, it is a condition precedent to the effectiveness of the Loan
Agreement that the Grantor shall have executed and delivered this Agreement and
granted a security interest in all of the Grantor's right, title and interest in
and to all of the Intellectual Property Collateral (as hereinafter defined) in
favor of the Lender, as contemplated hereby.
NOW, THEREFORE, in consideration of the premises hereof and to induce
the Lender to enter into the Loan Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. Security for Obligations.
------------------------
(a) Security Interest in Patents. To secure the full and prompt
----------------------------
payment and performance when due (whether at stated maturity, by acceleration or
otherwise) of all of the Obligations, the Grantor hereby grants and conveys to
the Lender a first and valid security interest in, with a power of sale to the
extent permitted by law, all of its right, title and interest in the United
States and throughout the world, in and to all of the now owned and hereafter
acquired United States and foreign patents and all patent and design patent
applications, and all issues, reissues, re-examinations, continuations,
continuations-in-part or divisions thereof, and all proceeds thereof
(hereinafter collectively referred to as the "Patents"). All unexpired patents
and all currently pending patent applications in which the Grantor has an
interest are listed on Schedule A attached hereto and made a part hereof.
Subject to the provisions of Section 2(n), the Grantor hereby further grants,
assigns and conveys to the Lender a first and valid security interest, having
priority over all other security interests, in all of the right, title and
interest of the Grantor in and to all products, proceeds, income, royalties,
damages and payments now or hereafter due and payable under or in respect of all
Patents and, subject to the provisions of Section 2(n), in and to all rights
during the term of this Agreement to sue, collect and retain for the Lender's
benefit damages and payments for past or future infringements of the Patents.
(b) Security Interest in Trademarks. To secure the payment and
-------------------------------
performance of all of the Obligations, the Grantor hereby grants and conveys to
the Lender a first and valid security interest in, with a power of sale to the
extent permitted by applicable law, all of its right, title and interest, in the
United States and throughout the world, in and to all of its now owned and
hereafter acquired trademarks, service marks and trade names, and all variants
thereof (whether or not such name is the subject of a registration or an
application therefor), and all registrations and applications to register the
same, and all renewals thereof, and the goodwill of the business relating
thereto, and all proceeds thereof (hereinafter collectively referred to as the
"Trademarks"). All United States trademark registrations and all currently
pending trademark applications in which the Grantor has an interest and all
foreign trademark registrations and all currently pending trademark applications
in which the Grantor has an interest, are listed on Schedule B attached hereto
and made a part hereof. Subject to the provisions of Section 2(n),
<PAGE>
the Grantor hereby further grants to the Lender a first and valid security
interest in all of its right, title and interest in and to (i) all products,
proceeds, income, royalties, damages and payments now and hereafter due and
payable under or in respect of all Trademarks, (ii) subject to the provisions of
Section 2(n), all rights during the term of this Agreement to sue, collect and
retain for the Lender's benefit damages and payments for past or future
infringements of the Trademarks and (iii) all rights under or interest in any
trademark license agreements or service mark license agreements with any other
party, whether the Grantor is a licensee or licensor under any such license
agreement, and the right to prepare for sale and sell any and all assets now or
hereafter owned by the Grantor and now or hereafter covered by such licenses.
(c) Security Interest in Copyrights. To secure the payment and
-------------------------------
performance of all of the Obligations, the Grantor hereby grants to the Lender a
first and valid security interest in all of its right, title and interest, in
the United States and throughout the world, in and to all of its now owned and
hereafter acquired copyrights, and all registrations and applications to
register the same, all renewals thereof, any written agreement, naming the
Grantor as licensor or licensee, granting any right under any copyright, any
work which is or may be subject to copyright protection pursuant to Title 17 of
the U.S. Code, and all physical things embodying such works (including, without
limitation, copies thereof) created or otherwise used in the business of the
Grantor, and all proceeds thereof (hereinafter collectively referred to as the
"Copyrights"). All copyright registrations and all currently pending copyright
applications in which the Grantor has an interest are listed on Schedule C
attached hereto and made a part hereof. Subject to the provisions of Section
2(n), the Grantor hereby further grants to the Lender a first and valid security
interest in all of its right, title and interest in and to all products,
proceeds, income, royalties, damages and payments now and hereafter due and
payable under or in respect of all Copyrights and, subject to the provisions of
Section 2(n), in and to all rights during the term of this Agreement to sue,
collect and retain for the Lender's benefit damages and payments for past or
future infringements of the Copyrights.
(d) Security Interest in Proprietary Information. To secure the
--------------------------------------------
payment and performance of all of the Obligations, the Grantor hereby grants to
the Lender a first and valid security interest in all of its right, title and
interest, in the United States and throughout the world, in and to all of its
now owned and hereafter acquired inventions, discoveries, trade secrets,
improvements, processes, methods, formulae, applications, ideas, know-how,
customer lists, corporate and other business records, license rights,
advertising materials, operating manuals, sales literature, drawings,
specifications, descriptions, name plates, catalogues, dealer contracts,
supplier contracts, distributor agreements, confidential information, consulting
agreements, engineering contracts, proprietary information, and goodwill (and
all other assets which uniquely reflect such goodwill), and to all income,
royalties, damages and payments now and hereafter due or payable therefor or in
respect thereof (collectively, the "Proprietary Information" and, together with
the Patents, the Trademarks and the Copyrights, the "Intellectual Property
Collateral").
SECTION 2. Representations, Warranties and Covenants of the Grantor.
--------------------------------------------------------
(a) The Grantor is and will continue to be the owner of all of the
Intellectual Property Collateral, except as set forth in Schedule D, free from
any adverse claim, security interest, lien or encumbrance in favor of any Person
except for the security interest granted to the Lender and except for Permitted
Liens.
(b) None of the Intellectual Property Collateral is or shall become
subject to any Lien in favor of any Person other than the Lender and except for
any Permitted Liens, and the Grantor agrees that it shall not license, transfer,
convey or encumber any interest in or to the Intellectual Property Collateral.
Notwithstanding the foregoing, the Grantor shall be permitted to license any of
the Trademarks on a non-exclusive basis in the ordinary course of business to
(i) third parties for the sole purpose of manufacturing, marketing, advertising,
distributing, or selling goods that are not manufactured, marketed, advertised,
distributed, or sold by the Grantor, or (ii) third parties that do not
manufacture, market, advertise, distribute, or sell goods in the United States
or to others for sale in the United States. Any license of the Intellectual
Property Collateral granted by the Grantor (each, a "License") shall be in
writing and shall reserve all rights in the Grantor except those reasonably
necessary in the ordinary course of business to fulfill the permitted purposes
herein. The Grantor shall cause a copy of each License to be delivered to the
Lender within thirty (30) days of execution by all parties thereto.
2
<PAGE>
(c) Except as disclosed in Schedule D hereto, the Grantor has made no
previous assignment, transfer or agreement in conflict herewith or constituting
a present or future assignment, transfer, or encumbrance of any of the
Intellectual Property Collateral.
(d) Except as disclosed in Schedule D hereto, there is no financing
statement or other document or instrument now signed or on file in any public
office granting a security interest in or otherwise encumbering any part of the
Intellectual Property Collateral, except those showing the Lender as secured
party. So long as any Obligations remain outstanding, the Grantor will not
execute, and there will not be on file in any public office, any such financing
statement or other document or instruments, except financing statements filed or
to be filed in favor of the Lender.
(e) Subject to any limitation stated therein or in connection
therewith, all information furnished to the Lender concerning the Intellectual
Property Collateral and proceeds thereof is and will be accurate and correct in
all material respects.
(f) Except as disclosed in Schedule D hereto, to the Company's
knowledge, all Intellectual Property Collateral consisting of applications for
Patents and for registrations of Trademarks and Copyrights has been duly and
properly filed and all Intellectual Property Collateral consisting of issued or
granted Patents and of registrations of Trademarks and Copyrights (including,
without limitation, any and all renewals, reissues, continuations or divisions
thereof, as the case may be) has been duly and properly maintained.
(g) Promptly upon the receipt of an official filing receipt indicating
that a patent application or an application for registration of a trademark has
been received by the U.S. Patent and Trademark Office or an application for
registration of a copyright has been received by the U.S. Copyright Office and
upon the issuance of any patent or of any trademark or copyright registration,
the Grantor agrees to notify the Lender in writing, which notice shall identify
such patent, trademark or copyright application or patent, trademark or
copyright registration, and the Grantor shall execute all documents necessary to
perfect a security interest in such patent, trademark or copyright application
or such patent or trademark or copyright registration, and the Grantor shall
annually, or more frequently as the Lender shall request, cause an instrument
sufficient to perfect, protect or establish any Lien hereunder to be recorded in
the U.S. Patent and Trademark Office with respect to all United States patent
applications filed by it or patents issued to it during the prior calendar year
and with respect to all trademark applications filed by it or trademark
registrations issued to it during the prior calendar year, and the Grantor shall
annually, or more frequently as the Lender shall request, cause an instrument
sufficient to perfect, protect or establish any Lien hereunder to be recorded in
the U.S. Copyright Office with respect to United States copyright applications
filed by it or copyright registrations issued to it during the prior calendar
year.
(h) The Grantor shall not intentionally take any action, or permit any
action to be taken by others subject to the Grantor's control, including
licensees, or fail to take any action, or permit others subject to the Grantor's
control, including licensees, to fail to take any action, subject to the
provisions of Section 2(g), which would, in the case of any such actions or
failures to act taken singly or together, adversely affect the validity, grant
and enforceability of the security interest granted to the Lender hereunder.
Notwithstanding the foregoing, the Grantor shall be permitted to abandon any of
the Trademarks in accordance with the terms of Section 2(l).
(i) The Grantor shall promptly notify the Lender, in writing, of any
suit, action, proceeding, claim or counterclaim brought against the Grantor that
would reasonably be expected to affect adversely the Intellectual Property
Collateral, and shall, on request, deliver to the Lender a copy of all
pleadings, papers, orders or decrees theretofore and thereafter filed in any
such suit, action or proceeding, and shall keep the Lender duly advised in
writing of the progress of any such suit.
(j) To the best knowledge and belief of the Grantor, no infringement
or unauthorized use presently is being made of any Intellectual Property
Collateral. The Grantor has advised the Lender of its trademark monitoring and
enforcement program. In the event of any material infringement of the
3
<PAGE>
Intellectual Property Collateral by others or in the event of any other conduct
detrimental to the Intellectual Property Collateral by others known or brought
to the attention of the Grantor, the Grantor shall promptly notify the Lender in
writing at its address set forth in Section 5(a) of such infringement or other
conduct and the full nature, extent, evidence and facts of such infringement or
other conduct known to the Grantor.
(k) If requested by the Lender, the Grantor shall provide the Lender a
complete status report of all Intellectual Property Collateral. Upon request by
the Lender, the Grantor shall deliver to counsel for the Lender copies of any
such Intellectual Property Collateral and other documents concerning or related
to the prosecution, protection, maintenance, enforcement and issuance of the
Intellectual Property Collateral.
(l) The Grantor shall notify the Lender in writing at the address set
forth in Section 5(a) prior to any proposed voluntary abandonment (which is not
in furtherance of an application for another Patent) of any Intellectual
Property Collateral (other than items of Intellectual Property Collateral that
are not useful or beneficial to the business and operations of the Grantor) and
obtain the prior written consent of the Lender to such abandonment.
(m) During the term of this Agreement, the Grantor agrees:
(i) whenever any of the registered Trademarks are used by or
on behalf of the Grantor, if reasonably practicable, to affix or cause
to be affixed a notice that the mark is a registered trademark or
service mark, which notice shall be in a form accepted or required by
the trademark marking laws of each country in which the mark is so
used and registered; and
(ii) whenever any of the underlying works covered by
registered Copyrights are used by or on behalf of the Grantor, if
reasonably practicable, to affix or cause to be affixed a notice that
said underlying works are so covered, which notice shall be in a form
accepted or required by the copyright laws of such country in which
said underlying works are so used and registered.
(n) Subject to the provisions of Section 4(g), during the term of
this Agreement, all income, royalties, payments and damages due and payable to
the Grantor under or in respect of the Intellectual Property Collateral shall be
paid to the Grantor.
(o) The Grantor agrees, upon the reasonable request by the Lender,
during the term of this Agreement:
(i) to execute, acknowledge and deliver all additional
instruments and documents necessary or desirable to effect the
purposes and intents of this Agreement, in a form reasonably
acceptable to counsel for the Lender; and
(ii) to do all such other acts as may be necessary or
appropriate to carry out the purposes and intents of this Agreement,
and to create, evidence, perfect and continue the security interests
of the Lender in the Intellectual Property Collateral.
SECTION 3. Indemnity. The Grantor agrees to indemnify the Lender
---------
from and against any and all claims, losses and liabilities arising out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement and any actions taken pursuant to Section 4 or any failure to act
thereunder).
SECTION 4. Rights and Remedies Upon an Event of Default.
--------------------------------------------
(a) If any Event of Default shall have occurred and be continuing,
then and in every such case, subject to any mandatory Requirements of Law, the
Lender, in addition to other rights and remedies provided for herein and any
rights now or hereafter existing under applicable law, shall have all rights and
remedies as a secured creditor under the Uniform Commercial Code in all relevant
jurisdictions and may:
4
<PAGE>
(i) personally, or by agents or attorneys, immediately take
possession of the Intellectual Property Collateral or any part
thereof, from the Grantor or any other Person who then has possession
of any part thereof, with or without notice or process of law, and for
that purpose may enter upon the Grantor's premises where any of the
Intellectual Property Collateral is located and remove the same and
use in connection with such removal any and all services, supplies,
aids and other facilities of the Grantor; and
(ii) sell, assign or otherwise liquidate, or direct the
Grantor to sell, assign or otherwise liquidate, any or all of the
Intellectual Property Collateral or any part thereof, and take
possession of the proceeds of any such sale or liquidation;
(b) Any collateral repossessed by the Lender under or pursuant
to Section 4(a), may be sold, assigned, leased or otherwise disposed of under
one or more contracts or as an entirety, and without the necessity of gathering
at the place of sale the property to be sold, and in general in such manner, at
such time or times, at such place or places and on such terms as the Lender may,
in compliance with any Requirements of Law, determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceedings permitted by such requirements shall be made upon not less than 30
days' written notice to the Grantor specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor, and shall be subject, for the 10 days after the giving of such notice,
to the right of the Grantor or any nominee of the Grantor to acquire the
Intellectual Property Collateral involved at a price or for such other
consideration at least equal to the intended sale price or other consideration
so specified. Any such disposition which shall be a public sale permitted by
such requirements shall be made upon not less than 30 days' written notice to
the Grantor specifying the time and place of such sale and, in the absence of
applicable Requirements of Law, shall be by public auction (which may, at the
option of the Lender, be subject to reserve), after publication of notice of
such auction not less than 10 days prior thereto in two newspapers of general
circulation in the jurisdiction in which such auction is to be held. To the
extent permitted by any such Requirements of Law, the Lender may bid for and
become the purchaser of the Intellectual Property Collateral or any item
thereof, offered for sale in accordance with this Section without accountability
to the Grantor (except to the extent of surplus money received). If, under
mandatory Requirements of Law, the Lender shall be required to make disposition
of the Intellectual Property Collateral within a period of time which does not
permit the giving of notice to the Grantor as hereinabove specified, the Lender
need give the Grantor only such notice of disposition as shall be reasonably
practicable in view of such mandatory Requirements of Law. The Lender shall not
be obligated to make any sale of Intellectual Property Collateral regardless of
notice of sale having been given. The Lender may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.
(c) Upon the occurrence and continuance of an Event of Default,
the Lender shall have the right at any time to make any payments and do any
other acts the Lender may deem necessary to protect its security interests in
the Intellectual Property Collateral, including, without limitation, the rights
to pay, purchase, contest or compromise any Lien which, in the reasonable
judgment of the Lender, appears to be prior to or superior to the security
interests granted hereunder, and appear in and defend any action or proceeding
purporting to affect its security interests in, or the value of, the
Intellectual Property Collateral. The Grantor hereby agrees to reimburse the
Lender for all payments made and expenses incurred under this Agreement
including reasonable fees, expenses and disbursements of attorneys and
paralegals acting for the Lender, including any of the foregoing payments under,
or acts taken to protect its security interests in, the Intellectual Property
Collateral, which amounts shall be secured under this Agreement, and agrees it
shall be bound by any payment made or act taken by the Lender hereunder absent
the Lender's gross negligence or willful misconduct. The Lender shall have no
obligation to make any of the foregoing payments or perform any of the foregoing
acts.
(d) The Grantor hereby irrevocably authorizes and appoints the
Lender, or any Person or agent the Lender may designate, as the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor and
in the name of the Grantor or otherwise, at the Grantor's cost and expense, in
the Lender's discretion, to take any action and to execute any instrument that
the Lender may deem necessary or advisable to
5
<PAGE>
accomplish the purposes and intents of this Agreement and to exercise all of the
following powers upon and at any time after the occurrence and during the
continuance of an Event of Default, which powers, being coupled with an
interest, shall be irrevocable until all of the Obligations shall have been paid
and satisfied in full:
(i) ask for, demand, collect, bring suit, recover,
compromise, administer, accelerate or extend the time of payment,
issue credits, compromise, receive and give acquittance and receipts
for moneys due and to become due under or in respect of any of the
Intellectual Property Collateral;
(ii) receive, take, endorse, negotiate, sign, assign and
deliver and collect any checks, notes, drafts or other instruments,
documents and chattel paper, in connection with clause (i) above;
(iii) receive, open and dispose of all mail addressed to the
Grantor and notify postal authorities to change the address for
delivery thereof to such address as the Lender may designate;
(iv) give customers indebted on the Intellectual Property
Collateral notice of the Lender's interest therein, or to instruct
such customers to make payment directly to the Lender for the
Grantor's account or to request, at any time from customers indebted
on the Intellectual Property Collateral, verification of information
concerning the Intellectual Property Collateral and the amounts owing
thereon;
(v) convey any item of Intellectual Property Collateral to
any purchaser thereof;
(vi) record any instruments under Section 2(g) hereof;
(vii) make any payments or take any acts under Section 4(c)
hereof; and
(viii) file any claims or take any action or institute any
proceedings that the Lender may reasonably deem necessary or desirable
for the collection of any of the Intellectual Property Collateral or
otherwise to enforce the rights of the Lender with respect to any of
the Intellectual Property Collateral.
The Lender's authority under this Section 4(d) shall include, without
limitation, the authority to execute and give receipt for any certificate of
ownership or any document, transfer title to any item of Intellectual Property
Collateral, sign the Grantor's name on all financing statements or any other
documents deemed necessary or appropriate to preserve, protect or perfect the
security interest in the Intellectual Property Collateral and to file the same,
prepare, file and sign the Grantor's name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with any Intellectual
Property Collateral and prepare, file and sign the Grantor's name on a proof of
claim in bankruptcy or similar document against any customer of the Grantor, and
to take any other actions arising from or incident to the rights, powers and
remedies granted to the Lender in this Agreement. This power of attorney is
coupled with an interest and is irrevocable by the Grantor.
(e) All cash proceeds received by the Lender in respect of any
sale of, collection from, or other realization upon all or any part of the
Intellectual Property Collateral shall be applied by the Lender against the
Obligations in such order as the Lender may determine.
(f) The Lender shall have the right of setoff with respect to
the Intellectual Property Collateral as provided Section 9.14 of the Loan
Agreement.
(g) Upon the occurrence and during the continuance of an Event
of Default, all income, royalties, payments and damages under or in respect of
the Intellectual Property Collateral, if any, received thereafter shall be held
by the Grantor in trust for the benefit of the Lender, separate from the
Grantor's own property or funds and immediately turned over to the Lender with
proper assignments or endorsements. Upon the
6
<PAGE>
occurrence and during the continuance of an Event of Default, the Lender shall
have the right to notify payors of income, royalties, payments and damages under
or in respect of the Intellectual Property Collateral to make payment directly
to the Lender.
(h) Each and every right, power and remedy hereby specifically given
to the Lender shall be in addition to every other right, power and remedy
specifically given under this Agreement or under the other Loan Documents or now
or hereafter existing at law or in equity, or by statute, and each and every
right, power and remedy whether specifically herein given or otherwise existing
may be exercised from time to time or simultaneously and as often and in such
order as may be deemed expedient by the Lender. All such rights, powers and
remedies shall be cumulative and the exercise or the beginning of exercise of
one shall not be deemed a waiver of the right to exercise of any other or
others. No delay or omission of the Lender in the exercise of any such right,
power or remedy and no renewal or extension of any of the Obligations shall
impair any such right, power or remedy or shall be construed to be a waiver of
any Default or Event of Default or any acquiescence therein.
SECTION 5. General Provisions.
------------------
(a) Notices. All notices, approvals, consents or other communications
-------
required or desired to be given hereunder shall be in writing and sent by
certified or registered mail, return receipt requested, by overnight delivery
service, with all charges prepaid, or by telecopier followed by a hard copy sent
by regular mail, if to the Lender, then to Transamerica Business Credit
Corporation, 76 Batterson Road, Farmington, Connecticut 06032, Telecopy: (860)
677-6766, Attn.: Gregory Clark, Esq., and if to the Grantor, then to Cardima,
Inc. 47266 Benicia Street, Fremont, California, 94538, Telecopy: (510) 657 -
4476, Attn.: Mr. Ronald Bourquin, Chief Financial Officer. All such notices
and correspondence shall be deemed given (i) if sent by certified or registered
mail, three Business Days after being postmarked, (ii) if sent by overnight
delivery service, when received at the above stated addresses or when delivery
is refused and (iii) if sent by telecopier transmission, when receipt of such
transmission is acknowledged.
(b) Headings. The headings in this Agreement are for purposes of
--------
reference only and shall not affect the meaning or construction of any provision
of this Agreement.
(c) Severability. The provisions of this Agreement are severable,
------------
and if any clause or provision shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
affect, in that jurisdiction only, such clause or provision, or part thereof,
and shall not in any manner affect such clause or provision in any other
jurisdiction or any other clause or provision of this Agreement in any
jurisdiction.
(d) Amendments, Waivers and Consents. Any amendment or waiver of any
--------------------------------
provision of this Agreement and any consent to any departure by the Grantor from
any provision of this Agreement shall not be effective unless the same shall be
in writing and signed by the Grantor and the Lender and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
(e) Interpretation. Time is of the essence in each provision of this
--------------
Agreement of which time is an element. All terms not defined herein or in the
Loan Agreement shall have the meaning set forth in the Code, except where the
context otherwise requires. To the extent a term or provision of this Agreement
conflicts with the Loan Agreement and is not dealt with herein with more
specificity, the Loan Agreement shall control with respect to the subject matter
of such term or provision. Acceptance of or acquiescence in a course of
performance rendered under this Agreement shall not be relevant in determining
the meaning of this Agreement even though the accepting or acquiescing party had
knowledge of the nature of the performance and opportunity for objection.
7
<PAGE>
(f) Continuing Security Interest. This Agreement shall create a
----------------------------
continuing security interest in the Intellectual Property Collateral and shall
(i) remain in full force and effect until the payment in full in cash of the
Obligations and the termination of the Loan Agreement, (ii) be binding upon the
Grantor and its successors and assigns and (iii) inure, together with the rights
and remedies of the Lender, to the Lender's successors, transferees and assigns.
Without limiting the generality of the foregoing clause (iii), the Lender may,
in accordance with the terms of the Loan Agreement, assign or otherwise transfer
all or any portion of its rights and obligations under the Loan Documents
(including, without limitation, all or any portion of any Loans or any Notes
held by it) to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to the Lender herein or
otherwise, in each case as provided in the Loan Agreement.
(g) Reinstatement. To the extent permitted by law, this Agreement
-------------
shall continue to be effective or be reinstated if at any time any amount
received by the Lender in respect of the Obligations is rescinded or must
otherwise be restored or returned by the Lender because the Grantor is the
subject of an Insolvency Event, all as though such payments had not been made.
(h) Survival of Provisions. All representations, warranties and
----------------------
covenants of the Grantor contained herein shall survive the execution and
delivery of this Agreement, and shall terminate only upon the full and final
payment and performance by the Grantor of the Obligations secured hereby and
termination of the Loan Agreement and the other Loan Documents.
(i) Lender May Perform. If the Grantor fails to perform any
------------------
agreement contained herein, the Lender may itself perform, or cause performance
of, such agreement, and the expenses of the Lender incurred in connection
therewith shall be payable by the Grantor and shall constitute Obligations
secured by this Agreement.
(j) No Duty on Lender. The powers conferred on the Lender hereunder
-----------------
are solely to protect the interest of the Lenders in the Intellectual Property
Collateral and shall not impose any duty upon the Lender to exercise any such
powers. Except for the safe custody of any Intellectual Property Collateral in
its possession and the accounting for money actually received by it hereunder,
the Lender shall have no duty as to any Intellectual Property Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters related to any Intellectual Property
Collateral, whether or not the Lender has or is deemed to have knowledge of such
matters, or as to the taking of any necessary steps to preserve rights against
any Person or any other rights pertaining to any Intellectual Property
Collateral. The Lender shall be deemed to have exercised reasonable care in the
custody and preservation of any Intellectual Property Collateral in its
possession if such Intellectual Property Collateral is accorded treatment
substantially equal to that which the Lender accords its own property. To the
extent the Intellectual Property Collateral is held by a custodian, the Lender
shall be deemed to have exercised reasonable care if it has selected the
custodian with reasonable care.
(k) Delays; Partial Exercise of Remedies. No delay or omission of the
------------------------------------
Lender to exercise any right or remedy hereunder, whether before or after the
happening of any Event of Default, shall impair any such right or shall operate
as a waiver thereof or as a waiver of any such Event of Default. No single or
partial exercise by the Lender of any right or remedy shall preclude any other
or further exercise thereof, or preclude any other right or remedy.
(l) Release; Termination of Agreement. Subject to the provisions
---------------------------------
of subsection (g) hereof, upon the payment in full of the Obligations and the
termination of the Loan Agreement, this Agreement shall terminate and all rights
in the Intellectual Property Collateral shall revert to the Grantor. At such
time, the Lender shall, upon the request and at the expense of the Grantor, (A)
execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination and (B) reassign and redeliver
to the Grantor all of the Intellectual Property Collateral hereunder which has
not been sold, disposed of, retained or applied by the Lender in accordance with
the terms hereof. Such reassignment and redelivery shall be without warranty by
or recourse to the Lender, except as to the absence of any prior assignments by
the Lender of its interest in the Intellectual Property Collateral.
8
<PAGE>
(m) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but both of which shall
together constitute one and the same agreement.
(n) GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
-------------
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES, EXCEPT TO THE EXTENT THAT FEDERAL
LAW IS APPLICABLE.
(o) SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE GRANTOR AND
--------------------------
THE LENDER, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS AND THE
COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE
LENDER SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED
BY THE LENDER IN GOOD FAITH TO ENABLE THE LENDER TO REALIZE ON SUCH PROPERTY, OR
TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE LENDER. THE GRANTOR
AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-
CLAIMS IN ANY PROCEEDING BROUGHT BY THE LENDER. THE GRANTOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE LENDER HAS
COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
(p) JURY TRIAL. THE GRANTOR AND THE LENDER EACH HEREBY WAIVES TO THE
----------
FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
causing this Agreement to be signed by their respective duly authorized officers
on the day and year first above written.
CARDIMA, INC.
By: /s/ Ronald E. Bourquin
-------------------------------
Name: Ronald E. Bourquin
Title: Vice President and CFO
Accepted and Agreed as of the
date first above written:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By:_______________________________
Name:
Title:
9
<PAGE>
Schedule A
Patents and Patent Applications
-------------------------------
<PAGE>
CARDIMA, INC.
PATENT AND TRADEMARK STATUS REPORT
DOMESTIC AND FOREIGN
MARCH 1998
PATENTS
-------
INVENTION DISCLOSURES...............1
PENDING U.S. APPLICATIONS.........2-3
ISSUED U.S. PATENTS ................4
PENDING FOREIGN APPLICATIONS .......5
ABANDONED APPLICATIONS ...........6-7
TRADEMARKS
PENDING U.S. APPLICATIONS ..........8
PENDING FOREIGN APPLICATIONS........9
ABANDONED APPLICATIONS.............10
INACTIVE APPLICATIONS .............11
CONFIDENTIAL
ATTORNEY-CLIENT PRIVILEGE
Prepared by:
HELLER EHRMAN WHITE & MCAULIFFE
525 University Avenue
Palo Alto, California 94301-1900
(650) 324-7000
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CARDIMA, INC.
PATENT STATUS REPORT
MARCH 1998
INVENTION DISCLOSURES
- ---------------------------------------------------------------------------------------------------------------
HEWM No. LDM No. Title Inventors
<S> <C> <C> <C>
22963-1240 CDM 0032.0 LINEAR ABLATION ASSEMBLY A. Schaer
- ---------------------------------------------------------------------------------------------------------------
22963-1250 CDM 0033.0 ABLATION ASSEMBLY WITH LOOPED ELECTROPHYSIOLOGY DEVICE R. Hill
A. Schaer
- ---------------------------------------------------------------------------------------------------------------
22963-1270 CDM 0034.0 EP CATHETER A. Schaer
- ---------------------------------------------------------------------------------------------------------------
22963-1290 CDM 0036.0 FLEXIBLE MICRO-ABLATION CATHETER WITH MULTIPLE E. R. Hill
ELECTRODES AND PRE-FORMED CORE WIRE
- ---------------------------------------------------------------------------------------------------------------
22963-1300 CDM 0037.0 RF GENERATOR D. Carner
- ---------------------------------------------------------------------------------------------------------------
22963-1310 CDM 0038.0 SWITCH CONTROL DEVICE D. Carner
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
HEWM No. Prosecution History Status
- ------------------------------------------------------------------------------------------
<S> <C> <C>
22963-1240 CIP 08/629,057, 4/8/96 (1180) Sent draft Appin for review 12/31/97
Sent follow-up 2/10/98 and 3/9/98
- ------------------------------------------------------------------------------------------
22963-1250 Sent letter 12/22/97
Invention has patentable merit.
- ------------------------------------------------------------------------------------------
22963-1270 Sent Appin for signature 01/05/98
Sent follow-up 2/10/98 and 3/9/98
- ------------------------------------------------------------------------------------------
22963-1290
- ------------------------------------------------------------------------------------------
22963-1300
- ------------------------------------------------------------------------------------------
22963-1310 Received disclosure 2/23/98
- ------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CARDIMA INC.
PATENT STATUS REPORT
MARCH 1998
PENDING U.S. APPLICATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
HEWM NO. CDM NO. SERIAL NO. FILED TITLE INVENTORS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
22963-1033 CDM 0006.3 08/763.202 12/11/96 INTRAVASCULAR SENSING DEVICE L. Littmann
G. Samson
G. Vegh
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1034 CDM 0006.4 08/963.771 11/04/97 INTRAVASCULAR SENSING DEVICE L. Littmann
G. Samson
G. Vegh
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1042 CDM 0007.2 08/667,394 06/21/96 INTRAVASCULAR METHOD AND SYSTEM R. Sung
FOR TREATING ARRHYTHMIA G. Samson
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1043 CDM 0007.3 08/968,147 11/12/97 INTRAVASCUALR METHOD AND DEVICE S. Ruey
FOR OCCLUDING A BODY LUMEN G. Samson
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1051 CDM 0008.1 08/582,600 01/03/96 INTRAVASCULAR RF OCCLUSION D. Dickens
CATHETER G. Samson
R. Sung
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1061 CDM 0009.1 01/13/98 METHOD AND SYSTEM FOR USING L. Littmann
MULTIPLE INTRAVASCULAR SENSING D. Dickens
DEVICES TO DETECT ELECTRICAL
ACTIVITY
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1080 CDM 0012.0 08/695,986 08/15/96 INTRALUMINAL DELIVERY OF TISSUE T. Morley
LYSING MEDIUM P. Wang
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1081 CDM 0012.1 02/13/98 INSTRALUMINAL DELIVERY OF TISSUE T. Morley
LYSING MEDIUM P. Wang
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
HEWM NO. PROSECUTION HISTORY STATUS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
22963-1033 CON of 08/482,120 6/7/95, ABA (1031);
CON 08/188,619, 1/27/94, 5/509,411 (1030);
CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043/449, 4/5/93, ABA (1010); and
CIP 08/057,294, 6/5/93, ABA (1020)
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1034 CON 08/636,509, 4/19/96, 5,682,885 (1032);
CON 08/188,619, 1/27/94, 5/509,411 (1030);
CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043,449 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1042 DIV 08/188,384, 1/27/94, 5,645,082 (1040); Response/Term Discl filed
CIP 08/010,818, 1/29/93, ABA (1000); and 1/13/98
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1043 CON 08/482,126 6/7/95, 5885,322 (1041);
DIV 08/188,384, 1/27/94, 5,645,082 (1040);
CIP 08/010,818 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1051 CON 08/207,918, 3/8/94, ABA (1050) Response filed 3/10/98
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1061 CON 8/188,298, 1/27/94, 5,706,809 (1060);
CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1080 Issue Fee paid 2/17/98
- ----------------------------------------------------------------------------------------------------------------------------------
22963-1081 CON 08/695,986, 8/15/96 (1080)
- ----------------------------------------------------------------------------------------------------------------------------------
Page 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CARDIMA, INC.
PATENT STATUS REPORT
MARCH 1998
PENDING U.S. APPLICATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
HENM NO. CDM NO. SERIAL NO. FILED TITLE INVENTOR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
22963-1090 CDM 0013.0 08/242,549 05/13/94 CATHETER WITH DEFLECTABLE DISTAL A. Schaer
SECTION D. Dickens
- ------------------------------------------------------------------------------------------------------------------------------------
22963-1111 CDM 0017.1 08/466,132 06/07/95 HIGH RESOLUTION INTRAVAS-CULAR L. Littmann
SIGNAL DETECTION L. Lau
O. Amirana
- ------------------------------------------------------------------------------------------------------------------------------------
22963-1131 CDM 0021.1 08/858,297 05/19/97 GUIDING CATHETER FOR THE Y. Randolf
CORONARY SINUS D. Dickens
- ------------------------------------------------------------------------------------------------------------------------------------
22963-1140 CDM 0022.0 08/447,351 05/23/95 OVER-THE-WIRE EP CATHETER A. Schaer
- ------------------------------------------------------------------------------------------------------------------------------------
22963-1142 CDM 0022.2 08/944,896 10/06/97 OVER-THE-WIRE EP CATHETER A. Schaer
- ------------------------------------------------------------------------------------------------------------------------------------
22963-1180 CDM 0026.0 08/629,057 04/08/96 LINEAR ABLATION ASSEMBLY A. Schaer
- ------------------------------------------------------------------------------------------------------------------------------------
22963-1200 CDM 0028.0 08/659,769 06/06/98 LINEAR ABLATION DEVICE AND A. Schaer
ASSEMBLY
- ------------------------------------------------------------------------------------------------------------------------------------
22963-1210 CDM 0029.0 12/30/97 DEFLECTABLE GUIDING CATHETER J. Qin
D. Dickens
L. Schaller
- ------------------------------------------------------------------------------------------------------------------------------------
22963-1230 CDM 0031.0 08/813,505 03/07/97 OVER-THE-WIRE EP CATHETER A. Schaer
- ------------------------------------------------------------------------------------------------------------------------------------
22963-1280 CDM 0035.0 03/12/98 PROTECTED PIN CONNECTOR FOR AN V. Barajas
ELECTROPHYSIOLOGY CATHETER
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
HENM NO. PROSECUTION HISTORY STATUS
- ------------------------------------------------------------------------------------------------
<S> <S> <C>
22963-1090 Request to Withdraw Notice
of Abandonment Refiled:
1/20/98
- ------------------------------------------------------------------------------------------------
22963-1111 DIV 08/443,657, 5/18/95, 5,699,796 (1110) Final Response filed:
CIP 08/188,619, 1/27/94, 5,509,411 (1030) 2/23/98
CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- ------------------------------------------------------------------------------------------------
22963-1131 CON 08/484,715, 6/7/05, ABA (1130) Issue Fee paid: 11/12/97
- ------------------------------------------------------------------------------------------------
22963-1140 Issue Fee due: 4/22/98
- ------------------------------------------------------------------------------------------------
22963-1142 CON 08/473,525, 6/7/95, ABA (1141);
DIV 08/447,351, 5/23/95 (1140)
- ------------------------------------------------------------------------------------------------
22963-1180 Notice of Appeal due:
5/6/98
- ------------------------------------------------------------------------------------------------
22963-1200 CIP 08,629,057, 4/8/96 (1180)
- ------------------------------------------------------------------------------------------------
22963-1210
- ------------------------------------------------------------------------------------------------
22963-1230 CIP 08/447,351, 5/23/95 (1140)
- ------------------------------------------------------------------------------------------------
22963-1280
- ------------------------------------------------------------------------------------------------
</TABLE>
Page 3
<PAGE>
CARDIMA, INC.
PATENT STATUS REPORT
MARCH 1998
ISSUED U.S. PATENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
HEWM NO. CDM NO. SERIAL NO. FILED TITLE INVENTORS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
22963-1030 CDM 0006.0 08/188.619 01/27/94 INTRAVASCULAR SENSING DEVICE L. Littmann
G. Samson
G. Vegh
- -------------------------------------------------------------------------------------------------------
22963-1032 CDM 0006.2 08/636,509 04/19/96 INTRAVASCULAR SENSING DEVICE L. Littmann
G. Samson
G. Vegh
- -------------------------------------------------------------------------------------------------------
22963-1040 CDM 0007.0 08/188,384 01/27/94 INTRAVASCULAR METHOD AND R. Sung
SYSTEM FOR TREATING G. Samson
ARRHYTHMIA
- -------------------------------------------------------------------------------------------------------
22963-1041 CDM 0007.1 08/482,126 06/07/95 INTRAVASCULAR METHOD R. Sung
AND SYSTEM FOR TREATING G. Samson
ARRHYTHMIA
- -------------------------------------------------------------------------------------------------------
22963-1060 CDM 0009.0 08/188,298 01/27/94 METHOD AND SYSTEM FOR USING L. Littmann
MULTIPLE INTRAVASCULAR SENSING D. Dickens
DEVICES TO DETECT ELECTRICAL
ACTIVITY
- -------------------------------------------------------------------------------------------------------
22963-1110 CDM 0017.0 08/443,657 05/18/95 HIGH RESOLUTION INSTRAVASCULAR L. Littmann
SIGNAL DETECTION L. Lau
O. Amirana
- -------------------------------------------------------------------------------------------------------
22963-1113 CDM 0017.3 08/805,901 02/24/97 HIGH RESOLUTION INTRAVASCULAR L. Littmann
SIGNAL DETECTION L. Lau
O. Amirana
- -------------------------------------------------------------------------------------------------------
22963-1121 CDM 0019.1 08/353,529 12/08/94 SHEATHED MULTIPOLAR G. Samson
CATHETER AND MULTIPOLAR G. Vegh
GUIDEWIRE FOR SENSING D. Dickens
CARDIAC ELECTRICAL ACTIVITY H. Rettke
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Patent No. Issued ??? Prosecution History
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
22963-1030 5,509,411 04/23/96 10/23/99 CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- -------------------------------------------------------------------------------------------------------
22963-1032 5,682,885 11/04/97 05/04/01 CON 08/188,619, 1/27/94, 5,509,411 (1030);
CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- -------------------------------------------------------------------------------------------------------
22963-1040 5,645,082 07/08/97 01/08/01 CIP 08/010,816, 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- -------------------------------------------------------------------------------------------------------
22963-1041 5,685,322 11/11/97 05/11/01 DIV 08/188,384, 1/27/94, 5,645,082 (1040);
CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- -------------------------------------------------------------------------------------------------------
22963-1060 5,706,809 01/13/98 07/13/01 CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- -------------------------------------------------------------------------------------------------------
22963-1110 5,699,796 12/23/97 08/23/01 CIP 08/188,619, 1/27/94, 5,509,411 (1030);
CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- -------------------------------------------------------------------------------------------------------
22963-1113 5,711,298 01/27/98 07/27/01 CON 08/484,202, 6/7/95, ABA (1112);
DIV 08/443,657, 5/18/95, 5/899,796 (1110);
CIP 08/188,619, 1/27/94, 5,509,411 (1030)
- -------------------------------------------------------------------------------------------------------
22963-1121 5,549,109 08/27/96 02/27/00 CON 08/130,635, 10/1/93, ABA (1120)
- -------------------------------------------------------------------------------------------------------
Page 4
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
CARDIMA, INC.
PATENT STATUS REPORT
MARCH 1998
PENDING FOREIGN APPLICATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOREIGN STATUS REPORT
To Follow
- --------------------------------------------------------------------------------
Page 5
<PAGE>
CARDIMA, INC.
PATENT STATUS REPORT
MARCH 1998
ABANDONED APPICATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
HEWM NO. CDM NO. SERIAL NO. FILED TITLE INVENTORS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
22963-1000 CDM 0003.0 08/010,818 01/29/93 GUIDEWIRE FOR SENSING CARDIAC G. Samson
ELECTRICAL ACTIVITY R. Sung
- -------------------------------------------------------------------------------------------------------
22963-1001 CDM 0003.1 08/484,266 06/07/95 GUIDEWIRE FOR SENSING CARDIAC G. Samson
ELECTRICAL ACTIVITY R. Sung
- -------------------------------------------------------------------------------------------------------
22963-1010 CDM 0004.0 08/043,449 04/05/93 MULTIPOLAR GUIDEWIRE FOR SENSING G. Samson
CARDIAC ELECTRICAL ACTIVITY G. Vegh
- -------------------------------------------------------------------------------------------------------
22963-1011 CDM 0004.1 08/452,673 05/30/95 MULTIPOLAR GUIDEWIRE FOR SENSING G. Samson
CARDIAC ELECTRICAL ACTIVITY G. Vegh
- -------------------------------------------------------------------------------------------------------
22963-1020 CDM 0005.0 08/057,294 05/05/93 MULTIPOLAR CATHETER AND G. Samson
MULTIPOLAR GUIDEWIRE FOR SENSING G. Vegh
CARDIAC ELECTRICAL ACTIVITY D. Dickens
- -------------------------------------------------------------------------------------------------------
22963-1031 CDM 0006.1 08/482,120 06/07/95 INTRAVASCULAR SENSING DEVICE L. Littmann
G. Samson
G. Vegh
- -------------------------------------------------------------------------------------------------------
22963-1050 CDM 0008.0 08/207,918 03/08/94 INTRAVASCULAR RF OCCLUSION D. Dickens
CATHETER G. Samson
R. Sung
- -------------------------------------------------------------------------------------------------------
22963-1112 CDM 0017.2 08/484,202 08/07/95 HIGH RESOLUTION INTRAVASCULAR L. Littmann
SIGNAL DETECTION L. Lau
O. Amirana
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
HEWM NO. PROSECUTION HISTORY COMMENTS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
22963-1000
- -------------------------------------------------------------------------------------------------------
22963-1001 CON 08/010,818, 1/29/93, ABA (1000)
- -------------------------------------------------------------------------------------------------------
22963-1010 CIP 08/010,818, 1/29/93, ABA (1000) ABA for CON
- -------------------------------------------------------------------------------------------------------
22963-1011 CIP 08/043,449, 4/5/93, ABA (1010)
- -------------------------------------------------------------------------------------------------------
22963-1020 CIP 08/010,818, 1/29/93, ABA (1000); and
CIP 08/043,449, 4/5/93, ABA (1010)
- -------------------------------------------------------------------------------------------------------
22963-1031 CON 08/188,619, 1/27/94, 5,509,411 (1030);
CIP 08/010,818, 1/29/93, ABA (1000) and
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- -------------------------------------------------------------------------------------------------------
22963-1050 ABA for CON
- -------------------------------------------------------------------------------------------------------
22963-1112 DIV 08/443,657, 5/18/95, 5,899,796 (1110); ABA for CON
CIP 08/188,619, 1/27/94, 5/509,411 (1030);
CIP 08/043,449, 4/5/93, ABA (1010); and
CIP 08/057,294, 5/5/93, ABA (1020)
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CARDIMA, INC.
PATENT STATUS REPORT
MARCH 1998
ABANDONED APPICATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
HEWM NO. CDM NO. SERIAL NO. FILED TITLE INVENTORS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
22963-1120 CDM 0019.0 08/130,635 10/01/93 SHEATHED MULTIPOLAR CATHETER G. Samson
AND MULTIPOLAR GUIDEWIRE FOR G. Vegh
SENSING CARDIAC ELECTRICAL D. Dickens
ACTIVITY H. Rettke
- -------------------------------------------------------------------------------------------------------
22963-1130 CDM 0021.0 08/484,715 06/07/95 GUIDEWIRE CATHETER FOR THE Y. Randolph
CORONARY SINUS D. Dickens
- -------------------------------------------------------------------------------------------------------
22963-1141 CDM 0022.1 08/473,525 08/07/95 OVER-THE-WIRE EP CATHETER A. Schaer
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
HEWM NO. PROSECUTION HISTORY COMMENTS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ABA for CON
- -------------------------------------------------------------------------------------------------------
22963-1130 ABA for CON
- -------------------------------------------------------------------------------------------------------
22963-1141 DIV 08/447,351, 5/23/95 (1140) ABA for CON
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
CARDIMA, INC.
TRADEMARK STATUS REPORT
MARCH 1998
PENDING U.S. APPLICATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HEWN NO. CDM NO. MARK FILED ^^ SERIAL NO. ^^ FOREIGN STATUS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
22963-9000 CARDIMA and Design 05/12/97 03/17/98 75/289,984 Europe; Japan Published
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9030 THERASTREAM 11/06/97 75/386,148 Paris Convention: 05/06/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9040 ELECTROSTREAM 11/06/97 75/385,719 Paris Convention: 05/06/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9050 ACUPORT 11/06/97 75/385,720 Paris Convention: 05/06/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9060 IVEP 11/06/97 75/386,138 Paris Convention: 05/06/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9070 EP SELECT 11/06/97 75/386,139 Paris Convention: 05/06/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9080 RF SELECT 11/06/97 75/386,140 Paris Convention: 05/06/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9090 TEMP SELECT 11/06/97 75/386,142 Paris Convention: 05/06/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9100 AUTO SELECT 11/06/97 75,385,720 Paris Convention: 05/06/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9110 RECONNAISSANCE 11/26/97 75/398,441 Paris Convention: 05/26/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9120 LIBERATOR 11/26/97 75/396,442 Paris Convention: 05/26/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9130 NAVIPORT 11/13/97 07/01/97 75/197,131 09/23/97 Statement of Use: 03/23/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9140 THE NEW LOOK OF EP 10/22/96 07/08/97 75/185,249 09/30/97 Statement of Use: 03/30/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9150 VENAPORT 10/22/96 07/08/97 75/185,341 09/30/97 Statement of Use: 03/30/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9160 VIEWPORT 11/13/96 07/01/97 75/197,129 09/23/97 Statement of Use: 03/23/98
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9170 VUEPORT 11/13/96 07/01/97 75/197,130 09/23/97 Statement of Use: 03/23/98
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CARDIMA, INC.
TRADEMARK STATUS REPORT
MARCH 1998
PENDING FOREIGN APPLICATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
HEWM NO. CDM NO. MARK FILED PUBLISHED SERIAL NO.
<S> <C> <C> <C> <C> <C>
22963-9002 CARDIMA and Design Paris - Convention Filing/JP 11/11/97 9175696
- ------------------------------------------------------------------------------------------------------------------------------------
22963-9003 CARDIMA and Design Paris - Convention Filing/EP 11/05/97 889515
</TABLE>
<TABLE>
<CAPTION>
Status
<S> <C>
- ---------------------------
22963-9002 Filed
- ---------------------------
22963-9003 Filed
</TABLE>
Page 9
<PAGE>
- --------------------------------------------------------------------------------
CARDIMA, INC.
TRADEMARK STATUS REPORT
MARCH 1998
ABANDONED APPLICATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
HEWM No. CDM No. Mark Filed Serial No. Comments
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
22963-9010 PATHFINDER 03/15/94 74/500,931 ABA 2/22/95
- ----------------------------------------------------------------------------------------------
22963-9020 FORERUNNER 03/23/95 74/650,828 ABA 2/22/96
- ----------------------------------------------------------------------------------------------
</TABLE>
PAGE 10
<PAGE>
- --------------------------------------------------------------------------------
CARDIMA, INC.
TRADEMARK STATUS REPORT
MARCH 1998
INACTIVE APPLICATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
HEWN NO. LDM NO. MARK COMMENTS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
22963-9210 FORSITE Proposed, not pursued; preliminary search done
- -----------------------------------------------------------------------------------------------------------------------
22963-9220 CARDIMA PATHFINDER Proposed, not pursued
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FOREIGN PATENT CASES FOR CARDIMA, INC.
<TABLE>
<CAPTION>
KEY STAT APPLICATION NO APP DATE
- --- ---- -------------- --------
<S> <C> <C> <C>
22963-5000 PCT P F PCT/US94/O1054 2BJA1994
TITLE: INTRAVASCULAR
SENSING DEVICE
22963-5001 CANADA P F 2154773 2BJA1994
TITLE: INTRAVASCULAR
SENSING DEVICE
22963-5002 JAPAN P F 06-517366 2BJA1994
TITLE: INTRAVASCULAR
SENSING DEVICE
22963-5003 EP X F 94909512.9 2BJA1994
TITLE: INTRAVASCULAR
SENSING DEVICE
22963-5004 AUSTRALIA P F 62335/94 2BJA1994
TITLE: INTRAVASCULAR
SENSING DEVICE
22963-5004 AUSTRALIA D 01 F 59663/98 26MR1998
TITLE: INTRAVASCULAR
SENSING DEVICE
22963-5010 PCT P F PCT/US94/01018 2BJA1994
TITLE: INTRAVASCULAR
METHOD AND SYSTEM FOR
TREATING ARRHYTHMIA
22963-5011 CANADA P F 2154772 2BJA1994
TITLE: INTRAVASCULAR
METHOD AND SYSTEM FOR
TREATING ARRHYTHMIA
22963-5012 JAPAN P F 06-517348 2BJA1994
TITLE: INTRAVASCULAR
METHOD AND SYSTEM FOR
TREATING ARRHYTHMIA
22963-5013 EP X F 94909506.1 2BJA1994
TITLE: INTRAVASCULAR
METHOD AND SYSTEM FOR
TREATING ARRHYTHMIA
22963-5014 AUSTRALIA P F 62330/94 2BJA1994
TITLE: INTRAVASCULAR
METHOD AND SYSTEM FOR
TREATING ARRHYTHMIA
22963-5030 PCT P F PCT/US94/01055 2BJA1994
TITLE: METHOD
INTRAVASCULAR
SENSING DEVICES FOR
ELECTRICAL ACTIVITY
22963-5031 CANADA P F 2154774 2BJA1994
TITLE: METHOD INTRAVASCULAR
SENSING DEVICES FOR
ELECTRICAL ACTIVITY
22963-5032 JAPAN P F 06-517367 2BJA1994
TITLE: METHOD INTRAVASCULAR
SENSING DEVICES FOR
ELECTRICAL ACTIVITY
22963-5033 EP X F 94909513.7 2BJA1994
TITLE: METHOD
INTRAVASCULAR
SENSING DEVICES FOR
ELECTRICAL ACTIVITY
22963-5034 AUSTRALIA P F 62336/94 2BJA1994
TITLE: METHOD INTRAVASCULAR
SENSING DEVICES
FOR ELECTRICAL ACTIVITY
22963-5040 PCT P F PCT/US95/06189 11MY1995
TITLE: CATHETER WITH
DEFLECTABLE DISTAL SECTION
22963-5041 CANADA P F 2190251 11MY1995
TITLE: CATHETER
WITH DEFLECTABLE
DISTAL SECTION
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
FOREIGN PATENT CASES FOR CARDIMA, INC.
<S> <C> <C> <C> <C>
KEY STAT APPLICATION NO APP DATE
- --- ---- -------------- --------
22963-5042 JAPAN P F 07-529876 11MY1995
TITLE: CATHETER WITH DEFLECTABLE DISTAL SECTION
22963-5043 EP X F 95919865.6 11MY1995
TITLE: CATHETER WITH DEFLECTABLE DISTAL SECTION
22963-5044 AUSTRALIA P F 25528/95 11MY1995
TITLE: CATHETER WITH DEFLECTABLE DISTAL SECTION
22963-5050 PCT P F PCT/US96/06631 08MY1996
TITLE: HIGH RESOLUTION INTRAVASCULAR SIGNAL DETECTION
22963-5051 CANADA P F 2221620 08MY1996
TITLE: HIGH RESOLUTION INTRAVASCULAR SIGNAL DETECTION
22963-5052 JAPAN P F 08/534914 08MY1996
TITLE: HIGH RESOLUTION INTRAVASCULAR SIGNAL DETECTION
22963-5053 EP X F 96913372.7 08MY1996
TITLE: HIGH RESOLUTION INTRAVASCULAR SIGNAL DETECTION
22963-5060 PCT P F PCT/US94/11115 30SE1994
TITLE: SHEATHED MULTIPOLAR CATHETER AND MULTIPOLAR GUIDEWIRE FOR SENSING CARDIAC
ELECTRICAL ACTIVITY
22963-5063 EP X F 94929973.9 30SE1994
TITLE: SHEATHED MULTIPOLAR CATHETER AND MULTIPOLAR GUIDEWIRE FOR SENSING CARDIAC
ELECTRICAL ACTIVITY
22963-5070 PCT P F PCT/US96/09283 05JE1996
TITLE: GUIDING CATHETER FOR CORNARY SINUS
22963-5071 CANADA P F 2223990 05JE1996
TITLE: GUIDING CATHETER FOR CORNARY SINUS
22963-5072 JAPAN P F 09-501637 05JE1996
TITLE: GUIDING CATHETER FOR CORNARY SINUS
22963-5073 EP X F 96918250.0 05JE1996
TITLE: GUIDING CATHETER FOR CORNARY SINUS
22963-5080 PCT P F PCT/US96/06636 08MY1996
TITLE: OVER-THE-WIRE EP CATHETER
22963-5081 CANADA P F 2221681 08MY1996
TITLE: OVER-THE-WIRE EP CATHETER
22963-5082 JAPAN P F 08-535713 08MY1996
TITLE: OVER-THE-WIRE EP CATHETER
22963-5083 EP X F 96913373.5 08MY1996
TITLE: OVER-THE-WIRE EP CATHETER
22963-5090 PCT P F PCT/US97/05714 08AP1997
TITLE: LINEAR ABLATION DEVICE AND ASSEMBLY
</TABLE>
<PAGE>
3
FOREIGN PATENT CASES FOR CARDIMA, INC.
<TABLE>
<CAPTION>
KEY STAT APPLICATION NO APP DATE
- --- ---- ------------- --------
<S> <C> <C> <C><C> <C>
22963-5100 PCT P F PCT/US97/14071 11AU1997
TITLE: INTRALUMINAL DELIVERY OF TISSUE LYSING MEDIUM
22963-5110 PCT P F CASE FILED 06MR1998 PCT/US98/04576 06MR1998
TITLE: OVER-THE-WIRE EP CATHETER
</TABLE>
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
NO. 1
STOCK SUBSCRIPTION WARRANT
TO PURCHASE COMMON STOCK OF
CARDIMA, INC. (THE "COMPANY")
DATE OF INITIAL ISSUANCE: JUNE 24, 1998
THIS CERTIFIES THAT for value received, TRANSAMERICA BUSINESS CREDIT
CORPORATION or its registered assigns (hereinafter called the "Holder") is
entitled to purchase from the Company, at any time during the Term of this
Warrant, Seventy-Five Thousand (75,000) shares of common stock, $.001 par value,
of the Company (the "Common Stock"), at the Warrant Price, payable as provided
herein. The exercise of this Warrant shall be subject to the provisions,
limitations and restrictions herein contained, and may be exercised in whole or
in part.
SECTION 1. DEFINITIONS.
-----------
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
COMMON STOCK - shall mean and include the Company's authorized Common
------------
Stock, $.001 par value, as constituted at the date hereof.
EXCHANGE ACT - shall mean the Securities Exchange Act of 1934, as amended
------------
from time to time.
SECURITIES ACT - the Securities Act of 1933, as amended.
--------------
TERM OF THIS WARRANT - shall mean the period beginning on the date of
--------------------
initial issuance hereof and ending on June 24, 2003.
WARRANT PRICE - $4.00 per share, subject to adjustment in accordance with
-------------
Section 5 hereof.
WARRANTS - this Warrant, which is issued in connection with a Commitment
--------
Letter dated March 27, 1998 executed by the Company and Transamerica Business
Credit Corporation (the "Commitment Letter") to the original holder of this
Warrant, or any transferees from such original holder or this Holder.
WARRANT SHARES - shares of Common Stock purchased or purchasable by the
--------------
Holder of this Warrant upon the exercise hereof.
<PAGE>
SECTION 2. EXERCISE OF WARRANT.
-------------------
2.1. PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant in whole
---------------------------------
or in part (but not as to any fractional share of Common Stock), the Holder
shall deliver to the Company at its office referred to in Section 12 hereof at
any time and from time to time during the Term of this Warrant: (i) the Notice
of Exercise in the form attached hereto, (ii) cash, certified or official bank
check payable to the order of the Company, wire transfer of funds to the
Company's account, or evidence of any indebtedness of the Company to the Holder
(or any combination of any of the foregoing) in the amount of the Warrant Price
for each share being purchased, and (iii) this Warrant. Notwithstanding any
provisions herein to the contrary, if the Current Market Price (as defined in
Section 5) is greater than the Warrant Price (at the date of calculation, as set
forth below), in lieu of exercising this Warrant as hereinabove permitted, the
Holder may elect to receive shares of Common Stock equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the office of the Company referred to in Section 12
hereof, together with the Notice of Exercise, in which event the Company shall
issue to the Holder that number of shares of Common Stock computed using the
following formula:
CS = WCS x (CMP-WP)
--------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the Holder
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being exercised (at the date of such
calculation)
CMP equals the Current Market Price (at the date of such calculation)
WP equals the Warrant Price (as adjusted to the date of such calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
2.2. TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
---------------------------
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on
-2-
<PAGE>
the face thereof unless at the time of exercise such Warrant Shares shall be
registered under the Securities Act:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be sold or transferred
in the absence of such registration or an exemption therefrom under said
Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO COMMON STOCK. The Company covenants and agrees that
----------------------------
all shares of Common Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof. The Company further covenants and agrees that it will pay
when due and payable any and all federal and state taxes which may be payable in
respect of the issue of this Warrant or any Common Stock or certificates
therefor issuable upon the exercise of this Warrant, subject to a maximum of
$3,000. The Company further covenants and agrees that the Company will at all
times have authorized and reserved, free from preemptive rights, a sufficient
number of shares of Common Stock to provide for the exercise of the rights
represented by this Warrant. The Company further covenants and agrees that if
any shares of capital stock to be reserved for the purpose of the issuance of
shares upon the exercise of this Warrant require registration with or approval
of any governmental authority under any federal or state law before such shares
may be validly issued or delivered upon exercise, then the Company will in good
faith and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If and so long as the Common Stock issuable upon
the exercise of this Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep listed
on such exchange, upon official notice of issuance, all shares of such Common
Stock issuable upon exercise of this Warrant.
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
------------------------------
Price as provided in Section 5, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting from such adjustment, the number of
shares of Common Stock (calculated to the nearest tenth of a share) obtained by
multiplying the Warrant Price in effect immediately prior to such adjustment by
the number of shares of Common Stock purchasable pursuant hereto immediately
prior to such adjustment and dividing the product thereof by the Warrant Price
resulting from such adjustment.
SECTION 5. ADJUSTMENT OF WARRANT PRICE. The Warrant Price shall be subject to
---------------------------
adjustment from time to time as follows:
(i) If, at any time during the Term of this Warrant, the number of shares
of Common Stock outstanding is increased by a stock dividend payable in shares
of Common Stock or by a subdivision or split-up of shares of Common Stock, then,
following the record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up, the Warrant
Price shall be appropriately decreased so that the number of shares of Common
Stock issuable upon the exercise hereof shall be increased in proportion to such
increase in outstanding shares.
-3-
<PAGE>
(ii) If, at any time during the Term of this Warrant, the number of shares
of Common Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such combination,
the Warrant Price shall appropriately increase so that the number of shares of
Common Stock issuable upon the exercise hereof shall be decreased in proportion
to such decrease in outstanding shares.
(iii) In case, at any time during the Term of this Warrant, the Company
shall declare a cash dividend upon its Common Stock payable otherwise than out
of earnings or earned surplus or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the Company or other
persons, assets (excluding cash dividends and distributions) or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the Company convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record date fixed for
the determination of the holders of Common Stock entitled to receive such
dividend or distribution, the Warrant Price in effect thereafter shall be
determined by multiplying the Warrant Price in effect immediately prior to such
record date by a fraction of which the numerator shall be an amount equal to the
difference of (x) the Current Market Price of one share of Common Stock minus
(y) the fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the stock, securities,
evidences of indebtedness, assets, options or rights so distributed in respect
of one share of Common Stock, and of which the denominator shall be such Current
Market Price.
(iv) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(v) For the purpose of any computation pursuant to this Section 5, the
Current Market Price at any date of one share of Common Stock shall be deemed to
be the average of the daily closing prices for the 15 consecutive business days
ending on the last business day before the day in question (as adjusted for any
stock dividend, split, combination or reclassification that took effect during
such 15 business day period). The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or as reported by Nasdaq (or if the
Common Stock is not at the time listed or admitted for trading on any such
exchange or if prices of the Common Stock are not reported by Nasdaq then such
price shall be equal to the average of the last reported bid and asked prices on
such day as reported by The National Quotation Bureau Incorporated or any
similar reputable quotation and reporting service, if such quotation is not
reported by The National Quotation Bureau Incorporated); provided, however, that
if the Common Stock is not traded in such manner that the quotations referred to
in this clause (v) are available for the period required hereunder, the Current
Market Price shall be determined in good faith by the Board of Directors of the
Company or, if such determination cannot be made, by a nationally recognized
independent investment banking firm selected by the Board of Directors of the
Company (or if such selection cannot be made, by a nationally recognized
independent investment banking firm selected by the American Arbitration
Association in accordance with its rules).
(vi) Whenever the Warrant Price shall be adjusted as provided in Section
5, the Company shall prepare a statement showing the facts requiring such
adjustment and the Warrant Price that shall be in effect after such adjustment.
The Company shall cause a copy of such statement to be sent by mail, first class
postage prepaid, to each Holder of this Warrant at its, his or her address
appearing on the
-4-
<PAGE>
Company's records. Where appropriate, such copy may be given in advance and may
be included as part of the notice required to be mailed under the provisions of
subsection (viii) of this Section 5.
(vii) Adjustments made pursuant to clauses (i), (ii) and (iii) above shall
be made on the date such dividend, subdivision, split-up, combination or
distribution, as the case may be, is made, and shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to such dividend, subdivision, split-up,
combination or distribution.
(viii) In the event the Company shall propose to take any action of the
types described in clauses (i), (ii), or (iii) of this Section 5, the Company
shall forward, at the same time and in the same manner, to the Holder of this
Warrant such notice, if any, which the Company shall give to the holders of
capital stock of the Company.
(ix) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
SECTION 6. OWNERSHIP.
---------
6.1. OWNERSHIP OF THIS WARRANT. The Company may deem and treat the person
-------------------------
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder are
------------------------
transferable in whole or in part (but not to more than three other holders) upon
the books of the Company by the Holder hereof in person or by duly authorized
attorney, and a new Warrant or Warrants, of the same tenor as this Warrant but
registered in the name of the transferee or transferees (and in the name of the
Holder, if a partial transfer is effected) shall be made and delivered by the
Company upon surrender of this Warrant duly endorsed, at the office of the
Company referred to in Section 12 hereof. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft or destruction, and,
in such case, of indemnity or security reasonably satisfactory to it, and upon
surrender of this Warrant if mutilated, the Company will make and deliver a new
Warrant of like tenor, in lieu of this Warrant; provided that if the Holder
hereof is an instrumentality of a state or local government or an institutional
holder or a nominee for such an instrumentality or institutional holder an
irrevocable agreement of indemnity by such Holder shall be sufficient for all
purposes of this Section 6, and no evidence of loss or theft or destruction
shall be necessary. This Warrant shall be promptly cancelled by the Company upon
the surrender hereof in connection with any transfer or replacement. Stock
transfer taxes (if any) payable in connection with a transfer of this Warrant,
shall be payable by the Holder. Holder will not transfer this Warrant and the
rights hereunder except in compliance with federal and state securities laws.
-5-
<PAGE>
SECTION 7. INTENTIONALLY OMITTED.
SECTION 8. NOTICE OF DISSOLUTION OR LIQUIDATION. In case of any distribution
------------------------------------
of the assets of the Company in dissolution or liquidation, the Company shall
give notice thereof to the Holder hereof and shall make no distribution to
shareholders until the expiration of thirty (30) days from the date of mailing
of the aforesaid notice and, in any case, the Holder hereof may exercise this
Warrant within thirty (30) days from the date of the giving of such notice, and
all rights herein granted not so exercised within such thirty-day period shall
thereafter become null and void.
SECTION 9. NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors of the
---------------------------------
Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
-----------------
exercise of this Warrant but in any case where the Holder would, except for the
provisions of this Section 10, be entitled under the terms hereof to receive a
fractional share upon the complete exercise of this Warrant, the Company shall,
upon the exercise of this Warrant for the largest number of whole shares then
called for, pay a sum in cash equal to the excess of the value of such
fractional share (determined in such reasonable manner as may be prescribed in
good faith by the Board of Directors of the Company) over the Warrant Price for
such fractional share.
SECTION 11. SPECIAL ARRANGEMENTS OF THE COMPANY. The Company covenants and
-----------------------------------
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
11.1. WILL RESERVE SHARES. The Company will reserve and set apart and
-------------------
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. WILL NOT AMEND CERTIFICATE. The Company will not amend its
--------------------------
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. WILL BIND SUCCESSORS. This Warrant shall be binding upon any
--------------------
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. NOTICES. Any notice or other document required or permitted to be
-------
given or delivered to the Holder shall be delivered at, or sent by certified or
registered mail to, the Holder at Transamerica Technology Finance Division, 76
Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to the Lender at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention:
Legal Department or to such other address as shall have been furnished to the
Company in writing by the Holder. Any notice or other
-6-
<PAGE>
document required or permitted to be given or delivered to the Company shall be
delivered at, or sent by certified or registered mail to, the Company at 47266
Benicia Street, Fremont, California 94538, Attention: Chief Financial Officer or
to such other address as shall have been furnished in writing to the Holder by
the Company. Any notice so addressed and mailed by registered or certified mail
shall be deemed to be given when so mailed. Any notice so addressed and
otherwise delivered shall be deemed to be given when actually received by the
addressee.
SECTION 13. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This Warrant
-------------------------------------------------
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
SECTION 14. LAW GOVERNING. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF
-------------
THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 15. MISCELLANEOUS. This Warrant and any provision hereof may be
-------------
changed, waived, discharged or terminated only by an instrument in writing
signed by both parties (or any respective predecessor in interest thereof). The
headings in this Warrant are for purposes of reference only and shall not affect
the meaning or construction of any of the provisions hereof
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this 24th day of June, 1998.
CARDIMA, INC.
[CORPORATE SEAL]
By: /s/ Ronald E. Bourquin
----------------------------
Title: Vice President and CFO
------------------------
-7-
<PAGE>
FORM OF NOTICE OF EXERCISE
[TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase _________
shares of Common Stock which the undersigned is entitled to purchase by the
terms of the within Warrant according to the conditions thereof, and herewith
[check one]
[_] makes payment of $__________ therefor; or
[_] directs the Company to issue ______ shares, and to
withhold ____ shares in lieu of payment of the
Warrant Price, as described in Section 2.1 of the
Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The shares are to be issued in certificates of the following
denominations:
------------------------------------
[Type Name of Holder]
By:______________________________
Title:___________________________
Dated:______________________
-8-
<PAGE>
FORM OF ASSIGNMENT
(ENTIRE)
[TO BE SIGNED ONLY UPON TRANSFER OF ENTIRE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto _______________________________ all rights of the undersigned
under and pursuant to the within Warrant, and the undersigned does hereby
irrevocably constitute and appoint _______________________________ Attorney to
transfer the said Warrant on the books of the Company, with full power of
substitution.
-----------------------------------
[Type Name of Holder]
By:________________________________
Title:_____________________________
Dated:_________________
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
-9-
<PAGE>
FORM OF ASSIGNMENT
(PARTIAL)
[TO BE SIGNED ONLY UPON PARTIAL TRANSFER OF WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _______________________________ (i) the rights of the undersigned
to purchase ___ shares of Common Stock under and pursuant to the within Warrant,
and (ii) on a non-exclusive basis, all other rights of the undersigned under and
pursuant to the within Warrant, it being understood that the undersigned shall
retain, severally (and not jointly) with the transferee(s) named herein, all
rights assigned on such non-exclusive basis. The undersigned does hereby
irrevocably constitute and appoint __________________________ Attorney to
transfer the said Warrant on the books of the Company, with full power of
substitution.
-----------------------------
[Type Name of Holder]
By:__________________________
Title:_______________________
Dated:_________________
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,012
<SECURITIES> 0
<RECEIVABLES> 481
<ALLOWANCES> (26)
<INVENTORY> 1,075
<CURRENT-ASSETS> 6,775
<PP&E> 4,611
<DEPRECIATION> (1,694)
<TOTAL-ASSETS> 10,586
<CURRENT-LIABILITIES> 2,537
<BONDS> 0
0
0
<COMMON> 45,790
<OTHER-SE> (38,663)
<TOTAL-LIABILITY-AND-EQUITY> 10,586
<SALES> 625
<TOTAL-REVENUES> 625
<CGS> 595
<TOTAL-COSTS> 595
<OTHER-EXPENSES> 3,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (40)
<INCOME-PRETAX> (3,788)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,788)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
