<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1997
REGISTRATION NO. 333-22985
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
VISTA MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3845 94-3184035
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
5451 AVENIDA ENCINAS, SUITE A, CARLSBAD, CALIFORNIA 92008 (619) 603-9120
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
JOHN R. LYON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VISTA MEDICAL TECHNOLOGIES, INC.
5451 AVENIDA ENCINAS, SUITE A
CARLSBAD, CALIFORNIA 92008
(619) 603-9120
(Name, address, including zip code and telephone number, including area code, of
agent for service)
------------------
with copies to:
<TABLE>
<S> <C>
Craig S. Andrews, Esq. Douglas M. Mancino, Esq.
Faye H. Russell, Esq. Mark J. Mihanovic, Esq.
BROBECK, PHLEGER & HARRISON LLP McDERMOTT, WILL & EMERY
550 West "C" Street, Suite 1300 2049 Century Park East
San Diego, California 92101 34th Floor
Los Angeles, California 90067
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 6, 1997
3,500,000 SHARES
[LOGO]
VISTA MEDICAL TECHNOLOGIES, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
--------------
All of the 3,500,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to this Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $11.00 and $13.00. For factors to be considered
in determining the initial public offering price, see "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "VMTI."
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT (1) COMPANY (2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share................................................. $ $ $
Total (3)................................................. $ $ $
</TABLE>
- --------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 525,000 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1997, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. SALOMON BROTHERS INC
---------
The date of this Prospectus is , 1997.
<PAGE>
FRONT OUTSIDE FLAP
TEXT IN UPPER RIGHT CORNER:
VISTA MEDICAL'S 3D HMD FOR MINIMALLY INVASIVE MICROSURGERY
Vista Medical Technologies (Vista Medical) was originally founded by Kaiser
Aerospace and Electronics Corporation, a leader in the development and
manufacture of heads-up and head mounted displays (HMD) for aerospace
applications. Vista Medical's HMD, specifically designed for minimally invasive
microsurgery, incorporates the visualization, information and human factors
technology developed by Kaiser for its military customers.
(PHOTOGRAPH DESCRIPTION AND CAPTIONS)
1. Background: Blue with clouds
2. Top left: Typical aerospace display
3. Top left (lower and more centered): A flight helmet (head mounted display).
4. Center: Vista Medical Head Mounted Display (HMD) for surgery.
5. Lower left hand corner: Typical surgical data which will be shown on the
HMD.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
The Company intends to furnish to its stockholders annual reports containing
audited financial statements certified by an independent public accounting firm
and quarterly reports containing unaudited interim financial information for the
first three fiscal quarters of each fiscal year of the Company.
THE COMPANY HAS RIGHTS IN THE FOLLOWING TRADEMARKS: 3D
SCOPE-REGISTERED TRADEMARK-, DESIGN OF CONE AND VISTA MEDICAL TECHNOLOGIES &
DESIGN. IN ADDITION, THE COMPANY HAS APPLIED TO REGISTER THE FOLLOWING
TRADEMARKS: MIM, STEREOSITE, CARDIOCAMERA, CARDIOZOOM, INFOMATIX, CARDIOVIEW,
CARDIOCONTROLLER, CARDIOGUIDE, CARDIOCONSOLE AND CARDIOLIGHT. THIS PROSPECTUS
ALSO INCLUDES NAMES AND TRADEMARKS OF COMPANIES OTHER THAN THE COMPANY,
INCLUDING HEARTPORT AND PORT-ACCESS WHICH ARE TRADEMARKS OF HEARTPORT, INC.
2
<PAGE>
INSIDE COVER
Background: Blue with images of a heart
Text in center right of page: Series 8000 Advanced Visualization and
Information System for Cardiac Surgery
Center right: Cardiac surgeons using the Company's system.
Lower left: The Series 8000 Advanced Visualization and Information Sytem and
the Company's micro-cameras.
Text in lower right corner: The Series 8000 is a 3D image acquisition and
display system developed in consultation with the Company's Clinical Advisory
Board to respond to the requirements of minimally invasive cardiac surgical
applications. Vista Medical believes that the Series 8000 is the only
visualization and information system specifically designed for minimally
invasive cardiac surgery. The photograph shows cardiac surgeons wearing the
CardioView HMDs and using the miniature 3D CardioCamera. Also shown is the
CardioConsole, the central control unit for the Series 8000, and a close-up view
of the series 8000 camera options.
The current Series 8000 product line has been cleared to market in the U.S.
by the FDA with expected commercial availability later this year.
3
<PAGE>
FRONT INSIDE FLAP
Text in upper right corner: StereoSite Systems for Head, Neck and Spine
Surgery
Background: Blue with imprint of the head.
Center: Two surgeons, with one using the Vista Medical System in a
neurological application.
Right Corner: Diagnostic data.
Text in lower left corner: Advances in neurosurgery and related specialties
are increasingly dependent on the provision of accurate diagnostic and guidance
information to the surgeon in real-time. Vista Medical's StereoSite system for
microscopic and microendoscopic applications are designed to give the surgeon
the ergonomic advantages of an HMD combined with the ability to integrate data
into the anatomical view. Illustrated here is an example of information in the
form of computer derived 3D reconstructions of the brain used by the
neurosurgeon for preoperative surgical planning and intra-operative guidance.
The photograph shows a surgeon operating using a surgical microscope for
magnified visualization, with a colleague observing the same image on a Vista
Medical HMD.
The StereoSite systems have not been cleared to market in the U.S. by the
FDA.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND THE COMPANY'S FINANCIAL STATEMENTS (INCLUDING THE NOTES
THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED
HEREIN, ALL INFORMATION CONTAINED IN THIS PROSPECTUS (I) GIVES EFFECT TO A
THREE-FOR-FOUR REVERSE SPLIT OF THE COMMON STOCK, PAR VALUE $0.01 PER SHARE (THE
"COMMON STOCK"), OF THE COMPANY, (II) REFLECTS THE CONVERSION OF ALL OUTSTANDING
SHARES OF THE COMPANY'S PREFERRED STOCK, PAR VALUE $0.01 (THE "PREFERRED
STOCK"), INTO AN AGGREGATE OF 8,680,679 SHARES OF COMMON STOCK AND (III) ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THIS PROSPECTUS
CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED UNDER
THE HEADING "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER SUCH INFORMATION SET FORTH UNDER
THE HEADING "RISK FACTORS."
THE COMPANY
Vista Medical Technologies, Inc. ("Vista Medical" or the "Company")
develops, manufactures and intends to market proprietary visualization and
information systems that enable minimally invasive surgical solutions in
cardiothoracic, head, neck and spine ("HNS") and other selected microsurgical
procedures. The Company currently markets endoscopic cameras and related
surgical instruments and accessories. Vista Medical's visualization and
information systems bring together head-mounted display ("HMD") technology
originally developed for applications in military aerospace by Kaiser Aerospace
and Electronics Corporation ("Kaiser Aerospace") and three-dimensional ("3-D")
imaging capability from its acquisition of Oktas, Inc.
The development and subsequent widespread adoption of minimally invasive
surgical approaches have revolutionized many surgical fields, including general
surgery, orthopedics, gynecology and urology. Minimally invasive surgical
procedures are performed through strategically placed ports or mini-incisions in
a patient's body, thereby avoiding the larger incisions used in traditional open
surgery. Minimally invasive procedures are designed to decrease complications,
reduce pain and suffering, speed recovery and decrease costs associated with
many aspects of patient care. This movement toward minimally invasive surgery
has been driven by advances in both device technology and surgical technique.
Minimally invasive microsurgery ("MIM") is an extension of minimally invasive
surgery and is characterized by greater complexity and precision. MIM procedures
have been made possible primarily by recent advances in medical technology.
The application of minimally invasive techniques to cardiothoracic surgery
is commonly regarded as a revolutionary development in modern surgery. Minimally
invasive cardiac procedures avoid the trauma caused by sternotomy and promise to
significantly decrease pain and trauma and shorten recovery times.
Cardiothoracic MIM requires the surgeon to perform technically challenging
procedures, including working on tiny delicate structures (such as a one
millimeter heart vessel) with highly restricted access through small incisions.
The Company believes that an advanced visualization technology which
provides the surgeon with an intuitive and ergonomic solution to the inherent
vision restrictions of the MIM approach will enable the use of the MIM technique
with increased safety, efficacy and precision. In order to meet this
visualization challenge, the Company has developed proprietary visualization and
information systems.
Vista Medical's proprietary technology is based on the following principles
which the Company believes are essential in advancing the techniques of MIM: (i)
three-dimensional view; (ii) high resolution images; (iii) improved access
through miniaturization technology; (iv) optimized surgical ergonomics; and (v)
integration of anatomical image with critical monitoring and diagnostic
information.
3
<PAGE>
Based on these principles, Vista Medical develops visualization products and
related information systems that are customized for the specific cardiothoracic
and HNS procedures to which they are directed. The Company's product lines
include the Series 8000 Advanced Visualization and Information System ("Series
8000"), designed for use in cardiothoracic procedures, and StereoSite, designed
for use in microscopic and endoscopic procedures in HNS. All 510(k) clearances
to market necessary for initial Series 8000 commercialization have been
received. However, the Series 8000 is not yet commercially available. The
Company believes the HMD/Processor component of the StereoSite system is
eligible for 510(k) clearance to market, for which the Company has not yet
filed. All other required 510(k) clearances to market for the StereoSite system
have been received. The Company also offers surgical instruments and accessories
designed for use in both cardiothoracic and HNS MIM procedures.
BUSINESS STRATEGY
The Company's business strategy is to become the leading developer and
marketer of advanced visualization and information systems for MIM applications
in cardiothoracic, HNS and other selected surgical specialties. Key elements of
the Company's strategy include:
- Establish advanced visualization technologies as standard practice in
minimally invasive cardiac surgery.
- Promote Vista Medical's visualization solution for use in all types of
cardiac surgery.
- Develop MIM applications through specialty-focused business units by
leveraging the Company's technology platform.
- Accelerate adoption of the Series 8000 Advanced Visualization and
Information System in the cardiac market by implementing a per-procedure
pricing strategy.
- Increase the surgeon's real-time access to critical data.
- Enter into strategic relationships which complement Company resources.
To assist in implementing its business strategy, the Company has established
two Clinical Advisory Boards made up of leading surgeons, one focused on
minimally invasive cardiac surgery, the other focused on HNS microsurgery and a
number of other specialties. Members of the Clinical Advisory Boards consult
with the Company exclusively in the field of visualization. The Clinical
Advisory Boards are intended to act as a clinical reference for the Company and
to provide access to potential training sites for the Company's visualization
products.
RECENT DEVELOPMENTS
In November 1996, Vista Medical and Medtronic, Inc. ("Medtronic"), a leading
cardiac company, entered into a strategic alliance providing for the
distribution and co-promotion of the Company's current and future visualization
and information systems for cardiac surgery, including the Series 8000 (the
"Vista Systems"). Medtronic will act as Vista Medical's exclusive distributor
for the Vista Systems for use in cardiothoracic surgical procedures in Europe,
the Middle East (excluding Afghanistan and Pakistan) and Africa and will
co-promote the Vista Systems in North America. Vista Medical retains direct
distribution rights in North America as well as the worldwide right to
distribute its systems for use in all other procedures. In conjunction with
entering into the agreement, Medtronic made a $10.0 million equity investment in
the Company.
The Company believes that the control and processing of information is a key
component in the development of advanced visualization systems. As a result, in
February 1997, the Company obtained from GDE Systems, Inc. ("GDE"), a leading
military electronics and information management company, an exclusive worldwide
license to software and documentation and trademarks of GDE for use in the
medical field. Since 1993, GDE's subsidiary, Healthcom, has been adapting the
software licensed to
4
<PAGE>
Vista Medical to provide high-speed, image-based information processing and
networking capabilities specifically for medical applications. In connection
with the license, Vista Medical will issue to GDE Common Stock with a value
(based on the initial public offering price) of $250,000.
In February 1997, the Company entered into an agreement with Heartport, Inc.
("Heartport"), a leading company developing minimally invasive technology for
heart surgery. Vista Medical will sell four Series 8000 systems to Heartport,
for use in the Heartport Research and Training Center in Salt Lake City, Utah.
Heartport has agreed to use the Series 8000 in its training centers, to promote
that its training courses utilize the Series 8000 and to endorse the Series 8000
as the preferred 3-D video visualization and information solution for minimally
invasive heart surgery. In connection with the agreement, the Company issued to
Heartport a warrant to purchase up to 100,000 shares of Common Stock,
exercisable at any time after this Offering and prior to March 31, 2001, at a
price per share equal to the initial public offering price. If an initial public
offering is not completed by June 30, 1997, the price will be $6.67 per share.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,500,000 shares
Common Stock to be outstanding after the
Offering.................................... 12,718,903 shares (1)
Use of proceeds.............................. Fund product introductions, sales and
marketing activities, research and
development, acquisition of capital equipment
for manufacturing scale-up and for working
capital and other general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market symbol................ VMTI
</TABLE>
- --------------
(1) Based on shares outstanding as of December 31, 1996. Does not include
1,245,801 shares of Common Stock issuable upon exercise of options
outstanding as of December 31, 1996 at a weighted average exercise price of
$0.32 per share pursuant to the Company's stock option plans. Also does not
include securities issued subsequent to December 31, 1996, consisting of (i)
112,500 shares of Common Stock issuable upon the exercise of options granted
at a weighted average exercise price of $2.93 per share, (ii) 75,625 shares
of Common Stock issued upon the exercise of options at a weighted average
price of $0.46 per share, (iii) 100,000 shares of Common Stock issuable upon
the exercise of warrants granted at a weighted average exercise price equal
to the initial public offering price of the Common Stock offered hereby,
(iv) a number of shares of Common Stock equal to $250,000 divided by the
initial public offering price of the Common Stock offered hereby to be
issued to GDE immediately following the closing of this Offering and (v)
3,000 shares of Common Stock issued to employees for past services rendered
to the Company.
RISK FACTORS
The shares offered hereby involve a high degree of risk, and prospective
purchasers should carefully consider the factors described under the heading
"Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales......................................................................... $ 59 $ 1,719 $ 2,244
Costs and expenses:
Cost of sales............................................................... 43 1,272 2,253
Research and development.................................................... 1,328 1,904 3,880
Sales and marketing......................................................... 291 834 2,057
General and administrative.................................................. 758 1,034 3,103
--------- --------- -----------
Total costs and expenses.................................................. 2,420 5,044 11,293
--------- --------- -----------
Loss from operations.......................................................... (2,361) (3,325) (9,049)
Minority interest in net loss of consolidated partnership..................... 270 -- --
License income................................................................ -- -- 1,493
Interest income............................................................... -- 51 117
--------- --------- -----------
Net loss...................................................................... $ (2,091) $ (3,274) $ (7,439)
--------- --------- -----------
--------- --------- -----------
Pro forma net loss per share (1).............................................. $ (0.86)
Shares used in computing pro forma net loss per share (1)..................... 8,626,898
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
AS
ACTUAL ADJUSTED (2)
---------- ------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................................... $ 10,285 $ 48,645
Working capital...................................................................... 10,805 49,165
Total assets......................................................................... 14,316 52,676
Total debt........................................................................... -- --
Accumulated deficit.................................................................. (13,620) (13,620)
Total stockholders' equity........................................................... 12,961 51,321
</TABLE>
- --------------
(1) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share and shares used
in computing pro forma net loss per share.
(2) Gives effect to the sale of 3,500,000 shares of Common Stock offered by the
Company in this Offering at the assumed offering price of $12.00 per share
(the mid-point of the range set forth on the front cover) and the
application of the net proceeds therefrom, after deducting the underwriting
discount and offering expenses payable by the Company. See "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED
HEREBY. THIS PROSPECTUS MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT
MIGHT CAUSE SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW.
DEVELOPMENT STAGE COMPANY; SUBSTANTIAL FUTURE LOSSES AND FUTURE CAPITAL
REQUIREMENTS
Since its formation in July 1993, the Company has been engaged in the
development of visualization and information systems and related surgical
instruments and accessories that enable MIM solutions for applications in
cardiothoracic and other selected microsurgical procedures and in manufacturing
and marketing limited quantities of camera systems to customers as an original
equipment manufacturer ("OEM"). As of December 31, 1996, the Company had
incurred cumulative net losses of $13.6 million since its formation. The Company
expects to incur substantial and increasing operating losses before it will
reach profitability, if at all. Furthermore, the Company expects its expenses in
all categories to increase as its marketing and other business activities
expand. There can be no assurance that the Company will achieve or sustain
profitability in the future. Failure to achieve significant commercial revenues
or profitability would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the following: the extent to which the Company's
products gain market acceptance; the progress and scope of product evaluations;
the timing and costs of filing future regulatory submissions; the timing and
costs required to receive both domestic and international governmental
approvals; the timing and costs of product introductions; the extent of the
Company's ongoing research and development programs; the costs of training
physicians to become proficient in the use of the Company's products and
procedures; and the costs of developing marketing and distribution capabilities.
The Company anticipates that the net proceeds from this Offering and the
interest income thereon, together with its existing cash, cash equivalents and
short-term investments, will be sufficient to fund its operations through 1998.
If, at or prior to such time, the net proceeds of this Offering, together with
available funds and cash generated from operations, are insufficient to satisfy
the Company's cash needs, the Company may require additional financing. There
can be no assurance that such additional financing will be available on terms
acceptable to the Company, if at all. The Company's inability to fund its
capital and operational requirements would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE UPON AND UNCERTAINTY REGARDING COMMERCIALIZATION OF SERIES 8000
The Series 8000 for minimally invasive cardiac surgery is the Company's
primary near-term product focus and is expected to account for the majority of
the Company's revenues over the next several years. Some components of the
system have not been cleared for marketing by the FDA. Additional product
evaluation, as well as regulatory clearance or approval, is required before the
system can be widely marketed in the United States or internationally. There can
be no assurance that demand for the Series 8000 will be sufficient to achieve
profitable operations.
Development of certain peripheral components of the Series 8000 has not yet
been finalized, and final prototypes have not yet been completed. There can be
no assurance that such development efforts will be successful or that the
Company's products under development will be shown to be safe or
7
<PAGE>
effective, capable of being manufactured in commercial quantities at acceptable
costs, cleared or approved by regulatory authorities or successfully marketed.
Evaluations of the Series 8000 conducted to date have shown that there is a
learning process involved for surgeons and other members of the surgery team to
become proficient with the use of the system. Based on a limited number of
clinical and laboratory procedures performed to date, there can be no assurance
that visualization and information system enhancements incorporated, or to be
incorporated, in the Series 8000 will prove suitable for use by a substantial
number of cardiothoracic surgeons. If the Series 8000 proves unsuitable for a
number of surgeons to use, the potential markets and applications for the
Company's products would be significantly limited. Widespread use of the Series
8000 will require training of a large number of surgeons, and the time required
to institute a training program and to train such surgeons could adversely
affect market acceptance. Failure to successfully commercialize the Series 8000
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Product Lines," "Business
- -- Marketing and Sales," "Business -- Manufacturing" and "Business -- Government
Regulation."
UNCERTAINTY OF CLINICAL ADOPTION OF MINIMALLY INVASIVE MICROSURGICAL PROCEDURES
The Company's near-term products are being developed in order to enable
cardiothoracic and HNS surgeons to perform MIM surgical procedures using their
existing skills coupled with training and complementary equipment being
developed by other companies. Accordingly, the Company's success is dependent
upon acceptance of these procedures by the medical community as a reliable, safe
and cost effective alternative to existing treatments. To date, MIM surgical
procedures have only been performed on a very limited basis by a small number of
highly skilled surgeons. The Company is unable to predict how quickly, if at
all, MIM surgical procedures will be adopted by the medical community or, if
they are adopted, the number of procedures that will be performed.
Most patients with cardiovascular disease first consult with a cardiologist,
who then may treat the patient with pharmaceuticals or non-surgical
interventions, such as angioplasty and intravascular stents, or refer the
patient to a cardiac surgeon for open-chest coronary artery bypass graft
("CABG") surgery. Cardiologists may not recommend MIM procedures until such
time, if at all, as such procedures can successfully be demonstrated to be as
safe and cost-effective as other accepted treatments. In addition, cardiac
surgeons may choose not to recommend MIM procedures until such time, if at all,
as such procedures are proven to be more efficacious than conventional,
open-chest surgery methods, which have become widely adopted by cardiac surgeons
since the initial use of such surgery in the mid-1950s.
Even if the clinical efficacy of MIM procedures is established in cardiac
and other specialties, surgeons, specialists and other physicians may choose not
to recommend the procedures for any number of other reasons. Clinical adoption
will depend, for example, upon the Company's ability to facilitate training of
surgeons to perform MIM surgery and the willingness of such surgeons to perform
such procedures. Physicians may similarly elect not to recommend the MIM
procedure based on possible unavailability of acceptable reimbursement from
health care payors. Health care payor acceptance may require evidence of the
cost effectiveness of MIM procedures as compared to other currently available
treatments. The Company believes that physician endorsements will be essential
for clinical adoption of MIM procedures, and there can be no assurance that any
such endorsements will be obtained in a timely manner, if at all. Patient
acceptance of the procedure will depend upon such physician recommendations, as
well as other factors, including the effectiveness of, and the rate and severity
of complications associated with, the procedure as compared to other treatments.
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There can be no assurance that MIM procedures will gain clinical adoption.
Failure of these procedures to achieve significant clinical adoption would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Background," "Business -- Product
Lines," "Business -- Marketing and Sales," "Business -- Competition" and
"Business -- Government Regulation."
LACK OF COMMERCIAL MANUFACTURING EXPERIENCE; SCALE-UP RISK
The Company lacks experience in manufacturing the products under
development, including the Series 8000, in the quantities that would be
necessary for the Company to achieve significant commercial sales. The
manufacture of the Company's products primarily involves the assembly of a
number of sub-assemblies and components. Companies such as Vista Medical often
encounter difficulties in scaling up manufacturing of products, which
difficulties could include problems involving quality control and assurance,
component and service availability, adequacy of control policies and procedures,
lack of qualified personnel, compliance with FDA regulations and the need for
further FDA approval of new manufacturing processes and facilities and other
production constraints. There can be no assurance that reliable, high-volume
manufacturing can be established or maintained at commercially reasonable costs.
The Company will also require additional manufacturing facilities as production
volumes increase; acquisition of new manufacturing facilities will likely
involve relocation. Any of these factors could have a material adverse effect on
the Company's business, financial condition and results of operation.
The Company has and will continue to consider as appropriate, the internal
manufacture of sub-assemblies currently provided by third party subcontractors,
as well as the implementation of new production processes. There can be no
assurance that manufacturing yields or costs will not be adversely affected by
the transition to in-house production or to new production processes when such
efforts are undertaken, or that FDA Good Manufacturing Practices ("GMP")
requirements can be met and that such a transition would not materially
adversely affect the Company's business, financial condition and results of
operations. See "Business -- Manufacturing."
LIMITED SALES, MARKETING, DISTRIBUTION AND TECHNICAL SUPPORT EXPERIENCE
The Company has organized its sales and marketing efforts by the Company's
CardioThoracic Surgery and HNS Microsurgery divisions. The Company currently
markets its cardiothoracic products in North America through two direct (Company
employee) sales representatives and 35 independent sales representatives. The
Company is in the process of hiring up to 10 additional direct sales
representatives to support the introduction of its Series 8000 by the
CardioThoracic Surgery division. A similar combination of direct and independent
sales representatives will market the products of the Company's HNS Microsurgery
division. Establishment of a sales force capable of effectively commercializing
the Company's systems will require substantial efforts and significant
management and financial resources. There can be no assurance that the Company
will be able to establish such a sales capability on a timely basis or at all.
The Company believes that a critical element of its sales efforts in North
America will be the provision of technical support, including training and
clinical validation efforts, to its customers. Provision of an adequate level of
such support on a timely basis requires significant financial resources. There
can be no assurance that the Company will be able to provide an adequate level
of technical support on a timely basis, or at all. See "Business -- Strategic
Alliances" and "Business -- Marketing and Sales."
POTENTIAL COMPONENT SHORTAGES; DEPENDENCE ON SOLE SOURCES OF SUPPLY
The Company uses or relies on certain components and services used in its
systems that are provided by sole source suppliers. The manufacture of the
Company's products in larger commercial quantities will require a substantial
increase in component supplies and will likely necessitate the
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replacement of current suppliers or the addition of new suppliers. The
qualification of additional or replacement vendors for certain components or
services is a lengthy process. In addition, the substitution of replacement
vendors may entail re-engineering time and cost and could delay the supply of
the Company's products.
The Company expects to manufacture its products based on forecasted product
orders and intends to purchase subassemblies and components prior to receipt of
purchase orders from customers. Lead times for materials and components ordered
by the Company vary significantly and depend on factors such as the business
practices of the specific supplier, contract terms and general demand for a
component at a given time. Certain components used in the Company's products
have long lead times. As a result, there is a risk of excess or inadequate
inventory if orders do not match forecasts.
Any significant supply interruption, or inventory shortage or overage, would
have a material adverse effect on the Company's ability to manufacture the
Company's products and, therefore, a material adverse effect on its business,
financial condition and results of operations. See "Business -- Manufacturing."
NO ASSURANCE OF REGULATORY CLEARANCE OR APPROVAL; SIGNIFICANT DOMESTIC AND
INTERNATIONAL REGULATION
The manufacture and sale of medical devices intended for commercial
distribution are subject to extensive governmental regulation in the United
States. Medical devices are regulated in the United States primarily by the FDA
and, to a lesser extent, by certain state agencies. Generally, medical devices
require pre-market clearance or pre-market approval prior to commercial
distribution. In addition, certain material changes or modifications to medical
devices also are subject to FDA review and clearance or approval. The FDA
regulates the research, testing, manufacture, safety, labeling, storage, record
keeping, promotion and distribution of medical devices in the United States and
the export of unapproved medical devices from the United States to other
countries. Noncompliance with applicable requirements can result in failure of
the government to grant pre-market clearance or approval for devices, withdrawal
of approval, total or partial suspension of production, fines, injunctions,
civil penalties, refunds, recall or seizure of products and criminal
prosecution.
In the United States, medical devices are classified into one of three
classes, Class I, II or III, on the basis of the controls deemed by the FDA to
be necessary to reasonably ensure their safety and effectiveness. The Company's
products to date have either been classified as Class I or Class II devices.
Class I devices are subject to general controls (e.g., established
registration and product listing, labeling, adulteration and misbranding
provisions and medical device reporting requirements and, unless exempt, to
pre-market notification and adherence to GMP standards). Class II devices are
subject to general controls and special controls (e.g., performance standards,
post-market surveillance, patient registries and FDA guidelines). Generally,
Class III devices are those that must receive pre-market approval by the FDA to
ensure their safety and effectiveness (e.g., life-sustaining, life-supporting
and implantable or new devices which have not been found to be substantially
equivalent to legally marketed devices). Class III devices ordinarily require
clinical testing to ensure safety and effectiveness and FDA approval prior to
marketing and distribution. The FDA also has the authority to require clinical
testing of Class I and Class II devices. A pre-market approval ("PMA")
application must be filed if a proposed device is not substantially equivalent
to a legally marketed predicate device or if it is a Class III device for which
the FDA has called for such application. A PMA typically takes several years to
be approved by the FDA.
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) notification or submission and approval of a PMA application. If a
medical device manufacturer or distributor can establish that a device is
"substantially equivalent" to a legally marketed Class I or Class II device, or
to a Class III device for which the FDA
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has not called for a PMA, the manufacturer or distributor may seek clearance
from the FDA to market the device by filing a 510(k) notification. The 510(k)
notification may need to be supported by appropriate performance, clinical or
testing data establishing the claim of substantial equivalence. The FDA requires
a rigorous demonstration of substantial equivalence.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until a letter
clearing the 510(k) is issued by the FDA. At this time, the FDA typically
responds to the submission of a 510(k) notification within 90 to 200 days. An
FDA letter may declare that the device is substantially equivalent to a legally
marketed device and allow the proposed device to be marketed in the United
States. The FDA, however, may determine that the proposed device is not
substantially equivalent or requires further information, including clinical
data, to make a determination regarding substantial equivalence. Such
determination or request for additional information will delay market
introduction of the product that is the subject of the 510(k) notification.
All clinical investigations involving the use of an unapproved or uncleared
device on humans to determine the safety or effectiveness of the device must be
conducted in accordance with the FDA's investigational device exemption ("IDE")
regulations. If the device presents a "significant risk," the manufacturer or
distributor of the device is required to file an IDE application with the FDA
prior to commencing human clinical trials. The IDE application must be supported
by data, typically the result of animal and, possibly, mechanical testing. If
the IDE application is approved by the FDA, human clinical trials may begin at a
specific number of investigational sites with a maximum number of patients, as
approved by the FDA. If the device presents a "non-significant risk," approval
by an Institutional Review Board prior to commencing human clinical trials is
required, as well as compliance with labeling, record keeping, monitoring and
other requirements.
Any products manufactured or distributed by the Company are subject to
continuing regulation by the FDA, which includes record keeping requirements,
reporting of adverse experience with the use of the device GMP requirements and
post-market surveillance, and may include post-market registry and other actions
deemed necessary by the FDA. A 510(k) supplement, new 510(k) or PMA is also
required when a medical device manufacturer makes a change or modification to a
legally marketed device that could significantly affect the safety or
effectiveness of the device, or where there is a major change or modification in
the intended use of the device. When any change or modification is made to a
device or its intended use, the manufacturer is expected to make the initial
determination as to whether the change or modification is of a kind that would
necessitate the filing of a 510(k) supplement, new 510(K) or PMA.
Sales of medical device products outside the United States are subject to
foreign regulatory requirements that vary from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA clearance, and requirements for licensing may
differ from FDA requirements. Failure to comply with regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations. The current regulatory environment in
Europe for medical devices differs significantly from that in the United States.
Europe is currently in the transitional process of implementing the Medical
Device Directive which was adopted on January 1, 1995 with a transition period
through June 1998. After June 1998, all medical devices sold in the European
Union must bear the CE mark. Devices are now classified by manufacturers
according to the risks they represent with a classification system giving Class
III as the highest risk devices and Class I as the lowest. Once the device has
been classified, the manufacturer can follow one of a series of conformity
assessment routes, typically through a registered quality system, and
demonstrate compliance to a European Notified Body. After that, the CE mark may
be applied to the device. Maintenance of the system is ensured through annual
on-site audits by the Notified Body and a post-market surveillance system
requiring the manufacturer to submit serious complaints to the appropriate
governmental authority.
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Failure to comply with regulatory requirements could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."
RAPID TECHNOLOGICAL CHANGE; SIGNIFICANT COMPETITION
The medical device market is characterized by intensive development efforts
and rapidly advancing technology. The future success of the Company will depend,
in large part, upon its ability to anticipate and keep pace with advancing
technology and competing innovations. There can be no assurance, however, that
the Company will be successful in identifying, developing and marketing new
products or enhancing its existing products.
The Company believes that a number of large companies, with significantly
greater financial, manufacturing, marketing, distribution and technical
resources and experience than that of the Company, are focusing on the
development of visualization products for MIM. Several companies are currently
developing and marketing visualization products for MIM which could be applied
to cardiac surgery. There can be no assurance that the Company will be
successful in competing with any such companies.
Technological advances with other therapies for heart disease such as drugs,
interventional cardiology procedures or future innovations in cardiac surgery
techniques could make such other therapies more effective or lower in cost than
MIM surgical procedures and could render MIM cardiac surgery obsolete.
There can be no assurance that physicians will use MIM surgical procedures
to replace or supplement established treatments, such as conventional open-chest
heart surgery, angioplasty or intravascular stents, or that MIM cardiac surgery
will be competitive with current or future technologies. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors. Failure to do so would have a material adverse effect
upon the Company's business, financial condition and results of operations. See
"Business -- Competition."
RELIANCE ON STRATEGIC RELATIONSHIPS
The Company intends to pursue strategic relationships with corporations and
research institutions with respect to the research, development, regulatory
approval and marketing of certain of its products. The Company's future success
may depend, in part, on its relationships with such partners, including, for
example, the Company's relationships with Medtronic and Heartport. The Company
will have limited or no control over the resources that any partner may devote
to the Company's products, or over partners' development and marketing efforts.
There can be no assurance that any of the Company's present or future
collaborative partners will perform their obligations as expected or will devote
sufficient resources to the development or marketing of the Company's potential
products. Any parallel development by a partner of alternate technologies,
preclusion from entering into competitive arrangements, failure to obtain timely
regulatory approvals, premature termination of a collaborative agreement or
failure by a partner to devote sufficient resources to the development and
commercialization of the Company's products would have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company anticipates that these partners may have the unilateral right to
terminate any such relationship without significant penalty. There can be no
assurance that the Company will be successful in establishing or maintaining any
such strategic relationships in the future or that any such relationship will be
successful. See "Business -- Strategic Alliances."
FLUCTUATIONS IN OPERATING RESULTS
Results of operations of the Company may vary significantly from quarter to
quarter depending upon numerous factors, including the following: timing and
results of product evaluations; delays associated with the FDA and other
regulatory approval processes; demand for and utilization of the
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Company's products; changes in pricing policies by the Company or its
competitors; the number, timing and significance of product enhancements and new
product announcements by the Company and its competitors; the ability of the
Company to develop, introduce and market new and enhanced versions of the
Company's products on a timely basis; customer order deferrals in anticipation
of enhancements or new products offered by the Company or its competitors;
product quality problems; personnel changes; and the level of international
sales. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
UNCERTAINTY RELATING TO THIRD-PARTY PAYMENTS
The Company expects that sales volumes and prices of the Company's products
will be directly influenced by the profitability to, or cost-effectiveness for,
hospitals of the procedures in which the Company's products are involved.
Profitability levels are directly related to the level of payments for these
procedures, either by Medicare or private insurance companies, and it is a
continuing trend in U.S. health care for such payments to be under continual
scrutiny and downward pressure. The Company expects that its products typically
will be used by hospitals and surgical centers, which bill various third-party
payors, such as governmental programs and private insurance plans, for the
health care services provided to their patients. Third-party payors carefully
review and increasingly challenge the prices charged for medical products and
services or negotiate a flat rate fee in advance. Payment rates from private
companies also vary depending on the procedure performed, the third-party payor,
the insurance plan and other factors. Medicare compensates hospitals at a
prospectively determined fixed amount for the costs associated with an
in-patient hospitalization based on the patient's discharge diagnosis and
compensates physicians at a prospectively determined fixed amount based on the
procedure performed, regardless of the actual costs incurred by the hospital or
physician in furnishing the care and unrelated to the specific devices or
systems used in that procedure. Medicare and other third-party payors are
increasingly scrutinizing whether to cover new products and the level of payment
for new procedures. The flat fee reimbursement trend is causing hospitals to
control costs strictly in the context of a managed care system in which health
care providers contract to provide comprehensive health care for a fixed cost
per person. The Company is unable to predict what changes will be made in the
reimbursement methods utilized by third-party health care payors. The Company
could be adversely affected by changes in payment policies of government or
private health care payors, particularly to the extent any such changes affect
payment for the procedure in which the Company's products are intended to be
used.
If the Company obtains the necessary foreign regulatory registrations or
approvals, market acceptance of the Company's products in international markets
would be dependent, in part, upon the acceptance by the prevailing health care
financing system in each country. Health care financing systems in international
markets vary significantly by country and include both government sponsored
health care programs and private insurance. There can be no assurance that these
financing systems will endorse use of the Company's technology.
The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United States
and in foreign markets. The Company believes that the overall escalating cost of
medical products and services has led to and will continue to lead to increased
pressures on the health care industry, both foreign and domestic, to reduce the
cost of products and services, including products offered by the Company. There
can be no assurance, as to either United States or foreign markets, that funding
will be available or adequate, or that future legislation, regulation or
reimbursement policies of third-party payors will not otherwise adversely affect
the demand for the Company's products or its ability to sell its products on a
profitable basis, particularly if the Company's systems are more expensive than
competing surgical procedures. The unavailability or inadequacy of third-party
payor coverage or reimbursement would have a material adverse effect on the
Company's business, financial condition and results of operations.
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RISK RELATING TO INTERNATIONAL OPERATIONS
In the event the Company is successful in developing its products,
manufacturing them in commercial quantities and receiving necessary FDA and
foreign regulatory registrations or approvals, the Company plans to market its
products in international markets, either on its own or with its strategic
partners. The Company has limited experience in marketing its products overseas.
Changes in overseas economic conditions, currency exchange rates, foreign tax
laws or tariffs or other trade regulations could have a material adverse effect
on the Company's business, financial condition and results of operations. The
anticipated international nature of the Company's business is also expected to
subject it and its representatives, agents and distributors to laws and
regulations of the foreign jurisdictions in which they operate or in which the
Company's products under development are sold. The regulation of medical devices
in a number of such jurisdictions, particularly in the European Union, continues
to develop and there can be no assurance that new laws or regulations will not
have an adverse effect on the Company's business, financial condition and
results of operations. 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. See "Business -- Government Regulation" and "Business
- -- Patents and Proprietary Rights."
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
The Company faces an inherent and significant business risk of exposure to
product liability claims in the event that the use of its products results in
personal injury or death and there can be no assurance that the Company will not
experience any material product liability losses in the future. Also, in the
event that any of the Company's products prove to be defective, the Company may
be required to recall or redesign such products. The Company's current product
liability insurance coverage limit is $4.0 million in the aggregate. There can
be no assurance that such coverage limits are adequate to protect the Company
from any liabilities it might incur in connection with the development,
manufacture and sale of its products. In addition, the Company may require
increased product liability coverage if any products are used in clinical
evaluations or successfully commercialized. Product liability insurance is
expensive and in the future may not be available to the Company on acceptable
terms, if at all. A successful product liability claim or series of claims
brought against the Company in excess of its insurance coverage or a product
recall could have a material adverse effect on the Company's business, financial
condition and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF
FUTURE LITIGATION
Vista Medical relies on a combination of technical leadership, patent, trade
secret, copyright and trademark protection and nondisclosure agreements to
protect its proprietary rights. As of February 28, 1997, the Company had
exclusive ownership rights to seven issued United States patents, 11 pending
United States patent applications and eight pending foreign applications
covering various aspects of its devices and systems. Furthermore, as of the same
date, the Company had exclusive rights in the medical field to four issued
United States patents, one pending United States patent application, three
issued foreign patents and nine pending foreign applications covering various
aspects of its devices and systems. The Company intends to file additional
patent applications in the future. The failure of such patents to issue could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's future success will depend, in part, on its ability to
continue to develop patentable products, enforce its patents and obtain patent
protection for its products both in the United States and in other countries.
The patent positions of medical device companies, including the Company,
however, are generally uncertain and involve complex legal and factual
questions. There can be no assurance that patents will issue from any patent
applications owned by or licensed to the Company or that, if patents do issue,
the claims allowed will be sufficiently broad to protect the Company's
technology. In addition,
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there can be no assurance that any issued patents owned by or licensed to the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Litigation, which
would result in substantial expense to the Company, may be necessary to enforce
any patents issued or licensed to the Company and/or to determine the scope and
validity of proprietary rights of third parties or whether the Company's
products, processes or procedures infringe any such third-party proprietary
rights. The Company may also have to participate in interference proceedings
declared by the United States Patent and Trademark Office, which could result in
substantial expense to the Company, to determine the priority of inventions
covered by the Company's issued United States patents or pending patent
applications. Furthermore, the Company may have to participate at substantial
cost in International Trade Commission proceedings to enjoin importation of
products which would compete unfairly with products of the Company. Any adverse
outcome of any patent litigation (including interference proceedings) could
subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from or to third parties or require the Company
to cease using the technology in dispute.
Patent applications in the United States are maintained in secrecy until a
patent issues, and patent applications in foreign countries are maintained in
secrecy for a period of time after filing. After such period of time, and
usually before the grant of the patent, patent applications in foreign countries
are published. While publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries and the filing of related
patent applications, such publication may enable the Company's competitors to
ascertain what areas of research or development the Company is engaged in prior
to the Company's receipt of patent protection in the United States or foreign
countries relating to such research or development.
In general, the development of visualization and information systems and
related surgical instruments and accessories is intensely competitive. Patents
issued and patent applications filed relating to medical devices are numerous
and there can be no assurance that current and potential competitors and other
third parties have not filed or in the future will not file applications for, or
have not received or in the future will not receive, patents or obtain
additional proprietary rights relating to products or processes used or proposed
to be used by the Company. There can also be no assurance that third parties
will not assert infringement claims against the Company in the future or that
any such assertions will not result in costly litigation or require the Company
to obtain a license to intellectual property rights of such parties. There can
be no assurance that any such licenses would be available on terms acceptable to
the Company, if at all. Furthermore, parties making such claims may be able to
obtain injunctive or other equitable relief that could effectively block the
Company's ability to make, use, sell or otherwise practice its intellectual
property (whether or not patented or described in pending patent applications),
or to further develop or commercialize its products in the United States and
abroad and could result in the award of substantial damages. Defense of any
lawsuit or failure to obtain any such license could have a material adverse
effect on the Company.
The Company relies on unpatented trade secrets to protect its proprietary
technology, and no assurance can be given that others will not independently
develop or otherwise acquire the same or substantially equivalent technologies
or otherwise gain access to the Company's proprietary technology or disclose
such technology or that the Company can ultimately protect its rights to such
unpatented proprietary technology. No assurance can be given that third parties
will not obtain patent rights to such unpatented trade secrets, which patent
rights could be used to assert infringement claims against the Company. The
Company also relies on confidentiality agreements with its collaborators,
employees, advisors, vendors and consultants to protect its proprietary
technology. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be independently
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developed by competitors. In addition, the Company's agreements with its
employees and consultants require disclosure to the Company of ideas,
developments, discoveries or inventions conceived during employment or
consulting, as the case may be, and assignment to the Company of proprietary
rights to such matters related to the business and technology of the Company.
The extent to which efforts by others will result in patents and the effect on
the Company of the issuance of such patents is unknown. Failure to obtain or
maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Patents and Proprietary Rights" and
"Business -- Competition."
The Company has in-licensed certain aspects of its technology. In September
1995, Mr. H. McKinley and McKinley Optics, Inc. (collectively, "McKinley")
granted to the Company a perpetual, exclusive, worldwide license in the medical
field to make, have made, modify, use, lease, market, sell and otherwise
distribute certain endoscopes and other medical products incorporating a stereo
objective lens and/or a relay lens configuration. Under the terms of this
license agreement, Vista Medical is obligated to pay McKinley an annual
maintenance royalty, additional royalties upon the sale of certain numbers of
systems incorporating the McKinley technology and royalties on net sales of
products incorporating the McKinley technology. The exclusive license granted
under this agreement becomes a non-exclusive license (or, under certain
circumstances, the license terminates) in the event Vista Medical fails to pay
any royalties following receipt of notice of such failure to pay. In addition,
Vista Medical has the right to terminate the agreement with limited notice.
In June 1996, Fuji Film Co. and Fuji Photo Optical Co., Ltd. (collectively,
"Fuji") granted to the Company a non-exclusive license to certain optical zoom
technology for use in endoscopes. Vista Medical is obligated to pay royalties on
net sales of products in the United States which incorporate Fuji's technology.
Fuji may terminate the agreement if Vista Medical does not cure any violation of
the agreement within a limited period of time. Failure of the Company to retain
rights to these technologies could have a material, adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Patents and Proprietary Rights."
DEPENDENCE ON KEY PERSONNEL AND ADVISORS
The Company's future business and operating results depend in significant
part upon the continued contributions of its key technical and senior management
personnel, many of whom would be difficult to replace and certain of whom
perform important functions for the Company beyond those functions suggested by
their respective job titles or descriptions. The Company's business and future
operating results also depend in significant part upon its ability to attract
and retain qualified management, manufacturing, technical, marketing and sales
and support personnel for its operations. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The loss of any key employee, the
failure of any key employee to perform in his or her current position or the
Company's inability to attract and retain skilled employees, as needed, could
materially adversely affect the Company's business, financial condition and
results of operations. See "Management -- Executive Officers and Directors."
The Company has established two Clinical Advisory Boards made up of leading
surgeons, one focused on minimally invasive cardiac surgery, the other focused
on a number of HNS microsurgery and other specialties. Members of the Clinical
Advisory Boards consult with the Company exclusively in the field of
visualization, but are free to consult with other instrumentation companies and
are employed elsewhere on a full-time basis. As a result, they only spend a
limited amount of time on the Company's affairs. Although the Company has
entered into consulting agreements, with terms ranging from 12 months to two
years, including confidentiality provisions with each of the members of the
Clinical Advisory Boards, there can be no assurance that the consulting and
confidentiality agreements between the Company and each of the members of the
Clinical Advisory Boards will not be terminated or breached. In addition, there
can be no assurance that any of such agreements will be renewed upon
termination. See "Business -- Clinical Advisory Boards."
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NEED TO MANAGE A CHANGING BUSINESS
In order to compete effectively against current and future competitors,
prepare additional products for potential commercialization and develop future
products, the Company, believes that it must continue to expand its operations,
particularly in the areas of development and manufacturing. If the Company were
to experience significant growth in the future, such growth would likely result
in new and increased responsibilities for management personnel and place
significant strain upon the Company's management, operating and financial
systems and resources. To accommodate such growth and compete effectively, the
Company must continue to implement and improve information systems, procedures
and controls, and to expand, train, motivate and manage its work force. The
Company is in the process of implementing an integrated financial, manufacturing
and inventory information system. Implementing such a system can be
time-consuming and expensive and requires significant management resources.
There can be no assurance that such system will be implemented on a timely
basis. All of the foregoing demands will require the addition of new management
personnel. The Company's future success will depend to a significant extent on
the ability of its current and future management personnel to operate
effectively, both independently and as a group. There can be no assurance that
the Company's personnel, systems, procedures and controls will be adequate to
support the Company's future operations. Any failure to implement and improve
the Company's operational, financial and management systems or to expand, train,
motivate or manage employees could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Human Resources" and "Management."
NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this Offering. The initial public offering price will be
determined through negotiations among the Company and the representatives of the
Underwriters based on several factors and may not be indicative of the market
price of the Common Stock after this Offering. The market price of the shares of
Common Stock is likely to be highly volatile and may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results, changes in financial estimates by securities analysts, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, regulatory announcements, developments with respect to patents or
proprietary rights, conditions and trends in the medical device and other
technology industries, adoption of new accounting standards affecting the
medical device industry, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
shares of early stage companies. These broad market fluctuations may adversely
affect the market price of the Common Stock. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against that company. Such
litigation, if brought against the Company, could result in substantial costs
and a diversion of management's attention and resources. See "Underwriting."
CONTROL BY EXISTING STOCKHOLDERS, OFFICERS AND DIRECTORS
Upon completion of this Offering, the present directors, executive officers
and principal stockholders of the Company and their affiliates will beneficially
own approximately 71.2% of the outstanding Common Stock. As a result, these
stockholders will be able to exercise control over all matters requiring
stockholder approval (including the election of directors and approval of
significant corporate transactions) irrespective of how other stockholders may
vote. Such concentration of ownership may have the effect of delaying or
preventing a change in control of the Company and thereby adversely affect the
market price of the Common Stock. See "Principal Stockholders."
17
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
following this Offering could adversely affect the market price for the Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and by lock-up agreements under which the Company's
officers, directors and certain stockholders of the Company (who hold an
aggregate of approximately 9,171,000 shares of Common Stock upon the completion
of this Offering, including shares issued or issuable upon the exercise of
vested options and warrants outstanding as of February 28, 1997) have agreed not
to sell or otherwise dispose of any of their shares for a period of 180 days
after the date of this Prospectus without the prior written consent of Goldman,
Sachs & Co. Goldman, Sachs & Co. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. As a result of restrictions under the Securities Act and the lock-up
agreements, the following shares of Common Stock (including shares issued or
issuable upon the exercise of vested options and warrants outstanding as of
February 28, 1997) will be eligible for future sale: on the date of this
Prospectus, 3,500,750 shares (including the 3,500,000 shares offered hereby)
will be eligible for sale; an additional approximately 7,571,000 shares will be
eligible for sale 180 days after the date of this Prospectus; the remaining
1,600,000 shares of Common Stock will become eligible for sale under Rule 144 at
various dates thereafter as the holding period provisions of Rule 144 are
satisfied. In addition, the Company intends to register on the effective date of
this Offering a total of 2,820,000 shares of Common Stock subject to outstanding
options or reserved for issuance under the Company's 1997 Stock Option/Stock
Issuance Plan and 200,000 shares of Common Stock reserved for issuance under its
1997 Employee Stock Purchase Plan. Further, upon expiration of such lock-up
agreements, holders of approximately 8,780,679 shares of Common Stock will be
entitled to certain registration rights with respect to such shares. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Common Stock.
The Company cannot predict the effect, if any, that market sales of shares
or the availability of shares for sale will have on the market price of the
Common Stock prevailing from time to time. Sales of significant amounts of the
Common Stock in the public market could adversely affect the market price of the
Common Stock and could impair the Company's ability to raise capital through an
offering of its equity securities. See "Description of Capital Stock --
Registration Rights" and "Shares Eligible for Future Sale."
HAZARDOUS MATERIALS
The Company's research and development may involve the controlled use of
hazardous materials and chemicals. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any
resultant damages, and any such liability could exceed the resources of the
Company. The Company may incur substantial cost to comply with environmental
regulations.
NO DIVIDENDS
The Company currently intends to retain any future earnings for use in its
business and does not anticipate paying any cash dividends in the future. See
"Dividend Policy."
18
<PAGE>
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF SECOND RESTATED
CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
Upon completion of this Offering, the Company's Board of Directors will have
the authority to issue up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting and conversion rights of such shares, without any further vote or action
by the Company's stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company.
In addition, the Company's Second Restated Certificate of Incorporation
provides for a classified Board of Directors such that approximately one-third
of the members of the Company's Board of Directors are elected at each annual
meeting of stockholders. Such classification of the Company's Board of Directors
may have the effect of delaying, deferring or discouraging changes in control of
the Company.
Making more difficult or discouraging a change in control of the Company may
adversely affect the market price of the Common Stock. See "Description of
Capital Stock -- Preferred Stock" and "Description of Capital Stock -- Possible
Antitakeover Effect of Certain Charter Provisions."
SUBSTANTIAL DILUTION
Investors participating in this Offering will incur immediate, substantial
dilution. To the extent outstanding options to purchase the Common Stock are
exercised, there will be further dilution. If the net proceeds of this Offering,
together with available funds and cash generated from operations, are
insufficient to satisfy the Company's cash needs, the Company may be required to
sell additional equity or convertible debt securities. The sale of additional
equity or convertible debt securities could result in additional dilution to the
Company's stockholders. See "Dilution" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
19
<PAGE>
THE COMPANY
Vista Medical Technologies, Inc. ("Vista Medical" or the "Company")
develops, manufactures and intends to market proprietary visualization and
information systems that enable minimally invasive surgical solutions in
cardiothoracic, head, neck and spine ("HNS") and other selected microsurgical
procedures. The Company currently markets endoscopic cameras and related
surgical instruments and accessories. Vista Medical's visualization and
information systems bring together head-mounted display ("HMD") technology
originally developed for applications in military aerospace by Kaiser Aerospace
and Electronics Corporation ("Kaiser Aerospace") and three-dimensional ("3-D")
imaging capability from its acquisition of Oktas, Inc.
The development and subsequent widespread adoption of minimally invasive
surgical approaches have revolutionized many surgical fields, including general
surgery, orthopedics, gynecology and urology. Minimally invasive surgical
procedures are performed through strategically placed ports or mini-incisions in
a patient's body, thereby avoiding the larger incisions used in traditional open
surgery. Minimally invasive procedures are designed to decrease complications,
reduce pain and suffering, speed recovery and decrease costs associated with
many aspects of patient care. This movement toward minimally invasive surgery
has been driven by advances in both device technology and surgical technique.
Minimally invasive microsurgery ("MIM") is an extension of minimally invasive
surgery and is characterized by greater complexity and precision. MIM procedures
have been made possible primarily by recent advances in medical technology.
The application of minimally invasive techniques to cardiothoracic surgery
is commonly regarded as a revolutionary development in modern surgery. Minimally
invasive cardiac procedures avoid the trauma caused by sternotomy and promise to
significantly decrease pain and trauma and shorten recovery times.
Cardiothoracic MIM requires the surgeon to perform technically challenging
procedures, including working on tiny delicate structures (such as a one
millimeter heart vessel) with highly restricted access through small incisions.
The Company believes that an advanced visualization technology which
provides the surgeon with an intuitive and ergonomic solution to the inherent
vision restrictions of the MIM approach will enable the use of the MIM technique
with increased safety, efficacy and precision. In order to meet this
visualization challenge, the Company has developed proprietary visualization and
information systems.
Vista Medical's proprietary technology is based on the following principles
which the Company believes are essential in advancing the techniques of MIM: (i)
three-dimensional view; (ii) high resolution images; (iii) improved access
through miniaturization technology; (iv) optimized surgical ergonomics; and (v)
integration of anatomical image with critical monitoring and diagnostic
information.
Based on these principles, Vista Medical develops visualization products and
related information systems that are customized for the specific cardiothoracic
and HNS procedures to which they are directed. The Company's product lines
include the Series 8000 Advanced Visualization and Information System ("Series
8000"), designed for use in cardiothoracic procedures, and StereoSite, designed
for use in microscopic and endoscopic procedures in HNS. All 510(k) clearances
to market necessary for initial Series 8000 commercialization have been
received. However, the Series 8000 is not yet commercially available. The
Company believes the HMD/Processor component of the StereoSite system is
eligible for 510(k) clearance to market, for which the Company has not yet
filed. All other required 510(k) clearances to market for the StereoSite system
have been received. The Company also offers surgical instruments and accessories
designed for use in both cardiothoracic and HNS MIM procedures.
20
<PAGE>
BUSINESS STRATEGY
The Company's business strategy is to become the leading developer and
marketer of advanced visualization and information systems for MIM applications
in cardiothoracic, HNS and other selected surgical specialties. Key elements of
the Company's strategy include:
- Establish advanced visualization technologies as standard practice in
minimally invasive cardiac surgery.
- Promote Vista Medical's visualization solution for use in all types of
cardiac surgery.
- Develop MIM applications through specialty-focused business units by
leveraging the Company's technology platform.
- Accelerate adoption of the Series 8000 Advanced Visualization and
Information System in the cardiac market by implementing a per-procedure
pricing strategy.
- Increase the surgeon's real-time access to critical data.
- Enter into strategic relationships which complement Company resources.
To assist in implementing its business strategy, the Company has established
two Clinical Advisory Boards made up of leading surgeons, one focused on
minimally invasive cardiac surgery, the other focused on HNS microsurgery and a
number of other specialties. Members of the Clinical Advisory Boards consult
with the Company exclusively in the field of visualization. The Clinical
Advisory Boards are intended to act as a clinical reference for the Company and
to provide access to potential training sites for the Company's visualization
products.
RECENT DEVELOPMENTS
In November 1996, Vista Medical and Medtronic, Inc. ("Medtronic"), a leading
cardiac company, entered into a strategic alliance providing for the
distribution and co-promotion of the Company's current and future visualization
and information systems for cardiac surgery, including the Series 8000 (the
"Vista Systems"). Medtronic will act as Vista Medical's exclusive distributor
for the Vista Systems for use in cardiothoracic surgical procedures in Europe,
the Middle East (excluding Afghanistan and Pakistan) and Africa and will
co-promote the Vista Systems in North America. Vista Medical retains direct
distribution rights in North America as well as the worldwide right to
distribute its systems for use in all other procedures. In conjunction with
entering into the agreement, Medtronic made a $10.0 million equity investment in
the Company.
The Company believes that the control and processing of information is a key
component in the development of advanced visualization systems. As a result, in
January 1997, the Company obtained from GDE Systems, Inc. ("GDE"), a leading
military electronics and information management company, an exclusive worldwide
license to software and documentation and trademarks of GDE for use in the
medical field. Since 1993, GDE's subsidiary, Healthcom, has been adapting the
software licensed to Vista Medical to provide high-speed, image-based
information processing and networking capabilities specifically for medical
applications. In connection with the license, Vista Medical will issue to GDE
Common Stock with a value (based on the initial public offering price) of
$250,000.
In February 1997, the Company entered into an agreement with Heartport, Inc.
("Heartport"), a leading company developing minimally invasive technology for
heart surgery. Vista Medical will sell four Series 8000 systems to Heartport,
for use in the Heartport Research and Training Center in Salt Lake City, Utah.
Heartport has agreed to use the Series 8000 in its training centers, to promote
that its training courses utilize the Series 8000 and to endorse the Series 8000
as the preferred 3-D video visualization and information solution for minimally
invasive heart surgery. In connection with the agreement, the
21
<PAGE>
Company issued to Heartport a warrant to purchase up to 100,000 shares of Common
Stock, exercisable at any time after this Offering and prior to March 31, 2001,
at a price per share equal to the initial public offering price. If an initial
public offering is not completed by June 30, 1997, the price will be $6.67 per
share.
The Company was incorporated in the State of California in July 1993 and
reincorporated in the State of Delaware in November 1996. Unless the context
indicates otherwise, the "Company" or "Vista Medical" refers to Vista Medical
Technologies, Inc. The Company's principal executive offices are located at 5451
Avenida Encinas, Suite A, Carlsbad, California 92008, and its telephone number
is (619) 603-9120.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered hereby are estimated to be approximately $38,360,000
($44,219,000 if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $12.00 per share (the mid-point of the range
set forth on the front cover) and after deducting the estimated underwriting
discounts and commissions and other estimated offering expenses.
From the anticipated $38.4 million net proceeds of this Offering, the
Company intends to use approximately $12.8 million to fund product
introductions, approximately $7.5 million for sales and marketing activities,
approximately $5.5 million for research and development, approximately $3.5
million for the acquisition of capital equipment for manufacturing scale-up and
the balance of approximately $9.1 million for working capital and general
corporate purposes. The Company may also use a portion of the net proceeds for
the acquisition of products and technologies complementary to those of the
Company. There are no present arrangements or agreements for any such
acquisitions.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the progress of the Company's product
development, the regulatory status of such products, the timing of regulatory
approvals, technological advances, the commercial potential of the Company's
products and the status of competitive products. In addition, expenditures will
also depend upon the establishment of collaborative research agreements with
other companies, the availability of additional financing and other factors. The
Company believes that its existing cash, cash equivalents and short-term
investments, combined with the net proceeds of this Offering, its committed
future contract revenue, projected funding from equipment leases and interest
income, will be adequate to satisfy its capital requirements and fund operations
for the current and foreseeable future. Pending application of the net proceeds
as described above, the Company intends to invest the net proceeds of this
Offering in short-term investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock. The
Company does not anticipate paying any cash dividends in the foreseeable future.
Payments of future dividends, if any, will be at the discretion of the Company's
Board of Directors after taking into account various factors, including the
Company's financial condition, operating results, current and anticipated cash
needs and plans for expansion. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
22
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996 (i) the actual
capitalization of the Company, after giving effect to the three-for-four reverse
split of the Common Stock, (ii) the pro forma capitalization of the Company,
after giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock at the closing of this Offering and (iii) as adjusted to
give effect to the sale by the Company of 3,500,000 shares of Common Stock
offered hereby, assuming a public offering price of $12.00 per share (the
mid-point of the range set forth on the front cover) less estimated underwriting
discounts and commissions and other expenses of this Offering.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........................... $ 10,285 $ 10,285 $ 48,645
---------- ----------- ----------
---------- ----------- ----------
Long-term obligations less current portion.................................. $ -- $ -- $ --
Stockholders' equity:
Convertible preferred stock, $.01 par value; 18,000,000 shares authorized
actual; 5,000,000 authorized pro forma and as adjusted; 11,574,252
issued and outstanding actual; and no shares issued and outstanding pro
forma and as adjusted................................................... 116 -- --
Common stock, $.01 par value; 25,000,000 shares authorized actual;
35,000,000 authorized pro forma and as adjusted; 538,224 shares issued
and outstanding actual; 9,218,903 shares pro forma; and 12,718,903
shares as adjusted (1).................................................. 5 92 127
Additional paid-in capital................................................ 28,615 28,644 66,969
Notes receivable stockholders............................................. (93) (93) (93)
Deferred compensation..................................................... (2,062) (2,062) (2,062)
Accumulated deficit....................................................... (13,620) (13,620) (13,620)
---------- ----------- ----------
Total stockholders' equity.............................................. 12,961 12,961 51,321
---------- ----------- ----------
Total capitalization.................................................... $ 12,961 $ 12,961 $ 51,321
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
- --------------
(1) Based on shares outstanding as of December 31, 1996. Does not include
1,245,801 shares of Common Stock issuable upon exercise of options
outstanding as of December 31, 1996 at a weighted average exercise price of
$0.32 per share pursuant to the Company's stock option plans. Also does not
include securities issued subsequent to December 31, 1996 consisting of (i)
112,500 shares of Common Stock issuable upon the exercise of options granted
at a weighted average exercise price of $2.93 per share, (ii) 75,625 shares
of Common Stock issued upon the exercise of options at a weighted average
price of $0.46 per share, (iii) 100,000 shares of Common Stock issuable upon
the exercise of warrants granted at a weighted average exercise price equal
to the initial public offering price of the Common Stock offered hereby,
(iv) a number of shares of Common Stock equal to $250,000 divided by the
initial public offering price of the Common Stock offered hereby to be
issued to GDE immediately following the closing of this Offering and (v)
3,000 shares of Common Stock issued to employees for past services rendered
to the Company.
23
<PAGE>
DILUTION
The net tangible book value of the Company at December 31, 1996 was
$12,637,710, or $1.37 per share (after giving effect to the conversion of all
outstanding shares of Preferred Stock into Common Stock upon the consummation of
this Offering). Net tangible book value per share of Common Stock represents the
amount of total tangible assets of the Company less total liabilities divided by
the number of shares of the Common Stock outstanding. After giving effect to the
sale of the 3,500,000 shares of Common Stock offered hereby at an assumed public
offering price of $12.00 per share, and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company, the
Company's net tangible book value as of December 31, 1996 would have been
$50,997,710 or $4.01 per share of Common Stock. This represents an immediate
increase in net tangible book value per share of Common Stock of $2.64 to
existing stockholders and immediate dilution in net tangible book value of $7.99
per share to new investors purchasing Common Stock in this Offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 12.00
Net tangible book value per share of Common Stock at
December 31, 1996....................................... 1.37
Increase per share attributable to new investors.......... 2.64
---------
Net tangible book value per share of Common Stock after this
Offering.................................................. 4.01
---------
Dilution per share to new investors (1)..................... $ 7.99
---------
---------
</TABLE>
- --------------
(1) If the Underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $7.71.
The following table summarizes, on a pro forma basis as of December 31,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and by new investors purchasing shares in this Offering (before
deduction of underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- --------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 9,218,903 72% $ 26,339,640 39% $ 2.86
New investors................. 3,500,000 28% 42,000,000 61% $ 12.00
------------- ----- -------------- -----
Total....................... 12,718,903 100% $ 68,339,640 100%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
All of the above computations assume no exercise of outstanding options or
warrants to purchase Common Stock. As of December 31, 1996, options to purchase
1,245,801 shares of Common Stock were outstanding at a weighted average exercise
price of approximately $0.32 per share under the Company's stock option plan. To
the extent these options become vested and are exercised, there will be further
dilution to new investors. Since December 31, 1996, the Company has (i) issued
options to purchase 112,500 shares of Common Stock at a weighted average
exercise price of $2.93 per share, (ii) issued 75,625 shares of Common Stock
upon the exercise of options at a weighted average price of $0.46 per share,
(iii) issued warrants to purchase 100,000 shares of Common Stock at a weighted
average price equal to the initial public offering price of the Common Stock
offered hereby and (iv) agreed to issue to GDE immediately following the closing
of this Offering a number of shares of Common Stock equal to $250,000 divided by
the initial public offering price of the Common Stock offered hereby. As of
February 28, 1997, the Company also had an additional 1,537,324 shares of Common
Stock available for grant pursuant to the Company's stock option plan. Further
dilution may result from the exercise of such outstanding options. See
"Management -- Benefit Plans."
24
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
consolidated statements of operations for each of the three years in the period
ended December 31, 1996, and with respect to the Company's consolidated balance
sheets at December 31, 1995 and 1996, are derived from the financial statements
of the Company that have been audited by Ernst & Young LLP, independent
auditors, which are included elsewhere herein and are qualified by reference to
such financial statements. The statement of operations data for the period from
July 19, 1993 (inception) to December 31, 1993 and for the year ended December
31, 1994, and the balance sheet data at December 31, 1993 and 1994 have been
derived from financial statements audited by Ernst & Young LLP, independent
auditors which are not included herein. The selected financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's financial
statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 (1) 1994 1995 1996
----------- --------- --------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................................................ $ 73 $ 59 $ 1,719 $ 2,244
Costs and expenses:
Cost of sales.................................................. 50 43 1,272 2,253
Research and development....................................... 310 1,328 1,904 3,880
Sales and marketing............................................ 48 291 834 2,057
General and administrative..................................... 562 758 1,034 3,103
----------- --------- --------- -----------
Total costs and expenses......................................... 970 2,420 5,044 11,293
----------- --------- --------- -----------
Loss from operations............................................. (897) (2,361) (3,325) (9,049)
Minority interest in net loss of consolidated partnership........ 80 270 -- --
License income................................................... -- -- -- 1,493
Interest income.................................................. -- -- 51 117
----------- --------- --------- -----------
Net loss......................................................... $ (817) $ (2,091) $ (3,274) $(7,439)
----------- --------- --------- -----------
----------- --------- --------- -----------
Pro forma net loss per share (2)................................. $ (0.86)
-----------
-----------
Shares used in computing pro forma net loss
per share (2).................................................. 8,626,898
-----------
-----------
<CAPTION>
DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996
----------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................ $ 442 $ 9 $ 3,399 $ 10,285
Working capital.................................................. 409 (76) 4,224 10,805
Total assets..................................................... 855 475 5,208 14,316
Total debt....................................................... 1,293 3,243 -- --
Accumulated deficit.............................................. (817) (2,907) (6,181) (13,620)
Total stockholders' equity (deficit)............................. (816) (2,906) 4,707 12,961
</TABLE>
- --------------
(1) July 19, 1993 (inception) to December 31, 1993.
(2) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share and shares used
in computing pro forma net loss per share.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Selected Financial Data"
and the Company's Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
OVERVIEW
The Company develops, manufactures and intends to market proprietary
visualization and information systems that enable minimally invasive surgical
solutions in cardiothoracic, head, neck and spine ("HNS") and other selected
microsurgical procedures. The Company currently markets endoscopic cameras and
related surgical instruments and accessories.
The Company has generated minimal revenues, principally from the sale of its
endoscopic cameras, and has been unprofitable since its formation in July 1993.
For the period from the Company's formation to December 31, 1996, the Company
has incurred cumulative net losses of approximately $13.6 million. The Company
expects to continue to incur substantial losses for at least the next 18 months.
There can be no assurance that the Company's development efforts will result in
commercially available products, that the Company will be successful in
introducing its products under development, or that the required regulatory
approval of products will be obtained in a timely manner, if ever.
The Company has increased its staffing each year to support its research and
development, manufacturing and sales and marketing activities. At December 31,
1994, 1995 and 1996, the Company had 11, 21 and 49 employees, respectively. The
Company expects to continue to increase staffing levels significantly in future
periods in support of its research and development, manufacturing scale up,
service and support, sales and marketing and general and administrative
activities related to new products. The Company expects that its increased
staffing needs will negatively impact operating income, which in turn may impact
the Company's ability to achieve profitability.
The Company recorded noncash deferred compensation of approximately $2.5
million in connection with the grant of certain stock options during 1996, of
which approximately $447,000 was recognized as an expense in 1996. The Company
will record an additional $743,000 of deferred compensation for stock options
granted in January and February 1997. The unamortized balance of the deferred
compensation will be expensed over the vesting periods of the options (typically
four or five years) and, therefore, will continue to impact the Company's
operating results through 2001.
The Company plans to adopt a per-procedure pricing strategy for the Series
8000 in the United States market. This strategy, designed to accelerate adoption
of the Series 8000, would require a payment to the Company every time the Series
8000 is used in a procedure. Therefore, revenues are directly related to usage.
In return, customers would receive an integrated equipment and service package,
including installation, in-service training, on-going technical support and
system upgrades, for a single charge which can be clearly related to a specific
procedure. The Company believes that adoption of such a strategy, based upon a
service contract rather than an upfront capital payment, will allow more rapid
penetration of the available market. The Company intends to amortize the cost of
the Series 8000 over the term of the service contract. Under the per-procedure
pricing strategy, the Company is required to allocate adequate capital resources
to fund such investment, as the customer does not purchase the system with an
upfront capital payment.
This discussion may contain forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in such forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors."
26
<PAGE>
RESULTS OF OPERATIONS
SALES
The Company had revenues from product sales of $59,000, $1,719,000 and
$2,244,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
The increase in revenues from 1994 to 1995 was primarily attributable to the
introduction of endoscopic cameras by the Company. The increase in revenue from
1995 to 1996 was attributable to the increased sales of the Company's endoscopic
cameras and the sale of surgical instruments and sutures for which the Company
acquired distribution rights during 1996. Sales to individual customers
exceeding 10% or more of revenues for the years ended December 31, 1994, 1995
and 1996 were as follows: during 1994, two customers accounted for 82% and 18%
of revenues; during 1995, one customer accounted for 85% of revenues; during
1996, three customers accounted for 30%, 27% and 25% of revenues. For the years
ended December 31, 1994, 1995 and 1996, the same customer accounted for 18%, 85%
and 25% of revenues, respectively. The Company believes that the loss of any of
these customers would not have a material adverse effect on the Company's
business, operating results or financial condition and that concentration of
revenues to individual customers will likely decrease in future periods as the
Company introduces new products.
COSTS AND EXPENSES
COST OF SALES. Cost of sales consist primarily of purchased parts and
supplies, labor, facilities-related expenses and equipment depreciation. The
Company's cost of sales were $43,000, $1,272,000 and $2,253,000 for the years
ended December 31, 1994, 1995 and 1996, respectively. The increase in cost of
sales from 1994 to 1995 was related to the growth in revenue from 1994 to 1995.
The increase in cost of sales from 1995 to 1996 was attributable to the increase
in revenues from 1995 to 1996 as well as the investment the Company made in its
manufacturing infrastructure to accommodate the scale-up for new product
introductions. This investment includes personnel expenses, consulting fees and
facilities-related costs and was approximately $208,000. The Company anticipates
it will continue to make significant investments in manufacturing infrastructure
in 1997 and 1998 and expects this investment to increase cost of sales during
such time period.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense consists
primarily of personnel expenses, fees paid to independent contractors, certain
purchased technology and development, and equipment and facilities costs to
support product development, prototyping and product evaluation. The Company's
research and development expenses were $1,328,000, $1,904,000 and $3,880,000 for
the years ended December 31, 1994, 1995 and 1996, respectively. The increase in
research and development expenses from 1994 to 1995 was primarily attributable
to acquired in-process research and development, increased staffing and contract
research and development expense performed by third parties. The increase in
research and development expenses from 1995 to 1996 was attributable to
significant increases in staffing, contract research and development expense,
and consulting fees related to development, prototyping and evaluation of future
products. The Company anticipates it will continue to devote substantial
resources to research and development and that research and development
expenses, particularly the costs associated with increased staffing, prototyping
and product evaluation will increase substantially in 1997 and beyond.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of the cost of sales and marketing personnel and independent
contractors, commissions, office facilities, travel and promotional events such
as trade shows, seminars and technical conferences, as well as the costs
associated with marketing programs necessary to support the expansion of the
Company's business. Sales and marketing expenses increased from approximately
$291,000 in 1994 to $834,000 in 1995 and to approximately $2,057,000 in 1996.
The increase from 1994 to 1995 was primarily attributable to increased staffing
and consulting fees related to the introduction of new products and expansion of
the
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<PAGE>
Company's product line. The increase from 1995 to 1996 was related to
significant increases in staffing and related expenses, commissions and
professional and consulting fees as the Company continued to build its sales
operations and expand its marketing activities in relation to future products.
The Company believes that its sales and marketing expenses will increase
substantially in 1997 and 1998 as it continues to build its sales force and
expand its marketing efforts in connection with commercialization of new
products.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and other related expenses of the administrative
and executive, finance and accounting, and information systems departments of
the Company and expenses associated with legal and accounting requirements.
General and administrative expenses were $758,000, $1,034,000 and $3,103,000 for
the years ended December 31, 1994, 1995 and 1996, respectively. The increase
from 1994 to 1995 was primarily attributable to increased staffing and related
costs associated with the growth of the Company's business during this period.
The increase from 1995 to 1996 was primarily attributable to the continued
development of corporate management and related support functions, the addition
of new facilities and expansion of current facilities, expansion of the
Company's information systems and the amortization of deferred compensation. The
Company recorded noncash deferred compensation of approximately $2.5 million in
connection with the grant of certain stock options during 1996, of which
approximately $447,000 was recognized as an expense in 1996. The Company will
record an additional $743,000 of deferred compensation for stock options granted
in January and February 1997. The unamortized balance of the deferred
compensation will be expensed over the vesting periods of the options (typically
four or five years) and, therefore, will continue to impact the Company's
operating results through 2001. The Company also expects that its general and
administrative expenses will increase in the future as it expands its staffing,
information systems and other related infrastructure and as a result of
increases in expenses associated with being a public company.
OTHER INCOME
LICENSE INCOME. License income of $1,493,000 in 1996 represents the net
amount received by the Company from a perpetual license to certain of its
technology and patents. Prior to 1996, the Company had no license income.
INTEREST INCOME. Interest income represents the net amount of interest
earned by the Company on its cash and short-term investments and interest
expense on debt. Interest income increased from approximately $51,000 for the
year ended December 31, 1995 to approximately $117,000 for the year ended
December 31, 1996 due primarily to increasing average investment balances. The
Company had immaterial amounts of interest income prior to 1995.
TAXES
At December 31, 1996, the Company had federal and state tax net loss
carryforwards of approximately $8,494,000 and $5,146,000, respectively. The
federal and state tax loss carryforwards will expire in 2010 and 2000,
respectively, unless previously utilized. At December 31, 1996, the Company also
had federal and state research tax credit carryforwards of approximately
$135,000 and $143,000, respectively, which will expire in 2010 unless previously
utilized. The Company has provided a full valuation allowance on the deferred
tax assets as realization of such assets is uncertain.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had approximately $10,285,000 in cash,
cash equivalents and short-term investments. Since formation, the Company has
financed its operations and investments in equipment and inventories through
advances from Kaiser Aerospace totaling $5,379,000, net proceeds from licensing
of certain of the Company's technology for $1,000,000 and from the private sale
of
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common and preferred stock totaling approximately $23,019,000, of which
$3,004,000 was used to repay advances from Kaiser Aerospace (with the remaining
$2,375,000 in outstanding advances being satisfied by the issuance of Series A-1
Preferred Stock).
Net cash used in operating activities was approximately $2,288,000,
$3,567,000 and $6,937,000 for 1994, 1995 and 1996, respectively. The increase in
net cash used from operating activities each year has resulted primarily from
increasing net losses during such periods and investments in inventories
associated with expansion of the Company's product line, partially offset by
increases in accounts payable and accrued expenses.
Net cash used in investing activities was approximately $94,000, $298,000
and $1,239,000 for 1994, 1995 and 1996, respectively. The increase in net cash
used in investing activities each year has resulted primarily from the purchase
of short-term investments and the purchase of property and equipment related to
increased staffing, expansion of manufacturing capabilities and marketing
demonstrations.
Cash flows from financing activities in 1994, 1995 and 1996 were $1,950,000,
$7,090,000 and $15,061,000, respectively. The increase in cash flows from
financing activities resulted primarily from increased advances from Kaiser
Aerospace in 1994 and primarily from the private sale of common and preferred
stock in 1995 and 1996.
Capital expenditures for equipment to support the Company's expanded
operations were approximately $57,000, $81,000 and $1,221,000 for 1994, 1995 and
1996, respectively. The Company expects its capital expenditures to continue to
grow as it expands its manufacturing base and scope of operations in future
periods. At December 31, 1996, the Company had commitments for capital
expenditures totaling $1,109,000 relating primarily to custom injection molded
tooling required for certain of the Company's products and for prototype systems
to be used for evaluation and demonstration purposes.
The Company expects it will continue to incur substantial expense in
additional research and development activities, production scale up, continued
establishment of its sales force and marketing organization and administrative
support activities. The Company anticipates that the net proceeds from this
Offering and the interest income thereon, together with its existing cash, cash
equivalents and short-term investments, will be sufficient to fund its
operations through 1998. Certain circumstances, however, including slow rate of
market acceptance of the Company's products, the Company's inability to scale up
manufacturing or delay in further regulatory approvals, would accelerate the
Company's use of proceeds from the Offering. Therefore the Company may require
additional funds to support its operating requirements or for other purposes.
Accordingly, the Company may, from time to time, seek to raise such additional
funds through public or private equity financings or from other sources. There
can be no assurance that additional financing will be available at all or that,
if available, such financing would be obtainable on terms acceptable to the
Company.
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BUSINESS
OVERVIEW
Vista Medical develops, manufactures and intends to market proprietary
visualization and information systems that enable minimally invasive surgical
solutions in cardiothoracic, head, neck and spine and other selected
microsurgical procedures. The Company currently markets endoscopic cameras and
related surgical instruments and accessories. Vista Medical's visualization and
information systems bring together the head-mounted display technology
originally developed for applications in military aerospace by Kaiser Aerospace
and Electronics Corporation ("Kaiser Aerospace") and three-dimensional imaging
capability from its acquisition of Oktas, Inc. The Company was founded as a
wholly-owned subsidiary of Kaiser Aerospace in July 1993, and became an
independent entity in July 1995 with the addition of several venture capital
funds as investors.
BACKGROUND
MINIMALLY INVASIVE SURGERY
The development and subsequent widespread adoption of minimally invasive
surgical approaches have revolutionized many surgical fields, including general
surgery, orthopedics, gynecology and urology. Minimally invasive surgical
procedures are performed through strategically placed ports or mini-incisions in
a patient's body thereby avoiding the larger incisions used in traditional open
surgery. A minimally invasive approach is most advantageous in cases in which
significant trauma results from gaining surgical access to an affected organ or
site. Notable examples of minimally invasive surgical procedures include
laparoscopic procedures in the field of general surgery and arthroscopic
procedures in the field of orthopedic surgery, many of which have become the
standard of care and have achieved significant procedure volumes rapidly. For
example, according to Medical Data International, an independent research
organization, the number of laparoscopic surgical procedures performed annually
in the United States increased from approximately 84,000 in 1990 to more than an
estimated 2.4 million in 1995. Minimally invasive procedures are designed to be
as efficacious as conventional surgery, but with substantially reduced trauma.
Minimally invasive procedures are designed to reduce pain and suffering, speed
recovery, shorten the length of hospital stays and decrease many of the costs
associated with patient care. This movement toward minimally invasive surgery
has been driven by advances in both device technology and surgical technique, as
well as patient demand.
MINIMALLY INVASIVE MICROSURGERY
Minimally invasive microsurgery ("MIM") is an extension of minimally
invasive surgery, characterized by greater complexity and precision. MIM
procedures have been made possible primarily by recent advances in medical
technology. MIM is usually performed in very confined areas of the body,
involves critical anatomical structures, and often requires dissection and
reconstruction as well as excision. As a result, the Company believes that in
order for MIM procedures to be extensively adopted, surgeons must have access to
enhanced visualization and specialized instruments. Examples of MIM are emerging
procedures in cardiothoracic surgery and head, neck and spine ("HNS") surgery.
CARDIOTHORACIC SURGERY
CONVENTIONAL TREATMENTS. Cardiovascular disease, the leading cause of death
in the United States, is typically treated with drugs, various surgical
procedures or both. The two principal types of cardiovascular disease are
coronary artery disease and valvular heart disease. Methods of accessing the
heart for treatment include surgically opening the chest, threading a
balloon-tipped catheter through a major artery or, most recently, gaining
surgical access via a small incision in the chest. Conventional cardiology
procedures include angioplasty, atherectomy and inserting coronary stents;
conventional surgical procedures include coronary artery bypass graft ("CABG")
and valve replacement or repair.
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Angioplasty, atherectomy and inserting coronary stents involve the use of a
balloon-tipped catheter which is threaded into the heart through an artery in a
patient's leg. Although these procedures are less invasive than conventional
CABG, a major drawback is the high rate of restenosis or renarrowing of the
blood vessel at the treatment site. Traditional CABG and valve replacement or
repair procedures typically involve a sternotomy, whereby a surgeon makes a 12
to 18 inch incision in the patient's chest, the sternum is cut in half with a
bone saw, and the rib cage is then spread open with a steel retractor to perform
the grafting procedures or to replace or repair the heart valves. According to
the results of a recent study, approximately one-third of all angioplasties
experience restenosis or renarrowing of the blood vessel at the treatment site
within seven months while the Company believes most traditional CABG procedures
remain effective for more than a decade.
According to the most recent data published by the American Heart
Association, there were approximately 628,000 open heart surgical procedures
performed in the United States in 1994. Of these, 501,000 were CABG procedures,
60,000 were valve procedures and 67,000 were other procedures including
congenital and pediatric repairs. The Company believes that worldwide there are
approximately 800,000 CABG procedures and approximately 100,000 valve
replacement or repair procedures performed each year.
CARDIOTHORACIC MIM. The application of minimally invasive techniques to
cardiothoracic surgery is commonly regarded as a revolutionary development in
modern surgery. Minimally invasive CABG and valve replacement or repair
procedures avoid the trauma caused by sternotomy and promise to significantly
decrease pain and trauma and shorten recovery times. The minimally invasive
approaches to surgical intervention are evolving and include methods performed
on either a beating or arrested heart. While few agree on the ultimate form of
the emerging techniques and practices, nearly all of those involved believe that
minimally invasive procedures will change the future practice of cardiothoracic
surgery, just as laparoscopy has revolutionized general surgery. However,
cardiothoracic MIM requires the surgeon to perform technically challenging
procedures, including working on tiny delicate structures (such as a one
millimeter heart vessel) with highly restricted access through small incisions.
The Company believes that a current limitation to widespread adoption of
cardiothoracic MIM is the restricted visibility through the minimal incisions
currently used. While new retractor systems are being introduced to open the
incision and therefore improve the surgeon's access and ability to visualize the
anatomy directly, restricted visibility, particularly for more complex cases,
remains an issue. In addition, the objective of minimizing the incision size
("keyhole" or "port" access) to reduce trauma can only be achieved effectively
with visualization, as has been demonstrated in other minimally invasive
applications. As a result of these factors, the development of cardiothoracic
MIM will require enhanced visualization, as well as specialized instruments and
surgeon training in the new techniques.
THE VISTA MEDICAL SOLUTION. The Company believes that an advanced
visualization technology which provides the surgeon with an intuitive and
ergonomic solution to the inherent vision restrictions of the MIM approach will
enable the use of the MIM technique with increased safety, efficacy and
precision. In the cardiothoracic MIM area, the Company's proprietary
technologies are equally applicable whether the surgeon elects to use either a
beating or arrested heart approach. In addition, the enhanced visualization
provided by the Company's products is expected to enable a significant number of
surgeons, who otherwise might be reluctant to perform MIM, to adopt the
procedures, thereby accelerating the rate of conversion towards a standard of
care. Finally, there is growing evidence of patient interest and demand for
cardiothoracic MIM procedures.
HEAD, NECK AND SPINE (HNS) SURGERY
CONVENTIONAL HNS TREATMENTS. Conventional head, neck and spine procedures
are often invasive and involve a lengthy and painful recovery. Neurosurgical
procedures involving the brain and spinal cord have traditionally been performed
under microscopic visualization to facilitate the delicate manipulations and
extreme precision which are required. More recently, the visualization system
often includes
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neuroendoscopes in combination with microscopes. The Company estimates there
were approximately 315,000 neurosurgical and skull base procedures, 430,000
surgical sinus procedures and 650,000 spinal procedures performed in the United
States in 1995.
HNS MIM. The Company believes that there are significant opportunities to
advance MIM techniques in HNS procedures which involve manipulation in close
proximity to critical anatomical structures. The visualization techniques
currently available for these procedures are limited. Existing fiberoptic
neuroendoscopes have inferior resolution, do not provide depth perception and
require a surgeon to view the procedure on a video monitor. The position
required for both the principal and assistant surgeon to utilize a surgical
microscope is both ergonomically awkward and physically uncomfortable. In
addition, many of these procedures require the simultaneous monitoring of
multiple information sources, including the images used in the emerging
technique of image guided surgery. Image guided surgery converts the output from
digital imaging modalities, such as magnetic resonance imaging (MRI) and
computerized tomography (CT) into highly precise 3-D and volumetric computer
models which help the surgeon with pre-operative planning. In addition, image
guided surgery helps the surgeon choose the least destructive path when
operating close to critical anatomy and to locate and remove tissue with the
highest degree of safety and accuracy.
THE VISTA MEDICAL SOLUTION. In the HNS MIM area, the Company's products
incorporate 3-D visualization into a small diameter endoscope which provides the
surgeon with the critical element of depth perception missing from conventional
endoscopes. In addition, the endoscopic image in the head-mounted display worn
by an assistant surgeon who is operating directly across from the principal
surgeon can be electronically reversed in order to align the assistant's
movements with those of the principal surgeon. The Company can also retrofit
surgical microscopes, so that both the principal surgeon and assistants can view
the case simultaneously on their head-mounted displays in 3-D, with superior
comfort and ergonomic positioning.
BUSINESS STRATEGY
The Company's business strategy is to become the leading developer and
marketer of advanced visualization and information systems for MIM applications
in cardiothoracic, HNS and other selected surgical specialties. Key elements of
the Company's strategy include:
ESTABLISH ADVANCED VISUALIZATION TECHNOLOGIES AS STANDARD PRACTICE IN
MINIMALLY INVASIVE CARDIAC SURGERY. The Company believes that it has the only
visualization system specifically designed for minimally invasive cardiac
surgery. The Company is currently working with its Cardiac Clinical Advisory
Board and other leading surgeons to develop operating protocols which
incorporate advanced visualization technologies as standard practice. The
Company then intends to provide training in these protocols, including the use
of the Company's visualization system, to other cardiac surgeons to accelerate
the general rate of conversion to MIM procedures, whether performed on a beating
or arrested heart.
PROMOTE VISTA MEDICAL'S VISUALIZATION SOLUTION FOR USE IN ALL TYPES OF
CARDIAC SURGERY. The Company believes that its technology is applicable to all
types of cardiac surgery, whether minimally invasive or conventional open heart,
especially where enhancement of the surgeon's view is particularly critical. The
Company believes that use of its advanced visualization product in open heart
surgeries will enhance visualization, improve the quality of procedures and
result in shorter operating times and reduced costs.
DEVELOP MIM APPLICATIONS THROUGH SPECIALTY-FOCUSED BUSINESS UNITS BY
LEVERAGING THE COMPANY'S TECHNOLOGY PLATFORM. The Company approaches its target
markets via its focused business units, the CardioThoracic Surgery division and
the HNS Microsurgery division. The business units concentrate on the specific
requirements of their target markets, with dedicated clinical marketing
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programs, clinical advisory boards, sales forces and customer support teams for
the introduction and support of the Company's products. The Company's strategy
is to optimize its fundamental technology platform for each of these medical
specialties and to develop appropriate partnership and distribution systems both
in the United States and international markets.
ACCELERATE ADOPTION OF THE SERIES 8000 ADVANCED VISUALIZATION AND
INFORMATION SYSTEM IN THE CARDIAC MARKET BY IMPLEMENTING A PER-PROCEDURE PRICING
STRATEGY. The Company believes that it can accelerate the adoption of its
Series 8000 advanced visualization and information system by implementing a
per-procedure pricing strategy. This strategy would offer the Series 8000 on a
rental basis and would require a payment to the Company every time the Series
8000 is used in a procedure. The Company commissioned market research in order
to determine the viability of a per-procedure pricing strategy in the United
States market. The results of this market research support the Company's belief
that an integrated equipment and service package, including installation,
in-service training, on-going technical support and system upgrades for a single
procedure-based charge will maximize market penetration and accelerate roll-out
of the product line.
INCREASE THE SURGEON'S REAL-TIME ACCESS TO CRITICAL DATA. The surgeon's
access to critical monitoring and diagnostic data, on demand, in real time and
integrated with the anatomical image, enhances procedure performance. The
Company's head-mounted display, incorporating picture-in-picture capability, is
designed to give the surgeon this real-time access to critical information
integrated with the anatomical images generated by the Company's camera systems.
ENTER INTO STRATEGIC RELATIONSHIPS WHICH COMPLEMENT COMPANY RESOURCES. The
Company intends to leverage its position in both technology and distribution by
forming strategic alliances with partners. In November 1996, the Company and
Medtronic, Inc. ("Medtronic"), a leading cardiac company, entered into a
strategic alliance providing for the distribution and co-promotion of the
Company's current and future visualization and information systems for cardiac
surgery, including the Vista Systems. Medtronic will co-promote the product line
in the United States and Canada and act as the Company's exclusive distributor
in Europe, the Middle East (excluding Afghanistan and Pakistan) ("Middle East")
and Africa. In February 1997, the Company entered into an agreement with
Heartport, Inc. ("Heartport"), one of the leading companies applying minimally
invasive surgical techniques to cardiothoracic surgery. Vista Medical will sell
four Series 8000 systems to Heartport, for use in Heartport's Research and
Training Center in Salt Lake City, Utah. The Company has also formed strategic
partnerships with Cogent Light Technologies ("Cogent Light") and GDE Systems,
Inc. ("GDE") to incorporate light source and information technologies,
respectively, into its products. The Company expects to pursue additional
strategic relationships.
ADVANCED VISUALIZATION PRINCIPLES AND PRODUCT PLATFORM
Vista Medical's proprietary technology is based on the following principles
which the Company believes are both essential in advancing the techniques of MIM
and offer several key advantages over other visualization approaches:
- 3-D VIEW. The surgeon's ability to view the principal anatomical image in
3-D provides the accurate depth perception necessary so that vital
anatomical structures are accurately identified and located, thereby
improving safety, precision and speed of the procedure.
- HIGH RESOLUTION IMAGES. The availability of a high resolution image which
can be electronically managed under the surgeon's control significantly
enhances the surgeon's ability to differentiate critical tissues in a
confined setting and perform intricate dissection and reconstruction as
well as excision.
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- ACCESS. The surgeon benefits from miniaturization technology which allows
for the direct insertion of a camera into the body cavities or organs and
provides high quality images from an optimal anatomical orientation.
- ERGONOMICS. Due to the complex and time consuming nature of MIM
procedures, the surgeon requires an ergonomic display system which allows
comfortable operating posture and maximizes hand-eye coordination without
strain.
- INFORMATION INTEGRATION. The surgeon's access to critical monitoring and
diagnostic data, on demand, in real time and integrated with the
anatomical image within the surgeon's visual field, enhances procedure
performance.
The Company has applied its proprietary technology by incorporating the
above principles into its visualization product platform.
HEAD-MOUNTED DISPLAY
The head-mounted display ("HMD") was originally developed for mission
critical applications in military aerospace by Kaiser Aerospace, one of the
world's leading manufacturers of head-mounted displays for aviation
applications. The HMD was determined by the Company to be the optimal solution
to the display challenge of MIM. The fundamental technology and human factors
experience incorporated in the Company's HMD was originally developed by Kaiser
Aerospace and is the result of substantial investment in the technologies of
advanced aerospace display systems and incorporates extensive human factors
experience. This human factors knowledge, derived from many years of analysis
into the display characteristics which enable pilots performing critical
physical tasks to simultaneously absorb and react to crucial information, is a
key element in the Company's HMD design. Kaiser's original know-how and
technical knowledge have been transferred to the Company pursuant to the
development agreement with Kaiser Electro-Optics, Inc. ("Kaiser
Electro-Optics"), a subsidiary of Kaiser Aerospace. The Company has done
significant additonal development work, and has proprietary rights, in the
surgical HMD design. The Vista Medical HMD, the first specifically designed for
surgical use, provides 3-D visualization of an endoscopic or microscopic image,
has the capability of integrating relevant data and presents the images to a
surgeon in an optically correct, intuitive and ergonomic way. Wearing the HMD,
the microsurgeon can also perform surgery "in-line" -- the natural way people
perform micro-critical tasks -- eyes, hands, instruments and subject in line.
This is not the case when the surgeon is observing the anatomy on a
remotely-positioned video monitor.
The Company's HMD is a proprietary, lightweight, high resolution display
designed to allow the surgeon to view information on demand, whether such
information is generated from attached endoscopes, microscopes or monitoring
equipment in the operating room. It is presently contemplated that further
enhancements to the HMD will allow for voice-activated control and information
display from other diagnostic equipment in the hospital or from remote locations
via information networks. The video display in the HMD is fixed in relation to
the surgeon's eyes, but his or her head may move into any position necessary for
comfort. The HMD design allows the surgeon to have a constant view of the
surgical anatomy required for the procedure as well as full awareness of the
surroundings in the operating room. The HMD is designed to provide a true 3-D
image by replicating the way the human visual system works -- left and right
acquired images are delivered directly to left and right liquid crystal
displays. The HMD is designed so that it can be worn with conventional surgical
loupes.
THREE-DIMENSIONAL IMAGE ACQUISITION
Vista Medical believes that 3-D visualization capability is critical in MIM
procedures such as cardiothoracic and neurosurgical procedures. The Company's
technology for stereo visualization consists of the following proprietary
elements: the optical system, the stereo camera and the stereo processor. The
3-D endoscopic optical system employed by Vista Medical was originally developed
and patented by
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noted optical designer, Mr. H. McKinley, and is licensed exclusively to the
Company for medical applications. The system is designed to replicate the exact
view that the surgeon would have if the procedures were being performed open and
he or she had direct sight of the anatomy. The Company believes that the
McKinley optical system will provide it with a significant and enduring
competitive advantage because it provides natural depth perception, and it can
be packaged with twin cameras in a very compact design. The twin cameras acquire
the image in a manner analogous to a human's two eyes.
Vista Medical's technology packages the twin cameras in two ways. In the
first method, a micro-camera is attached to the end of a flexible or rigid guide
which can then be inserted directly into the body cavity and organs. The image
is directly captured by the camera chips without being transmitted through
multiple rod lenses as in a conventional optical endoscope design. The
elimination of optical surfaces produces several important advantages, including
increased image quality, improved contrast, better reliability and improved
ability to sterilize by autoclaving. Alternatively, for applications where a
standard optical endoscope configuration remains preferable, a stereo
micro-camera can be mounted externally on a stereo endoscope. The image acquired
by either approach is then processed for display by control electronics
developed exclusively by the Company. The controller will also include image
management features which will contribute significantly to procedure
performance, such as zoom control, dual image presentation and
picture-in-picture.
INFORMATION MANAGEMENT
Medicine is an information rich discipline, but the provision of relevant
information in real-time to surgeons has not been developed to the levels
attained, for example, in military aviation. The HMD is designed to give the
surgeon real-time access on demand to critical information, integrated with the
anatomical images generated by the Company's camera systems. Therefore, the
surgeon will be able to command the diagnostic and monitoring information
relevant to the specific procedure while it is taking place. In addition to
real-time display, the information can be managed (stored or transmitted) within
the hospital or to remote locations for training, advisory or administrative
purposes. The applications software to control this flow of information is a key
element in Vista Medical's long-term product strategy, which positions
visualization within the context of a total information service to the surgeon.
The Company's data integration capability has been enhanced by the recent
exclusive license from GDE which has added high speed image-based information
processing and networking software to the Company's technology platform. The
Company believes that its technology will demonstrate that real-time access to
relevant information, along with enhanced visualization, is a critical
requirement of performing MIM and other surgical procedures.
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PRODUCT LINES
Vista Medical develops products based on the Company's core technology and
product platform described above, that are customized for the specific
cardiothoracic and HNS procedures to which they are directed. The Company's
product lines are as follows:
SERIES 8000 ADVANCED VISUALIZATION AND INFORMATION SYSTEM
The Company has developed the Series 8000 for minimally invasive and other
procedures in cardiothoracic surgery. The components of the Series 8000 are
individual modules, rack mounted in a custom console, and supplied as an
integrated, upgradeable system.
<TABLE>
<CAPTION>
COMPONENT DESCRIPTION
- ---------------------- ------------------------------------------------------------------------------------------
<S> <C>
CardioView (1) Head-mounted display (HMD) and information processing computer which integrates 3-D
visualization of surgical anatomy and related diagnostic and monitoring data (up to four
HMDs may be used simultaneously with each Series 8000).
CardioCamera 2-D and 3-D miniature high resolution digital cameras. Cameras can be delivered directly
into the surgical field by CardioGuide or externally by attachment to retractor systems.
CardioController High resolution stereo image processor which drives all the cameras in the cardiac
operating room.
CardioLight High power xenon light source incorporating micro-illuminated light delivery technology
developed by Cogent Light.
CardioGuide Flexible, steerable, disposable guidance system for CardioCamera.
CardioConsole Console for rack mounting of all Series 8000 modules.
Cardio3DScope (2) Small diameter, angled, rotatable Stereo Thoracoscope.
CardioRecorder (2) 3-D disk image recorder.
</TABLE>
- --------------
(1) The Company expects to introduce a voice-activated control feature for
CardioView in future versions of the Series 8000.
(2) The Company expects to introduce the Cardio3DScope and the CardioRecorder in
future versions of the Series 8000. The Cardio3DScope recently received
510(k) clearance to market from the FDA. The CardioRecorder is currently
under development by an OEM supplier.
All 510(k) clearances to market necessary for initial Series 8000
commercialization have been received for the CardioView, CardioCamera,
CardioController and CardioLight components. 510(k) clearance to market is not
necessary for the CardioConsole component. The Series 8000 is not yet
commercially available. The Company has also received 510(k) clearance to market
for Cardio3DScope, which the Company expects to include in future versions of
the Series 8000.
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STEREOSITE SYSTEMS FOR MICROSCOPY AND ENDOSCOPY
The Company is developing two systems, designed specifically for microscopic
and endoscopic procedures in HNS Microsurgery, which will be marketed under the
brand name of StereoSite.
<TABLE>
<CAPTION>
COMPONENT DESCRIPTION
- --------------------- -------------------------------------------------------------------------------------------
<S> <C>
HMD/Processor Head-mounted display and information processing computer which provides 3-D visualization
of surgical anatomy and related diagnostic and monitoring data (up to four HMDs may be used
simultaneously with each StereoSite system).
3-D Scope Small diameter, angled, rotatable 3-D endoscope.
MSVA Micro-stereo video adapter ("MSVA") which retrofits to the surgical microscope to produce a
3-D video image to be displayed on the HMD. The MSVA incorporates twin endoscopic cameras.
Light Source High power xenon light source incorporating micro-illuminated light delivery technology
developed by Cogent Light.
</TABLE>
In the same manner as the Series 8000, the StereoSite systems incorporate
advanced visualization principles and the Company's platform technology in
application specific packages. The Company expects that its StereoSite system
targeted at microscopy will incorporate the HMD and MSVA and expects that its
StereoSite system targeted at microendoscopy will incorporate the HMD, the 3-D
Scope and the light source. The Company currently has prototype clinical
StereoSite systems available and placed at evaluation sites.
The Company believes the HMD/Processor component of the StereoSite system is
eligible for 510(k) clearance to market, for which the Company has not yet
filed. All other required 510(k) clearances to market for the StereoSite system
have been received. The Company believes that there is a predicate device which
can be relied upon for regulatory clearance of the HMD/Processor component,
which predicate device was developed by the Company and Kaiser Aerospace.
OTHER PRODUCTS
RELATED CARDIOTHORACIC AND HNS PRODUCTS. The Company's CardioThoracic
Surgery division is the exclusive North American distributor of instruments
manufactured by Delacroix-Chevalier, a French corporation, and sutures
manufactured by Peters, a French corporation, which are particularly appropriate
for the minimally invasive approach. The Company's HNS Microsurgery division is
the United States distributor of a line of hand instruments for functional
endoscopic sinus surgery, including exclusive distribution of instruments
developed by Dr. Hiroshi Moriyama of Jikei University, Tokyo.
ENDOSCOPIC CAMERA. Endoscopic cameras are the state-of-the-art in
two-dimensional endoscopic imaging. The Company currently manufactures a
compact, high resolution endoscopic camera under its own label and for OEM
customers and strategic partners. This product has historically accounted for a
significant portion of the Company's revenues. The Company's endoscopic camera
is also referred to as a three-chip camera. "Three-chip" refers to the
allocation of a chip to each of the primary colors--red, green and blue. This
results in superior color reproduction relative to a standard "single chip"
camera, where one chip serves for all three primary colors.
ELECTRONIC ZOOM LAPAROSCOPE (EZL). The EZL represents a new generation of
laparoscopes in which the camera is placed on the distal end of the endoscope
and then inserted inside the body. The EZL incorporates Vista Medical's unique
proprietary zoom feature, which allows a surgeon to manipulate the image by
zooming in and out at the touch of a button, while remaining in focus and
without moving the scope. This capability is not available in any other
currently marketed endoscope and the
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Company is currently seeking a strategic partner with distribution capability in
laparoscopy. The Company may also utilize the zoom technology in future products
for the CardioThoracic Surgery and HNS Microsurgery divisions.
STRATEGIC ALLIANCES
The Company intends to leverage its position in both technology and
distribution by forming strategic alliances with corporations and research
institutions with respect to the development, regulatory approval and marketing
of certain of its products. The Company has entered into strategic partnering
arrangements as follows:
MEDTRONIC
In November 1996, Vista Medical and Medtronic, a leading cardiac company,
entered into a strategic alliance providing for the distribution and
co-promotion of the Company's current and future visualization and information
systems for cardiac surgery, including the Series 8000 (the "Vista Systems").
The parties entered into a co-promotion agreement for the United States and
Canada under which Medtronic will promote the Vista Systems in conjunction with
Medtronic's own proprietary products for minimally invasive cardiac surgery.
Vista Medical will be responsible for the sale and distribution of the Vista
Systems to customers in the United States and Canada. The Company will be
responsible for obtaining all regulatory clearances in the United States and
Canada, will provide training and installation at its expense and will pay
Medtronic a sales commission based on net revenues generated by the installation
and use of the Vista Systems in the United States and Canada. During the term of
the co-promotion agreement, Medtronic has agreed not to market or sell in the
United States and Canada visualization products which are competitive with Vista
Medical in cardiothoracic surgical procedures. Medtronic's right to co-promote
will terminate in December 1999, subject to (i) earlier termination for
Medtronic's failure to meet certain objectives or breach of material obligations
by either party and (ii) automatic renewal if certain performance criteria are
met.
Medtronic will also act as Vista Medical's exclusive distributor for the
Vista Systems for use in cardiothoracic surgical procedures in Europe, the
Middle East and Africa. Medtronic will be responsible for obtaining all
regulatory clearances other than the CE mark and will provide training and
installation at its expense. Medtronic will purchase the Vista Systems for a
transfer price to be adjusted each year. Medtronic's exclusive distributorship
will terminate on the third anniversary of the initial commercial release of the
Vista Systems in Europe, subject to earlier termination for Medtronic's failure
to meet certain objectives or breach of material obligations by either party.
The initial term of co-promotion and/or distributorship will be
automatically renewed for an additional two-year term provided certain
performance criteria are met. Vista Medical retains the worldwide right to
distribute products based upon the technology incorporated in the Vista Systems
for use in specialties other than cardiac surgery. Vista Medical also retains
the right to make the Vista Systems available worldwide (other than in Europe,
the Middle East and Africa) for clinical and training programs organized by any
company. Medtronic has the right of first refusal to obtain distribution rights
for the Vista Systems in other areas of the world.
In conjunction with entering into the co-promotion agreement, Medtronic made
a $10 million equity investment in the Company and received 2,000,000 shares of
Series C Preferred Stock, which will be automatically converted into 1,500,000
shares of Common Stock in connection with this Offering.
HEARTPORT
In February 1997, the Company entered into a Supply and Services Agreement
with Heartport, a leading company developing minimally invasive technology for
heart surgery. Vista Medical will sell four Series 8000 systems to Heartport,
for use in the Heartport Research and Training Center in Salt Lake
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City, Utah. The four systems are scheduled to be delivered by approximately
September 1997 or as soon as possible thereafter. Heartport has agreed to use
the Series 8000 in its training centers, to promote that its training courses
utilize the Series 8000 and to endorse the Series 8000 as the preferred 3-D
video visualization and information solution for minimally invasive heart
surgery. Until December 31, 1999, the Company will maintain and support the four
systems at the Heartport Research and Training Center and will collaborate with
Heartport with the goal of ensuring that the Series 8000 is compatible with
technology used in the performance of Heartport's Port-Access procedures. During
the period ending December 31, 2003, the Company has also agreed to provide the
Vista Systems to hospitals, clinics or similar sites in North America whose
surgeons have been trained at the Heartport Research and Training Center,
without discrimination and on the best available terms and conditions the
Company offers to any other similarly situated customers of the Company. In
connection with the agreement, the Company issued to Heartport a warrant to
purchase up to 100,000 shares of Common Stock, exercisable at any time after
this Offering and prior to March 31, 2001, at a price per share equal to the
initial public offering price. If an initial public offering is not completed by
June 30, 1997, the price will be $6.67 per share.
GDE SYSTEMS
In February 1997, GDE, a leading military electronics and information
management company, granted the Company an exclusive worldwide license to
software, documentation and trademarks of GDE for use in the medical field.
Since 1993, GDE's subsidiary, Healthcom, has been adapting the software licensed
to Vista Medical to provide high-speed, image-based information processing and
networking capabilities specifically for medical applications. In connection
with the license, Vista Medical will issue to GDE Common Stock with a value
(based on the initial public offering price) of $250,000 and will pay GDE a
royalty on revenues derived from any products based upon or derived from the GDE
software. Vista Medical has also agreed to make a non-refundable payment of at
least $250,000 by December 31, 1998 as a combination of royalty payments earned
through such date and a royalty advance creditable against future royalties due
thereafter. Pursuant to the license agreement, Vista Medical has the opportunity
to hire up to three of GDE's software development engineers. GDE has a right of
first refusal to license Vista Medical improvements to the software for use in
non-medical markets, subject to the payment of a royalty to Vista Medical. The
parties also agreed to negotiate in good faith to enter into a services
agreement which would provide Vista Medical with access to GDE consultancy
services on a project-by-project basis, on terms to be mutually agreed upon.
COGENT LIGHT
The Company and Cogent Light formed a strategic alliance in March 1996,
pursuant to a memorandum of understanding, to cooperate in the development of
products for minimally invasive cardiac surgery which incorporate Cogent Light's
proprietary light fiber delivery technology. Pursuant to the memorandum of
understanding, Cogent Light is currently providing its single fiber and
MicroBundle technologies exclusively for incorporation into the Series 8000,
including CardioCamera, CardioLight and Cardio3DScope. The memorandum of
understanding stipulates that Vista Medical will incorporate only a Cogent Light
source in its cardiac surgical instrumentation, for example, CardioLight,
provided such light source meets all of Vista Medical's performance
requirements. The parties retain rights to their respective intellectual
property, with new developments under the alliance being jointly owned and
cross-licensed to each party.
KAISER AEROSPACE
The Company was founded as a wholly-owned subsidiary of Kaiser Aerospace in
July 1993, and became an independent entity in July 1995 with the addition of
several venture capital funds as
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investors. Kaiser Aerospace remained a significant stockholder participating
pro-rata in a further investment round in July 1996. The shares originally
issued to Kaiser Aerospace were subsequently transferred to Foster City
Partners, a partnership which includes senior executives of Kaiser Aerospace.
In July 1995, the Company entered into a Technology Strategic Alliance:
Memorandum of Understanding (the "Technology Strategic Alliance") and a
Manufacturing Supply Agreement with Kaiser Electro-Optics, a subsidiary of
Kaiser Aerospace. The Technology Strategic Alliance provides that the Company
and Kaiser Electro-Optics will cooperate in joint development programs related
to the HMD as appropriate to be negotiated on an arms-length and
project-by-project basis. The Company contracts with Kaiser Electro-Optics for
development and manufacturing services related to the Company's HMD, including
initial production quantities for the HMD. The Manufacturing Supply Agreement
provides that Kaiser Electro-Optics will be the Company's preferred supplier for
not less than 75% of its requirements for the optical subassembly of the
Company's HMD, provided that pricing and other terms are competitive and
mutually agreed upon.
UROHEALTH
In December 1996, the Company and Urohealth Systems, Inc. ("Urohealth")
entered into a license agreement under which the Company exclusively licensed
visual instrument technology developed principally for the field of gynecology
(the "Newman Technology") to Urohealth for use in gynecology, urology and
general surgery on a worldwide basis. Vista Medical has a right of first refusal
to manufacture Urohealth's requirements for the camera and light source
equipment required for medical office use of the products derived from the
Newman Technology for a specified period of time following the date of the
agreement. Urohealth will pay to Vista Medical a sliding royalty based on sales
of products incorporating the Newman Technology, subject to certain maximums and
minimums. The agreement may be terminated in the event of an uncured material
breach or insolvency by either party. In connection with the license agreement,
the parties entered into a consulting agreement whereby Vista Medical agreed to
use its reasonable efforts to provide the services of Allen Newman, the
Company's Vice President and General Manager, HNS Microsurgery, as a consultant
to Urohealth on a limited basis. The Company exclusively licensed the Newman
Technology from Mr. Newman in September 1994. The Newman license agreement was
amended in December 1996 to permit the Company to sublicense the Newman
Technology to Urohealth. In connection with the amendment of the Newman license
agreement, including the termination of royalty rights for camera systems, the
Company paid Mr. Newman an additional sum of money and agreed to pay Mr. Newman
a percentage of the royalties received from Urohealth for sales of disposable
products manufactured under the sublicense.
MARKETING AND SALES
The Company has organized its sales and marketing efforts by
specialty-specific divisions: Vista CardioThoracic Surgery division ("VCS") and
Vista HNS Microsurgery division ("VHNS"). The Company believes that this
organizational structure provides the commitment and focus necessary to
introduce and support new advanced technology to these two distinct markets.
Each division, however, will follow similar strategic principles in developing
its business.
TRAINING. The introduction of new technology requires training for both
surgeons and operating room personnel. VCS intends to establish training
programs by mid-1997 and expects to be able to train up to 250 surgeons each
year, and will also provide the visualization equipment for training programs
organized by Medtronic, Heartport and other cardiac surgery companies. The VCS
training format will involve one or two day sessions at selected locations where
surgeons will have the opportunity to use the Series 8000 in a laboratory
environment. Operating room personnel will receive in-service training from
company representatives when equipment is installed. VHNS intends to utilize a
similar format specifically designed for HNS surgeons. See "-- Strategic
Alliances."
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CLINICAL EVALUATION. VCS and VHNS product lines have been developed with
frequent input from the Clinical Advisory Boards of each division. Once
marketing begins, this evaluation phase is expected to progress into a
publication phase with the Company's advisors publishing results of their
experience in leading publications and speaking at major clinical conferences.
The Company supports such research, although it has no control over the content
or timing of any publication or presentation, because impartial education of the
general clinical audience is a key component in establishing procedure and
equipment acceptance. As part of their strategy, VCS and VHNS also intend to
continue to support seminars and symposiums and participate in industry trade
shows.
SALES FORCE. VCS and VHNS will have separate sales forces, consisting of a
combination of direct and independent sales representatives. VCS currently
markets its products through two direct and 35 independent representatives and
is in the process of hiring up to 10 additional direct sales people to support
the introduction of the Series 8000. VHNS will market its products through a
similar combination of direct and independent sales representatives. VHNS
currently has two sales managers, one based in the United States and the other
in Europe.
PATIENT EDUCATION. As the success of the Company's products is dependent on
the adoption of MIM procedures, it must support the purchasers of its products
in the introduction of these procedures to the local community. The Company has
therefore engaged a national firm, specializing in medical communications, to
provide public relations assistance to create patient awareness of the minimally
invasive surgical options. Initial emphasis will be to support the launch of the
Series 8000.
INTERNATIONAL SALES. The Company markets its products internationally
through independent distributors and has entered into a strategic relationship
with Medtronic for the distribution of the Vista Systems in Europe, the Middle
East and Africa. See "-- Strategic Alliances -- Medtronic."
MANUFACTURING
The Company has established a manufacturing facility in Westborough,
Massachusetts, which it believes generally meets the Good Manufacturing Practice
("GMP") standards set by the FDA. The Company believes this facility is adequate
for the Company's near-term manufacturing requirements which are principally
final assembly of sub-assemblies and components, including hardware and
software. The Company has been manufacturing OEM camera systems in limited
quantities for two years and has been developing the necessary procedures,
systems and controls and hiring supervisory staff throughout this period. The
Company believes that its current manufacturing facility will be adequate to
meet its forecasted requirements through 1997 and that additional space will be
available when required on reasonable commercial terms.
The Company lacks experience in manufacturing its products under
development, including the Series 8000, in the quantities that would be
necessary to achieve significant commercial sales. The manufacture of the
Company's products primarily involves the assembly of a number of sub-assemblies
and components either by the Company directly or by contract manufacturers.
Companies such as Vista Medical often encounter difficulties in scaling up
manufacturing of products, which could include problems involving quality
control and assurance, component and service availability, adequacy of control
policies and procedures, lack of qualified personnel, compliance with FDA
regulations and the need for further FDA review and possible approval of new
manufacturing processes and facilities or other production constraints. There
can be no assurance that reliable, high-volume manufacturing can be established
or maintained at commercially reasonable costs. The Company will also require
additional manufacturing facilities as production volumes increase; acquisition
of new manufacturing facilities will likely involve relocation. Any of these
factors could have a material adverse effect on the Company's business,
financial condition and results of operation.
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The Company uses or relies on certain components and services used in its
devices that are provided by sole source suppliers. The qualification of
additional or replacement vendors for certain components or services is a
lengthy process. In addition, the substitution of replacement vendors may entail
re-engineering time and cost and could delay the supply of the Company's
products. Any significant supply interruption would have a material adverse
effect on the Company's ability to manufacture its products and, therefore, a
material adverse effect on its business, financial condition and results of
operations.
The Company has, and will continue to consider as appropriate, the internal
manufacture of sub-assemblies currently provided by third party subcontractors,
as well as the implementation of new design and production processes which
further reduce costs.
COMPETITION
The medical device market is characterized by intensive development efforts
and rapidly advancing technology. The future success of the Company will depend,
in large part, upon its ability to anticipate and keep pace with advancing
technology and competing innovations. There can be no assurance, however, that
the Company will be successful in identifying, developing and marketing new
products or enhancing its existing products.
Although several companies compete with aspects of the Company's
visualization product line, the Company believes there is no single company
which offers a complete and integrated advanced visualization and information
system specifically directed at minimally invasive microsurgical applications.
In addition, the Company believes that no other head-mounted display has been
cleared for marketing in surgical applications by the FDA. The Company believes
that a number of large companies, with significantly greater financial,
manufacturing, marketing, distribution and technical resources and experience
than that of the Company, are focusing on the development of visualization
products for MIM. Several companies are currently developing and marketing
visualization products for MIM which could be applied to cardiac surgery. There
can be no assurance that the Company will be successful in competing with any
such companies.
Technological advances in other therapies for heart disease such as drugs,
interventional cardiology procedures or future innovations in cardiac surgery
techniques could make such other therapies more effective or lower in cost than
MIM surgical procedures and could render MIM cardiac surgery obsolete.
GOVERNMENT REGULATION
The manufacture and sale of medical devices intended for commercial
distribution are subject to extensive governmental regulation in the United
States. Medical devices are regulated in the United States primarily by the FDA
and, to a lesser extent, by certain state agencies. Generally, medical devices
require pre-market clearance or pre-market approval prior to commercial
distribution. In addition, certain material changes or modifications to medical
devices also are subject to FDA review and clearance or approval. The FDA
regulates the research, testing, manufacture, safety, labeling, storage, record
keeping, promotion and distribution of medical devices in the United States and
the export of unapproved medical devices from the United States to other
countries. Noncompliance with applicable requirements can result in failure of
the government to grant pre-market clearance or approval for devices, withdrawal
of approval, total or partial suspension of production, fines, injunctions,
civil penalties, refunds, recall or seizure of products and criminal
prosecution.
In the United States, medical devices are classified into one of three
classes, Class I, II or III, on the basis of the controls deemed by the FDA to
be necessary to reasonably ensure their safety and effectiveness. The Company's
products to date have either been classified as Class I or Class II devices.
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Class I devices are subject to general controls (e.g., established
registration and product listing, labeling, adulteration and misbranding
provisions and medical device reporting requirements and, unless exempt, to
pre-market notification and adherence to GMP standards). Class II devices are
subject to general controls and special controls (e.g., performance standards,
post-market surveillance, patient registries and FDA guidelines). Generally,
Class III devices are those that must receive pre-market approval by the FDA to
ensure their safety and effectiveness (e.g., life-sustaining, life-supporting
and implantable or new devices which have not been found to be substantially
equivalent to legally marketed devices). Class III devices ordinarily require
clinical testing to ensure safety and effectiveness and FDA approval prior to
marketing and distribution. The FDA also has the authority to require clinical
testing of Class I and Class II devices. A pre-market approval ("PMA")
application must be filed if a proposed device is not substantially equivalent
to a legally marketed predicate device or if it is a Class III device for which
the FDA has called for such application. A PMA typically takes several years to
be approved by the FDA.
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) notification or submission and approval of a PMA application. If a
medical device manufacturer or distributor can establish that a device is
"substantially equivalent" to a legally marketed Class I or Class II device, or
to a Class III device for which the FDA has not called for a PMA, the
manufacturer or distributor may seek clearance from the FDA to market the device
by filing a 510(k) notification. The 510(k) notification may need to be
supported by appropriate performance, clinical or testing data establishing the
claim of substantial equivalence. The FDA requires a rigorous demonstration of
substantial equivalence.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until a letter
clearing the 510(k) is issued by the FDA. At this time, the FDA typically
responds to the submission of a 510(k) notification within 90 to 200 days. An
FDA letter may declare that the device is substantially equivalent to a legally
marketed device and allow the proposed device to be marketed in the United
States. The FDA, however, may determine that the proposed device is not
substantially equivalent or requires further information, including clinical
data, to make a determination regarding substantial equivalence. Such
determination or request for additional information will delay market
introduction of the product that is the subject of the 510(k) notification.
The Company has received 510(k) clearance to market the following product
lines in the United States: (i) 3-D video endoscope (April 1997); (ii) mini
cameras (April 1997); (iii) illumination system (April 1997); (iv) head mounted
display (September 1996); (v) additional cardiothoracic indications for the 3-D
scope (July 1996); (vi) sinus telescopes (October 1995); (vii) video endoscope
with zoom (January 1995); (viii) stereo viewing system (November 1994); (ix)
dental camera (November 1994); (x) three-chip (endoscopic) video camera (June
1994); and (xi) 3-D scope (December 1992). All 510(k) clearances to market
necessary for initial Series 8000 commercialization have been received. However,
the Series 8000 is not yet commercially available. The Company believes the
HMD/Processor component of the StereoSite system is eligible for 510(k)
clearance to market, for which the Company has not yet filed. All other required
510(k) clearances to market for the StereoSite system have been received.
Internationally, the Company's three-chip video camera and the zoom endoscope
have qualified for the CE mark under the Electromagnetic Compatibility Directive
for sale in Europe.
All clinical investigations involving the use of an unapproved or uncleared
device on humans to determine the safety or effectiveness of the device must be
conducted in accordance with the FDA's IDE regulations. If the device presents a
"significant risk," the manufacturer or distributor of the device is required to
file an IDE application with the FDA prior to commencing human clinical trials.
The IDE application must be supported by data, typically the result of animal
and, possibly, mechanical testing. If the IDE application is approved by the
FDA, human clinical trials may begin at a specific number of investigational
sites with a maximum number of patients, as approved by the FDA. If the device
presents a
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"non-significant risk," approval by an Institutional Review Board prior to
commencing human clinical trials is required, as well as compliance with
labeling, record keeping, monitoring and other requirements.
Any products manufactured or distributed by the Company are subject to
continuing regulation by the FDA, which includes record keeping requirements,
reporting of adverse experience with the use of the device, GMP requirements and
post-market surveillance, and may include post-market registry and other actions
deemed necessary by the FDA. A 510(k) supplement, new 510(k) or PMA is also
required when a medical device manufacturer makes a change or modification to a
legally marketed device that could significantly affect the safety or
effectiveness of the device, or where there is a major change or modification in
the intended use of the device. When any change or modification is made to a
device or its intended use, the manufacturer is expected to make the initial
determination as to whether the change or modification is of a kind that would
necessitate the filing of a 510(k) supplement, new 510(k) or PMA.
Sales of medical device products outside the United States are subject to
foreign regulatory requirements that vary from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA clearance, and requirements for licensing may
differ from FDA requirements. Failure to comply with regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations. The current regulatory environment in
Europe for medical devices differs significantly from that in the United States.
Europe is currently in the transitional process of implementing the Medical
Device Directive which was adopted on January 1, 1995 with a transition period
through June 1998. After June 1998, all medical devices sold in the European
Union must bear the CE mark. Devices are now classified by manufacturers
according to the risks they represent with a classification system giving Class
III as the highest risk devices and Class I as the lowest. Once the device has
been classified, the manufacturer can follow one of a series of conformity
assessment routes, typically through a registered quality system, and
demonstrate compliance to a European Notified Body. After that, the CE mark may
be applied to the device. Maintenance of the system is ensured through annual
on-site audits by the Notified Body and a post-market surveillance system
requiring the manufacturer to submit serious complaints to the appropriate
governmental authority. With respect to the Series 8000, the Company is
responsible for gaining, at its expense, the CE mark in Europe. Medtronic is
responsible for obtaining, at its expense, all necessary regulatory and other
approvals required for sale in the Middle East and Africa.
PATENTS AND PROPRIETARY RIGHTS
Vista Medical relies on a combination of technical leadership, patent, trade
secret, copyright and trademark protection and nondisclosure agreements to
protect its proprietary rights. As of February 28, 1997, the Company had
exclusive ownership rights to seven issued United States patents, 11 pending
United States patent applications and eight pending foreign applications
covering various aspects of its devices and systems. Furthermore, as of the same
date, the Company had exclusive rights in the medical field to four issued
United States patents, one pending United States patent application, three
issued foreign patents and nine pending foreign applications covering various
aspects of its devices and systems. The Company intends to file additional
patent applications in the future. The failure for such patents to issue could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has rights in the following trademarks: 3D
Scope-Registered Trademark-, Design of Cone and Vista Medical Technologies &
Design. In addition, the Company has applied to register the following
trademarks: MIM, StereoSite, CardioCamera, CardioZoom, Infomatix, CardioView,
CardioController, CardioGuide, CardioConsole and CardioLight.
The Company's future success will depend, in part, on its ability to
continue to develop patentable products, enforce its patents and obtain patent
protection for its products both in the United States and in other countries.
The patent positions of medical device companies, including the Company,
however,
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are generally uncertain and involve complex legal and factual questions. There
can be no assurance that patents will issue from any patent applications owned
by or licensed to the Company or that, if patents do issue, the claims allowed
will be sufficiently broad to protect the Company's technology. In addition,
there can be no assurance that any issued patents owned by or licensed to the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company.
The Company has in-licensed certain aspects of its technology. Failure of
the Company to retain rights to these technologies could have a material,
adverse effect on the Company's business, financial condition and results of
operations. In September 1995, McKinley granted to the Company a perpetual,
exclusive, worldwide license in the medical field to make, have made, modify,
use, lease, market, sell and otherwise distribute certain endoscopes and other
medical products incorporating a stereo objective lens and/or a relay lens
configuration. Under the terms of this license agreement, Vista Medical is
obligated to pay McKinley an annual maintenance royalty, additional royalties
upon the sale of certain numbers of systems incorporating the McKinley
technology and royalties on net sales of products incorporating the McKinley
technology. The exclusive license granted under this agreement becomes a
non-exclusive license (or, under certain circumstances, the license terminates)
in the event Vista Medical fails to pay any royalties following receipt of
notice of such failure to pay. In addition, Vista Medical has the right to
terminate the agreement with limited notice.
In June 1996, Fuji granted to the Company a non-exclusive license to certain
optical zoom technology for use in endoscopes. Vista Medical is obligated to pay
royalties on net sales of products in the United States which incorporate Fuji's
technology. Fuji may terminate the agreement if Vista Medical does not cure any
violation of the agreement within a limited period of time.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Litigation, which
would result in substantial expense to the Company, may be necessary to enforce
any patents issued or licensed to the Company and/or to determine the scope and
validity of proprietary rights of third parties or whether the Company's
products, processes or procedures infringe any such third-party proprietary
rights. The Company may also have to participate in interference proceedings
declared by the United States Patent and Trademark Office, which could result in
substantial expense to the Company, to determine the priority of inventions
covered by the Company's issued United States patents or pending patent
applications. Furthermore, the Company may have to participate at substantial
cost in International Trade Commission proceedings to enjoin importation of
products which would compete unfairly with products of the Company. Any adverse
outcome of any patent litigation (including interference proceedings) could
subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from or to third parties or require the Company
to cease using the technology in dispute.
Patent applications in the United States are maintained in secrecy until a
patent issues, and patent applications in foreign countries are maintained in
secrecy for a period of time after filing. After such period of time, and
usually before the grant of the patent, patent applications in foreign countries
are published. While publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries and the filing of related
patent applications, such publication may enable the Company's competitors to
ascertain what areas of research or development the Company is engaged in prior
to the Company's receipt of patent protection in the United States or foreign
countries relating to such research or development.
In general, the development of visualization and information systems and
related surgical instruments and accessories is intensely competitive. Patents
issued and patent applications filed relating to medical devices are numerous
and there can be no assurance that current and potential competitors and other
third parties have not filed or in the future will not file applications for, or
have not received or in the future will not receive, patents or obtain
additional proprietary rights relating to products or
45
<PAGE>
processes used or proposed to be used by the Company. There can also be no
assurance that third parties will not assert infringement claims against the
Company in the future or that any such assertions will not result in costly
litigation or require the Company to obtain a license to intellectual property
rights of such parties. There can be no assurance that any such licenses would
be available on terms acceptable to the Company, if at all. Furthermore, parties
making such claims may be able to obtain injunctive or other equitable relief
that could effectively block the Company's ability to make, use, sell or
otherwise practice its intellectual property (whether or not patented or
described in pending patent applications), or to further develop or
commercialize its products in the United States and abroad and could result in
the award of substantial damages. Defense of any lawsuit or failure to obtain
any such license could have a material adverse affect on the Company.
The Company relies on unpatented trade secrets to protect its proprietary
technology, and no assurance can be given that others will not independently
develop or otherwise acquire the same or substantially equivalent technologies
or otherwise gain access to the Company's proprietary technology or disclose
such technology or that the Company can ultimately protect its rights to such
unpatented proprietary technology. No assurance can be given that third parties
will not obtain patent rights to such unpatented trade secrets, which patent
rights could be used to assert infringement claims against the Company. The
Company also relies on confidentiality agreements with its collaborators,
employees, advisors, vendors and consultants to protect its proprietary
technology. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be independently
developed by competitors. In addition, the Company's agreements with its
employees and consultants require disclosure to the Company of ideas,
developments, discoveries or inventions conceived during employment or
consulting, as the case may be, and assignment to the Company of proprietary
rights to such matters related to the business and technology of the Company.
The extent to which efforts by others will result in patents and the effect on
the Company of the issuance of such patents is unknown. Failure to obtain or
maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
46
<PAGE>
CLINICAL ADVISORY BOARDS
The Company has established two Clinical Advisory Boards made up of leading
surgeons, one focused on minimally invasive cardiac surgery, the other focused
on HNS microsurgery and a number of other specialties. Members of the Clinical
Advisory Boards consult with the Company exclusively in the field of
visualization, but may also consult with other non-competing instrumentation
companies and are employed elsewhere on a full-time basis. The Clinical Advisory
Boards are intended to act as a clinical reference for the Company and to
provide access to potential training sites for the Company's visualization
products. The Clinical Advisory Boards and their members are as follows:
CLINICAL ADVISORY BOARD: CARDIOTHORACIC SURGERY
<TABLE>
<CAPTION>
ADVISOR (1) INSTITUTION AND LOCATION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Delos M. Cosgrove III, M.D.............................. The Cleveland Clinic Foundation, Cleveland, OH
Federico Benetti, M.D................................... Fundacion Benetti, Rosario, Argentina
Alain Carpentier, M.D................................... Hopital Broussais, Paris, France
O. Howard Frazier, M.D.................................. Texas Heart Institute, Houston, TX
Laman Gray, M.D......................................... University of Louisville, Louisville, KY
Renee S. Hartz, M.D..................................... Illinois Masonic Hospital, Chicago, IL
Urban Lonn, M.D......................................... University Hospital, Linkoping, Sweden
William Northrup, III, M.D.............................. Minneapolis Heart, Minneapolis, MN
M. Clive Robinson, M.D.................................. University of Kentucky, Lexington, KY
William Santamore, Ph.D................................. University of Louisville, Louisville, KY
Meredith Scott, M.D..................................... Florida Hospital, Orlando, FL
Hani Shennib, M.D....................................... Montreal General Hospital, Montreal, Canada
Albert Starr, M.D....................................... St. Vincent Hospital, Portland, OR
Gus J. Vlahakes, M.D.................................... Massachusetts General Hospital, Boston, MA
John Wain, M.D.......................................... Massachusetts General Hospital, Boston, MA
</TABLE>
- --------------
(1) Each of the listed advisors specializes in cardiac surgery, with the
exceptions of Dr. John Wain, who specializes in thoracic surgery, and Dr.
William Santamore, who is a cardiovascular researcher.
CLINICAL ADVISORY BOARD: HNS MICROSURGERY AND OTHER SPECIALTIES
<TABLE>
<CAPTION>
ADVISOR ADVISORY FOCUS INSTITUTION AND LOCATION
- ------------------------------ ------------------------------- -------------------------------------------------
<S> <C> <C>
Desmond H. Birkett, M.D. 3-D endoscopic surgery Lahey Clinic, Woburn, MA
Richard D. Bucholz, M.D. Neuro-navigational surgery St. Louis University School of Medicine, St.
Louis, MO
James T. Caillouette, M.D. Information Technology Hoag Hospital, Newport Beach, CA
John Coller, M.D. Telemedicine Lahey Clinic, Woburn, MA
John Diaz Day, M.D. Skull base surgery Allegheny General Hospital, Pittsburgh, PA
Michael Levy, M.D. Neurosurgery University of California, Los Angeles, Los
Angeles, CA
Douglas Olsen, M.D. Spine surgery Vanderbilt University School of Medicine,
Nashville, TN
John H. Payne, Jr., M.D. Telemedicine Kaiser Permanente Hospital, Honolulu, HI
Stanley Shapshay, M.D. ENT/Sinus surgery New England Medical Center, Boston, MA
</TABLE>
47
<PAGE>
HUMAN RESOURCES
As of February 28, 1997, the Company had approximately 53 full-time
employees, of whom 9 hold advanced degrees. None of the Company's employees is
represented by a collective bargaining agreement, nor has the Company
experienced work stoppages. The Company believes its relations with its
employees are good.
FACILITIES
The Company's facilities consist of approximately 6,500 square feet of
office space located in Carlsbad, California, in which the Company's executive
offices and the HNS Microsurgery division are located, pursuant to a lease which
expires in November 1998. In addition, the Company maintains a facility of
approximately 22,500 square feet in Westborough, Massachusetts in which the
Company's development and manufacturing operations and the CardioThoracic
Surgery division are located, pursuant to several leases which expire at various
points in time beginning in May, 1999 and ending in October 2001. The Company
believes that suitable additional space will be available to it, when needed, on
commercially reasonable terms.
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to any legal
proceedings. Notwithstanding the foregoing, from time to time, Vista Medical may
be involved in litigation.
48
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of February 28, 1997,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James C. Blair (1)................................... 57 Chairman of the Board and Director
John R. Lyon......................................... 50 President, Chief Executive Officer and Director
Koichiro (Ken) Hori.................................. 61 Senior Vice President, Advanced Technology
Nancy M. Briefs...................................... 42 Vice President and General Manager, CardioThoracic
Surgery division
Allen Newman......................................... 46 Vice President and General Manager, Head, Neck &
Spine Microsurgery division
Clifford F. Potocky.................................. 49 Vice President and General Manager, Oktas division
Robert J. De Vaere................................... 39 Chief Financial Officer and Director of Finance and
Administration
Olav B. Bergheim..................................... 46 Director
Nicholas B. Binkley (1).............................. 51 Director
Daniel J. Holland (2)................................ 61 Director
Larry M. Osterink (2)................................ 56 Director
</TABLE>
- --------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
JAMES C. BLAIR. Dr. Blair has served as Chairman of the Board and a
Director of the Company since July 1995. Dr. Blair has been a General Partner of
Domain Associates ("Domain"), a venture capital management company, since 1985.
From 1969 to 1985, Dr. Blair was an officer of three investment banking and
venture capital firms. Dr. Blair is a director of Amylin Pharmaceuticals, Inc.,
CoCensys Inc., Dura Pharmaceuticals, Inc., Gensia Sicor, Inc. and Houghten
Pharmaceuticals, Inc., all biopharmaceutical companies. Dr. Blair is a graduate
of Princeton University and holds a Ph.D. from the University of Pennsylvania.
JOHN R. LYON. Mr. Lyon co-founded the Company in July 1993 and has served
as President since July 1993, as Chief Executive Officer since December 1996 and
as a director of the Company since July 1995. Prior to co-founding Vista
Medical, Mr. Lyon served for three years with Cooper Companies, as President of
the International Division within Cooper's Health Care Group from January 1991
through December 1992, and as President of CooperSurgical, a manufacturer and
distributor of minimally invasive surgical products, from January 1992 through
January 1993. Mr. Lyon also was employed by Kaiser Aerospace in a business
development role from February 1993 until the Company was founded in July 1993.
Mr. Lyon holds a B.A. from the University of Durham, United Kingdom.
KOICHIRO (KEN) HORI. Mr. Hori co-founded Vista Medical and served as
Executive Vice President and Chief Technical Officer prior to being appointed
Senior Vice President, Advanced Technology in December 1996. Mr. Hori also
served as a director of the Company from July 1995 to December 1996. Prior to
co-founding the Company, Mr. Hori served as President of Technology for Imaging,
which was subsequently acquired by Bristol-Myers Squibb, from December 1985 to
May 1992 and then founded Oktas, Inc. in November 1992 and served as its
President until December 1996. Oktas, Inc. was a wholly-owned subsidiary of the
Company from July 1995 through December 1996, when it was legally dissolved as a
separate entity and its assets were transferred to the Company. Mr. Hori earned
his B.S.E.E. from Tokyo's Nihon University College of Science and Engineering.
49
<PAGE>
NANCY M. BRIEFS. Ms. Briefs joined the Company as a consultant in May 1995
and has served as Vice President and General Manager of the Company's
CardioThoracic Surgery division since December 1995. Prior to joining Vista
Medical, from August 1993 through April 1995, Ms. Briefs served as Vice
President of Marketing and Sales at American Surgical Technologies Corporation
("AST"), a company that developed and received approval for the first
three-dimensional endoscope before its assets were acquired by Vista Medical in
July 1995. Previously, Ms. Briefs served as Director of Worldwide Marketing and
Corporate Accounts at Stryker Corp.'s Endoscopy Division from January 1990
through August 1992, where she was responsible for both the arthroscopy and
laparoscopy business units. She holds a B.A. and B.S. from Emporia State
University in Kansas and an M.B.A. in Marketing from Golden Gate University in
San Francisco.
ALLEN NEWMAN. Mr. Newman joined Vista Medical in June 1994 and served as
the Company's Vice President, Business Development until being appointed as Vice
President and General Manager of Head, Neck & Spine Microsurgery division in
December 1996. Prior to joining the Company, Mr. Newman served as president of
Newman Medical, a medical consultancy, from October 1992 through June 1994.
Previously, he served as Vice President of Business Development at Birtcher
Medical Systems from March through October 1992 and in various sales and
management positions at Karl Storz Endoscopy America from 1982 through February
1992, serving as Vice President, Sales and Marketing from 1989. Mr. Newman holds
a B.A. from California State University (Sonoma) and graduated from the Medical
Marketing Program of the John E. Anderson Graduate School of Business at the
University of California, Los Angeles ("UCLA").
CLIFFORD F. POTOCKY. Mr. Potocky joined Vista Medical in January 1996 and
has served as the Company's Vice President and General Manager of its Oktas
division since December 1996. Prior to joining Vista Medical, Mr. Potocky worked
at Frigitronics from 1974 through October 1995, in a variety of positions,
including Executive Vice President, Vice President-Director of Engineering and
Product Manager/Product Engineer. Frigitronics, a subsidiary of Starr Surgical,
Inc., was acquired and became CooperSurgical in 1990, specializing in
cryosurgery and other minimally invasive medical devices. Mr. Potocky holds a
B.S. from the University of Massachusetts.
ROBERT J. DE VAERE. Mr. De Vaere has served as Chief Financial Officer
since December 1996 and as Director of Finance and Administration for the
Company since January 1996. From January 1991 until joining Vista Medical, Mr.
De Vaere served in various financial roles at several of Kaiser Aerospace's
business units, most recently as Director of Finance and Business Management at
Kaiser Electro-Optics. Mr. De Vaere holds a B.S. from UCLA.
OLAV B. BERGHEIM. Mr. Bergheim has served as a Director of the Company
since August 1996. Mr. Bergheim has been a Venture Partner of Domain Associates
since October 1995. From April to July 1995, Mr. Bergheim was Executive
Vice-President of Coram Healthcare and from 1977 to 1995 served in various
management capacities with Baxter Healthcare Corporation in Europe and the
United States. From 1992 to 1995, Mr. Bergheim was President of Baxter's
Cardiovascular Group. Mr. Bergheim is a director of Fusion Medical Technologies,
Inc. Mr. Bergheim graduated from the University of Oslo with a Masters degree in
Industrial Pharmacy.
NICHOLAS B. BINKLEY. Mr. Binkley has served as a Director of the Company
since July 1995. In June 1993, Mr. Binkley was one of the founding principals of
Forrest Binkley & Brown L.P., the managing general partner of SBIC Partners,
L.P., a private equity investment fund licensed as a small business investment
company by the U.S. Small Business Administration. From 1977, Mr. Binkley served
in a variety of senior executive positions at Security Pacific Corporation
("SPC"), including Chairman and Chief Executive Officer of Security Pacific
Financial Services System, SPC's non-banking subsidiary, from 1981, and Vice
Chairman of the Board of Directors of SPC from 1991. In April 1992, Mr. Binkley
became Vice Chairman of the Board of Directors of BankAmerica Corporation
("BankAmerica"), following the merger of SPC into BankAmerica, serving in such
capacity until his resignation in May 1993.
50
<PAGE>
Mr. Binkley is a graduate of The Colorado College and holds a masters degree
from Johns Hopkins School of Advanced International Studies.
DANIEL J. HOLLAND. Mr. Holland has served as a Director of the Company
since July 1995. Mr. Holland is a General Partner of One Liberty Fund III, a
venture capital fund organized in 1995. He served as President of Morgan,
Holland Ventures Corporation until 1995 when he was appointed Senior Officer of
OneLiberty Ventures, Inc. (formerly Morgan, Holland Ventures Corporation). He
has also served as a Managing General Partner of Morgan, Holland Fund and
Morgan, Holland Fund II since 1981 and 1988, respectively. Mr. Holland holds a
B.S. in mechanical engineering from The Massachusetts Institute of Technology
and an MBA from Harvard Business School.
LARRY M. OSTERINK. Dr. Osterink has been a Director of the Company since
July 1995. Since 1993, Dr. Osterink has served as President of Medical Optics
Inc., a subsidiary of Kaiser Aerospace. From 1984 to 1992, Dr. Osterink was
President of Kaiser Electro-Optics Inc. and from 1979 to 1984 he was General
Manager of the Industrial Laser Division of SpectraPhysics Inc. Dr. Osterink
graduated from Michigan State University and holds a Ph.D. in Electrical
Engineering from Stanford University.
Members of the Board currently hold office and serve until the next annual
meeting of the stockholders of the Company or until their respective successors
have been elected. The Board is currently comprised of six directors. Under the
Company's Restated Bylaws, beginning with the next annual meeting of
stockholders the Company's Board will be classified into three classes of
directors serving staggered three-year terms, with one class of directors to be
elected at each annual meeting of stockholders. The classification of directors
has the effect of making it more difficult to change the composition of the
Board. See "Description of Capital Stock -- Possible Anti-takeover Effect of
Certain Charter Provisions."
All executive officers are appointed annually by and serve at the discretion
of the Board. All of the Company's executive officers are employed by the
Company at will.
Pursuant to the Company's 1997 Stock Option/Issuance Plan, which was adopted
by the Board in February 1997 and approved by the Company's stockholders in
February 1997, directors who are not officers or employees of the Company will
receive periodic option grants beginning with the next annual meeting of
stockholders. See "-- Benefit Plans."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Compensation Committee currently composed of Dr.
Blair and Mr. Binkley. The Compensation Committee reviews and acts on matters
relating to compensation levels and benefit plans for executive officers and key
employees of the Company, including salary and stock options. The Committee is
also responsible for granting stock awards, stock options and stock appreciation
rights and other awards to be made under the Company's existing incentive
compensation plans. The Company also has a standing Audit Committee composed of
Mr. Holland and Dr. Osterink. The Audit Committee assists in selecting the
Company's independent auditors and in designating services to be performed by,
and maintaining effective communication with, those auditors.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company to the President and Chief Executive Officer and to each of the most
highly compensated executive officers who in 1996
51
<PAGE>
earned over $100,000 (the "Named Executive Officers") for services rendered in
all capacities to the Company for the year ended December 31, 1996:
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
-------------------------------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (2) BONUS (3) OPTIONS/SARS (#) COMPENSATION
- ---------------------------------------- --------- ----------- ----------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
John R. Lyon ........................... 1996 $ 149,510 $ 75,000 246,000 $ --
President, Chief Executive Officer
and Director
Koichiro Hori .......................... 1996 129,754 32,400 75,000 --
Senior Vice President,
Advanced Technology
Allen Newman ........................... 1996 129,696 32,200 135,000 --
Vice President and General
Manager, HNS Microsurgery
division
Nancy M. Briefs ........................ 1996 118,582 32,000 135,000 --
Vice President and General
Manager, CardioThoracic
Surgery division
Clifford F. Potocky .................... 1996 99,414 16,000 78,750 19,685(4)
Vice President and General
Manager, Oktas division
</TABLE>
- --------------
(1) Pursuant to Instruction to Item 402(b) of Regulation S-K promulgated by the
Securities and Exchange Commission (the "Commission"), information with
respect to fiscal years prior to 1996 has not been included as the Company
was not a reporting company pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
information has not been previously reported to the Commission in response
to a filing requirement.
(2) Includes amounts deferred pursuant to the Company's 401(k) Plan.
(3) Includes cash payments for bonuses accrued for and related to 1995 and 1996
services.
(4) Reimbursement for per diem and temporary living expenses.
STOCK OPTIONS
The following table sets forth information concerning stock option grants
made to each of the Named Executive Officers for the year ended December 31,
1996. The Company granted no stock appreciation rights ("SARs") to Named
Executive Officers during 1996.
52
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
- -------------------------------------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM (3)
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED (1) FISCAL YEAR PER SHARE (2) DATE 5% 10%
- ------------------------------ ----------- --------------- --------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John R. Lyon.................. 11,250 1.0% $ 0.80 12/12/2006 $ 5,660 $ 14,344
234,750 20.0 0.20 05/21/2006 29,527 74,826
Koichiro Hori................. 75,000 6.4 0.20 05/21/2006 9,433 23,906
Allen Newman.................. 7,500 0.6 0.80 12/12/2006 3,773 9,562
127,500 10.9 0.20 05/21/2006 16,037 40,640
Nancy M. Briefs............... 7,500 0.6 0.80 12/12/2006 3,773 9,562
127,500 10.9 0.20 05/21/2006 16,037 40,640
Clifford F. Potocky........... 3,750 0.3 0.80 12/12/2006 1,887 4,781
45,000 3.8 0.20 05/21/2006 5,660 14,344
30,000 2.6 0.20 02/15/2006 3,773 9,562
</TABLE>
- --------------
(1) In accordance with the terms of the 1995 Stock Option Plan under which these
options were granted, 50% of the shares subject to each option will
immediately vest in the event the Company is acquired by a merger or asset
sale, unless the Company's repurchase rights with respect to those shares
are transferred to the acquiring entity. The other 50% of the shares vest if
employee is terminated without cause within two years of the merger or asset
sale. The grant dates for the above options are as follows:
<TABLE>
<CAPTION>
NAME OPTIONS GRANTED (#) GRANT DATE
- ----------------------------------------------------------- -------------------- -----------
<S> <C> <C>
John R. Lyon............................................... 11,250 12/12/96
234,750 05/21/96
Koichiro Hori.............................................. 75,000 05/21/96
Allen Newman............................................... 7,500 12/12/96
127,500 05/21/96
Nancy M. Briefs............................................ 7,500 12/12/96
127,500 05/21/96
Clifford F. Potocky........................................ 3,750 12/12/96
45,000 05/21/96
30,000 02/15/96
</TABLE>
(2) The exercise price per share of options granted represented the fair market
value of the underlying shares of Common Stock on the dates the respective
options were granted as determined by the Board, considering all relevant
factors. The exercise price may be paid in cash or in shares of Common Stock
valued at fair market value on the exercise date or a combination of cash or
shares or any other form of consideration approved by the Board. After the
effective date of the Registration Statement of which this Prospectus is a
part, the fair market value of shares of Common Stock will be determined in
accordance with certain provisions of the Plan based on the closing selling
price per share of a share of Common Stock on the date in question on the
primary exchange or national market system on which the Company's common
stock is listed or reported. If shares of the Common Stock are not listed or
admitted to trading on any stock exchange nor traded on the Nasdaq National
Market, then the fair market value shall be determined by the Plan
Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Commission. The price used for computing this
appreciation is the exercise price of the
53
<PAGE>
options, not the price of Common Stock in this Offering. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% or 10% levels or at any other
defined level.
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning option exercises during
1996 by the Named Executive Officers and the value of unexercised options held
by each of the Named Executive Officers as of December 31, 1996. No SARs were
exercised during 1996 or outstanding as of December 31, 1996.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT DECEMBER
SHARES 31, 1996
ACQUIRED ON VALUE --------------------------------
NAME EXERCISE (#) REALIZED (1) EXERCISABLE (2) UNEXERCISABLE
- ---------------------------------- ------------ ------------ --------------- --------------
<S> <C> <C> <C> <C>
John R. Lyon...................... 168,750 $0 246,000 0
Koichiro Hori..................... -- -- 75,000 0
Allen Newman...................... 75,000 0 135,000 0
Nancy M. Briefs................... 75,000 0 135,000 0
Clifford F. Potocky............... -- -- 78,750 0
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
MONEY OPTIONS
AT DECEMBER 31, 1996 (3)
-------------------------------
NAME EXERCISABLE (2) UNEXERCISABLE
- ---------------------------------- --------------- -------------
<S> <C> <C>
John R. Lyon...................... $140,850 $0
Koichiro Hori..................... 45,000 0
Allen Newman...................... 76,500 0
Nancy M. Briefs................... 76,500 0
Clifford F. Potocky............... 45,000 0
</TABLE>
- --------------
(1) "Value realized" is calculated on the basis of the fair market value of the
Common Stock on the date of exercise minus the exercise price and does not
necessarily indicate that the optionee sold such stock.
(2) The options are immediately exercisable; however, any shares purchased upon
exercise may be subject to rights of repurchase on the part of the Company
which lapse at various times over the next five years.
(3) "Value" is defined as fair market price of the Common Stock at fiscal
year-end ($0.80) less exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, the Compensation Committee of the
Company's Board established the levels of compensation for the Company's
executive officers. The members of the Company's Compensation Committee are Dr.
Blair and Mr. Binkley. See "Certain Transactions." Mr. Lyon, the Company's
President and Chief Executive Officer, participated in the deliberations of the
Compensation Committee regarding executive compensation that occurred during
1996, but did not take part in the deliberations regarding his own compensation.
EMPLOYMENT ARRANGEMENTS
Fifty percent of the unvested shares subject to options outstanding to the
Company's executive officers will immediately vest if the Company is acquired by
a merger or asset sale, unless the Company's repurchase rights with respect to
those shares are transferred to the acquiring entity. The other 50% of the
shares vest if the employee is terminated without cause within two years of the
merger or asset sale. See "Benefit Plans -- 1997 Stock Option/Stock Issuance
Plan."
DIRECTOR COMPENSATION
The Company reimburses its directors for all reasonable and necessary travel
and other incidental expenses incurred in connection with their attendance at
meetings of the Board. Directors are not
54
<PAGE>
currently compensated for serving on the Board. However, under the 1997 Stock
Option/Issuance Plan (the "Plan"), as amended, which was adopted in February
1997 and amended in March 1997, beginning with the first annual meeting of
stockholders following this Offering, each non-employee director who is first
elected to the Board will automatically receive an option to purchase 15,000
shares of Common Stock for the first year of the director's Board term and 5,000
shares of Common Stock for each additional year remaining on the director's
Board term following the automatic option grant. Each director who is currently
serving on the Board will receive an option to purchase 5,000 shares of Common
Stock for each additional year for which he is elected as a director. These
options will have an exercise price equal to 100% of the fair market value of
the Common Stock on the grant date. The grant of 15,000 shares will become
exercisable in equal monthly installments over four years of Board service
completed by the director following such grant, and the grants of 5,000 shares
will become exercisable at the end of one year of Board service completed by the
director following the date of grant. See "-- Benefit Plans -- 1997 Stock
Option/Issuance Plan."
Under the Company's 1995 Stock Option Plan (the "Predecessor Plan"), each
non-employee director received a fully vested option to purchase 4,500 shares of
Common Stock in December 1996, and Mr. Lyon received an option to purchase
11,250 shares of Common Stock of the Company. The option grant to Mr. Lyon vests
over five years, subject to acceleration upon a change of control. Fifty percent
of the shares subject to Mr. Lyon's option will immediately vest in the event
the Company is acquired by a merger or asset sale, unless the Company's
repurchase rights with respect to those shares are transferred to the acquiring
entity. The other 50% of the shares will immediately vest if Mr. Lyon is
terminated without cause within two years of the merger or asset sale.
BENEFIT PLANS
1997 STOCK OPTION/STOCK ISSUANCE PLAN
The Plan serves as the successor equity incentive program to the Predecessor
Plan. The Plan became effective on February 28, 1997 upon adoption by the Board
and approval by the stockholders. 2,820,000 shares of Common Stock have been
authorized for issuance under the Plan. This share reserve is comprised of (i)
the shares that remain available for issuance under the Predecessor Plan,
including the shares subject to outstanding options thereunder, plus (ii) an
additional increase of 1,417,489 shares. However, in no event may any one
participant in the Plan receive option grants or direct stock issuances for more
than 50,000 shares in the aggregate per calendar year.
Outstanding options under the Predecessor Plan were incorporated into the
Plan upon its adoption, and no further option grants will be made under the
Predecessor Plan. The incorporated options will continue to be governed by their
existing terms, unless the Plan Administrator (described below) elects to extend
one or more features of the Plan to those options. However, except as otherwise
noted below, the outstanding options under the Predecessor Plan contain
substantially the same terms and conditions summarized below for the
Discretionary Option Grant Program in effect under the Plan.
The Plan is divided into three separate components: (i) the Discretionary
Option Grant Program under which eligible individuals in the Company's employ or
service (including officers and other employees, non-employee Board members and
independent consultants) may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock at an exercise price not less
than 85% of their fair market value on the grant date, (ii) the Stock Issuance
Program under which such individuals may, in the Plan Administrator's
discretion, be issued shares of Common Stock directly, through the purchase of
such shares at a price not less than 100% of their fair market value at the time
of issuance or as a bonus tied to the performance of services and (iii) the
Automatic Option Grant Program under which option grants will automatically be
made at periodic intervals to eligible non-employee Board members to purchase
shares of Common Stock at an exercise price equal to 100% of their fair market
value on the grant date.
55
<PAGE>
The Board or a committee appointed by the Board (the "Plan Administrator")
will administer the Discretionary Option Grant and Stock Issuance Programs. The
Plan Administrator, subject to the provisions of the plan, will have complete
discretion to determine which eligible individuals will receive option grants or
stock issuances, the time or times at which such option grants or stock issuance
are to be made, the number of shares subject to each such grant or issuance, the
vesting schedule to be in effect for the option grant or stock issuance, the
maximum term for which any granted option is to remain outstanding and whether
an option will be granted as an incentive stock option or a non-statutory stock
option under the Federal tax laws. The administration of the Automatic Option
Grant Program will be self-executing in accordance with the express provisions
of such Program and no Plan Administrator will exercise any discretionary
functions with respect to any option grants or stock issuances made under the
Program.
Under the Automatic Option Grant Program, at each Annual Stockholders
Meeting, beginning with the next Annual Stockholders Meeting, each individual
who (i) is elected or re-elected to serve as a non-employee Board member or (ii)
was appointed as a non-employee Board member since the last Annual Stockholders
Meeting (and whose Board term does not expire at such Meeting) will receive an
option grant to purchase shares of Common Stock. The number of shares subject to
the option will be equal to 15,000 shares for the first year that the optionee
is elected to the Board and 5,000 shares for each additional year served by such
optionee following the automatic option grant. Each option granted pursuant to
the Automatic Option Grant Program will have an exercise price equal to the fair
market value per share of Common Stock on the grant date and will have a maximum
term of 10 years, subject to earlier termination following the optionee's
cessation of Board service. The grant of 15,000 shares will vest in successive
equal monthly installments over forty-eight months of Board service completed by
the optionee measured from the date the optionee is first elected to the Board
of Directors, and the grants of 5,000 will vest at the end of each additional
year of Board service completed by the optionee. In addition, the option shares
will become fully vested upon (i) certain changes in the ownership or control of
the Company or (ii) the death or disability of the optionee while serving as a
Board member. The automatic options may only be exercised to the extent vested.
Payment of the exercise price for the shares of Common Stock subject to
option grants made under the Plan may be made in cash or in shares of Common
Stock valued at fair market value on the exercise date. The optionee may elect
to make payment for the option shares upon exercise through a same-day sale
program, which enables the optionee to purchase the option shares without making
any cash payment. In addition, the Plan Administrator may provide financial
assistance to one or more optionees in the exercise of their outstanding options
by allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in full payment of the exercise price and associated withholding
taxes incurred in connection with such exercise.
In the event that the Company is acquired by merger or asset sale, the
unvested portion of each outstanding option under the Discretionary Option Grant
Program that is not to be assumed by the successor corporation will
automatically vest in full. Similarly, unless the Company assigns the repurchase
rights associated with any unvested shares under the Stock Issuance Program to
the successor corporation, such unvested shares will vest in full. Any
outstanding options assumed by the successor corporation and shares that remain
subject to repurchase rights assigned to the successor corporation will not vest
immediately, but will vest in accordance with their original vesting schedule.
The Plan Administrator will have the authority under the Discretionary Option
Grant and Stock Issuance Programs to grant options and to structure repurchase
rights so that the shares subject to those options or repurchase rights will
automatically vest in the event the individual's service is terminated, whether
involuntarily or through a resignation for good reason, within a specified
period (not to exceed 18 months) following (i) a merger or asset sale in which
those options are assumed or those repurchase rights are assigned, (ii) a
hostile change in control of the Company effected by a successful tender offer
for more than 50% of the outstanding voting stock or by proxy contest for the
election of Board members
56
<PAGE>
or (iii) the sale, transfer or disposition of all or substantially all of the
Company's assets (each a "Corporate Transaction"). The Plan Administrator will
also have the discretion to provide for the automatic acceleration of options
and the lapse of any repurchase rights upon (i) a hostile change in control of
the Company effected by a successful tender offer for more than 50% of the
Company's outstanding voting stock or by proxy contest for the election of Board
members or (ii) the termination of the individual's service, whether
involuntarily or through a resignation for good reason, within a specified
period (not to exceed 18 months) following such a hostile change in control. The
unvested portion of the options currently outstanding under the Predecessor Plan
will accelerate and such options will terminate and cease to be exercisable upon
an acquisition of the Company by merger or asset sale, unless those options are
assumed by the acquiring entity. The unvested portion of any options assumed by
the successor corporation will automatically accelerate upon the involuntary
termination of the optionee's service within 18 months following the occurrence
of a Corporate Transaction in which the options are assumed or replaced by the
successor corporation.
Stock appreciation rights may be issued in tandem with option grants made
under the Discretionary Option Grant Program. The holders of these rights will
have the opportunity to elect between the exercise of their outstanding stock
options for shares of Common Stock or the surrender of those options for an
appreciation distribution from the Company equal to the excess of (i) the fair
market value of the vested shares of Common Stock subject to the surrendered
option over (ii) the aggregate exercise price payable for such shares. The
appreciation distribution may be made in cash or in shares of Common Stock.
There are currently no outstanding stock appreciation rights.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or a different number of option shares with an exercise
price per share based upon the fair market value of the Common Stock on the new
grant date.
The Board may amend or modify the Plan at any time. The Plan will terminate
10 years from its effective date unless otherwise terminated by the Board prior
to such date.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board on February 19, 1997 and was subsequently approved by the
stockholders on February 20, 1997. The Purchase Plan is designed to allow
eligible employees of the Company to purchase shares of Common Stock, at
semi-annual intervals, through periodic payroll deductions under the Purchase
Plan. A reserve of 200,000 shares of Common Stock has been established for this
purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
under the Purchase Plan will commence on the effective date of a Registration
Statement on Form S-8 covering the shares of Common Stock issuable under the
Purchase Plan (which the Company intends to file on the effective date of this
Offering) and will terminate no later than the last business day in March 1999.
Individuals who are eligible employees on the start date of any offering
period may enter the Purchase Plan on that start date or on any subsequent
semi-annual entry date (April 1 or October 1 each year). Individuals who become
eligible employees after the start date of the offering period may join the
Purchase Plan on any subsequent semi-annual entry date within that period.
Payroll deductions may not exceed 10% of the participant's base salary for
each semi-annual period of participation, and the accumulated payroll deductions
will be applied to the purchase of shares on the participant's behalf on each
semi-annual purchase date (the last business day of March and September each
year, with the first purchase date to occur on the last business day of
September 1997) at a purchase price per share not less than 85% of the LOWER of
(i) the fair market value of the Common Stock
57
<PAGE>
on the participant's entry date into the offering period or (ii) the fair market
value of the Common Stock on the semi-annual purchase date. Should the fair
market value of the Common Stock on any semi-annual purchase date be less than
the fair market value of the Common Stock on the first day of the offering
period, then the current offering period will automatically end and a new
24-month offering period will begin, based on the lower fair market value.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Second Restated Certificate of Incorporation eliminates,
subject to certain exceptions, directors' personal liability to the Company or
its stockholders for monetary damages for breaches of fiduciary duties. The
Second Restated Certificate of Incorporation does not, however, eliminate or
limit the personal liability of a director for (i) any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law
or (iv) any transaction from which the director derived an improper personal
benefit.
The Company's Restated Bylaws provide that the Company shall indemnify its
directors and executive officers to the fullest extent permitted under the
Delaware General Corporation Law and may indemnify its other officers, employees
and other agents as set forth in the Delaware General Corporation Law. In
addition, the Company has entered into indemnification agreements with its
directors and officers. The indemnification agreements contain provisions that
require the Company, among other things, to indemnify its directors and
executive officers against certain liabilities (other than liabilities arising
from intentional or knowing and culpable violations of law) that may arise by
reason of their status or service as directors or executive officers of the
Company or other entities to which they provide service at the request of the
Company and to advance expenses they may incur as a result of any proceeding
against them as to which they could be indemnified. The Company believes that
these provisions and agreements are necessary to attract and retain qualified
directors and officers. The Company has obtained an insurance policy covering
directors and officers for claims that such directors and officers may otherwise
be required to pay or for which the Company is required to indemnify them,
subject to certain exclusions.
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<PAGE>
CERTAIN TRANSACTIONS
Since its formation in July 1993, the Company has issued, in private
placement transactions, shares of its Preferred Stock as follows (not adjusted
for the three-for-four reverse stock split): 8,094,340 shares of Series A-1
Preferred Stock at a price of $1.325 per share in July 1995; 154,581 shares of
Series A-3 Preferred Stock at a price of $1.325 per share in September 1995;
1,325,331 shares of Series B Preferred Stock at a price of $4.00 per share in
July 1996; and 2,000,000 shares of Series C Preferred Stock at a price of $5.00
per share in November 1996. The purchasers of Preferred Stock include, among
others, the following executive officers and holders of more than five percent
of the Company's outstanding stock and their respective affiliates (all shares
of Preferred Stock are convertible into Common Stock on a three-for-four basis):
<TABLE>
<CAPTION>
PREFERRED STOCK
EXECUTIVE OFFICERS, DIRECTORS AND 5% ------------------------------------------------ TOTAL
STOCKHOLDERS SERIES A-1 SERIES A-3 SERIES B SERIES C CONSIDERATION
- --------------------------------------------- ----------- ----------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Funds advised by Domain Associates (1)....... 2,113,207 32,215 326,341 -- $ 4,148,048
SBIC Partners, L.P. (2)...................... 1,886,792 -- 291,375 -- 3,665,499
Foster City Partners (3)..................... 1,792,453 -- 276,807 -- 3,482,228
Biotechnology Investments Limited............ 1,056,604 15,875 163,170 -- 2,073,715
One Liberty Fund III, L.P. (4)............... 747,170 -- 115,385 -- 1,451,540
Koichiro Hori................................ 264,151 -- 8,244 -- 382,976
Nancy M. Briefs.............................. -- -- 50,000 -- 200,000
Medtronic Asset Management, Inc. (5)......... -- -- -- 2,000,000 10,000,000
</TABLE>
- --------------
(1) Includes Domain Partners III, L.P., DP III Associates, L.P. and Domain
Partners II, L.P., associated with Dr. Blair.
(2) Associated with Mr. Binkley.
(3) Includes shares originally issued to Kaiser Aerospace and subsequently
transferred to Foster City Partners. Does not include 750 shares of Common
Stock held by Kaiser Aerospace.
(4) Associated with Mr. Holland.
(5) A wholly-owned subsidiary of Medtronic.
Holders of Preferred Stock are entitled to certain registration rights with
respect to the Common Stock issued or issuable upon conversion thereof. See
"Description of Capital Stock -- Registration Rights."
Vista Medical was founded as a wholly-owned subsidiary of Kaiser Aerospace
in July 1993. Kaiser Aerospace financed the initial operations of the Company
through cash advances aggregating $5.4 million.
In July 1995, the Company raised approximately $8 million from various
venture capital funds, including funds which are principal stockholders of the
Company and/or are affiliated with directors of the Company, in a private
placement of its Series A-1 Preferred Stock. The Company repaid its indebtedness
to Kaiser Aerospace by permitting Kaiser Aerospace to cancel $2.4 million of
indebtedness owed by the Company as payment for shares of Series A-1 Preferred
Stock and by repaying an additional $3 million debt owed to Kaiser Aerospace
with funds received pursuant to the private placement transaction. See
"Business--Strategic Alliances--Kaiser Aerospace." As part of this Series A-1
Preferred Stock financing, the Company also acquired Oktas, Inc. as its
wholly-owned subsidiary pursuant to the receipt of all of the outstanding shares
of Oktas, Inc. as payment for shares of Series A-1 Preferred Stock received by
Mr. Koichiro Hori, the founder and sole shareholder of Oktas, Inc. and currently
an executive officer of the Company.
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<PAGE>
In September 1995, the Company purchased substantially all of the assets of
AST, which was engaged in the business of designing, developing, marketing and
supporting stereoscopic endoscopes. The purchase price for such assets consisted
of $25,000 and 154,581 shares of Series A-3 Preferred Stock of Vista Medical,
which is non-voting stock. Pursuant to its rights under the purchase agreement,
AST assigned its rights to receive the consideration payable by Vista Medical to
various venture capital funds, including funds which are principal stockholders
of the Company and/or are affiliated with directors of the Company. The
Company's acquisition of the assets of AST was accounted for using the purchase
method of accounting with the assets being recorded at their estimated fair
values at the date of acquisition.
In September 1994, the Company entered into a license agreement with Allen
Newman, currently an executive officer of the Company, under which Mr. Newman
granted the Company an exclusive license to use the Newman Technology. In
December 1996, the Company and Urohealth entered into a license agreement under
which the Company exclusively sublicensed the Newman Technology to Urohealth for
use in gynecology, urology and general surgery on a worldwide basis. In
connection with the license agreement, the parties entered into a consulting
agreement whereby Vista Medical agreed to use its reasonable efforts to provide
the services of Mr. Newman as a consultant. The Newman license agreement was
amended in December 1996 to permit the Company to sublicense the Newman
Technology to Urohealth. In connection with the amendment of the Newman license
agreement, the Company paid Mr. Newman $200,000 and agreed to pay Mr. Newman 50%
of the royalties received from Urohealth. Previously, the Company made advance
royalty payments of $37,500 to Mr. Newman in connection with the execution of
the initial license agreement.
In November 1996, Vista Medical and Medtronic entered into a strategic
alliance providing for the distribution and co-promotion of the Vista Systems.
In connection with entering into a co-promotion agreement, Medtronic made a $10
million equity investment in the Company and received 2,000,000 shares of Series
C Preferred Stock, which will be automatically converted into 1,500,000 shares
of Common Stock in connection with this Offering.
In May 1996, the Company loaned certain officers of the Company an aggregate
of $63,750 in connection with the exercise of certain stock options by such
officers.
All of the Company's officers are employed by the Company at will. The
Company has entered into indemnification agreements with each of its directors
and executive officers. See "Management -- Limitations on Liability and
Indemnification Matters."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company expects that all future transactions
between the Company and its officers, directors and principal stockholders and
their affiliates will be approved in accordance with the Delaware General
Corporation Law by a majority of the Board, as well as by a majority of the
independent and disinterested directors of the Board, and will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of February 28, 1997, and as adjusted to
reflect the sale of the shares of the Common Stock offered hereby by the
Company, by (i) all those known by the Company to be beneficial owners of more
than 5% of its outstanding Common Stock, (ii) each director of the Company,
(iii) each of the Named Executive Officers of the Company and (iv) all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED (2)
NUMBER OF --------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES (1) PRIOR TO OFFERING AFTER OFFERING
- ------------------------------------------------------------------ ----------- ------------------- -----------------
<S> <C> <C> <C>
Funds advised by Domain Associates (3) ........................... 1,873,320 20.2% 14.6%
One Palmer Square
Princeton, NJ 08542
SBIC Partners, L.P. .............................................. 1,633,625 17.6% 12.8%
201 Main Street, Suite 2302
Fort Worth, TX 76102
Foster City Partners ............................................. 1,551,944 16.7% 12.1%
950 Tower Lane, Suite 800
Foster City, CA 94404
Medtronic Asset Management, Inc. ................................. 1,500,000 16.1% 11.7%
7000 Central Avenue NE
Minneapolis, MN 55432
Biotechnology Investments Limited (B.I.L.). ...................... 926,736 10.0% 7.2%
Post Office Box 58
St. Julian's Court
St. Peter Port
Guernsey, Channel Islands
One Liberty Fund III, L.P. ....................................... 646,915 7.0% 5.1%
1 Liberty Square, 2nd Floor
Boston, MA 02109
James C. Blair (3)................................................ 1,873,320 20.2% 14.6%
John R. Lyon (4).................................................. 414,750 4.3% 3.2%
Olav B. Bergheim (5).............................................. 19,500 * *
Nicholas B. Binkley (6)........................................... 1,640,125 17.6% 12.8%
Daniel J. Holland (7)............................................. 666,415 7.2% 5.2%
Larry Osterink (8)................................................ 1,692,195 18.2% 13.2%
Koichiro Hori (9)................................................. 279,296 3.0% 2.2%
Nancy M. Briefs (10).............................................. 247,500 2.6% 1.9%
Allen Newman (11)................................................. 210,000 2.2% 1.6%
Clifford F. Potocky (12).......................................... 78,750 * *
All directors and executive officers as a group (11 persons)
(13)............................................................. 7,185,601 71.8% 53.2%
</TABLE>
- ----------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them. Share ownership in each
case includes shares issuable upon exercise of certain outstanding options
as described in the footnotes below. The address for those individuals for
which an address is not otherwise indicated is: 5451 Avenida Encinas, Suite
A, Carlsbad, California 92008.
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<PAGE>
(2) Percentage of ownership is calculated pursuant to Commission Rule
13d-3(d)(1).
(3) Includes 1,767,787 shares beneficially owned by Domain Partners III, L.P.,
24,161 shares beneficially owned by Domain Partners, II L.P., 61,872 shares
beneficially owned by DP III Associates, L.P. and 19,500 shares beneficially
owned by Domain Associates. Dr. Blair is a general partner of One Palmer
Square Associates, II, L.P., which is the general partner of Domain Partners
II, L.P., and he is also a general partner of One Palmer Square Associates,
III, L.P., the general partner of Domain Partners III, L.P. and DP III
Associates. Dr. Blair has an indirect beneficial ownership of these shares.
Dr. Blair is a general partner of Domain Associates. Excludes 926,736 shares
beneficially owned by BIL. Pursuant to a contractual agreement, Domain
Associates is the U.S. venture capital advisor to BIL. Domain Associates has
neither voting nor investment power over BIL and Dr. Blair and Domain
Associates disclaim beneficial ownership of the BIL shares.
(4) Includes 246,000 shares issuable upon exercise of options exercisable
within 60 days of February 28, 1997.
(5) Mr. Bergheim is employed by Domain Associates as a Venture Partner. Mr.
Bergheim has no beneficial ownership of any of the shares owned by funds
advised by Domain Associates.
(6) Includes 1,500 shares issuable upon exercise of options exercisable within
60 days of February 28, 1997. Also includes 5,000 shares beneficially owned
by The Binkley Family Trust, of which Mr. Binkley is a trustee, and
1,633,625 shares beneficially owned by SBIC Partners, L.P., a Texas limited
partnership ("SBIC Partners"). SBIC Partners is the beneficial owner of all
shares of the Company's Common Stock registered in its name. Forrest Binkley
& Brown L.P., a Texas limited partnership ("FBB"), is the managing general
partner of SBIC Partners, and Forrest Binkley & Brown Venture Co., a Texas
corporation ("Venture Co."), is the sole general partner of FBB. Mr. Binkley
is a limited partner of FBB, and is an executive officer, director and
shareholder of Venture Co. Mr. Binkley disclaims beneficial ownership with
respect to all shares of Common Stock owned by SBIC Partners, except to the
extent of his pecuniary interest therein.
(7) Includes 19,500 shares issuable upon exercise of options exercisable within
60 days of February 28, 1997. Also includes 646,915 shares beneficially
owned by One Liberty Fund III, L.P. Mr. Holland is a general partner of One
Liberty Partners III, L.P., which is a general partner of One Liberty Fund
III, L.P. Mr. Holland disclaims beneficial ownership with respect to all
shares of Common Stock owned by One Liberty Fund III, L.P.
(8) Includes 19,500 shares issuable upon exercise of options exercisable within
60 days of February 28, 1997. Also includes 1,551,944 shares beneficially
owned by Foster City Partners and 750 shares beneficially owned by Kaiser
Aerospace. Dr. Osterink, president of a subsidiary of Kaiser Aerospace,
disclaims beneficial ownership of the shares owned by Foster City Partners
and Kaiser Aerospace.
(9) Includes 75,000 shares issuable upon exercise of options exercisable within
60 days of February 28, 1997.
(10) Includes 135,000 shares issuable upon exercise of options exercisable
within 60 days of February 28, 1997. Also includes 37,500 shares
beneficially owned by Delaware Charter Guarantee & Trust TTEE FBO Nancy
Briefs (the "Briefs Trust"). Ms. Briefs is a beneficiary of the Briefs
Trust.
(11) Includes 135,000 shares issuable upon exercise of options exercisable
within 60 days of February 28, 1997.
(12) Includes 78,750 shares issuable upon exercise of options exercisable within
60 days of February 28, 1997.
(13) Includes 714,000 shares issuable upon exercise of options exercisable
within 60 days of February 28, 1997. See also footnotes 3, 6, 7 and 8.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, the Company will be authorized to issue
35,000,000 shares of Common Stock, $.01 par value per share, of which 12,718,903
shares will be issued and outstanding, and 5,000,000 shares of undesignated
Preferred Stock, $.01 par value per share, of which no shares will be issued and
outstanding.
COMMON STOCK
At February 28, 1997, there were 9,294,528 shares of Common Stock
outstanding and held of record by approximately 44 stockholders. The holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. Subject to preferences that may
be applicable to any outstanding shares of Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board out of funds legally available. See "Dividend Policy." All outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
After completion of the Offering, the Board will have the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of Preferred
Stock in one or more series and to fix the rights, priorities, preferences,
qualifications, limitations and restrictions, including dividend rights,
conversion rights, voting rights, terms of redemption, terms of sinking funds,
liquidation preferences and the number of shares constituting any series or the
designation of such series, which could decrease the amount of earnings and
assets available for distribution to holders of Common Stock or adversely affect
the rights and powers, including voting rights, of the holders of the Common
Stock. The issuance of Preferred Stock could have the effect of delaying or
preventing a change in control of the Company or make removal of management more
difficult. Additionally, the issuance of Preferred Stock may have the effect of
decreasing the market price of the Common Stock and may adversely affect the
voting and other rights of the holders of Common Stock.
WARRANTS
In February 1997, in connection with the agreement with Heartport, the
Company issued to Heartport a warrant to purchase up to 100,000 shares of Common
Stock, exercisable at any time after the closing of this Offering and prior to
March 31, 2001 at a price per share equal to the initial public offering price.
The warrant contains provisions for the adjustment of the exercise price and the
aggregate number of shares issuable upon exercise of the warrant under certain
circumstances, including stock dividends, stock splits, reorganizations,
reclassifications or consolidations. The holder of the warrant is entitled to
certain registration rights with respect to the Common Stock issued or issuable
upon exercise thereof. See "-- Registration Rights."
REGISTRATION RIGHTS
The holders of approximately 8,780,679 shares of Common Stock or their
permitted transferees (the "Holders") are entitled to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of agreements between the Company and such Holders, if the Company
proposes to register any of its securities under the Securities Act for its own
account, such Holders are entitled to notice of such registration and are
entitled to include shares of such Common Stock therein, provided, among other
conditions, that the underwriters of any such offering have the right to limit
the number of shares included in such registration. In addition, Holders of at
least 40% of approximately 8,780,679 shares of Common Stock with demand
registration rights may require the Company to prepare and file a registration
statement under the Securities Act with respect to the shares entitled to demand
registration rights, and the Company is required to use its best efforts to
effect such registration,
63
<PAGE>
subject to certain conditions and limitations. The Company is not obligated to
effect more than two of these stockholder-initiated registrations nor to effect
such a registration within 90 days following an offering of the Company's
securities, including the Offering made hereby. The Holders of approximately
8,780,679 shares of Common Stock may also request the Company to register such
shares on Form S-3 provided the shares registered have an aggregate market value
of at least $7.5 million. The Company is not obligated to effect more than two
of these registrations pursuant to Form S-3 per year. Generally, the Company is
required to bear the expense of all such registrations. The registration rights
of the Holders expire on the seventh anniversary of the effective date of this
Offering or, if earlier, for an individual Holder, at such time after the
Offering as all shares held by such Holder can be sold within any three-month
period pursuant to Rule 144. All rights of the Holders to require registration
of the resale of their shares in connection with this Offering have been waived.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
SECOND RESTATED CERTIFICATE OF INCORPORATION AND RESTATED BYLAWS
The Company's Second Restated Certificate of Incorporation authorizes the
Board to establish one or more series of undesignated Preferred Stock, the terms
of which can be determined by the Board at the time of issuance. See "--
Preferred Stock." The Second Restated Certificate of Incorporation also provides
that all stockholder action must be effected at a duly called meeting of
stockholders and not by a consent in writing. The Company's Restated Bylaws
provide that the Company's Board will be classified into three classes of
directors beginning at the next annual meeting of stockholders. See "Management
- -- Executive Officers and Directors." In addition, the Restated Bylaws do not
permit stockholders of the Company to call a special meeting of stockholders;
only the Company's Chief Executive Officer, President, Chairman of the Board or
a majority of the Board are permitted to call a special meeting of stockholders.
The Restated Bylaws also require that stockholders give advance notice to the
Company's secretary of any nominations for director or other business to be
brought by stockholders at any stockholders' meeting and require a supermajority
vote of members of the Board and/or stockholders to amend certain Bylaw
provisions. These provisions of the Second Restated Certificate of Incorporation
and the Restated Bylaws could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company. Such provisions may
also have the effect of preventing changes in the management of the Company.
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder (defined as any person or entity that is the beneficial owner of at
least 15% of a corporation's voting stock) for a period of three years following
the time that such stockholder became an interested stockholder, unless: (i)
prior to such time, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder's
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding, for purposes of
determining the number of shares outstanding, those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) at or subsequent to such time, the business combination is approved by
the Board and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
64
<PAGE>
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, lease, exchange, mortgage, transfer, pledge or other disposition involving
the interested stockholder and 10% or more of the assets of the corporation;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder; (iv) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 12,718,903 shares of
Common Stock outstanding (assuming no exercise of options or other convertible
securities or issuances of Common Stock subsequent to December 31, 1996). The
3,500,000 shares sold in this Offering will be freely tradeable without
restriction or further registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act ("Affiliates"), may generally be sold only in
compliance with certain of the limitations of Rule 144 described below.
The remaining approximately 9,219,000 shares of Common Stock are deemed
"Restricted Shares" under Rule 144. Of the Restricted Shares, approximately 750
shares may be eligible for sale in the public market immediately after this
offering pursuant to Rule 144(k) under the Securities Act. Approximately
6,800,000 additional Restricted Shares may be eligible for sale in the public
market in accordance with Rule 144 or Rule 701 under the Securities Act
beginning 90 days after the date of this Prospectus. The holders of
approximately 6,730,000 of these Restricted Shares have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the date
of this Prospectus without the prior written consent of Goldman, Sachs & Co.
Goldman, Sachs & Co. may, in its sole discretion, and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements.
Upon expiration of the lock-up agreements 180 days after the date of this
Prospectus, approximately 7,571,000 shares of Common Stock (including shares
issued or issuable upon the exercise of vested options and warrants outstanding
as of February 28, 1997) will become available for sale in the public market;
the remaining 1,600,000 shares will become eligible for sale under Rule 144 at
various dates thereafter as the holding period provisions of Rule 144 are
satisfied.
In general, under Rule 144 as recently amended, effective April 29, 1997,
beginning approximately 90 days after the effective date of the Registration
Statement of which this Prospectus is a part, a stockholder, including an
Affiliate, who has beneficially owned his or her restricted securities (as that
term is defined in Rule 144) for at least one year from the later of the date
such securities were acquired from the Company or (if applicable) the date they
were acquired from an Affiliate, is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of 1% of the
then outstanding shares of Common Stock (approximately 127,000 immediately after
the Offering) or the average weekly trading volume in the Common Stock during
the four calendar weeks preceding the date on which notice of such sale was
filed under Rule 144, provided certain requirements concerning availability of
public information, manner of sale and notice of sale are satisfied. In
addition, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted securities were acquired from the
Company or (if applicable) the date they were acquired from an Affiliate of the
Company, a stockholder who is not an Affiliate of the Company at the time of
sale and has not been an Affiliate of the Company for at least three months
prior to the sale is entitled to sell the shares immediately without compliance
with the foregoing requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted prior
to this Offering) are also restricted securities and, beginning 90 days after
the date of this Prospectus, may be sold by stockholders other than an Affiliate
of the Company subject only to the manner of sale provisions of Rule 144 and by
an Affiliate under Rule 144 without compliance with its one-year holding period
requirement.
Prior to this Offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price of the Common Stock, the personal
circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
66
<PAGE>
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through an offering of its equity securities.
In addition, the Company intends to register on the effective date of this
Offering a total of 2,820,000 shares of Common Stock subject to outstanding
options or reserved for issuance under the Company's 1997 Stock Option/Stock
Issuance Plan and 200,000 shares of Common Stock reserved for issuance under its
1997 Employee Stock Purchase Plan. Further, upon expiration of such lock-up
agreements, holders of approximately 8,780,679 shares of Common Stock will be
entitled to certain registration rights with respect to such shares. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Common Stock.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, San Diego, California. Partners of
such firm own 7,500 shares of the Common Stock. Certain legal matters will be
passed upon for the Underwriters by McDermott, Will & Emery.
EXPERTS
The consolidated financial statements of Vista Medical Technologies, Inc. at
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 appearing in this Prospectus and the Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and in the Registration
Statement and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission the Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respect by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all of any part thereof may be obtained
at prescribed rates from the Commission's Public Reference Section at such
addresses. Also, the Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. Upon approval of the Common Stock for quotation on the Nasdaq
National Market, such reports, proxy and information statements and other
information also can be inspected at the office of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
67
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1995 and 1996............................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994,
1995 and 1996........................................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994,
1995 and 1996........................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996........................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Vista Medical Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Vista
Medical Technologies, Inc. as of December 31, 1995 and 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Vista Medical Technologies, Inc. at December 31, 1995 and 1996 and the results
of its consolidated operations and its cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
January 30, 1997,
except for Note 9, as to which the date is
March 3, 1997
F-2
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, DECEMBER 31,
------------------------------- 1996
1995 1996 (UNAUDITED)
-------------- --------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 3,234,175 $ 10,119,529 $
Short-term investments....................................... 165,000 165,000
Accounts receivable.......................................... 568,854 526,119
Inventories.................................................. 685,456 1,212,825
Other current assets......................................... 70,445 136,400
-------------- ---------------
Total current assets........................................... 4,723,930 12,159,873
Property and equipment, net.................................... 187,874 1,082,103
Patents and other assets....................................... 296,083 1,073,741
-------------- ---------------
TOTAL ASSETS................................................... $ 5,207,887 $ 14,315,717
-------------- ---------------
-------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 350,058 $ 607,639
Accrued compensation......................................... 147,410 226,543
Accrued liabilities.......................................... 2,970 520,584
-------------- ---------------
Total current liabilities...................................... 500,438 1,354,766
Commitments
Stockholders' equity:
Convertible preferred stock, $.01 par value:
Authorized shares -- 18,000,000 actual (5,000,000 pro
forma)
Issued and outstanding shares -- 8,248,921 in 1995 and
11,574,252 in 1996 (no shares pro forma).................. 82,490 115,742 --
Preference in liquidation -- $26,231,145
Common stock, $.01 par value:
Authorized shares -- 25,000,000 actual (35,000,000 pro
forma)
Issued and outstanding shares -- 148,875 in 1995 and
538,224 in 1996 (9,218,903 shares pro forma).............. 1,489 5,382 92,189
Additional paid-in capital................................... 10,834,428 28,615,223 28,644,158
Notes receivable from stockholders........................... (29,625) (93,375) (93,375)
Deferred compensation........................................ -- (2,061,549) (2,061,549)
Accumulated deficit.......................................... (6,181,333) (13,620,472) (13,620,472)
-------------- --------------- ---------------
Total stockholders' equity..................................... 4,707,449 12,960,951 $ 12,960,951
-------------- --------------- ---------------
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................... $ 5,207,887 $ 14,315,717
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Sales............................................................ $ 59,362 $ 1,719,223 $ 2,243,756
Costs and expenses:
Cost of sales.................................................. 43,123 1,272,010 2,252,509
Research and development....................................... 1,327,608 1,903,618 3,880,069
Sales and marketing............................................ 291,169 834,518 2,056,767
General and administrative..................................... 757,877 1,034,434 3,103,256
-------------- -------------- --------------
Total cost and expenses.......................................... 2,419,777 5,044,580 11,292,601
-------------- -------------- --------------
Loss from operations............................................. (2,360,415) (3,325,357) (9,048,845)
Minority interest in net loss of consolidated partnership........ 269,706 -- --
License income................................................... -- -- 1,493,000
Interest income.................................................. -- 51,407 116,706
-------------- -------------- --------------
Net loss......................................................... $ (2,090,709) $ (3,273,950) $ (7,439,139)
-------------- -------------- --------------
-------------- -------------- --------------
Pro forma net loss per share..................................... $ (0.86)
--------------
--------------
Shares used in computing pro forma net loss per share 8,626,898
--------------
--------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED NOTES
STOCK COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- ---------------------- PAID-IN FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- --------- --------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993....... -- $ -- 750 $ 8 $ 992 $ -- $ --
Net loss......................... -- -- -- -- --
---------- --------- --------- ----------- ----------- ------------- --------------
BALANCE AT DECEMBER 31, 1994....... -- -- 750 8 992 -- --
Issuance of Series A convertible
preferred stock for cash........ 6,037,736 60,377 -- -- 7,897,585 -- --
Issuance of Series A convertible
preferred stock to retire
debt............................ 1,792,453 17,925 -- -- 2,357,075 -- --
Issuance of Series A convertible
preferred stock for assets...... 154,581 1,546 -- -- 203,274 -- --
Issuance of Series A convertible
preferred stock for minority
partnership interest............ 264,151 2,642 -- -- 347,358 -- --
Exercise of stock options........ 148,125 1,481 28,144 (29,625) --
Net loss......................... -- -- -- -- -- -- --
---------- --------- --------- ----------- ----------- ------------- --------------
BALANCE AT DECEMBER 31, 1995....... 8,248,921 82,490 148,875 1,489 10,834,428 (29,625) --
Issuance of Series B convertible
preferred stock for cash........ 1,279,331 12,792 -- -- 5,065,848 -- --
Issuance of Series B convertible
preferred stock for assets...... 46,000 460 -- -- 183,540 -- --
Issuance of Series C convertible
preferred stock for cash........ 2,000,000 20,000 -- -- 9,948,619 -- --
Exercise of stock options for
notes receivable and cash....... -- -- 389,349 3,893 73,977 (63,750) --
Deferred compensation............ -- -- -- -- 2,508,811 -- (2,508,811)
Amortization of deferred
compensation.................... -- -- -- -- -- -- 447,262
Net loss......................... -- -- -- -- -- -- --
---------- --------- --------- ----------- ----------- ------------- --------------
BALANCE AT DECEMBER 31, 1996....... 11,574,252 $ 115,742 538,224 $ 5,382 $28,615,223 $ (93,375) $ (2,061,549)
---------- --------- --------- ----------- ----------- ------------- --------------
---------- --------- --------- ----------- ----------- ------------- --------------
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------- -----------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1993....... $ (816,674) $ (815,674)
Net loss......................... (2,090,709) (2,090,709)
------------- -----------
BALANCE AT DECEMBER 31, 1994....... (2,907,383) (2,906,383)
Issuance of Series A convertible
preferred stock for cash........ -- 7,957,962
Issuance of Series A convertible
preferred stock to retire
debt............................ -- 2,375,000
Issuance of Series A convertible
preferred stock for assets...... -- 204,820
Issuance of Series A convertible
preferred stock for minority
partnership interest............ -- 350,000
Exercise of stock options........ -- --
Net loss......................... (3,273,950) (3,273,950)
------------- -----------
BALANCE AT DECEMBER 31, 1995....... (6,181,333) 4,707,449
Issuance of Series B convertible
preferred stock for cash........ -- 5,078,640
Issuance of Series B convertible
preferred stock for assets...... -- 184,000
Issuance of Series C convertible
preferred stock for cash........ -- 9,968,619
Exercise of stock options for
notes receivable and cash....... -- 14,120
Deferred compensation............ -- --
Amortization of deferred
compensation.................... 447,262
Net loss......................... (7,439,139) (7,439,139)
------------- -----------
BALANCE AT DECEMBER 31, 1996....... $(13,620,472) $12,960,951
------------- -----------
------------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------- ------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................ $ (2,090,709) $ (3,273,950) $ (7,439,139)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization......................................... 20,328 36,138 351,256
Amortization of deferred compensation................................. -- -- 447,262
Acquired in-process research and development.......................... -- 350,000 --
Write-off of non recoverable patent costs............................. -- 28,733 --
Minority interest in partnership...................................... (269,706) -- --
Common stock received in exchange for license agreement............... -- -- (693,000)
Changes in operating assets and liabilities:
Accounts receivable................................................. 38,353 (568,264) 126,752
Inventories......................................................... (17,755) (472,579) (405,706)
Other current assets................................................ 976 (30,846) (64,105)
Accounts payable.................................................... 12,544 255,192 171,714
Accrued compensation................................................ 14,841 108,750 79,133
Accrued liabilities................................................. 3,394 (424) 488,591
------------- ------------- --------------
Net cash flows used for operating activities............................ (2,287,734) (3,567,250) (6,937,242)
INVESTING ACTIVITIES
Purchase of short-term investments...................................... -- (165,000) --
Increase in patent and other assets..................................... (37,500) (51,975) (17,895)
Purchase of property and equipment...................................... (56,509) (80,954) (1,220,888)
------------- ------------- --------------
Net cash flows used for investing activities............................ (94,009) (297,929) (1,238,783)
FINANCING ACTIVITIES
Advances from a related party........................................... 1,949,508 2,136,000 --
Repayment of advances to a related party................................ -- (3,004,000) --
Issuance of common stock................................................ -- -- 14,120
Issuance of convertible preferred stock, net............................ -- 7,957,962 15,047,259
------------- ------------- --------------
Net cash flows provided by financing activities......................... 1,949,508 7,089,962 15,061,379
Net (decrease) increase in cash and cash equivalents.................... (432,235) 3,224,783 6,885,354
Cash and cash equivalents at beginning of year.......................... 441,627 9,392 3,234,175
------------- ------------- --------------
Cash and cash equivalents at end of year................................ $ 9,392 $ 3,234,175 $ 10,119,529
------------- ------------- --------------
------------- ------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................................. $ -- $ 1,711 $ 183
------------- ------------- --------------
------------- ------------- --------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Debt obligation to related party converted to Series A convertible
preferred stock........................................................ $ -- $ 2,375,000 $ --
------------- ------------- --------------
------------- ------------- --------------
Exercise of stock options for stockholder notes receivable.............. $ -- $ 29,625 $ 63,750
------------- ------------- --------------
------------- ------------- --------------
Common stock received in exchange for license agreement................. $ -- $ -- $ 693,000
------------- ------------- --------------
------------- ------------- --------------
ISSUANCE OF CONVERTIBLE PREFERRED STOCK IN CONNECTION WITH ACQUISITIONS:
Minority partnership interest........................................... $ -- $ 350,000 $ --
------------- ------------- --------------
------------- ------------- --------------
For assets.............................................................. $ -- $ 204,820 $ 184,000
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Vista Medical Technologies, Inc. ("the Company") was founded in July 1993 as
a wholly-owned subsidiary of Kaiser Aerospace and Electronics Corporation
("Kaiser Aerospace") to develop an advanced technology business concentrated on
visualization products for minimally invasive surgery. In July 1995, equity
securities were sold to outside investors, thereby reducing Kaiser Aerospace's
ownership of the Company. (See Note 6.)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Oktas, Inc. In 1993, the Company acquired a 65%
interest in a partnership established to perform further research and
development related to certain of the Company's technology. This partnership is
included in the consolidated financial statements and because the Company
provided all the financial resources to the partnership, the Company has
recorded all losses in excess of the minority partners original contribution. In
1995, the minority partner, Oktas, Inc., was acquired by issuing shares of
Series A convertible preferred stock. On December 31, 1996, the partnership was
dissolved. The Company charged the $350,000 value of the preferred stock to
expense as acquired research and development. Significant intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents and short-term investments consist of money market funds
and a certificate of deposit. The Company considers all highly liquid
investments with maturities when purchased of three months or less to be cash
equivalents. The Company evaluates the financial strength of institutions at
which significant investments are made and believes the related credit risk is
limited to an acceptable level.
The Company has adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," and has
classified its cash equivalents and short-term investments as available-for-sale
in accordance with that standard. Available-for-sale securities are carried at
fair value, with unrealized gains and losses, net of tax, reported in a separate
component of stockholders' equity. At December 31, 1996, the cost of cash
equivalents and short-term investments was equal to estimated fair value.
Accordingly, there were no unrealized gains or losses.
F-7
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company provides credit, in the normal course of business, to commercial
entities that meet specified credit requirements. The Company's principal
customers consist of original equipment manufacturers in the United States and
Asia. The Company provides for losses from uncollectable accounts and such
losses have not exceeded management's expectations.
INVENTORIES
Inventories are stated at lower of cost (determined on a first-in, first-out
basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The Company provides for
depreciation on property and equipment using the straight-line method over the
estimated useful lives of the assets, generally five to seven years. Marketing
demonstration equipment is amortized over a one-year useful life.
PATENTS
Capitalized patent costs are amortized over the lesser of the remaining
useful life of the related technology or the remaining patent life, commencing
on the date the patent is issued. The Company reviews its patents for impairment
on an annual basis or whenever events or changes in circumstances indicate that
the carrying value of the asset would not be recoverable. If the sum of expected
future net cash flows of an individual asset would be less than the carrying
amount of the asset, an impairment loss would be recognized.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which is effective for the year
ending December 31, 1996. SFAS No. 123 allows companies to either account for
stock-based compensation under the new provisions of SFAS No. 123 or under the
provisions of Accounting Principles Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES ("APB 25"), but requires pro forma disclosure in the footnotes to
the financial statements as if the measurement provisions of SFAS No. 123 had
been adopted. The Company has continued accounting for its stock-based
compensation in accordance with the provisions of APB 25.
ASSET IMPAIRMENT
In March 1995, the FASB issued SFAS No.121, "ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the estimated
undiscounted cash flows to be generated by those assets are less than the
assets' carrying amount. SFAS 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted the provisions
of SFAS No. 121 effective January 1, 1996. There was no effect of such adoption
on the Company's financial position or results of operations.
F-8
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Historical net loss per share is calculated using the weighted average
number of common shares outstanding and common stock equivalents outstanding
during the periods presented. Common equivalent shares result from stock options
and preferred stock. For loss periods, common equivalent shares are excluded
from the computation as their effect would be antidilutive, except that the
Securities and Exchange Commission requires common and common share equivalents
issued during the twelve-month period prior to the initial filing of a proposed
public offering, to be included in the calculation as if they were outstanding
for all periods presented (using the treasury stock method and the assumed
initial public offering price).
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net loss per share.............................. $ (0.91) $ (1.39) $ (3.05)
------------- ------------- -------------
------------- ------------- -------------
Shares used in computing net loss per share..... 2,292,382 2,356,502 2,440,507
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
PRO FORMA NET LOSS PER SHARE AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of the preferred stock, which will automatically
convert to common stock immediately prior to the completion of the Company's
initial public offering, using the as converted method from the original date of
issuance.
If the offering contemplated by the Prospectus is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into 8,680,679 shares of common stock. Unaudited pro
forma stockholders' equity at December 31, 1996, as adjusted for the conversion
of preferred stock, is disclosed in the accompanying balance sheet.
2. BALANCE SHEET COMPONENTS
Inventories consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -------------
<S> <C> <C>
Parts and supplies................................................ $ 325,899 $ 567,707
Work in process................................................... 127,307 286,099
Finished goods.................................................... 232,250 359,019
----------- -------------
$ 685,456 $ 1,212,825
----------- -------------
----------- -------------
</TABLE>
F-9
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. BALANCE SHEET COMPONENTS (CONTINUED)
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -------------
<S> <C> <C>
Machinery and equipment........................................... $ 63,610 $ 271,747
Office computers, furniture and equipment......................... 121,068 352,911
Marketing demonstration equipment................................. 64,216 776,420
Leasehold improvements............................................ -- 68,704
----------- -------------
248,894 1,469,782
Less: accumulated depreciation.................................... (61,020) (387,679)
----------- -------------
$ 187,874 $ 1,082,103
----------- -------------
----------- -------------
</TABLE>
Patents and other assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -------------
<S> <C> <C>
Investment in common stock........................................ $ -- $ 693,000
Patents and other intangible assets, net.......................... 258,583 323,241
Prepaid royalties................................................. 37,500 57,500
----------- -------------
$ 296,083 $ 1,073,741
----------- -------------
----------- -------------
</TABLE>
3. MAJOR CUSTOMERS
Sales to individual customers exceeding 10% or more of revenues for the
years ended December 31, 1994, 1995 and 1996 were as follows: during 1994, two
customers accounted for 82% and 18% of revenues; during 1995, one customer
accounted for 85% of revenues; during 1996, three customers accounted for 30%,
27% and 25% of revenues.
4. COMMITMENTS
The Company leases its corporate facilities and certain equipment under
operating leases that expire on various dates through 2001. Annual future
minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ---------------------------------------------------------------------------------
<S> <C>
1997............................................................................. $ 306,000
1998............................................................................. 307,000
1999............................................................................. 152,000
2000............................................................................. 110,000
2001............................................................................. 95,000
-----------
$ 970,000
-----------
-----------
</TABLE>
F-10
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. COMMITMENTS (CONTINUED)
Rent expense was approximately $55,000, $75,000 and $183,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.
5. LICENSE INCOME
In December 1996, the Company granted a perpetual license to certain of its
technology and patents to Urohealth Systems Inc. ("Urohealth"). In exchange for
the license the Company received $1,000,000 in cash and 110,000 shares of common
stock valued at $693,000. The common stock received is restricted stock of a
publicly traded company with restrictions on the sale of the stock for two years
from the date of the agreement in accordance with the provisions of Rule 144
under the Securities Act of 1933, as amended. The Company has recorded these
shares at their estimated fair value to reflect the trading restrictions. The
licensed technology and patent rights were obtained by the Company through a
perpetual license and royalty agreement with an officer of the Company. In
connection with the license agreement with Urohealth, the Company amended an
existing license agreement with the officer to make its terms consistent with
the licensing agreement with Urohealth in exchange for $200,000.
6. STOCKHOLDERS' EQUITY
CHANGES IN CAPITALIZATION
In November 1996, the Company reincorporated in the State of Delaware which
was accomplished through a merger between the California corporation and its
wholly-owned Delaware subsidiary. Each share of convertible preferred stock was
exchanged for one share of convertible preferred stock of the Delaware
corporation. Each share of common stock in the California corporation was
exchanged for one share of common stock of the Delaware corporation.
CONVERTIBLE PREFERRED STOCK
In November 1996, the Company issued 2,000,000 shares of Series C
convertible preferred stock at $5.00 per share for net proceeds to the Company
of $9,968,619. The purchaser of the Series C convertible preferred stock entered
into a three year sales and distribution agreement with the Company for certain
of the Company's cardiovascular products.
Convertible preferred stock is as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND
OUTSTANDING
AGGREGATE DECEMBER 31,
LIQUIDATION DESIGNATED --------------------------
SERIES PREFERENCE SHARES 1995 1996
- --------------------------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
A-1.............................. $ 10,725,001 8,300,000 8,094,340 8,094,340
A-3.............................. 204,820 500,000 154,581 154,581
B................................ 5,301,324 3,100,000 -- 1,325,331
C................................ 10,000,000 2,000,000 -- 2,000,000
-------------- ------------- ----------- -------------
$ 26,231,145 13,900,000 8,248,921 11,574,252
-------------- ------------- ----------- -------------
-------------- ------------- ----------- -------------
</TABLE>
F-11
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
6. STOCKHOLDERS' EQUITY (CONTINUED)
Each share of the convertible preferred stock is convertible at the option
of the holder into three-quarters of a share of common stock. Conversion is
mandatory upon the closing of an underwritten public offering in which the
aggregate gross proceeds received by the Company are at least $15,000,000 with a
per share price of no less than $5.00. The conversion ratio is subject to
certain anti dilution adjustments, and the holders of each share of Series A-1,
B and C convertible preferred stock are entitled to one vote for each share of
common stock into which it would convert. Series A-3 convertible preferred stock
has no voting rights until the Series A-3 convertible preferred stock converts
to common stock.
The holders of convertible preferred stock are entitled to receive
non-cumulative dividends when and as declared by the Board of Directors at the
rate of 8% per annum. No dividends have been declared to date.
STOCK OPTION PLAN
The Company has reserved 2,015,610 shares of common stock under the 1995
Stock Option Plan ("the 1995 Plan") for issuance to eligible employees,
officers, directors, advisors and consultants. The 1995 Plan provides for the
grant of incentive and nonstatutory stock options. Terms of the stock option
agreements, including vesting requirements, are determined by the Board of
Directors, subject to the provisions of the 1995 Plan. Options granted by the
Company generally vest over four to five years and are exercisable from the date
of grant for a period of ten years. The exercise price of the incentive stock
options must equal at least the fair market value of the stock on the date of
grant. The exercise price of nonstatutory stock options must equal at least 85%
of the fair market value of the stock on the date of grant. The Company has the
option, in the event of termination of employment to repurchase unvested shares
issued under the 1995 Plan at the original issue price.
The Company recorded $2,508,811 of deferred compensation for options granted
during the year ended December 31, 1996, representing the difference between the
option exercise price and the deemed value for financial statement presentation
purposes. The Company is amortizing the deferred compensation over the vesting
period of the options. The Company recorded $447,262 of compensation expense
during the year ended December 31, 1996.
The Company will record $743,000 of additional deferred compensation
representing the difference between the option exercise price and the deemed
value for financial statement presentation purposes for stock options granted in
January and February 1997.
F-12
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
6. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF PRICE PER AVERAGE PRICE
SHARES SHARE PER SHARE
----------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994......................... -- $ -- $ --
Granted.............................................. 655,322 $ .20 $ .32
Exercised............................................ (148,125) $ .20 $ .32
Canceled............................................. -- -- $ --
----------- ------------- ---
Balance at December 31, 1995......................... 507,197 $ .20 $ .32
Granted.............................................. 1,173,888 $ .20 - $.80 $ .33
Exercised............................................ (389,349) $ .20 $ .32
Canceled............................................. (45,935) $ .20 $ .32
----------- ------------- ---
Balance at December 31, 1996......................... 1,245,801 $ .20 - $.80 $ .32
----------- ------------- ---
----------- ------------- ---
</TABLE>
At December 31, 1996, 157,806 options to purchase common shares were vested
and 232,335 options were available for future grant.
Adjusted pro forma information regarding net income is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the "minimal value" method for
option pricing with the following weighted-average assumptions: risk-free
interest rate range of 5.5% to 6.0%; dividend yield of 0%; and a
weighted-average expected life of the options of 2.5 to 5 years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Adjusted pro forma net loss................................... $ (3,279,671) $ (7,452,481)
-------------- --------------
-------------- --------------
Adjusted pro forma net loss per share......................... $ (1.39) $ (3.05)
-------------- --------------
-------------- --------------
</TABLE>
The weighted average remaining life of the options at December 31, 1996 is
9.24 years.
COMMON STOCK RESERVED
At December 31, 1996, a total of 10,158,815 shares of the Company's common
stock have been reserved for the conversion of preferred stock, the exercise of
stock options and for stock options available for future grant.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of December 31, 1996 are
F-13
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. INCOME TAXES (CONTINUED)
shown below. A valuation allowance has been recognized to offset the deferred
tax assets, as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ --------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.................................................. $ (6,000) $ (51,000)
Deferred tax assets:
Net operating loss carryforwards.............................. 529,000 3,197,000
Research and development credits.............................. 14,000 229,000
Other, net.................................................... 15,000 32,000
------------ --------------
Total deferred tax assets....................................... 558,000 3,458,000
Valuation allowance for deferred tax assets..................... (552,000) (3,407,000)
------------ --------------
Net deferred tax assets......................................... 6,000 51,000
------------ --------------
Net deferred taxes.............................................. $ -- $ --
------------ --------------
------------ --------------
</TABLE>
As the Company was part of a consolidated group prior to the change in
ownership in July 1995, all tax loss and tax credit carryforwards up to the date
of change in ownership have been reported by the previous consolidated group.
All tax loss and tax credit carryforwards reflected in the accompanying
financial statements reflect activity only for the seventeen-month period ending
December 31, 1996.
At December 31, 1996, the Company has federal and state tax net loss
carryforwards of approximately $8,494,000 and $5,146,000, respectively. The
federal and state tax loss carryforwards will expire in 2010 and 2000,
respectively, unless previously utilized. The Company also has federal and state
research tax credit carryforwards of approximately $135,000 and $143,000
respectively, which will expire in 2010 unless previously utilized.
In accordance with Sections 382 and 383 of the Internal Revenue Code, a
change in ownership of greater than 50 percent of a corporation within a
three-year period will place an annual limitation on the Company's ability to
utilize its existing tax loss and tax credit carryforwards.
8. TRANSACTIONS WITH RELATED PARTIES
Kaiser Aerospace financed the initial operations of the Company through cash
advances. In 1995 upon the closing of the Series A convertible preferred stock,
total advances by Kaiser Aerospace aggregated $5,379,000 which were settled in
full with cash payments of $3,004,000 and the issuance of Series A convertible
preferred stock valued at $2,375,000.
The Company has a technology strategic alliance and a manufacturing supply
agreement with a Kaiser Aerospace Subsidiary for the development and
manufacturing of certain of the Company's proprietary products. Under the terms
of the agreements, which expire in July 1998, Kaiser Aerospace will provide
development and consulting services and a minimum of 75% of certain of the
Company's product requirements provided certain competitive criteria are met.
Payments made to Kaiser under these arrangements totaled approximately $292,000
and $1,205,000 for the years ending December 31,
F-14
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
8. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
1995 and 1996, respectively. At December 31, 1996, the Company had approximately
$1,335,000 in purchase commitments to Kaiser under these agreements.
9. SUBSEQUENT EVENTS
REVERSE STOCK SPLIT
In February 1997, the Company's stockholders approved a three-for-four
reverse stock split of the Company's common stock. All share data has been
retroactively restated to reflect the reverse stock split.
INCREASE IN CAPITALIZATION
In February 1997, the Board of Directors approved an amendment to the
Articles of Incorporation increasing the number of authorized shares of common
stock to 35,000,000 shares and the authorized preferred stock to 5,000,000
shares.
REGISTRATION STATEMENT
In January 1997, the Board of Directors approved filing a registration
statement with the Securities and Exchange Commission to sell 3,500,000 shares
of the Company's Common Stock to the public. If the Offering is consummated
under the proposed terms, the Company's outstanding shares of Series A, B and C
convertible preferred stock will automatically convert into shares of its Common
Stock. This conversion has been reflected in the accompanying pro forma
stockholders' equity as of December 31, 1996.
1997 STOCK OPTION PLAN/ STOCK ISSUANCE PLAN
In February 1997, the Company adopted the 1997 Stock Option Plan/Stock
Issuance Plan (the "1997 Plan") and reserved 2,820,000 shares for issuance
thereunder. The 1997 Plan incorporates the outstanding options under the 1995
Plan and no further options will be granted under the 1995 Plan.
1997 EMPLOYEE STOCK PURCHASE PLAN
In February 1997, the Company adopted the 1997 Employee Stock Purchase Plan
( the "Purchase Plan") and reserved 200,000 shares for issuance, thereunder. The
Purchase Plan permits eligible employees of the Company to purchase shares of
Common Stock, at semi-annual intervals, through periodic payroll deductions.
Payroll deductions may not exceed 10% of the participant's base salary, and the
purchase price per share will not be less than 85% of the lower of the fair
market value of the common stock at either the beginning or the end of the
semi-annual intervals.
NEW AGREEMENTS
In February 1997, the Company entered into an agreement with Heartport, Inc.
whereby the Company will sell four visualization and information systems used
for minimally invasive cardiothoracic surgery for use in Heartport's training
centers. In connection with the agreement the Company issued a warrant to
purchase up to 100,000 shares of common stock, exercisable until March 31, 2001
for a price
F-15
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
9. SUBSEQUENT EVENTS (CONTINUED)
per share equal to the initial public offering price. If an initial public
offering is not completed by June 30, 1997, the price will be $6.67 per share.
In February 1997, the Company entered into an agreement whereby the Company
will receive an exclusive worldwide license to certain software, documentation
and trademarks of GDE Systems, Inc. In connection with the agreement, the
Company will issue to GDE Systems, Inc. $250,000 of the Company's common stock
valued at the initial public offering price. The Company is required to pay
future minimum royalties of $250,000 payable by December 31, 1998.
F-16
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for which Goldman, Sachs & Co. and Salomon Brothers Inc are
acting as representatives, has severally agreed to purchase from the Company,
the respective number of shares of Common Stock set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Goldman, Sachs & Co..........................................................
Salomon Brothers Inc.........................................................
---------------
Total....................................................................
---------------
---------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 525,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 3,500,000 shares of Common
Stock offered in the Offering.
The Company has agreed that it will not, during the period beginning from
the date of this Prospectus and continuing to and including the date 180 days
after the date of this Prospectus, offer, sell, contract to sell or otherwise
dispose of any securities of the Company (other than pursuant to employee stock
option plans existing, or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this Prospectus) which are
substantially similar to the shares of Common Stock or which are convertible
into or exchangeable for securities which are substantially similar to the
shares of Common Stock, without the prior written consent of Goldman, Sachs &
Co., except for the shares of Common Stock offered in connection with the
Offering. Certain directors, officers and stockholders of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of any of such
securities held thereby for a period of 180 days after the date of this
Prospectus without the prior written consent of Goldman, Sachs & Co.
U-1
<PAGE>
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed 5% of the total number of shares of Common
Stock offered thereby.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be negotiated among the Company and the
representatives of the Underwriters. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purposes of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company in the Offering. The Underwriters
also may impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the Common Stock sold in the
Offering for their account may be reclaimed by the syndicate if such securities
are repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "VMTI."
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
U-2
<PAGE>
INSIDE BACK COVER
Background: Blue
Center: Vista Medical's HMD for surgery against a background of the clinical
specialities and procedures in which the Company is involved.
Text on bottom of page: Vista Medical believes that the management of
information under surgeon control is a key component in the development of
advanced visualization systems for minimally invasive microsurgery (MIM). The
HMD is designed to facilitate the display of critical diagnostic and monitoring
data integrated in real-time with the anatomical images generated by the
Company's camera systems. This capability will be enhanced by the recent
addition of high speed image-based information processing and networking
software to the Company's technology portfolio.
The current Series 8000 product line has been cleared to market in the U.S.
by the FDA with expected commercial availability later this year. The StereoSite
systems have not been cleared to market in the U.S. by the FDA.
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCE IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
The Company............................................................... 20
Use of Proceeds........................................................... 22
Dividend Policy........................................................... 22
Capitalization............................................................ 23
Dilution.................................................................. 24
Selected Financial Data................................................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Business.................................................................. 30
Management................................................................ 49
Certain Transactions...................................................... 59
Principal Stockholders.................................................... 61
Description of Capital Stock.............................................. 63
Shares Eligible for Future Sale........................................... 66
Legal Matters............................................................. 67
Experts................................................................... 67
Additional Information.................................................... 67
Index to Financial Statements............................................. F-1
Underwriting.............................................................. U-1
</TABLE>
--------------
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
3,500,000 SHARES
VISTA MEDICAL
TECHNOLOGIES, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
[LOGO]
-------------------
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates,
except for the registration fee, the Nasdaq National Market filing fee and the
NASD fee.
<TABLE>
<S> <C>
Registration fee................................................. $ 15,857
Nasdaq National Market fee....................................... 49,297
NASD fee......................................................... 5,733
Blue Sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 125,000
Legal fees and expenses.......................................... 250,000
Accounting fees and expenses..................................... 150,000
Transfer Agent and Registrar fees................................ 5,000
Miscellaneous expenses........................................... 89,113
---------
TOTAL........................................................ $ 700,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of the Company under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.
Article VII, Section (1) of the Restated Bylaws of the Company provides that
the Company shall indemnify its directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law. The rights to
indemnity thereunder continue as to a person who has ceased to be a director,
officer, employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of the Company (or was serving at the Company's
request as a director or officer of another corporation) shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Company as authorized by the relevant section
of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article V, Section (A) of the Company's Second Restated Certificate of
Incorporation provides that a director of the Company shall not be personally
liable for monetary damages for breach of fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
acts or omissions that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived any improper personal benefit.
II-1
<PAGE>
The Company has entered into indemnification agreements with each of its
directors and executive officers. Generally, the indemnification agreements
attempt to provide the maximum protection permitted by Delaware law as it may be
amended from time to time. Moreover, the indemnification agreements provide for
certain additional indemnification. Under such additional indemnification
provisions, however, an individual will not receive indemnification for
judgments, settlements or expenses if he or she is found liable to the Company
(except to the extent the court determines he or she is fairly and reasonably
entitled to indemnity for expenses), for settlements not approved by the Company
or for settlements and expenses if the settlement is not approved by the court.
The indemnification agreements provide for the Company to advance to the
individual any and all reasonable expenses (including legal fees and expenses)
incurred in investigating or defending any such action, suit or proceeding. In
order to receive an advance of expenses, the individual must submit to the
Company copies of invoices presented to him or her for such expenses. Also, the
individual must repay such advances upon a final judicial decision that he or
she is not entitled to indemnification.
The Company intends to purchase directors' and officers' liability
insurance.
The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by which
the Underwriters have agreed to indemnify the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act,
each director of the Company, and each officer of the Company who signs this
Registration Statement, with respect to information furnished in writing by or
on behalf of the Underwriters for use in the Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since February 15, 1994, the Company has sold and issued the following
unregistered securities (which numbers have not been adjusted for the reverse
stock split effected in February 1997):
(1)
From February 15, 1994 to February 15, 1997, the Company issued an
aggregate of 2,527,701 options to purchase shares of Common Stock with
exercise prices ranging from $0.15 to $3.00 per share under the Predecessor
Plan and an aggregate of 817,466 shares of Common Stock were issued through
the exercise of options granted under the Predecessor Plan for an aggregate
exercise price of $145,045. For additional information concerning these
transactions, reference is made to the information contained under the
caption "Management -- Benefit Plans" in the form of the Prospectus
included herein.
(2)
On July 19, 1993, the Company issued an aggregate of 1,000 shares of Common
Stock to Kaiser Aerospace for an aggregate consideration of $1000.00.
(3)
On July 27, 1995, the Company issued an aggregate of 6,207,548 shares of
Series A-1 Preferred Stock to various venture capital funds and certain
other investors for an aggregate consideration of $8,225,001.10.
(4)
On August 1, 1995, the Company issued an aggregate of 1,886,792 shares of
Series A-1 Preferred Stock to a certain venture capital fund for an
aggregate consideration of $2,499,999.40.
(5)
On September 19, 1995, the Company issued an aggregate of 154,581 shares of
Series A-3 Preferred Stock to certain venture capital funds and other
institutional investors in consideration for substantially all of the
assets of AST.
(6)
On July 12, 1996, the Company issued an aggregate of 1,269,331 shares of
Series B Preferred Stock to various venture capital funds and certain other
investors for an aggregate consideration of $5,077,324.00.
(7)
On July 26, 1996, the Company issued an aggregate of 56,000 shares of
Series B Preferred Stock to various venture capital funds and certain other
investors for an aggregate consideration of $224,000.00.
II-2
<PAGE>
(8)
On November 27, 1996, the Company issued an aggregate of 2,000,000 shares
of Series C Preferred Stock to Medtronic Asset Management, Inc. for an
aggregate consideration of $10,000,000.00.
(9)
On February 22, 1997, the Company issued a warrant to purchase 100,000
shares of Common Stock at an exercise price per share equal to the initial
public offering price of the Common Stock offered hereby to Heartport in
consideration of Heartport entering into a certain Supply and Services
Agreement with the Company.
(10)
On February 28, 1997, the Company entered into a License Agreement with
HealthCom, Inc. and GDE, pursuant to which the Company is obligated to
issue 20,833 shares of Common Stock to GDE within ten business days of the
close of this Offering, assuming an initial public offering price of $12.00
per share (the midpoint of the range set forth on the cover page of this
Prospectus).
(11)
On March 3, 1997, the Company issued an aggregate of 3,000 shares of Common
Stock to certain employees of the Company in consideration for past
services rendered to the Company.
The sales and issuances of securities in the above transactions were deemed
to be exempt under the Act by virtue of Section 4(2) thereof and/or Regulation D
and Rule 701 promulgated thereunder as transactions not involving any public
offering. The purchasers in each case represented their intention to acquire the
securities for investment only and not with a view to the distribution thereof.
Appropriate legends were affixed to the stock certificates issued in such
transactions. Similar representations of investment intent were obtained and
similar legends imposed in connection with any subsequent transfers of any such
securities. The Company believes that all recipients had adequate access,
through employment or other relationships, to information about the Company to
make an informed investment decision.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1++ Form of Underwriting Agreement.
3.1++ Amended and Restated Certificate of Incorporation of the Company.
3.2++ Form of Second Restated Certificate of Incorporation of the Company to become effective immediately
prior to the Offering.
3.3++ Bylaws of the Company, as amended.
3.4++ Form of Restated Bylaws of the Company to be effective upon completion of the Offering.
4.1+ Form of Certificate for Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being registered.
10.1++ Asset Purchase Agreement between the Company and AST, dated September 15, 1995.
10.2++ Asset Purchase Agreement between the Company, ProMedica Distribution, Inc. (ProMedica) and certain
stockholders of ProMedica, dated July 26, 1996.
10.3 Series A-1 Preferred Stock Purchase Agreement among the Company and the purchasers listed on Schedule A
thereto, dated July 27, 1995.
10.4++ Series B Preferred Stock Purchase Agreement among the Company and the investors listed on Schedule A
thereto, dated July 12, 1996.
10.5++ Series C Preferred Stock Purchase Agreement between the Company and Medtronic Asset Management, Inc.,
dated November 27, 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.6++ Common Stock Purchase Warrant between the Company and Heartport, Inc. (Heartport), dated February 22,
1997.
10.7*++ International Distribution Agreement between AST and AMCO, Inc., dated September 20, 1994.
10.8*++ Manufacturing Supply Agreement between the Company and Kaiser Electro-Optics, Inc., dated July 19, 1995.
10.9*++ U.S.A. and Canada Distribution Agreement between the Company and Delacroix-Chevalier Inc., dated July
11, 1996.
10.10*++ Distributor Agreement between the Company and Peters, dated July 15, 1996.
10.11*++ Sales Agreement between the Company and Medtronic, Inc., dated November 27, 1996.
10.12*++ Supply and Services Agreement between the Company and Heartport, dated February 22, 1997.
10.13*++ Supplemental Rights Agreement between the Company and Medtronic, Inc., dated November 27, 1996.
10.14++ Amended and Restated Investors' Rights Agreement between the Company and the stockholders listed on
Schedule A thereto, dated November 27, 1996.
10.15++ Amendment to the Amended and Restated Investors' Rights Agreement between the Company, Heartport and the
stockholders listed on Exhibit A thereto, dated February 22, 1997.
10.16++ Letter Agreement regarding Investment Representations and Registration Rights between the Company and
Urohealth Systems, Inc. (Urohealth), dated December 13, 1996.
10.17*++ Consulting Agreement between the Company and Harry R. McKinley, dated September 15, 1995.
10.18*++ Consulting Agreement between the Company and Urohealth, dated December 13, 1996.
10.19++ Form of Professional Services Agreement.
10.20++ Form of Non-Disclosure Agreement for Proprietary or Business Confidential Information.
10.21++ Non-Competition, Non-Disclosure and Patent and Inventions Assignment Agreement among Harry R. McKinley,
McKinley Optics, Inc. ("MOI") and AST, dated December 18, 1991.
10.22*++ License and Development Agreement among Harry R. McKinley, MOI and AST, dated December 18, 1991, as
amended on June 28, 1994.
10.23*++ License Agreement between the Company and Allen Newman, dated September 2, 1994, as amended December 13,
1996.
10.24*++ Agreement to Amend License and Development Agreement between Harry R. McKinley, MOI and the Company,
dated September 15, 1995.
10.25*++ License Agreement between the Company and Kaiser Aerospace, dated July 19, 1995.
10.26*++ Technology Strategic Alliance: Memorandum of Understanding between the Company and Kaiser Electro
Optics, Inc., dated July 19, 1995.
10.27*++ Non-Exclusive License Agreement between the Company, Fuji Photo Film Co., Ltd. and Fuji Photo Film
Optical Co., Ltd., dated June 25, 1996.
10.28++ Memorandum of Understanding between the Company and Cogent Light Technologies, dated March 27, 1996.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.29*++ License Agreement between the Company and Urohealth, dated December 13, 1996.
10.30* License Agreement between the Company, HealthCom, Inc. and GDE Systems, Inc., dated February 28, 1997.
10.31++ Lease dated April 14, 1994, as amended by a certain First Amendment to Lease dated March 29, 1996 and a
certain Second Amendment to Lease dated October 22, 1996 between the Company and Robert F. Tambone, as
Trustee of MAT Realty Trust, u/d/t dated June 4, 1986.
10.32++ Standard Sublease between the Company and Quintiles Pacific, Inc., dated January 23, 1996.
10.33++ Standby Letter of Credit from Silicon Valley Bank, dated August 9, 1996.
10.34++ 1995 Stock Option Plan.
10.35++ 1995 Stock Option Plan Form of Notice of Grant.
10.36++ 1995 Stock Option Plan Form of Stock Option Agreement.
10.37++ 1995 Stock Option Plan Form of Stock Purchase Agreement.
10.38++ 1997 Stock Option/Stock Issuance Plan, as amended.
10.39++ 1997 Stock Option/Stock Issuance Plan Form of Notice of Grant.
10.40++ 1997 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.41 1997 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.42++ 1997 Employee Stock Purchase Plan.
10.43++ Form of Indemnification Agreement between the Company and each of its directors.
10.44++ Form of Indemnification Agreement between the Company and each of its officers.
10.45++ Form of Waiver of Registration Rights, dated February 28, 1997.
10.46 1997 Stock Option/Stock Issuance Plan Form of Stock Issuance Agreement.
10.47 Stock Issuance Agreement dated March 3, 1997 between the Company and those purchasers set forth in
Schedule A.
11.1++ Statement re: Computation of Per Share Data.
23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1++ Power of Attorney.
27.1++ Financial Data Schedule.
</TABLE>
- --------------
++
Previously filed.
*
Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant
to the Company's Application Requesting Confidential Treatment under Rule
406 under the Securities Act.
(b) Financial Statement Schedules included separately in the Registration
Statement.
All other schedules are omitted because they are not required, are not
applicable or the information is included in the Financial Statements or Notes
thereto.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 14, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, County of San
Diego, State of California, on the 6th day of May, 1997.
VISTA MEDICAL TECHNOLOGIES, INC.
By: /s/ JOHN R. LYON
-----------------------------------------
John R. Lyon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ JOHN R. LYON Officer and Director
- ------------------------------ (Principal Executive May 6, 1997
(John R. Lyon) Officer)
Director of Finance and
/s/ ROBERT J. DE VAERE Administration and Chief
- ------------------------------ Financial Officer May 6, 1997
(Robert J. De Vaere) (Principal Financial and
Accounting Officer)
*
- ------------------------------ Chairman of the Board and May 6, 1997
(James C. Blair) Director
*
- ------------------------------ Director May 6, 1997
(Olav B. Bergheim)
*
- ------------------------------ Director May 6, 1997
(Nicholas B. Binkley)
*
- ------------------------------ Director May 6, 1997
(Daniel J. Holland)
*
- ------------------------------ Director May 6, 1997
(Larry M. Osterink)
By: /s/ JOHN R.
LYON
- ------------------------------
John R. Lyon, Attorney-in-fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
1.1++ Form of Underwriting Agreement.
3.1++ Amended and Restated Certificate of Incorporation of the Company.
3.2++ Form of Second Restated Certificate of Incorporation of the Company to become effective
immediately prior to the Offering.
3.3++ Bylaws of the Company, as amended.
3.4++ Form of Restated Bylaws of the Company to be effective upon completion of the Offering.
4.1+ Form of Certificate for Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being registered.
10.1++ Asset Purchase Agreement between the Company and AST, dated September 15, 1995.
10.2++ Asset Purchase Agreement between the Company, ProMedica Distribution, Inc. (ProMedica) and
certain stockholders of ProMedica, dated July 26, 1996.
10.3 Series A-1 Preferred Stock Purchase Agreement among the Company and the purchasers listed on
Schedule A thereto, dated July 27, 1995.
10.4++ Series B Preferred Stock Purchase Agreement among the Company and the investors listed on
Schedule A thereto, dated July 12, 1996.
10.5++ Series C Preferred Stock Purchase Agreement between the Company and Medtronic Asset Management,
Inc., dated November 27, 1996.
10.6++ Common Stock Purchase Warrant between the Company and Heartport, Inc. (Heartport), dated
February 22, 1997.
10.7*++ International Distribution Agreement between AST and AMCO, Inc., dated September 20, 1994.
10.8*++ Manufacturing Supply Agreement between the Company and Kaiser Electro-Optics, Inc., dated July
19, 1995.
10.9*++ U.S.A. and Canada Distribution Agreement between the Company and Delacroix-Chevalier Inc., dated
July 11, 1996.
10.10*++ Distributor Agreement between the Company and Peters, dated July 15, 1996.
10.11*++ Sales Agreement between the Company and Medtronic, Inc., dated November 27, 1996.
10.12*++ Supply and Services Agreement between the Company and Heartport, dated February 22, 1997.
10.13*++ Supplemental Rights Agreement between the Company and Medtronic, Inc., dated November 27, 1996.
10.14++ Amended and Restated Investors' Rights Agreement between the Company and the stockholders listed
on Schedule A thereto, dated November 27, 1996.
10.15++ Amendment to the Amended and Restated Investors' Rights Agreement between the Company, Heartport
and the stockholders listed on Exhibit A thereto, dated February 22, 1997.
10.16++ Letter Agreement regarding Investment Representations and Registration Rights between the
Company and Urohealth Systems, Inc. (Urohealth), dated December 13, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
10.17*++ Consulting Agreement between the Company and Harry R. McKinley, dated September 15, 1995.
10.18*++ Consulting Agreement between the Company and Urohealth, dated December 13, 1996.
10.19++ Form of Professional Services Agreement.
10.20++ Form of Non-Disclosure Agreement for Proprietary or Business Confidential Information.
10.21++ Non-Competition, Non-Disclosure and Patent and Inventions Assignment Agreement among Harry R.
McKinley, McKinley Optics, Inc. and AST, dated December 18, 1991.
10.22*++ License and Development Agreement among Harry R. McKinley, McKinley Optics, Inc. ("MOI") and
AST, dated December 18, 1991, as amended on June 28, 1994.
10.23*++ License Agreement between the Company and Allen Newman, dated September 2, 1994, as amended
December 13, 1996.
10.24*++ Agreement to Amend License and Development Agreement between Harry R. McKinley, MOI and the
Company, dated September 15, 1995.
10.25*++ License Agreement between the Company and Kaiser Aerospace, dated July 19, 1995.
10.26*++ Technology Strategic Alliance: Memorandum of Understanding between the Company and Kaiser
Electro Optics, Inc., dated July 19, 1995.
10.27*++ Non-Exclusive License Agreement between the Company, Fuji Photo Film Co., Ltd. and Fuji Photo
Film Optical Co., Ltd., dated June 25, 1996.
10.28++ Memorandum of Understanding between the Company and Cogent Light Technologies, dated March 27,
1996.
10.29*++ License Agreement between the Company and Urohealth, dated December 13, 1996.
10.30* License Agreement between the Company, HealthCom, Inc. and GDE Systems, Inc., dated February 28,
1997.
10.31++ Lease dated April 14, 1994, as amended by a certain First Amendment to Lease dated March 29,
1996 and a certain Second Amendment to Lease dated October 22, 1996 between the Company and
Robert F. Tambone, as Trustee of MAT Realty Trust, u/d/t dated June 4, 1986.
10.32++ Standard Sublease between the Company and Quintiles Pacific, Inc., dated January 23, 1996.
10.33++ Standby Letter of Credit from Silicon Valley Bank, dated August 9, 1996.
10.34++ 1995 Stock Option Plan.
10.35++ 1995 Stock Option Plan Form of Notice of Grant.
10.36++ 1995 Stock Option Plan Form of Stock Option Agreement.
10.37++ 1995 Stock Option Plan Form of Stock Purchase Agreement.
10.38++ 1997 Stock Option/Stock Issuance Plan, as amended.
10.39++ 1997 Stock Option/Stock Issuance Plan Form of Notice of Grant.
10.40++ 1997 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.41 1997 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
10.42++ 1997 Employee Stock Purchase Plan.
10.43++ Form of Indemnification Agreement between the Company and each of its directors.
10.44++ Form of Indemnification Agreement between the Company and each of its officers.
10.45++ Form of Waiver of Registration Rights, dated February 28, 1997.
10.46 1997 Stock Option/Stock Issuance Plan Form of Stock Issuance Agreement
10.47 Issuance Agreement dated March 3, 1997 between the Company and those purchasers set forth in
Schedule A.
11.1++ Statement re: Computation of Per Share Data.
23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1++ Power of Attorney.
27.1++ Financial Data Schedule.
</TABLE>
- --------------
++ Previously filed.
* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant to
the Company's Application Requesting Confidential Treatment under Rule 406
under the Securities Act.
<PAGE>
[BROBECK, PHLEGER & HARRISON LLP EXHIBIT 5.1
LETTERHEAD]
May 6, 1997
Vista Medical Technologies, Inc.
5451 Avenida Encinas, Suite A
Carlsbad, California 92008
Re: 4,025,000 SHARES OF COMMON STOCK OF VISTA MEDICAL TECHNOLOGIES, INC.
Ladies and Gentlemen:
We have acted as counsel to Vista Medical Technologies, Inc., a
Delaware corporation (the "Company"), in connection with the proposed issuance
and sale by the Company of up to 4,025,000 shares of the Company's Common Stock
(the "Shares"), pursuant to the Company's Registration Statement on Form S-1
filed on March 7, 1997 (the "Registration Statement").
In connection with this opinion, we have examined the Registration
Statement and related Prospectus, the Company's Amended and Restated Certificate
of Incorporation, as amended through the date hereof, the Second Restated
Certificate of Incorporation, which the Registration Statement contemplates will
become effective immediately prior to the issuance and sale of the Shares, the
Company's bylaws, as amended through the date hereof, the restated bylaws which
the Registration Statement contemplates will become effective immediately prior
to the issuance and sale of the Shares and the originals, or copies certified to
our satisfaction, of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below (the "Documents"). We are relying (without
any independent investigation thereof) upon the truth and accuracy of the
statements set forth in such Documents.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Shares have been duly authorized, and if, as and when issued in
accordance with the Registration Statement and Prospectus (as amended and
supplemented through the date of issuance) will be validly issued, fully paid
and nonassessable.
<PAGE>
Vista Medical Technologies, Inc. May 6, 1997
Page 2
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the Prospectus and any further amendments thereto.
Subject to the foregoing sentence, this opinion is given as of the date
hereof solely for your benefit and may not be relied upon, circulated, quoted
or otherwise referred to for any purpose without our prior written consent.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.3
VISTA MEDICAL TECHNOLOGIES, INC.
-----------------------------------------------------
SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT
-----------------------------------------------------
JULY 27, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
----
SECTION 1 SALE OF STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Closing Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . 2
2.1 Organization and Standing. . . . . . . . . . . . . . . . . . . . . 2
2.2 Corporate Power. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Contracts and Other Commitments. . . . . . . . . . . . . . . . . . 3
2.7 Compliance with Other Instruments, etc . . . . . . . . . . . . . . 4
2.8 Related-Party Transactions . . . . . . . . . . . . . . . . . . . . 4
2.9 Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Governmental Consent, etc. . . . . . . . . . . . . . . . . . . . . 5
2.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.14 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.15 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.16 Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.17 Title to Properties and Assets; Liens, Leases, etc . . . . . . . . 7
2.18 Patents and Trademarks . . . . . . . . . . . . . . . . . . . . . . 7
2.19 Manufacturing and Marketing Rights . . . . . . . . . . . . . . . . 8
2.20 Tax Returns; Taxes . . . . . . . . . . . . . . . . . . . . . . . . 8
2.21 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.22 Proprietary Information Agreement. . . . . . . . . . . . . . . . . 9
2.23 No Defaults or Bankruptcy. . . . . . . . . . . . . . . . . . . . . 9
2.24 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.25 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . 10
2.26 Environmental and Safety Laws. . . . . . . . . . . . . . . . . . . 10
2.27 Real Property Holding Corporation. . . . . . . . . . . . . . . . . 10
2.28 No Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
i
<PAGE>
2.29 Employee Benefit Plan Obligations. . . . . . . . . . . . . . . . . 10
2.30 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 10
2.31 Size Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3 INVESTMENT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . 11
3.1 Power and Authority. . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Due Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 No Public Market . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.7 Disclosure of Information. . . . . . . . . . . . . . . . . . . . . 12
SECTION 4 CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING . . . . . . . 12
4.1 Representations and Warranties . . . . . . . . . . . . . . . . . . 12
4.2 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . 12
4.4 Securities Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . 12
4.7 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Investors Rights Agreement . . . . . . . . . . . . . . . . . . . . 13
4.9 Proceedings and Documents. . . . . . . . . . . . . . . . . . . . . 13
4.10 Restated Articles. . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.12 Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.13 Small Business Investment Company Forms. . . . . . . . . . . . . . 13
SECTION 5 CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING . . . . . . . . 13
5.1 Representations and Warranties . . . . . . . . . . . . . . . . . . 13
5.2 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Securities Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Restated Articles. . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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6.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 14
6.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.5 Notices, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.9 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.10 California Corporate Securities Law. . . . . . . . . . . . . . . . 15
6.11 Approval of Amendments and Waivers . . . . . . . . . . . . . . . . 15
6.12 Qualification as a Qualified Small Business. . . . . . . . . . . . 16
6.13 Use of Proceeds; Access to Records . . . . . . . . . . . . . . . . 16
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EXHIBITS
A - Schedule of Purchasers
B - Amended and Restated Articles of Incorporation
C - Schedule of Exceptions
D - Investors Rights Agreement
E - Proprietary Information Agreement
F - Form of Legal Opinion of Company Counsel
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VISTA MEDICAL TECHNOLOGIES, INC.
SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of July 27, 1995 between Vista Medical
Technologies, Inc., a California corporation (the "COMPANY"), with its principal
office at 2572 Loker Avenue West, Carlsbad, California 92008, and the Purchasers
(the "PURCHASERS") listed on the Schedule of Purchasers attached hereto as
Exhibit A (the "SCHEDULE OF PURCHASERS").
WHEREAS, the Company has authorized the issuance and sale of up to
8,094,340 shares of its Series A-1 Preferred Stock (the "SHARES") having the
rights, preferences, privileges and restrictions set forth in the Amended and
Restated of Articles of Incorporation of the Company in the form attached to
this Agreement as Exhibit B (the "RESTATED ARTICLES").
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and conditions set forth below, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to this
Agreement agree as follows:
SECTION 1
SALE OF STOCK
1.1 SALE OF STOCK. Subject to the terms and conditions hereof, at the
First Closing (as hereinafter defined) and the Subsequent Closing (as
hereinafter defined), each Purchaser agrees, severally, to purchase from the
Company and the Company agrees to sell and issue to each Purchaser, severally
and not jointly, the number of Shares set forth opposite such Purchaser's name
on the Schedule of Purchasers with respect to such Closing at a price of $1.325
per Share.
1.2 CLOSING DATES.
(a) The first closing (the "First Closing") of the purchase and sale
of an aggregate of 5,943,397 Shares hereunder shall take place at the law
offices of Cooley God - ward Castro Huddleson & Tatum, 4365 Executive Drive,
Suite 1200, San Diego, California, at 10:00 a.m., on July 27, 1995, or at such
other time and place as the Company and the Purchasers shall agree provided that
the closing up to 1,056,604 of the Shares to be purchased at the First Closing
may be delayed and held at an additional closing to be held within ten (10) days
of the First Closing at the option of the Company and the Purchasers.
(b) The second closing (the "Subsequent Closing") of the purchase and
sale of 1,886,792 Shares hereunder shall take place at the law offices of Cooley
Godward Castro Huddleson & Tatum, 4365 Executive Drive, Suite 1200, San Diego,
California, at such date and time as the Company and SBIC Partners, L.P. shall
agree; PROVIDED, that the Subsequent Closing
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occur must occur on or prior to August 31, 1995. SBIC Partners, L.P. agrees
that by execution of this Agreement, it is legally bound, as of the date hereof,
to purchase 1,886,792 Shares hereunder at the Subsequent Closing. As used
herein, the terms "CLOSING" and "CLOSINGS" shall refer individually, and
collectively, to the First Closing and the Subsequent Closings, as appropriate.
1.3 DELIVERY. At the Closings, the Company will deliver to each Purchaser
a certificate representing the Shares being purchased against payment of the
aggregate purchase price therefore by (i) check payable to the order of the
Company, (ii) wire transfer of immediately available funds made payable to the
order of the company, (iii) cancellation of indebtedness, or (iv) delivery to
the Company of other property acceptable to the Company.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions attached hereto as
Exhibit C, the Company hereby represents and warrants to each Purchaser as
follows:
2.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
California and is in good standing under such laws. The Company has all
requisite corporate power to own an operate its assets and to carry on its
business as presently conducted and as proposed to be conducted. The Company is
qualified to do business as a foreign corporation, and is in good standing,
under the laws of all jurisdictions where the nature of its business requires
such qualification and where the failure to so qualify would have a material
adverse effect on the Company's business as presently conducted or planned to be
conducted (a "MATERIAL ADVERSE EFFECT").
2.2 CORPORATE POWER. The Company has, and at the time of the First
Closing will have, all requisite legal and corporate power to execute and
deliver this Agreement and the Investors Rights Agreement in substantially the
form attached hereto as Exhibit D (the "INVESTORS RIGHTS AGREEMENT") (this
Agreement and the Investors Rights Agreement are hereinafter collectively
referred to as the "AGREEMENTS"), to sell and issue the Shares under this
Agreement, to issue the Common Stock issuable upon conversion of the Shares and
to carry out and perform its obligations under the terms of the Agreements,
including all exhibits and schedules hereto and thereto.
2.3 SUBSIDIARIES. The Company does not own (of record or beneficially) or
control, directly or indirectly, any interest in any other corporation,
association or business entity.
2.4 CAPITALIZATION. The authorized capital stock of the Company consists
of 25,000,000 shares of Common Stock, of which 264,151 shares will be issued and
outstanding
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immediately prior to the First Closing, and 18,000,000 shares of Preferred
Stock, of which 8,300,000 are designated Series A-1 Preferred Stock, none of
which will be issued and outstanding immediately prior to the First Closing, and
of which 8,300,000 are designated Series A-2 Preferred Stock, none of which will
be issued and outstanding immediately prior to the First Closing. No other
shares of capital stock or other securities of the Company are outstanding. All
such issued and outstanding shares have been duly authorized and validly issued
and are fully paid and nonassessable and have been offered, issued, sold and
delivered by the Company in compliance with applicable federal and state
securities laws. The Shares have the rights, preferences and privileges set
forth in the Restated Articles. The Company has reserved 896,208 shares of its
Common Stock (the "RESERVED SHARES") for issuance pursuant to the Company's 1995
Stock Plan, 469,513 shares of which are subject to outstanding options and
426,695 shares of which are available for future grants under such Plan as of
the First Closing. Except for the transactions contemplated in the Agreements
and the conversion privileges of the Company's Series A-1 Preferred Stock and
Series A-2 Preferred Stock specified in the Restated Articles and except with
respect to the Reserved Shares, there are no options, warrants, conversion
privileges or other rights or agreements presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of the Company's capital
stock or other securities of the Company.
2.5 AUTHORIZATION. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance of the Agreements by the Company, the authorization,
sale, issuance and delivery of the Shares (and the Common Stock issuable upon
conversion of the Shares) and the performance of the Company's obligations
under the Agreements has been taken or will be taken prior to the First
Closing. The Agreements, when executed and delivered by the Company, will
constitute valid and binding obligations of the Company enforceable in
accordance with their terms, subject to laws of general application relating
to bankruptcy, insolvency, the relief of debtors, general equity principles,
and limitations upon rights to indemnity. The Shares, when issued in
compliance with the provisions of this Agreement, will be duly and validly
issued, fully paid and nonassessable. The Common Stock issuable upon
conversion of the Shares has been duly and validly reserved and, when issued
in compliance with the provisions of this Agreement, will be duly and validly
issued, fully paid and nonassessable; PROVIDED, HOWEVER, that the Shares (and
the Common Stock issuable upon conversion of the Shares) may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein. The issuance of the Shares is not subject to any preemptive
rights, rights of first refusal or similar rights that have not been waived.
2.6 CONTRACTS AND OTHER COMMITMENTS. The Company does not have any
contract, agreement, lease, commitment, or proposed transaction, written or
oral, absolute or contingent, other than contracts for the purchase of supplies
and services that were entered into in the ordinary course of business and that
do not involve more than $25,000 individually or $100,000 in the aggregate. For
the purpose of this paragraph, written employment and consulting contracts,
license agreements and any other agreements relating to the acquisition or
disposition of the Company's technology (other than agreements between the
Company and employees in substantially the form of the Proprietary Information
and Inventions Agreement attached hereto
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as Exhibit E (the "PROPRIETARY INFORMATION AGREEMENT") shall not be considered
to be contracts entered into in the ordinary course of business.
2.7 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The Company is not, and will
not by virtue of entering into and performing the Agreements and the
transactions contemplated thereunder be, in violation of any term of the
Restated Articles or Bylaws or any term or provision of any material mortgage,
indenture, contract, agreement, instrument, judgment or decree to which it is a
party or by which it is bound, and is not, and will not by virtue of entering
into and performing the Agreements and the transactions contemplated thereunder
be, in violation of any order addressed specifically to the Company nor, to the
best of the Company's knowledge, any material order, statute, rule or regulation
applicable to the Company, other than any of the foregoing such violations that
do not, either individually or in the aggregate, have a Material Adverse Effect.
2.8 RELATED-PARTY TRANSACTIONS. No employee, officer or director of the
Company, or affiliate or relative of any of the foregoing, is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them (other than with respect to accrued salary and
vacation and subject to normal expense reimbursements in the ordinary course of
business). To the best of the Company's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a material business
relationship, or any firm or corporation that competes with the Company, except
shares owned by such persons in publicly traded companies that may compete with
the Company. To the best of the Company's knowledge, no officer or director of
the Company is, directly or indirectly, interested in any material contract to
which the Company is a party.
2.9 LITIGATION, ETC. There is neither pending nor, to the Company's
knowledge and belief, threatened any action, suit, proceeding or claim, or any
basis therefor or threat thereof, whether or not purportedly on behalf of the
Company, to which the Company is or may be named as a party or its property is
or may be subject or, to the Company's knowledge, to which any officer, key
employee or principal shareholder of the Company is subject, and in which an
unfavorable outcome, ruling or finding in any such matter or for all such
matters taken as a whole would have a Material Adverse Effect; and the Company
has no knowledge (i) of any unasserted claim, the assertion of which is likely
and which, if asserted, will seek damages, an injunction or other legal,
equitable, monetary or non-monetary relief, which claim individually or
collectively with other such unasserted claims if granted would have a Material
Adverse Effect, or (ii) that there exists, or there is pending or planned, any
patent, trademark, tradename, invention, device, application or principle, or
any statute, rule, law, regulation, standard or code which would result in a
Material Adverse Effect. There is no pending, or to the Company's knowledge and
belief, threatened claim or litigation against or affecting the Company
contesting its right to produce, manufacture, sell or use any product, process,
method, substance, part or other material presently produced, manufactured, sold
or used or planned to be produced, manufactured, sold or used by the Company in
connection with the operations of the Company, and in which an unfavorable
4
<PAGE>
outcome, ruling or finding in any such matter or for all such matters taken as a
whole would have a Material Adverse Effect.
2.10 REGISTRATION RIGHTS. Except as set forth in the Investors Rights
Agreement, the Company is not under any obligation to register (as defined in
the Investors Rights Agreement) any of its presently outstanding securities or
any of its securities that may hereafter be issued.
2.11 PERMITS. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would have a Material Adverse Effect. The
Company is not in default or violation in any material respect under any of such
franchises, permits, licenses, or other similar authority, and the execution and
delivery of the Agreements will not result in any such default or violation,
with or without the passage of time or giving of notice or both.
2.12 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of the Agreements, or the offer, sale or issuance of the Shares (and
the Common Stock issuable upon conversion of the Shares) or the consummation of
any other transaction contemplated thereby, except the filing of the Restated
Articles in the Office of the Secretary of State of the State of California and
the qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the Shares
(and the Common Stock issuable upon conversion of the Shares) under the
California Corporate Securities Law, which filing and qualification, if
required, will be accomplished in a timely manner prior to or promptly upon
completion of the Closing.
2.13 DISCLOSURE. The Company has provided the Purchasers with all the
information reasonably available to it without undue expense that the Purchasers
have requested for deciding whether to purchase the Shares. The Agreements and
the Exhibits thereto as well as any other document, certificate, schedule,
financial, business or other statement furnished to any Purchaser by or on
behalf of the Company in connection with the transactions contemplated hereby,
do not contain any untrue statement of a material fact and do not omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading.
2.14 OFFERING. Subject to the accuracy of the representations set forth in
Section 3 hereof, the offer, sale and issuance of the Shares pursuant to this
Agreement and the issuance of the Common Stock to be issued upon conversion of
the Shares constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933 as amended (the "SECURITIES ACT") and
neither the Company nor any authorized agent acting on its behalf will take any
action hereafter that would cause the loss of such exemption.
2.15 LIABILITIES. The Company has no indebtedness for borrowed money that
the Company has directly or indirectly created, incurred, assumed, or
guaranteed, or with respect to which the Company has otherwise become directly
or indirectly liable, other than obligations not
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in excess of $25,000 individually or $100,000 in the aggregate.
2.16 CHANGES. Since July 1, 1995, there has not been:
(a) any change in the assets, liabilities, financial condition, or
operating results of the Company from that reflected in the Financial Statements
(defined below), except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, properties, prospects, or
financial condition of the Company (as such business is presently conducted and
as it is proposed to be conducted);
(e) to the best of the Company's knowledge, any material change to a
material contract or arrangement by which the Company or any of its assets is
bound or subject;
(f) any material change in any compensation arrangement or agreement
with any employee, officer, director or shareholder;
(g) any sale, assignment, license or transfer of any patents,
trademarks, copyrights, trade secrets, Proprietary Information (as defined
herein) or other intangible assets;
(h) any resignation or termination of employment of any key officer
of the Company; and the Company, to the best of its knowledge, does not know of
the impending resignation or termination of employment of any such officer;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the benefit
of its employees, officers, or directors, or any members of their immediate
families, other than travel
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advances and other advances made in the ordinary course of its business;
(l) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects, or financial condition of the Company (as such
business is presently conducted and as it is proposed to be conducted); or
(m) any agreement or commitment by the Company to do any of the
things described in this paragraph 2.16.
2.17 TITLE TO PROPERTIES AND ASSETS; LIENS, LEASES, ETC. The Company has
good and marketable title to its properties and assets and has good title to all
of its leasehold interests, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than (i) the lien of current taxes not yet
due and payable, and (ii) possible minor liens and encumbrances that do not in
any case materially detract from the value of the property subject thereto or
materially impair the operations of the Company and which have not arisen
otherwise than in the ordinary course of business.
Set forth on Schedule 2.17 is a correct and complete list (including the
amount of rents called for and a description of the leased property) of all
material leases (involving more than $25,000 either individually or in the
aggregate if such leases are of a similar nature or with the same lessor) under
which the Company is a lessee. The Company enjoys peaceful and undisturbed
possession under all such leases, all of such leases are valid and subsisting
and, except as would not result in a Material Adverse Effect, the Company is not
in default thereunder.
2.18 PATENTS AND TRADEMARKS. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes (collectively
"PROPRIETARY INFORMATION"), or believes that it has the ability to acquire valid
licenses to such Proprietary Information on reasonable terms, as necessary for
its business as now conducted and as proposed to be conducted without any
conflict with or infringement of the rights of others. The Schedule of
Exceptions contains a complete list of patents and pending patent applications
of the Company. There are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
The Company is not aware of any impropriety with regard to the granting of any
licenses of Proprietary Information to or from the Company. Neither the Company
nor, to the Company's knowledge, any of its employees has received any written
communications alleging, nor does the Company know of any grounds for any claims
or allegations now or in the future, that the Company or its employees have
violated or infringed or that the Company would, by conducting its business as
proposed, violate or infringe any of the patents, trademarks, service marks,
trade names, copyrights or trade secrets or other proprietary rights of any
other person or entity. The Company is not aware that any of its employees is
7
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obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree, or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. The former
employers of the Company's employees have not asserted any rights or claims to
the Company's Proprietary Information and the Company does not believe that such
former employers have a right to assert any such rights or claims. Except
pursuant to the terms of the Proprietary Information Agreements, there are no
agreements, understandings, instruments, or contracts to which the Company is a
party or by which it is bound that involve the license of any patent, copyright,
trade secret or other similar proprietary right to or from the Company.
2.19 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market, or sell
its products.
2.20 TAX RETURNS; TAXES. The Company has accurately prepared and timely
filed all federal, state and other tax returns which are required to be filed
and has timely paid all taxes covered by such returns which have become due and
payable. The Company has not been advised that any of its returns, federal,
state or other, have been or are being audited as of the date hereof. The
Company is not delinquent in taxes or assessments and has no tax deficiency
proposed or assessed and no waiver of the statute of limitations and assessment
or collections. All taxes, if any, imposed by law in connection with the
issuance, sale and delivery of the Shares shall have been paid, and all laws
imposing such taxes shall have been fully complied with, prior to the Closing.
2.21 EMPLOYEES. None of the Company's employees belongs to any union or
collective bargaining unit. To the best of its knowledge, the Company has
complied in all material respects with all applicable state and federal equal
opportunity and other laws related to employment. To the best of the Company's
knowledge, no employee of the Company is or will be in violation of any
judgment, decree, or order, or any term of any employment contract, patent
disclosure agreement, proprietary information and inventions agreement, or any
restrictive covenant, or any other common law obligation to a former employer,
or other contract or agreement relating to the relationship of any such employee
with the Company, or any other party, because of the nature of the business
conducted or to be conducted by the Company, or to the use of trade secrets or
proprietary information of others, or to the use by the employee of his best
efforts with respect to such business. The Company is not a party to or bound
by any currently effective employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement, or other
employee compensation agreement, other than with respect to the Company's 1995
Stock Plan, a true and correct copy of which has been provided to counsel for
the Purchasers. The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. Subject
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to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the will
of the Company.
2.22 PROPRIETARY INFORMATION AGREEMENT. Each employee of the Company has
executed a Proprietary Information Agreement in the form attached hereto as
Exhibit E.
2.23 NO DEFAULTS OR BANKRUPTCY. The Company has, in all material respects,
performed all material obligations required to be performed by it to date and is
not in default under any of the contracts, loans, notes, mortgages, indentures,
licenses, security agreements, agreements, leases, documents, commitments or
other arrangements to which it is a party or by which it is otherwise bound,
except for such defaults which in the aggregate would not have a Material
Adverse Effect, and no event or condition has occurred which, with the lapse of
time or the giving of notice, or both, would constitute such a default.
The Company has not admitted in writing its inability to pay its debts
generally as they become due, filed or consented to the filing against it of a
petition in bankruptcy or a petition to take advantage of any insolvency act,
made an assignment for the benefit of creditors, consented to the appointment of
a receiver for itself or for the whole or any substantial part of its property,
or had a petition in bankruptcy filed against it, been adjudicated in a
bankruptcy or filed a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws or any other similar law or statute of the
United States of America or any other jurisdiction.
2.24 INSURANCE. The Company maintains adequate insurance on its properties
of a character and in such amounts and on such terms usually insured by
corporations engaged in the same or a similar business against loss or damage
resulting from fire or other risks insured against by such corporations, and
maintains in full force and effect public liability insurance against claims for
personal injury, death or property damage occurring upon, in, about or in
connection with the use of any of its properties, and maintains such other
insurance as may be required by law or other agreement to which the Company is a
party.
2.25 BROKERS OR FINDERS. The Company has not incurred, and will not incur,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with the Agreements.
2.26 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.27 REAL PROPERTY HOLDING CORPORATION. The Company is not a real property
holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
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2.28 NO DIVIDENDS. The Company has never made any declaration, setting
aside for payment or other distribution in respect of any of the Company's
capital stock or any direct or indirect redemption, repurchase or other
acquisition of any of such stock.
2.29 EMPLOYEE BENEFIT PLAN OBLIGATIONS. The Company does not maintain or
have any obligations with respect to any employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA")). The Company is not, nor was it at any time, obligated to contribute
to any employee pension benefit plan which is or was a multi-employer plan
within the meaning of Section 3(37) of ERISA.
2.30 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser its
financial statements as of and for the year ended December 31, 1994, and the six
months ended July 1, 1995 (the "FINANCIAL STATEMENTS"). The Financial
Statements are complete and correct in all material respects, have been prepared
in accordance with generally accepted accounting principles and accurately set
out and describe the financial condition and operating results of the Company as
of the dates, and during the periods, indicated therein; PROVIDED, HOWEVER, that
the unaudited financial statements are subject to normal year-end audit
adjustments, which are not expected to be material in amount or effect, and do
not contain all footnotes required under generally accepted accounting
principles. Since July 1, 1995, there has not been any change in the assets,
liabilities, financial condition or operations of the Company from that
reflected in the Financial Statements, except changes in the ordinary course of
business which would not, either in any case or in the aggregate, have a
Material Adverse Effect.
2.31 SIZE STANDARD. The Company (a) is, and at the Closing will be, a
"small concern," as such term is defined in 13 C. F. R. Section 107.3, and (b)
complies with all applicable size standards set forth in 13 C.F.R. Section
121.802.
SECTION 3
INVESTMENT REPRESENTATIONS
Each Purchaser hereby represents and warrants to the Company as follows:
3.1 POWER AND AUTHORITY. Such Purchaser has the requisite power and
authority to enter into this Agreement, to purchase the Shares hereunder, to
convert the Shares into Common Stock, and to carry out and perform its
obligations under the terms of this Agreement.
3.2 DUE EXECUTION. This Agreement has been duly authorized, executed and
delivered by such Purchaser, and, upon due execution and delivery by the
Company, this Agreement will be a valid and binding agreement of such Purchaser.
3.3 EXPERIENCE. Such Purchaser has, from time to time, evaluated
investments in start-
10
<PAGE>
up companies and has, either individually or through the personal experience of
one or more of its current officers or partners, experience in evaluating and
investing in start-up companies.
3.4 INVESTMENT. Such Purchaser is acquiring the Shares (and any Common
Stock issuable upon conversion of the Shares) for investment for its own account
and not with the view to, or for resale in connection with, any distribution
thereof. Such Purchaser understands that the Shares (and any Common Stock
issuable upon conversion of the Shares) to be purchased have not been registered
under the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein.
3.5 RULE 144. Such Purchaser acknowledges that the Shares must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Such Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than two years
after a party has purchased and paid for the securities to be sold, the sale
being through a "BROKER'S TRANSACTION" or in transactions directly with a
"MARKET MAKER" (as provided by Rule 144(f)) and the number of shares being sold
during any three-month period not exceeding specified limitations. Such
Purchaser is aware that the conditions for resale set forth in Rule 144 have not
been satisfied and that the Company has no plan to satisfy these conditions in
the foreseeable future.
3.6 NO PUBLIC MARKET. Such Purchaser understands that no public market
now exists for the Shares and that it is unlikely that a public market will ever
exist for the Shares.
3.7 DISCLOSURE OF INFORMATION. Such Purchaser believes it has received
all the information it considers necessary or appropriate for deciding
whether to purchase the Shares. Such Purchaser further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Shares. The
foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of the
Purchaser thereon.
SECTION 4
CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING
The Purchasers' obligation to purchase the Shares at the First Closing and
the Subsequent Closing is subject to the fulfillment on or prior to the First
Closing of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the
11
<PAGE>
Company contained in Section 2 shall be true when made and on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
4.2 COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to the Closing shall have
been performed or complied with in all material respects.
4.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the Company's business or financial condition or affairs between the
date of this Agreement and the date of the Closing, if different.
4.4 SECURITIES LAWS. The Company shall have obtained all necessary
permits and qualifications, or secured exemptions therefrom, required under the
Securities Act or by any state for the offer and sale of the Shares and Common
Stock issuable upon conversion of the Shares.
4.5 COMPLIANCE CERTIFICATE. The Company shall have delivered on the date
of such Closing a certificate signed by an officer of the Company certifying
that the conditions specified in Sections 4.1, 4.2 and 4.3 have been fulfilled,
and such other matters as the Purchasers may reasonably request.
4.6 BOARD OF DIRECTORS. The Board of Directors of the Company immediately
following the Closing shall consist of James Blair, Nick Binkley, Ken Hori, Dan
Holland, John Lyon and Larry Osterink, with one vacancy to be filled by the
above directors.
4.7 OPINION OF COUNSEL. The Purchasers shall have received from Brobeck
Phleger & Harrison, counsel for the Company, an opinion dated as of the First
Closing in substantially the form attached hereto as Exhibit F.
4.8 INVESTORS RIGHTS AGREEMENT. The Company shall have executed and
delivered the Investors Rights Agreement.
4.9 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Purchasers' counsel, which shall have received all such counterpart original and
certified or other copies of such documents as it may reasonably request.
4.10 RESTATED ARTICLES. The Restated Articles shall have been filed with
and accepted by the California Secretary of State.
4.11 DUE DILIGENCE. The Purchasers shall have completed to its reasonable
satisfaction its review of the Company's business and operations.
12
<PAGE>
4.12 CONSIDERATION. The Purchasers who are delivering their purchase price
for the Shares other than pursuant to clauses (i) or (ii) of Section 1.3 hereof,
shall have delivered such other documents or agreements as the Company and the
other Purchasers shall have reasonably requested.
4.13 SMALL BUSINESS INVESTMENT COMPANY FORMS. On or prior to the Closing,
the Company shall have delivered (a) an executed copy of SBA Form 480 - Size
Status Declaration, (b) an executed copy of SBA Form 652 - Assurance of
Compliance for Nondiscrimination and (c) the information needed to complete Part
A of SBA Form 1031 -Portfolio Financing Report, to the Purchasers requesting
such information.
SECTION 5
CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The Company's obligation to issue and sell the Shares at the First Closing
is subject to the fulfillment on or prior to the Closing of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Purchasers contained in Section 3 shall be true when made and on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of the Closing.
5.2 COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by Purchasers on or prior to the date of the Closing
shall have been performed or complied with in all respects.
5.3 SECURITIES LAWS. The Company shall have obtained all necessary
permits and qualifications, or secured exemptions therefrom, required under
the Securities Act or by any state for the offer and sale of the Shares and
Common Stock issuable upon conversion of the Shares.
5.4 RESTATED ARTICLES. The Restated Articles shall have been filed with
and accepted by the California Secretary of State.
5.5 CONSIDERATION. The Purchasers who are delivering their purchase price
for the Shares other than pursuant to clauses (i) or (ii) of Section 1.3 hereof,
shall have delivered such other documents or agreements as the Company and the
other Purchasers shall have reasonably requested.
SECTION 6
13
<PAGE>
MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California as applicable to contracts entered into and performed
entirely within the State of California.
6.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchasers and the
closing of the transactions contemplated hereby.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto;
PROVIDED, HOWEVER, that the rights of Purchasers to purchase the Shares shall
not be assignable without the consent of the Company, and the Company's
obligations hereunder shall not be assignable without the consent of the
Purchasers.
6.4 ENTIRE AGREEMENT. This Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
6.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by facsimile or mailed
by registered or certified mail, postage prepaid, or otherwise delivered by hand
or by messenger, addressed (a) if to the Purchasers, one to each Purchaser at
the address set forth on the Schedule of Purchasers, or at such other address as
shall have been furnished to the Company in writing by the Purchasers, and one
copy to Cooley Godward Castro Huddleson & Tatum, 4365 Executive Drive, Suite
1200, San Diego, CA 92121, Attn: Frank A. Cassou, Esq. or (b) if to the Company,
one copy to its address set forth above and addressed to the attention of the
President, or at such other address or addresses as the Company shall have
furnished in writing to the Purchasers, and one copy to Brobeck Phleger &
Harrison, 2200 Geng Road, Palo Alto, CA 94303, Attn: Gari Cheever, Esq. All
notices and other communications pursuant to the provisions of this Section 6.5
shall be deemed delivered when mailed or sent by facsimile or delivered by hand
or messenger.
6.6 EXPENSES. The Company will pay legal fees for one special counsel for
the Purchasers, as well as the out-of-pocket expenses for technical, patent and
market consultants, in an aggregate amount not to exceed $50,000. Except as set
forth above, each party to this Agreement shall bear its own expenses and legal
fees incurred by it with respect to this Agreement and all related transactions
outside of or in excess of these covered costs.
6.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be enforceable against the party actually executing such
counterpart, and which together shall constitute one instrument.
14
<PAGE>
6.8 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
6.9 SEPARABILITY. Any invalidity, illegality, or limitation of the
enforceability with respect to any Purchaser of any one or more of the
provisions of this Agreement, or any part thereof, whether arising by reason of
the law of any such Purchaser's domicile or otherwise, shall in no way affect or
impair the validity, legality, or enforceability of this Agreement with respect
to other Purchasers. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired.
6.10 CALIFORNIA CORPORATE SECURITIES LAW. The sale of the securities which
are the subject of this Agreement has not been qualified with the Commissioner
of Corporations of the State of California, and the issuance of such securities
or the payment or receipt of any part of the consideration therefor prior to
such qualification, if required by law, is unlawful. The rights of all parties
to this agreement are expressly conditioned upon such qualification being
obtained, if required by law.
6.11 APPROVAL OF AMENDMENTS AND WAIVERS. Any term of this agreement may be
amended or terminated and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Company and the holders of a
majority of the outstanding Shares purchased and sold hereunder (including the
Common Stock issued upon conversion of the Shares), excluding from the
determination of such a majority (both in determining the total number of such
shares outstanding and the number of such shares consenting or not consenting)
all shares previously disposed of by the Purchasers or their transferees
pursuant to one or more registration statements under the Securities Act or
pursuant to Rule 144 thereunder. Any amendment, termination or waiver effected
in accordance with this section shall be binding upon each holder of any
securities issued pursuant to this Agreement (including securities into which
such securities have been converted or exchanged), each future holder of any or
all such securities and the Company.
6.12 QUALIFICATION AS A QUALIFIED SMALL BUSINESS. The Company agrees to
deliver to the Purchasers, from time to time, such forms, documents, schedules
and other instruments reasonably requested by the Purchasers to cause the Series
A-1 Stock to qualify as a qualified small business stock, as such term is
defined in Section 1202(b) of the Internal Revenue Code of 1986, as amended.
6.13 USE OF PROCEEDS; ACCESS TO RECORDS. The Company covenants and agrees
that it will use the proceeds from the sale of the Shares hereunder for research
and development, product marketing and general working capital purposes, and
otherwise as duly authorized by the Board of Directors of the Company for the
growth, expansion and modernization of the Company. The
15
<PAGE>
company will provide all Purchasers requesting such information with reasonable
access to the Company's financial records so as to allow such Purchasers to
confirm that such proceeds were used in the manner contemplated by this
Agreement, such access to include a review by Purchasers of the use of proceeds
within ninety (90) days after the Closing. The Company acknowledges and agrees
that, if the proceeds are not used in the manner contemplated hereby, the
Purchasers shall have the right to demand the immediate repayment thereof.
16
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By: /s/ John Lyon
----------------------
Title:
-------------------
THE PURCHASERS:
- --------------------
[NAME]
By:
----------------------
Title:
-------------------
17
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By:
----------------------
Title:
-------------------
THE PURCHASERS:
KAISER AEROSPACE & ELECTRONICS
- -------------------------
[NAME]
By: /s/ H. J. Smead
----------------------
Title: President
-------------------
17
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By:
----------------------
Title:
-------------------
THE PURCHASERS:
/s/ Ken Hori
- -------------------------
Ken Hori
By:
----------------------
Title:
-------------------
17
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By:
----------------------
Title:
-------------------
THE PURCHASERS:
ONE LIBERTY FUND III, L.P.
By: /s/ Dan Holland
----------------------
Title: General Partner of One Liberty
Partners III. L.P., General
Partner of One Liberty
Fund III, L.P.
-------------------------------
GILDE INTERNATIONAL B.V.
By: /s/ Dan Holland
----------------------
Title: Attorney-in-Fact
-------------------
17
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By:
-----------------
Title:
--------------
THE PURCHASERS:
B.U.N.P.
By: /s/ John E. Bagalay, Jr.
--------------------------
Title:
-----------------------
17
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By:
-----------------
Title:
--------------
THE PURCHASERS:
DOMAIN PARTNERS III, L.P.
By: One Palmer Square Associates III, L.P.
its General Partner
By: /s/ James C. Blair
----------------------
General Partner
17
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By:
-----------------
Title:
--------------
THE PURCHASERS:
Biotechnology Investments Limited
By: OLD COURT LIMITED
By: /s/ James C. Blair
----------------------
Attorney-in-Fact
17
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By:
-----------------
Title:
--------------
THE PURCHASERS:
DP III ASSOCIATES, L.P.
By: One Palmer Square Associates III, L.P.
its General Partner
By: /s/ James C. Blair
----------------------
General Partner
17
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By:
-----------------
Title:
--------------
THE PURCHASERS:
SBIC PARTNERS, L.P.
By: Forrest Binkley & Brown L.P.
General Partner
By: Forrest Binkley & Brown Venture Co.,
General Partner
By: /s/ Nicholas B. Binkley
----------------------------------
Nicholas B. Binkley
Office of the President
By: SL-SBIC Partners, L.P.,
General Partner
By: FW-SBIC, Inc.
General Partner
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
17
<PAGE>
The foregoing Series A-1 Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By:
----------------------
Title:
-------------------
THE PURCHASERS:
SBIC PARTNERS, L.P.
By: Forrest Binkley & Brown L.P. By:
General Partner -------------------------------------
Title:
----------------------------------
Address:
--------------------------------
By: Forrest Binkley & Brown Venture Co.,
General Partner
By:
----------------------------------
Nicholas B. Binkley
Office of the President
By: SL-SBIC Partners, L.P.,
General Partner
By: FW-SBIC, Inc.
General Partner
By: /s/ illegible
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
17
<PAGE>
Exhibit A
SCHEDULE OF PURCHASERS
PURCHASERS PURCHASE PRICE NUMBER OF SHARES
FIRST CLOSING:
KAISER AEROSPACE AND ELECTRONICS $2,375,000.23 1,792,453
950 Tower Lane, Ste. 800
Foster City, CA 94404
Attention: Dr. H.J. Smead
KEN HORI $350,000.08 264,151
c/o Oktas
134 Flanders Road
Westborough, MA 01581
ONE LIBERTY FUND III $990,000.25 747,170
1 Liberty Square, 2nd Floor
Boston, MA 02109
Attention: Dan Holland
GILDE INTERNATIONAL B.V. $9,999.78 7,547
1 Liberty Square, 2nd Floor
Boston, MA 02109
Attention: Dan Holland
B.U.N.P. $300,001.20 226,416
c/o Community Technology Fund
Boston University Ventures
147 Bay State Road
Boston, MA 02215
Attention: John E. Bagalay, Jr.
DOMAIN PARTNERS III, L.P. $2,705,313.45 2,041,746
One Palmer Square, Ste. 515
Princeton, NJ 08542
Attention: James C. Blair, Ph.D.
OLD COURT LIMITED $1,400,000.30 1,056,604
St. Julian's Court
St. Peter Port
Guernsey, Channel Islands
with copy to: c/o Domain Associates
One Palmer Square, Ste. 515
Princeton, NJ 08542
Attention: James C. Blair, Ph.D.
DP III ASSOCIATES, L.P. $94,685.83 71,461
One Palmer Square, Ste. 515
Princeton, NJ 08542
Attention: James C. Blair, Ph.D
SUBSEQUENT CLOSING:
SBIC PARTNERS, L.P. $2,499,999.40 1,886,792
201 Main Street, Suite 2302
Fort Worth, TX 76102
Attention: Nick Binkley
TOTAL
-------------- --------------
$10,725,000.52 8,094,340
<PAGE>
Exhibit B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
VISTA MEDICAL TECHNOLOGIES, INC.
The undersigned, John Lyon and Larry Osterink, hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of Vista Medical Technologies, Inc., a California corporation.
TWO: The articles of incorporation of this corporation are amended and
restated to read as follows:
I.
The name of the corporation is Vista Medical Technologies, Inc.
II.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
A. CLASSES OF STOCK. This corporation is authorized to issue two (2)
classes of shares, to be designated "Common" and "Preferred" and referred to
herein as the "Common Shares" or the "Preferred Shares" respectively. The total
number of Common Shares the corporation is authorized to issue is twenty-five
million (25,000,000). The par value is $0.01 per share. The total number of
Preferred Shares the corporation is authorized to issue is eighteen million
(18,000,000). The par value is $0.01 per share.
The board of directors of the corporation may divide the Preferred
Shares into any number of series. The board of directors shall fix the
designation and number of shares of each such series. The board of directors
may determine and alter the rights, preferences, privileges and restrictions
granted to and imposed upon any wholly unissued series of the Preferred Shares.
The board of directors (within the limits and restrictions of any resolution
adopted by it, originally fixing the number of shares of any series) may
increase or decrease the number of shares of any such series after the issue of
shares of that series, but not below the number of then outstanding
<PAGE>
shares of such series.
B. RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE SERIES A-1
PREFERRED STOCK AND SERIES A-2 PREFERRED STOCK.
1. DESIGNATION OF SERIES A-1 PREFERRED STOCK AND SERIES A-2
PREFERRED STOCK. Eight Million Three Hundred Thousand (8,300,000) shares of
Preferred Stock are designated Series A-1 Preferred Stock (the "Series A-1
Preferred") with the rights, preferences and privileges specified herein. Eight
Million Three Hundred Thousand (8,300,000) shares of Preferred Stock are
designated Series A-2 Preferred Stock (the "Series A-2 Preferred") with the
rights, preferences and privileges specified herein. As used in this Article
III, Section B., the term "Series A Preferred" shall refer to the Series A-1
Preferred and the Series A-2 Preferred, respectively.
2. DIVIDEND RIGHTS OF SERIES A PREFERRED. The holders of the then
outstanding shares of Series A Preferred shall be entitled to receive dividends,
in preference to any dividend on the Common Stock of this corporation
("Common"), at the rate of eight percent (8%) of the Original Purchase Price per
share (as defined below) per annum, whenever funds are legally available and
when and as declared by the Board of Directors. The dividends shall be
non-cumulative. The original purchase price of the Series A Preferred shall be
$1.325 per share (the "Original Purchase Price").
3. LIQUIDATION PREFERENCE.
a. In the event of any liquidation event, either voluntary or
involuntary, the holders of the Series A Preferred shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the corporation to the holders of the Common by reason of their
ownership thereof, the sum of (i) $1.325 per share for each share of Series A
Preferred then held by them and (ii) an amount equal to all declared but unpaid
dividends on the Series A Preferred then held by them. If, upon the occurrence
of such event, the assets and funds thus distributed among the holders of the
Series A Preferred shall be insufficient to permit the payment to such holders
of the full aforesaid preferential amounts, then the entire assets and funds of
the corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred in proportion to the preferential
amount each such holder would have been entitled to receive pursuant to this
Section 3 if such distribution had been sufficient to permit the full payment of
such preferential amount.
b. After payment has been made to the holders of the Series A
Preferred of the full amounts to which they shall be entitled pursuant to
Section 3.a. above, the holders of the Common and Series A Preferred shall be
entitled to receive the remaining assets of the corporation in proportion to the
shares of Common Stock then held by them and the shares of Common Stock which
they have the right to acquire upon conversion of Series A Preferred until such
time as the distributions made to the holders of the Series A Preferred (taken
together with all payments made pursuant to Section 3.a. above) equal $3.975 per
share for each share of Series A Preferred then held by them. If, upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred shall be insufficient to permit the
<PAGE>
payment to such holders of the full aforesaid preferential amounts, then the
entire remaining assets and funds of the corporation legally available for
distribution after payment has been made to the holders of the Series A
Preferred of the full amounts to which they shall be entitled pursuant to
Section 3.a. above shall be distributed ratably among the holders of the Common
and Series A Preferred in proportion to the preferential amount each such holder
would have been entitled to receive pursuant to this Section 3 if such
distribution had been sufficient to permit the full payment of the preferential
amounts to the holders of the Series A Preferred.
c. After payment has been made to the holders of the Series A
Preferred of the full amounts to which they shall be entitled pursuant to
Sections 3.a. and 3.b. above, the holders of the Common shall be entitled to
receive all remaining assets of the corporation in proportion to the shares of
Common Stock then held by them.
d. For purposes of this Section 3, a liquidation, dissolution
or winding up of the corporation shall be deemed to be occasioned by, or to
include, the corporation's sale of all or substantially all of its assets or the
acquisition of this corporation by another entity by means of merger or
consolidation resulting in the exchange of the outstanding shares of this
corporation for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its subsidiary in which the shareholders of the
corporation are holders of less than 50% of voting power of the surviving
corporation.
e. Each holder of any outstanding shares of Series A Preferred
shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of
the California Corporations Code, to distributions made by the corporation in
connection with the repurchase of shares of Common issued to or held by
employees, directors or consultants of or to the corporation or any of its
subsidiaries upon termination of their employment or services pursuant to
agreements providing for the right of such repurchase between the corporation
and such persons.
4. CONVERSION. The holders of the Series A Preferred shall have
conversion rights as follows (the "Conversion Rights"):
a. OPTIONAL AND AUTOMATIC CONVERSION. Each share of Series A
Preferred shall be convertible at the option of the holder thereof, without
payment of additional consideration, at any time after the date of issuance of
such share, at the office of the corporation or any transfer agent for the
Series A Preferred, into such number of fully paid and nonassessable shares of
Common as is determined by dividing $1.325 by the Conversion Price, determined
as hereinafter provided, in effect at the time of conversion. The price at
which shares of Common shall be deliverable upon conversion of the Series A-1
Preferred (the "Series A-1 Conversion Price") shall initially be $1.325 per
share of Common. The price at which shares of Common shall be deliverable upon
conversion of the Series A-2 Preferred (the "Series A-2 Conversion Price") shall
initially be $1.325 per share of Common. As used in this Section 4., the term
"Conversion Price" shall refer to the Series A-1 Conversion Price and the Series
A-2 Conversion Price, respectively. The initial Series A-1 Conversion Price and
Series A-2 Conversion Price shall be subject to adjustment as hereinafter
provided.
<PAGE>
Each share of Series A Preferred shall automatically be converted into
shares of Common at the then effective Conversion Price in the event of either
(i) the closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Act"), covering the offer and sale of Common (whether for the account of
the corporation or for the account of one or more shareholders of the
corporation) of the corporation to the public in which the aggregate gross cash
proceeds to the corporation (prior to underwriters' discounts and expenses) are
equal to or exceed $15,000,000 and the public offering price is equal to or
exceeds $5.00 per share of Common (as adjusted for any stock dividends,
combinations or splits with respect to such shares) (a "Qualified Public
Offering") or (ii) the written consent of holders of more than fifty percent
(50%) of the then outstanding shares of Series A Preferred voting as a class (a
"Qualifying Consent"). In the event of the automatic conversion of the Series A
Preferred upon a Qualified Public Offering, the conversion of Series A Preferred
shall be deemed to have occurred automatically at the closing of such Qualified
Public Offering. In the event of the automatic conversion of the shares of
Series A Preferred upon a Qualifying Consent, the conversion of Series A
Preferred shall be deemed to have occurred on the date specified in such
Qualifying Consent.
b. MECHANICS OF CONVERSION. No fractional shares of Common
shall be issued upon conversion of Series A Preferred. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Series A Preferred shall be
entitled to convert the same into full shares of Common, it shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for the Series A Preferred, and shall give
written notice to the corporation at such office that it elects to convert the
same (except that no such written notice of election to convert shall be
necessary in the event of an automatic conversion pursuant to Section 4.a.).
The corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A Preferred a certificate or certificates,
registered in such names as specified by the holder, for the number of shares of
Common to which he shall be entitled as aforesaid and a check payable to the
holder in the amount of any cash amounts payable as the result of a conversion
into fractional shares of Common, and any accrued and unpaid dividends on the
converted Series A Preferred. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred to be converted, and the person or persons entitled
to receive the shares of Common issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of Common on
such date (except that in the event of an automatic conversion (i) upon a
Qualified Public Offering pursuant to Section 4.a. such conversion shall be
deemed to have been made immediately prior to the closing of the Qualified
Public Offering and (ii) upon a Qualifying Consent pursuant to Section 4.a. such
conversion shall be deemed to have been made on the date specified in such
Qualifying Consent). If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Act, the conversion may, at
the option of any holder tendering Series A Preferred for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common issuable upon such conversion of the Series A Preferred shall not be
deemed to have converted such Series A Preferred until immediately prior to the
closing of such sale of securities.
<PAGE>
c. ADJUSTMENTS TO SERIES A-1 CONVERSION PRICE FOR DILUTIVE
ISSUES.
(1) SPECIAL DEFINITIONS. For purposes of this Section 4.c.
and Section 5, the following definitions shall apply:
(a) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common or Convertible
Securities.
(b) "ORIGINAL ISSUE DATE" shall mean the date on which
a share of Series A-1 Preferred was first issued.
(c) "CONVERTIBLE SECURITIES" shall mean any evidences
of indebtedness, shares (other than Common and Series A Preferred) or other
securities directly or indirectly convertible into or exchangeable for Common.
(d) "ADDITIONAL SHARES OF COMMON" shall mean all
shares of Common issued (or, pursuant to Section 4.c.(3), deemed to be issued)
by the corporation after the Original Issue Date, other than shares of Common
issued or issuable:
i) upon conversion of shares of Series A
Preferred authorized herein;
ii) to officers, directors or employees of, or
consultants to, the corporation pursuant to any plan or agreement approved by
the Board of Directors;
iii) as a dividend or distribution on the Series A
Preferred or any event for which adjustment is made pursuant to Sections 4.d. or
4.e. hereof;
iv) by way of dividend or other distribution on
shares excluded from the definition of Additional Shares of Common by the
foregoing clauses i) through iii) or this clause iv) or on shares of Common so
excluded.
(2) NO ADJUSTMENT OF SERIES A-1 CONVERSION PRICE. No
adjustment in the Series A-1 Conversion Price of a particular share of Series
A-1 Preferred shall be made in respect of the issuance of Additional Shares of
Common unless the consideration per share for an Additional Share of Common
issued or deemed to be issued by the corporation is less than the Series A-1
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Share. No adjustment in the Series A-2 Conversion Price of a
particular share of Series A-2 Preferred shall be made in respect of the
issuance of Additional Shares of Common.
(3) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON -- OPTIONS AND CONVERTIBLE SECURITIES. In the event the corporation
at any time or from time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any
<PAGE>
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that in any such case in which Additional
Shares of Common are deemed to be issued:
(a) no further adjustment in the Series A-1 Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common upon the exercise of such Options or conversion or exchange of
such Convertible Securities;
(b) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the corporation, or decreases in the number of shares
of Common issuable, upon the exercise, conversion or exchange thereof, the
Series A-1 Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(c) no readjustment pursuant to clause (b) above shall
have the effect of increasing the Series A-1 Conversion Price to an amount which
exceeds the lower of (i) such Series A-1 Conversion Price on the original
adjustment date with respect to such deemed issuance of Additional Shares of
Common, or (ii) such Series A-1 Conversion Price that would have resulted from
any issuance of Additional Shares of Common between such original adjustment
date and such readjustment date; and
(d) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any decrease in the
consideration payable to the corporation upon the exercise, conversion or
exchange thereof, the Series A-1 Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such decrease
becoming effective, be recomputed to reflect such decrease insofar as it affects
such Options or the rights of conversion or exchange under such Convertible
Securities.
(4) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON. In the event this corporation shall issue
Additional Shares of Common (including Additional Shares of Common deemed to be
issued pursuant to Section 4.c.(3)) without consideration or for a consideration
per share less than the Series A-1 Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series A-1
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A-1
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common outstanding immediately prior to such issue plus the number of
shares of Common which the aggregate consideration received by the corporation
for the total number of Additional Shares of Common so issued would purchase at
such Series A-1 Conversion Price in effect immediately prior to such issue; and
the denominator of which shall be the number of shares of Common outstanding
immediately prior to
<PAGE>
such issue plus the number of such Additional Shares of Common so issued; and
provided further that, for the purposes of this Section 4.c.(4): (i) no shares
of Common issued or issuable upon conversion of Series A Preferred shall be
deemed to be outstanding and all such shares shall be excluded from such
calculation, (ii) all shares of Common issuable upon conversion of outstanding
Options and Convertible Securities (excluding outstanding Series A Preferred)
shall be deemed to be outstanding and all such shares shall be included in such
calculation, and (iii) except as provided in the foregoing clauses (i) and (ii)
above, immediately after any Additional Shares of Common are deemed issued
pursuant to Section 4.c.(3), such Additional Shares of Common shall be deemed to
be outstanding. The Series A-1 Conversion Price shall not be increased except
as set forth in Section 4.c.(3)(b) and in Section 4.d.
(5) DETERMINATION OF CONSIDERATION. For purposes of this
Section 4.c., the consideration received by the corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(a) CASH AND PROPERTY. Such consideration shall:
i) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
ii) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
iii) in the event Additional Shares of Common are
issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses i) and ii) above, as
reasonably determined in good faith by the Board of Directors.
(b) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the corporation for Additional Shares of
Common deemed to have been issued pursuant to Section 4.c.(3), relating to
Options and Convertible Securities, shall be determined by dividing:
i) the total amount, if any, received or
receivable by the corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the
<PAGE>
exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, by
ii) the maximum number of shares of Common (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
d. ADJUSTMENT FOR STOCK SPLITS, DIVIDENDS AND COMBINATIONS. If
the corporation shall at any time or from time to time effect a subdivision of
the outstanding Common, or shall issue a dividend of Common on its outstanding
Common, the Series A-1 Conversion Price and Series A-2 Conversion Price then in
effect immediately before that subdivision or dividend shall be proportionately
decreased, and conversely, if the corporation shall combine the outstanding
shares of Common, the Series A-1 Conversion Price and Series A-2 Conversion
Price then in effect immediately before the combination shall be proportionately
increased. Any adjustment under this Section 4.d. shall become effective at the
close of business on the date the subdivision or combination becomes effective
or on the date on which the dividend is declared.
e. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the corporation at any time or from time to time shall make or issue, or
fix a record date for the determination of holders of Common entitled to receive
a dividend or other distribution payable in securities of the corporation other
than shares of Common, then and in each such event provision shall be made so
that the holders of Series A-1 Preferred and Series A-2 Preferred shall receive
upon conversion thereof, in addition to the number of shares of Common
receivable thereupon, the amount of securities of the corporation that they
would have received had their Series A-1 Preferred and Series A-2 Preferred been
converted into Common on the date of such event, giving effect to all
adjustments called for with respect to such securities during the period from
the date of such event to and including the conversion date.
f. ADJUSTMENT FOR MERGER OR REORGANIZATION. In case of any
consolidation or merger of the corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the corporation to
another corporation, each share of Series A-1 Preferred and Series A-2 Preferred
shall thereafter be convertible into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common of
the corporation deliverable upon conversion of such Series A-1 Preferred and
Series A-2 Preferred would have been entitled upon such consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as reasonably determined
in good faith by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interest thereafter
of the holders of the Series A-1 Preferred and Series A-2 Preferred, to the end
that the provisions set forth herein (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series A-1
Preferred and Series A-2 Preferred.
<PAGE>
g. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If the Common issuable upon the conversion of the Series A-1 Preferred and
Series A-2 Preferred shall be changed into the same or different number of
shares of any class or series of stock, whether by capital reorganization,
reclassification or otherwise (other than as set forth above in this Section 4),
then and in each such event the holder of each share of Series A-1 Preferred and
Series A-2 Preferred shall have the right thereafter to convert such share into
the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change by holders
of the number of shares of Common into which such shares of Series A-1 Preferred
or Series A-2 Preferred might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
h. AUTOMATIC CONVERSION OF SERIES A-1 PREFERRED INTO SERIES A-2
PREFERRED.
(1) SPECIAL DEFINITIONS. For purposes of this Section
4(h), the following definitions shall apply:
(a) "PRO RATA SHARE" shall mean the portion determined
by the ratio of the number of shares of Common issuable upon the conversion of
Series A-1 Preferred then held by a holder of Series A-1 Preferred (a "Series
A-1 Holder") to the total number of shares of Common Stock issuable upon
conversion of the Series A Preferred then outstanding.
(b) "DILUTIVE ISSUANCE" shall mean the issuance of
Additional Shares of Common (as defined in subsection 4.c.(1)(d) above), without
consideration or for a consideration per share less than the Series A-1
Conversion Price in effect on the date of and immediately prior to such
issuance; provided, however, that for purposes of this definition, (i) "Dilutive
Issuance" shall not include any Additional Shares of Common to be sold to an
investor who is neither a holder of the corporation's Series A-1 Preferred at
the time of such issuance or an affiliate of such holder and (ii) "Dilutive
Issuance" shall not include any issuance of Additional Shares of Common
following the closing of the first sale and issuance of Additional Shares of
Common in which the cumulative Aggregate Proposed Proceeds (as defined in
subsection 4.h.(2) below) of all Dilutive Issuances during the period from the
Original Issue Date up to and including such closing equals or exceeds
$10,375,000.
(c) "DILUTED STOCK" shall mean shares of Series A-1
Preferred that have a Series A-1 Conversion Price per share greater than the
consideration per share to be received in a Dilutive Issuance.
(d) "DILUTED HOLDER" shall mean any Series A-1 Holder
that holds shares of Diluted Stock.
(e) "PARTICIPATING INVESTOR" shall mean any Diluted
Holder that agrees to purchase at least its Pro Rata Share of a Dilutive
Issuance pursuant to Section
<PAGE>
4.h.(2) hereof.
(f) "NON-PARTICIPATING INVESTOR" shall mean any
Diluted Holder that is not a Participating Investor.
(2) NOTICE OF DILUTIVE ISSUANCE. In the event the
corporation proposes to undertake a Dilutive Issuance, it shall give each
Diluted Holder a written notice (the "Issuance Notice") of its intention,
describing the type of Additional Shares of Common, the price, the aggregate
dollar amount of the proposed Dilutive Issuance (the "Aggregate Proposed
Proceeds") and the general terms upon which the corporation proposes to issue
the same. Each Diluted Holder shall, within thirty (30) days from the date of
the Issuance Notice, provide written notice to the corporation that (i) such
Diluted Holder agrees to become a Participating Investor for the price and upon
the terms specified in the Issuance Notice or (ii) such Diluted Holder shall be
a Non-participating Investor. Any Diluted Holder who shall fail to provide such
written notice within such thirty (30) day period shall be deemed to be a
Non-participating Investor. Any Non-participating Investor may become a
Participating Investor if it provides written notice to the corporation, at
least thirty (30) days prior to the closing of a Dilutive Issuance, that it
agrees to become a Participating Investor.
(3) AUTOMATIC CONVERSION. Each share of Diluted Stock held
by each and every Non-participating Investor shall be automatically converted
immediately prior to the closing of the applicable Dilutive Issuance into one
(1) share of Series A-2 Preferred. In no event shall any share of Series A-1
Preferred be automatically converted into a share of Series A-2 Preferred
pursuant to this subsection 4.h.(3) unless such share of Series A-1 Preferred
constitutes Diluted Stock as defined in subsection 4.h.(1) hereof.
(4) STATUS OF DILUTED STOCK. Upon the conversion of
Diluted Stock held by a Non-participating Investor as set forth in subsection
4.h.(3) above, such shares of Diluted Stock shall no longer be outstanding on
the books of the corporation and the Non-participating Investor shall be treated
for all purposes as the record holder of such shares of Series A-2 Preferred on
the date of closing of the applicable Dilutive Issuance.
i. NO IMPAIRMENT. The corporation will not, by amendment of
this Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A-1 Preferred or Series A-2
Preferred against impairment.
j. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A-1 Conversion Price or Series A-2
Conversion Price pursuant to this Section 4, the corporation at its expense
shall promptly compute such adjustments or readjustments in accordance with the
terms hereof and furnish to each holder of Series A-1
<PAGE>
Preferred and Series A-2 Preferred a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of Series A-1 Preferred or Series A-2 Preferred, furnish or
cause to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A-1 Conversion Price and/or
Series A-2 Conversion Price at the time in effect, and (iii) the number of
shares of Common and the amount, if any, of other property which at the time
would be received upon the conversion of such holder's shares.
k. NOTICES OF RECORD DATE. In the event of any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the corporation shall mail to each
holder of Series A-1 Preferred and Series A-2 Preferred at least ten (10) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend or distribution.
Each such written notice shall be given by first class mail, postage prepaid,
addressed to the holders of Series A-1 Preferred and Series A-2 Preferred at the
address for each such holder as shown on the books of this corporation.
l. COMMON STOCK RESERVED. The corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common,
solely for the purpose of effecting the conversion of the shares of Series A
Preferred, such number of shares of Common as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series A
Preferred, and if at any time the number of authorized but unissued shares of
Common shall not be sufficient to effect the conversion of all then outstanding
shares of Series A Preferred, the corporation shall take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common to such number of shares as shall be sufficient
for such purpose.
5. VOTING RIGHTS. Each holder of shares of Series A Preferred shall
be entitled to the number of votes equal to the number of shares of Common into
which such shares of Series A Preferred could be converted on the record date
for the vote or the date of the solicitation of any written consent of
shareholders and shall have voting rights and powers equal to the voting rights
and powers of the Common. Each holder of Common shall be entitled to one vote
per share of Common held by such holder. The holder of each share of Series A
Preferred shall be entitled to notice of any shareholders' meeting in accordance
with the Bylaws of the corporation and shall vote with holders of the Common
upon all matters submitted to a vote of shareholders, except those matters
required by law to be submitted to a class vote and except as provided in
Section 6 below. Fractional votes by the holders of Series A Preferred shall
not, however, be permitted and any fractional voting rights resulting from the
above formula (after aggregating all shares into which shares of Series A
Preferred held by each holder could be converted) shall be rounded to the
nearest whole number.
6. RESTRICTIONS AND LIMITS.
a. So long as fifty percent (50%) or more of the originally
issued shares
<PAGE>
of Series A Preferred shall be outstanding, the corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of not
less than sixty-six and two-thirds percent (66-2/3%) of the then outstanding
shares of Series A Preferred, voting as a class:
(1) amend or repeal any provision of, or add any provision
to, the corporation's Amended and Restated Articles of Incorporation or Bylaws
if such action would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of the
Series A Preferred;
(2) create any new series or class of stock having any
rights, preferences or privileges senior to or on a parity with any such rights,
preferences or privileges of the Series A Preferred;
(3) increase or decrease the authorized number of shares of
Series A Preferred or Preferred;
(4) pay any dividend on, or redeem, repurchase or otherwise
acquire any shares of, the Common or Preferred (other than (i) any repurchases
of shares of Common held by an employee of the corporation upon termination of
employment, (ii) as approved by the Board of Directors);
(5) merge into or consolidate with any other corporation or
entity (other than any transaction in which the
corporation's shareholders own a majority of the securities of the surviving
corporation) or sell all or substantially all of the assets of the corporation;
(6) amend, or take any action intended to circumvent, the
provisions of this Section 6.
7. SERIES A PREFERRED ACQUIRED BY THE CORPORATION. No share or
shares of Series A Preferred acquired by the corporation by reason of purchase,
conversion or otherwise, shall be reissued as Series A Preferred, and all such
shares shall be restored to the status of authorized but unissued shares of
undesignated Preferred Stock.
8. RESIDUAL RIGHTS. All rights accruing to the outstanding shares
of the corporation not otherwise expressly provided for in this Amended and
Restated Articles of Incorporation shall be vested in the Common.
IV.
A. The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
<PAGE>
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) for breach of
duty to the corporation and its shareholders through bylaw provisions or through
agreements with agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code.
C. Any repeal or modification of the provisions of this Article shall not
adversely affect the rights under this Article in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
* * * * *
THREE: The foregoing amendment and restatement of articles of
incorporation has been duly approved by the board of directors.
FOUR: The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the Corporations Code. The total number of
outstanding shares of the corporation is 1,000 shares of Common Stock and no
shares of Preferred Stock. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
was more than 50%.
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Dated: July 21, 1995 /s/ John Lyon
------------------ ------------------------
John Lyon
President
/s/ Larry M. Osterink
------------------------
Larry Osterink
Secretary
<PAGE>
Exhibit C
SCHEDULE OF EXCEPTIONS
TO THE SERIES A-1 PREFERRED
STOCK PURCHASE AGREEMENT OF
VISTA MEDICAL TECHNOLOGIES INC.
The following are exceptions to the representations and warranties set
forth in the Series A Preferred Stock Purchase Agreement of Vista Medical
Technologies, Inc. (the "Company"), dated July 25, 1995 (the "Agreement"), and
are an integral part of the Agreement. Any terms defined in the Agreement shall
have the same meaning when used in this Schedule as when used in the Agreement,
unless the context indicates otherwise. The paragraph numbers of this Schedule
correspond to the first or principal section of the Agreement to which the
disclosures relate; however, all information disclosed herein shall be deemed
disclosed under and incorporated into any other section of the Agreement where
such disclosure would be appropriate.
2.1 The Company will qualify to do business in Massachusetts shortly after
the Closing.
2.3 The Company has one wholly-owned subsidiary, Oktas, Inc., a
Massachusetts corporation, which does not have any operating activities and no
liabilities. The Company is also the sole partner of Oktas, a Massachusetts
General Partnership. A copy of such partnership agreement has been provided to
counsel to the Investors.
2.6 Attached as Exhibit 2.6 hereto is a list of the Company's agreements
that may involve more than $25,000, copies of which are attached to such
Exhibit.
2.8 Pursuant to a License Agreement with Allen Newman, Mr. Newman
currently is indebted to the Company in the amount of $37,500, as an advance
payment against royalties due under the License Agreement. A copy of such
agreement has been provided to counsel to the Investors.
2.15 The Company is indebted to Kaiser Aerospace and Electronics, Inc.
("Kaiser") in the amount of $3,003,999.77, all of which shall be repaid
immediately following the Closing out of the proceeds of this financing.
2.16 The Company anticipates that shortly after the Closing and subject to
Board approval, it will acquire the assets of American Surgical Technologies
Corporation on substantially the terms attached hereto as Exhibit 2.16.
2.17 The Oktas General Partnership currently has a lease for space in
Massachusetts that the Company will use reasonable commercial efforts to have
assigned to the Company.
2.18 Attached as Exhibit 2.18 hereto is a list of all of the Company's
patents and pending patent applications. The Company also has a License
Agreement with Allen Newman dated September 2, 1994 and a Patent License
Agreement with Kaiser Aerospace and Electronics, Inc. dated July _, 1995, both
of which have been provided to counsel to the Investors.
<PAGE>
2.19 The Company has a Manufacturing Supply Agreement with Kaiser
Electro-Optics, a copy of which is attached to Exhibit 2.6 hereto.
2.20 The Company has to date operated as a subsidiary of Kaiser. Kaiser
has filed corporate tax returns that included the Company, and therefore the
Company has no tax loss carry forwards.
2.21 Attached as Exhibit 2.21 hereto is a memorandum regarding certain
employees participation in the Kaiser bonus program.
2.29 The Company has standard fringe benefit plans in the ordinary course
of business, including, but not limited to, medical plans and vacation policies.
<PAGE>
EXHIBIT 2.6
1. Supply Agreement between the Company and Matsushita, currently in draft form
only.
2. Manufacturing Supply Agreement with Kaiser Electro-Optics.
3. License Agreement with Allen Newman dated September 2, 1994.
4. Memorandum of Understanding regarding Technology Alliance
between the Company, Cogent Light and Henke Sass Wolf dated May 3, 1995.
5. Technology Strategic Alliance with Kaiser Electro-Optics.
6. Purchase Orders with Precision Interconnect, Hanson Precision
Machine and Matsushita Communication, copies of which are attached hereto.
7. Purchase Order to Explorent Surgical Instruments, GMBH placed with the
Company, a copy of which is attached hereto.
8. Form of Consulting Agreement entered into with the following
individuals:
a. V. Montegrande & Co. (advertising agency), currently active at $2,800
per month plus project specific billings.
b. Nancy Briefs, Endocardiac Business Plan, currently active, contract for
$14,000.
c. Kent Richards, product management services, currently active at $8,000
per month.
d. David Scott, sales services, currently active at $4,000 per month for
4-6 months.
e. Hans Steinmann, European consultant, currently active at $2,000 per
month.
f. David Matsuura, product design services, currently active at $5-6,000
per month on a month to month basis.
g. Howard Everhart, regulatory consultant, currently active and may reach
up to $4-5,000 per month in the next 2-6 months.
h. John Crawford, optical engineering services for Oktas, currently active
at $8,000 per month.
i. Ed McLean, manufacturing services for oktas, currently active at $5,000
per month.
j. Phil Lichtman, mechanical design services for Oktas, currently inactive,
but used
3
<PAGE>
regularly on a project basis.
k. Paul Pelkey, purchasing services for Oktas, currently active at 3,000
per month, effective through 8/31/95.
4
<PAGE>
EXHIBIT 2.18
1. Patent No 5,349,941 Cleanable Endoscope (issued September 27, 1994).
2. Application Serial No 08/067,140 Zoom Endoscope (filed May 25, 1993).
3. Application Serial No 08/400,503 Zoom Endoscope (filed October 7, 1994).
4. Application Serial No 08/286,543 Endoscope with Light Element (filed August
5, 1994).
5. Application Serial No 07/967,996 Electronic Endoscope (filed October 28,
1992).
6. Application Serial No 08/06,140 Asymmetric Endoscope (filed May 7, 1995).
7. Application Serial No 08/108,980 Optical Surgical Device (filed August 18,
1993).
5
<PAGE>
TECHNOLOGY STRATEGIC ALLIANCE: MEMORANDUM OF UNDERSTANDING
1. This Memorandum defines the intent of Kaiser Electro-Optics (KEO) and Vista
Medical Technologies (VMT) to co-operate in advancing the technology and
application of medical head mounted displays (MHMD).
2. KEO and VMT will co-operate in joint development programs as appropriate,
both for the existing MHMD and future iterations. Such co-operation will
be determined by managements on a project by project basis. Development
programs undertaken by KEO will be paid for according to a fee structure
mutually agreed in advance of the program commencing.
3. KEO will grant VMT right of first refusal for exclusive medical application
of independently developed new technology or devices, exercisable provided
that VMT contracts with KEO for a mutually agreed proportion of the
development work and eventual production of the resulting medical device.
4. Technology independently developed by VMT or developed by KEO under
contract to VMT (provided that the technology, idea or product
specification was an original contribution of VMT and not the result of the
exercise of the right of first refusal) remains the exclusive property of
VMT. KEO will have reciprocal right of first refusal to apply such
technology in fields other than medicine in return for compensation to VMT
to be mutually agreed.
5. KEO recognizes that VMT will gradually build an independent technical
capability, although it will be only sensible to minimize duplication of
technological resources. For example, VMT is likely to concentrate on the
communication (Infomatix-TM-) aspects of MHMDs. However, VMT acknowledges
KEO'S investment in its technical personnel and agrees not to recruit them
for a period of three years, unless both managements agree otherwise.
6. KEO and VMT acknowledge that this memorandum represents a statement of
intent by both parties and that all resulting co-operation will be managed
on an arms length basis and on terms mutually agreed for each project.
Common sense and common interest should be the prevailing principles.
For Vista Medical Technologies: For Kaiser Electro-Optics:
/s/ John Lyon /s/ Jerry Carollo
- ------------------------------ ----------------------------
John Lyon, President Jerry Carollo, President
July 19, 1995 July 19, 1995
- --------------------- ------------------
Date Date
<PAGE>
KAISER
AEROSPACE &
ELECTRONICS
July 18, 1995 Executive Office
950 Tower Lane - Suite 800
Foster City, California 94404
(415) 349-7400 - Fax (415) 349-8284
Mr. John R. Lyon
President
Vista Medical Technologies, inc.
2752 Loker Avenue West
Carlsbad, CA 92008
Dear John:
This letter amends the Secured Master Promissory Note between Kaiser Aerospace &
Electronics Corporation and Vista Medical Technologies, Inc. dated April 11,
1995, as amended; by increasing the maximum amount of advances available to
Borrower to Five Million Five Hundred Thousand Dollars ($5,500,000.00).
All other terms and conditions remain unchanged.
Please indicate your acceptance by signing and returning a copy of this letter.
Very truly yours,
KAISER AEROSPACE & ELECTRONICS CORPORATION
By: /s/ J. E. Chapin
------------------------------
J. E. Chapin, Vice President
Agreed and Accepted:
VISTA MEDICAL TECHNOLOGIES, INC.
By: /s/ John Lyon
------------------------------
John R. Lyon, President
Date: July 18, 1995
-------------------------
KAISER AEROSPACE & ELECTRONICS CORPORATION
<PAGE>
KAISER
AEROSPACE &
ELECTRONICS
VIA FAX # (619) 438-9167
July 18, 1995 Executive Office
950 Tower Lane - Suite 800
Foster City, California 94404
(415) 349-7400 - Fax (415) 349-8284
Mr. John Lyon
Vista Medical Technologies, inc.
2751 Loker Avenue West
Carlsbad, CA 92008
Dear John:
This letter will confirm our understanding with respect to the purchase of
Series A-1 Preferred Stock of Vista Medical Technologies. Inc. ("Vista").
Pursuant to the Series A-1 Preferred Stock Purchase Agreement between Vista and
certain investors dated of even date herewith (the "Agreement"), Kaiser agrees
to cancel, effective at the First Closing (as such term is defined in the
Agreement), $2,375,000.23 of indebtedness and apply such indebtedness to the
purchase of Series A-1 Preferred Stock of Vista. Vista hereby agrees that as
soon as practicable after Vista has access to funds from the other investors
received at the First Closing, Vista will repay indebtedness to Kaiser in the
amount of $3,003,999.77.
The parties hereto agree to exchange such other documentation as soon as
practicable after the closing as the parties deem necessary to effect the
foregoing agreements, including, but not limited to, the cancellation of
promissory notes between Kaiser and Vista, and the release of all securityy
interests in the assets of Vista which are held by Kaiser.
If the foregoing meets with your understanding, please sign and return a copy of
this letter to my attention via FAX.
Very truly yours,
Kaiser Aerospace & Electronics Corporation
By: /s/ J. E. Chapin
------------------------------------------
J. E. Chapin, Vice President & Controller
Accepted and Agreed to:
VISTA MEDICAL TECHNOLOGIES, INC.
By: /s/ John Lyon
---------------------
<PAGE>
KAISER AEROSPACE & ELECTRONICS CORPORATION
<PAGE>
MANUFACTURING SUPPLY AGREEMENT
This MANUFACTURING SUPPLY AGREEMENT (the "Agreement"), dated this ____ day
of ____________, 1995, is made by and between Vista Medical Technologies
("Vista"), a California Corporation, located at 2752 Loker Avenue West,
Carlsbad, California 92008 and KAISER ELECTRO-OPTICS, INC. ('KEO"), a California
Corporation, located at 2752 Loker Avenue West, Carlsbad, California 92008.
RECITALS
WHEREAS, Vista has developed and owns exclusive rights to a proprietary
Medical Head Mounted Display ("MHMD"); and
WHEREAS, KEO has developed Head Mounted Displays ("HMD") for nonmedical
markets, provided development services for Vista's MHMD and possesses certain
know-how and manufacturing technology related to HMDs; and
WHEREAS, Vista desires to have KEO manufacture the display optical
subassembly of its MHMD and any reasonable functional derivative thereof, such
subassemblies hereinafter referred to as "Product"; and
WHEREAS, KEO desires to manufacture Product and to meet Vista's reasonable
requirements as to competitive price, delivery, and quality;
NOW, THEREFORE, in consideration of the above matters and of the covenants
contained herein, Vista and KEO agree as follows:
AGREEMENT
1. PREFERRED SUPPLIER RELATIONSHIP: During the term of this Agreement,
KEO shall be Vista's preferred supplier of Product, and Vista shall contract
with KEO to supply up to 100%, but not less than 75%, of its requirements for
Product. Similarly, KEO shall not supply HMDs to any direct competitor of Vista
in the medical marketplace.
2. PRODUCT SPECIFICATIONS: KEO will supply Product to Vista consisting
of the head-mounted display optical subassembly of the MHMD, in accordance with
specifications defined
<PAGE>
prior to placing of a purchase order by Vista and acceptance by KEO. All
modifications of the Product must be mutually agreed upon in writing by Vista
and KEO and documented by Vista according to current GMP (Good Management
Practices) then in effect.
3. PRODUCT CONFORMITY: In the event of test results which show a lack of
Product conformity to quality or specifications provided and mutually agreed to,
KEO will repair or replace the Product within a reasonable time. Failure to
repair or replace non-conforming products, as defined in the purchase orders and
agreed upon specifications, within eight (8) weeks shall be considered a failure
to supply.
4. PURCHASE ORDERS: KEO will accept each purchase order submitted by
Vista hereunder that conforms with the terms of this Agreement. In the event
that pre-printed terms on Vista's purchase order are in conflict with this
Agreement, the terms of this Agreement shall prevail.
5. VISTA'S FORECAST: Vista will provide KEO with monthly non-binding
rolling forecasts of its anticipated requirements for Product for the following
twelve (12) months. However, the first (3) months of this rolling forecast, as
well as the mutually agreed to purchase of long-lead items of significant value
required to meet the forecast beyond the first (3) months, will be binding to
both parties. KEO agrees to meet Vista's reasonable schedule requirements; once
agreed, repeated failure to meet delivery schedules shall be considered a
failure to supply.
6. COMPETITIVE PRICING: For the first year, the price of the Product
sold by KEO to Vista will be that price agreed to be mutually acceptable prior
to the start of production. KEO's pricing for Vista's Product will remain
competitive over time to that generally charged for similar OEM products of the
same performance level in the medical marketplace. Failure to remain
competitive, according to evidence documented by Vista, shall be considered a
failure to supply.
7. REGULATORY APPROVAL: Vista shall be solely responsible for obtaining
any regulatory approvals it requires to market and sell its products. KEO
agrees to provide Vista with all
2
<PAGE>
specified information and materials required for the purpose of obtaining any
regulatory approvals. Vista will require KEO to manufacture Product in
accordance with Vista's specified GMP requirements for suppliers. Failure to
conform shall be considered a failure to supply.
8. INSURANCE: KEO shall maintain product liability insurance in effect
to cover any manufacturing deficiencies in its Product caused by non-conformance
to the product specification. KEO agrees to indemnify, protect, and save Vista
including Vista's dealers and agents harmless from and against all claims,
demands, proceedings, lawsuits, and actions and any liabilities, expenses, or
costs due directly to any product malfunction caused by non-conformance to the
Product specification. KEO will not be liable for any failures of the MHMD
caused by manufacturing or design defects in anything other than its own
manufacturing of Product.
9. INDEMNIFICATION: For and in consideration of Vista's purchase of
Product under this Agreement, KEO will indemnify, hold harmless and defend
Vista, including Vista's dealers and agents, from and against any claim, demand,
liability, loss, damage, suit, or judgment resulting from operational
deficiencies caused by non-conformance to the Product specification.
10. KEO WARRANTIES: KEO warrants that title to all Product delivered to
Vista will be free and clear of all liens, encumbrances and security interests;
and that all Product sold under this Agreement will conform to the
specifications accepted by KEO, and shall be free from defects in material and
workmanship under normal use and service. Any Product which exhibits such
defects in material and workmanship within 12 months from date of shipment to
the final customer but not more than 15 months from date of shipment to Vista
shall be repaired or replaced, at KEO's option, without charge, under terms of
this Agreement.
VISTA WARRANTIES: Vista agrees to be solely responsible for any warranty
that it extends or allows to be extended to its customers, whether express or
implied, with respect to the Product.
11. TERM OF AGREEMENT: The duration of this Agreement is three (3) years
from the date of execution provided that it is not terminated sooner pursuant to
paragraph 12 below. After termination, the following provisions will survive
and remain in force: paragraphs 8 (Insurance), 9 (Indemnification), 10
(Warranties), 12 (Termination), 13 (Obligations on Termination), 16 (Applicable
Law), 17 (Relationship of Parties), 20 (Tradenames/Trademarks), 21 (Non-
Disclosure), and 23 (Statute of Limitations).
3
<PAGE>
12. TERMINATION: The following provisions shall govern the termination of
this Agreement:
(a) If either party has defaulted or failed to perform any obligation
arising under this Agreement and fails to remedy such default or non-performance
after written notice by the other party within thirty (30) days for payment of
monies due and sixty (60) days for all other defaults (including KEO's failure
to supply), the other party has the right to terminate this Agreement
immediately upon further written notice.
(b) Either party, at its election, may treat this Agreement as
breached and, without prejudice to any other of its rights, may forthwith
terminate this Agreement by written notice to the other party on occurrence of
any of the following events:
(i) The other party shall make a general assignment for the
benefit of creditors;
(ii) A receiver of all or substantially all of the property of
the other party shall be appointed and not removed within thirty (30) days;
(iii) The other party shall file a petition for reorganization
under the provisions of federal bankruptcy laws;
(iv) The other party shall file a petition for an arrangement
under federal bankruptcy laws;
(v) The other party shall become or be declared insolvent;
and/or
(vi) The other party shall file a petition in bankruptcy or
shall be adjudged a bankrupt.
(c) The two parties may elect to terminate the Agreement by mutual
written consent at any time.
4
<PAGE>
13. OBLIGATIONS ON TERMINATION: Upon termination of this Agreement:
(a) All amounts owing by Vista or KEO shall remain due and payable as
provided herein;
(b) All unshipped orders due to be shipped after the effective date of
termination for breach shall be canceled without liability of either party to
the other;
(c) All unshipped orders (and mutually agreed in advance long-lead
items) due to be shipped after the effective date of termination if such
termination is for reasons other than a breach, shall be binding, unless
otherwise mutually agreed by the parties; and
(d) Neither party shall be liable to the other because of such
termination for compensation, reimbursement, or damages on account of the loss
of prospective profits or anticipated sales, or on account of expenditures,
investments, leases, or commitments in connection with the business or goodwill
of Vista or KEO or for any other reason whatsoever growing out of such
termination.
14. ASSIGNMENT: Neither party may assign or otherwise dispose of this
Agreement and any right or obligation arising under this Agreement without the
prior written approval given by the other party. However, the Agreement shall
survive a transfer of control or sale of either Vista or KEO to a 3rd party.
15. WAIVER: The waiver by either party of one breach or default hereunder
shall not constitute the waiver of any subsequent breach or default.
16. APPLICABLE LAW: This Agreement shall be governed by and construed in
accordance with the laws of the state of California, without reference to the
rules of conflict of laws.
17. RELATIONSHIP OF THE PARTIES: Parties: Each party shall act solely as
an independent contractor, and nothing in this Agreement shall be construed to
give either party the power or authority to act for or bind the other party.
18. HEADINGS: Headings are inserted in this Agreement only for
convenience and shall not be used to construe its terms.
5
<PAGE>
19. NOTICES: All notices required or permitted by this Agreement, or
given in connection with this Agreement, shall be in writing and may be by
personal delivery by Federal Express or by depositing the written notice with
the United States Postal Service, postage pre-paid, first-class, Certified Mail,
return receipt requested, addressed to the party to receive the same as follows:
- ------------------------------ -----------------------------------
President President
Vista Medical Technologies, Inc. Kaiser Electro-Optics, Inc.
2752 Loker Avenue West 2752 Loker Avenue West
Carlsbad, CA 92008 Carlsbad, CA 92008
or to any other address or addresses as shall be designated in writing in the
same manner.
20. TRADENAMES/TRADEMARKS: Each party acknowledges the validity of each
other's tradenames and trademarks and that neither party shall have any right to
or interest in any tradenames or trademarks owned, used, or claimed now or in
the future by Vista or KEO as a result of this Agreement.
21. NON-DISCLOSURE: Because the parties have and will continue to
exchange confidential, sensitive, and/or unique data relating to product,
markets and/or projects, the attached Non-Disclosure Agreement is incorporated
herein as Exhibit "A".
22. REGULATORY REQUIREMENTS: Vista is responsible for complying with
regulatory requirements including, but not limited to, all costs related to UL,
FDA, and resale of the product. KEO will provide Vista with all specified
information and materials required by Vista for the purpose of obtaining any
regulatory approvals. All regulatory data is the sole property of Vista.
23. STATUTE OF LIMITATIONS: Any action for breach of this Agreement must
be commenced within one (1) year after the cause of action has accrued.
24. ENTIRE AGREEMENT/SEVERABILITY: This Agreement, with its exhibits,
constitutes the entire Agreement between the parties with respect to the
manufacture and sale of products and supersedes any prior agreements or
understandings. The provisions of this Agreement may be
6
<PAGE>
waived, altered, amended, or repealed in whole or in part only upon the written
consent of both parties. In case any provision(s) shall, insofar as possible,
be construed or applied in such manner as will permit enforcement; otherwise
this Agreement shall be construed as though such provision had never been made a
part thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the respective duly authorized representatives as of the date first
set forth above.
VISTA MEDICAL TECHNOLOGIES, INC. KAISER ELECTRO-OPTICS, INC.
By:/s/ John Lyon By:/s/ Jerry Carollo
--------------------------- --------------------------------
John Lyon Jerry Carollo
President President
7
<PAGE>
EXHIBIT "A"
Non-Disclosure Agreement
<PAGE>
NON-DISCLOSURE AGREEMENT
FOR
PROPRIETARY OR BUSINESS CONFIDENTIAL INFORMATION
THIS AGREEMENT was made this 21 day of July, 1995, by and between Vista
Medical Technologies, Inc., located at 2752 Loker Avenue West, Carlsbad,
California 92008, and Kaiser Electro Optics (KEO), 2752 Loker Avenue West,
Carlsbad, California 92008. Vista Medical Technologies and KEO are parties to
this Agreement.
WHEREAS, the parties wish to disclose and exchange certain proprietary or
business confidential information or data concerning their respective products
in order to evaluate these products and related technical, engineering,
manufacturing and business information; and
WHEREAS, the parties will furnish this information to each other at their
own expense and without obligation as to any future contractual relationship
unless otherwise agreed.
NOW THEREFORE, in consideration of the following mutual promises, the
parties hereby agree:
1. Vista Medical Technologies will disclose proprietary information concerning
its technologies, products, markets and business plan.
2. KEO will disclose proprietary information concerning its technologies,
products, markets and business plans.
3. The parties agree that the subject of this Agreement involves confidential
business of the respective parties.
4. Any information received by either party or from the other which is
designated by the disclosing party as proprietary or business confidential
(or any proprietary information which, if disclosed orally or visually, is
reduced to writing within thirty (30) days and designated as proprietary or
confidential as provided in this Agreement) shall be kept in confidence by
the receiving party and used only for the purposes described in this
Agreement.
5. All proprietary or business confidential information or data to be
protected by this Agreement must be in writing and clearly identified or
marked as proprietary or confidential on each page or portion thereof with
a suitable restrictive legend. Neither party may reproduce or make copies
of this material without the prior written approval of the other party.
6. Except as provided herein, the proprietary or business confidential
information or data exchanged or disclosed between the parties shall not be
used by either party in their own business or in association with others or
disclosed to any third parties without the prior
<PAGE>
written consent of the other party.
7. The receiving party is authorized (i) to examine and evaluate the
information; and (ii) to incorporate the information in a proposal or other
report to the other party.
8. Each party shall take reasonable precautions to prevent disclosure to the
public, competitors of the parties, or any other unauthorized use of the
proprietary or confidential information received. The obligation to retain
such information in confidence will be satisfied if the party receiving
such information uses the same degree of care it employs to avoid
disclosure, publication or dissemination of its own proprietary or
confidential information. The receiving party shall not be liable for
inadvertent or accidental disclosure if such disclosure occurs after a
period of one year from receipt in spite of the exercise of the foregoing
precautions and care.
9. The obligations concerning proprietary or confidential information are not
applicable to information which:
(a) was in the receiving party's possession or knowledge prior to the time
of disclosure, which fact of prior possession shall be provable only
by documents prepared prior to the date thereof; or
(b) was in the public domain at the time of disclosure; or
(c) subsequently becomes a part of the public domain by publication or
otherwise without any wrongful act by the receiving party; or
(d) lawfully comes into either party's possession or knowledge through
lawful disclosures from third parties; or
(e) can be proven by written records to have been independently developed;
or
(f) becomes available by inspection or analysis of other products or
techniques in the market; or
(g) occurs three years after the receipt of the information.
2
<PAGE>
10. Pursuant to Item 4, each party designates the following individual(s)
within its organization as the only person(s) authorized to receive
proprietary or confidential information exchanged or disclosed between the
parties pursuant to this Agreement.
Vista Medical Technologies, Inc. KEO
2752 Loker Avenue West 2752 Loker Avenue West
Carlsbad, CA 92008 Carlsbad, CA 92008
Name(s): John Lyon Name(s): Jerry Carollo
Title(s): President Title(s): President
11. The parties shall, upon the written request by the other party, return all
written documents containing proprietary information covered by this
Agreement, together with any copies thereof, including any subsidiary,
derivative or equivalent documents or translations thereof containing such
proprietary or business confidential information. The foregoing applies
also upon termination or cancellation of this Agreement.
12. This Agreement shall not be construed as an obligation to enter into a
subcontract or contract or result in a claim by either party for
reimbursement of any costs from the other party, or be construed as
granting, whether expressly or by implication, estoppel or otherwise, any
license under any invention or patent now or hereafter owned or controlled
by the party furnishing the information.
13. Neither party shall make any news releases, public announcements,
advertisements, or publicity regarding this Agreement or the proprietary or
confidential information without the prior written approval of the other
party.
14. Information exchanged under this Agreement shall not be disclosed to other
divisions or subsidiaries of the respective parties for any use adverse to
the interest of the respective parties without the prior written approval
of the disclosing party.
15. This Agreement is governed by and shall be construed according to the law
of the State of California, without regard to conflict of laws provisions.
16. This Agreement contains the sole and entire disclosure agreement between
the parties and supersedes all other Disclosure Agreements entered into
prior to this Agreement.
17. This Agreement may be terminated by either party giving thirty (30) days'
notice and, unless sooner terminated, shall expire on 21, July, 1998. Such
termination does not affect the parties' respective rights and obligations
outlined in paragraphs 6 and 11 with regard to proprietary or business
confidential information or data disclosed to the receiving party
3
<PAGE>
prior to the termination of this Agreement.
IN WITNESS WHEREOF, the Parties have signed this Agreement as of the date first
written above.
VISTA MEDICAL TECHNOLOGIES KEO
By: /s/ John Lyon By: /s/ Jerry Carollo
------------------------- ------------------------------
Title: President Title: President
----------------------- ----------------------------
Witness: /s/ illegible Witness: /s/ illegible
--------------------- --------------------------
4
<PAGE>
LEASE AGREEMENT BETWEEN MEDICAL OPTICS, INC.,
AND VISTA MEDICAL TECHNOLOGIES
1. PARTIES: This Lease dated July 21, 1995 is made by and between Medical
Optics, Inc. (Lessor) and VISTA Medical Technologies (Lessee)
2. PREMISES: Approximately 1,200 square feet of improved office space located
in a larger building at 2752 Loker Avenue West, Carlsbad, CA 92008
(Premises).
3. TERM: Beginning on the effective date of this Lease (see Paragraph 1), the
Lease term shall be month to month. Lessor or Lessee may terminate the
Lease by providing the other party with 60 days written notice of its
intent to terminate the Lease.
4. RENT: Lessee shall pay rent to Lessor, as the same may be adjusted from
time to time, on the first day of each month. Rent for any period during
the term hereof which is for less than one (1) full calendar month shall be
prorated based upon the actual number of days Lessee occupies the Premises.
Rent for the initial term shall be $207.00 per month. If Lessor's rent
increases for any reason during the term hereof, Lessee's rent shall
increase on a prorated basis.
5. OPERATING EXPENSES: Lessee shall pay its pro-rata share of operating
expenses for the Premises. Such operating expenses shall include, but not
be limited to, real property taxes, maintenance and repairs, property
insurance and any other operating expense fairly allocated to the Premises.
6. MAINTENANCE, REPAIRS AND FIXTURES: Lessor, at Lessor's expense shall keep
the Premises in good working order.
7. OWNERSHIP, REMOVAL, SURRENDER AND RESTORATION: Lessor from time to time may
furnish Lessee with furniture, furnishings, office equipment or trade
fixtures (furnishings). Title in said furnishings shall at all times
remain in the name of Lessor and be surrendered by Sublessee upon
termination of this Lease. Notwithstanding the above, any furnishings
owned by Lessee shall remain the property of Lessee and may be removed at
any time or at Lessee's option remain with the Premises.
8. PROPERTY INSURANCE: Lessor shall provide the property insurance.
<PAGE>
9. LIABILITY INSURANCE: Lessee shall obtain and keep in force during the term
of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor, the Ground Lessor and the Building Master Lessor (Kaiser
Aerospace and Electronics Corporation) as additional insured parties
against claims for bodily injury, personal injury and property damage based
upon, involving or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall provide single limit coverage in an amount not less than
$1,000,000 with an "Additional insured-Managers or Lessors of Premises"
Endorsement. The policy shall not contain any intra-insured exclusions as
between insured persons or organizations, but shall include coverage for
liability assumed under this Lease as an insured contract for the
performance of Lessee's indemnity obligations under this Lease. The limits
of said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any
obligations hereunder. All insurance to be carried by Lessee shall be
primary to and not contributory with any similar insurance carried by
Lessor, whose insurance shall be considered excess insurance only.
10. INSURANCE POLICIES: Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are
located and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required from
time to time. Lessee shall cause to be delivered to Lessor certified
copies of, or certificates evidencing the existence and amounts of, the
insurance, and with the additional insureds, required under Paragraph 8. No
such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration date of such policies, furnish
Lessor with evidence of renewals or "insurance binders" evidencing renewal
thereof.
11. REAL PROPERTY TAXES: Lessor shall pay the Real Property Taxes.
12. LESSEE'S COMPLIANCE WITH LAW: Lessee shall at Lessee's sole cost and
expense, fully, diligently and in a timely manner comply with all
applicable law, to include all laws, rules, regulations, ordinances,
directives, covenants, easements and restrictions of record, permits and
the requirements and recommendations of Lessor's staff, engineers and/or
2
<PAGE>
consultants relating in any manner to the Premises (including but not
limited to (i) industrial hygiene. (ii) environmental conditions on, in or
about the Premises, including soil and groundwater conditions, and (iii)
the use generation, manufacture, production, installation, maintenance,
removal, transportation, storage, spill or release of any hazardous
substance, not in effect or which hereafter may come into effect. Lessee
shall, within five (5) days after Lessor's request provide Lessor with
copies of all documents and information, including but not limited to,
permits, registrations, manifests, applications, reports and certificates
evidencing Lessee's compliance with any applicable law specified by Lessor,
and shall immediately upon receipt, notify Lessor in writing of any
threatened or actual claim, notice, citation warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply,
with any applicable law.
13. INDEMNITY: Lessee shall indemnify, defend and hold harmless Lessor and its
agents, the Building Master Lessor, Ground Lessor and Lenders from and
against all claims, damages, costs, liens, judgments, penalties and/or any
liability arising out of Lessee's occupancy of the Premises, the conduct of
Lessee's business, any act, omission or neglect of Lessee or its agents,
contractors, employees, or invitees, and any default or breach by Lessee in
the performance of its obligations under this Lease.
Lessor shall not be liable for injury or damage to the person or goods,
wares, merchandise or other property of Lessee, Lessee's employees,
contractors, invitees, customers or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, gas, electricity, gas, water, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures or from any other cause,
whether the said injury or damage results from conditions arising from the
Premises or upon other portions of the building of which the Premises are a
part.
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14. ASSIGNMENT AND SUBLETTING: Lessee shall not voluntarily or by operation of
law assign, transfer, mortgage or otherwise transfer or sublet all or any
part of Lessee's interest in this Lease or in the Premises.
15. DEFAULT; BREACH; REMEDIES: A "Default" is defined as a failure by the
Lessee to observe, comply with or perform any of the terms, covenants or
conditions or rules applicable to Lessee under this Lease. A "Breach" is
defined as the occurrence of any one or more of the following Defaults,
and, where a grace period is specified herein, the failure by Lessee to
cure such Default prior to the expiration of the applicable grace period,
and shall entitle Lessor to pursue the remedies set forth in Paragraph 16.
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) The failure by Lessee to make any payment of rent or any other
monetary payment due hereunder.
(c) The failure by Lessee to provide Lessor with written evidence of
compliance with applicable law.
(d) Default by Lessee of any term covenant or condition of this Lease.
16. REMEDIES: If Lessee fails to perform any duty or obligation of Lessee
under this Lease, within ten (10) days after written notice to Lessee (or
in the event of an emergency, without notice), Lessor may at its option,
but without obligation, perform such duty or obligation on Lessee's behalf,
including but not limited to the obtaining of reasonably required bonds,
insurance policies or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and
payable by Lessee to Lessor upon invoice therefor. In the event of a
Breach of this Lease by Lessee, as defined in Paragraph 14, with or without
further notice, or demand, and without limiting Lessor in the exercise of
any right or remedy which Lessor may have by reason of such Breach, Lessor
may terminate this Lease.
17. SIGNS: Lessee shall not place any signs upon the Premises without Lessor's
and Master Building Lessor's written approval.
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The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
Executed at: Carlsbad Executed at: Carlsbad
---------------- --------------------------
on: July 21, 1995 on: July 21, 1995
------------------------- -----------------------------------
by LESSOR by LESSEE
/s/ Larry Osterink /s/ John Lyon
- ------------------------------ -----------------------------------
Larry Osterink, President John Lyon, President
Medical Optics, Inc. Vista Medical Technologies
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Exhibit D
VISTA MEDICAL TECHNOLOGIES, INC.
INVESTORS RIGHTS AGREEMENT
July 27, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.................... 1
1.1 Restrictions on Transferability.................................. 1
1.2 Certain Definitions.............................................. 1
1.3 Restrictive Legends.............................................. 2
1.4 Notice of Proposed Transfers..................................... 3
1.5 Demand Registration Rights....................................... 4
1.6 Company Registration............................................. 5
1.7 Form S-3 Registration Rights..................................... 6
1.8 Expenses of Registration......................................... 8
1.9 Registration Procedures.......................................... 8
1.10 Indemnification.................................................. 9
1.11 Information by Holder............................................ 11
1.12 Rule 144 Reporting............................................... 11
1.13 Transfer of Registration Rights.................................. 12
1.14 Termination of Registration Rights............................... 12
1.15 "Market Stand Off" Agreement..................................... 12
SECTION 2 AFFIRMATIVE COVENANTS OF THE COMPANY, FOUNDERS AND
SHAREHOLDERS..................................................... 13
2.1 Financial Information............................................ 13
2.2 Assignment of Rights to Financial Information.................... 13
2.3 Attendance at Board Meetings..................................... 13
2.4 Termination of Covenants......................................... 14
2.5 Confidential Information, etc.................................... 14
SECTION 3 RIGHTS OF FIRST REFUSAL.......................................... 15
3.1 Right of First Refusal on Company Issuances...................... 15
SECTION 4 MISCELLANEOUS.................................................... 16
4.1 Governing Law.................................................... 16
4.2 Successors and Assigns........................................... 16
4.3 Entire Agreement................................................. 16
4.4 Notices, etc..................................................... 16
4.5 Counterparts..................................................... 17
4.6 Severability..................................................... 17
4.7 Separability..................................................... 17
4.8 Approval of Amendments and Waivers............................... 17
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VISTA MEDICAL TECHNOLOGIES, INC.
INVESTORS RIGHTS AGREEMENT
This Investors Rights Agreement (the "Agreement") is entered into as of
July 27, 1995 among Vista Medical Technologies, Inc., a California corporation
(the "Company"), with its principal office located at 2752 Loker Avenue West,
Carlsbad, California 92008, and the purchasers of shares of the Company's Series
A-1 Preferred Stock (the "Series A preferred") listed on the Schedule of
Shareholders attached as Exhibit A hereto. The purchasers of the Series A
Preferred shall be referred to hereinafter as the "Shareholders" and each
individually as a "Shareholder." This Agreement is being entered into pursuant
to Section 4.8 of that certain Series A-1 Preferred Stock Purchase Agreement of
even date herewith (the "Purchase Agreement") among the Company and the
Shareholders.
In consideration of the mutual agreements, covenants and conditions
contained herein, the Company and the Shareholders hereby agree as follows
(unless otherwise defined herein, capitalized terms used herein shall have the
meanings assigned in the Purchase Agreement):
SECTION 1
RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS
1.1 RESTRICTIONS ON TRANSFERABILITY. Neither the Series A Preferred nor
the Registrable Securities (as defined below) shall be transferable except upon
the conditions specified in this Agreement, which conditions are intended to
insure compliance with the provisions of the Securities Act (as defined below),
or upon such other terms as are in the opinion of counsel to the Company
satisfactory to comply with the provisions of the Securities Act. Except for
transfers made pursuant to Rule 144 of the Securities Act, the Shareholders will
cause any proposed transferee of Series A preferred or Registrable Securities
held by any Shareholder to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Agreement and it will be a
condition precedent to the effectiveness of any such transfer that the Company
shall have secured a written agreement in form and substance satisfactory to the
company to that effect, if so requested by the Company.
1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"FORM S-3" shall mean F-3 under the Securities Act (as defined below) as in
effect on the date of this Agreement, or any substantially similar, equivalent
or successor form under the Securities Act.
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"HOLDER" shall mean each holder of Registrable Securities.
"REGISTRABLE SECURITIES" means shares of the Company's Common Stock (i)
issued or issuable upon conversion of the shares of Series A Preferred which
have not been sold to the public, and (ii) issued in respect of the shares of
Common Stock referred to under the foregoing clause (i) by reason of any stock
split, stock dividend, recapitalization or similar event which have not been
sold to the public.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in
complying with Sections 1.5, 1.6 and 1.7 hereof other than Selling Expenses,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel, blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"RESTRICTED SECURITIES" shall mean the securities of the Company required
to bear the legend set forth in Section 1.3 hereof or a legend substantially
similar thereto and all shares of Common Stock outstanding on the date of this
Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the applicable sale.
1.3 RESTRICTIVE LEGENDS.
(a) Each certificate Representing the shares of Series A Preferred
and Registrable Securities shall (unless otherwise permitted by the provisions
of Section 1.4 below) be stamped or otherwise imprinted with a legend in the
following form (in addition to any legend required under applicable California
or other state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
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TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION.
(b) Each certificate representing shares of Registrable Securities
into which shares of the Series A Preferred are converted also shall be stamped
or otherwise imprinted with any legend required by the Bylaws of the Company (in
addition to any legend required under applicable California or other state
securities laws).
1.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing the Restricted Securities, by acceptance thereof, agrees to comply
in all respects with the provisions of this Section 1.4. Prior to any proposed
transfer of any Restricted Securities, unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the holder
thereof shall give written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall be
accompanied (except in transactions in compliance with Rule 144) by either (i) a
written opinion of legal counsel who shall be reasonably satisfactory to the
Company addressed to the Company and reasonably satisfactory in form and
substance to the Company's counsel, to the effect that the proposed transfer of
the Restricted Securities man. be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission, a copy of any
holder's request (together with all supplements or amendments thereto) for which
shall have been provided to the Company, at or prior to the time of first
delivery to the Commission's staff, to the effect that the transfer of such
securities without registration will not result in a recommendation by such
staff that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
provided for above shall bear the appropriate restrictive legend set forth in
Section 1.3 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for the Company or counsel for such holder,
such legend is not required in order to establish compliance with any provisions
of the Securities Act.
Notwithstanding the provisions above, no such opinion of counsel or
"no action letter" shall be necessary for a transfer by a Shareholder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner ("PARTNERS"), if the transferee agrees in WRITING to
be subject to the terms hereof to the same extent as if he were an original
Shareholder hereunder.
1.5 DEMAND REGISTRATION RIGHTS.
(a) Commencing on July 27, 1998, if the Company shall receive a
written request (specifying that it is being made pursuant to this Section 1.5)
from the Holders of at least forty percent (40%) of the Registrable Securities
that the Company file a registration statement
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or similar document under the Securities Act covering the registration of
Registrable Securities the expected aggregate offering price to the public of
which is at least $7,500,000, then the Company shall promptly notify all other
Holders of such request and shall use its best efforts to cause all Registrable
Securities that such Holders have requested, within 15 days after receipt of
such written notice, to be registered in accordance with this Section 1.5 to be
registered under the Securities Act. The Holders making the written request
pursuant to this Section 1.5 shall be referred to hereinafter as the "INITIATING
HOLDERS".
Notwithstanding the foregoing, (i) the Company shall not be obligated to
effect a registration pursuant to this Section 1.5 during the period starting
with the date one hundred twenty (120) days prior to the Company's estimated
date of filing of, and ending on a date one hundred twenty (120) days following
the effective date of, a registration statement pertaining to an underwritten
public offering of the Company's securities, provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that the Company's estimate of
the date of filing such registration statement is made in good faith; and (ii)
if the Company shall furnish to such Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its shareholders
for a registration statement to be filed in the near future, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed six (6) months; provided, however, that the
Company shall not obtain such a deferral more than once in any 12-month period.
The Company shall be obligated to effect not more than two (2)
registrations pursuant to this Section 1.5 for which holders of Registrable
Securities are the Initiating Holders.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their demand by means of an underwriting, they shall so
advise the Company as part of their demand made pursuant to this Section 1.5,
and the Company shall include such information in the notice referred to in
Section 1.5(a). In such event, the right of any Holder to registration pursuant
to this Section 1.5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder) to the extent provided herein.
The Company shall, together with all Holders proposing to distribute their
securities through such underwriting, enter into an underwriting agreement in
customary form with the underwriter or underwriters selected by a majority of
interest of the Initiating Holders and reasonably satisfactory to the Company.
Notwithstanding any other provision of this Section 1.5, if the underwriter
shall advise the Company in writing that marketing factors (including, without
limitation, an adverse effect on the per share offering price) require a
limitation of the number of shares to be underwritten, then the Company shall so
advise all Holders of Registrable Securities
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<PAGE>
that would otherwise be registered and underwritten pursuant hereto. and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated pro rata among such Holders
thereof in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration.
If any Holder disapproves of the terms of the underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company, the underwriter,
and the Initiating Holders. The Registrable Securities so withdrawn shall also
be withdrawn from registration. If by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 1.5.
If the underwriter has not limited the number of Registrable Securities to
be underwritten, the Company may include securities for its own account (or for
the account of other securityholders) in such registration if the underwriter so
agrees and if the number of Registrable Securities that would otherwise have
been included in such registration and underwriting will not thereby be limited.
1.6 COMPANY REGISTRATION.
(a) If, at any time or from time to time, the Company shall determine
to register any of its securities, either for its own account or the account of
a securityholder or holders exercising their respective demand registration
rights, other than a registration relating solely to employee benefit plans on
Form S-8 or similar forms which may be promulgated in the future or a
registration on Form S-4 or similar forms which may be promulgated in the future
relating solely to a Securities and Exchange Commission Rule 145 or similar
transaction, the Company will (i) promptly give to each Holder written notice
thereof and (ii) include in such registration (and any related qualification
under Blue Sky laws or other compliance), and in any underwriting involved
therein, all Registrable Securities of such Holders as specified in a written
request or requests made within 15 days after receipt of such written notice
from the Company.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so indicate in the notice given pursuant to Section 1.6(a). In
such event the right of any Holder to registration pursuant to this Section 1.6
shall be conditioned upon such Holder's agreeing to participate in such
underwriting and in the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities
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through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company or by other holders exercising any demand registration rights.
Notwithstanding any other provision of this Section 1.6, if the underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten, the underwriter may exclude some or all Registrable
Securities or other securities from such registration and underwriting
(hereinafter an "UNDERWRITER CUTBACK"); provided, however, that if such
underwriting relates to any registration statement other than a registration
statement being filed with respect to the first registration statement filed by
the Company covering an underwritten offering of any of its securities to the
general public ("INITIAL PUBLIC OFFERING") in which no secondary shares are
included. then (i) in no event shall the aggregate number of shares of
Registrable Securities included in such underwriting be reduced below thirty
(30%) of the total number of shares proposed to be included in such
underwriting. In the event of an Underwriter Cutback, the Company shall so
advise all Holders and the other holders distributing their securities through
such underwriting, and the number of Registrable Securities and other securities
that may be included in the registration and underwriting shall be allocated
among all holders thereof (other than those holders who are exercising their
demand registration rights) on the basis that the holders who are not Holders
shall be cut back before any cutback of Holders. If the limitation determined
by the underwriter requires an Underwriter Cutback, such Underwriter Cutback
shall be in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration.
1.7 FORM S-3 REGISTRATION RIGHTS. After the Initial Public Offering, the
Company shall use its best efforts to qualify for registration on Form S-3, and
to that end the Company shall use its best efforts to comply with the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), within twelve (12) months following the effective date of the first
registration of any securities of the Company for an underwritten registered
public offering. After the Company has qualified for the use of Form S-3, and
subject to the provisions of Section 1.14, each Holder shall have the right to
request registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of and the
intended method of disposition of such shares by each such Holder), subject only
to the following limitations:
(a) The Company shall not be obligated to cause a registration on
Form S-3 to become effective prior to one hundred eighty (180) days following
the effective date of a Company initiated registration (other than a
registration effected solely to qualify an employee benefit plan or to effect a
business combination pursuant to Rule 145);
(b) The Company shall not be required to effect a registration
pursuant to this Section 1.7 unless the Holder or Holders requesting such a
registration propose to dispose of
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shares of Registrable Securities having an aggregate disposition price (before
deduction of underwriting discounts and expenses of sale) of at least $500,000;
(c) The Company shall not be required to effect a registration
pursuant to this Section 1.7 if the Company shall furnish to the requesting
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company or its shareholders for the registration
statement to be filed at the date filing would be required, in which case the
Company shall have an additional period of not more than one hundred twenty
(120) days within which to file such registration statement; provided however,
that the Company shall not use this right more than once in any twelve-month
period;
(d) The Company shall not be required to maintain and keep any such
registration on Form S-3 effective for a period exceeding one hundred twenty
(120) days from the effective date thereof;
(e) The Company shall not be obligated to cause a registration on
Form S-3 if in the prior six-month period the Company has caused a registration
on Form S-3 to become effective; and
(f) The Company shall be obligated to effect not more than two
registrations per year pursuant to this Section 1.7 for which holders of
Registrable Securities request such registration.
The Company shall give notice to all Holders of the receipt of a request
for registration pursuant to this Section 1.7 and shall use its best efforts to
cause all Registrable Securities that such Holders have requested, within 15
days after receipt of such written notice, be registered in accordance with this
Section 1.7 to be registered under the Securities Act. Subject to the
foregoing, the Company will use its best efforts to effect promptly any
registration pursuant to this Section 1.7. The provisions of Section 1.5(b)
shall apply to any registration effected pursuant to this Section 1.7
1.8 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.5, 1.6 and 1.7 (exclusive of Selling Expenses but inclusive of the
reasonable fees and expenses of one special counsel to the selling Holders)
shall be borne by the Company. Notwithstanding anything to the contrary herein,
the Company shall not be required to pay for any expenses of any registration
proceeding under Section 1.5 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to have been registered, unless such Holders agree to forfeit their
right to a demand registration pursuant to Section 1.5 (in which event such
right shall be forfeited by all Holders). In the absence of such an agreement
to forfeit, the Holders of Registrable Securities to have been registered shall
bear all such expenses pro rata on the basis of the Registrable Securities to
have been registered. Notwithstanding the foregoing, however,
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if at the time of the withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request of which the Company had knowledge
at the time of the request, then the Holders shall not be required to pay any of
said expenses and shall retain their rights pursuant to Section 1.5.
1.9 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Keep such registration, qualification or compliance effective for
a period of one hundred twenty (120) days or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them;
(d) Use its best efforts to resister and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreements; and
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
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Notwithstanding any provision to the contrary in this Agreement, the
Company shall not be required in connection with any registration pursuant to
Sections 1.5, 1.6 or 1.7 to qualify shares in any state or jurisdiction which
requires the Company to qualify to do business or to file a general consent to
service of process.
1.10 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will promptly reimburse each such Holder, each of its
officers and directors and partners, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred (as and when incurred) in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and partners and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof) including any of the foregoing incurred in
settlement of any litigation commenced or threatened, arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any amendment or supplement
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thereto, incident to any such registration, qualification or compliance or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances in which the), were made, not misleading, or any violation
by the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification, or compliance, and will promptly reimburse the Company, such
Holders, such directors, officers, partners, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred (as and when
incurred) in connection with investigation, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document or any amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided, however, that the obligations of each
such Holder hereunder shall be limited to an amount equal to the proceeds to
each such Holder of Registrable Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 1.10
(the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at its own
expense, and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section I unless such failure resulted in actual
detriment to the Indemnifying Party. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party a release from all liability in respect of
such claim or litigation.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement
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<PAGE>
of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offerings of Registrable Securities in
a registration statement under this Section 1 and otherwise.
1.11 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section 1.
1.12 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act at all times after the effective date of the first registration
under the Securities Act filed by the Company for an offering of its securities
to the general public;
(b) Use its best efforts to then file with the Commission in a timely
manner all reports and other documents required of the Company under the
Exchange Act at any time after it has become subject to such reporting
requirements;
(c) So long as a Shareholder owns any Restricted Securities, to
furnish to the Shareholder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public) and of the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents of the
Company as a Shareholder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Shareholder to sell any such
securities without registration.
1.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register securities granted under Sections 1.5, 1.6 and 1.7 may be assigned or
otherwise conveyed to a transferee or assignee of Registrable Securities, who
shall be considered a "Holder," and the transferred shares shall be considered
"Registrable Securities," for purposes of this Section 1, provided that (1) said
transferee acquires (or, together with affiliates (as defined under the
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Securities Act) ("AFFILIATES") of said transferee, after the acquisition then
beneficially owns) at least 250,000 shares of the Registrable Securities
(including shares of Series A Preferred prior to conversion into Registrable
Securities) and (ii) the Company is given written notice by such Holder at the
time of or within a reasonable time (but not more than 30 days) after said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned, subject to said transferee's agreement to be bound by and comply
with the provisions of this Section 1.
1.14 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted
pursuant to this Section 1 shall terminate (i) upon the seventh anniversary of
the effective date of the first registration statement filed by the Company
covering the Initial Public Offering or (ii) if earlier, as to any individual
Holder, at such time after the Company's Initial Public Offering as all
Registrable Securities (including shares of Series A Preferred prior to
conversion into Registrable Securities) held by such Holder can be sold within
any three-month period without compliance with the registration requirements of
the Securities Act pursuant to Rule 144 (including Rule 144(k)) promulgated
thereunder.
1.15 "MARKET STAND OFF" AGREEMENT. Each Holder hereby agrees that it shall
not, to the extent requested by the Company and the underwriters managing any
underwritten offering of the Company's Common Stock (or other securities), sell
or otherwise transfer or dispose (other than to those who agree to be similarly
bound) of any Registrable Securities or any other securities of the Company
during the one hundred eighty (180) day period following the effective date of a
registration statement of the Company filed in connection with the Company's
Initial Public Offering. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Registrable
Securities and other securities of the Holders (and the shares or securities of
every other person subject to the foregoing restriction) until the end of such
one hundred eighty (180) day period.
SECTION 2
AFFIRMATIVE COVENANTS OF THE COMPANY,
FOUNDERS AND SHAREHOLDERS
2.1 FINANCIAL INFORMATION. Subject to Section 2.3, the Company will
furnish the following reports to the Shareholders for so long as the
Shareholders are holders of any Series A Preferred or Registrable Securities:
(a) As soon as practicable after the end of each fiscal year, and in
any event within 90 days thereafter, audited consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and surplus and consolidated statements of
changes in financial position of the Company and its subsidiaries, if any, for
such year, prepared in accordance with generally accepted accounting principles
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in
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<PAGE>
reasonable detail and certified by independent public accountants of recognized
national standing selected by the Company;
(b) Each month, an unaudited consolidated balance sheet of the
Company and its subsidiaries, if any, and consolidated statements of income and
consolidated statements of changes in financial condition of the Company and its
subsidiaries for such period, all in reasonable detail and signed, subject to
changes resulting from year-end audit adjustments, by the principal financial or
accounting officer of the Company; and
(c) An annual operating budget for each coming year, delivered on or
before January 1 of each year.
2.2 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION. The rights granted
pursuant to Section 2.1 may be assigned by the Shareholders (or by any permitted
transferee of any such rights) so long as (i) the Company is given notice of any
such assignment within a reasonable time after the date the same is effected,
(ii) the transferee shall have acquired (or, together with such transferee's
Affiliates, after the acquisition shall then beneficially own) at least 250,000
shares of Registrable Securities (including shares Series A Preferred prior to
conversion into Registrable Securities) in a private transaction and (iii) the
transferee is not engaged in a business that is competitive with the Company.
2.3 ATTENDANCE AT BOARD MEETINGS. So long as Kaiser Aerospace &
Electronics ("Kaiser") owns at least an aggregate of 1,000,000 shares of Series
A Preferred, and so long as Kaiser does not have a representative on the Board
of Directors of the Company, Kaiser shall receive from the Company notices of
all meetings of the Board of Directors, including without limitation telephonic
meetings, and Kaiser shall receive, with such limitations provided herein, any
materials distributed for such meeting, and may send one representative to such
meetings: PROVIDED, HOWEVER, that the Company may require as a condition
precedent that such representative proposing to attend any meeting of the Board
of Directors shall agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information so received during such
meetings and may require that such representative sign a confidentiality
agreement with the Company; and, PROVIDED, FURTHER, that the Company reserves
the right not to provide information and to exclude such representative from any
meeting or portion thereof if attendance at such meeting by such representative
or dissemination of any information at such meeting to such representative
would, in the good faith judgment of the Board of Directors, result in
disclosure of trade secrets to such representative, would compromise or
adversely affect the attorney-client privilege between the Company and its
counsel, or would, in the good faith judgment of the Board of Directors, result
in a conflict of interest situation. If such representative in his or her good
faith judgment believes that an item to be discussed by the Board of Directors
would result in any conflict of interest, such representative shall prompted,
bring such conflict to the attention of the Chairman of the Board. In no event
shall any provision of this paragraph waive any obligation of confidentiality to
the Company owed by any such representative or Kaiser.
13
<PAGE>
2.4 TERMINATION OF COVENANTS. The covenants set forth in Section 2.1 and
Section 2.3 shall terminate and be of no further force or effect after the
closing date of the Initial Public Offering.
2.5 CONFIDENTIAL INFORMATION, ETC. Each Shareholder agrees that all
information received by it pursuant to this Section 2, and any other information
relating to the Company's technology, processes or formulas that is disclosed by
the Company to any Shareholder in writing and is marked "Confidential," shall be
considered confidential information. Each Shareholder further agrees that it
shall hold all such confidential information in confidence and shall not
disclose any such confidential information to any third party other than its
counsel or accountants nor shall such Shareholder use such confidential
information for any purpose other than evaluation of such Shareholder's
investment in the Company; provided, however, that the foregoing obligation to
hold in confidence and not to disclose confidential information shall not apply
to any such information that (a) was known to the public prior to disclosure by
the Company, (b) becomes known to the public through no fault of such
Shareholder, (c) is disclosed to such Shareholder on a non-confidential basis by
a third party having a legal right to make such disclosure or (d) is
independently developed by such Shareholder.
SECTION 3
RIGHTS OF FIRST REFUSAL
3.1 RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES.
(a) The Company hereby grants to each Shareholder the right of first
refusal to purchase its Pro Rata Share (defined below) of all (or any part) of
New Securities (defined below) that the Company may from time to time propose to
sell and issue. Such Shareholder's "PRO RATA SHARE," for purposes of this
Section 3, is the ratio of the number of shares of Common Stock (assuming
conversion of all shares of Series A Preferred) then held by such Shareholder to
the total number of shares of Common Stock then outstanding (assuming conversion
of all shares of Series A Preferred). This right of first refusal shall be
subject to the following provisions:
(b) "NEW SECURITIES" shall mean any Common Stock or Preferred Stock
of the Company, whether now authorized or not, and rights, options, or warrants
to purchase said Common Stock or Preferred Stock, and securities of any type
whatsoever that are, or may become, convertible into or exchangeable for said
Common Stock or Preferred Stock; provided, however, that "NEW SECURITIES" does
not include (i) securities issuable upon conversion of or with respect to Series
A-1 Preferred Stock or any future series of preferred stock; (ii) shares of the
Company's Common Stock (or related options) issued to officers, directors,
employees of and/or consultants to the Company pursuant to plans or agreements
as approved by the Company's Board of Directors; (iii) shares of the Company's
Common Stock or Preferred Stock issued in connection with any stock split, stock
dividend, or recapitalization by the Company; (iv) securities issued in
connection with any equipment leasing, technology licensing, corporate
partnering, strategic
14
<PAGE>
alliance, acquisition, merger, purchase of assets or similar transaction as
approved by the Company's Board of Directors; and (v) shares of the Company's
Common Stock issued or issuable as a result of any antidilution adjustment
provided for in the Company's Articles of Incorporation as in effect at the time
of such issuance.
(c) In the event that the Company proposes to undertake an issuance
of New Securities, it shall give each Shareholder written notice of its
intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. Each Shareholder shall
have twenty (20) business days from the date of receipt of any such notice to
agree to purchase some or all of his Pro Rata Share of such New Securities for
the price and upon the general terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased. Each Shareholder shall have a right of over-allotment such that if
any Shareholder fails to exercise his right hereunder to purchase his Pro Rata
Share of New Securities, the other Shareholders may Purchase the non-purchasing
Shareholder's portion on a pro rata basis, within fifteen (15) business days
from the date such non-purchasing Shareholder fails to exercise his right
hereunder to purchase his Pro Rata Share of New Securities.
(d) In the event that the Shareholders fail to exercise in full the
right of first refusal within said twenty (20) plus fifteen (15) business day
period, the Company shall have one hundred twenty (120) days thereafter to sell
(or enter into an agreement pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within one hundred twenty (120) days from
the date of said agreement) the New Securities respecting which the
Shareholders' rights were not exercised, at a price and upon general terms no
more favorable to the purchasers thereof than specified in the Company's notice.
In the event the Company has not sold the New Securities within said one hundred
twenty (120) day period (or sold and issued New Securities in accordance with
the foregoing within one hundred twenty (120) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities to the Shareholders in the manner
provided above.
(e) The right of first refusal granted under this Section 3.1 shall
not apply to and shall expire upon the closing of the Company's Initial Public
Offering.
(f) The rights granted pursuant to this Section 3.1 may be assigned
by the Shareholders (or by any permitted transferee of any such rights) so long
as (i) the Company is given notice of any such assignment within a reasonable
time after the date the same is effected and (ii) the transferee shall have
acquired (or, together with such transferee's Affiliates, after the acquisition
shall then beneficially own) at least 250,000 shares of Registrable Securities
(including shares of Series A Preferred prior to conversion into Registrable
Securities) in a private transaction.
SECTION 4
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MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California as applicable to contracts entered into and performed
entirely within the State of California by California residents.
4.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
4.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
4.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by facsimile or by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger, addressed (a) if to the Shareholders, to such Shareholders'
addresses set forth on the Schedule of Purchasers or to such other address as
such Shareholders shall have furnished to the Company in writing, (b) if to any
other holder of Registrable Securities, at such address as such holder shall
have furnished the Company in writing, or (c) if to the Company, to its address
set forth above and addressed to the attention of the President or at such other
addresses as the Company shall have furnished to the Shareholders. All notices
and other communications pursuant to the provisions of this Section 4.4 shall be
deemed delivered when mailed or sent by facsimile.
4.5 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be enforceable against the party actually executing such
counterpart, and which together shall constitute one instrument.
4.6 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
4.7 SEPARABILITY. Any invalidity, illegality, or limitation of the
enforceability with respect to any Shareholder of any one or more of the
provisions of this Agreement, or any part thereof, whether arising by reason of
the law of any such Shareholder's domicile or otherwise, shall in no way affect
or impair the validity, legality, or enforceability of this Agreement with
respect to other Shareholder. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired.
4.8 APPROVAL OF AMENDMENTS AND WAIVERS. Any term of this agreement may be
amended or terminated and the observance of any term of this Agreement may be
waived (either
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<PAGE>
generally or in a particular instance and either retroactively or prospectively)
with the written consent of (i) the Company and (ii) the holders of at least a
majority of the then outstanding shares of Registrable Securities, excluding
from the determination of such a majority in clause (ii) (both in determining
the total number of such shares outstanding and the number of such shares
consenting or not consenting) all shares previously disposed of by such holders
pursuant to one or more registration statements under the Securities Act or
pursuant to Rule 144. Any amendment, termination or waiver effected in
accordance with this section shall be binding upon the Shareholders, each of
their transferees and the Company. Each Shareholder acknowledges that by the
operation of this Section the holders of a majority of the outstanding
Registrable Securities as aforesaid may have the right and power to diminish or
eliminate all rights of such Shareholders under this Agreement.
17
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The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
THE COMPANY:
VISTA MEDICAL TECHNOLOGIES, INC.
By
-----------------------------
Title
--------------------------
THE SHAREHOLDERS:
- --------------------------------
[NAME]
By:
-----------------------------
Title:
--------------------------
18
<PAGE>
EXHIBIT A
SCHEDULE OF SHAREHOLDERS
Purchasers Number of Shares
---------- ----------------
KAISER AEROSPACE & ELECTRONICS 1,792,453
950 Tower Lane, Ste. 800
Foster City, CA 94404
Attention: Dr. H.J. Smead
KEN HORI 264,151
c/o Oktas
134 Flanders Road
Westborough, MA 01581
ONE LIBERTY FUND III 747,170
1 Liberty Square, 2nd Floor
Boston, MA 02109
Attention: Dan Holland
GILDE INTERNATIONAL B.V.
1 Liberty Square, 2nd Floor
Boston, MA 02109
Attention: Dan Holland 7,547
B.U.N.P.
c/o Community Technology Fund
Boston University Ventures
147 Bay State Road
Boston, MA 02215
Attention: John E. Bagalay, Jr. 226,416
DOMAIN PARTNERS III, L.P. 2,041,746
One Palmer Square, Ste. 515
Princeton, NJ 08542
Attention: James C. Blair, Ph.D.
OLD COURT LIMITED 1,056,604
St. Julian's Court
St. Peter Port
Guernsey, Channel Islands
with copy to:
c/o Domain Associates
One Palmer Square, Ste. 515
Princeton, NJ 08542
Attention: James C. Blair, Ph.D.
DP III ASSOCIATES, L.P. 71,461
One Palmer Square, Ste. 515
Princeton, NJ 08542
Attention: James C. Blair, Ph.D.
SBIC PARTNERS, L.P. 1,886,792
201 Main Street, Suite 2302
Fort Worth, TX 76102
Attention: Nick Binkley
<PAGE>
EXHIBIT E
NON-DISCLOSURE AGREEMENT
FOR
PROPRIETARY OR BUSINESS CONFIDENTIAL INFORMATION
THIS AGREEMENT was made this ___ day of _______, 19__, by and between Vista
Medical Technologies, located at 134 Flanders Rd., Westborough, Massachusetts
01581 hereafter called "Vista" and ________________ located at ________________
__________________ hereafter called "________________" are parties to this
Agreement.
WHEREAS, the parties wish to disclose and exchange certain proprietary or
business confidential information or data concerning their respective products
in order to evaluate these products and related technical, engineering,
manufacturing and business information; and
WHEREAS, the parties will furnish this information to each other at their
own expense and without obligation as to any future contractual relationship
unless otherwise agreed.
NOW THEREFORE, in consideration of the following mutual promises, the
parties hereby agree:
(a) Vista will disclose proprietary information concerning its Medical
Video Camera systems, Electronic Endoscope Systems and any medical
devices associated with Vista.
(b) ________________ will disclose proprietary information as required by
the Consulting Agreement.
(c) The parties agree that the subject of this Agreement involves
confidential business of the respective parties.
(d) Any information received by either party of from the other which is
designated by the disclosing party as proprietary or business
confidential (or any proprietary information which, if disclosed
orally or visually, is reduced to writing within thirty 30 days and
designated as proprietary or confidential as provided in this
Agreement) shall be kept in confidence by the receiving party and used
only for the purposes described in this Agreement.
(e) All proprietary or business confidential information or data to be
protected by this Agreement must be in writing and clearly identified
or marked as proprietary of confidential on each page or portion
thereof with a suitable restrictive legend. Neither party may
reproduce or make copies of this material without the prior written
approval of the other party.
(f) Except as provided herein, the proprietary or business confidential
information or data exchanged or disclosed between the parties shall
not be used by either party in their own business or in association
with others or disclosed to any third parties without the prior
written consent of the other party.
(g) The receiving party is authorized (i) to examine and evaluate the
information; and (ii) to incorporate the information in a proposal or
other report to the other party.
(h) Each party shall take reasonable precautions to prevent disclosure
to the public, competitors of the parties, or any other
unauthorized use of the proprietary of confidential information
received. The obligation to retain such information in confidence
will be satisfied if the party receiving such information uses the
same degree of care it employees to avoid disclosure, publication
or dissemination of its own proprietary or confidential
information. The receiving party shall not be liable for
inadvertent or accidental disclosure if such disclosure occurs
after a period of one year from receipt in spite of the exercise of
the foregoing precautions and care.
(i) The obligations concerning proprietary or confidential information are
not applicable to information which:
(a) was in the receiving party's possession or knowledge prior to the
time of disclosure, which fact of prior possession shall be
provable only by documents prepared prior to the date thereof, or
(b) was in the public domain at the time of disclosure; or
(c) subsequently becomes a part of the public domain by publication
or otherwise without any wrongful act by the receiving party; or
<PAGE>
(d) lawfully comes into either party's possession or knowledge
through lawful disclosures from third parties; or
(e) can be proven by written records to have been independently
developed; or
(f) becomes available by inspection or analysis of other products or
techniques in the market; or
(g) occurs three years after the receipt of the information.
(j) Pursuant to Item 4, each party designates the following individual(s)
within its organization as the only person(s) authorized to receive
proprietary or confidential information exchanged or disclosed between
the parties pursuant to this Agreement.
Vista ______________________________
134 Flanders Rd. ________________________________________
Westborough, MA 01581 ________________________________________
Name: Martin Newman Name: _________________________________
Title: Director of Regulatory Title:_______________________
Affairs and Quality Assurance
<PAGE>
(k) The parties shall, upon the written request by the other party, return
all written documents containing proprietary information covered by
this Agreement, together with any copies thereof, including any
subsidiary, derivative or equivalent documents or translation thereof
containing such proprietary or business confidential information. The
foregoing applies also upon termination or cancellation of this
Agreement.
(l) This Agreement shall not be construed as an obligation to enter into a
subcontract or contract or result in a claim by either party for
reimbursement of any costs from the other party, or be construed as
granting, either expressly or by implication, estoppel or otherwise,
any license under any invention or patent now or hereafter owned or
controlled by the party furnishing the information.
(m) Neither party shall make any news releases, public announcements,
advertisements, or publicity regarding this Agreement or the
proprietary or confidential information without the prior written
approval of the other party.
(n) Information exchanged under this Agreement shall not be disclosed to
other divisions or subsidiaries of the respective parties for any use
adverse to the interest of the respective parties without the prior
written approval of the disclosing party.
(o) This Agreement is governed by and shall be construed according to the
law of the Commonwealth of Massachusetts without regard to conflict of
laws provisions.
(p) This Agreement contains the sole and entire disclosure agreement
between the parties pertaining to the item listed on Paragraphs 1 and
2 and business information and supersedes all other Disclosure
Agreements entered into prior to this Agreement.
(q) This Agreement may be terminated by either party giving thirty (30)
days notice, and unless sooner terminated, shall expire on __________,
19__. Such termination does not affect the parties' respective rights
and obligations outlined in paragraphs 6 and 11 with regard to
proprietary or business confidential information or data disclosed to
the receiving party prior to the termination of the Agreement.
IN WITNESS WHEREOF, the Parties have signed this Agreement as of the
date first written above.
VISTA
By: By:
----------------- ----------------------
Title: Title:
------------------- ------------------------
WITNESS: WITNESS:
------------ -----------------
<PAGE>
Exhibit F
July 27, 1995
To the Investors Listed on the
Schedule of Investors to the
Vista Medical Technologies, Inc.
Series A-1 Preferred Stock
Purchase Agreement dated
July 27, 1995
Ladies and Gentlemen:
We have acted as counsel for Vista Medical Technologies, Inc., a
California corporation (the "Company"), in connection with the issuance and sale
of shares of its Series A-1 Preferred Stock pursuant to the Vista Medical
Technologies, Inc. Series A-1 Preferred Stock Purchase Agreement dated July 27,
1995 (the "Stock Purchase Agreement") between the Company and you. This opinion
is being rendered to you pursuant to Section 4.7 of the Stock Purchase Agreement
in connection with the Closing of the sale of the Series A-1 Preferred Stock.
Capitalized terms not otherwise defined in this opinion have the meanings
assigned to them in the Stock Purchase Agreement.
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Stock
Purchase Agreement and upon certificates and statements of government officials
and of officers of the Company. We have also examined originals or copies of
such corporate documents or records of the Company as we have considered
appropriate for the opinions expressed herein. We have assumed for the purposes
of this opinion that the signatures on documents and instruments examined by us
are authentic, that each document is what it purports to be, and that all
documents submitted to us as copies conform with the originals, which facts we
have not independently verified.
In rendering this opinion we have also assumed: (A) that the Stock
Purchase Agreement and the Investors' Rights Agreement attached as Exhibit D
thereto (the "Investors' Rights Agreement") have been duly and validly executed
and delivered by you or on your behalf and constitute valid, binding and
enforceable obligations upon you; (B) that the representations and warranties
made in the Stock Purchase Agreement by you are true and correct; (C) that any
wire transfers, drafts or checks tendered by you will be honored; (D) if you are
a corporation or other entity, that you have filed any required state franchise,
income or similar tax returns and have paid any required state franchise, income
or similar taxes; and (E) that there are no extrinsic agreements or
understandings among the parties to the Stock Purchase Agreement and the
Investors' Rights Agreement that would modify or interpret the terms of the
Stock Purchase Agreement and the Investors' Rights Agreement, or the respective
rights or obligations of the parties thereunder.
As used in this opinion, the expression "we are not aware" or the phrase
"to our knowledge" means as to matters of fact that, based on the actual
knowledge of individual attorneys within the firm principally responsible for
handling current matters for the Company and after an examination of documents
referred to herein and after inquiries of certain officers of the Company, we
find no reason to believe that the opinions expressed are factually incorrect;
but beyond that we have made no factual investigation for the purposes of
rendering this opinion. Specifically, but without limitation, we have made no
inquiries of securities holders or employees of the Company.
This opinion relates solely to the laws of the State of California, and the
federal law of the United States, and we express no opinion with respect to the
effect of application of any other laws. Special rulings of authorities
administering such laws or opinions of other counsel have not been sought or
obtained.
Based upon our examination of and reliance upon the foregoing and
subject to the limitations, exceptions, qualifications and assumptions set forth
below and except as set forth in the Stock Purchase Agreement or the Schedule of
Exceptions thereto, we are of the opinion that as of the date hereof:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the
<PAGE>
State of California, and the Company has the requisite corporate power and
authority to own its properties and to conduct its business as presently
conducted.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform the Stock Purchase Agreement and the Investors'
Rights Agreement. Each of the foregoing has been duly and validly authorized by
the Company, duly executed and delivered by an authorized officer of the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company according to its terms; provided, however, that
no opinion is expressed with respect to the enforceability of the indemnity
obligations of Section 1.10 of the Investors' Rights Agreement.
3. The capitalization of the Company is as follows:
(a) PREFERRED STOCK. 18,000,000 shares of Preferred Stock
(the "Preferred Stock"), 8,300,000 which have been designated Series A-1
Preferred Stock up to all of which may be sold pursuant to the Stock Purchase
Agreement, and 8,300,000 shares of which have been designated Series A-2
Preferred Stock. The shares of Series A-1 Preferred Stock, when issued and
delivered in accordance with the terms of the Stock Purchase Agreement, will
be duly authorized issued and delivered, validly outstanding and
nonassessable, and fully paid. The respective rights, privileges and
preferences of the Series A-1 Preferred Stock and Series A-2 Preferred Stock
are as stated in the Company's Amended and Restated Articles of Incorporation
(the "Restated Articles") attached as Exhibit B to the Stock Purchase
Agreement.
(b) COMMON STOCK. 25,000,000 shares of Common Stock (the
"Common Stock"), 1,000 shares of which have been duly authorized and validly
issued, are nonassessable, and are fully paid.
(c) The Common Stock issuable upon conversion of the Series A-1
Preferred Stock purchased at the Closing has been duly and validly reserved for
issuance and, when and if issued upon such conversion in accordance with the
Company's Restated Certificate of Incorporation, will be validly issued, fully
paid and nonassessable.
(d) Except for (i) the conversion privileges of the Series
A-1 Preferred Stock and Series A-2 Preferred Stock, (ii) the rights provided
in Section 3.1 of the Investors' Rights Agreement, and (iii) currently
outstanding options to purchase 469,513 shares of Common Stock granted to
employees pursuant to the Company's 1995 Stock Option Plan pursuant to which
an aggregate of 896,208 shares have been reserved, there are not outstanding
any options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of
its capital stock.
4. The execution, delivery, performance and compliance with the
terms of the Stock Purchase Agreement and Investors' Rights Agreement do not
violate any provision of any applicable federal or state or, to our
knowledge, local law, rule or regulation or any provision of the Company's
Restated Articles or Bylaws and do not conflict with or constitute a default
under the provisions of any judgment, writ, decree or order specifically
identified in the Schedule of Exceptions or the material provisions of any
material agreement specifically identified in the Schedule of Exceptions to
which the Company is a party or by which it is bound.
5. All consents, approvals, permits, orders or authorizations of,
and all qualifications, registrations, designations, declarations or filings
with, any federal or California state governmental authority on the part of
the Company required in connection with the execution and delivery of the
Stock Purchase Agreement and consummation at the Closing of the transactions
contemplated by the Stock Purchase Agreement have been obtained, and are
effective, except the filing required by Section 25102(f) of the California
Corporate Securities Law of 1968, and we are not aware of any proceedings, or
threat therof, that question the validity therof.
6. Based in part upon the representations of you in the Stock
Purchase Agreement, the offer and sale of the Series A-1 Preferred Stock to
you pursuant to the terms of the Stock Purchase Agreement are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, by virtue of Section 4(2) thereof and from the qualification
requirements of the California Corporate Securities Law of 1968, as amended,
by virtue of Section 25102(f) thereof, and, under such securities laws as they
presently exist, the issuance of Common Stock to you upon conversion of the
Series A-1 Preferred Stock would also be exempt from such registration and
qualification requirements.
7. We are not aware that there is any action, proceeding or
governmental investigation pending, against the Company or any of its
officers or directors, or that any of the foregoing has received any threat
thereof, which questions the validity of the Stock Purchase Agreement or the
Investors' Rights Agreement or the right of the Company or its officers or
directors and employees to enter into such Stock Purchase Agreement and
Investors' Rights Agreement, nor are we aware of any litigation pending,
against the Company or any of its officers or directors, or that any of the
foregoing has received any threat thereof, by reason of the proposed
activities of the Company, the past employment relationships of its officers,
directors or employees, or negotiations by the Company or any of its officers
or directors with possible investors in the Company or its business.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
<PAGE>
(A) The effect of bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting the relief of debtors or the
rights and remedies of creditors generally, including without limitation the
effect of statutory or other law regarding fraudulent conveyances and
preferential transfers.
(B) We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust statutes,
laws, rules and regulations.
(C) Limitations imposed by state law, federal law or general
equitable principles upon the specific enforceability of any of the remedies,
covenants or other provisions of any applicable agreement and upon the
availability of injunctive relief or other equitable remedies, regardless of
whether enforcement of any such agreement is considered a proceeding in equity
or at law.
(D) The effect of court decisions, invoking statutes or principles of
equity, which have held that certain covenants and provisions of agreements are
unenforceable where enforcement of such covenants or provisions under the
circumstances would violate the enforcing party's implied covenant of good faith
and fair dealing.
(E) The effect of subsequent issuances of securities of the Company,
to the extent that further issuances which may be integrated with the Closing
may include purchasers which do not meet the definition of "accredited
investors" under Rule 501 of Regulation D and equivalent definitions under
state securities or "blue sky" laws and to the extent that the Company may
issue shares of Common Stock such that there are not enough remaining
authorized but unissued shares of Common Stock for the conversion of the Series
A-1 Preferred Stock.
(F) The unenforceability under certain circumstances of provisions
indemnifying a party against, or requiring contributions toward, that party's
liability for its own wrongful or negligent acts, or where indemnification or
contribution is contrary to public policy.
This opinion is rendered as of the date first written above solely for
your benefit in connection with the Stock Purchase Agreement and may not be
delivered to, quoted or relied upon by any person other than you, or for any
other purpose, without our prior written consent. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company. We
assume no obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON
<PAGE>
EXHIBIT 10.30
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into as of the
28th day of February, 1997, by and between VISTA MEDICAL TECHNOLOGIES, INC., a
Delaware corporation, with offices at 5451 Avenida Encinas, Suite A, Carlsbad,
California 92008 ("Vista"), HEALTHCOM, INC., a Delaware corporation, with
offices at 16550 West Bernardo Drive, San Diego, California 92127-1806, and GDE
SYSTEMS, INC., a Delaware corporation, with offices at 16550 West Bernardo
Drive, San Diego, California 92127-1806 ("GDE"). (For purposes of this
Agreement, all references to "GDE" shall be deemed to include HealthCom, Inc.)
RECITALS
WHEREAS, GDE owns all right, title and interest in certain GDE technology
which includes, but is not limited to, software, documentation and other
intellectual property which it wishes to license to Vista on the terms and
conditions set forth below; and
WHEREAS, Vista desires to license on an exclusive basis certain GDE
technology for use within the Field of Use (as hereinafter defined), on the
terms and conditions set forth below and Vista desires to obtain a license on
such terms.
NOW, THEREFORE, for good and valuable consideration, the parties hereby
agree as follows:
ARTICLE 1- DEFINITIONS
1.1 "Effective Date" shall mean the date stated above.
1.2 "Improvements" shall mean improvements or derivations of the Licensed
Products developed by GDE during the term of this Agreement.
1.3 "Field of Use" shall mean, unless expressly stated otherwise, the entire
commercial medical market including, but not limited to, clinical, surgical,
diagnostic, educational, research, administrative and communications
applications.
1.4 "Licensed Products" shall mean the GDE technology listed on Exhibit A,
attached hereto and incorporated herein by reference, including Improvements.
The term Licensed Products shall include source code, object code, and
applicable documentation.
ARTICLE 2 - GRANT OF LICENSES
2.1 LICENSE. In consideration of the license fees and royalties payable by
Vista to GDE pursuant to Article 5 below and except as stated in Article 2.2,
and subject to the terms and conditions of this Agreement, GDE hereby grants to
Vista under GDE's copyrights and know-how an exclusive,
<PAGE>
worldwide, non-transferable, except as provided for in Article 15.5, license for
the Licensed Products to make, modify, use, prepare derivative works, market and
sublicense others for use in the Field of Use. Vista shall have no right to
sublicense any other rights granted hereunder, unless prior written approval has
been given by GDE. (Such approval to be given in GDE's sole and absolute
discretion.) GDE agrees to take reasonable actions to protect the GDE technology
being licensed hereunder to Vista from unauthorized use and disclosure.
2.2 GDE RESERVATION OF RIGHTS. GDE shall retain the right to continue to use
the Licensed Products for its own internal purposes or for incorporation into
GDE products for sale or license to third parties for use other than in the
Field of Use. The parties agree that GDE may accept contracts from the
Department of Defense for the development and installation of medical
applications utilizing the Licensed Products. Vista agrees not to compete on
such Department of Defense contracts provided, however, that GDE will notify
Vista in the event that GDE elects not to bid on such program. Vista shall have
the right to accept contracts from the Department of Defense for the development
and installation of medical applications on a non-competition basis with GDE.
Any products resulting from such contracts between GDE and the Department of
Defense will be made available to Vista under Article 4.3 below.
2.3 RESTRICTIONS ON SOURCE CODE DISCLOSURE. Vista agrees not to disclose or
provide any source code of the Licensed Products to any other party without the
prior written consent of GDE, which consent shall not be unreasonably withheld.
2.4 IMPROVEMENTS. GDE shall, throughout the term of this Agreement, keep Vista
apprised of any Improvements to the Licensed Products that it has developed.
Vista shall have the right, but not the obligation, to obtain said Improvements
free of charge from GDE. All Improvements provided to Vista shall be considered
to be part of the Licensed Products for purposes of this Agreement.
2.5 ASPRIN TRADEMARK LICENSE. In consideration of the license fees and
royalties payable by Vista to GDE pursuant to Article 5 below, and subject to
the terms and conditions of this Agreement, GDE hereby grants to Vista an
exclusive, worldwide, nontransferable, except as provided for in Article 15.5,
license to use the registered trade mark and service mark "ASPRIN" solely for
use in conjunction with Vista's marketing efforts for the ASPRIN Licensed
Product.
2.6 LICENSE TO MARK "HEALTHCOM". In consideration of the license fees and
royalties payable by Vista to GDE pursuant to Article 5 below, and subject to
the terms and conditions of this Agreement, GDE hereby grants to Vista a
non-exclusive, worldwide, non-transferable, except as provided for in Article
15.5, license to use the mark "HealthCom" for use in conjunction with Vista's
marketing efforts for the Licensed Products. Vista understands and acknowledges
that this license from GDE is solely based on whatever interests GDE or
HealthCom, Inc. may have in the mark "HealthCom".
2.7 TRADEMARK USAGE. Except as provided for in Articles 2.5 and 2.6 above,
nothing in this Agreement shall grant Vista any right, title, license or
interest in, to or under any of GDE's trademarks including, but not limited to,
the trademarks "GDE" or "GDE Systems, Inc."
2.8 COPYRIGHT NOTICE. All copies of Licensed Products made by Vista, or made
on Vista's behalf,
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<PAGE>
shall bear the copyright notices and other proprietary markings as appearing on
the Licensed, Products delivered to Vista by GDE.
ARTICLE 3 - DELIVERY OF LICENSED PRODUCTS
Upon execution of this Agreement by both parties, GDE shall within thirty (30)
days deliver to Vista the Licensed Products. Vista understands and acknowledges
that the Licensed Products may have been developed through GDE's independent
research and development funds and therefore is provided on an "AS IS" basis.
Vista further understands and acknowledges that the ability to use the Licensed
Products provided herein may be dependent upon utilizing other third party
technology, which is not being provided to Vista by GDE under the terms of this
Agreement.
ARTICLE 4 - OWNERSHIP AND FURTHER DEVELOPMENT
4.1 LICENSED PRODUCTS. GDE owns all right, title and interest in the Licensed
Products. Vista shall have no rights in the Licensed Products, except as
expressly provided for in Article 2 above.
4.2 VISTA DEVELOPMENTS.
(a) Vista will continue development of communications software for medical
applications, focusing initially on the provision of information to surgeons,
and the manipulation and management of this information. Vista intends to
market communications software packages to the medical industry, either as
independent products or as software modules of capital equipment installed and
serviced by Vista.
(b) Vista will own all right, title and interest to any new intellectual
property which is developed by Vista ("Vista Product(s)"). GDE will have the
right of first refusal to license such Vista Product(s) for non-medical markets
at a royalty rate of three percent (3%). The parties will enter into a separate
license agreement for the licensing of such Vista Product(s) by GDE pursuant to
this Article 4.2(b).
(c) Vista's ownership, right, title and interest to derivative works
extends only to the material developed by Vista, as distinguished from the
Licensed Products employed in the work, and does not imply any exclusive right
in the Licensed Products, other than those described herein. The ownership of
such derivative works is independent of, and does not affect or enlarge the
scope, duration, or subsistence of, any ownership of the Licensed Products.
4.3 GDE DEVELOPMENTS. As GDE develops new intellectual property not covered by
the license granted in Article 2.1 above, Vista will have right of first refusal
to exclusively license such intellectual property for the Field of Use on terms
to be agreed upon. GDE will own all right, title and interest in such
intellectual property. Vista's right of first refusal shall not apply to
intellectual property developed by GDE for which GDE does not retain all right,
title and interest.
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<PAGE>
ARTICLE 5 - LICENSE FEES AND ROYALTIES
5.1 LICENSE FEE. In consideration of the rights granted by GDE to Vista
pursuant to this Agreement, Vista shall pay a non-refundable license fee of Five
Hundred Thousand Dollars ($500,000.00) payable as follows:
(i) $250,000.00 in Vista stock at the price set at an IPO; this amount
shall not be considered an advance against future royalties; and
(ii) $250,000.00 by December 31, 1998, as a combination of royalty payments
made through such date and a royalty advance creditable against future
royalties due thereafter.
5.1.1 STOCK. Vista will provide the stock to GDE within ten (10) business
days of the close of Vista's IPO. If the IPO does not occur prior to June 30,
1997, then Vista shall issue said stock as soon as possible thereafter, the
price per share will be the fair market value as determined by Vista's Board of
Directors.
5.1.2 STOCK REPRESENTATIONS. GDE agrees to, and does, make the
representations and agreements as set forth in Exhibit B, attached hereto and
incorporated herein by reference.
5.2 ROYALTIES. For the purpose of calculating royalties due hereunder,
the following term shall have the following meanings:
"Sales Revenue" shall mean the net sales revenue received by Vista from
third party customers, excluding freight and similar charges. If the software
product incorporating GDE Intellectual Property is a module which is not
separately billed to the third party customer, then GDE's.royalty will be based
upon a proportion of the total price billed. Such proportion will be determined
based upon the overall price of the system and the sales value of the module if
it was separately billed, such determination to be made by GDE and Vista in good
faith and verifiable by GDE by means of normal audit rights.
5.3 ROYALTY PAYMENT. During the license exclusivity period, Vista will pay to
GDE an amount equal to three percent (3%) on Sales Revenues of software products
based upon, or derived from, any Licensed Product, or part thereof.
5.4 QUARTERLY PAYMENTS. All royalty payments owed by Vista to GDE under this
Agreement will be payable on a calendar quarter basis no later than thirty (30)
days after the end of each calendar quarter. Royalty reports shall be provided
by Vista to GDE with each royalty payment. The royalty report shall show (i)
the number of Licensed Products invoiced during the calendar quarter in
question; (ii) the total gross sales invoiced amount; (iii) the Sales Revenue
amount; (tv) the amount of royalties due and (v) the method of calculation of
royalties for such calendar quarter.
5.5 BOOKS AND RECORDS: AUDIT RIGHTS. Vista agrees to make and maintain such
books, records
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<PAGE>
and accounts as are reasonably necessary to verify the payments due GDE under
this Agreement. At GDE's sole expense, an independent certified public
accountant, selected by GDE and reasonably acceptable to Vista, who agrees to
sign a nondisclosure agreement may, upon reasonable notice and during normal
business hours, but no more than once each calendar year, inspect only those
records of Vista on which the payments to GDE under this Agreement are based.
The accountant may report only the accuracy of the payments, but may not
disclose confidential information, such as specific customers. If any audit
hereunder reveals that Vista has failed properly to account for and pay
royalties owing to GDE hereunder, and the amount of any royalties which Vista
has failed properly to account for and pay during any twelve (12) month period
exceeds by ten percent (10%) or more the royalties actually accounted for and
paid to GDE for such period, Vista shall reimburse GDE for the cost of the
accountant. Vista shall also, within thirty (30) days after notification by
GDE, pay to GDE any amounts shown as due under such audit, regardless of whether
Vista is required to reimburse GDE for the cost of the accountant.
ARTICLE 6 - RELEASE OF EMPLOYEES
GDE agrees to release three (3) employees to join Vista, including Robert D.
Bowen, President of HealthCom, and two (2) engineers to be mutually determined.
It is understood that Vista must make independent arrangements with each of the
employees, although GDE agrees to facilitate the transfer to the extent
possible. Vista agrees not to solicit or recruit for hire other GDE or
HealthCom employees.
ARTICLE 7 - SERVICES AGREEMENT
GDE and Vista agree to negotiate in good faith to enter into a Services
Agreement whereby Vista may contract for consultancy services from GDE on a
project-by-project basis, on terms to be mutually agreed at the outset of each
project.
ARTICLE 8 - TERM AND TERMINATION
8.1 TERM. The term of this Agreement shall commence on the Effective Date and
shall continue in full force and effect unless terminated pursuant to Article
8.2 or 8.3 below.
8.2 TERMINATION FOR BREACH. In the event of a material breach of this
Agreement, the non breaching party shall be entitled to terminate this Agreement
by written notice to the breaching party if such breach is not cured within
thirty (30) days after written notice is given by the non breaching party to the
breaching party specifying the breach. The parties agree that the occurrence of
either of the following shall constitute a material breach of this Agreement;
(i) two (2) consecutive royalty payments not paid when due under Article 5, and
Vista fails to pay such royalties within the thirty (30) days after written
notification from GDE, or (ii) Vista fails to comply with the provisions of
Article 15.2 of this Agreement within thirty (30) days after written
notification from GDE.
8.3 TERMINATION FOR INSOLVENCY. This Agreement may be terminated by a party,
with notice,
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<PAGE>
(i) upon the institution by or against the other party of insolvency,
receivership or bankruptcy proceedings which proceedings are not dismissed
within sixty (60) days; or (ii) upon the other party's assignment for the
benefit of creditors; or (iii) upon the other party's dissolution or ceasing to
do business.
8.4 EFFECT OF TERMINATION.
(a) If GDE terminates this Agreement pursuant to Articles 8.2 or 8.3 hereof,
(a) the licenses granted to Vista under Article 2 of this Agreement shall
terminate; (b) all rights to the Licensed Products shall revert to GDE; and (c)
all rights to develop, make, have made, use, market and sell all Licensed
Products shall revert to GDE. Notwithstanding anything to the contrary herein,
in the event of a termination pursuant to Article 8.2 or 8.3 above, the licenses
granted to end users by Vista pursuant to this Agreement shall remain in full
force and effect.
(b) If Vista terminates this Agreement pursuant to Articles 8.2 and 8.3 hereof,
the provisions of Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, Article 4, Article
5, 8.4 and 8.5 of this Agreement shall survive; provided, however, if Vista
fails to perform or observe or otherwise breaches a material obligation under
this Agreement, which failure or breach is unremedied for a period of thirty
(30) days after receipt by Vista of written notice thereof from GDE, GDE shall
have the right to terminate this Agreement with the same effect as if GDE were
to terminate this Agreement pursuant to Article 8.4(a) hereof.
8.5 SURVIVAL.
(a) Termination of this Agreement for any reason shall not release either party
hereto from any liability which at the time of such termination has already
accrued to the other party.
(b) In the event this Agreement is terminated for any reason, Vista shall have
the right to sell or otherwise dispose of its existing stock of Licensed
Products.
(c) Articles 10, 11, 12, 14 shall survive the expiration or termination of this
Agreement for any reason.
(d) All rights and licenses granted under or pursuant to this Agreement by GDE
to Vista are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of Title 11 of the United States Code (the "Bankruptcy Code"),
licenses of rights to "intellectual property" as defined under Section 101(56)
of the Bankruptcy Code. The parties agree that Vista as a licensee of such
rights under this Agreement, shall retain and may fully exercise all of the
rights and elections under the Bankruptcy Code. The parties further agree that,
in the event of the commencement of a bankruptcy proceeding by or against GDE
under the Bankruptcy Code, Vista shall be entitled to a complete duplicate of
(or complete access to, as appropriate) any such intellectual property and all
embodiments of such intellectual property, and the same, if not already in its
possession, shall be promptly delivered to Vista upon any such commencement of a
bankruptcy proceeding.
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<PAGE>
ARTICLE 9 - INTELLECTUAL PROPERTY INDEMNITY
GDE shall indemnify, hold harmless and defend Vista from and against any and all
suits, actions, damages, costs, losses, expenses (including reasonable
attorneys' fees) and other liabilities arising from or in connection with any
claim that the Licensed Products in the form delivered to Vista infringes or
violates any United States patent, copyright, trademark, trade secret or other
proprietary right of any third party. Vista agrees to promptly notify GDE in
writing of such claim, suit or proceeding and give GDE authority to proceed as
contemplated herein, and, at GDE's expense, give GDE proper and full information
and assistance to settle and/or defend any such claim, suit or proceeding.
Without limiting GDE's obligations as set forth herein, GDE may, at its sole
option, either procure for Vista the right to continue using the Licensed
Products in the form delivered, or, if such is not possible, replace or modify
the Licensed Products so that it becomes non-infringing. During the time when
GDE is contemplating or implementing its options, Vista shall have no obligation
to make royalty payments to GDE for such Licensed Items that are the subject of
the infringement claim. GDE shall have no liability for any above mentioned
claim based upon the use of other than the unaltered version of the Licensed
Products if such infringement would have been avoided by the use of the
unaltered version of the Licensed Products. In the event Vista becomes aware of
a potential infringer of GDE's intellectual property rights in the Licensed
Products, Vista shall promptly notify GDE, in writing, and GDE agrees to use
reasonable efforts to promptly protect GDE's intellectual property rights.
ARTICLE 10 - CONFIDENTIALITY
10.1 NONDISCLOSURE. Except as otherwise provided for in this Agreement, each
party (the "Receiving Party") shall hold in confidence and not disclose to any
third party any business or technical information that is disclosed to it by the
other party in a tangible form marked "Proprietary" or that is so disclosed to
it orally and confirmed in writing as Proprietary within thirty (30) days after
its initial disclosure ("Proprietary Information"). Proprietary Information of
a party shall not include:
(i) Information which at the time of disclosure is published or
otherwise generally available to the public: or
(ii) Information which, after disclosure by the other party, is
published or becomes generally available to the public through no
fault of the Receiving Party; or
(iii) Information which the Receiving Party can document was or is in
its possession at the time of disclosure and was not acquired
directly or indirectly from such party.
10.2 EXCEPTIONS. The Receiving Party may disclose Proprietary Information of
the other:
(a) In connection with the order of a court of law or in compliance with
laws or regulations relating to registrations or sale of securities, or as is
reasonably necessary in connection with the prosecution, maintenance or
enforcement of the Intellectual Property Indemnity, Article 9.
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<PAGE>
(b) If such information is also rightfully acquired from a third party
who, to the best of such party's knowledge and belief, is entitled to rightfully
make such disclosure, but only to the extent such party complies with any
restrictions imposed by the third party.
ARTICLE 11 - WARRANTIES
11.1 WARRANTY. GDE represents and warrants that:
(a) GDE is the owner of, or has acquired the rights to, the Licensed
Products and has the full right and authority to enter into this Agreement, to
disclose any and all of the information disclosed to Vista hereunder, and to
grant the rights and licenses granted herein;
(b) GDE has not previously granted and shall not grant any rights in the
Licensed Products that are inconsistent with the rights and licenses granted to
Vista herein;
(c) To GDE's knowledge, as of the Effective Date, the Licensed Products do
not infringe any copyright, trade secret, or other proprietary rights of any
third party;
(d) GDE has not previously entered into any agreements and shall not in
the future enter into any agreements that are inconsistent with or conflict with
this Agreement or the rights and licenses granted to Vista herein; and
(e) As of the Effective Date, there are no existing or threatened actions,
suits, or claims pending against GDE with respect to the Licensed Products or
the right of GDE to enter into and perform its obligations under this Agreement.
11.2 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
GDE MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE 12 - LIMITATION OF LIABILITY
IN NO EVENT WILL EITHER PARTY BE LIABLE UNDER ANY LEGAL THEORY FOR ANY DAMAGES,
INCLUDING, BUT NOT LIMITED TO, ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS) ARISING OUT
OF THIS AGREEMENT, EVEN IF EITHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
ARTICLE 13 - FORCE MAJEURE
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If the performance of this Agreement or any obligations hereunder is prevented,
restricted or interfered with by reason of fire or other casualty or accident,
supplier delay, strikes or labor disputes, war or other violence, any law,
order, proclamation, regulations, ordinances, demand or requirement of any
government agency, or any other act or condition beyond the reasonable control
of the parties hereto, the party so affected upon giving prompt notice to the
other party shall be excused from such performance to the extent of such
prevention, restriction or interference on a day for day basis. If such force
majeure event continues for more than thirty (30) days then the non affected
party may terminate this Agreement upon written notice to the other party.
ARTICLE 14 - MEDIATION/ARBITRATION
If a dispute arises out of or relates to this Agreement, or the breach thereof,
and if said dispute cannot be settled through direct discussions, the parties
agree to first endeavor to settle the dispute in an amicable manner by mediation
under the Commercial Mediation Rules of the American Arbitration Association,
before resorting to arbitration. Thereafter, any unresolved controversy or
claim arising out of or relating to this contract, or breach thereof, shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, and judgment upon the award rendered by
arbitrator may be entered in any court having jurisdiction thereof.
ARTICLE 15 - MISCELLANEOUS
15.1 PRODUCT LIABILITY INDEMNITY. Vista agrees to indemnify and defend GDE and
its employees and agents from and against any liability or expense arising from
any product liability claim asserted by any party as to any Licensed Product
Vista manufactured or distributed pursuant to this Agreement or as to the
exploitation of the Licensed Products pursuant to this Agreement, including
reasonable attorneys' fees, except to the extent that such claim, liability or
expense results from the gross negligence or intentional misconduct of GDE or
its employees or agents. Such indemnity and defense obligation shall apply to
any claims made by employees, subcontractors, sublicensees, customers, or other
agents of Vista as well as any member of the general public.
15.2 U.S. EXPORT CONTROLS. Vista acknowledges and gives GDE its assurances
that it will not export, or cause to be re-exported, any of the Licensed
Products or any direct products thereof, to any country unless such export, or
re-export, is expressly authorized and approved by the U.S. Department of
Commerce Export Administration Regulations.
15.3 CONFIDENTIALITY OF AGREEMENT. Both GDE and Vista agree that the terms
and conditions of this Agreement shall be treated as confidential information
and that no reference to the terms and conditions of this Agreement or to
activities pertaining thereto can be made in any form without the prior written
consent of the other party; provided, however, that the general existence of
this Agreement shall not be treated as confidential information and that either
party may disclose the terms and conditions of this Agreement:
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<PAGE>
(i) as required by any court or other governmental body;
(ii) as otherwise required by law (provided that GDE shall have the
right to review and comment on the extent of any confidential
treatment to be requested in filings with the Securities and
Exchange Commission);
(iii) to legal counsel of the parties;
(iv) in confidence, to accountants, banks, proposed investors, and
financing sources and their advisors;
(v) in confidence, in connection with the enforcement of this
Agreement or rights under this Agreement; or
(vi) in confidence, in connection with a merger or acquisition or
proposed merger or acquisition, or the like.
15.4 WAIVER. No waiver by either party hereto of any breach or default of any
of the covenants or agreements herein set forth shall be deemed a waiver as to
any subsequent and/or similar breach or default.
15.5 ASSIGNMENTS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors or assigns of the parties
hereto: provided however, that either party may assign this Agreement, and its
rights and obligations hereunder, to any business organization that succeeds to
the business of such party to which this Agreement relates.
15.6 INDEPENDENT CONTRACTORS. The relationship of the parties hereto is that
of independent contractors. Neither party hereto is an agent, partner or joint
venture of the other for any purpose.
15.7 NOTICES. Any notice required or permitted to be given to the parties
hereto shall be deemed to have been properly given if delivered in person, when
received if mailed by first-class certified mail to the other party at the
appropriate address as set forth below or to such other addresses as may be
designated in writing by the parties from time to time during the term of this
Agreement or when transmitted by electronic facsimile (with a confirmation copy
to be sent by mail).
Vista: Vista Medical Technologies, Inc.
5451 Avenida Encinas, Suite A
Carlsbad, California 92008
Fax (619) 603-9170
Attn: President
With a copy to:
- -
Brobeck, Phleger & Harrison LLP
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<PAGE>
550 West C Street, Suite 1300
San Diego, California 92101
Fax: (619) 234-3848
Attn: Craig S. Andrews, Esq.
GDE: GDE Systems, Inc.
16550 West Bernardo Drive
San Diego, California 92127-1806
Fax: (619) 675-1920
Attn: General Counsel
15.8 GOVERNING LAW: JURISDICTION. This Agreement shall be interpreted and
construed in accordance with the laws of the State of California, without regard
to conflicts of law principles. All disputes arising out of this Agreement
shall be subject to the exclusive jurisdiction and venue of the California state
courts of San Diego County, California (or, if there is exclusive federal
jurisdiction, the United States District Court for the Southern District of
California), and the parties consent to the personal and exclusive jurisdiction
of these courts.
15.9 COMPLETE AGREEMENT. This Agreement constitutes the final, exclusive and
complete agreement between the parties respecting the subject matter hereof, and
supersedes any prior or contemporaneous agreements. No amendment or change
hereof or addition hereto shall be effective or binding on either of the parties
hereto unless reduced to writing and executed by the party to be charged.
15.10 SEVERABILITY. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, such provision shall be changed and interpreted so as to best
accomplish the objectives of the original provision to the fullest extent
allowed by law and the remaining provisions of this Agreement shall continue in
full force and effect.
15.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and both together shall be deemed to be
one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, both GDE and Vista have executed this Agreement, in
duplicate originals, by their respective officers hereunto duly authorized, the
day and year first above written.
VISTA MEDICAL
TECHNOLOGIES, INC. GDE SYSTEMS, INC.
By: /s/ John Lyon By: /s/ Terry A. Straeter
------------------------- -------------------------------
Name: John Lyon Name: Terry A. Straeter
----------------------- -----------------------------
Title: President & CEO Title: President & CEO
---------------------- ----------------------------
HEALTHCOM, INC.
By: /s/ R. A. Parra
-------------------------------
Name: R. A. Parra
-----------------------------
Title: Secretary
----------------------------
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<PAGE>
EXHIBIT A
LICENSED PRODUCTS
GDE SHALL DELIVER VERSIONS OF THE FOLLOWING LICENSED PRODUCTS WHICH DO NOT
CONTAIN U.S. GOVERNMENT "CLASSIFIED" INFORMATION:
Matrix
Socet Set
ASPRIN
Pen-based software (Call Doctor)
MINT
MIAT
EXNET
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<PAGE>
EXHIBIT B
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF GDE:
GDE hereby represents, warrants and agrees that:
(a) The shares of Common Stock of Vista issued in connection with the
License Agreement (the "Shares") will be "restricted securities" as such term is
used in the rules and regulations under the Securities Act of 1933, as amended
(the "Securities Act") and that such securities have not been and will not be
registered under the Securities Act or any state securities law, and that such
securities must be held indefinitely unless registration is effected or transfer
can be made pursuant to appropriate exemptions under the Securities Act (such as
Rule 144);
(b) GDE is purchasing the Shares for investment for its own account and
not with a view to or for sale in connection with any distribution thereof and
it has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws; provided that nothing contained herein will prevent GDE from selling or
transferring such securities in compliance with the terms of applicable federal
and state securities laws;
(c) GDE is an "accredited investor" within the meaning of paragraph (a) of
Rule 501 of Regulation D promulgated by the Securities and Exchange Commission
(the "Commission") and an "excluded purchaser" within the meaning of Section
25102(f) of the California Corporate Securities Law of 1968; and
(d) Vista will affix the following legend (in addition to any other
legend(s), if any, required by applicable state corporate and/or securities
laws) to certificates for the Shares:
"These securities have not been registered under the Securities Act of
1933, or any state securities laws. They may not be sold, offered for
sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under all
applicable federal and state securities laws or an opinion of counsel
satisfactory to the Corporation that such registration is not required
or unless sold pursuant to Rule 144 of such Act."
(e) Prior to any proposed sale or transfer of any of the Shares, unless
(i) pursuant to and in compliance with Rule 144 or (ii) there is in effect a
registration statement under the Securities Act covering the proposed transfer,
GDE shall give written notice to Vista of GDE's intention to effect such sale or
transfer. Each such notice shall describe the manner and circumstances of the
proposed sale or transfer in sufficient detail, and shall be accompanied by
either (i) a written opinion of legal counsel who shall be reasonably
satisfactory to Vista addressed to Vista and reasonably satisfactory in form and
substance to Vista's counsel, to the effect that the proposed sale or transfer
of the
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<PAGE>
Common Stock may be effected without registration under the Securities Act, or
(ii) a "no action" letter from the Commission to the effect that the sale or
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that enforcement action be taken
with respect thereto, whereupon GDE shall be entitled to sell or transfer such
securities in accordance with the terms of the notice delivered by GDE to Vista.
Each new certificate evidencing the Common Stock so sold or transferred shall
bear the appropriate restrictive legends set forth above, except that such
certificate shall not bear such restrictive legend if, in the opinion of counsel
for Vista, such legend is not required in order to establish or assist in
compliance with any provisions of the Securities Act or any applicable state
securities laws.
(f) GDE hereby agrees that, during the period of duration specified by
Vista and an underwriter of common stock or other securities of Vista, following
the effective date of a registration statement of Vista filed under the
Securities Act, it shall not, to the extent requested by Vista and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of Vista by it at any time during such period; PROVIDED,
HOWEVER, that:
i) such agreement shall not exceed 180 days for the first such
registration statement of Vista which covers Common Stock (or other securities)
to be sold on its behalf to the public in an underwritten offering;
ii) such agreement shall not exceed 90 days for any subsequent
registration statement of Vista which covers Common Stock (or other securities)
to be sold on its behalf to the public in an underwritten offering; and
iii) all execution officers and directors of Vista enter into similar
agreements.
In order to enforce the foregoing covenant, GDE agrees and acknowledges
that Vista may impose stop-transfer instructions with respect to the Shares
until the end of such period. Notwithstanding the foregoing, the obligations
described in this section shall not apply to a registration relating solely to
employee benefit plans on Form S-8 or similar forms which may be promulgated in
the future, or a registration relating solely to a SEC Rule 145 transaction on
form S-4 or similar forms which may be promulgated in the future.
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<PAGE>
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<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC. EXHIBIT 10.41
STOCK PURCHASE AGREEMENT
THIS AGREEMENT IS made as of this __ day of ________ 19__, by and
between Vista Medical Technologies, Inc., a Delaware corporation and
________________________________, Optionee under the Corporation's 1997 Stock
Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases __________________
unvested shares of Common Stock (the "Purchased Shares") pursuant to that
certain option (the "Option") granted Optionee on ____________________, 199__
(the "Grant Date") to purchase up to _______________ shares of Common Stock
under the Plan at the exercise price of $______ per share (the "Exercise
Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Optionee shall pay the Exercise Price for the Purchased
Shares in accordance with the provisions of the Option Agreement and shall
deliver whatever additional documents may be required by the Option Agreement
as a condition for exercise, together with a duly-executed blank Assignment
Separate from Certificate (in the form attached hereto as Exhibit I) with
respect to the Purchased Shares.
3. DELIVERY OF CERTIFICATES. The certificates representing the
Purchased Shares shall be held in escrow in accordance with the provisions of
this Agreement.
4. STOCKHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right, Optionee (or any successor in interest) shall
have all the rights of a stockholder (including voting, dividend and
liquidation rights) with respect to the Purchased Shares, subject, however,
to the transfer restrictions of Article B.
5. COMPLIANCE WITH LAW. Under no circumstances shall shares of
Common Stock or other assets be issued or delivered to Optionee pursuant to
the provisions of this Agreement unless, in the opinion of counsel for the
Corporation or its successors, there shall have been compliance with all
applicable requirements of the Federal and state securities laws, all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock is at the time listed for
trading and all other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery.
B. TRANSFER RESTRICTIONS
<PAGE>
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right.
2. RESTRICTIVE LEGEND. The stock certificates for the Purchased
Shares shall be endorsed with the following restrictive legend:
"The shares represented by this certificate are unvested and
are subject to a repurchase right granted to the Corporation and accordingly
may not be sold, assigned, transferred, encumbered, or in any manner disposed
of except in conformity with the terms of a written agreement dated
_____________, 199__ between the Corporation and the registered holder of the
shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation's principal corporate offices."
3. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound
by the provisions of this Agreement and that the transferred shares are
subject to the Repurchase Right to the same extent such shares would be so
subject if retained by Optionee.
C. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the ninety (90)-day
period following the date Optionee ceases for any reason to remain in Service
or (if later) during the ninety (90)-day period following the execution date
of this Agreement, to repurchase at the Exercise Price all or any portion of
the Purchased Shares in which Optionee is not, at the time of his or her
cessation of Service, vested in accordance with the Vesting Schedule (such
shares to be hereinafter referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested
Shares prior to the expiration of the ninety (90)-day exercise period. The
notice shall indicate the number of Unvested Shares to be repurchased and the
date on which the repurchase is to be effected, such date to be not more than
thirty (30) days after the date of such notice. The certificates
representing the Unvested Shares to be repurchased shall be delivered to the
Corporation prior to the close of business on the date specified for the
repurchase. Concurrently with the receipt of such stock certificates, the
Corporation shall pay to Owner, in cash or cash equivalents (including the
cancellation of any purchase-money indebtedness), an amount equal to the
Exercise Price previously paid for the Unvested Shares which are to be
repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not
timely exercised under Paragraph
2.
<PAGE>
C.2. In addition, the Repurchase Right shall terminate and cease to be
exercisable with respect to any and all Purchased Shares in which Optionee
vests in accordance with the Vesting Schedule.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that Optionee is a party to one or more other
Stock Purchase Agreements (the "Prior Purchase Agreements") which are
executed prior to the date of this Agreement, then the total number of
Purchased Shares as to which Optionee shall be deemed to have a fully-vested
interest under this Agreement and all Prior Purchase Agreements shall not
exceed in the aggregate the number of Purchased Shares in which Optionee
would otherwise at the time be vested, in accordance with the Vesting
Schedule, had all the Purchased Shares (including those acquired under the
Prior Purchase Agreements) been acquired exclusively under this Agreement.
5. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular
cash dividend) which is by reason of any Recapitalization distributed with
respect to the Purchased Shares shall be immediately subject to the
Repurchase Right, but only to the extent the Purchased Shares are at the time
covered by such right. Appropriate adjustments to reflect such distribution
shall be made to the number and/or class of Purchased Shares subject to this
Agreement and to the price per share to be paid upon the exercise of the
Repurchase Right in order to reflect the effect of any such Recapitalization
upon the Corporation's capital structure; PROVIDED, however, that the
aggregate purchase price shall remain the same.
6. CORPORATE TRANSACTION.
(a) Immediately prior to the consummation of any Corporate
Transaction, the Repurchase Right shall automatically lapse in its entirety,
except to the extent the Repurchase Right is to be assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to the new capital
stock or other property (including any cash payments) received in exchange
for the Purchased Shares in consummation of the Corporate Transaction, but
only to the extent the Purchased Shares are at the time covered by such
right. Appropriate adjustments shall be made to the price per share payable
upon exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; PROVIDED, however, that
the aggregate purchase price shall remain the same.
(c) The Repurchase Right shall automatically lapse in its
entirety, and all the Purchased Shares shall immediately vest in full, upon
an Involuntary Termination of Optionee's Service within eighteen (18) months
following the effective date of a Corporate Transaction in which the
Repurchase Right has been assigned.
D. ESCROW
3.
<PAGE>
1. DEPOSIT. Upon issuance, the certificates for the Purchased
Shares shall be deposited in escrow with the Corporation to be held in
accordance with the provisions of this Article D. Each deposited certificate
shall be accompanied by a duly-executed Assignment Separate from Certificate
in the form of Exhibit I. The deposited certificates, together with any
other assets or securities from time to time deposited with the Corporation
pursuant to the requirements of this Agreement, shall remain in escrow until
such time or times as the certificates (or other assets and securities) are
to be released or otherwise surrendered for cancellation in accordance with
Paragraph D.3. Upon delivery of the certificates (or other assets and
securities) to the Corporation, Owner shall be issued a receipt acknowledging
the number of Purchased Shares (or other assets and securities) delivered in
escrow.
2. RECAPITALIZATION/REORGANIZATION. Any new, substituted or
additional securities or other property which is by reason of any
Recapitalization or Reorganization distributed with respect to the Purchased
Shares shall be immediately delivered to the Corporation to be held in escrow
under this Article D, but only to the extent the Purchased Shares are at the
time subject to the escrow requirements hereunder. However, all regular cash
dividends on the Purchased Shares (or other securities at the time held in
escrow) shall be paid directly to Owner and shall not be held in escrow.
3. RELEASE/SURRENDER. The Purchased Shares, together with any
other assets or securities held in escrow hereunder, shall be subject to the
following terms relating to their release from escrow or their surrender to
the Corporation for repurchase and cancellaton:
(i) Should the Corporation elect to exercise the Repurchase
Right with respect to any Unvested Shares, then the escrowed certificates
for those Unvested Shares (together with any other assets or securities
attributable thereto) shall be surrendered to the Corporation concurrently
with the payment to Owner of an amount equal to the aggregate Exercise
Price paid for those Unvested Shares, and Owner shall cease to have any
further rights or claims with respect to such Unvested Shares (or other
assets or securities attributable thereto).
(ii) Should the Corporation elect NOT to exercise the Repurchase
Right with respect to any Unvested Shares held at the time in escrow
hereunder, then the escrowed certificates for those shares (together with
any other assets or securities attributable thereto) shall be released to
Owner.
(iii) As the Purchased Shares (or any other assets or securities
attributable thereto) vest in accordance with the Vesting Schedule, the
certificates for those vested shares (as well as all other vested assets
and securities) shall be released from escrow upon Owner's request.
(iv) Upon any earlier termination of the Repurchase Right in
connection with a Corporate Transaction or Involuntary Termination, any
Purchased
4.
<PAGE>
Shares (or other assets or securities) at the time held in escrow hereunder
shall promptly be released to Owner.
E. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under
Code Section 83(b). Such election must be filed within thirty (30) days
after the date of this Agreement. A description of the tax consequences
applicable to the acquisition of the Purchased Shares and the form for making
the Code Section 83(b) election are set forth in Exhibit II. OPTIONEE SHOULD
CONSULT WITH HIS OR HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF
ACQUIRING THE PURCHASED SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING
THE CODE SECTION 83(b) ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S
SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION
UNDER CODE SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
F. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right to
any person or entity selected by the Board, including (without limitation)
one or more stockholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Optionee any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict
in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Optionee) or of Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee's Service at any time for
any reason, with or without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, registered or certified, postage prepaid and
properly addressed to the party entitled to such notice at the address
indicated below such party's signature line on this Agreement or at such
other address as such party may designate by ten (10) days advance written
notice under this paragraph to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Optionee. No
waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.
5.
<PAGE>
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement). Such
shares shall be deemed purchased in accordance with the applicable provisions
hereof, and the Corporation shall be deemed the owner and holder of such
shares, whether or not the certificates therefor have been delivered as
required by this Agreement.
6. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of _____without resort to
that State's conflict-of-laws rules.
7. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Optionee, Optionee's permitted assigns and
the legal representatives, heirs and legatees of Optionee's estate, whether
or not any such person shall have become a party to this Agreement and have
agreed in writing to join herein and be bound by the terms hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
6.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
VISTA MEDICAL TECHNOLOGIES, INC.
By:
-------------------------------
Title:
-----------------------------
Address:
--------------------------
----------------------------------
----------------------------------
OPTIONEE
Address:
---------------------------
----------------------------------
7.
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ______________________ hereby sell(s), assign(s)
and transfer(s) unto Vista Medical Technologies, Inc. (the "Corporation"),
_________________ (____________) shares of the Common Stock of the
Corporation standing in his or her name on the books of the Corporation
represented by Certificate No. ____ herewith and does hereby irrevocably
constitute and appoint ____________________ Attorney to transfer the said
stock on the books of the Corporation with full power of substitution in the
premises. Dated:________________
Signature
----------------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE>
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(b) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired
pursuant to the exercise of a Non-Statutory Option, as specified in the Grant
Notice, then under Code Section 83, the excess of the fair market value of
the Purchased Shares on the date any forfeiture restrictions applicable to
such shares lapse over the Exercise Price paid for such shares will be
reportable as ordinary income on the lapse date. For this purpose, the term
"forfeiture restrictions" includes the right of the Corporation to repurchase
the Purchased Shares pursuant to the Repurchase Right. However, Optionee may
elect under Code Section 83(b) to be taxed at the time the Purchased Shares
are acquired, rather than when and as such Purchased Shares cease to be
subject to such forfeiture restrictions. Such election must be filed with
the Internal Revenue Service within thirty (30) days after the date of the
Agreement. Even if the fair market value of the Purchased Shares on the date
of the Agreement equals the Exercise Price paid (and thus no tax is payable),
the election must be made to avoid adverse tax consequences in the future.
The form for making this election is attached as part of this exhibit.
FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL
RESULT IN THE RECOGNITION OF ORDINARY INCOME BY OPTIONEE AS THE FORFEITURE
RESTRICTIONS LAPSE.
II. FEDERAL INCOME TAX CONSEQUENCES AND CONDITIONAL SECTION 83(b)
ELECTION FOR EXERCISE OF INCENTIVE OPTION. If the Purchased Shares are
acquired pursuant to the exercise of an Incentive Option, as specified in the
Grant Notice, then the following tax principles shall be applicable to the
Purchased Shares:
(i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
(ii) The excess of (A) the fair market value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over
(B) the Exercise Price paid for the Purchased Shares will be includable in
Optionee's taxable income for alternative minimum tax purposes.
(iii) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in the year
of such disposition equal in amount to the excess of (A) the fair market
value of the Purchased Shares on the date the Option is exercised or (if
later) on the date any forfeiture restrictions applicable to the Purchased
Shares lapse over (B) the Exercise Price paid for the Purchased Shares.
Any additional gain recognized upon the disqualifying disposition will be
either short-term or long-term capital gain depending upon the period for
which the Purchased Shares are held prior to the disposition.
II-1.
<PAGE>
(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right. The term "disqualifying
disposition" means any sale or other disposition1/ of the Purchased Shares
within two (2) years after the Grant Date or within one (1) year after the
exercise date of the Option.
(v) In the absence of final Treasury Regulations relating to
Incentive Options, it is not certain whether Optionee may, in connection
with the exercise of the Option for any Purchased Shares at the time
subject to forfeiture restrictions, file a protective election under Code
Section 83(b) which would limit (A) Optionee's alternative minimum taxable
income upon exercise and (B) Optionee's ordinary income upon a
disqualifying disposition to the excess of the fair market value of the
Purchased Shares on the date the Option is exercised over the Exercise
Price paid for the Purchased Shares. Accordingly, such election if properly
filed will only be allowed to the extent the final Treasury Regulations
permit such a protective election. Page 2 of the attached form for making
the election should be filed with any election made in connection with the
exercise of an Incentive Option.
- ----------------------
1/ Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange
or gift, but does not include a transfer to the Optionee's spouse, a transfer
into joint ownership with right or survivorship if Optionee remains one of
the joint owners, a pledge, a transfer by bequest or inheritance or certain
tax free exchanges permitted under the Code.
II-2.
<PAGE>
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is shares
of the common stock of Vista Medical Technologies, Inc.
(3) The property was issued on , 199 .
(4) The taxable year in which the election is being made is the calendar
year 199 .
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of installments over a four
(4)-year period ending on 199 .
(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $ per share.
(7) The amount paid for such property is $ per share.
(8) A copy of this statement was furnished to Vista Medical Technologies, Inc.
for whom taxpayer rendered the services underlying the transfer of
property.
(9) This statement is executed on , 199 .
- ------------------------- ---------------------------
Spouse (if any) Taxpayer
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE CENTER WITH
WHICH TAXPAYER FILES HIS OR HER FEDERAL INCOME TAX RETURNS AND MUST BE MADE
WITHIN THIRTY (30) DAYS AFTER THE EXECUTION DATE OF THE STOCK PURCHASE
AGREEMENT. THIS FILING SHOULD BE MADE BY REGISTERED OR CERTIFIED MAIL,
RETURN RECEIPT REQUESTED. OPTIONEE MUST RETAIN TWO (2) COPIES OF THE
COMPLETED FORM FOR FILING WITH HIS OR HER FEDERAL AND STATE TAX RETURNS FOR
THE CURRENT TAX YEAR AND AN ADDITIONAL COPY FOR HIS OR HER RECORDS.
<PAGE>
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive
stock option under Section 422 of the Internal Revenue Code (the "Code").
Accordingly, it is the intent of the Taxpayer to utilize this election to
achieve the following tax results:
1. The purpose of this election is to have the alternative
minimum taxable income attributable to the purchased shares measured by the
amount by which the fair market value of such shares at the time of their
transfer to the Taxpayer exceeds the purchase price paid for the shares. In
the absence of this election, such alternative minimum taxable income would
be measured by the spread between the fair market value of the purchased
shares and the purchase price which exists on the various lapse dates in
effect for the forfeiture restrictions applicable to such shares. The
election is to be effective to the full extent permitted under the Code.
2. Section 421(a)(1) of the Code expressly excludes from income
any excess of the fair market value of the purchased shares over the amount
paid for such shares. Accordingly, this election is also intended to be
effective in the event there is a "disqualifying disposition" of the shares,
within the meaning of Section 421(b) of the Code, which would otherwise
render the provisions of Section 83(a) of the Code applicable at that time.
Consequently, the Taxpayer hereby elects to have the amount of disqualifying
disposition income measured by the excess of the fair market value of the
purchased shares on the date of transfer to the Taxpayer over the amount paid
for such shares. Since Section 421(a) presently applies to the shares which
are the subject of this Section 83(b) election, no taxable income is actually
recognized for regular tax purposes at this time, and no income taxes are
payable, by the Taxpayer as a result of this election.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN
CONNECTION WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL
TAX LAWS.
2.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. CORPORATION shall mean Vista Medical Technologies, Inc., a Delaware
corporation.
G. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
H. GRANT DATE shall have the meaning assigned to such term in
Paragraph A.1.
I. GRANT NOTICE shall mean the Notice of Grant of Stock Option pursuant
to which Optionee has been informed of the basic terms of the Option.
J. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
K. INVOLUNTARY TERMINATION shall mean the termination of Optionee's
Service which occurs by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation which materially reduces
Optionee's level
A-1.
<PAGE>
of responsibility, (B) a reduction in Optionee's level of compensation
(including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of Optionee's place of employment
by more than fifty (50) miles, provided and only if such change, reduction
or relocation is effected by the Corporation without Optionee's consent.
L. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by Optionee
adversely affecting the business or affairs of the Corporation (or any Parent
or Subsidiary) in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of Optionee or any other person in the Service of the Corporation
(or any Parent or Subsidiary).
M. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
N. OPTION shall have the meaning assigned to such term in Paragraph A.1.
O. OPTION AGREEMENT shall mean all agreements and other documents
evidencing the Option.
P. OPTIONEE shall mean the person to whom the Option is granted under the
Plan.
Q. OWNER shall mean Optionee and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Optionee.
R. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
S. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Optionee's will or the laws of
intestate succession following Optionee's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness
incurred by Optionee in connection with the acquisition of the Purchased
Shares.
T. PLAN shall mean the Corporation's 1997 Stock Option/Stock Issuance
Plan.
A-2.
<PAGE>
U. PLAN ADMINISTRATOR shall mean either the Board or a committee of Board
members, to the extent the committee is at the time responsible for
administration of the Plan.
V. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to such term
in Paragraph C.4.
W. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
X. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration.
Y. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not
the surviving entity,
(ii) a sale, transfer or other disposition of all or substantially
all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.
Z. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article C.
AA. SEC shall mean the Securities and Exchange Commission.
BB. SERVICE shall mean Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the
work to be performed and the manner and method of performance, a non-employee
member of the board of directors or a consultant or independent advisor.
CC. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
A-3.
<PAGE>
DD. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice, subject to the acceleration provisions upon an Involuntary
Termination following a Corporate Transaction.
EE. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph C.1.
A-4.
<PAGE>
EXHIBIT 10.46
VISTA MEDICAL TECHNOLOGIES, INC.
STOCK ISSUANCE AGREEMENT
THIS AGREEMENT is made as of this______day of___________19__, by and
between Vista Medical Technologies, Inc., a Delaware corporation and
_______________________, a Participant in the Corporation's 1997 Stock
Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
I. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases______________unvested
shares of Common Stock (the "Purchased Shares") pursuant to the provisions of
the Stock Issuance Program at the purchase price of $______ per share (the
"Purchase Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to the
Corporation, Participant shall pay the Purchase Price for the Purchased Shares
in cash or check payable to the Corporation and shall deliver a duly-executed
blank Assignment Separate from Certificate (in the form attached hereto as
Exhibit I) with respect to the Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation exercises
the Repurchase Right, Participant (or any successor in interest) shall have all
the rights of a stockholder (including voting, dividend and liquidation rights)
with respect to the Purchased Shares, subject, however, to the transfer
restrictions of Article B.
4. ESCROW. The Corporation shall have the right to hold the
Purchased Shares in escrow until those shares have vested in accordance with the
Vesting Schedule.
5. COMPLIANCE WITH LAW. Under no circumstances shall shares of
Common Stock or other assets be issued or delivered to Participant pursuant to
the provisions of this Agreement unless, in the opinion of counsel for the
Corporation or its successors, there shall have been compliance with all
applicable requirements of the Federal and state securities laws, all applicable
listing requirements of any stock exchange (or the Nasdaq National Market if
applicable) on which the Common Stock is at the time listed for trading and all
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery.
<PAGE>
B. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right.
2. RESTRICTIVE LEGEND. The stock certificates for the Purchased
Shares shall be endorsed with the following restrictive legend:
"The shares represented by this certificate are unvested and
are subject to a repurchase right granted to the Corporation and
accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written
agreement dated____________, 199_ between the Corporation and the
registered holder of the shares (or the predecessor in interest to the
shares). A copy of such agreement is maintained at the Corporation's
principal corporate offices."
3. TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to the Repurchase Right to
the same extent such shares would be so subject if retained by Participant.
C. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the ninety (90)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price all or any portion of the Purchased Shares in
which Participant is not, at the time of his or her cessation of Service, vested
in accordance with the Vesting Schedule (such shares to be hereinafter referred
to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the ninety (90)-day exercise period. The notice
shall indicate the number of Unvested Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of such notice. The certificates representing the
Unvested Shares to be repurchased shall be delivered to the Corporation prior to
the close of business on the date specified for the repurchase. Concurrently
with the receipt of such stock certificates, the Corporation shall pay to Owner,
in cash or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
-2-
<PAGE>
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph C.2. In addition, the Repurchase Right shall
terminate and cease to be exercisable with respect to any and all Purchased
Shares in which Participant vests in accordance with the following Vesting
Schedule:
(i) Upon Participant's completion of one (1) year of
Service measured from ______________, 199__, Participant shall acquire
a vested interest in, and the Repurchase Right shall lapse with
respect to, twenty-five percent (25%) of the Purchased Shares.
(ii) Participant shall acquire a vested interest in, and the
Repurchase Right shall lapse with respect to, the remaining Purchased
Shares in successive equal monthly installments upon Participant's
completion of each additional month of Service over the thirty-six
(36)-month period measured from the initial vesting date under
subparagraph (i) above.
4. RECAPITALIZATION. Any new, substituted or additional securities
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right, but only
to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of Purchased Shares subject to this Agreement and to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of any such Recapitalization upon the Corporation's capital
structure; PROVIDED, however, that the aggregate purchase price shall remain the
same.
5. CORPORATE TRANSACTION.
(a) Immediately prior to the consummation of any Corporate
Transaction, the Repurchase Right shall automatically lapse in its entirety,
except to the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to the new capital
stock or other property (including any cash payments) received in exchange for
the Purchased Shares in consummation of the Corporate Transaction, but only to
the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; PROVIDED, however, that
the aggregate purchase price shall remain the same.
(c) The Repurchase Right shall automatically lapse in its
entirety, and all the Purchased Shares shall immediately vest in full, upon an
Involuntary Termination of
-3-
<PAGE>
Participant's Service within eighteen (18) months following the effective date
of a Corporate Transaction in which the Repurchase Right has been assigned.
D. SPECIAL TAX ELECTION
1. SECTION 83(B) ELECTION . Under Code Section 83, the excess of
the fair market value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be
filed with the Internal Revenue Service within thirty (30) days after the date
of this Agreement. Even if the fair market value of the Purchased Shares on the
date of this Agreement equals the Purchase Price paid (and thus no tax is
payable), the election must be made to avoid adverse tax consequences in the
future. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO.
PARTICIPANT UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE
THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE
FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
E. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right to
any person or entity selected by the Board, including (without limitation) one
or more stockholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon Participant any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Participant) or of Participant, which rights are hereby expressly
reserved by each, to terminate Participant's Service at any time for any reason,
with or without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other
-4-
<PAGE>
address as such party may designate by ten (10) days advance written notice
under this paragraph to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Participant. No
waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make available,
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
6. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
7. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
VISTA MEDICAL TECHNOLOGIES, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
Address:
----------------------------------------
--------------------------------------------------
--------------------------------------------------
PARTICIPANT
Address:
----------------------------------------
--------------------------------------------------
-6-
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED________________________hereby sell(s), assign(s)
and transfer(s) unto Vista Medical Technologies, Inc. (the "Corporation"),
(____________) shares of the Common Stock of the Corporation standing in his or
her name on the books of the Corporation represented by Certificate No.
_________herewith and do(es) hereby irrevocably constitute and appoint
_____________________Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.
Dated:
----------------
Signature
---------------------------------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE>
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
shares of the common stock of Vista Medical Technologies, Inc.
(3) The property was issued on_____________, 199_.
(4) The taxable year in which the election is being made is the calendar year
199_.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of installments over a four
(4)-year period ending on________________________, 199_.
(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $____________per share.
(7) The amount paid for such property is $____________per share.
(8) A copy of this statement was furnished to Vista Medical Technologies, Inc.
for whom taxpayer rendered the services underlying the transfer of
property.
(9) This statement is executed on ________________________, 199__.
- ------------------------- ------------------------------------------------
Spouse (if any) Taxpayer
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE CENTER WITH WHICH
TAXPAYER FILES HIS OR HER FEDERAL INCOME TAX RETURNS AND MUST BE MADE WITHIN
THIRTY (30) DAYS AFTER THE EXECUTION DATE OF THE STOCK ISSUANCE AGREEMENT. THIS
FILING SHOULD BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED.
PARTICIPANT MUST RETAIN TWO (2) COPIES OF THE COMPLETED FORM FOR FILING WITH HIS
OR HER FEDERAL AND STATE TAX RETURNS FOR THE CURRENT TAX YEAR AND AN ADDITIONAL
COPY FOR HIS OR HER RECORDS.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Vista Medical Technologies, Inc., a Delaware
corporation.
G. INVOLUNTARY TERMINATION shall mean the termination of Participant's
Service which occurs by reason of:
(i) Participant's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) Participant's voluntary resignation following (A) a
change in Participant's position with the Corporation which materially
reduces Participant's level of responsibility, (B) a reduction in
Participant's level of compensation (including base salary, fringe
benefits and participation in corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of Participant's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without Participant's
consent.
A-1.
<PAGE>
H. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Participant, any unauthorized use or disclosure by Participant
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by Participant adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Participant or any other person in the Service of the Corporation (or any Parent
or Subsidiary).
I. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
J. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
K. PARTICIPANT shall mean the person to whom shares are issued under the
Stock Issuance Program.
L. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, PROVIDED AND ONLY IF Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
M. PLAN shall mean the Corporation's 1997 Stock Option/Stock Issuance
Plan.
N. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its administrative capacity under the Plan.
O. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
P. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
Q. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration.
R. REORGANIZATION shall mean any of the following transactions:
A-2.
<PAGE>
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) a sale, transfer or other disposition of all or substantially
all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities
are transferred in whole or in part to a person or persons different
from the persons holding those securities immediately prior to the
merger, or
(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.
S. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article C.
T. SERVICE shall mean the Participant's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or a consultant or independent advisor.
U. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program under the
Plan.
V. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
W. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph C.3, subject to the acceleration provisions upon an Involuntary
Termination following a Corporate Transaction.
X. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph C.1.
A-3.
<PAGE>
EXHIBIT 10.47
VISTA MEDICAL TECHNOLOGIES, INC.
STOCK ISSUANCE AGREEMENT
THIS AGREEMENT is made as of this 3rd day of March, 1997, by and between
Vista Medical Technologies, Inc., a Delaware corporation (the "Company"), and
, a participant ("Participant") in the Company's 1997 Stock
Option/Stock Issuance Plan (the "Plan").
I. PURCHASE OF SHARES
1.1 ISSUANCE. The Company hereby issues to Participant 100 shares of
the Company's Common Stock, valued at a fair market value of $6.67 per share, in
consideration for past services rendered to the Company, pursuant to the
provisions of the Plan. The shares sold hereunder are referred to as the
"Shares."
1.2 DELIVERY OF CERTIFICATES. The certificates representing the
Shares hereunder shall be delivered to Participant upon the execution of this
agreement.
1.3 COMPLIANCE WITH LAW. Under no circumstances shall shares of the
Company's Common Stock or other assets be issued or delivered to the Participant
pursuant to the provisions of this Agreement unless and until, in the opinion of
counsel for the Company or its successors, there shall have been compliance with
all applicable requirements of the federal and state securities laws, all
applicable listing requirements of any securities exchange on which stock of the
same class is then listed, and all other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery.
II. GENERAL PROVISIONS
2.1 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon the Participant any right to continue in the
Service of the Company (or any parent or subsidiary corporation of the Company
employing or retaining Participant) for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Company (or
any parent or subsidiary corporation of the Company employing or retaining
Participant) or the Participant, which rights are hereby expressly reserved by
each, to terminate the Participant's Service at any time for any reason
whatsoever, with or without cause.
2.2 NOTICES. Any notice required in connection with this Agreement
shall be given in writing and shall be deemed effective upon personal delivery
or upon deposit in the United States mail, registered or certified, postage
prepaid and addressed to the party entitled to such notice at the address
indicated below such party's signature line on this Agreement or at such other
address as such party may designate by ten (10) days advance written notice
under this paragraph 2.2 to all other parties to this Agreement.
<PAGE>
2.3 NO WAIVER. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
III. MISCELLANEOUS PROVISIONS
3.1 PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the Company
may in its judgment deem necessary or advisable in order to carry out or effect
one or more of the obligations or restrictions imposed on either the Participant
or the Shares pursuant to the express provisions of this Agreement.
3.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
3.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of-laws rules.
3.4 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Company and its successors and
assigns and the Participant and the Participant's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
3.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts. Each such counterpart shall be deemed to be an original, and all
such counterparts shall together constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
VISTA MEDICAL TECHNOLOGIES, INC.
By:
-----------------------------------
Title:
--------------------------------
Address:
-------------------------------
---------------------------------------
PARTICIPANT
Address:
-------------------------------
[SIGNATURE PAGE TO STOCK ISSUANCE AGREEMENT]
<PAGE>
SCHEDULE A
Linda Droege
Stephen Gorgol
Kathy Elliott
Karen Leland
Joann Scheid
George Waters
Sharon Bastien
Grace Cooper
Phil Bolack
Jeff Kielpinski
Barbara Long
Andrew Perry
Leonard Pesok
Brian Quintal
Vong Choummani
Donna Dimock
Colleen Soares
Donelda Turner
Ronald Willame
Cheri Charette
Gina Lemay
Walter Seagrave
John Hesse
Joyce Provencher
Michelle Valois
William Guy
William Lavertue
Matt Bonazzoli
Dana Hawes
William Fleming
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Data" and to the use of our report dated January 30, 1997,
except for Note 9, as to which the date is March 3, 1997, in Amendment No. 1 to
the Registration Statement (Form S-1) and the related Prospectus of Vista
Medical Technologies, Inc. for the registration of 4,025,000 shares of its
common stock.
ERNST & YOUNG LLP
San Diego, California
May 5, 1997
