<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1997
REGISTRATION NO. 333-22985
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 4
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 (760) 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
(760) 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 JULY 1, 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 $8.00 and $10.00. 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 $700,000 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 Series 8000 product 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 are under development, have not been cleared to
market in the U.S. by the FDA and are not commercially available.
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 MAY
CONTAIN, IN ADDITION TO HISTORICAL INFORMATION, 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 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, as
well as patient demand. 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 Series 8000 commercialization have been received, with
expected commercial availability later this year. The StereoSite systems are
under development, have not been cleared to market in the U.S. by the U.S. Food
and Drug Administration ("FDA") and are not commercially available. The Company
anticipates filing a required 510(k) pre-market notification for the processor
component of the HMD for the StereoSite system in third quarter 1997. 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,
4
<PAGE>
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 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.
Since February 1997, Vista Medical's CardioThoracic Surgery division has
exhibited the Series 8000 at two major cardiothoracic surgery meetings in the
U.S. and at the World Congress on Minimally Invasive Cardiac Surgery in Paris.
Surgeons attending these conferences expressed interest in the potential growth
of minimally invasive surgeries and the importance of enabling technologies such
as visualization. At these conferences, hundreds of surgeons participated in a
hands-on demonstration of the Series 8000, expressed interest and requested
additional information.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,500,000 shares
Common Stock to be outstanding after the
Offering.................................... 12,797,528 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 March 31, 1997. Does not include (i)
1,282,676 shares of Common Stock issuable upon exercise of options
outstanding as of March 31, 1997 at a weighted average exercise price of
$0.54 per share pursuant to the Company's stock option plans, (ii) 100,000
shares of Common Stock issuable upon the exercise of warrants granted to
Heartport at an exercise price equal to the initial public offering price of
the Common Stock offered hereby or, if not completed by June 30, 1997, at an
exercise price of $6.67 per share and (iii) 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. See "Capitalization," "Management--Benefit Plans"
and "Description of Capital Stock."
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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------- -----------------------
1994 1995 1996 1996 1997
--------- --------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................................. $ 59 $ 1,719 $ 2,244 $ 241 $ 829
Costs and expenses:
Cost of sales.................................... 43 1,272 2,253 184 826
Research and development......................... 1,328 1,904 3,880 533 1,514
Sales and marketing.............................. 291 834 2,057 313 745
General and administrative....................... 758 1,034 3,103 399 1,164
--------- --------- ----------- ---------- -----------
Total costs and expenses....................... 2,420 5,044 11,293 1,429 4,249
--------- --------- ----------- ---------- -----------
Loss from operations............................... (2,361) (3,325) (9,049) (1,188) (3,420)
Minority interest in net loss of consolidated
partnership....................................... 270 -- -- -- --
License income..................................... -- -- 1,493 -- --
Interest income.................................... -- 51 117 34 102
--------- --------- ----------- ---------- -----------
Net loss........................................... $ (2,091) $ (3,274) $ (7,439) $ (1,154) $ (3,318)
--------- --------- ----------- ---------- -----------
--------- --------- ----------- ---------- -----------
Pro forma net loss per share (1)................... $ (0.86) $ (0.37)
Shares used in computing pro forma net loss per
share (1)......................................... 8,626,898 9,079,976
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
AS
ACTUAL ADJUSTED (2)
---------- ------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................................... $ 5,844 $ 34,439
Working capital...................................................................... 7,554 36,149
Total assets......................................................................... 11,226 39,821
Total debt........................................................................... -- --
Accumulated deficit.................................................................. (16,939) (16,939)
Total stockholders' equity........................................................... 9,955 38,550
</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 $9.00 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 March 31, 1997, the Company had incurred
cumulative net losses of $16.9 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. In international markets,
however, regulatory clearance or approval is required before the system can be
widely marketed. 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 effective,
capable of being manufactured in commercial quantities at acceptable costs,
cleared or approved by regulatory authorities or successfully marketed.
7
<PAGE>
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 as efficacious as 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.
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."
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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 four direct
(Company employee) sales representatives and 30 independent sales
representatives. The Company is in the process of hiring up to eight 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 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
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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, and
changes in intended use of, medical devices also are subject to FDA review and
clearance or approval. The FDA regulates the research, testing, manufacture,
safety, effectiveness, 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 or
suspension 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., establishment
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 market the device upon receipt of an FDA order
determining such a device substantially equivalent to a predicate device. 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.
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Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an FDA
substantial equivalence order permitting the marketing of a device is received
by the person who submitted the 510(k) notification. 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 require 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 bench 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. However, the FDA can disagree with a non-significant risk
device finding.
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 new 510(k), PMA or PMA supplement 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 or a new indication for 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 new
510(k), PMA or PMA supplement.
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.
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."
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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 Company's
products; changes in pricing policies by the Company or its competitors; changes
in third-party payment guidelines; 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,
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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 May 31, 1997, the Company had exclusive
ownership rights to seven issued United States patents, 10 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. The Company has not entered into any
employment contracts or arrangements with any of its employees. 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
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breached. In addition, there can be no assurance that any of such agreements
will be renewed upon termination. See "Business -- Clinical Advisory Boards."
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 final stages 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 71.1% 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 9,139,000 shares of Common Stock, including shares
issued or issuable upon the exercise of vested options and warrants outstanding
as of May 31, 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 May 31, 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 9,039,000
shares will be eligible for sale 180 days after the date of this Prospectus; the
remaining 100,000 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 foreseeable
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, as
well as patient demand. 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 Series 8000 commercialization have been received, with
expected commercial availability later this year. The StereoSite systems are
under development, have not been cleared to market in the U.S. by the U.S. Food
and Drug Administration ("FDA") and are not commercially available. The Company
anticipates filing a required 510(k) pre-market notification for the processor
component of the HMD for the StereoSite system in third quarter 1997. 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.
Since February 1997, Vista Medical's CardioThoracic Surgery division has
exhibited the Series 8000 at two cardiothoracic surgery meetings in the U.S. and
at the World Congress on Minimally Invasive Cardiac Surgery in Paris. Surgeons
attending these conferences expressed interest in the potential growth of
minimally invasive surgeries and the importance of enabling technologies such as
visualization. At these conferences, hundreds of surgeons participated in a
hands-on demonstration of the Series 8000, expressed interest and requested
additional information.
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 (760) 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 $28,595,000
($32,989,250 if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $9.00 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 $28.6 million net proceeds of this Offering, the
Company intends to use approximately $9.5 million to fund product introductions,
approximately $5.9 million for sales and marketing activities, approximately
$4.3 million for research and development, approximately $2.3 million for the
acquisition of capital equipment for manufacturing scale-up and the balance of
approximately $6.6 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 agreements with other
companies, the availability of additional financing and other factors. 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. 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 March 31, 1997 (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 $9.00 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>
MARCH 31, 1997
-----------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........................... $ 5,844 $ 5,844 $ 34,439
---------- ----------- ----------
---------- ----------- ----------
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; 616,849 shares issued
and outstanding actual; 9,297,528 shares pro forma; and 12,797,528
shares as adjusted (1).................................................. 6 93 128
Additional paid-in capital................................................ 29,413 29,442 58,002
Notes receivable stockholders............................................. (93) (93) (93)
Deferred compensation..................................................... (2,548) (2,548) (2,548)
Accumulated deficit....................................................... (16,939) (16,939) (16,939)
---------- ----------- ----------
Total stockholders' equity.............................................. 9,955 9,955 38,550
---------- ----------- ----------
Total capitalization.................................................... $ 9,955 $ 9,955 $ 38,550
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
- --------------
(1) Based on shares outstanding as of March 31, 1997. Does not include (i)
1,282,676 shares of Common Stock issuable upon exercise of options
outstanding as of March 31, 1997 at a weighted average exercise price of
$0.54 per share pursuant to the Company's stock option plans, (ii) 100,000
shares of Common Stock issuable upon the exercise of warrants granted to
Heartport at an exercise price equal to the initial public offering price of
the Common Stock offered hereby or, if not completed by June 30, 1997, at an
exercise price of $6.67 per share and (iii) 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. See "Management--Benefit Plans" and "Description
of Capital Stock."
23
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1997 was $9,645,187,
or $1.04 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 $9.00 per share (the mid-point of the range set forth on the
front cover), and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, the Company's net tangible
book value as of March 31, 1997 would have been $38,240,187 or $2.99 per share
of Common Stock. This represents an immediate increase in net tangible book
value per share of Common Stock of $1.95 to existing stockholders and immediate
dilution in net tangible book value of $6.01 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............. $ 9.00
Net tangible book value per share of Common Stock at March
31, 1997................................................ 1.04
Increase per share attributable to new investors.......... 1.95
Net tangible book value per share of Common Stock after this
Offering.................................................. 2.99
---------
Dilution per share to new investors (1)..................... $ 6.01
---------
---------
</TABLE>
- --------------
(1) If the Underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $5.80.
The following table summarizes, on a pro forma basis as of March 31, 1997,
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......... 9,297,528 73% $ 26,395,504 46% $ 2.84
New investors................. 3,500,000 27% 31,500,000 54% $ 9.00
------------- ----- -------------- -----
Total....................... 12,797,528 100% $ 57,895,504 100%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
All of the above computations assume no exercise of outstanding options or
warrants to purchase Common Stock. As of March 31, 1997, options to purchase
1,282,676 shares of Common Stock were outstanding at a weighted average exercise
price of approximately $0.54 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. As of March 31, 1997, the Company had also (i) issued
warrants to Heartport to purchase 100,000 shares of Common Stock at an exercise
price equal to the initial public offering price of the Common Stock offered
hereby or, if not completed by June 30, 1997, with an exercise price of $6.67
per share and (ii) 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
March 31, 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" and "Description of Capital Stock."
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 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
unaudited statement of operations data for the three months ended March 31, 1996
and 1997 and the unaudited balance sheet at March 31, 1997 have been derived
from unaudited financial statements also appearing herein which, in the opinon
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the financial position and
results of operations for the unaudited interim periods. The operating results
for the three months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the full fiscal year ending December 31, 1997
or for any subsequent period. 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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- ------------------------
1993 (1) 1994 1995 1996 1996 1997
----------- --------- --------- ---------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................................... $ 73 $ 59 $ 1,719 $ 2,244 $ 241 $ 829
Costs and expenses:
Cost of sales..................................... 50 43 1,272 2,253 184 826
Research and development.......................... 310 1,328 1,904 3,880 533 1,514
Sales and marketing............................... 48 291 834 2,057 313 745
General and administrative........................ 562 758 1,034 3,103 399 1,164
----------- --------- --------- ---------- ------------ ----------
Total costs and expenses............................ 970 2,420 5,044 11,293 1,429 4,249
----------- --------- --------- ---------- ------------ ----------
Loss from operations................................ (897) (2,361) (3,325) (9,049) (1,188) (3,420)
Minority interest in net loss of consolidated
partnership....................................... 80 270 -- -- -- --
License income...................................... -- -- -- 1,493 -- --
Interest income..................................... -- -- 51 117 34 102
----------- --------- --------- ---------- ------------ ----------
Net loss............................................ $ (817) $ (2,091) $ (3,274) $(7,439) $ (1,154 ) $ (3,318)
----------- --------- --------- ---------- ------------ ----------
----------- --------- --------- ---------- ------------ ----------
Pro forma net loss per share (2).................... $ (0.86) $ (0.37)
---------- ----------
---------- ----------
Shares used in computing pro forma net loss per
share (2)......................................... 8,626,898 9,079,976
---------- ----------
---------- ----------
<CAPTION>
DECEMBER 31,
--------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997
----------- --------- --------- ---------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments... $ 442 $ 9 $ 3,399 $ 10,285 $ 5,844
Working capital..................................... 409 (76) 4,224 10,805 7,554
Total assets........................................ 855 475 5,208 14,316 11,226
Total debt.......................................... 1,293 3,243 -- -- --
Accumulated deficit................................. (817) (2,907) (6,181) (13,620) (16,939)
Total stockholders' equity (deficit)................ (816) (2,906) 4,707 12,961 9,955
</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 March 31, 1997, the Company has
incurred cumulative net losses of approximately $16.9 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 required regulatory approval
of products will continue to be obtained in a timely manner, if at all.
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, 1996 and at March 31, 1997, the Company had 11, 21, 49 and 59
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
recorded 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."
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RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 1996 AND 1997
SALES. The Company had revenues from product sales of $241,000 in the
quarter ended March 31, 1996 and $829,000 in the quarter ended March 31, 1997.
The increase was primarily attributable to the sales of surgical instruments and
sutures for which the Company acquired distribution rights during the second
half of 1996 and to the increased sales of the Company's endoscopic cameras to
new and existing customers. Sales to individual customers exceeding 10% or more
of revenues for the three months ended March 31, 1996 and 1997 were as follows:
for the three months ended March 31, 1996, three customers accounted for 62%,
20% and 12% of revenues; for the three months ended March 31, 1997, four
customers accounted for 27%, 18%, 17% and 10% of revenues, three of whom were
greater than 10% customers for the three months ended March 31, 1996. 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.
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 $184,000 for the quarter ended March 31, 1996 and
$826,000 for the quarter ended March 31, 1997. The increase in these expenses
was related to the growth in revenue between the periods and to investment in
manufacturing infrastructure the Company is making to accommodate the scale-up
for new product introductions in 1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist 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 $533,000 for the quarter ended
March 31, 1996 and $1,514,000 for the quarter ended March 31, 1997. The increase
was primarily attributable to increases in staffing, contract research and
development expense and consulting fees related to development, prototyping and
evaluation of future products.
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 were $313,000 for the quarter
ended March 31, 1996 and $745,000 for the quarter ended March 31, 1997. The
increase was primarily attributable to increases in staffing and related
expenses, professional and consulting fees in connection with marketing programs
related to new products and commissions.
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 $399,000 for the quarter ended March
31, 1996 and $1,164,000 for the quarter ended March 31, 1997. The increase was
primarily attributable to increases in staffing and related expenses associated
with development of the Company's administrative infrastructure, increases in
legal and professional fees related to patents and other business development
efforts, and the amortization of deferred compensation. The Company recorded
noncash deferred compensation of $743,000 in connection with stock options
granted in January and February 1997. The unamortized balance of the deferred
compensation will be expensed over the five-year vesting periods of the options
and, therefore, will continue to impact the Company's operating results through
2001.
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INTEREST INCOME. Interest income was $34,000 in the quarter ended March 31,
1996 and $102,000 in the quarter ended March 31, 1997, with the increase due to
increasing average investment balances.
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
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.
COST OF SALES. 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 EXPENSES. 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 increased from
$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 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.
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GENERAL AND ADMINISTRATIVE EXPENSES. 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 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.
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 unrelated to the Company's main products and markets. The
license to Urohealth was a unique, non-recurring transaction that involved a
license of only that component of the Company's technology that it did not want
to pursue. For this reason, the license fees were treated as non-operating
income. Prior to 1996, the Company had no license income. No other technology is
being developed with the purpose of being licensed and the Company does not
anticipate any future licensing arrangements of any of its core technology for
medical applications.
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 March 31, 1997, the Company had approximately $5,844,000 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 common and preferred stock totaling approximately $23,055,000, 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, and $1,603,000
and $4,123,000 for the quarters ended March 31, 1996 and 1997, respectively. The
increase in net cash used from operating activities each year and for the
quarterly periods has resulted primarily from increasing net losses during such
periods and investments in inventories associated with expansion of the
Company's product line.
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Net cash used in investing activities was approximately $94,000, $298,000
and $1,239,000 for 1994, 1995 and 1996, respectively, and $92,000 and $353,000
for the quarters ended March 31, 1996 and 1997, respectively. The increase in
net cash used in investing activities each year and for the quarterly periods
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 and $3,000 and $36,000 for the quarters
ended March 31, 1996 and 1997, 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. The increase in the quarter ended March 31, 1997 from
that of the quarter ended March 31, 1996 was due to increased exercises of
options to purchase common stock.
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, and $92,000 and $353,000 for the quarters ended March 31,
1996 and 1997, 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 March 31, 1997, the Company had commitments for capital
expenditures of approximately $1,250,000 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 is currently negotiating with a lender to secure a $10.0 million
credit line. There can be no assurances that the Company will be successful in
negotiating such a credit line on favorable terms, if at all.
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, debt 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" 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"), 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. 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 additional development work, and has proprietary rights, in the
surgical HMD design. The Vista Medical HMD, which the Company believes is 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
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3-D endoscopic optical system employed by Vista Medical was originally developed
and patented by a 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 CardioCameras 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.
Of the components listed in the table above, CardioView, CardioCamera,
CardioController, CardioLight and CardioConsole are necessary for Series 8000
commercialization. 510(k) clearances to market the first four components have
been received, and 510(k) clearance to market is not necessary for the
CardioConsole component. The Company expects the Series 8000 to be commercially
available later this year. The Company anticipates filing a required 510(k)
pre-market notification for the CardioGuide in third quarter 1997.
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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 anticipates filing a required 510(k) pre-market notification for
the processor component of the HMD for the StereoSite systems in third quarter
1997. The processor component will incorporate enhanced software capabilities.
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. The Company
expects the StereoSite systems to be commercially available in first quarter
1998, subject to receipt of required regulatory approvals.
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 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
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moving the scope. This capability is not available in any other currently
marketed endoscope and the 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 cardiothoracic 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 connection 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. In addition, Vista
Medical and Medtronic entered into a Supplemental Rights Agreement in connection
with entering into the co-promotion agreement, pursuant to which Medtronic
received a first offer purchase right in certain proposed transactions and a
right to designate an observer to attend meetings of the Board of Directors.
Each of these rights terminate upon the closing of the Offering.
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<PAGE>
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 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 hired 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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<PAGE>
investors. Substantially all of the shares originally issued to Kaiser Aerospace
were subsequently transferred to Foster City Partners, a partnership which
includes senior executives of Kaiser Aerospace, in June 1996. Foster City
Partners remained a significant stockholder participating pro-rata in a further
investment round in July 1996. See "Certain Transactions."
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 for an unspecified term. 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 a three-year period 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 begin training programs in
the third quarter of 1997 and expects to be able to train up to 250 surgeons on
an annual basis. VCS 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. This
evaluation phase will 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.
Since February 1997, Vista Medical's CardioThoracic Surgery division has
exhibited the Series 8000 at two major cardiothoracic surgery meetings in the
U.S. and at the World Congress on Minimally Invasive Cardiac Surgery in Paris.
Surgeons attending these conferences expressed interest in the potential growth
of minimally invasive surgeries and the importance of enabling technologies such
as visualization. At these conferences, hundreds of surgeons participated in a
hands-on demonstration of the Series 8000, expressed interest and requested
additional information.
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 four direct and 30 independent representatives and
is in the process of hiring up to eight additional direct sales people to
support the introduction of the Series 8000. In addition, Medtronic will
co-promote the Series 8000 in conjunction with Medtronic's own proprietary
products for minimally invasive cardiac surgery in the U.S. and Canada. 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 first quarter 1998 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
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<PAGE>
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.
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, and
changes in intended use of, medical devices also are subject to FDA review and
clearance or approval. The FDA regulates the research, testing, manufacture,
safety, effectiveness, 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.
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Noncompliance with applicable requirements can result in failure of the
government to grant pre-market clearance or approval for devices, withdrawal or
suspension 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., establishment
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 market the device upon receipt of an FDA order
determining such a device substantially equivalent to a predicate device. 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 an FDA
substantial equivalence order permitting the marketing of a device is received
by the person who submitted the 510(k) notification. 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 require 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 Series 8000 commercialization have been received. The Company
anticipates filing a required 510(k) pre-market notification for the processor
component of the HMD for the StereoSite systems in third quarter 1997. 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
44
<PAGE>
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 bench 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. However, the FDA can disagree with a
non-significant risk device finding.
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 new 510(k), PMA or PMA supplement 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 or a new indication for 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 new
510(k), PMA or PMA supplement.
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. See "--Strategic
Alliances--Medtronic."
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 May 31, 1997, the Company had exclusive
ownership rights to seven issued United States patents, 10 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
45
<PAGE>
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, 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. 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. 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.
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
46
<PAGE>
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
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.
47
<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>
48
<PAGE>
HUMAN RESOURCES
As of May 31, 1997, the Company had 64 full-time employees, of whom 10 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.
49
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of May 31, 1997, are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James C. Blair (1)................................... 58 Chairman of the Board and Director
John R. Lyon......................................... 51 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.................................. 50 Vice President and General Manager, Oktas division
Robert J. De Vaere................................... 39 Chief Financial Officer and Director of Finance and
Administration
Olav B. Bergheim..................................... 47 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.,
Aurora Biosciences Corp., CoCensys Inc., Dura Pharmaceuticals, Inc., Gensia
Sicor, Inc. and Trega Biosciences 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.
50
<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 Vice
President and General Manager of the Company's 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.
51
<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
52
<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.
53
<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
54
<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
The Company has not entered into any employment contracts or arrangements
with any of its Named Executive Officers.
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."
55
<PAGE>
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 currently compensated for serving on
the Board. However, under the 1997 Stock Option/Issuance Plan, as amended, (the
"Plan") which was adopted in February 1997 and amended in March and May 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 300,000 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
56
<PAGE>
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.
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
57
<PAGE>
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
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
58
<PAGE>
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 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.
59
<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 of Series A-1 Preferred Stock originally issued to Kaiser
Aerospace and subsequently transferred to Foster City Partners in June 1996.
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.
60
<PAGE>
In July 1995, the Company entered into a 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 for an unspecified term. 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 a three-year period 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.
In July 1996, the Company raised approximately $4.3 million in cash from
Foster City Partners, various venture capital funds, including funds which are
principal stockholders of the Company and/or affiliated with directors of the
Company, and other accredited investors in a private placement of its Series B
Preferred Stock. The Company repaid its indebtedness to certain of the venture
capital funds by permitting such funds to cancel approximately $0.8 million of
indebtedness owed by the Company as consideration for shares of Series B
Preferred Stock.
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 addition, Vista Medical and
Medtronic entered into a Supplemental Rights Agreement in connection with
entering into the co-promotion agreement, pursuant to which Medtronic received a
first offer purchase right in certain proposed transactions and a right to
designate an observer to attend meetings of the Board of Directors. Each of
these rights terminate upon the closing of the 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.
61
<PAGE>
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.
62
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of May 31, 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 20.1% 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 20.1% 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)................................................ 1,692,194 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)............................................................. 7,185,600 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.
(2) Percentage of ownership is calculated pursuant to Commission Rule
13d-3(d)(1).
63
<PAGE>
(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 May 31, 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 May 31, 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 May 31, 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 May 31, 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 May 31, 1997.
(10) Includes 135,000 shares issuable upon exercise of options exercisable
within 60 days of May 31, 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 May 31, 1997.
(12) Includes 78,750 shares issuable upon exercise of options exercisable within
60 days of May 31, 1997.
(13) Includes 714,000 shares issuable upon exercise of options exercisable
within 60 days of May 31, 1997. See also footnotes 3, 6, 7 and 8.
64
<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 12,797,528
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 May 31, 1997, there were 9,297,528 shares of Common Stock outstanding and
held of record by approximately 74 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.
If an initial public offering is not completed by June 30, 1997, the exercise
price will be $6.67 per share. 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
65
<PAGE>
demand registration rights, and the Company is required to use its best efforts
to effect such registration, 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.
66
<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.
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 12,797,528 shares of
Common Stock outstanding (assuming no exercise of options or other convertible
securities or issuances of Common Stock subsequent to March 31, 1997). 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 9,298,000 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
7,548,000 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 7,514,000 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 9,489,000 shares of Common Stock (including shares
issued or issuable upon the exercise of vested options and warrants outstanding
as of May 31, 1997) will become available for sale in the public market; the
remaining 100,000 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, 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
68
<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.
69
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED 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 and at March 31, 1997
(unaudited).......................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996 and the three months ended March 31, 1996 (unaudited) and 1997 (unaudited)...... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994,
1995 and 1996 and the three months ended March 31, 1997 (unaudited).................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and the three months ended March 31, 1996 (unaudited) and 1997 (unaudited)...... 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, MARCH 31, MARCH 31,
-------------------------------- 1997 1997
1995 1996 (UNAUDITED) (UNAUDITED)
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 3,234,175 $ 10,119,529 $ 5,679,477
Short-term investments............................ 165,000 165,000 165,000
Accounts receivable............................... 568,854 526,119 770,344
Inventories....................................... 685,456 1,212,825 1,729,892
Other current assets.............................. 70,445 136,400 479,763
--------------- --------------- --------------
Total current assets................................ 4,723,930 12,159,873 8,824,476
Property and equipment, net......................... 187,874 1,082,103 1,341,136
Patents and other assets............................ 296,083 1,073,741 1,060,112
--------------- --------------- --------------
TOTAL ASSETS........................................ $ 5,207,887 $ 14,315,717 $ 11,225,724
--------------- --------------- --------------
--------------- --------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 350,058 $ 607,639 $ 674,183
Accrued compensation.............................. 147,410 226,543 183,663
Accrued liabilities............................... 2,970 520,584 413,079
--------------- --------------- --------------
Total current liabilities........................... 500,438 1,354,766 1,270,925
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, 11,574,252 in 1996 and March 1997 (no
shares pro forma)............................. 82,490 115,742 115,742 --
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,
538,224 in 1996 and 616,849 in March 1997
(9,297,528 shares pro forma).................. 1,489 5,382 6,168 92,975
Additional paid-in capital........................ 10,834,428 28,615,223 29,412,801 29,441,736
Notes receivable from stockholders................ (29,625) (93,375) (93,375) (93,375)
Deferred compensation............................. -- (2,061,549) (2,547,994) (2,547,994)
Accumulated deficit............................... (6,181,333) (13,620,472) (16,938,543) (16,938,543)
--------------- --------------- -------------- ---------------
Total stockholders' equity.......................... 4,707,449 12,960,951 9,954,799 $ 9,954,799
--------------- --------------- -------------- ---------------
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $ 5,207,887 $ 14,315,717 $ 11,225,724
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEARS ENDED DECEMBER 31,
---------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................. $ 59,362 $ 1,719,223 $ 2,243,756 $ 241,043 $ 829,218
Costs and expenses:
Cost of sales....................... 43,123 1,272,010 2,252,509 184,481 826,027
Research and development............ 1,327,608 1,903,618 3,880,069 532,726 1,513,868
Sales and marketing................. 291,169 834,518 2,056,767 312,930 744,661
General and administrative.......... 757,877 1,034,434 3,103,256 399,358 1,164,221
-------------- -------------- -------------- -------------- --------------
Total cost and expenses............... 2,419,777 5,044,580 11,292,601 1,429,495 4,248,777
-------------- -------------- -------------- -------------- --------------
Loss from operations.................. (2,360,415) (3,325,357) (9,048,845) (1,188,452) (3,419,559)
Minority interest in net loss of
consolidated partnership............. 269,706 -- -- -- --
License income........................ -- -- 1,493,000 -- --
Interest income....................... -- 51,407 116,706 34,869 101,488
-------------- -------------- -------------- -------------- --------------
Net loss.............................. $ (2,090,709) $ (3,273,950) $ (7,439,139) $ (1,153,583) $ (3,318,071)
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Pro forma net loss per share.......... $ (0.86) $ (0.37)
-------------- --------------
-------------- --------------
Shares used in computing pro forma net
loss per share....................... 8,626,898 9,079,976
-------------- --------------
-------------- --------------
</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 Aconvertible
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 the
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
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)
Exercise of stock options for
cash........................... -- -- 75,625 756 35,098 -- --
Issuance of stock for services
rendered....................... -- -- 3,000 30 19,980 -- --
Deferred compensation........... -- -- -- -- 742,500 -- (742,500)
Amortization of deferred
compensation................... -- -- -- -- -- -- 256,055
Net loss........................ -- -- -- -- -- -- --
---------- --------- --------- --------- ----------- ------------- --------------
BALANCE AT MARCH 31, 1997
(Unaudited)...................... 11,574,252 $ 115,742 616,849 $ 6,168 $29,412,801 $ (93,375) $ (2,547,994)
---------- --------- --------- --------- ----------- ------------- --------------
---------- --------- --------- --------- ----------- ------------- --------------
<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 Aconvertible
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 the
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
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
Exercise of stock options for
cash........................... -- 35,854
Issuance of stock for services
rendered....................... -- 20,010
Deferred compensation........... -- --
Amortization of deferred
compensation................... -- 256,055
Net loss........................ (3,318,071) (3,318,071)
------------- -----------
BALANCE AT MARCH 31, 1997
(Unaudited)...................... $(16,938,543) $ 9,954,799
------------- -----------
------------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................. $(2,090,709) $(3,273,950) $(7,439,139) $(1,153,582) $(3,318,071)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization...................... 20,328 36,138 351,256 32,796 107,747
Issuance of stock for services rendered............ -- -- -- -- 20,010
Amortization of deferred compensation.............. -- -- 447,262 -- 256,055
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, net of
effect of acquisitions:
Accounts receivable.............................. 38,353 (568,264) 126,752 243,508 (244,225)
Inventories...................................... (17,755) (472,579) (405,706) (661,157) (517,067)
Other current assets............................. 976 (30,846) (64,105) (6,003) (343,363)
Accounts payable................................. 12,544 255,192 171,714 (155,226) 66,544
Accrued compensation............................. 14,841 108,750 79,133 -- (42,880)
Accrued liabilities.............................. 3,394 (424) 488,591 96,553 (107,505)
----------- ----------- ----------- ----------- -----------
Net cash flows used for operating activities......... (2,287,734) (3,567,250) (6,937,242) (1,603,111) (4,122,755)
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) (92,029) (353,151)
----------- ----------- ----------- ----------- -----------
Net cash flows used for investing activities......... (94,009) (297,929) (1,238,783) (92,029) (353,151)
FINANCING ACTIVITIES
Advances from a related party........................ 1,949,508 2,136,000 -- -- --
Repayment of advances to arelated party.............. -- (3,004,000) -- -- --
Issuance of common stock............................. -- -- 14,120 3,000 35,854
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 3,000 35,854
Net (decrease) increase in cash and cash
equivalents......................................... (432,235) 3,224,783 6,885,354 (1,692,140) 4,440,052
Cash and cash equivalents at beginning of year....... 441,627 9,392 3,234,175 3,234,175 10,119,529
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year............. $ 9,392 $ 3,234,175 $10,119,529 $ 1,542,035 $ 5,679,477
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................... $ -- $ 1,711 $ 183 $ -- $ 70
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
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
CONJUNCTION WITH ACQUISITIONS:
Oktas, Inc. (Series A)............................... $ -- $ 350,000 $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
American Surgical Technologies, Inc. (Series A)...... $ -- $ 204,820 $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Promedica, Inc. (Series B)........................... $ -- $ -- $ 184,000 $ -- $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
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.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The financial statements for the three month periods ended March 31, 1996
and 1997 include all adjustments (consisting only of normal recurring
adjustments) which management considers necessary for a fair statement of the
financial position at such dates and the operating results and cash flows for
the periods. Results for interim periods are not necessarily indicative of
results for the entire year or any future periods.
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
F-7
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 uncollectible 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
F-8
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of fully diluted earnings per share, if applicable, for these
periods is not expected to be material.
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>
THREE MONTHS ENDED MARCH 31,
YEARS ENDED DECEMBER 31,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss per share.......... $ (0.91) $ (1.39) $ (3.05) $ (0.46) $ (1.15)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Shares used in computing net
loss per share............. 2,292,382 2,356,502 2,440,507 2,489,176 2,893,585
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
F-9
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 March 31, 1997, 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,
-------------------------- MARCH 31,
1995 1996 1997
----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Parts and supplies................................. $ 325,899 $ 567,707 $ 1,176,951
Work in process.................................... 127,307 286,099 228,287
Finished goods..................................... 232,250 359,019 324,654
----------- ------------- -------------
$ 685,456 $ 1,212,825 $ 1,729,892
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1995 1996 1997
----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment............................ $ 63,610 $ 271,747 $ 430,428
Office computers, furniture and equipment.......... 121,068 352,911 448,235
Marketing demonstration equipment.................. 64,216 776,420 845,370
Leasehold improvements............................. -- 68,704 98,900
----------- ------------- -------------
248,894 1,469,782 1,822,933
Less: accumulated depreciation..................... (61,020) (387,679) (481,797)
----------- ------------- -------------
$ 187,874 $ 1,082,103 $ 1,341,136
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
F-10
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
2. BALANCE SHEET COMPONENTS (CONTINUED)
Patents and other assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1995 1996 1997
----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Investment in common stock......................... $ -- $ 693,000 $ 693,000
Patents and other intangible assets, net........... 258,583 323,241 309,612
Prepaid royalties.................................. 37,500 57,500 57,500
----------- ------------- -------------
$ 296,083 $ 1,073,741 $ 1,060,112
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
3. MAJOR CUSTOMERS
Sales to individual customers exceeding 10% or more of revenues for the
years ended December 31, 1994, 1995 and 1996 and the three months ended March
31, 1996 and 1997 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
three months ended March 31, 1996, three customers accounted for 62%, 20% and
12% of revenues; for the three months ended March 31, 1997, four customers
accounted for 27%, 18%, 17% and 10% 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>
Rent expense was approximately $55,000, $75,000, $183,000, $28,000 and
$76,000 for the years ended December 31, 1994, 1995, 1996, and the three months
ended March 31, 1996 and 1997, respectively.
5. LICENSE INCOME
In December 1996, the Company granted to Urohealth Systems Inc.
("Urohealth") a perpetual license to certain of its technology and patents
unrelated to the Company's main products and markets.
F-11
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
5. LICENSE INCOME (CONTINUED)
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. No other
technology is being developed with the purpose of being licensed and the Company
does not anticipate any future licensing arrangements of any of its core
technology for medical applications. The license to Urohealth Systems, Inc.
("Urohealth") was a unique, non-recurring transaction that involved a license of
only that component of the Company's technology that it did not want to pursue.
For this reason, the license fees were treated as non-operating income. 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, MARCH 31,
LIQUIDATION DESIGNATED -------------------------- -------------
SERIES PREFERENCE SHARES 1995 1996 1997
- ------------------ -------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
A-1............... $ 10,725,001 8,300,000 8,094,340 8,094,340 8,094,340
A-3............... 204,820 500,000 154,581 154,581 154,581
B................. 5,301,324 3,100,000 -- 1,325,331 1,325,331
C................. 10,000,000 2,000,000 -- 2,000,000 2,000,000
-------------- ------------- ----------- ------------- -------------
$ 26,231,145 13,900,000 8,248,921 11,574,252 11,574,252
-------------- ------------- ----------- ------------- -------------
-------------- ------------- ----------- ------------- -------------
</TABLE>
F-12
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
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 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 recorded $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-13
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF PRICE PER PRICE PER
SHARES SHARE SHARE
----------- -------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1994........................ -- $ -- $ --
Granted............................................. 655,322 $ .20 $ .20
-----
Exercised........................................... (148,125) $ .20 $ .20
-----
Canceled............................................ -- -- $ --
----------- -------------- -----
Balance at December 31, 1995........................ 507,197 $ .20 $ .20
Granted............................................. 1,173,888 $ .20 - $.80 $ .33
Exercised........................................... (389,349) $ .20 $ .20
Canceled............................................ (45,935) $ .20 $ .20
----------- -------------- -----
Balance at December 31, 1996........................ 1,245,801 $ .20 - $.80 $ .32
Granted............................................. 112,500 $ .80 - $4.00 $ 2.93
Exercised........................................... (75,625) $ .20 - $.80 $ .50
Canceled............................................ -- $ -- $ --
----------- -------------- -----
Balance at March 31, 1997 (Unaudited)............... 1,282,676 $ .20 - $4.00 $ .54
----------- -------------- -----
----------- -------------- -----
</TABLE>
At December 31, 1996, 157,806 options to purchase common shares were vested
and 232,335 options were available for future grant. At March 31, 1997, 195,309
options to purchase common shares were vested and 1,537,324 options were
available for future grant.
The weighted-average fair value of options granted during the year ended
December 31, 1996 and the three months ended March 31, 1997 was $0.09 and $0.76,
respectively. The weighted-average remaining contractual life at December 31,
1996 and March 31, 1997 is 9.24 and 9.04 years, respectively.
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 option of 2.5 to 5 years.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The effect
of applying SFAS 123 for purposes of providing
F-14
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
pro forma disclosures is not likely to be representative of the effects on
reported net income for future years. The Company's pro forma information is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ --------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Adjusted pro forma net loss................... $ (3,279,659) $ (7,451,220) $ (3,326,605)
-------------- -------------- --------------
-------------- -------------- --------------
Adjusted pro forma net loss per share......... $ (0.66) $ (0.86) $ (0.37)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
COMMON STOCK RESERVED
At December 31, 1996 and March 31, 1997, a total of 10,158,815 and
11,621,512 shares, respectively, of the Company's common stock have been
reserved for the conversion of preferred stock, the exercise of stock options
and warrants, for stock options available for future grant and for shares to be
issued in connection with the GDE license agreement at the initial public
offering price.
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 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
F-15
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
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,
$1,205,000 and $259,310 for the years ending December 31, 1995 and 1996, and the
three months ended March 31, 1997, respectively. At December 31, 1996 and March
31, 1997, the Company had approximately $1,335,000 and $1,641,000 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.
F-16
<PAGE>
VISTA MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
9. SUBSEQUENT EVENTS (CONTINUED)
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 March 31, 1997.
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 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 will record a charge to cost of sales for the value of the
warrant upon shipment of the units.
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-17
<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 Series 8000 product has been cleared to market in the U.S. by the FDA
with expected commercial availability later this year. The StereoSite systems
are under development, have not been cleared to market in the U.S. by the FDA
and are not commercially available.
<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.................................................................. 31
Management................................................................ 50
Certain Transactions...................................................... 60
Principal Stockholders.................................................... 63
Description of Capital Stock.............................................. 65
Shares Eligible for Future Sale........................................... 68
Legal Matters............................................................. 69
Experts................................................................... 69
Additional Information.................................................... 69
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 (or, if not
completed by June 30, 1997, with an exercise price of $6.67 per share) 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 27,778 shares of Common Stock to GDE within ten business days of the
close of this Offering, assuming an initial public offering price of $9.00
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, as amended.
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>
- --------------
+
To be filed by amendment.
++
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.
II-5
<PAGE>
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.
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 1st day of July, 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 July 1, 1997
(John R. Lyon) Officer)
Director of Finance and
/s/ ROBERT J. DE VAERE Administration and Chief
- ------------------------------ Financial Officer July 1, 1997
(Robert J. De Vaere) (Principal Financial and
Accounting Officer)
*
- ------------------------------ Chairman of the Board and July 1, 1997
(James C. Blair) Director
*
- ------------------------------ Director July 1, 1997
(Olav B. Bergheim)
*
- ------------------------------ Director July 1, 1997
(Nicholas B. Binkley)
*
- ------------------------------ Director July 1, 1997
(Daniel J. Holland)
*
- ------------------------------ Director July 1, 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, as
amended.
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>
EXHIBIT 10.7
INTERNATIONAL DISTRIBUTION AGREEMENT
THIS INTERNATIONAL DISTRIBUTION AGREEMENT (the "Agreement"), effective this 20th
day of September, 1994, is entered into by and between AMERICAN SURGICAL
TECHNOLOGIES CORPORATION, a Delaware corporation with a principal place of
business located at 300 Billerica Road, Chelmsford, Massachusetts 01824, U.S.A.,
hereinafter referred to as "ASTC" and
AMCO, Inc.
* * *
* * *
* * *
hereinafter referred to as "DISTRIBUTOR".
WHEREBY ASTC desires to appoint DISTRIBUTOR to promote, sell, distribute, and
service ASTC products in and within the Territory (as defined hereinafter) in
accordance with the terms and conditions stated herein; and
WHEREBY DISTRIBUTOR represents that it has the capability and resources to
promote, sell, distribute, and service ASTC products in and within the * * *
(hereinafter referred to as "the Territory"), to fulfill the needs and
requirements of customers for ASTC products in such Territory;
NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING, it is mutually agreed by and
between the parties as follows:
1. EXCLUSIVE RIGHTS: ASTC hereby grants to DISTRIBUTOR the exclusive right to
purchase from ASTC those products set forth in Exhibit "B" annexed hereto
("3DSCOPE International Distributor Product/Price List"), for the sole
purpose of reselling such products in the Territory to hospitals, clinics,
physicians, and other medical and surgical entities, institutions, and
personnel (the "Medical Market"). ASTC appoints DISTRIBUTOR as its
exclusive representative to promote, sell, distribute, and service ASTC
Products only in the Territory and only to the Medical Market. The
Distributor shall have no right to promote, sell, or distribute ASTC
Products directly or indirectly, in any other Territory or to any person or
entity other than the Medical Market. For purposes of this Agreement, the
meaning of the term "sell" shall also include "lease" or "rent".
2. TERMS AND CONDITIONS: DISTRIBUTOR hereby accepts the said appointment and
agrees to the conditions set forth herein and in accordance with the
Standard Terms and Conditions for International Distribution Agreements
annexed hereto as Exhibit "A" and incorporated herein by reference and made
a part hereof.
* * * Confidential Treatment Requested
-1-
<PAGE>
3. AVAILABILITY: ASTC shall make available for purchase by DISTRIBUTOR
sufficient quantities of ASTC Products to meet DISTRIBUTOR's reasonable
needs and requirements in order to fulfill the terms and conditions of this
Agreement.
4. INITIAL ORDER: Upon execution of this Agreement, and as a condition
precedent to the validity hereof, DISTRIBUTOR shall submit a Purchase Order
(as defined in Paragraph 9 to ASTC for an Initial Order of ASTC Products at
the prices set forth on Exhibit "B" annexed hereto except that the first
unit ordered will reflect a * * *% discount, units * * * will reflect a
* * *% discount, and all future orders will reflect a * * *% as shown on
Exhibit B. The said Initial Order is set forth as Exhibit "C" annexed
hereto.
5. ANNUAL PURCHASE COMMITMENT:
5.1. DISTRIBUTOR and ASTC agree the quantity of ASTC Products to be
purchased by DISTRIBUTOR will total * * * in year one, * * *
in year two and * * * in year three, year one commences with
grant of government registration. The products to be purchased are
the products listed in Exhibit B inclusive of any new products and
accessories to be added to Exhibit B hereafter.
5.2. No later than thirty (30) days following the last day of any
subsequent year of the term of this Agreement, if the term of this
Agreement shall have been extended in accordance with the terms of
this Agreement) DISTRIBUTOR and ASTC shall mutually agree in
writing on the Annual Purchase Commitment for the following year.
Failure to do so will result in a probationary ninety (90) day
period. Upon expiration of the probationary period, DISTRIBUTOR's
rights hereunder shall terminate, unless prior to the expiration of
said probationary period, ASTC notifies DISTRIBUTOR in writing that
DISTRIBUTOR's rights hereunder shall continue according to the
terms and conditions hereof.
5.3. Failure on the part of the DISTRIBUTOR in any consecutive two (2)
quarters in any given year of this Agreement, to purchase an
aggregate total of * * * of the Annual Purchase
Commitment shall result in a sixty (60) day probationary period,
which probationary period shall be followed by immediate
termination of DISTRIBUTOR's rights hereunder, unless prior to the
expiration of said probationary period, ASTC notifies DISTRIBUTOR
in writing that DISTRIBUTOR'S rights hereunder shall continue
according to terms and conditions hereof.
* * * Confidential Treatment Requested
-2-
<PAGE>
5.4. Any failure by the DISTRIBUTOR to meet its Annual Purchase
Commitment resulting from delayed delivery by ASTC of the ASTC
Products covered by this Agreement shall be documented at the time
of any such delay. Such failure shall not constitute a breach of
this Agreement so long as the quantity of ASTC Products subject to
such delay would, had DISTRIBUTOR been able to purchase such ASTC
Products during such period of delay, been equivalent to the
quantity of ASTC Products necessary to meet the Annual Purchase
Commitment for the relevant period.
6. MARKET DEVELOPMENT AND INFORMATION:
6.1. DISTRIBUTOR agrees to use its best efforts to develop a market for
ASTC Products and to enhance ASTC's image in the market place as a
provider of quality products. At the beginning of each calendar
year, DISTRIBUTOR shall provide to ASTC its business plan for the
coming year for the sale and promotion of ASTC Products in the
Territory, and ASTC and DISTRIBUTOR shall mutually agree in writing
on the sales promotion activities and performance criteria to be
met by DISTRIBUTOR for that calendar year.
6.2. DISTRIBUTOR shall annually provide ASTC a written analysis of the
market within the Territory, including total market size, market
share data and competitive activities, including, if reasonably
available to DISTRIBUTOR, information concerning competitors'
products, prices, and marketing programs and strategies, sales
reports, an account of its ASTC Products inventory, its key
accounts, and such other information as may be reasonably obtained
by DISTRIBUTOR relating to ASTC Products and competitors' products
so as to enable ASTC to assist DISTRIBUTOR in fully developing the
market demand for ASTC products and in developing appropriate
marketing and business plans for the mutual advantage of
DISTRIBUTOR and ASTC.
7. NEW PRODUCTS:
7.1. If ASTC in its sole discretion, decides to make a new product
available for sale * * * and in the
Territory (such new product being defined as product not listed on
Exhibit "B" annexed hereto), ASTC shall discuss with DISTRIBUTOR
the addition of such new product to this Agreement.
7.2. ASTC will grant DISTRIBUTOR right of first refusal if ASTC decides
to add new product(s) to this Agreement. If DISTRIBUTOR decides
that it does not want to add new product(s) to this Agreement, then
ASTC shall have the right to have the said new product distributed
by another representative within the Territory.
* * * Confidential Treatment Requested
-3-
<PAGE>
8. PRICES:
8.1. Prices to DISTRIBUTOR shall be in United States dollars and shall
be, initially, the prices set forth on Exhibit "B" annexed hereto
along with additional discounts as described in Section 4. Changes
in price may be made by ASTC, subject to ninety (90) days written
notice in advance to DISTRIBUTOR. Within such ninety day period,
DISTRIBUTOR may place reasonable orders for purchase of ASTC
Products, but ASTC explicitly retains the right to reasonably limit
the quantity of such orders.
8.2. All prices are calculated for delivery FOB ASTC's plant, currently
located in Chelmsford, Massachusetts, U.S.A. Customs duties and
charges, if any, shall be borne by DISTRIBUTOR. Any export
licenses in the United States shall be obtained and paid for by
ASTC. All other import or export licenses, approvals or both shall
be obtained by DISTRIBUTOR at its cost. Prices to DISTRIBUTOR do
not include any federal, state or local taxes that may be
applicable to the ASTC Products. When ASTC has the legal
obligation to collect such taxes, the appropriate amount shall be
added to DISTRIBUTOR's invoice and paid by DISTRIBUTOR unless
DISTRIBUTOR provides ASTC with a valid tax exemption certificate
authorized by the appropriate taxing authority.
9. PURCHASES:
9.1. Pursuant to this Agreement the DISTRIBUTOR shall submit purchase
orders for the ASTC Products ("Purchase Order"). Such Purchase
Orders shall be subject to the Standard Terms and Conditions for
International Distribution as set forth in Exhibit "A" annexed
hereto.
9.2. ASTC shall have the right to modify its Standard Terms and
Conditions for International Distribution upon mutual written
agreement between ASTC and DISTRIBUTOR, following which all future
Purchase Orders will be subject to such modified Terms and
Conditions.
9.3. DISTRIBUTOR may cancel without charge any outstanding Purchase
Order within seven (7) days of receipt of such Purchase Order by
ASTC, but only by written (or FAX) notice of cancellation, orders
canceled after the seven day period without sufficient reason are
subject to penalties mutually agreed to by ASTC and DISTRIBUTOR.
10. PAYMENT: Full payment to ASTC of DISTRIBUTOR's purchase price (including
any freight, taxes, or other applicable costs) shall be made in the United
States in United States dollars 60 days after shipment of order.
-4-
<PAGE>
11. TERM OF AGREEMENT:
11.1. Except as otherwise provided in this Section 11, this Agreement
shall have an initial terms of three (3) years from the effective
date hereof and automatically renew for one year periods unless
terminated by 90 days written notice before expiration of each term
by either party.
12. CANCELLATION AND TERMINATION:
12.1. This Agreement may be canceled by either party for any reason upon
ninety (90) days prior written notice to the other party.
12.2. Either party shall have the right to terminate this Agreement
immediately for just cause should either party breach any provision
of for this Agreement, including any of the following:
12.2.1. failure by DISTRIBUTOR to make payment for ASTC
Products purchased in accordance with ASTC's
established policy for this Agreement;
12.2.2. failure to establish and maintain a sales and service
organization of sufficient size to adequately and
effectively sell, service, and support ASTC Products in
the Territory;
12.2.3. failure to honor warranties;
12.2.4. failure to maintain adequate books and records with
respect to the names and addresses of customers, and
the sale and distribution of ASTC Products;
12.2.5. failure to comply with local law applicable in the
Territory, including by way of explanation but not
limitation, compliance with any local currency
restrictions or restrictions on payment of local
commissions to sales representatives;
12.2.6. violation of any of the obligations of DISTRIBUTOR with
respect to ASTC's patents, trademarks, copyrights,
labeling, products registrations, interest, know how,
trade names or ASTC's proprietary information;
12.2.7. violation of the commitments of DISTRIBUTOR with
respect to approvals and compliance with laws and
regulations or violation of the prohibition against
assignment contained within;
12.2.8. any event, action or failure that constitutes cause for
termination under applicable law; or
* * * Confidential Treatment Requested
-5-
<PAGE>
12.2.9. any change of ownership of DISTRIBUTOR that in the sole
determination of ASTC is in any way detrimental or
prejudicial to the interests of ASTC.
12.3. DISTRIBUTOR shall have twenty (20) days after written notice
specifying a breach of this Agreement to cure such breach. If,
under the circumstances then current, it would appear that any
breach is final, or cannot be cured, ASTC may terminate the
Agreement immediately for cause by giving notice to this effect.
12.4. Either ASTC or DISTRIBUTOR may terminate this Agreement in the
event that the other is dissolved, becomes insolvent, files a
petition in bankruptcy, or is declared bankrupt, or makes an
assignment for benefit of creditors, or there is reasonable
evidence indicating the possibility of such filing or assignment
during the term this Agreement is in effect. Termination under
this provision shall be effective twenty (20) days following
written notice to that effect.
12.5. DISTRIBUTOR may terminate this Agreement immediately for just cause
should ASTC breach any provision of this Agreement, provided that
any such termination shall not take effect if ASTC has cured such
breach within twenty (20) days following written notice of
DISTRIBUTOR's intention to terminate on account of such breach.
12.6. Upon termination of this Agreement for whatever reason, any claims
for money owed that either party may have against other party under
this Agreement shall immediately become due, whatever the nature of
such claims.
12.7. Both DISTRIBUTOR and ASTC shall be entitled to cancel all Purchase
Orders which are outstanding at the time of notice of termination,
so long as products have not been delivered to DISTRIBUTOR pursuant
to such Purchase Orders. Provided however, that subject to payment
in advance to ASTC, DISTRIBUTOR shall be entitled to receive ASTC
Products necessary to fulfill valid and binding Purchase Orders
accepted by DISTRIBUTOR prior to notification of termination of
this Agreement. Prior to filling orders for such products ASTC
shall be entitled to request and receive documentary evidence of
all such outstanding Purchase Orders and an accounting of
DISTRIBUTOR's then current inventory of ASTC Products.
-6-
<PAGE>
12.8.
12.8.1. Upon termination of this Agreement DISTRIBUTOR shall
refrain from use of any signs, equipment, advertising
matter, or material which refer to or are related to
ASTC and from acts and omissions that indicate or
suggest a relationship with ASTC. DISTRIBUTOR shall
promptly return to ASTC all ASTC property, promotional
material and proprietary information.
12.8.2. Upon termination of the Agreement DISTRIBUTOR shall not
be entitled to any termination compensation,
consequential damages, indemnity, or other payment for
goodwill, lost profits, costs of re-establishment or
replacement of the business, or any other expenses, or
for loss of rights relating to the business established
by DISTRIBUTOR or rights relating to terminating to
this Agreement.
12.8.3. DISTRIBUTOR recognizes that prices charged by ASTC to
DISTRIBUTOR allow DISTRIBUTOR to obtain a reasonable
return for its entire services and profit on resale,
including costs of establishing and maintaining its
organization. DISTRIBUTOR expressly acknowledges any
rights to such indemnity afforded to it by law or
custom, and to the extent permissible under applicable
law, expressly and completely waives all its rights to
such indemnity benefits, if any.
12.8.4. DISTRIBUTOR agrees to indemnify and hold ASTC harmless
from all losses, damages, amounts, costs, and expenses
incurred by ASTC as a result of claims or actions
brought by employees, agents, or representatives of
DISTRIBUTOR for any severance pay, compensations,
disability payment or social security payment or
compensation.
12.9. Upon any termination of this Agreement, ASTC shall buy back any
unsold inventory that DISTRIBUTOR, will have at the time
termination per the following schedule:
Products unused and less than * * * after shipment - * * *
of buying cost.
Products used and less than * * * after shipment - * * *
of buyer cost.
* * * Confidential Treatment Requested
-7-
<PAGE>
Products use and between * * * and * * * years after
shipment - * * * of buying cost.
12.10. The aggregate amount to be paid to be paid to DISTRIBUTOR under the
preceding subparagraph 12.9 may be offset by ASTC against any
claims it has against DISTRIBUTOR, including claims for payment of
goods supplied under this Agreement.
12.11. At the time of termination, ASTC shall take responsibility for all
transactions relative to ASTC products including service of
products.
13. SUB-DISTRIBUTORS: Nothing herein shall prohibit DISTRIBUTOR from
appointing one or more sub-distributors within the Territory, provided
however, that with respect to each such sub-distributor:
13.1. such appointment or appointments (including the sub-Territory to be
assigned to any such sub-distributor) shall be consented to in
writing by ASTC.
13.2. such sub-distributor shall purchase ASTC products only from
DISTRIBUTOR and not from ASTC;
13.3. such sub-distributor shall not sell any ASTC products outside its
sub-Territory;
13.4. such sub-distributor shall enter into and execute a sub-
distribution agreement with DISTRIBUTOR (in form and content
acceptable to ASTC) by the terms of which the sub-distributor
agrees to be bound by all the terms of this Agreement; and
13.5. such sub-distributor shall agree in writing that nothing in this
paragraph 13 shall be deemed to create the relationship of
principal and agent, master and servant, partner, joint venturer,
or any similar relationship between ASTC and any such sub-
distributor.
14. NOTICES:
14.1. All notices given under this Agreement and the provisions contained
herein shall be sent by first class registered airmail, postage
prepaid and return receipt requested, by Federal Express, or by
Telecopier, or Facsimile as directed below:
* * *
* * * Confidential Treatment Requested
-8-
<PAGE>
AMCO, Inc.
* * *
* * *
* * *
when directed to DISTRIBUTOR, and to:
American Surgical Technologies Corporation
Attn: Vice President Sales
300 Billerica Road
Chelmsford, MA 01824 U.S.A.
Phone: (508) 250-0150
Fax: (508) 250-1664
when directed by ASTC.
14.2. Notices shall be considered delivered when mailed or sent by
Telecopier or Facsimile in accordance with the provisions of
subparagraph 14.1 above subject to proof of receipt by Telecopier
or Facsimile confirmation or by mail receipt.
Executed this 20th day of September, 1994 by and on behalf of
DISTRIBUTOR
By: /s/ * * * , DULY AUTHORIZED
------------------------------
Title: President
------------------------------
Executed this 20th days of September, 1994 by and on behalf of
AMERICAN SURGICAL TECHNOLOGIES CORPORATION
By: /s/ Kenneth G. Hayes, Jr. , DULY AUTHORIZED
------------------------------
Title: President
------------------------------
* * * Confidential Treatment Requested
-9-
<PAGE>
EXHIBIT A
Standard Terms and Conditions
for
INTERNATIONAL DISTRIBUTION AGREEMENT
by and between
AMERICAN SURGICAL TECHNOLOGIES CORPORATION
and
AMCO, Inc., DISTRIBUTOR
1. INCORPORATION OF TERMS AND CONDITIONS: These Standard Terms and Conditions
are incorporated into and are a part of the International Distribution
Agreement by and between AMERICAN SURGICAL TECHNOLOGIES CORPORATION
("ASTC") and the above named DISTRIBUTOR ("the Agreement"). Unless
otherwise noted hereinafter, all definitions and defined terms appearing in
the aforesaid Agreement shall bear the same meanings as such definition and
defined terms bear in the aforesaid Agreement whenever such definitions and
defined terms shall appear hereinafter.
2. DILIGENCE AND CONFLICTS OF INTEREST: DISTRIBUTOR shall exercise due
diligence and its best efforts in promoting and selling ASTC Products
within the Territory. DISTRIBUTOR shall promote the products of other
companies only if such promotion will not prejudice ASTC business interests
or create a conflict of interest in handling ASTC's confidential or
proprietary information.
3. CAPABILITY TO PERFORM: DISTRIBUTOR shall maintain the financial capability
to perform the Distribution Agreement and shall, at its own expense,
establish and maintain a sales, marketing and distribution, and service
organization, and employ personnel in sufficient number of adequately and
effectively sell ASTC Products in the Territory, including the appointment
of a Product Manager who shall be responsible for the sale and promotion of
ASTC products, as well as for training of DISTRIBUTOR's sales
representatives in the sale and promotion of ASTC Products.
4. BOOKS AND RECORDS: Not applicable
5. TRAINING:
5.1. DISTRIBUTOR shall provide in-service training for personnel of
customers acquiring ASTC Products and shall provide necessary user
education for such personnel. ASTC shall provide DISTRIBUTOR with
marketing and technical information concerning the ASTC Products as
well as reasonable quantities of brochures, instructional
materials, advertising literature, and other product data, provided
that all such material will be printed in the English language.
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EXHIBIT A
5.2. Upon mutual agreement, DISTRIBUTOR shall participate in training
programs offered by ASTC by sending its sale, service, and support
personnel, as applicable, to such training sessions for such
personnel as ASTC may from time to time make available at
reasonable intervals. Such training sessions shall be conducted in
the English language at locations to be designed by ASTC.
DISTRIBUTOR shall bear all costs associated with the travel to and
attendance of its personnel at such training sessions. Should it
be required that ASTC conduct training sessions specifically for
the benefit of DISTRIBUTOR within the Territory, all costs
therefore shall be borne by DISTRIBUTOR, including the reasonable
costs of travel to and attendance at such special training sessions
by ASTC personnel.
6. REPUTATION: Both ASTC and DISTRIBUTOR understand, acknowledge and agree
that the continued maintenance of an image of excellence and a reputation
for high level, ethical marketing of ASTC Products is essential to the
continued success of both parties. DISTRIBUTOR agrees that its sales,
marketing, distribution, or advertising will not reflect unfavorably on, or
dilute in any way, such image of excellence and reputation for high level
ethical marketing. DISTRIBUTOR agrees that it shall not do anything,
directly, or impair the current image or to lower the prestige or quality
of ASTC Products, or to impair the reputation of ASTC.
7. DELIVERY, TITLE, RISK OF LOSS, AND RETURNS:
7.1. Firm Purchase Orders are to be placed by DISTRIBUTOR at least
ninety (90) days prior to the required delivery date. Forecasts of
anticipated requirements of ASTC Products for each successive six-
month period shall be supplied by DISTRIBUTOR semi-annually at
least thirty (30) days prior to the end of each six (6) month
period. Products shall be shipped at DISTRIBUTOR's expense in such
manner as ASTC shall deem appropriate or as otherwise directed.
Title and risk of loss for ASTC Products shall remain with ASTC
until delivery, FOB Chelmsford, Massachusetts, at which point title
and risk of loss shall shift to DISTRIBUTOR. DISTRIBUTOR shall
obtain insurance sufficient to cover the value of each shipment or
shall instruct ASTC to obtain such insurance and to bill
DISTRIBUTOR therefor.
7.2. DISTRIBUTOR shall inspect all ASTC Products promptly upon receipt
thereof and may reject any ASTC Product that fails in any material
way to meet the specifications set forth in ASTC's current brochure
for such ASTC Product. Any ASTC Product not properly rejected
within forty-five (45) days of receipt of such ASTC Product by
DISTRIBUTOR (the "Rejection Period") shall be deemed accepted.
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<PAGE>
EXHIBIT A
7.3. To reject an ASTC Product, DISTRIBUTOR shall, within the Rejection
Period, notify ASTC in writing of its rejection and in sufficient
detail, the reasons for such rejection, and request a Return Goods
Authorization ("RGA") number. ASTC shall provide the RGA number to
DISTRIBUTOR within seven (7) days of receipt of the request unless,
in ASTC's reasonable determination, return of the ASTC Products is
inappropriate or unnecessary; the grounds for which shall be
provided in writing to DISTRIBUTOR within such seven day period.
7.4. Within seven (7) days of receipt of the RGA number DISTRIBUTOR
shall ship to ASTC the rejected products, freight prepaid, in its
original shipping carton with the RGA number displayed on the
outside of the carton. ASTC reserves the right to refuse to accept
any rejected products that do not bear an RGA number on the outside
of the carton. As promptly as possible but no later than forty
five (45) working days after receipt of properly rejected products
ASTC shall at its sole option and expense either repair or replace
the rejected ASTC Products. ASTC shall pay the shipping charges
back to DISTRIBUTOR for properly rejected products; otherwise
DISTRIBUTOR shall be responsible for the shipping charges.
7.5. Subsequent to the Rejection Period, DISTRIBUTOR may not return any
ASTC Product to ASTC for any reason without ASTC's prior written
consent. For any ASTC product for which such consent has been
given, ASTC shall levy a return charge amounting to twenty percent
(20%) of DISTRIBUTOR'S purchase price for such ASTC Product, and
shall credit the balance of the purchase price to DISTRIBUTOR's
account within forty five (45) days upon receipt of such returned
ASTC Product. DISTRIBUTOR shall be responsible for all shipping
charges.
8. WARRANTY:
8.1. DISTRIBUTOR shall pass on to its customers ASTC's standard Limited
Warranty as set forth here, including the limitations set forth in
subsections 8.2 and 8.3 immediately below.
3DSCOPE-TM- products are warranted for a period of one year from
the date of shipment, with exceptions as noted, to be free from
defects in material and workmanship. A three (3) month warranty
exists for the Light Guide, video peripherals and Replacement Lamp.
No warranty
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<PAGE>
EXHIBIT A
exists for Stereo Eyewear. The Warranty is limited to the repair
or replacement of the product, at the discretion American Surgical
Technology Corporation, without charge when returned to the
appropriate service facility.
American Surgical Technologies Corporation warrants that the
equipment is fit for the purposes and indications described in the
labeling when used in accordance with the directions for use.
Unless the equipment is used in accordance with such instructions
this warranty is void and of no effect. NO OTHER EXPRESSED OR
IMPLIED WARRANTY EXISTS, INCLUDING ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. THE COMPANY WILL NOT BE
LIABLE FOR PROXIMATE, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
This warranty does not cover abnormal wear and tear or damage
caused by misuse modifications, recalibrations, abuse or service by
other than an authorized Company representative.
8.2. EXCEPT FOR THE EXPRESS WARRANTY SET FORTH ABOVE, ASTC GRANTS NO
OTHER WARRANTIES, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE
REGARDING THE ASTC PRODUCTS, THEIR FITNESS FOR ANY PURPOSE, THEIR
QUALITY, THEIR MERCHANTABILITY OR OTHERWISE.
8.3. ASTC LIABILITY UNDER THE AFORESAID WARRANTY SHALL BE LIMITED TO A
REFUND OF THE CUSTOMER'S PURCHASE PRICE. IN NO EVENT SHALL ASTC BE
LIABLE FOR THE COST OF PROCUREMENT OF SUBSTANTIVE GOODS BY THE
CUSTOMER OR FOR ANY SPECIAL, CONSEQUENTIAL, OR INCIDENTAL DAMAGES
FOR BREACH OF WARRANTY.
8.4. NOTWITHSTANDING ANY OF THE ABOVE PROVISIONS, ASTC SHALL BE
RESPONSIBLE FOR CLAIMS OF THIRD PARTIES OR DAMAGES ALLEGED TO BE
SUFFERED BY REASON OF THEIR USE OF PRODUCTS, PROVIDED THE DAMAGES
ARE NOT DUE TO ANY DEFAULT, NEGLIGENCE, MISREPRESENTATION, OR ANY
ACT OR MISSION OF DISTRIBUTOR PROVIDED THAT DISTRIBUTOR HAS GIVEN
ASTC PROMPT NOTICE OF ANY SUCH CLAIM.
9. REPAIR AND REPORTING OF PRODUCT MALFUNCTION:
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<PAGE>
EXHIBIT A
9.1. DISTRIBUTOR shall
9.1.1. establish and maintain to the satisfaction of ASTC the
facility and capability within its own organization, or
9.1.2. shall by contract have constant and ready access to such
facility and capability outside its own organization, to the
satisfaction of ASTC, to undertake and perform reasonably
foreseeable repairs and service with respect to ASTC
Products, including attendance by DISTRIBUTOR's own
personnel, or the appropriate personnel of DISTRIBUTOR's
contract service and repair organization at applicable
training sessions as set forth in Paragraph 5.2 above.
9.2. During the term of this Agreement, DISTRIBUTOR shall promptly
perform or cause to be performed all necessary repair and service
with respect to any ASTC Product, including any repair or service
during the Warranty period applicable to such ASTC Product, unless
ASTC expressly directs that such Warranty repair or service shall
be performed by ASTC. The reasonable cost of Warranty repair and
service made or performed by or on behalf of DISTRIBUTOR shall be
borne by ASTC. DISTRIBUTOR shall
9.2.1. promptly notify ASTC of each instance of Warranty repair or
service prior to undertaking such repair or service, and
9.2.2. with respect to all repairs and service, use its best
efforts to conform with ASTC's published Service Policies,
copies of which shall be furnished to DISTRIBUTOR, as the
same shall be promulgated by ASTC from time to time.
9.3. DISTRIBUTOR shall promptly report to ASTC in writing any complaint
with respect to, or malfunction of any ASTC Product within or
without the Warranty period.
9.4. In accordance with the requirements and regulations established by
the United States Food and Drug Administration, to which
requirements and regulations ASTC is bound in all respects,
DISTRIBUTOR shall immediately (but in no event more than five days
following the date of any such occurrence) report to ASTC in
writing the details and circumstances of any occurrence involving
the malfunction of any ASTC product resulting in or involved with
injury to or the death of any person. FAILURE TO COMPLY WITH THE
PROVISIONS OF THIS SUBSECTION 9.4
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<PAGE>
EXHIBIT A
SHALL CONSTITUTE CAUSE FOR THE IMMEDIATE TERMINATION OF THIS
AGREEMENT.
10. PROTECTION OF RIGHTS:
10.1. DISTRIBUTOR shall not dispute or contest the validity of any of
ASTC's rights to letters patents, trademarks, copyrights, product
registrations and approvals, know-how or other intangible property
interests with respect to ASTC Products.
10.2. DISTRIBUTOR shall not omit or alter patent numbers, trade names or
trademarks, numbers of series, or any other ASTC marking affixed on
the ASTC Products or alter any other product labeling. DISTRIBUTOR
shall, however, be entitled to mark the products with its trademark
or trade name in a prominent place, subject to ASTC prior written
consent. DISTRIBUTOR is not authorized to use the trademark and
trade name AMERICAN SURGICAL TECHNOLOGIES CORPORATION, ASTC, OR
3DSCOPE (or any other trade name, or trademark used by ASTC) in any
manner except to indicate, during the term of this Agreement, that
it is an independent authorized DISTRIBUTOR for ASTC and is selling
ASTC products. DISTRIBUTOR shall acquire no rights in the ASTC or
3DSCOPE trademark and trade names, or any other trademark owned by
ASTC.
10.3. DISTRIBUTOR understands and agrees that it is not authorized to use
the name American Surgical Technologies Corporation in connection
with its general business or to imply to third parties that it
relationship with ASTC is other than as a sales DISTRIBUTOR under
this Agreement.
10.4. DISTRIBUTOR shall hold ASTC harmless and indemnify it against
liability, including attorneys' fees and other costs of defense
resulting from actions of third parties claiming injury or loss as
a result of the failure by DISTRIBUTOR to honor the provisions of
this paragraph 10.
10.5. DISTRIBUTOR agrees to protect ASTC products against imitations and
unfair competition by others, and will promptly provide ASTC
written notice of any such conduct. DISTRIBUTOR agrees to
cooperate with ASTC at ASTC's request and expense, and to promptly
take whatever action is required to cause the termination of such
conduct. ASTC reserves the right to take whatever action it deems
appropriate to protect its trademarks and trade names.
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<PAGE>
EXHIBIT A
11. INDEPENDENT CONTRACTOR RELATIONSHIP: It is understood that both parties
hereto are independent contractors and engaged in the operation of their
own respective businesses. Neither party hereto is to be considered the
agent of the other party of any purpose whatsoever, and neither party has
any authority, express or implied, to enter into any contracts or assume
any obligations for the other party, to pledge the credit, or make any
warranties or representations on behalf of the other party except where
expressly authorized in writing to do so. Nothing in this Agreement or in
the activities of either party hereto shall be deemed to create an agency,
partnership, or joint venture relationship.
12. INDEMNITY, LEGAL ACTIONS AND PRODUCT CONDITION:
12.1. DISTRIBUTOR agrees to save and hold ASTC harmless from any and all
claims, costs, liabilities and responsibilities, regardless of the
claimant or his place of filing a claim, resulting from or in any
way associated with the functioning or performance of DISTRIBUTOR
as a distributor, supplier and seller, or other related descriptive
classifications, for ASTC Products supplied to DISTRIBUTOR by ASTC.
DISTRIBUTOR shall be the sole warrantor or guarantor of the safety,
operation and performance of the ASTC Products covered by this
Agreement to whatever extent such a warranty or guarantee is made
by DISTRIBUTOR. ASTC shall be responsible for any of its products
that fail to meet label specifications at the time of shipment to
DISTRIBUTOR, and shall indemnify and hold DISTRIBUTOR harmless with
respect to any and all claims resulting from use of such products.
12.2. DISTRIBUTOR agrees not to join ASTC or any ASTC employee as a party
defendant or plaintiff or any interest thereof, in any action at
law or in equity or in any other proceeding, regardless of the
descriptive classification, arising out of the liabilities, duties
and responsibilities above described which DISTRIBUTOR assumes or
performs. DISTRIBUTOR shall promptly notify ASTC of any and all
actions at law or equity or claims or governmental administrative
proceedings arising out of the operation or performance of this
Agreement.
12.3. ASTC warrants that all ASTC Products are in operating condition as
of the time of shipment. Nothing herein shall relieve ASTC of any
obligation or liability existing under applicable law regarding
claimed defects in the products supplied to DISTRIBUTOR by ASTC
provided that
12.3.1. such defect existed as of the time the product was
shipped by ASTC;
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<PAGE>
EXHIBIT A
12.3.2. ASTC has given DISTRIBUTOR reasonable notice of any
change in the specifications to any such ASTC Product;
12.3.3. no modifications to the said ASTC Product have been
made by or with the approval of DISTRIBUTOR or by the
customer;
12.3.4. the said ASTC Product has not been subject to misuse,
negligence, or accident;
12.3.5. the said ASTC Product has not had its serial or lot
number altered, effaced, or removed; and
12.3.6. the said ASTC Product has at all times been used in
accordance with its instructions for use.
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<PAGE>
EXHIBIT A
13. FORCE MAJEURE:
13.1. If due to industrial conflicts, mobilization, requisition, embargo,
currency restriction, insurrection, general shortage of transport,
material or power supply, fire, explosion, stroke of lightning,
force majeure and similar casualties or other events beyond ASTC
control, as well as default in deliveries from subcontractors due
to such circumstances as defined in the clause, it is impossible
for ASTC to deliver purchased products, DISTRIBUTOR shall not be
entitled to any damages during such period of impossibility and
ASTC shall not be considered in breach or default under this
Agreement.
13.2. If the performance of this Agreement by either party is made
commercially impracticable
13.2.1. by the occurrence of an economic contingency the non-
occurrence of which was a basic assumption on which
this Agreement was made, or
13.2.2. by compliance in good faith with any applicable foreign
or domestic governmental law, regulation, or order,
then this Agreement shall terminate immediately. For
purposes of this Agreement, currency devaluation,
currency restrictions, currency and exchange controls,
and other monetary controls, restrictions and
restraints shall not be considered to render the
performance of this Agreement by DISTRIBUTOR
commercially impracticable or otherwise be considered
force majeure with respect to DISTRIBUTOR.
14. CHANGES AND ADDITIONS TO AGREEMENT: The International Distribution
Agreement, including these Standard Terms and conditions
incorporated therein, constitutes the entire and final agreement
between the parties and supersedes all prior agreements and
understandings, oral or written, all of which are deemed to have
been merged herein. No modification, assignment, or any future
representation, promise, or agreement in connection with the
subject matter of this International Distribution Agreement shall
be binding on ASTC and DISTRIBUTOR unless made in writing and
signed by a duly authorized officer of each.
15. GOVERNING LAW AND JURISDICTION:
15.1. This Distribution Agreement shall be deemed to have been executed
and delivered in Chelmsford, Massachusetts, United States of
America, and all
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<PAGE>
EXHIBIT A
questions arising out of or under this Agreement shall be governed
by the laws of the Commonwealth of Massachusetts and the United
States of America.
15.2. Any and all claims, actions, and lawsuits seeking damages for
personal injuries or death resulting from the use of an ASTC
Product shall be subject to, and governed by the laws of the
jurisdiction where the injury or death is alleged to have occurred.
In case of any litigation arising out of any dispute between the
parties concerning the interpretation or the compliance with this
Agreement the parties hereby expressly declare to accept the
jurisdiction of the Massachusetts Courts. Notwithstanding the
foregoing however, ASTC shall be entitled at its discretion to seek
relief in a court of competent jurisdiction in the district in
which DISTRIBUTOR is domiciled.
16. PROPRIETARY INFORMATION:
16.1. DISTRIBUTOR acknowledges that it has access to valuable proprietary
information including but not limited to technical data and
customer and marketing information, all of which are the property
of ASTC, have been maintained confidential and are used in the
course of ASTC business.
16.2. DISTRIBUTOR shall not, either during the term of this Agreement or
thereafter, disclose such ASTC proprietary information to anyone
other than those of its employees having a need to know and shall
refrain from use of such information other than in the performance
of this Agreement. In addition, DISTRIBUTOR shall take all
reasonable precautions to protect the value and confidentiality of
such information to ASTC. All records, files, notes, drawings,
prints, samples, advertising material and the like relating to the
business, products, or projects of ASTC and all copies made from
such documents shall remain the sole and exclusive property of ASTC
and shall be returned to ASTC immediately upon written request by
ASTC.
16.3. Neither party shall be obligated or required to maintain in
confidence any information with respect to which it can demonstrate
with written records
16.3.1. is in the public domain or known to the receiving party
prior to disclosure by the disclosing party; or
16.3.2. becomes known to the public after disclosure by the
disclosing party, other than through breach of this
Agreement; or
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<PAGE>
EXHIBIT A
16.3.3. becomes known to the receiving party from a source
other than the disclosing party without breach of any
obligation of confidence; or
16.3.4. is or has been furnished to a third party by the
disclosing party without restriction on the third
party's right to disclose such information.
17. GOVERNMENT REGULATIONS:
17.1. DISTRIBUTOR agrees that it will secure and maintain any and all
required approvals by any government other than the United States
of America and all required product and public health registrations
for the implementation, execution and performance of the
Distribution Agreement.
17.2. Upon any expiration, cancellation, or termination of this
Agreement, such approvals and registrations shall be transferred
and delivered to, and shall inure to the benefit of ASTC, to the
extent that this is permissible under applicable law, to ASTC other
than lawfully imposed transfer fees. The cost of said transfer
will not exceed $10,000. DISTRIBUTOR shall obtain all necessary
documents or licenses and shall comply with all applicable laws and
regulations, including, if required, registration of this
International Distribution Agreement.
17.3. DISTRIBUTOR shall notify ASTC of all permits, approvals and
registrations obtained by it, and shall further notify ASTC of any
other regulatory requirements with respect to DISTRIBUTOR's sale,
distribution, or service of ASTC Products within the Territory, as
such regulatory requirements may be in effect from time to time.
17.4. DISTRIBUTOR agrees that it shall not allow either the products
supplied to it by ASTC, ASTC's trademarks, any proprietary data of
ASTC, or any direct product of such data, to be knowingly made
available, either directly or indirectly, or in any way to be
knowingly given, transferred, sold or re-exported to any country in
violation of its laws and export control regulations or applicable
laws of any country (or the European Economic Community).
17.5. United States laws and export control regulations governing the
exportability of technical data and products to nations are subject
to change. If any country included within DISTRIBUTOR's Primary
Area of Responsibility shall, at the time of execution of the
Distribution Agreement, or at any time during the life of the
Distribution Agreement,
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<PAGE>
EXHIBIT A
be placed in an excluded category by the United States government
for the receipt of either technical data or the manufacture or sale
of products of a type such as the ASTC Products, then the
DISTRIBUTOR agrees that it shall take all appropriate and necessary
actions so as to cease business activities, selling, and promoting
such ASTC Products in and within such excluded country.
18. UNFAIR COMPETITION AND PATENT INFRINGEMENT:
18.1. DISTRIBUTOR shall promptly advise ASTC of any infringement or
potential infringement by third parties of which DISTRIBUTOR
becomes aware, or of any issued patents relating to the ASTC
Products supplied by ASTC under this Agreement. ASTC shall have
the right, but not the obligation, to sue alleged infringers.
18.2. If suit is brought by ASTC, ASTC shall control the prosecution
thereof and be entitled to retain any amounts recovered in full by
reason of such infringement. DISTRIBUTOR agrees to cooperate with
and assist ASTC in any such suit. ASTC shall reimburse distributor
for reasonable costs related to such assistance if such costs were
incurred at the request of ASTC. ASTC shall have the exclusive
right to negotiate and approve any settlement of such suits.
18.3. In the event that DISTRIBUTOR joins ASTC by mutual agreement in
litigation relating to such infringement, DISTRIBUTOR shall bear an
agreed proportion of the legal costs. Should any damages or costs
in such litigation be awarded to ASTC and DISTRIBUTOR, DISTRIBUTOR
shall be entitled to recover the same proportion thereof as its
contribution to expenses.
18.4. ASTC represents that it has no knowledge of any patent rights in
the Territory that would be infringed by use or sale of ASTC
products therein, or by use of ASTC's proprietary information.
ASTC does not warrant that the manufacture, use or sale of any of
its products, or utilization of any of its proprietary information
is free of liability for infringement or charges of infringement of
patent rights owned by third parties. In the event that ASTC is
enjoined from making and selling and/or DISTRIBUTOR is enjoined
from selling ASTC Products as a result of charges of infringement
of patent rights, such injunction shall not constitute a breach of
this Agreement.
19. SUCCESSORS AND ASSIGNS: This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
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<PAGE>
EXHIBIT A
and assigns, provided, however, that neither party shall have the
right to assign or otherwise transfer its rights hereunder without
the express prior written consent of the other party. Any other
assignment without such consent shall be null and void. ASTC shall
have the right at its sole option to terminate this International
Distribution Agreement upon the making of any such purported
assignment by DISTRIBUTOR. Provided, however, by its execution of
this Agreement, DISTRIBUTOR expressly consents to the assignment by
ASTC of this Agreement to a successor to ASTC's business, in the
event of any such assignment by ASTC.
20. MISCELLANEOUS PROVISIONS:
20.1. ASTC shall have the right to manufacture ASTC Products in the
Territory. DISTRIBUTOR expressly acknowledges that it is granted
no rights under this Agreement to manufacture any ASTC Product.
20.2. Each of the parties hereto represents and warrants that it has not
employed any broker or finder in connection with this Agreement or
the transactions contemplated herein.
20.3. If any provision or provisions of this International Distribution
Agreement, including these Standard Terms and Conditions, shall be
held by a court of competent jurisdiction to be contrary to law,
such provision or provisions shall be deemed to be null and void
and the remainder of the Distribution Agreement and these Standard
Terms and conditions shall nonetheless remain in full force and
effect.
20.4. This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one
and the same instrument.
20.5. Headings and captions are included herein solely for convenience
and reference, and do not constitute a part of this Agreement for
any other purpose.
20.6. The English language version of this Agreement shall be definitive
and shall control over any translation hereof.
21. RESOLUTION OF DISPUTES:
21.1. Any dispute arising out of or with respect to this Agreement shall
be referred to an arbitration proceeding to be conducted in Boston,
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<PAGE>
EXHIBIT A
Massachusetts, U.S.A. by the American Arbitration Association or
its designee. Except as otherwise determined by the duly appointed
Arbitrator, the rules of procedure to be followed with respect to
such arbitration shall be the then effective rules of the American
Arbitration Association.
21.2. Any award rendered in such arbitration shall be final and binding
upon the parties, and may be enforced in any court of competent
jurisdiction. Any monetary award shall be made and paid in United
States dollars. The arbitration shall be conducted in the English
language, and all evidence submitted to such arbitration shall be
submitted in the English language.
21.3. ASTC and DISTRIBUTOR expressly agree that the Arbitrator shall have
the power to, at the request of ASTC,
21.3.1. issue an interim order or award requiring DISTRIBUTOR
to cease sale and distribution of ASTC Products pending
final outcome of the arbitration, and
21.3.2. grant injunctive relief.
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<PAGE>
EXHIBIT B
3DSCOPE-TM- INTERNATIONAL DISTRIBUTOR PRODUCT/PRICE LIST
All prices in U.S. Dollars Effective November 1, 1993
INTERNATIONAL DISTRIBUTOR PRICING
The prices on the International Distributor Price List reflect a * * * discount
from the U.S. Hospital Price List.
ADDITIONAL INTERNATIONAL DISTRIBUTOR DISCOUNTS
Initial Distributor System Purchases (applies to complete system configurations
only):
Initial system (one only) * * * from International Distributor Price
Other system(s) (limit two) * * * from International Distributor Price
* * * Confidential Treatment Requested
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<PAGE>
EXHIBIT B
3DSCOPE-TM- INTERNATIONAL DISTRIBUTOR PRODUCT/PRICE LIST
All prices in U.S. Dollars Effective November 1, 1993
Price
Cat # Description Each
- ----- ----------- -----
* * *
* * * Confidential Treatment Requested
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<PAGE>
EXHIBIT B
3DSCOPE-TM- INTERNATIONAL DISTRIBUTOR PRODUCT/PRICE LIST
All prices in U.S. Dollars Effective November 1, 1993
SYSTEM COMPONENTS:
Price Each
Cat # Description ----------
- ----- -----------
* * *
* * * Confidential Treatment Requested
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<PAGE>
EXHIBIT B
3DSCOPE-TM- INTERNATIONAL DISTRIBUTOR PRODUCT/PRICE LIST
All prices in U.S. Dollars Effective November 1, 1993
* * * System Price: * * *
Qty Cat # Description
- --- ----- -----------
* * *
* * * Confidential Treatment Requested
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<PAGE>
EXHIBIT B
3DSCOPE-TM- INTERNATIONAL DISTRIBUTOR PRODUCT/PRICE LIST
All prices in U.S. Dollars Effective November 1, 1993
* * * System Price: * * *
Qty Cat # Description
- --- ----- -----------
* * *
* * * Confidential Treatment Requested
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<PAGE>
EXHIBIT B
* * * System Price: * * *
Qty Cat # Description
- --- ----- -----------
* * *
* * * Confidential Treatment Requested
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<PAGE>
EXHIBIT B
3DSCOPE-TM- INTERNATIONAL DISTRIBUTOR PRODUCT/PRICE LIST
All prices in U.S. Dollars Effective November 1, 1993
* * * System Price: * * *
Qty Cat # Description
- --- ----- -----------
* * *
* * * Confidential Treatment Requested
-30-
<PAGE>
EXHIBIT B
* * * System Price: * * *
Qty Cat # Description
- --- ----- -----------
* * *
* * * Confidential Treatment Requested
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<PAGE>
EXHIBIT C
ORDERING INSTRUCTIONS
When placing an order please ensure the Purchase Order is made out to: American
Surgical Technologies Corp. and has the following information:
- Purchase Order Number
- Shipping Address
- Billing Address
- Itemized list of all components needed
- Price Specified
- Contact name and phone number
- Signed by an authorized individual
- Power Plug Type MUST be Specified
The Purchase Order should be sent to:
American Surgical Technologies Corporation
Attn: Customer Service
300 Billerica Road
Chelmsford, MA 01824 U.S.A.
Freight will be charged F.O.B., ASTC plant. All insurance, taxes, custom duties
and charges will be prepaid and added to invoice.
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<PAGE>
EXHIBIT 10.9
- --------------------------------------------------------------------------------
U.S.A. AND CANADA DISTRIBUTION AGREEMENT
- --------------------------------------------------------------------------------
DELACROIX-CHEVALIER Inc. 575 Madison Avenue NEW YORK NY 10022, gives VISTA
Medical Technologies - loker avenue west CARLSBAD -CA 92008 USA, the right to
exclusive representation for U.S.A. and CANADA territory for its "Cardiovascular
and Thoracic" products.
This agreement is valid for three years except if the agreed annual turnover is
not reached. In that case the agreement can be canceled three months before the
end of each contract year and refers to all direct or indirect sales.
DELACROIX-CHEVALIER AGREES TO:
- Honor all orders
- Assist VISTA Medical Technologies in general marketing and promotion of
DELACROIX-CHEVALIER products towards increased sales.
- Forward all orders from U.S.A. and CANADA received directly by them to
VISTA Medical Technologies.
- Grant a discount of ***% on its current USD price list.
- Retain product liability as manufacturers.
VISTA MEDICAL TECHNOLOGIES AGREES TO:
- Honor all orders for U.S.A. and Canada customers only.
- Promote the label DELACROIX-CHEVALIER with an equal typography to VISTA
Medical Technologies.
- Observe reasonable marketing efforts in order not to prejudice
DELACROIX-CHEVALIER.
- Realize the following turnovers:
----------------------------------
* * * USD
* * * USD
* * * USD
- Settle all DELACROIX CHEVALIER invoices by credit transfer within 30 days
after receipt of goods by VISTA Medical Technologies.
- Becomes DELACROIX CHEVALIER's US agent for the FDA.
This agreement will be effective from August 1, 1996 till August 31, 1999.
July 11, 1996 July 11, 1996
/s/ John Lyon /s/ illegible
VISTA Medical Technologies DELACROIX-CHEVALIER Inc.
* * * Confidential Treatment Requested
<PAGE>
EXHIBIT 10.10
DISTRIBUTOR AGREEMENT
BETWEEN:
PETERS,
a French corporation, having its principal address at
Z.1. Les Vignes - 42, rue Benoit Frachon
93000 BOBIGNY - FRANCE
(hereinafter referred to as "PETERS")
- and - OF THE FIRST PART,
VISTA MEDICAL TECHNOLOGIES
a California corporation, having its principal address at
5451 Avenida Encinas - Suite A
CARLSBAD, CA 92008 - U.S.A.
(hereinafter referred to as the "Distributor"),
OF THE SECOND PART.
WE, (PETERS) AGREE WITH YOU (THE "DISTRIBUTOR") AS FOLLOWS :
1. APPOINTMENT
PETERS appoints VISTA MEDICAL TECHNOLOGIES an exclusive distributor for the
territory of North America for their cardiovascular sutures (the "Product,"
description in Annexe I) on the Distributor Price List (Annexe II) attached
to and forming part of this Agreement (the "Price List").
2. DISTRIBUTOR RESPONSIBILITIES
As an exclusive distributor of the products in the territory of North
America, Distributor will:
<PAGE>
i) purchase the Products from PETERS at the prices set forth on the
Distributor price list ;
ii) shall not seek nor sell the Product to anyone outside the territory
unless specifically authorized to do so in writing by PETERS;
Distributor shall, however, transmit all inquiries it might receive
concerning the Products from outside the territory to PETERS ;
iii) be an independant contractor and not PETERS's agent ;
iv) not give any warranties or make any claims about the Products beyond
PETERS's standard warranties ;
v) pay all own expenses, including advertising and attendance at national
meetings ;
vi) do best to advertise and promote the Product ;
vii) provide customer service to defined customers ;
viii) * * *
3. MANUFACTURER RESPONSIBILITIES
PETERS will :
i) honor all orders in a timely fashion and provide distributor information
service re: product availability or backorder ;
ii) forward to Distributor, all customer orders received directly by PETERS
from USA customers ;
iii) assist in sales training ;
iv) provide assistance for importance physician customers as approved by
PETERS ;
v) provide product literature and competitive testing data ;
vi) upon the request of Distributor, PETERS will assist in selling, training
and company representation at three national meetings (congresses) in
the USA per year ;
* * * Confidential Treatment Requested
<PAGE>
vii) provide product for physician samples at * * * below Distributor price
and samples for demonstration at three national meetings at no charge in
quantities to be decided in accordance with both parties ;
viii) manufacture all Products sold hereunder in full compliance with FDA
regulations and be responsible for all defects in the products, as
manufacturer, and shall obtain product liability insurance. If PETERS
is unable to obtain this insurance, Distributor's rights and obligations
to distribution will terminate."
ix) in mutual accordance with Distributor, will have inventory on hand in
France for shipment to USA.
x) not appoint any other distributor of Products in Annex I to sell in the
USA.
4. TERM
The term of this agreement shall be for a period of three years,
commencing on July 15, 1996 except if conditions from paragraph 16(c)
are realized. Thereafter, the term shall be automatically extended for
successive one year terms, unless either party elects not to extend the
term or any additional term, it shall give the other party a written
notice thereof at least three months prior to the end of the term or the
then-current additional term.
5. PLACING ORDERS
(a) How Distributor places an order. Distributor may order Products under
this Agreement as follows :
i) in writing, by Purchase Order ;
ii) verbally, including telephone, provide Distributor later confirms
it in writing ; or
iii) electronically, including facsimile (fax).
(b) PETERS's acceptance of Distributor Order. A Product is covered under
this Agreement when we accept Distributor's order by :
i) providing Distributor with an invoice which confirms the details
of Distributor's order ; or
ii) shipping the Product ;
iii) Any order will not be executed without written confirmation.
* * * Confidential Treatment Requested
<PAGE>
(c) Business Forms. For the sake of consistency, PETERS's standard business
forms will govern all aspects of all transactions under this Agreement.
6. DELIVERY OF PRODUCTS
a) PETERS will try to meet Distributor's delivery requirements for Products
that Distributor orders and will keep Distributor informed of PETERS's
progress.
b) All orders of Products will be shipped C.I.F. Santa Ana - CALIFORNIA
c) If Distributor believes any shipment contains shortages or damaged
Products, Distributor must notify PETERS and transporter in writing
within eight (8) days of the date of delivery to Distributor (VISTA
MEDICAL TECHNOLOGIES).
7. TURNOVER
PETERS and the Distributor will decide by mutual agreement, at the end
of each year, the turnover for the next year. Each year (except for
1996), an annex III will be done to this contract mentioning the decided
turnover which will be signed by PETERS and the Distributor.
8. RETURNED GOODS
If Distributor wishes to return any item for credit or exchange,
Distributor must have PETERS's prior authorization.
9. PRICES
Until changed, prices for the Products will be those described on the
price List (Annex II).
10. PAYMENT TERMS AND BILLING
Payment is due 90 days from shipping date to permit collection from
customers. Payment will be made in U.S. Dollars to PETERS. Payment
will be made by irrevocable and confirmed letter of credit until
approval can be attained from COFACE. Late payment will incur * * * per
month penalty charge.
* * * Confidential Treatment Requested
<PAGE>
11. PRICE CHANGES
If PETERS needs to change Distributor's prices, PETERS will negotiate by
mutual agreement, a new price with Distributor, and must agree on the
new prices at least * * * before they go into effect.
12. DISCONTINUANCE OF PRODUCTS
From time to time, PETERS may discontinue particular Products, limit
their production or alter their design but will inform Distributor at
least * * * before change. New cardiovascular products developed
will be offered to Distributor by mutual agreement with first right of
refusal.
13. PROHIBITION ON MODIFICATION
Distributor may not alter or modify any Product or accessory of any
Product.
14. LIMITED WARRANTY
Except for the standard warranty PETERS provides directly to the end-
users of the Products,
PETERS MAKES NO OTHER WARRANTY, EITHER EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION,WARRANTIES OR REPRESENTATIONS AS TO DESCRIPTION,
QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
This Limited Warranty is PETERS's sole obligation as to the Products
sold under this Agreement except as covered in Section 19 ; PETERS shall
not be liable to you or any end-user for direct, consequential or
incidental damages, or damages arising from personal injury, loss of
life or lost profits.
15. TRADE MARKS
Distributor will have the non-exclusive right during this Agreement to
use our trade marks in promoting the sale of Products ; however,
Distributor must :
i) comply with all our instructions relating to the form and manner
of use of our trade marks ;
* * * Confidential Treatment Requested
<PAGE>
ii) refrain from using our trade marks in your corporate name ;
iii) refrain from removing or permitting the removal or alteration of
any trade marks, patent numbers, notices, nameplates or serial
numbers attached to any of the Products.
PETERS represents and warrants to Distributor that PETERS' trademarks
relating to the Products do not infringe the rights of any third parties
and PETERS agrees to indemnify, defend, and hold harmless Distributor
with respect to any claims of trademark or patent infringements or any
other violation on the infringement or rights of third parties.
16. TERMINATION
(a) PETERS may, in its sole discretion, terminate this Agreement, without
notice or delay if Distributor :
i) breaches of any of the terms or conditions of this Agreement ;
ii) becomes insolvent or is unable to pay its debts as they generally
become due ;
iii) contracts with a competitive suture company ;
iv) sells 30%, or more, of it's company share to a competitor of
PETERS.
(b) PETERS may terminate this Agreement if Distributor does not meet the
mutually agreed forecasted annual sales (see annex III).
(c) In the event of break of this Agreement, PETERS will notify Distributor
in writing of the termination of this Agreement three months in advance
of the termination date.
17. OBLIGATIONS FOLLOWING TERMINATION
Upon termination of this Agreement for any reason whatsoever,
Distributor will :
i) return to PETERS all advertising, informational or technical
material we have given to you ;
ii) stop using our trade names and trade marks ;
iii) if PETERS requests, sell back to peters, at the original net
price Distributor paid, plus actual freight charges for delivery
to PETERS, all Products on hand in your place of business or in
your possession or control at the time of termination and deliver
them to PETERS right away, provided however, that PETERS may
reject any of the Products so delivered, which are not in first
class condition ; and
<PAGE>
iv) immediately pay all amounts Distributor owes to PETERS.
v) if PETERS declines to buy back all Products held by Distributor,
Distributor shall be entitled to dispose of the Products in its
ordinary course of business after the effective date of
termination of this Agreement.
This Section shall survice the termination of this Agreement.
18. NO DAMAGES ON TERMINATION
PETERS shall not, by reason of the termination of this Agreement, be
liable to Distributor for compensation, reimbursement or damages on
account of the loss of prospective profits on anticipated sales or on
account of expenditures, investments, leases or commitments in
connection with Distributor's business or goodwill.
19. MUTUAL INDEMNITY
PETERS will indemnify Distributor and save it harmless from any claim or
action made against the Distributor as a result of defects in any
Products that PETERS is responsible for. Likewise, Distributor will
indemnify PETERS and save it harmless against all losses, damages, costs
or expenses that PETERS incurs as a result of any claim or action made
against him because of any of the distributor's act or omissions such as
giving unauthorized representations or performing unauthorized repairs
or modifications.
20. SECURITY
a) As security for your payments and obligations under this agreement,
Distributor grants PETERS a security interest in all Products delivered
to Distributor from time to time and in their proceeds.
21. GOVERNING LAW
This Agreement shall be governed by the law of FRANCE. In case of
litigation, arbitration will be conducted by the Tribunal de Commerce de
PARIS.
<PAGE>
22. AGREEMENT AS COMPLETE EXPRESSION OF TERMS
THIS AGREEMENT IS THE FINAL AND COMPLETE AND EXCLUSIVE WRITTEN
EXPRESSION OF ALL TERMS GOVERNING YOUR APPOINTMENT. PETERS WILL NOT BE
BOUND BY ANY OTHER REPRESENTATIONS OR PROMISES MADE BY ANYONE ACTING ON
OUR BEHALF THAT DIFFER IN ANY WAY FROM THE TERMS OF THIS AGREEMENT.
IN WITNESS WHEREOF this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
BOBIGNY, July 15, 1996
PETERS VISTA MEDICAL TECHNOLOGIES
/s/ J.C. Peters /s/ John Lyon
J.C. PETERS JOHN LYON
PRESIDENT PRESIDENT
/s/ B. Cailleton /s/ Nancy Brief
B. CAILLETON NANCY BRIEF
DIRECTOR BUSINESS GENERAL MANAGER
DEVELOPMENT CARDIO
VASCULAR SURGERY
<PAGE>
ANNEX I
CARDIO VASCULAR PRODUCTS
- - CORONYL
- - CARDIONYL
POLYAMIDE MONOFILAMENT
- - CARDIOFLON
POLYESTER BRAID IMPREGNATED WITH TEFLON
- - TEFLENE (TEFLEX IN FRANCE)
P.V.D.F. MONOFILAMENT
- - STERNOPLAQUE
- - STAINLESS STEEL
<PAGE>
ANNEX II
ANNEX III
NOT PART OF ORIGINAL DOCUMENT
<PAGE>
EXHIBIT 10.11
SALES AGREEMENT
THIS SALES AGREEMENT (the "Agreement") is made and entered into as of the
27th day of November, 1996, between VISTA MEDICAL TECHNOLOGIES, INC. ("Vista"),
a Delaware corporation, and MEDTRONIC, INC. (as defined below, "Medtronic"), a
Minnesota corporation.
WITNESSETH:
WHEREAS, Vista is developing visualization and related information systems
for use in, among other areas, cardiothoracic surgical procedures; and
WHEREAS, Vista and Medtronic Asset Management, Inc., a wholly-owned
subsidiary of Medtronic ("MAMI") have entered into a Series C Preferred Stock
Purchase Agreement of even date herewith (the "Investment Agreement") pursuant
to which MAMI is purchasing Series C Preferred Stock of Vista; and
WHEREAS, MAMI is becoming a party to the Amended and Restated Investor
Rights Agreement of even date herewith (the "Investors' Rights Agreement")
pursuant to which MAMI will receive certain registration and other rights; and
WHEREAS, Vista and Medtronic are also entering into a Supplemental Rights
Agreement of even date herewith (the "Supplemental Rights Agreement") pursuant
to which Medtronic will receive certain additional rights; and
WHEREAS, it is a condition to MAMI's willingness to purchase such Vista
Series C Preferred Stock that the parties enter into this Agreement.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and for other valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties mutually
agree as follows:
ARTICLE 1
DEFINITIONS
1.1) SPECIFIC DEFINITIONS. As used in this Agreement, the following terms
have the meanings set forth or referenced below:
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<PAGE>
"AFFILIATE" of a specified person (natural or juridical) means a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified. "Control"
shall mean ownership of more than 50% of the shares of stock entitled to vote
for the election of directors in the case of a corporation, and more than 50% of
the voting power in the case of a business entity other than a corporation.
"CHANGE OF CONTROL" of Vista shall have the meaning set forth in the
Supplemental Rights Agreement.
"CONFIDENTIAL INFORMATION" means know-how, trade secrets, and other unpublished
or proprietary information disclosed (whether before or during the term of this
Agreement) by one of the parties (the "disclosing party") to the other party
(the "receiving party") or generated under this Agreement, excluding information
which:
(a) is now or comes to be in the public domain through no fault of the
receiving party;
(b) is released without restriction to the receiving party by the
disclosing party in writing;
(c) is lawfully obtained by the receiving party from third parties;
(d) can be demonstrated by competent proof to have been known or hereafter
developed by the receiving party independently of any disclosure of
"Confidential Information by the disclosing party;
(e) has been in the possession of the receiving party, as a result of
disclosure under this Agreement, for a period of five (5) years; or
(f) is required by law to be disclosed; provided that the receiving party
has given the disclosing party prompt written notice of such disclosure
requirement and has cooperated with the disclosing party so that the
disclosing party may seek a protective order or other appropriate remedy to
avoid or limit such disclosure.
All Confidential Information disclosed by one party to the other under this
Agreement shall be in writing and bear a legend "Company Proprietary," "Company
Confidential" or words of similar import or, if disclosed in any manner other
than writing, shall be preceded by an oral statement indicating that the
information is Company proprietary or confidential, and shall be followed by
transmittal of a reasonably detailed written summary of the information provided
to the receiving party with identification as Confidential Information
designated as above within thirty (30) days.
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<PAGE>
"EUROPE, THE MIDDLE EAST, AND AFRICA" means those countries included within
Medtronic's currently designated "Europe", "Middle East" and "Africa" sales
regions as more fully described on Schedule 1.1 hereto.
"FDA" means the U.S. Food and Drug Administration.
"FDA GOOD MANUFACTURING PRACTICES" means as defined in 21 Code of Federal
Regulations Part 820.
"FIELD OF USE" means cardiothoracic surgical procedures.
"INTELLECTUAL PROPERTY" means all patents, trade names, trademarks, service
marks, copyrights, and applications or registrations for any of the foregoing,
inventions, discoveries, know-how, trade secrets, data, information, technology,
processes, formulas, drawings, designs, computer programs, licenses, and all
amendments, modifications, and improvements to any of the foregoing.
"MEDTRONIC" means Medtronic, Inc. and its Affiliates.
"MEDTRONIC COMPETITORS" means any person engaged in the manufacture or sale of
cardiac surgery products that are marketed to the same class of persons (e.g.
cardiac surgeons) to whom Medtronic markets the Systems; provided that
"Medtronic Competitors" shall not include (i) * * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
"NET REVENUES OF SYSTEMS" in North America for a particular period means the
aggregate amount Vista invoices non-Affiliated third parties (or invoices
Medtronic pursuant to Section 2.3) for the sale, lease, license or other use of
Systems during such period, excluding sales, use or excise tax, freight, duty or
insurance included therein, discounts, and credits or repayments due to
rejection, defects or returns, and excluding a reasonable allowance for bad
debts and excluding amounts invoiced for services. In the event Vista combines
the Systems with other Vista products in a package in which the individual
Systems are not invoiced separately, then Vista's Net Revenues attributable to
the Systems component of such combined package shall be established by Vista in
good faith; provided, however, that if the Systems component of such combined
package is sold, leased, or licensed as an individual product by Vista in the
same geographic area, then Vista's Net Revenues attributable to such Systems in
the combined package shall be based on the Net Revenues of such Systems when
sold, leased, or licensed individually in such geographic area.
* * * Confidential Treatment Requested
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<PAGE>
"NORTH AMERICA" means The United States of America and Canada, including all
territories and possessions thereof.
"PRIME RATE" means, for any calendar quarter, the prime commercial lending rate
quoted by the Wall Street Journal, as in effect on the first day of such
quarter.
"SPECIFICATIONS" means the current specifications for the Systems, as may be
amended from time to time hereafter by written agreement of the parties hereto.
"SYSTEMS" means Vista's current and future visualization and related information
systems, together with all associated accessories and disposables specific to
the visualization system in the Field of Use.
"VISTA" means Vista Medical Technologies, Inc. and its Affiliates.
1.2) OTHER TERMS. Other terms may be defined elsewhere in the text of this
Agreement and shall have the meaning indicated throughout this Agreement.
1.3) OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof," "herein," and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this Agreement
as a whole and not to any particular provisions of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) References to an "Exhibit" are, unless otherwise specified, to
one of the Exhibits attached to or referenced in this Agreement, and
references to an "Article" or a "Section" are, unless otherwise specified,
to one of the Articles or Sections of this Agreement.
(d) The term "person" includes any individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or
any department or agency thereof.
(e) The term "Dollars" or "$" shall refer to the currency of the
United States of America.
(f) The term "knowledge" means actual knowledge of a fact or the
knowledge which such person or its officers or employees could reasonably
be expected to have based on reasonable investigation and inquiry.
(g) All references to time shall refer to Minneapolis, Minnesota
time.
-4-
<PAGE>
ARTICLE 2
MEDTRONIC AS SALES AGENT IN NORTH AMERICA
2.1) APPOINTMENT. Vista hereby appoints Medtronic and Medtronic hereby
accepts appointment as Vista's sales agent for sales of the Systems in the Field
of Use in North America. Medtronic's duties, to be performed by applicable
portions of Medtronic's "cardiac surgery sales force" (i.e. the sales force
within Medtronic responsible for selling the products of Medtronic's Cardiac
Surgery Business) listed on Schedule 2.1, shall include:
(i) introducing the Systems and distributing literature and sales
materials about the Systems to current and potential customers who may be
interested in purchasing the Systems;
(ii) providing Vista with names of and contacts for potential purchasers
of Systems and forwarding other sales leads to Vista;
(iii) passing along to Vista information or ideas of which Medtronic's
cardiac surgery sales force becomes aware in the Field of Use for
increasing utilization or new potential applications of the Systems; and
(iv) acting as an account liaison where Systems are placed to monitor the
performance of, and customer satisfaction with, the Systems in the Field of
Use, including but not limited to reviewing and suggesting ways to improve
utilization of the Systems within such accounts, and communicating this
information to Vista on a regular basis.
2.2) VISTA SALES AND DISTRIBUTION.
(a) Vista shall retain the exclusive right to distribute Systems outside
the Field of Use worldwide. Vista shall retain the exclusive right to
distribute Systems within the Field of Use in North America and worldwide except
as provided in this Agreement. Vista intends to establish a direct sales force
for Systems in North America through a combination of Vista employees and/or
independent third-party sales representatives. Vista shall use all commercially
reasonable efforts to ensure that any such independent third-party sales
representatives of Systems in North America are not Medtronic Competitors.
During the term of Medtronic's sales agency pursuant to this Article 2, Vista
shall not appoint or permit any persons other than Vista employees or
independent third-party sales representatives, to act as distributors or sales
agents for the System in the Field of Use in North America. Notwithstanding the
foregoing, it is understood and agreed that Vista wishes to establish its
visualization platform as the system of choice in minimally invasive cardiac
surgery. As such, Medtronic acknowledges and agrees that Vista may make
available its visualization systems in North America and worldwide (other than
in the Field of Use in Europe, the Middle East and Africa, wherein the making
available of such systems by Vista and Vista's support of the clinical and
training programs therefor would be subject to prior discussion with and
agreement of Medtronic
-5-
<PAGE>
in Medtronic's discretion), for clinical and training programs organized by
companies and institutions other than Medtronic, and support such programs as
necessary.
(b) Vista shall cooperate with Medtronic as Medtronic reasonably requests
to enable Medtronic to include the System in Medtronic's "strategic alliance"
sales program, including making a Vista sales manager available to participate
with Medtronic in such meetings with such customers as Medtronic may request;
provided that such sales manager (i) shall be an employee of Vista and not have
any affiliation with any Medtronic Competitor, and (ii) shall enter into a
confidentiality agreement providing that all information received by such Vista
sales manager in connection with Medtronic's "strategic alliance" program shall
be held strictly confidential.
2.3) COMPLETION OF SALES. Except as otherwise agreed to by the parties,
Vista shall be solely responsible for undertaking and completing the actual sale
and invoicing of all Systems in North America and the collection of accounts
receivable therefrom; provided that, in those instances where Medtronic
reasonably believes it is necessary for Medtronic to invoice sales of Systems to
a customer under Medtronic's "strategic alliance" sales program (in order for
Medtronic to obtain credit under such program for the sale of such System),
Vista and Medtronic shall cooperate to have Vista invoice Medtronic for such
Systems and thereby allow Medtronic to invoice the sales of Systems to such
"strategic alliance" customer. Vista shall be responsible for obtaining all
import licenses and permits as may be required to import the Systems into the
United States (if applicable) and Canada in accordance with then prevailing laws
and regulations of such country. All such filings and registrations of the
Systems shall be in the name of Vista. Medtronic shall cooperate fully with
Vista in its efforts to obtain any such approvals.
2.4) NORTH AMERICA INSTALLATION AND SERVICE; TRAINING.
(a) Vista shall be solely responsible for installing and servicing all
Systems at Vista's expense.
(b) Vista shall be solely responsible for providing, at Vista's expense,
customer and physician in-service training to any purchaser of a System. Vista
shall coordinate with Medtronic and allow Medtronic the opportunity to
concurrently train those purchasers who are also purchasers of Medtronic's
cardiothoracic surgical products on the use of such Medtronic products with the
Systems, provided that Medtronic shall bear its proportional share of the cost
for any such training. Notwithstanding the foregoing, Medtronic and Vista shall
share the cost of training at those designated "centers of excellence", if any,
as the parties may mutually agree, with the sites, strategy, scope and cost of
such training as may be mutually agreed to by the parties.
2.5) REGULATORY APPROVALS. Vista shall be solely responsible for
obtaining, at Vista's expense and in Vista's name all necessary regulatory and
other approvals from the FDA and any other applicable regulatory agencies
prerequisite to the commercial sale of the Systems in the Field of Use in North
America. Such approval efforts shall include, but not necessarily be limited
to, the preparation and filing of any required
-6-
<PAGE>
Investigational Device Exemption, Pre-Market Approval or Section 510(k) filings
and the establishment and oversight of any required clinical investigations and
clinical follow-up relating to future commercial sale of the Systems. Vista
shall promptly notify Medtronic of receipt of any such approvals, and shall
provide Medtronic with such information regarding the status of pending
approvals as Medtronic may reasonably request.
2.6) SALES AND MARKETING.
(a) Medtronic and Vista shall jointly develop protocols and sales
strategies for use by the Medtronic sales agents and Vista sales representatives
to co-promote the Systems and Medtronic's minimally invasive cardiac surgery
products to potential customers in North America. Vista and Medtronic shall
also establish protocols and procedures for coordinating Systems demonstrations
to potential customers referred by Medtronic for the Systems and for Medtronic's
minimally invasive surgical products in North America.
(b) Vista and Medtronic shall jointly fund such additional marketing
clinical studies for use of Medtronic minimally invasive surgical products in
connection with the Systems as the parties mutually agree, the results of which
could be used by either or both of Medtronic and Vista in connection with the
marketing and sale of the Systems in the Field of Use.
(c) Vista shall be responsible for designing, developing and producing, at
Vista's expense, Systems sales and marketing materials for use in the Field of
Use in North America. Vista, at its cost, shall provide Medtronic with
reasonable and adequate quantities of such appropriate sales and marketing
materials. In addition, Vista and Medtronic shall jointly develop sales and
marketing materials that feature and showcase both the Systems and Medtronic's
minimally invasive surgical products, with the costs thereof to be paid as
mutually agreed by the parties.
(d) Vista and Medtronic may jointly fund and participate in those North
America trade shows as mutually agreed to by the parties. As further mutually
agreed to by the parties, employees of Vista and Medtronic, respectively, shall
be allowed to interact with customers in the appropriate trade show booth of the
other. In addition, Medtronic shall have the right to demonstrate the Systems
in its North America trade show booths in connection with the application of its
minimally invasive surgical products.
2.7) MEDTRONIC'S COMMISSION.
(a) In consideration of Medtronic's performance as sales agents for the
Systems in North America, Vista shall pay to Medtronic on a calendar
quarterly basis a commission in an amount equal to * * * of
Vista's Net Revenues of Systems in North America. Such payments shall be
made within * * * after the end of each calendar quarter, and shall be
accompanied by a written statement setting forth the calculation of such
amount in such detail as Medtronic may reasonably request. Vista
* * * Confidential Treatment Requested
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<PAGE>
shall also give Medtronic monthly estimates of the amount of commissions which
have accrued for payment to Medtronic.
(b) Medtronic and Vista shall work together to create, by January 31,
1997, a sales incentive plan which creates the appropriate incentives for
Medtronic's cardiac surgery sales force marketing the System in North America.
(c) Vista shall keep accurate written records sufficient in detail to
enable Vista's Net Revenues of Systems in the Field of Use in North America to
be determined and verified by Medtronic. Such records for each calendar quarter
shall be retained by Vista for a period of not less than five years after the
end of such quarter.
(d) Upon reasonable notice and during regular business hours, Vista shall
from time to time (but no more frequently than once annually) make available the
records referred to in Section 2.7(b) for audit at Medtronic's expense by
independent accounting representatives selected by Medtronic and reasonably
acceptable to Vista to verify the accuracy of the statements provided to
Medtronic. Such representatives shall execute a suitable confidentiality
agreement reasonably acceptable to Vista prior to conducting such audit. Such
representatives may disclose to Medtronic only their conclusions regarding the
accuracy of Vista's calculation of Vista's Net Revenues of Systems in the Field
of Use in North America, and shall not disclose Vista's confidential business
information to Medtronic without the prior written consent of Vista.
2.8) NONCOMPETITION. During the term of Medtronic's sales agency pursuant
to this Article 2, Medtronic shall not market or sell in North America direct
visualization products which are competitive with the Systems in the Field of
Use ("Competitive Products"); provided that, for purposes of clarification,
Competitive Products shall not include intra-vascular or intra-cardiac imaging
or visualization products or systems.
ARTICLE 3
MEDTRONIC AS DISTRIBUTOR IN EUROPE, MIDDLE EAST AND AFRICA
3.1) APPOINTMENT.
(a) Vista hereby appoints Medtronic, and Medtronic hereby accepts
appointment, as Vista's exclusive distributor, with the right to sell and
distribute the Systems in the Field of Use in Europe, the Middle East and Africa
(as defined above). Vista represents and warrants to Medtronic that all other
distributorship agreements or sales representative agreements, written or oral,
with any third party permitting the sale of Systems in the Field of Use in
Europe, the Middle East and Africa have been terminated at Vista's sole cost and
expense.
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(b) During the term of Medtronic's distribution rights pursuant to this
Article 3, Medtronic shall not market or sell Competitive Products (as defined
in Section 2.8) in Europe, the Middle East or Africa.
(c) Medtronic may appoint subdistributors for the sale or distribution of
Systems in the Field of Use in Europe, the Middle East and Africa, and will
provide to Vista a list of such subdistributors from time to time.
Notwithstanding such appointment of subdistributors, Medtronic shall remain
fully responsible for the performance of all of its covenants and obligations
hereunder, and any sales by Vista to such Medtronic subdistributors shall be
billed by Vista to Medtronic directly.
(d) Vista shall promptly forward to Medtronic all leads for sales of
Systems in the Field of Use in Europe, the Middle East and Africa.
3.2) REGULATORY APPROVALS.
(a) Medtronic shall be solely responsible for obtaining, at Medtronic's
expense and in Medtronic's name, all necessary regulatory and other approvals
from the applicable regulatory agencies prerequisite to the commercial sale of
the Systems in the Field of Use in the Middle East and Africa. Such approval
efforts shall include, but not necessarily be limited to, the preparation and
filing of any required filings and the establishment and oversight of any
required clinical investigations and clinical follow-up relating to future
commercial sale of the Systems in the Field of Use in the Middle East and
Africa.
(b) In Europe, Vista will be responsible for gaining, at Vista's expense
and in Vista's name, the CE Mark under the appropriate Medical Device Directive.
Medtronic will be responsible for all dealings with the appropriate Competent
Authority such as Notification, Medical Device Vigilance and national labeling
issues, provided that Vista will bear final legal responsibility for the content
of all its own labeling. Medtronic will also be named as the "Authorized
Representative" as defined in the Directives. Medtronic may also distribute
Systems in particular countries within Europe under country-specific regulatory
approvals prior to Vista's gaining the CE Mark or in particular countries where
CE Mark approval is not the requisite form of commercial sale approval, and in
such circumstances Vista shall (i) provide Medtronic with such information and
cooperation as is necessary to obtain any such country-specific approvals in
Europe, (ii) bear the expenses of meeting any applicable product design and
manufacturing facility requirements, and (iii) take all steps as are necessary
to meet the EMC Directive.
3.3) PRICING.
(a) For the period from the date hereof until December 31, 1997, Medtronic
shall purchase Systems from Vista at a price (the "Transfer Price") * * *
* * *
* * * , reasonably determined in accordance with
generally
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accepted accounting principles as then currently applied by Vista, as
applicable, plus a projected mark-up presently estimated to be *** but in no
event less than ***, subject to final determination as hereinafter provided.
Such transfer price shall be finally determined by the parties based on market
conditions at the time of commercial introduction of the Systems; provided that
in no event shall the price to Medtronic of a standard System exceed U.S. * *
*. (The components of the current standard System, exclusive of accessories and
disposables, are listed on Schedule 3.3). No later than * * * , and
by * * * thereafter, the parties shall amend the Transfer Price for
the following * * * period pursuant to a formula to be mutually agreed to
by the parties, taking into account then market conditions.
(b) In addition, Medtronic shall be entitled to purchase from Vista a
reasonable number of demonstration Systems at a price equal to Vista's * * *
* * * for a System as determined above. Such reasonable number
of demonstration Systems (not to exceed *** per year) shall be consistent with
the number of Medtronic's "sales specialists" and the number of demonstrations
to be conducted by such sales specialists in connection with selling the
Systems.
(c) Payments made by Medtronic for Systems purchased hereunder shall be
due and payable in full within * * * days after the date of invoice by
Vista.
3.4) INSPECTION AND WARRANTY.
(a) In the event of any shortage, damage or discrepancy in or to a
shipment of Systems or in the event any of the Systems fail to comply with the
then current specifications for the Systems, Medtronic shall report the same to
Vista and furnish such written evidence or other documentation as Vista
reasonably may deem appropriate. If the substantiating evidence delivered by
Medtronic demonstrates that such shortage, damage or discrepancy or non-
conformity with specifications existed at the time of delivery of the Systems at
the F.O.B. point, Medtronic may return the Systems to Vista at Vista' expense,
and at Medtronic's request Vista shall use all reasonable efforts to deliver
promptly replacement Systems to Medtronic in accordance with the delivery
procedures set forth herein.
(b) Vista represents and warrants to Medtronic that all Systems sold and
delivered to any account under this Agreement will have been manufactured, if
required by law, in accordance with FDA Good Manufacturing Practices, European
Medical Device Directive requirements, ISO 9001 certification or successor
requirements, and all other applicable manufacturing requirements, and that
continually during the term of this Agreement no Systems delivered by Vista to
Medtronic or to any Medtronic Account shall be adulterated or misbranded at the
time of delivery within the meaning of the U.S. Food, Drug and Cosmetic Act and
regulations thereunder. Vista shall cause Medtronic's regulatory personnel to
be provided with reasonable access from time to time to the facilities and
records of Vista for the purpose of confirming Vista's compliance with all
applicable requirements noted in this Section.
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(c) Vista warrants to Medtronic and to Medtronic's customers that Systems
sold by Vista will not infringe any currently issued patents, trade secrets,
trademarks, or other intellectual property rights of any third party, and that
such products shall, when delivered at the F.O.B. point, meet the Specifications
and shall be free from defects in materials and workmanship. Medtronic shall
invoice Vista for, and Vista shall promptly pay, Medtronic's reasonable labor
charges and Medtronic's out-of-pocket materials, handling, shipping,
transportation, insurance and other expenses actually incurred in replacing
defective Systems which were under warranty.
(d) THE WARRANTIES SET FORTH ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY VISTA,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE, EXCEPT VISTA SHALL ALSO PROVIDE WITH RESPECT TO
SYSTEMS SOLD TO MEDTRONIC OR TO MEDTRONIC'S CUSTOMERS SUCH OTHER WARRANTIES AS
VISTA CUSTOMARILY PROVIDES TO ITS CUSTOMERS OR END-USERS OF THE SYSTEMS IN THE
FIELD OF USE (A COPY OF THE CURRENT VERSION OF SUCH CUSTOMER WARRANTY IS
ATTACHED HERETO AS SCHEDULE 3.4). VISTA MAY CHANGE ITS STANDARD CUSTOMER
WARRANTY FROM TIME TO TIME.
3.5) SALES AND SERVICE.
(a) Medtronic shall be solely responsible for selling, installing and
servicing all Systems in the Field of Use in Europe, the Middle East and Africa.
The Systems shall be sold under Vista trademarks and trade names subject to
Medtronic's right to indicate its status as distributor thereof on sales and
marketing materials for the Systems.
(b) Subject to Section 3.7 below, Medtronic shall be solely responsible
for providing customer and physician training to any purchaser of Systems for
use in the Field of Use in Europe, the Middle East and Africa.
(c) Medtronic shall be solely responsible for establishing, subject to
Vista's right to be consulted with respect thereto, the marketing, selling and
pricing strategies for the Systems in the Field of Use in Europe, the Middle
East and Africa.
3.6) MARKETING.
(a) Vista shall provide Medtronic from time to time as requested by
Medtronic with an adequate supply of Systems sales and marketing materials at
Vista's * * * * * * for use in Europe, the
Middle East and Africa. Medtronic shall, * * * and subject to the
reasonable approval of Vista, adapt or modify the Vista sales and marketing
materials and user manuals as deemed appropriate by Medtronic to reflect the
culture or business practices and languages of the particular regions within
Europe, the Middle East and Africa and to reflect
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Medtronic as the exclusive distributor of the Systems, or as otherwise deemed
appropriate by Medtronic.
(b) Vista and Medtronic may jointly fund and participate in those trade
shows within Europe, the Middle East or Africa that are designated as
"international", as mutually agreed to by the parties. Medtronic shall
participate, at Medtronic's discretion and expense, in those trade shows within
Europe, the Middle East or Africa that are designated as "national". As further
mutually agreed to by the parties, employees of Vista and Medtronic,
respectively, shall be allowed to interact with customers in the appropriate
trade show booth of the other. In addition, Medtronic shall have the right to
demonstrate the Systems in its trade show booths in connection with the
application of its minimally invasive surgical products.
3.7) TRAINING. Vista shall, * * * , provide initial technical
training of Medtronic's sales specialists and field service supervisors in
Europe, the Middle East and Africa in the use, installation and service of the
Systems at such reasonable times and places as the parties shall agree.
Medtronic * * * providing ongoing training of
Medtronic's field sales and service representatives in Europe, the Middle East
and Africa; such ongoing training costs * * *
* * *
* * *
3.8) ORDERS.
(a) Medtronic and Vista shall jointly develop order and delivery
procedures and guidelines for the Systems. Medtronic's orders shall be given no
less favorable treatment by Vista than orders from customers in North America.
The parties intend that Medtronic will maintain mutually agreed upon adequate
inventories of Systems, and that under most circumstances, Vista will ship
Systems directly to locations designated by Medtronic.
(b) Medtronic shall submit purchase orders for Systems to Vista in
writing, whether by mail, telecopier, telegram or otherwise, which shall, at a
minimum, set forth the product numbers, quantities, delivery dates, and shipping
instructions and shipping addresses for all Systems ordered. All orders shall
be subject to acceptance in accordance with the terms of this Agreement by Vista
at its office. Each purchase order shall, upon acceptance by Vista, give rise
to a contract between Medtronic and Vista for the sale of the Systems ordered
and shall be subject to and governed by the terms of this Agreement. The terms
and conditions of this Agreement shall so govern and supersede any additional or
contrary terms set forth in Medtronic's purchase order or any Vista or Medtronic
acceptance, confirmation, invoice or other document unless duty signed by an
officer of Medtronic and an officer of Vista and expressly stating and
identifying which specific additional or contrary terms shall supersede the
terms and conditions of this Agreement. Deliveries will first commence to
Medtronic no earlier than *** days from the date Medtronic delivers its initial
forecast to Vista.
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(c) On or before January 1, 1997, Medtronic shall provide Vista with a
twelvemonth international sales plan indicating by month the number of Systems
anticipated to be sold by Medtronic or purchased by Medtronic for use as
demonstration units (as updated as provided herein, the "Plan"). The Plan shall
be updated by Medtronic on a * * * basis (on or before the first day of
each * * * ) for a rolling successive * * * . The first ***
months of each Plan shall constitute a firm purchase commitment by Medtronic for
delivery of the number of Systems specified therein. The * * * month of each
Plan shall constitute a firm purchase commitment only insofar as Medtronic
agrees not to reduce the quantity specified. therein by more than ***, but
Medtronic otherwise may modify such quantity in the next Plan. The * * *
through * * * of each Plan shall be used for purposes of facilitating
Medtronic's marketing plans and meeting the lead times required by certain of
Vista's suppliers, but are not legally binding on Medtronic in any manner.
(d) Vista shall not be required to deliver quantities in excess of *** of
forecasted requirements unless Vista has been given at least *** days advance
written notice of the quantities to be delivered which exceed the forecasted
amounts; provided, however, that Vista shall use all commercially reasonable
efforts to supply such excess.
(e) No purchase order shall be modified or canceled except upon the mutual
agreement of the parties. Mutually agreed change orders shall be subject to all
provisions of this Agreement, whether or not the change order so states.
Notwithstanding the foregoing, any purchase order may be cancelled by Medtronic
as to any Systems which are not delivered within * * * days of the delivery
date requested by Medtronic, and any such cancellation shall not limit or affect
any contract remedies available to Medtronic with respect thereto. Any such
cancellation by Medtronic must be by written notice to Vista given within * * *
business days after such *** day.
(f) All deliveries of Systems shall be F.O.B. Vista's manufacturing
facility located at Westborough, Massachusetts. Except as provided in Section
3.4 above, Vista shall have no further responsibility for Systems, and all risk
of damage to or loss or delay of Systems shall pass to Medtronic, upon their
delivery at the aforesaid F.O.B point. All Systems deliveries shall be made by
a common carrier specified by Medtronic or, in the event that no carrier shall
have been specified by Medtronic on or before the date fifteen (15) days prior
to the requested shipment date, a common carrier reasonably selected by Vista.
(g) Vista shall inform Medtronic of any material changes in the
Specifications for the Systems and, if such changes affect the applicable
regulatory approvals of the Systems, Medtronic shall not be obligated to
purchase such altered Systems.
(h) Vista shall be responsible for packaging and any necessary
sterilization of Systems purchased under this Agreement in accordance with
specifications which are mutually satisfactory to the parties.
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3.9) UPGRADES. Vista shall make software and hardware upgrades available
to Medtronic for the Systems at prices and on terms and conditions * * *
* * *
* * * in the Field of Use in North America. Except as provided in
Section 3.4 with respect to warranty replacement parts, Vista shall sell
replacement parts for the Systems to Medtronic at prices equal to Vista's
fully-burdened manufacturing cost thereof plus ***.
3.10) REPORTS. Medtronic shall provide Vista, on a quarterly basis, with
current customer lists for Systems sold by Medtronic and physician users (of
which Medtronic is aware) of the Systems in the Field of Use in Europe, the
Middle East and Africa. Medtronic also will periodically provide Vista with the
customer name and address for each System installation in the Field of Use in
Europe, the Middle East and Africa for warranty and regulatory purposes.
Medtronic shall report any "adverse events" (as defined by FDA regulations)
promptly to Vista.
3.11) EXPORT/IMPORT APPROVALS.
(a) Vista shall be responsible for obtaining all export licenses and
permits as may be required to export the Systems from the country of manufacture
into the particular countries within Europe, the Middle East and Africa.
(b) Medtronic shall be responsible for obtaining all import licenses and
permits as may be required to import the Systems into particular countries
within Europe, the Middle East and Africa as selected by Medtronic in accordance
with then prevailing laws and regulations of such countries. All such filings
and registrations of the Systems shall be in the name of Medtronic, whenever
feasible in accordance with prevailing laws and regulations. Vista shall
cooperate fully with Medtronic in its efforts to obtain any such approvals.
ARTICLE 4
FIRST REFUSAL FOR DISTRIBUTION IN OTHER REGIONS
4.1) RIGHT OF FIRST REFUSAL.
(a) In the event that Vista proposes to enter into any distribution or
sales representative agreement with any third party regarding the sale or
distribution of the Systems in the Field of Use in any region outside of North
America, and Europe/the Middle East/Africa (such regions to be described as (i)
Japan (ii) Asia Pacific (ex. Japan), (iii) Australia/New Zealand, and (iv)
Central/South America), then, prior to entering into any discussions regarding
such distribution or sales representative agreement, Vista shall notify
Medtronic in writing of such intention to enter into such discussions, including
the material terms and provisions upon which Vista would be willing to enter
into such a distribution or sales representative agreement for such region
("Vista's Notice").
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(b) For a period of *** days after Medtronic's receipt of Vista's Notice
(the "Exclusive Period"), Vista shall negotiate in good faith exclusively with
Medtronic regarding such distribution or sales representative agreement for the
applicable region specified in Vista's Notice. During the Exclusive Period,
Vista will not solicit offers from, negotiate with, or provide information to
any third party regarding any distribution or sales representative relationship
for Systems in such region.
(c) If Medtronic and Vista fail to reach mutual agreement upon the terms
and provisions of a definitive agreement for such distribution or sales
representative relationship, then Vista shall have *** days from the earlier
of expiration of the Exclusive Period or termination by Medtronic of
negotiations between Vista and Medtronic in which to enter into a definitive
agreement for such distribution or sales representative relationship with a
third party for the applicable region specified in Vista's Notice; provided
that Vista may not enter into such definitive agreements unless the terms and
provisions thereof are, in the aggregate, more favorable to Vista than the
terms and provisions proposed by Medtronic during the Exclusive Period. If
Vista fails to enter into such definitive agreement for the applicable region
within such * * * period, then Medtronic's rights under this Section shall
be reinstated and Vista may not enter into any distribution or sales
representative relationship for the sale of Systems in such region without
first giving Medtronic a new Vista's Notice and complying with the terms of
this Section.
ARTICLE 5
PRODUCT DEVELOPMENT
5.1) CUSTOMIZED SYSTEMS. Medtronic may refer new product ideas or product
customization requests for the Systems in the Field of Use to designated Vista
marketing representatives. Vista shall consider development of Medtronic's
custom product requests in a reasonable and timely manner consistent with the
way in which Vista undertakes custom product requests for its customers in North
America.
5.2) NEW PRODUCTS. Vista and Medtronic shall each have the right to offer
to the other party the opportunity to co-develop products or technologies with
potential application in the Field of Use which the offering party owns or has
the right to use, subject to such mutually acceptable terms and conditions as
the parties may agree. The cost of such co-development efforts shall be shared
as may be mutually agreed to by the parties.
ARTICLE 6
TERM AND TERMINATION
6.1) INITIAL TERM. The initial term (the "Initial Term") for Medtronic's
rights and obligations as (i) the sales agent for Systems in North America shall
commence on the date hereof and continue until December 31, 1999, and (ii) the
exclusive distributor for Systems in Europe, the Middle East and Africa, shall
commence on the date hereof
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and continue until the third anniversary of the initial commercial release of
Systems in Europe.
6.2) RENEWAL TERM: PERFORMANCE OBJECTIVES.
(a) The Initial Term shall be automatically renewed for an additional
two-year period (the "Renewal Term"), unless such Initial Term has been
terminated by Vista due to Medtronic's failure to achieve certain reasonable and
mutually agreeable performance objectives to be established by the parties (the
"Performance Objectives"). There shall be one set of Performance Objectives
with respect to Medtronic's rights and obligations as the sales agent for
Systems in North America on an aggregate basis, and one set of Performance
Objectives with respect to Medtronic's rights and obligations as the exclusive
distributor for Systems in Europe, the Middle East and Africa on an aggregate
basis.
(b) Vista and Medtronic shall negotiate in good-faith to establish on or
before December 31, 1997 the Performance Objectives for the Initial Term. The
Performance Objectives shall take into account such factors as the size of the
market, price of the Systems, potential applications of the Systems, selling
cycle, Vista's manufacturing capacity, size of the relative sales forces, and
other relevant factors. The Performance Objectives for Europe, the Middle East
and Africa shall include aggregate sales volume targets and regulatory approval
requirements.
(c) The parties shall, within 90 days preceding the commencement of the
Renewal Term, establish mutually acceptable Performance Objectives for such
Renewal Term.
6.3) TERMINATION FOR FAILURE TO MEET PERFORMANCE OBJECTIVES OR ABANDONMENT
OF AREA.
(a) Subject to Article 8 hereof, if Medtronic fails to meet the
Performance Objectives for North America, Vista shall have the right to
terminate Medtronic's rights and obligations as sales agent for North America.
Subject to Article 8 hereof, if Medtronic fails to meet the Performance
Objectives for Europe, the Middle East, and Africa, Vista shall have the right
to terminate Medtronic's rights and obligations as distributor for Europe, the
Middle East and Africa. Vista shall give Medtronic written notice of any such
intent to terminate, and Medtronic shall have sixty (60) days in which to cure
such failure to meet the Performance Objectives. Vista's rights under this
Section 6.3(a) shall be Vista's sole and exclusive remedy for Medtronic's
failure to meet the Performance Objectives.
(b) In addition to Vista's rights under subsection (a) above and whether
or not Medtronic has met the aggregate Performance Objectives for Europe, the
Middle East and Africa, if at any time after commercial release of the Systems
Medtronic is making no efforts (and has no plans to make such efforts) to sell,
distribute, or promote the Systems in Europe, the Middle East, or Africa, then
Vista shall have the right to
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terminate Medtronic's rights and obligations as distributor with respect to
such geographic area in which no efforts are being made or are planned (i.e.
either Europe, the Middle East or Africa, as applicable). Vista shall give
Medtronic written notice of any such intent to terminate, and Medtronic shall
have sixty (60) days in which to commence such sales efforts (or provide a plan
to commence such sales efforts) in such geographic area. Except as provided in
Subsection 6.3(a), Vista's rights under this Subsection 6.3(b) shall be
Vista's sole and exclusive remedy for any failure by Medtronic to sell,
distribute or promote the Systems.
(c) Upon any such termination pursuant to Subsections 6.3(a) or 6.3(b)
above, Vista will repurchase from Medtronic, at Medtronic's cost, Medtronic's
entire inventory of Systems (excluding demonstration Systems) and related
accessories that do not contain Medtronic's name or trademarks as of the
termination date relating to the geographic area to which such termination
relates.
(d) If (i) Vista has elected to utilize a "procedure-based pricing
strategy" in North America (which strategy would involve the payment of
Medtronic's commission over the collective term of all individual System
agreements), and (ii) Vista terminates Medtronic's rights and obligations as its
North American sales agent for failure to meet the Performance Objectives
pursuant to subsection (a) above, Vista shall continue to pay
Medtronic on a * * * basis * * *
* * * which would have become due and payable but for such termination on
each such North America "procedure-based pricing" customer agreement in effect
on the termination date for the * * *
or (ii) * * * . This formula is intended to recognize that such
customer agreements were entered into during the period that Medtronic was
Vista's sales agent, and that Medtronic's revenue-based commissions were to be
paid over the term of each such agreement.
6.4) TERMINATION FOR CHANGE OF CONTROL.
(a) Vista shall be entitled to terminate Medtronic's rights and
obligations as sales agent for North America if Vista has afforded to Medtronic
its "First Offer Purchase Rights" pursuant to Section 2.1 of the Supplemental
Rights Agreement with respect to a "Proposed Transaction" (as such terms are
defined in the Supplemental Rights Agreement) and such "Proposed Transaction"
has resulted in a Change of Control of Vista. On or before such Change of
Control, Vista shall give Medtronic written notice of any such intent to
terminate, which termination shall be effective six months after the effective
date of the Change of Control.
(b) Upon any such termination pursuant to Subsection 6.4(a) above, Vista
will repurchase from Medtronic, at Medtronic's cost, Medtronic's entire
inventory of Systems (including demonstration Systems) and related materials
that do not contain Medtronic's name or trademarks as of the termination date
relating to the geographic area to which such termination relates.
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(c) Upon any such termination pursuant to Subsection 6.4(a) above, if
Vista has elected to utilize a "procedure-based pricing strategy" in North
America, Vista shall continue to pay Medtronic for * * *
* * * which would have become due and payable but for such termination on
all such North America "procedure-based pricing" customer agreements in effect
on the termination date.
(d) In no event, however, shall Vista have the right to terminate
Medtronic's rights as the exclusive distributor for the Systems in Europe, the
Middle East and Africa, or any other region, by reason of any "Change of
Control" of Vista.
6.5) MEDTRONIC'S TERMINATION FOR VISTA BREACH.
(a) Subject to Article 8 hereof, if Vista breaches any of its material
obligations under this Agreement with respect to Article 2 and/or Article 3 of
this Agreement, then Medtronic shall be entitled to terminate Medtronic's rights
and obligations under Article 2 and/or, at Medtronic's election, Article 3 of
this Agreement. Medtronic shall give Vista written notice of any such intent to
terminate, specifying whether such termination will apply to Medtronic's rights
and obligations under Article 2 or Article 3, or both, and Vista shall have
sixty (60) days in which to cure such material breach.
(b) Upon any such termination pursuant to Subsection 6.5(a) above, Vista
will repurchase from Medtronic, at Medtronic's cost, Medtronic's entire
inventory of Systems (including demonstration Systems) and related materials
that do not contain Medtronic's name or trademarks as of the termination date
relating to Medtronic's rights and obligations under Article 2 and/or Article 3
of this Agreement, as applicable.
(c) Upon any such termination pursuant to Subsection 6.5(a) above with
respect to Medtronic's rights and obligations under Article 2, if Vista has
elected to utilize a "procedure-based pricing strategy" in North America, Vista
shall continue to pay Medtronic for * * * which
would have become due and payable but for such termination on all such North
America "procedure-based pricing" customer agreements in effect on the
termination date.
6.6) VISTA'S TERMINATION FOR MEDTRONIC BREACH.
(a) Subject to Article 8 hereof and except as otherwise provided in
Section 6.3, if Medtronic breaches any of its material obligations under this
Agreement with respect to Article 2 and/or Article 3 of this Agreement, then
Vista shall be entitled to terminate Medtronic's rights and obligations under
Article 2 and/or, at Vista's election, Article 3 of this Agreement. Vista shall
give Medtronic written notice of any such intent to terminate, specifying
whether such termination will apply to Medtronic's rights and obligations under
Article 2 or Article 3, or both, and Medtronic shall have sixty (60) days in
which to cure such material breach.
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(b) Upon any such termination pursuant to Subsection 6.6(a) above, Vista
will repurchase from Medtronic, * * *
* * * and related materials that do not contain Medtronic's
name or trademarks as of the termination date relating to Medtronic's rights and
obligations under Article 2 and/or Article 3 of this Agreement, as applicable.
(c) Upon any such termination pursuant to Subsection 6.6(a) above with
respect to Medtronic's rights and obligations under Article 2, if Vista has
elected to utilize a "procedure-based pricing strategy" in North America, Vista
shall continue to pay Medtronic for * * * which
would have become due and payable but for such termination on all such North
America "procedure-based pricing" customer agreements in effect on the
termination date.
6.7) RIGHTS AND OBLIGATIONS ON TERMINATION. In the event of termination of
all or a portion of this Agreement for any reason, the parties shall have the
following rights and obligations:
(a) Termination of all or a portion of this Agreement shall not release
either party from the obligation to make payment of all amounts previously
due and payable;
(b) In the event of the termination of Medtronic's distribution rights
with respect to all of Europe, the Middle East and Africa in accordance
with Section 6.3(a), Section 6.5 or Section 6.6, or with respect to Europe,
the Middle East or Africa in accordance with Section 6.3(b), (i) Vista
shall have the right, at its option, to cancel any or all purchase orders
for Systems which provide for delivery to such geographic area after the
effective date of termination, (ii) Medtronic shall assign, * * * ,
all regulatory approvals and files regarding sales of Systems in such
geographic area to Vista, and (iii) Medtronic and Vista shall cooperate to
assure continued service and support to customers in such geographic area
who purchased Systems from Medtronic. Vista hereby acknowledges
Medtronic's right to continue to sell Systems purchased from Vista to any
person or entity until such time as Medtronic's entire inventory of Systems
is sold; and
(c) Without limitation of Section 10.6 hereof, the parties' payment and
audit obligations pursuant to Articles 2 and 3 hereof, and the parties
obligations pursuant to Articles 7, 9 and 10 hereof, shall survive
termination of this Agreement.
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ARTICLE 7
INDEMNIFICATION
7.1) VISTA'S LIABILITY. Vista shall indemnify, defend and hold harmless
Medtronic and each of its subsidiaries, officers, directors, employees,
shareholders and distributors from and against and in respect of any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, interest and penalties, costs and expenses (including, without
limitation, reasonable legal fees and disbursements incurred in connection
therewith and in seeking indemnification therefor, and any amounts or expenses
required to be paid or incurred in connection with any action, suit, proceeding,
claim, appeal, demand, assessment or judgment) ("Indemnifiable Losses"),
resulting from, arising out of, or imposed upon or incurred by any person to be
indemnified hereunder by reason of (i) any breach of representation, warranty,
covenant or agreement on the part of Vista under this Agreement, (ii) total or
partial Systems recalls, or (iii) alleged defects in materials, workmanship,
product performance, or design of the Systems, but in any event excluding
matters for which Medtronic is responsible under Section 7.2 below. Vista shall
maintain product liability insurance or self-insurance in such amounts as is
advisable pursuant to ordinary good business practice for a similar company in a
similar type of business, and shall provide Medtronic with evidence of this
coverage.
7.2) MEDTRONIC'S LIABILITY. Medtronic shall indemnify, defend and hold
harmless Vista and each of its subsidiaries, officers, directors, employees,
shareholders and suppliers from and against and in respect of any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, interest and penalties, costs and expenses (including, without
limitation, reasonable legal fees and disbursements incurred in connection
therewith and in seeking indemnification therefor, and any amounts or expenses
required to be paid or incurred in connection with any action, suit, proceeding,
claim, appeal, demand, assessment or judgment) ("Indemnifiable Losses"),
resulting from, arising out of, or imposed upon or incurred by any person to be
indemnified hereunder by reason of (i) any breach of representation, warranty,
covenant, or agreement on the part of Medtronic under this Agreement, (ii)
product claims whether written or oral, made or alleged to be made, by Medtronic
in its advertising, publicity, promotion, or sale of any Systems where such
product claims were not provided by or approved by Vista, or (iii) negligent
handling by Medtronic of the Systems, but in any event excluding matters for
which Vista is responsible under Section 7.1 above.
7.3) THIRD PARTY CLAIMS. If a claim by a third party is made against any
indemnified party, and if the indemnified party intends to seek indemnity with
respect thereto under this Article 7, such indemnified party shall promptly
notify the indemnifying party of such claim; provided, however, that failure to
give timely notice shall not affect the rights of the indemnified party so long
as the failure to give timely notice does not materially adversely affect the
indemnifying party's ability to defend such claim against a third party. The
indemnifying party shall be entitled to settle or assume the defense of such
claim, including the employment of counsel reasonably satisfactory to the
indemnified party, as provided below. If the indemnifying party elects to
settle or defend such claim, it shall notify the indemnified party within thirty
(30) days (but in no
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event less than twenty (20) days before any pleading, filing or response on
behalf of the indemnified party is due) of its intent to do so. If the
indemnifying party elects not to settle or defend such claim or fails to notify
the indemnified party of its election within thirty (30) days (or such shorter
period provided above) after receipt of the indemnified party's notice of a
claim of indemnity hereunder, the indemnified party shall have the right to
contest, settle or compromise the claim without prejudice to any rights to
indemnification hereunder. Regardless of which party is controlling the
settlement or defense of any claim, (i) both the indemnified party and
indemnifying party shall act in good faith, (ii) the indemnifying party shall
not thereby permit to exist any lien, encumbrance or other adverse charge upon
any asset of any indemnified party or of its subsidiaries, (iii) the
indemnifying party shall permit the indemnified party to participate in such
settlement or defense through counsel chosen by the indemnified party, provided
that all fees, costs and expenses of such counsel in an action controlled by the
indemnifying party shall be borne by the indemnified party, unless the
indemnifying party and indemnified party have different available defenses to
such third party claim, in which case such fees, costs and expenses shall be
borne by the indemnifying party, (iv) no entry of judgment or settlement of a
claim may be agreed to without the written consent of both the indemnified party
and the indemnifying party, which consents shall not be unreasonably withheld,
and (v) the indemnifying party shall agree promptly to reimburse the indemnified
party for the full amount of such claim pursuant to this Article 7. So long as
the indemnifying party is reasonably contesting any such claim in good faith as
permitted herein, the indemnified party shall not pay or settle any such claim;
provided that the indemnified party may settle any such claim so long as the
indemnifying party is not adversely affected thereby. The controlling party
shall deliver, or cause to be delivered, to the other party copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the settlement or defense of any
such claim, and timely notices of, and the right to participate pursuant to
(iii) above in any hearing or other court proceeding relating to such claim.
7.4) COOPERATION AS TO INDEMNIFIED LIABILITY. Each party hereto shall
cooperate fully with the other parties with respect to access to books, records,
or other documentation within such party's control, if deemed reasonably
necessary or appropriate by any party in the defense of any claim which may give
rise to indemnification hereunder.
ARTICLE 8
FORCE MAJEURE
8.1) FORCE MAJEURE. "Force Majeure" shall mean any event or condition, not
existing as of the date of signature of this Agreement, not reasonably
foreseeable as of such date and not reasonably within the control of either
party, which prevents in whole or in material part the performance by one of the
parties of its obligations hereunder, such as act of God, act of government, war
or related actions, civil insurrection, riot, sabotage, strike, epidemic, fire,
flood, windstorm, and similar events.
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8.2) NOTICE. Upon giving notice to the other party, a party affected by an
event of Force Majeure shall be released without any liability on its part from
the performance of its obligations under this Agreement, except for the
obligation to pay any amounts due and owing hereunder, but only to the extent
and only for the period that its performance of such obligations is prevented by
the event of Force Majeure.
8.3) SUSPENSION OF PERFORMANCE. During the period that the performance by
one of the parties of its obligations under this Agreement has been suspended by
reason of an event of Force Majeure, the other party may likewise suspend the
performance of all or part of its obligations hereunder to the extent that such
suspension is commercially reasonable.
ARTICLE 9
INTELLECTUAL PROPERTY
9.1) TRADEMARK LICENSE. Medtronic shall have a * * * license to use
all trademarks, trade names and logotypes of Vista relating to the Systems
solely in connection with the sale or other distribution, promotion, advertising
and/or maintenance of the Systems in the Field of Use. Medtronic shall acquire
no right, title or interest in such Vista trademarks, trade names and logotypes,
other than as provided for above, and Medtronic shall not use any Vista
trademarks, trade names and logotypes as part of Medtronic's corporate or trade
name or permit any third party under Medtronic's control to do so without the
prior written consent of Vista. All rights under this Section 9.1 shall
terminate upon termination of this Agreement under Article 6, subject to Section
6.5(b).
9.2) OWNERSHIP. Vista represents and warrants to Medtronic the following:
Vista is the exclusive owner or licensee of all right, title and interest in and
to all Intellectual Property used in the research, design, development,
manufacture or sale of the Systems (the "Vista Intellectual Property") free and
clear of any liens, charges, security interests, mortgages, pledges,
restrictions, adverse claims or any other encumbrances of any kind. Neither
Vista, its business, any of the Systems, nor the execution and performance of
this Agreement and the transactions contemplated herein, infringes, misuses,
misappropriates or conflicts with the rights, including patent and other
intellectual property rights or contract rights, of others. To the knowledge of
Vista, the Vista Intellectual Property is valid and has not been challenged in
any judicial or administrative proceeding. To the knowledge of Vista, Vista has
not failed to take any necessary steps or appropriate actions to record its
interests, or to protect its rights, in the Vista Intellectual Property. To the
knowledge of Vista, no person or entity nor such person's or entity's business
or products has infringed, misused, misappropriated or conflicted with the Vista
Intellectual Property or currently is infringing, misusing, misappropriating or
conflicting with the Vista Intellectual Property.
* * * Confidential Treatment Requested
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9.3) PROTECTION OF VISTA'S INTELLECTUAL PROPERTY AND IMPROVEMENTS. During
the term of this Agreement, Vista shall promptly inform Medtronic of any
invention, improvement, upgrading or modification relating to the Systems or
Vista's Intellectual Property relating to the Systems.
ARTICLE 10
MISCELLANEOUS
10.1) NON-DISCLOSURE. Except as permitted or required for performance by
the party receiving such Confidential Information of its rights or duties
hereunder, each party agrees (i) not to disclose or use any Confidential
Information of the other party obtained in connection with the performance of
this Agreement, and (ii) not to disclose or provide any of such Confidential
Information of the other party to any third party and to take appropriate
measures to prevent any such disclosure by its present and future employees,
officers, agents, subsidiaries, or consultants.
10.2) RELATIONSHIP. This Agreement does not make either party the
employee, agent or legal representative of the other for any purpose whatsoever.
Neither party is granted any right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or in the name of
the other party. In fulfilling its obligations pursuant to this Agreement, each
party shall be acting as an independent contractor.
10.3) ASSIGNMENT. 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, that (i) the rights and obligations of Vista herein may not be
assigned except to any person who succeeds to substantially all of the assets
and business of Vista to which this Agreement relates, and (ii) the rights and
obligations of Medtronic herein may not be assigned except to any person who
succeeds to substantially all of that portion of Medtronic's business to which
this Agreement relates.
10.4) COMPLETE AGREEMENT. This Agreement, the Investment Agreement, the
Investors' Rights Agreement, the Supplemental Rights Agreement, and the Exhibits
hereto and thereto constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and supersede all prior agreements
whether written or oral relating hereto.
10.5) GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, including all matters of
construction, validity, performance and enforcement, without giving effect to
principles of conflict of laws.
10.6) SURVIVAL. All of the representations, warranties, and covenants made
in this Agreement, and all terms and provisions hereof intended to be observed
and performed
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by the parties after the termination hereof, shall survive such termination and
continue thereafter in full force and effect.
10.7) WAIVER, DISCHARGE, AMENDMENT, ETC. The failure of any party
hereto to enforce at any time any of the provisions of this Agreement shall in
no way be construed to be a waiver of any such provision, nor in any way to
affect the validity of this Agreement or any part thereof or the right of the
party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to be a waiver of any other or subsequent
breach. Any amendment to this Agreement shall be in writing and signed by the
parties hereto.
10.8) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.
10.9) TITLES AND HEADINGS; CONSTRUCTION. The titles and headings to
Sections herein are inserted for the convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement. This Agreement shall be construed without regard to any presumption
or other rule requiring construction hereof against the party causing this
Agreement to be drafted.
10.10) BENEFIT. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties to this Agreement or
their respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.11) NOTICES. All notices or other communications to a party required
or permitted hereunder shall be deemed given if in writing and delivered
personally or sent by telecopy (with confirmation of transmission) or certified
mail (return receipt requested) to such party at the following addresses (or at
such other addresses as shall be specified by like notice):
if to Medtronic, to:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: General Counsel
FAX (612) 572-5459
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with a copy to:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: Vice President Corporate Development and Associate General
Counsel
FAX (612) 572-5404
and if to Vista, to:
Vista Medical Technologies, Inc.
5451 Avenida Encinas, Suite A
Carlsbad, CA 92008
Attention: John Lyon
FAX (619) 603-9170
with a copy to:
Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101
Attention: Craig Andrews
FAX (619) 234-3848
Medtronic or Vista may change their respective above-specified recipient and/or
mailing address by notice to the other party given in the manner herein
prescribed. All notices shall be deemed given on the day when actually
delivered as provided above (if delivered personally or by telecopy) or on the
day shown on the return receipt (if delivered by mail).
10.12) ILLEGALITY. 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 thereby.
10.13) PUBLIC ANNOUNCEMENT. Each of the parties to this Agreement
hereby agrees with the other parties hereto that, except as may be required to
comply with the requirements of applicable law or any exchange upon which such
party's capital stock is listed or traded, no press release or similar public
announcement or communication will
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be made or caused to be made concerning the execution or performance of this
Agreement unless specifically approved in advance by Medtronic and Vista. The
foregoing shall not restrict either party's communications with employees,
customers or private investors.
10.14) EXECUTION OF FURTHER DOCUMENTS. Each party agrees to execute and
deliver without further consideration any further applications, licenses,
assignments or other documents, and to perform such other lawful acts as the
other party may reasonably require to fully secure and/or evidence the rights or
interests herein.
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IN WITNESS WHEREOF, each of the parties has caused this Sales Agreement to
be executed in the manner appropriate to each, as of the date first above
written.
VISTA MEDICAL TECHNOLOGIES, INC.
By: /s/ JOHN LYON
------------------------------
Its:PRESIDENT
-----------------------------
MEDTRONIC, INC.
By: /s/ MICHAEL D. ELLWEIN
------------------------------
Its:PRESIDENT
-----------------------------
ATTACHMENTS:
Schedule 1.1 - "Europe, the Middle East, and Africa"
Schedule 2.1 - Medtronic's "cardiac surgery sales force"
Schedule 3.3 - System Components
Schedule 3.4 - Vista's current System product warranty
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Schedule 1.1
"EUROPE, THE MIDDLE EAST AND AFRICA"
1. EUROPE. Europe shall include all of continental Europe, and further
include the United Kingdom, Ireland and the Scandinavian countries and
Eastern Europe, including the Czech Republic, Serbia, Russia and Central
Independent States of the former USSR.
2. MIDDLE EAST. The Middle East shall include all of the Middle East north
and east of the Red Sea, from Turkey in the north and west, to Iran in the
east and Yemen in the south, excluding Afghanistan and Pakistan.
3. AFRICA. Africa shall include the entire continent of Africa and all
islands appurtenant thereto.
<PAGE>
Schedule 2.1
MEDTRONIC'S "CARDIAC SURGERY SALES FORCE"
Medtronic's "cardiac surgery sales force" shall mean: * * *
* * *
* * * as Medtronic,
with Vista's consent (not to be unreasonably withheld), deems appropriate to
promote the System.
* * * Confidential Treatment Requested
<PAGE>
SCHEDULE 3.3
CardioView advanced visualization and information management system:
Cardio 3DScope - A complete set of stereo cameras and endoscopes (either
Miniature or Traditional).
-A miniature camera 1.3" in length capable of attaching to retractor
systems or delivered within the surgical field by attachment to
malleable or rigid guide; or
-Traditional 4.7 mm rotable Thoracoscope.
CardioCamera - 1.3" in length miniature one chip mono camera to be placed
within the body.
CardioView - head mounted display system.
-Lightweight, ergonomic display with LCD chips providing real time 3D
video.
-Image resolution equivalent to conventional TV monitor.
-Can be worn with surgical loops.
-Providing voice activated command for the delivery of patient
information.
-First generation to include TEE (Trans Esophageal Echo), "picture in
picture".
-Consisting of up to four head mounted displays operating off one
central control unit. Standard system includes two HMDs.
CardioConsole - Elegant, user friendly system to rack mount a customized
information management system for Cardiothoracic surgery. CardioConsole
will contain:
CardioController - High resolution stereo image processor.
-Will operate either the mono or stereo cameras.
-Capable of running all cameras in cardiac surgery.
-Can "slave" to other medical monitors in O.R.
CardioRecorder - 3 dimensional CD ROM image recorder.
CardioLight, Advanced single fiber light delivery technology.
-Cogent Light xenon light source
Standard 13" medical monitor.
-For setup, calibration, and trouble shooting
<PAGE>
Schedule 3.4
LIMITED EXPRESS WARRANTY
THE LIMITED EXPRESS WARRANTY AS SET FORTH HEREIN IS EXCLUSIVE AND IN LIEU OF
ALL OTHER WARRANTIES EXPRESS OR IMPLIED, REMEDIES, OBLIGATIONS, AND LIABILITIES,
MERCHANTABILITY AND FITNESS FOR USE AND OF CONSEQUENTIAL DAMAGES. THE PRODUCTS
ARE BEING SOLD ONLY FOR THE PURPOSES DESCRIBED HEREIN AND SUCH LIMITED EXPRESS
WARRANTY RUNS ONLY TO THE CUSTOMER. IN NO EVENT SHALL VISTA BE LIABLE FOR ANY
BREACH OF WARRANTY IN ANY AMOUNT EXCEEDING THE PURCHASE PRICE OF THE PRODUCT.
Should the medical equipment described below become inoperable within one
period of usage specified for the applicable equipment due to a defect in
material or workmanship, Vista will at its sole option, either repair or replace
the applicable equipment at no charge.
- CAMERAS HMD'S: 1 year from date of sale.
- ACCESSORIES, SCOPES, COUPLERS: 90 days from date of sale.
- LIGHT SOURCES: 1 year from date of sale. Light source bulbs are not
covered under this warranty. Bulbs are warranted to be defect free
only at the time of delivery.
- MONITORS / VCRS: 90 days from date of sale.
- VIDEO CARTS: Defect free only at time of delivery.
- ALL OTHER PRODUCTS: Defect free only at time of delivery.
- REPAIR WARRANTIES: 90 days after date of repair.
A sterilized device, subject to this Limited Express Warranty, is supplied
to the customer in a sterile package. If during the first 90 days from the date
of receipt of the sterile package or if at time of use, the device is found to
be unstable due to a defect in material or workmanship, Vista will, at its
option refund the purchase price of the device or replace the device at no
charge. This Limited Express Warranty does not extend to sterile packaging
where the sterile integrity of the package is compromised. A sterile package
which is compromised should be rejected by the original purchaser at the time of
delivery.
Should a surgical instrument become damaged when used for any purpose other
than originally intended by the manufacturer or through accidental damage,
negligence, or normal wear and tear prevailing repair charges will be applicable
for refurbishing or replacement parts that are required.
Vista reserves the right to make design changes on its products without
liability to incorporate said change in Vista products previously designed or
sold.
Work performed on Vista products by anyone other than Vista will void any
and all warranties.
Upon receipt of the product, it should be carefully inspected, and if any
defect is discovered, notification must be given immediately to the
manufacturer.
Trademark Notice:
CardioCamera-TM-, CardioScope-TM-, CardioView-TM-, CardioLight-TM- and Vista
CardioThoracic-TM- are trademarks of Vista Medical Technologies.
Copyright 1966 Vista Medical Technologies. All rights reserved.
<PAGE>
EXHIBIT 10.12
SUPPLY AND SERVICES AGREEMENT
This Supply and Services Agreement (the "Agreement") is dated as of this
22nd day of February, 1997 (the "Effective Date") by and between Heartport,
Inc., a Delaware corporation located at 700 Chesapeake Drive, Redwood City,
California 94063 ("Heartport"), and Vista Medical Technologies, Inc., a Delaware
corporation located at 5451 Avenida Encinas, Suite A, Carlsbad, California
92008, through its Vista CardioThoracic Surgery division, (individually and
collectively, "Vista").
RECITALS
WHEREAS, as partial consideration for this Agreement, Heartport has been
issued a Common Stock Purchase Warrant, dated as of the Effective Date (the
"Warrant"), pursuant to which Heartport may purchase up to 100,000 shares of the
Common Stock of Vista;
WHEREAS, Vista desires to supply to Heartport, and Heartport desires to
purchase from Vista, four (4) Vista Systems (as defined below) as set forth in
this Agreement;
WHEREAS, Heartport and Vista desire to set forth the terms of the services
Vista will provide to Heartport with respect to such Vista Systems in this
Agreement; and
WHEREAS, Vista desires to sell such Vista Systems to surgeons that have
been trained at HRTC (as defined below) and/or the hospitals with which they are
affiliated and Heartport and Vista desire to set forth their agreement with
respect to such sales in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 "AFFILIATE" means any entity directly or indirectly controlling,
controlled by, or under common control with either party hereto and shall
include, without limitation, any entity more than fifty percent (50%) of whose
voting stock or participating profit interest is owned or controlled, directly
or indirectly, by either party and any entity which owns or controls, directly
or indirectly, more than fifty percent (50%) of the voting stock of either
party.
<PAGE>
1.2 "EFFECTIVE DATE" means the date of this Agreement set forth in the
preamble.
1.3 "HRTC" means the Heartport Research and Training Center in Salt Lake
City, Utah or other comparable research and training center used by Heartport in
North America where Vista Systems are installed.
1.4 "NORTH AMERICA" means the United States, its territories, and Canada.
1.5 "PORT-ACCESS-TM- HOSPITAL" means a hospital, clinic or other similar
site in North America where cardiothoracic surgery is performed, where at least
one cardiothoracic surgeon has been trained at HRTC to perform one or more
Port-Access Procedures (and, after the first two (2) Vista Systems have been
installed at HRTC pursuant to this Agreement, such surgeon shall have been
exposed to the Vista System in the course of the training program during the
Services Term), and such site is a Heartport customer at the time it places an
order with Vista for one or more Vista Systems. A Port-Access Hospital is a
Heartport customer if a surgeon affiliated with it is performing Port-Access
Procedures and/or the site is under contract with Heartport to purchase Port-
Access Procedures or devices or instruments for performing such procedures.
1.6 "PORT-ACCESS-TM- PROCEDURES" means minimally invasive procedures for
cardiothoracic surgery using technology developed, licensed or otherwise owned
by Heartport.
1.7 "PROPRIETARY INFORMATION" means information developed, known by or
conveyed to a party, including, without limitation, trade secrets, copyrights,
ideas, techniques, know-how, inventions (whether patentable or not), and/or any
other information of any type relating to designs, configurations, toolings,
clinical procedures or treatments, documentation, recorded data, schematics,
source code, object code, master works, master databases, algorithms, flow
charts, formulae, circuits, works of authorship, mechanisms, research,
manufacture, improvements, assembly, installation, intellectual property
including patents and patent applications, business plans, past or future
financing, marketing, forecasts, pricing, customers, the salaries, duties,
qualifications, performance levels, and terms of compensation of employees,
and/or cost or other financial data concerning any of the foregoing or the
party, its Affiliates and their operations generally.
1.8 "SERVICES TERM" means the period from the Effective Date through
December 31, 1999; provided, however, that the Services Term shall terminate in
the event that this Agreement is terminated in accordance with Article 8 hereof.
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1.9 "VISTA CARDIOVIEW-TM- DISPLAY" shall mean Vista's CardioView-TM- Head
Mounted Display or any iteration or improvement thereof or other similar head-
mounted display developed, licensed or otherwise owned by Vista or its Affiliate
and any variation, improvement or upgrade thereto or revision or replacement
thereof.
1.10 "VISTA SYSTEM" shall mean Vista's Series 8000 Visualization and
Information System (including, without limitation, one Vista Cardio-TM-View
Display, one 3-D camera, all related software and hardware and Vista's standard
warranty for such Vista System), or other similar visualization and information
system in the field of cardiac surgery related to the Vista Series 8000
Visualization and Information System, or any iteration or improvement thereof
developed, licensed or otherwise owned by Vista or its Affiliate and any
variation, improvement or upgrade thereto or revision or replacement thereof.
2. SUPPLY TO HEARTPORT.
2.1 SUPPLY OF VISTA SYSTEMS. Subject to the terms and conditions of this
Agreement, Vista will supply to Heartport four (4) Vista Systems in accordance
with the following delivery and payment schedules. Vista will ship two (2)
Vista Systems to * * * * * * , for delivery in * * * (or Vista shall use
commercially reasonable efforts to deliver as soon as possible thereafter) and
Heartport will pay Vista * * * within * * * days of the delivery and
installation of such Vista Systems. Vista will ship two (2) Vista Systems to
HRTC, * * * , for delivery in * * * (or Vista shall use
commercially reasonable efforts to deliver as soon as possible thereafter) and
Heartport will pay Vista * * * within * * * days of the delivery and
installation of such Vista Systems. Vista will notify Heartport in writing of
the exact delivery dates at least thirty (30) days in advance of such shipments.
In further consideration of this Section 2.1 and Vista's other obligations under
this Agreement, Heartport shall make the following additional payments to Vista
in accordance with the schedule set forth below:
* * *
All costs, taxes, insurance premiums, and other expenses relating to Vista
Systems transportation and delivery shall be at * * * . Prior to
exercising the Warrant, Heartport or its successor agree to pay to Vista all
unpaid amounts payable pursuant to this Section 2.1.
2.2 LATE DELIVERY. If Vista becomes aware that any Vista System will not
be delivered within the range of acceptable delivery dates, Vista shall
immediately notify
* * * Confidential Treatment Requested
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Heartport in writing no more than five (5) days after becoming aware of the
possibility of late delivery and prior to delivery of such Vista System.
Heartport may, at its discretion, accept late delivery of any such Vista System.
Heartport's rejection of such late Vista System shall not give rise to the
termination of this Agreement and the parties shall negotiate in good faith with
regard to the payments due to Vista hereunder with respect to such Vista System.
2.3 TITLE AND RISK OF LOSS. * * *
* * *
* * *
2.4 RESALE OF VISTA SYSTEMS BY HEARTPORT. Except in connection with the
sale of all or substantially all of the assets of HRTC or a change in control of
Heartport and/or HRTC, Heartport agrees that it will not sell or transfer the
Vista Systems purchased pursuant to this Agreement during the Services Term.
After the Services Term, prior to selling a Vista System to a third party,
Heartport shall first offer such Vista System to Vista for repurchase by Vista
and the parties agree to negotiate in good faith for * * * days to reach a
fair price. If the parties have not reached agreement during such * * *
day period, Heartport may sell such Vista System to a third party on material
terms no more favorable than those offered to or by Vista.
3. SERVICES TO HEARTPORT.
3.1 INSTALLATION, SUPPORT AND SERVICE. Notwithstanding anything in this
Agreement to the contrary, during the Services Term, Vista will install all
Vista Systems purchased by Heartport hereunder at HRTC in accordance with the
terms of this Agreement. In addition, during the Services Term, Vista shall
provide on-site in-service to operate and repair the Vista Systems at
Heartport's request. During the Services Term, Heartport will notify Vista of
any defective Vista System as soon as reasonably practical after Heartport
becomes aware of such defective Vista System. If Vista cannot timely repair the
defective Vista System, Vista will use commercially reasonable efforts to
replace the defective Vista System within * * * days after receipt of
notice of such defective from Heartport or as otherwise agreed to by Heartport.
During the Services Term, Vista will promptly provide and install all available
upgrades to the Vista Systems at HRTC so that the Vista Systems at HRTC are the
most current commercially available state-of-the-art. The parties will
cooperate to ensure that representatives of Vista will receive reasonably
adequate access to HRTC to perform the services and support provided hereunder.
Vista agrees to arrange the schedule of in-service provided by Vista at HRTC in
advance with Heartport's Director of Clinical Affairs or his designee and to
visit HRTC in accordance with the arranged schedule. All such representatives
will execute and abide by Heartport's standard Confidential Disclosure Statement
at HRTC.
* * * Confidential Treatment Requested
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3.2 TRAINING MATERIALS. Members of Vista's and Heartport's management
will work together to prepare all training materials with respect to Vista
Systems that are provided to Heartport trainees at HRTC. Such training material
will be subject to the written approval of at least one (1) member of the senior
management of each of Heartport and Vista prior to its distribution to Heartport
trainees.
4. VISTA SYSTEM COMPATIBILITY. During the Services Term and for a period of
* * * years thereafter, Vista and Heartport agree to mutually evaluate new
software or digital signal processing technology or similar technology useful in
the performance of Port-Access Procedures. If the parties mutually determine in
good faith that it would be commercially and technically appropriate, they will
work together using commercially reasonable efforts with the goal of ensuring
that the Vista System, including, without limitation, the Vista CardioView-TM-
Display, is compatible with such software or digital signal processing or
similar technology. Notwithstanding the foregoing, Vista agrees to work with
Heartport using commercially reasonable efforts to satisfy Heartport's
reasonable requests for inclusion of specified features in the Vista CardioView-
TM- Display that relate to Port-Access Procedures.
5. PROMOTIONAL ACTIVITY. During the Services Term, Heartport will promote
that its HRTC training courses utilize Vista Systems and will endorse such Vista
Systems as the preferred three-dimensional video visualization and information
solution for minimally invasive cardiac surgery and Vista will promote that
Heartport's HRTC training course utilize Vista Systems. Such promotional
activity will be subject to the written approval of at least one (1) member of
the senior management of each of Heartport and Vista prior to its distribution.
Heartport will provide Vista with lists of the names and hospital affiliations
of the HRTC trainee surgeons on at least a quarterly basis. Heartport also
agrees to endorse such Vista Systems as a preferred three-dimensional video
visualization and information solution for minimally invasive cardiac surgery
after the Services Term for so long as Vista is obligated to sell Vista Systems
to Port-Access Hospitals pursuant to Article 6 hereof.
6. SUPPLY TO PORT-ACCESS HOSPITALS.
6.1 NON-DISCRIMINATION. During the Services Term and for four (4) years
thereafter (the "Supply Term"), Vista will sell Vista Systems to each Port-
Access Hospital without discrimination and on the best available terms and
conditions it offers to any other similarly situated Vista customer in North
America purchasing similar quantities of Vista Systems (whether on a per unit
payment basis or on a per procedure payment basis). Such terms and conditions
include, without limitation, price, priority of delivery, warranty, service and
rights to receive upgrades. For purposes of this Agreement, "similarly
situated" shall be determined by Vista in good faith based on factors such as
quantity ordered, number of procedures performed, payment, delivery and services
terms, revenues anticipated to be generated at the site, quantities already
installed or
* * * Confidential Treatment Requested
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committed to be installed and geographic considerations. * * *
* * *
* * *
If a Port-Access Hospital places an order for one (1) or more Vista Systems (or
procedures) the aggregate number of which is not eligible for a volume discount,
the best available terms and conditions shall be determined by reference to
similar sales to other Vista customers in North America. Notwithstanding the
foregoing, in the event Vista sells Vista Systems in North America as a kit with
other products, the best available terms and conditions for Vista Systems shall
be determined by the following equation:
Price (the "New Price") for stand-alone Vista System if Vista sells as a kit
with other products = (A/A+B)C
where
***
***
If a product or relevant Vista System is not sold * * *
* * *, the parties shall in good faith mutually agree upon a fair price for
such component of the formula. The determination of price for a * * *
* * * shall take into account the fairest
determination of * * * given the circumstances
* * *
* * * . Nothing in this Article 6 shall prevent Vista
from implementing reasonable price increases for Vista Systems, provided that
such increases apply equally to all similarly situated Vista customers in North
America.
6.2 MEET AND CONFER. The parties agree that Vista's obligations pursuant
to this Article 6 are an important component of the consideration for this
Agreement. In the event of a misunderstanding between the parties with respect
to the terms of this Article 6, each party hereby represents and warrants to the
other party that at least one (1) member of its senior management will meet with
at least one (1) member of the senior management of the other party within no
more than fifteen (15) days after
* * * Confidential Treatment Requested
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receiving written notice of the other party's concern or request for
clarification under this Article 6. The parties agree to discuss the concern or
request for clarification in good faith with the goal of resolving the
misunderstanding to the satisfaction of both parties. In addition, the parties
agree that during the period of discussion covered by this Section 6.2 that each
party will honor reasonable requests for the review of its records related to
the misunderstanding. In the event that the party giving notice of the concern
or requested clarification is not satisfied with the results of negotiation
after thirty (30) days from the date of the first meeting between the parties,
such party shall have the right to pursue other remedies available under the
terms of this Agreement.
6.3 EXTENSION OF SUPPLY TERM. At Heartport's request, Vista will
negotiate in good faith to extend the Services Term and/or the Supply Term on
mutually acceptable terms.
7. CONFIDENTIALITY.
7.1 Each party acknowledges the importance of the other party's
Proprietary Information. Each party agrees (i) to hold the other party's
Proprietary Information in confidence and to take all reasonable precautions to
protect such Proprietary Information (including, without limitation, all
precautions such party employs with respect to its confidential materials),
(ii) not to divulge any such Proprietary Information or any information derived
therefrom to any third person (including Affiliates, except on a "need to know"
basis, (iii) not to make any use whatsoever at any time of such Proprietary
Information except as expressly authorized in this Agreement and (iv) not to
copy, study, analyze, examine or reverse engineer any such Proprietary
Information except as expressly authorized in this Agreement. Any employee or
contractor given access to any such Proprietary Information must have a
legitimate "need to know" and shall be similarly bound.
7.2 Without granting any right or license, each party agrees that
Section 7.1 shall not apply to information a party can document (i) is in or,
through no improper action or inaction by such party or any Affiliate, agent or
employee, enters the public domain (and is readily available without substantial
effort), or (ii) was rightfully disclosed to it by a third party not under
restriction not to disclose such information, or (iii) was independently
developed by it by persons without access to, or use of, any Proprietary
Information of the other party. A party must promptly notify the other party of
any information it believes comes within any circumstance listed in the
immediately preceding sentence and will bear the burden of proving the existence
of any such circumstance by clear and convincing evidence.
7.3 Immediately upon (i) termination of this Agreement or (ii) a party's
earlier written request, a receiving party will turn over to the disclosing
party all of such disclosing party's Proprietary Information and all documents
or media containing any
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such Proprietary Information (and any and all copies or extracts thereof) and
shall have an officer of such party so certify to the disclosing party in
writing. In such instance, each party's chief legal officer may retain one
archival copy of the other party's Proprietary Information in secure files,
provided, however, that if such copies are retained, the officer's certificate
referred to in this Section 7.3 shall so state.
7.4 Each party acknowledges and agrees that due to the unique nature of
the other party's Proprietary Information, there can be no adequate remedy at
law for any breach of its obligations hereunder, that any such breach may allow
the receiving party or third parties to unfairly compete with the disclosing
party resulting in irreparable harm to the disclosing party, and, therefore,
upon any such breach or any threat thereof, the disclosing party shall be
entitled to appropriate equitable relief in addition to whatever remedies it
might have at law and to be indemnified by receiving party from any loss or
harm, including, without limitation, lost profits and attorney's fees, in
connection with the unauthorized use or release of any Proprietary Information
of the disclosing party or breach of this Article 7. A receiving party shall be
obligated to notify the disclosing party in writing immediately upon the
occurrence of any such unauthorized use or release or breach of this Article 7.
7.5 The obligations imposed by Sections 7.1 and 7.2 with respect to the
protection of Proprietary Information shall continue for a period of * * *
following disclosure of such Proprietary Information unless otherwise agreed
to in writing by the parties.
8. TERM AND TERMINATION.
8.1 TERM. Except as otherwise set forth in this Agreement, Vista shall be
obligated to provide the services to Heartport set forth in Article 2 and
Article 3 of this Agreement and Heartport shall be obligated to make the
payments to Vista described in Article 2 of this Agreement during the Services
Term. In addition, Vista shall be obligated to supply Vista Systems to Port-
Access Hospitals during the Supply Term defined in Article 6 hereof and both
parties shall be obligated to perform their respective obligations pursuant to
Articles 4, 5, 6 and 7 during the terms set forth therein. Unless otherwise
expressly set forth herein, this Agreement will terminate at the end of the
Supply Term unless extended by the parties in accordance with the terms of this
Agreement.
8.2 TERMINATION BY EITHER PARTY. If either party is in material breach
of one or more provisions of this Agreement, the Agreement may be terminated
by the non-breaching party if the breach is not cured by the breaching party
within thirty (30) days of written notification of the breach by the
non-breaching party. The breach may be cured after thirty (30) days of such
notification by mutual written agreement of the parties.
* * * Confidential Treatment Requested
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8.3 SURVIVAL. Except as otherwise set forth in this Agreement, upon the
termination or expiration of this Agreement, all rights and obligations of the
parties under this Agreement shall cease, except that the provisions of
Articles 7 and 9 and this Section 8.3 shall survive and any other provisions
which by their terms or nature are intended to survive such termination or
expiration shall survive and continue to be enforceable. Notwithstanding the
foregoing, upon any termination, pending orders received by Vista from Port-
Access Hospitals prior to such termination shall be completed and shipped
pursuant to the terms of this Agreement and any arrangements between the Port-
Access Hospital and Vista.
9. MISCELLANEOUS.
9.1 RELATIONSHIP OF PARTIES. The relationship of the parties shall be
solely that of independent contractors. At no time will either party hold
itself out to be the agent, employee, partner or joint venture of the other
party. Neither party hereto shall have the express or implied right or
authority to assume or create any obligation on behalf or in the name of the
other party, or to bind the other party in regard to any contract, agreement or
undertaking with any third party.
9.2 THIRD PARTY BENEFICIARIES. Each Port-Access Hospital is expressly
intended to be a third party beneficiary of Article 6 of this Agreement;
provided, however, that Heartport must be a party to any action brought to
enforce the terms of Article 6 with respect to any Port-Access Hospital. The
parties agree that depending upon the circumstances, equitable relief such as
specific performance may be the most appropriate remedy for the enforcement of
Article 6.
9.3 ASSIGNMENT. Either party may assign this Agreement in whole or in
part without the prior written consent of the other party, except that neither
party may, without consent, assign this Agreement to an acquirer of, or
successor to, all or substantially all of such party's business, stock or assets
that relate to the subject matter of this Agreement.
9.4 CHANGE IN CONTROL. This Agreement is expressly intended to survive a
change in control or reorganization or other such corporate restructuring
(including a sale of all or substantially all assets) of either (or both) party
and each party hereby represents and warrants to the other party that it and its
Affiliates and any successor or assign will honor and perform the obligations
set forth in this Agreement in such event. If Vista is acquired during the
Services Term, Heartport shall have the right to terminate this Agreement at
its option, and, upon such termination, Heartport shall (i) immediately
return the Vista Systems installed at HRTC pursuant to this Agreement to
Vista at Heartport's expense, (ii) retain all rights to the Warrant, and
(iii) have no further obligation to pay any unpaid amounts to Vista pursuant
to Section 2.1.
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9.5 TRADEMARKS. Except as required by law or other governmental
authorities (in which case the party using such trademark, service mark or trade
name shall use it with property attribution), neither party shall, without the
express written consent of the other party, use any trademark, service mark or
trade name of the other party.
9.6 PUBLICITY. Except as expressly set forth in this Agreement or as
required by law or regulation, neither party shall issue any publicity about the
other party, this Agreement or the parties' performance under this Agreement
without the prior written consent of the other party. In the event that a party
must describe this Agreement in a document to be filed with the United States
Securities and Exchange Commission, such party will provide a draft of the
disclosure to the other party for their reasonable review, comment and written
approval as soon as practicable after preparation (but no less than 24 hours
prior to filing).
9.7 GOVERNING LAW. The rights and obligations of the parties to this
Agreement shall be governed by and construed in accordance with the laws of the
State of California, without regard to the conflict of laws provisions therein.
9.8 HEADINGS. Section headings are for convenience of reference only and
shall not be considered in the interpretation of this Agreement.
9.9 NOTICES. All notices, requests, consents or other communications made
hereunder shall be in writing and will be deemed duly given upon delivery if
delivered personally, upon confirmation of transmission if sent by telex or
facsimile, upon the third business day after mailing if sent by U.S. mail,
postage prepaid, and upon receipt if sent by reputable overnight courier to the
parties at the following addresses or such other addresses as may be designated
in writing by the respective parties:
If to Vista:
Vista Medical Technologies, Inc.
5451 Avenida Encinas, Suite A
Carlsbad, CA 92008
Attn: President and Chief Executive Officer
Facsimile: (619) 603-9170
If to Heartport:
Heartport, Inc.
700 Chesapeake Drive
Redwood City, CA 94063
Attn: General Counsel
Facsimile: (415) 482-4436
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9.10 CONSENTS. Any consents or approvals given or required to be given
under this Agreement shall be effective only if given in writing and executed by
an executive officer of the party granting such consent or approval.
9.11 WAIVER. The failure of either party to enforce its rights under this
Agreement at any time for any period shall not be construed as a waiver of such
rights.
9.12 ENTIRE AGREEMENT. This Agreement together with any Appendices and
Addenda attached hereto and the Mutual Non-Disclosure Statement dated as of
October 16, 1995, between the parties, constitute the entire agreement between
the parties relating to the subject matter hereof, and supersede all prior or
contemporaneous written or oral negotiations, representations or agreements. No
modification of this Agreement shall be binding on either party unless it is in
writing and signed by both parties. In the event of any discrepancy or conflict
between the terms of this Agreement and any purchase order, invoice or other
report regarding the purchase and sale of Vista Systems hereunder, the terms of
this Agreement shall prevail. Both parties acknowledge that this Agreement is
the result of mutual negotiation and therefore any ambiguity in its terms shall
not be construed against the drafting party.
9.13 ARBITRATION. All disputes, controversies or differences arising out
of or in relation to or in connection with this Agreement, which cannot be
settled by discussion and mutual accord shall be finally settled by binding
arbitration to be conducted in Los Angeles, California, in accordance with the
rules of the American Arbitration Association. Demand for arbitration shall be
made in writing and shall be served upon the party or parties to whom the demand
is addressed in the manner provided for the tender of notices in Section 9.9
hereof. Unless otherwise agreed by the parties, there shall be three (3)
arbitrators, one (1) chosen by each party and the third chosen by the two (2)
arbitrators. The parties agree that all remedies, including equitable remedies,
shall be available to such arbitrator(s); provided, however, that the parties
expressly agree that neither party will seek, nor shall the arbitrator(s) be
entitled to award either party, punitive damages and that any consequential
damages claimed or awarded shall be reasonable. In the event that consequential
damages are awarded in an arbitration hereunder, Vista may submit the
determination that consequential damages are to be awarded and the amount of
such consequential damages (and no other finding of the arbitrator) to any court
having jurisdiction of the matter, and, if so submitted, the arbitrator's award
only as to consequential damages will be non-binding. Furthermore, no such
arbitrator shall have authority to alter, amend, add to, subtract from or
supplement the Agreement to grant punitive or exemplary damages. Judgment upon
the award rendered may be entered in any court having jurisdiction of the
matter. The arbitrators shall be instructed, in connection with the
issuance of their award, to prepare a written finding of facts and law
concerning the award.
9.14 ATTORNEYS' FEES. In the event of litigation or other legal proceeding
between the parties arising from this Agreement, the prevailing party shall be
entitled to
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recover, in addition to any other relief awarded or granted, its reasonable
costs and expenses (including attorneys' fees and expert witness costs) incurred
in the proceeding.
9.15 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument. If this Agreement is executed in
counterparts, no signatory hereto shall be bound until both the parties named
below have duly executed or caused to be duly executed a counterpart of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized representatives as of the Effective Date.
HEARTPORT, INC.
By:/s/ Wesley D. Sterman M.D.
------------------------------
Wesley D. Sterman, M.D.
President and Chief Executive Officer
VISTA MEDICAL TECHNOLOGIES, INC.
By:/s/ John R. Lyon
------------------------------
John R. Lyon
President and Chief Executive Officer
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EXHIBIT 10.13
SUPPLEMENTAL RIGHTS AGREEMENT
THIS SUPPLEMENTAL RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of the 27th day of November, 1996, between VISTA MEDICAL TECHNOLOGIES,
INC. ("Vista"), a California corporation, and MEDTRONIC, INC. ("Medtronic"), a
Minnesota corporation.
WITNESSETH:
WHEREAS, Vista and Medtronic Asset Management, Inc., a wholly-owned
subsidiary of Medtronic ("MAMI") have entered into a Series C Preferred Stock
Purchase Agreement of even date herewith (the "Investment Agreement") pursuant
to which MAMI is purchasing Series C Preferred Stock of Vista; and
WHEREAS, MAMI is becoming a party to the Amended and Restated Investors'
Rights Agreement of even date herewith (the "Investors' Rights Agreement")
pursuant to which MAMI will receive certain registration and other rights; and
WHEREAS, Vista and Medtronic are also entering into a Sales Agreement of
even date herewith (the "Sales Agreement") pursuant to which Medtronic will
receive certain rights to distribute, and act as sales agent for the sale of,
certain of Vista's products; and
WHEREAS, it is a condition to MAMI's willingness to purchase such Vista
Series C Preferred Stock that the parties enter into this Agreement.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and for other valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties mutually
agree as follows:
ARTICLE 1
DEFINITIONS
1.1) SPECIFIC DEFINITIONS. As used in this Agreement, the following terms
have the meanings set forth or referenced below:
"AFFILIATE" of a specified person (natural or juridical) means a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under
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common control with, the person specified. "Control" shall mean ownership of
more than 50% of the shares of stock entitled to vote for the election of
directors in the case of a corporation, and more than 50% of the voting power in
the case of a business entity other than a corporation.
"AGREEMENT" means this Agreement and all Exhibits and Schedules hereto.
"BOARD OF DIRECTORS" means Vista's Board of Directors.
"CHANGE OF CONTROL" means, with respect to Vista, any of the following events:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) in a single transaction acquires "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Vista representing 50% or more of the combined voting power (with
respect to the election of directors) of Vista's then outstanding securities;
(2) the consummation of a merger, combination or consolidation of Vista with or
into any other corporation, other than a merger, combination or consolidation
which would result in the voting securities of Vista outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 50% of
the combined voting power (with respect to the election of directors) of the
securities of Vista or of such surviving entity outstanding immediately after
such merger, combination or consolidation; or (3) the consummation of a plan of
complete liquidation of Vista or of an agreement for the sale or disposition by
Vista of all or substantially all of Vista's business or assets.
"CONFIDENTIAL INFORMATION" means know-how, trade secrets, and other unpublished
or proprietary information disclosed (whether before or during the term of this
Agreement) by one of the parties (the "disclosing party") to the other party
(the "receiving party") or generated under this Agreement, excluding information
which:
(a) is now or comes to be in the public domain through no fault of the
receiving party;
(b) is released without restriction to the receiving party by the
disclosing party in writing;
(c) is lawfully obtained by the receiving party from third parties;
(d) can be demonstrated by competent proof to have been known or
hereafter developed by the receiving party independently of any disclosure
of "Confidential Information by the disclosing party;
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(e) has been in the possession of the receiving party, as a result of
disclosure under this Agreement, for a period of five (5) years; or
(f) is required by law to be disclosed; provided that the receiving party
has given the disclosing party prompt written notice of such disclosure
requirement and has cooperated with the disclosing party so that the
disclosing party may seek a protective order or other appropriate remedy to
avoid or limit such disclosure.
All Confidential Information disclosed by one party to the other under this
Agreement shall be in writing and bear a legend "Company Proprietary," "Company
Confidential" or words of similar import or, if disclosed in any manner other
than writing, shall be preceded by an oral statement indicating that the
information is Company proprietary or confidential, and shall be followed by
transmittal of a reasonably detailed written summary of the information provided
to the receiving party with identification as Confidential Information
designated as above within thirty (30) days.
"DEFINITIVE AGREEMENTS" with respect to a proposed transaction means one or more
binding written agreements which (i) set forth all of the terms and provisions
of such proposed transaction, (ii) are not subject to any further material
negotiations or agreements, (iii) do not condition either party's obligations
upon any further approval (other than shareholder approval) or due diligence
review by such party, or upon any other condition within the control of such
party.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXCLUSIVE PERIOD" means, with respect to a Proposed Transaction, the 30 day
period following Medtronic's receipt of Vista's Notice with respect to such
Proposed Transaction.
"MEDTRONIC COMPETITOR" means any of the persons listed on Schedule 1. 1 hereto
(as such schedule may be updated by Medtronic with Vista's consent, not to be
unreasonably withheld) and any successor to any substantial portion of such
listed person's business involving the manufacture or sale of products
competitive with any products manufactured or sold by Medtronic.
"SUBSTANTIAL PORTION OF VISTA'S ASSETS" means assets (i) having a book value
representing at least 30% or more of aggregate book value of Vista's assets
(excluding cash and cash equivalents and investment securities), (ii)
constituting all or substantially all of the assets of a line of "business"
which represented at least 30% of Vista's revenues or net income during the
most recently completed fiscal year or fiscal quarter, or (iii) which include
Vista's rights in or to patents, trade secrets and/or know-how used in
Vista's visualization and related information systems products in the Field
of Use.
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1.2) OTHER TERMS. Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning indicated throughout this Agreement.
1.3) OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof," "herein," and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provisions of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) References to an "Exhibit" or to a "Schedule" are, unless otherwise
specified, to one of the Exhibits or Schedules attached to or referenced in this
Agreement, and references to an "Article" or a "Section" are, unless otherwise
specified, to one of the Articles or Sections of this Agreement.
(d) The term "person" includes any individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or any
department or agency thereof.
(e) The term "Dollars" or "$" shall refer to the currency of the United
States of America.
(f) All references to time shall refer to Minneapolis, Minnesota time.
ARTICLE 2
MEDTRONIC'S SUPPLEMENTAL RIGHTS
2.1) FIRST OFFER PURCHASE RIGHTS.
(a) Vista shall not enter into any transaction of the general types
described in subsection (b) below without first giving Vista's Notice (as
defined below) to Medtronic with respect thereto and complying with the terms of
this Section.
(b) In the event that (referred to as a "Proposed Transaction"):
(i) Vista receives a bona fide offer from a third party to
purchase, in one or more transactions, all or substantially all of
the outstanding capital stock of Vista, or to purchase, license or
otherwise acquire all or substantially all of the assets (excluding
cash and marketable securities) of Vista, or to otherwise acquire
control of Vista; or
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(ii) Vista receives a bona fide offer from a Medtronic Competitor to
purchase, in one or more transactions, capital stock (or securities
exercisable for or convertible into capital stock) of Vista equal to
20% or more of the issued and outstanding capital stock of Vista, or
to purchase, license or otherwise acquire a Substantial Portion of
Vista's Assets, or to otherwise acquire control of Vista; or
(iii) Vista's Board of Directors determines that it wishes to sell,
license, dispose of or otherwise transfer all or a Substantial
Portion of Vista's Assets or 20% or more of the issued and
outstanding capital stock of Vista (other than in a public offering)
(including, without limitation, a determination to seek indications
of interest with respect to such a transaction);
then Vista shall, within five (5) days after such event notify Medtronic in
writing of Vista's receipt of such offer described in (i) or (ii) above or of
Vista's determination described in (iii) above ("Vista's Notice"). Vista's
Notice shall identify the third party offeror, in the case of (i) or (ii) above,
and shall set forth the material terms and provisions upon which Vista would be
willing to enter into a comparable transaction (the "Medtronic Transaction")
with Medtronic.
(c) During the Exclusive Period, Vista shall negotiate in good faith
exclusively with Medtronic regarding the Medtronic Transaction or any comparable
transaction. During the Exclusive Period, Vista will not solicit offers from,
negotiate with, or provide information to any third party regarding the Proposed
Transaction or any comparable transaction.
(d) If Medtronic and Vista fail to reach mutual agreement upon the
terms and provisions of definitive agreement(s) for the Medtronic Transaction
during the Exclusive Period, then Vista shall have 90 days from the
expiration of the Exclusive Period in which to enter into Definitive
Agreements for the related Proposed Transaction with the third party whose
bona fide offer was described in Vista's Notice (with respect to a Proposed
Transaction described in (b)(i) or (b)(ii) above) or with any third party
(with respect to a Proposed Transaction described in (b)(iii) above);
provided that Vista may not enter into such Definitive Agreements unless the
terms and provisions thereof are, in the aggregate, more favorable to Vista
than the final terms and provisions proposed by Medtronic during the
Exclusive Period. If Vista fails to enter into such Definitive Agreements
with respect to such particular Proposed Transaction within such 90 day
period or if such Proposed Transaction is not completed within 120 days after
the expiration of the Exclusive Period, then Medtronic's rights under this
Section shall be reinstated and Vista may not enter into such Proposed
Transaction without first giving Medtronic a new Vista's Notice and complying
with the terms of this Section 2.1.
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(e) Medtronic's "First Offer Purchase Rights" pursuant to this Section
2.1 shall terminate upon the earlier of (i) the four-year anniversary of the
date of this Agreement, (ii) the closing of a public offering of Vista
securities registered on Form S-1 or SB-2 (or comparable forms) which results
in net proceeds to Vista of more than $15 million, or (iii) if Vista has
complied with Medtronic's "First Offer Purchase Rights" pursuant to this
Section 2.1 with respect to a Proposed Transaction and such Proposed
Transaction has resulted in a Change of Control of Vista.
2.2) BOARD REPRESENTATIVE.
(a) So long as Medtronic (together with its Affiliates) owns at least an
aggregate of 10% of the issued and outstanding shares of Vista Common Stock
(assuming conversion of all Vista Preferred Stock) (appropriately adjusted in
the event of stock splits, reverse stock splits, or dividends paid in the form
of Vista stock), Vista shall permit Medtronic to designate one representative
reasonably acceptable to Vista as an observer to the Board of Directors or,
anytime after December 31, 1997 if Medtronic so elects in its discretion, as a
member of the Board of Directors. If Medtronic's representative has a change in
employment responsibilities or ceases to be employed by Medtronic, Medtronic
shall be entitled to designate a replacement for its representative.
Medtronic's representative shall receive all notices, documents, and other
information in the same time and manner as such information is supplied to
members of the Board of Directors. Vista shall make reasonable efforts to
permit Medtronic's representative to participate in or observe Board of
Directors meetings by telephone if such representative is unable to attend in
person. Vista agrees to pay the reasonable expenses incurred by Medtronic's
representative in connection with attending Board of Directors meetings as a
member of (but not as an observer to) the Board of Directors if and to the
extent that Vista pays any expenses of any other member of the Board of
Directors.
(b) So long as Medtronic has the right to have a representative to the
Board of Directors pursuant to (a) above and does not elect to have such
representative become a member of the Board of Directors, Medtronic shall
receive from Vista notices of all meetings of the Board of Directors, including
without limitation telephonic meetings, and Medtronic shall receive, with such
limitations provided herein, any materials distributed for such meeting, and may
send one representative to such meetings.
(c) Notwithstanding the foregoing subsection (a) and (b), Vista may
require as a condition precedent that such Medtronic's 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 if such individual is a
Board member with respect to all information so received during such meetings
and may require that such representative sign a confidentiality agreement with
Vista and; provided, further, that Vista 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
-6-
<PAGE>
any information at such meeting to such representative would, in the good faith
judgment of the Board of Directors, would compromise or adversely affect the
attorney-client privilege between Vista and its counsel, or would, in the good
faith judgment of the Board of Directors, result in a conflict of interest
situation. In no event shall any provision of this Section waive any obligation
of confidentiality to Vista owed by any such representative or Medtronic.
(d) Unless Medtronic elects to have its designee to act as a non-voting
observer to the Board of Directors, from and after December 31, 1997, the Board
of Directors agrees to nominate Medtronic's designee for election to the Board
of Directors and Vista agrees to use its best efforts to cause Medtronic's
designee to be so elected.
(e) Medtronic's rights pursuant to this Section 2.2 shall terminate upon
the earlier of (i) the closing of a public offering of Vista securities
registered on Form S-1 or SB-2 (or comparable forms) which results in net
proceeds to Vista of more than $15 million or (ii) if Vista has complied with
Medtronic's "First Offer Purchase Rights" pursuant to Section 2.1 with respect
to a Proposed Transaction and such Proposed Transaction has resulted in a Change
of Control of Vista.
2.3) INVESTORS' RIGHTS AGREEMENT. Vista agrees not to amend, modify or
obtain a waiver of its obligations under the Investors' Rights Agreement in any
manner that discriminates against Medtronic unless Medtronic or MAMI is among
the holders of a majority of Registrable Securities thereunder consenting to
such amendment, modification or waiver.
2.4) ISSUANCE OF PREFERRED STOCK. For so long as Medtronic or its
Affiliates owns any Series C Preferred Stock, Vista agrees not to issue or sell
any shares of Series A-1, Series A-3, or Series B Preferred Stock, or "Options"
to purchase or securities convertible into shares of Series A-1, Series A-3, or
Series B Preferred Stock, for a consideration per share (determined pursuant to
Section B.4.c.(5) of Article IV of Vista's Amended and Restated Certificate of
Incorporation) less than the "Series C Conversion Price" then in effect, except
that this Section shall not apply to issuances or sales described in subparts
(iv) or (v) of Section B.4.c.(1)(d) of Article IV of Vista's Amended and
Restated Certificate of Incorporation.
ARTICLE 3
MISCELLANEOUS
3.1) COMPLETE AGREEMENT. This Agreement, the Investment Agreement, the
Investors' Rights Agreement, the Sales Agreement, and the Schedules and Exhibits
hereto and thereto, constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and supersede all prior agreements
whether written or oral relating hereto.
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<PAGE>
3.2) WAIVER, DISCHARGE, AMENDMENT, ETC. The failure of any party hereto
to enforce at any time any of the provisions of this Agreement, including the
election of such party to proceed with the transactions contemplated hereby
despite a failure of any condition to such party's obligations to occur, shall
in no way be construed to be a waiver of any such provision, nor in any way to
affect the validity of this Agreement or any part thereof or the right of the
party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to be a waiver of any other or subsequent
breach. Any amendment to this Agreement shall be in writing and signed by the
parties hereto.
3.3) NOTICES. All notices hereunder shall be deemed given if in writing
and delivered personally or sent by telecopy (with confirmation of transmission)
or certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses as shall be specified by like notice):
if to Medtronic, to:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: General Counsel
FAX (612) 572-5459
with a copy to:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: Vice President Corporate Development and Associate General
Counsel
FAX (612) 572-5404
and if to Vista, to:
Vista Medical Technologies, Inc.
5451 Avenida Encinas, Suite A
Carlsbad, CA 92008
Attention: John Lyon
FAX (619) 603-9170
-8-
<PAGE>
with a copy to:
Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101
Attention: Craig Andrews
FAX (619) 234-3848
Any party may change the above specified recipient and/or mailing address
by notice to all other parties given in the manner herein prescribed. AR
notices shall be deemed given on the day when actually delivered as provided
above (if delivered personally or by telecopy) or on the second business day
after the date postmarked (if delivered by mail).
3.4) PUBLIC ANNOUNCEMENT. Each of the parties to this Agreement hereby
agrees with the other parties hereto that, except as may be required to comply
with the requirements of applicable law and the New York Stock Exchange, no
press release or similar public announcement or communication will be made or
caused to be made concerning the execution or performance of this Agreement
unless specifically approved in advance by Medtronic and Vista. The foregoing
shall not restrict Medtronic's communications with employees or customers.
3.5) GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Minnesota, including all matters of
construction, validity, performance and enforcement, without giving effect to
principles of conflict of laws.
3.6) SUCCESSORS AND ASSIGNS. 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 that the rights of Vista herein may only be assigned to
any business organization that shall succeed to the business of Vista to which
this Agreement relates, and the rights of Medtronic may only be assigned to any
Affiliate of Medtronic, to any business organization that shall succeed to the
business of Medtronic or of such subsidiary to which this Agreement relates, or
to any person to whom Medtronic transfers at least 1,000,000 Shares.
3.7) TITLES AND HEADINGS: CONSTRUCTION. The titles and headings to
Sections herein are inserted for the convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement. This Agreement shall be construed without regard to any presumption
or other rule requiring construction hereof against the party causing this
Agreement to be drafted.
-9-
<PAGE>
3.8) BENEFIT. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective permitted successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
3.9) ILLEGALITY. 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 thereby.
3.10) NON-DISCLOSURE. Each party agrees not to disclose or use (except as
permitted or required for performance by the party receiving such Confidential
Information of its rights or duties under this Agreement, the Investment
Agreement, the Investors' Rights Agreement, the Sales Agreement, or the Exhibits
hereto or thereto) any Confidential Information of the other party obtained
under this Agreement.
3.11) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.
-10-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Supplemental Rights
Agreement to be executed in the manner appropriate for each, as of the date
first above written.
MEDTRONIC, INC.
By: /s/ Michael D. Ellwein
------------------------------------
Its: Vice President
-------------------------------
VISTA MEDICAL TECHNOLOGIES, INC.
By: John Lyon
------------------------------------
Its: President
-------------------------------
ATTACHMENTS:
Schedule 1.1 - Medtronic Competitors
-11-
<PAGE>
Schedule 1.1
MEDTRONIC COMPETITORS
MEDTRONIC COMPETITORS INCLUDE THE FOLLOWING ENTITIES AND THEIR RESPECTIVE
AFFILIATES:
* * *
* * * Confidential Treatment Requested
-1-
<PAGE>
* * *
* * * Confidential Treatment Requested
-2-
<PAGE>
EXHIBIT 10.17
CONSULTING AGREEMENT
This is an agreement ("Consulting Agreement") effective as of September 15,
1995 by and between Vista Medical Technologies, Inc. a California corporation
having a place of business at 134 Flanders Road, Westboro, Massachusetts 01581
(hereinafter referred to as the "Company); and Harry R. McKinley, an individual
residing at Southampton, Massachusetts 01073 (hereinafter referred to as
"McKinley" or "Consultant").
1. Collateral Agreements:
(1) This Consulting Agreement is related to a business arrangement
involving the transfer to the Company of a certain license agreement (entitled
"LICENSE AND DEVELOPMENT AGREEMENT", dated 18 December 1991) relating to
endoscopes entered into between Consultant and McKinley Optics, Inc. of
Southampton, Massachusetts ("MOI") as Licensor and American Surgical
Technologies Corporation of Boston, Massachusetts ("AST") as Licensee (the
"License Agreement"). The License Agreement was amended 28 June 1994 by letter
agreement between Licensor and Licensee. A further amendment to the License
Agreement is being made by Licensor and the Company contemporaneously with this
agreement.
(2) This Consulting Agreement is related to and is intended to complement
and incorporate by reference thereto an existing agreement entitled:
McKinley Agreement
<PAGE>
"Non-Competition, Non-Disclosure And Patent And Invention Assignment Agreement",
executed 18 December 1991, by and between Consultant and MOI on the one hand and
AST on the other hand (hereinafter referred to as "Non-Compete, Invention
Agreement".
(3) This consulting agreement is being entered into for the purpose of
facilitating the Company's use of the technology licensed by said License
Agreement in developing improved and commercially successful endoscopes.
2. Term And Duties As A Consultant:
(1) The Company hereby retains Consultant for a term of one (1) year,
commencing with the effective date hereof, as a consultant and designer for and
in relation to certain product development tasks that are listed in Appendix A
attached hereto. It is understood that the Company may amend Appendix A (by
subtraction or addition of product development tasks), but the Company may add
to the tasks listed in Appendix A only with the prior written approval of
Consultant, which approval shall not be unreasonably withheld so long as such
amendment is reasonable and in accordance with the Company's business needs and
plans for developing, making and selling endoscopes and related devices.
(2) Consultant agrees to use his best efforts in performing said product
development tasks with the purpose of improving the Company's endoscope
technology and furthering the business interests of the Company.
McKinley Agreement 2
<PAGE>
(3) Consultant shall keep the Company informed on a current basis of his
efforts and progress in performing said product development tasks.
(4) Consultant agrees to promptly provide to the Company on a current
basis the items listed as "Deliverables" in Appendix A.
(5) During the term of this agreement, Consultant may engage in
noncompetitive business activities, but he shall devote to the Company on a
regular basis such time as shall be necessary to accomplish the tasks set forth
in Appendix A in accordance with the time table therefor established mutually by
Consultant and the Company.
(6) Consultant shall make available to the Company, upon request and at
the Company's expense, all of the documentation currently known to him relative
to the optical systems that are disclosed or claimed in his U.S. patent
applications Ser. No. * * * (now U.S. Pat. * * *), Ser. No. * * * (now
U.S. Pat. * * * ), Ser. No. * * * (Now U.S. Pat. * * * ) Ser. No. * * *
(now U.S. Pat. * * * ), and Ser. No. * * * (filed * * * );
and every other U.S. patent application relating to stereo lenses or systems and
failing within the purview of said License Agreement, and each and every
continuation, continuation-in-part, divisional and reissue application based on
any of the foregoing U.S. applications and all PCT and foreign applications and
patents based on or relating to any of said U.S. applications and/or patents.
* * * Confidential Treatment Requested
McKinley Agreement 3
<PAGE>
3. Work Product Of Consultant:
(1) The work products of Consultant's efforts pursuant to this Consulting
Agreement during the term thereof shall be deemed to be the sole and exclusive
property of the Company.
(2) Any and all inventions, improvements, designs, ideas and discoveries
relating to medical endoscopes or other work performed by Consultant under this
Consulting Agreement that are conceived or reduced to practice by Consultant
(whether or not patentable or protectable by copyright) during the term of this
Consulting Agreement, shall be deemed to be and become the sole and exclusive
property of the Company, and any and all patents or other rights granted or
certified thereon by any government of any state or country shall be owned
wholly and exclusively by the Company without any restrictions or reservations
by Consultant.
(3) Consultant agrees to promptly and fully disclose to the Company all
inventions, improvements, designs, ideas and discoveries (whether or not
patentable or protectable by copyright and whether or not made jointly with
others) that are reasonably related to the subject matter of this Consulting
Agreement and are or were conceived or reduced to practice in the course of
performing product development tasks pursuant to the terms of this Consulting
Agreement during the term hereof.
McKinley Agreement 4
<PAGE>
4. Compensation For Services:
(1) As compensation for consulting and design services which Consultant
may render to the Company hereunder, the Company agrees to pay, and shall pay,
to Consultant a * * * of consulting work * * *
at the rate of $* * * per day and $* * * per each half day during the term of
this Consulting Agreement and for each month of each extension thereof, with the
retainer fee for each month payable in arrears before the * * * day of
the following month. This retainer fee shall not be credited against the cost
of any product development task performed by Consultant pursuant to this
Consulting Agreement.
(2) The Company also agrees to pay, and shall pay, to Consultant an
advance services fee of $* * * within * * * days after the effective
date hereof, provided, however, that said sum shall be credited against
Consultant's charges for performing assigned product development tasks for the
Company under Paragraph 4(3) hereof.
(3) Consultant and the Company agree that all product development tasks
performed by Consultant pursuant to this Consulting Agreement are to be on a
"not-to-exceed basis". More specifically, for each product development task
undertaken by Consultant pursuant to this Consulting Agreement, Consultant shall
first provide an estimate of his charges for completing same (including the cost
of Consultant's services calculated at the rates listed in Paragraph 4(l) hereof
and Consultant's out-of-pocket expenses and disbursements), and if that
* * * Confidential Treatment Requested
McKinley Agreement 5
<PAGE>
estimate is accepted by the Company, the total cost to the Company for
Consultant's services and out-of-pocket expenses and disbursements in connection
with completion of that task shall not exceed said estimate. No product
development task shall be undertaken by Consultant without the mutual consent of
Consultant and the Company.
(4) In addition the Company agrees to reimburse, and shall reimburse,
Consultant for all expenses reasonably incurred on behalf of the Company, but
only to the extent that such expenses have been authorized in advance by the
Company.
(5) The Company agrees to reimburse Consultant for the legal fees incurred
by him solely for and in connection with the negotiation of this Consulting
Agreement and the related amendment to the License Agreement, provided, however,
that the Company's liability under this paragraph shall not exceed $* * * .
5. Loyalty, Non-Competition, Invention Assignment, Etc.:
(1) The provisions of said "Non-Compete, Invention Agreement" are hereby
incorporated into and made part of this Consulting Agreement, and the provisions
thereof are to apply except to the extent that they are limited or otherwise
modified by any paragraph of this Consulting Agreement.
(2) Consultant agrees that for a period of two (2) years from the date of
expiration or termination of this Consulting Agreement and thereafter for so
long as the license granted by said License Agreement remains exclusive, he will
not,
* * * Confidential Treatment Requested
McKinley Agreement 6
<PAGE>
either for himself or on behalf of any other person, firm, organization, or
corporation, directly or indirectly, intentionally divert or attempt to divert
from the Company or any of its affiliates any related business or business
opportunity whatsoever or attempt to influence negatively any customers or
potential customers of the Company or its affiliates or any companies with whom
Consultant may have dealings.
(3) Consultant further agrees that during the term of this Consulting
Agreement and for a period of * * * immediately following the date of
expiration or termination of this Consulting Agreement, and thereafter for so
long as the license granted by said License Agreement remains exclusive, he will
not, directly or indirectly, induce or attempt to influence any employee of the
Company or its affiliates to terminate his or her employment or to work for the
benefit of any actual or prospective competitor of the Company.
(4) Consultant agrees that in the event of any suit against third parties
instituted by the Company for the purpose of enforcing any rights acquired by or
granted to the Company pursuant to this Consulting Agreement or said License
Agreement, he will, at the Company's request and at its expense, cooperate to
the extent possible by giving testimony and making available to the Company all
relevant records, papers, information, prototypes, samples and the like in his
possession or under his control.
(5) Consultant agrees that in the event of any suit against the Company by
a third party alleging that the Company's manufacture, use, offer for sale or
* * * Confidential Treatment Requested
McKinley Agreement 7
<PAGE>
sale of endoscopes has infringed, or is infringing, any intellectual property
right of said third party, he will, at the Company's request and at its expense,
cooperate in the defense of any such suit if he is, or is alleged to be,
involved in any of the alleged infringing activities or has knowledge relevant
to the legal or fact issues raised by any of the pleadings or motions filed in
any such suit.
6. Independent Contractor:
Consultant acknowledges, warrants and agrees as follows:
(1) He is an independent contractor and is free of obligations and duties
that are or may be in conflict with his duties and obligations under this
Consulting Agreement or said License Agreement.
(2) He shall not have the status of employee and shall not be entitled to
any employee welfare or any other fringe benefits except as may be provided in
this Consulting Agreement;
(3) As an independent contractor, he must include any compensation he
receives under this Consulting Agreement in his personal income tax reporting
and is solely responsible for the payment of any tax payable thereon;
(4) He shall indemnify and hold the Company harmless from any and all
liabilities arising from or related to any failure on his part to accurately
report his income as an independent contractor or to pay such tax when due or to
his failure to perform his duties as a consultant;
McKinley Agreement 8
<PAGE>
(5) He shall indemnify and hold the Company harmless from any and all
liabilities arising from or due to his failure to perform his duties as a
Consultant to the Company or for any other breach of this Consulting Agreement.
7. Return Of Company Property:
(1) Consultant agrees that all papers and records of every kind relating
to his consultations and other work under or pursuant to this Consulting
Agreement, including but not limited to correspondence, memoranda, files,
documents, computer programs and disks, drawings, specifications, models,
prototypes, components and other material relating to the Company's business or
any of the tasks listed In Appendix A or any other assigned tasks or work
performed under this Consulting Agreement, shall be, become and remain the
exclusive property of the Company.
(2) Upon request of the Company, and in any event no later than the
expiration or termination of this Consulting Agreement, Consultant shall return
to the Company all property of the Company in his possession, including but not
limited to correspondence, memoranda, files, documents, computer programs and
disks, drawings, specifications, models, prototypes, components and other
materials.
8. Assignment:
Consultant agrees that the Company may assign this Consulting Agreement to
the successors and assigns of its business, provided, however, that the Company
shall give Consultant thirty (30) days prior notice of said
McKinley Agreement 9
<PAGE>
assignment, the proposed assignee, and a contact person for such proposed
assignee. Otherwise this Consulting Agreement may not be assigned by either
party without the prior written consent of the other party.
9. Binding Effect:
(a) This Consulting Agreement shall inure to the benefit of and be binding
upon any successor or assign of the Company, and any such successor or assign
shall be deemed substituted for the Company under the terms of this Consulting
Agreement. As used herein, the term "successor or assign" shall include but not
be limited to any person, firm, corporation, or other business entity which at
any time, whether by consolidation, merger, purchase, liquidation, dissolution,
sale, assignment or otherwise, acquires or succeeds to the ownership of all or
substantially all of the business or assets of the Company.
(b) Subject to Paragraph 8 hereof, this Consulting Agreement shall inure
to the benefit of and be binding upon the heirs, executors, administrators, next
of kin, successors, assigns, and personal representatives of Consultant and MOI.
10. Whole Agreement:
This writing contains the entire agreement of the parties concerning the
subject matter hereof and may not be modified except by a further written
agreement signed by Consultant and a duly authorized officer or representative
of the Company.
McKinley Agreement 10
<PAGE>
11. Severability:
Any provision or term of this Consulting Agreement which shall be found to
be contrary to law or otherwise unenforceable shall not affect the remaining
terms hereof which shall be construed as if any unenforceable provision were
absent herefrom.
12. Governing Law:
This Consulting Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts.
13. Term and Termination:
(1) This Consulting Agreement shall have a term of one (1) year commencing
with the effective date hereof.
(2) The Company may, without prejudice to any other right or remedy it may
have, terminate this Consulting Agreement if Consultant fails to perform
assigned tasks or work under this Agreement and such failure constitutes a
material breach of this Consulting Agreement, or if Consultant otherwise
breaches any of the terms hereof.
(3) If Consultant fails to perform assigned tasks or work under this
Consulting Agreement or breaches any of the other terms hereof, the Company may
send Consultant a written notice of its intention to terminate this Consulting
Agreement and, if Consultant does not cure or correct such failure or breach to
the Company's satisfaction within thirty (30) days from the date such notice is
McKinley Agreement 11
<PAGE>
mailed or faxed to Consultant, the Company may terminate this Consulting
Agreement by giving a further notice of such termination, and such termination
shall be effective as of the date said further notice is mailed or faxed to
Consultant. Termination by the Company pursuant to this paragraph shall be
without prejudice to any other right or remedy it may have.
14. Confidentiality:
(1) Consultant agrees that all information generated by him during the
term of this Consulting Agreement that relates to objective lenses or systems or
to stereo endoscopes or any of the tasks listed in Appendix A (including other
tasks that may be added thereto or assigned to him by the Company under the
terms hereof), shall be deemed to be Confidential Information of the Company.
15. The Company Defined:
For the purpose of this Consulting Agreement, the "Company" is understood
to mean and indicate Vista Medical Technologies, Inc. and each and every
affiliated entity and also its successors and assigns. As used herein, the term
"affiliated entity" means any company, firm, corporation, or other organization
that is owned or controlled by The Company or owns or controls The Company.
16. Waiver:
Any failure on the part of the Company to insist upon full and adequate
performance by Consultant in any respect or instance shall not constitute a full
or permanent waiver of the Company's rights under this Consulting Agreement.
McKinley Agreement 12
<PAGE>
17. Continuing Obligations:
Consultant agrees and covenants that the obligations and undertakings
stated in Paragraphs 3, 5, 7, and 15 shall remain in force and continue beyond
any termination of this Consulting agreement, provided, however, that
Consultant's obligations as to trade secrets and confidential information shall
remain in force only for so long as such trade secrets and confidential
information are not released to the public domain by the Company.
McKinley Agreement 13
<PAGE>
IN WITNESS WHEREOF, the Company and MOI have caused this Consulting Agreement to
be executed by one their duly authorized officers or representatives, and
Consultant has hereunto affixed his signature, as of the day and year first
above written.
Vista Medical Technologies, Inc.
(the "Company")
By: /s/ John Lyon
--------------------------
Name: John Lyon
------------------------
/s/ Harry R. McKinley
-----------------------------
Harry R. McKinley
("Consultant")
McKinley Optics, Inc.
BY: /S/ Harry R. McKinley
--------------------------
Name: Harry R. McKinley
------------------------
McKinley Agreement 14
<PAGE>
APPENDIX A
TASKS
The following product development tasks listed below are contemplated by
the Company for work for Consultant during the term of the Consulting Agreement
to which this Appendix A is attached, with the understanding that the Company
reserves the right to add or delete projects from the following list:
1. * * *
2. * * *
3. * * *
4. * * *
5. * * *
DELIVERABLES:
The following materials and information ("Deliverables") are to be supplied
by Consultant to the Company under this Consulting Agreement:
All information, including memoranda, specifications, data, sketches,
drawings, and the like, including system descriptions, ray trace data, tolerance
analysis, sensitivity studies, and other optics design information reasonably
required by the Company to enable it to reproduce within tolerance limits any or
all optical components and systems conceived, reduced to practice, designed or
developed by Consultant pursuant to this
* * * Confidential Treatment Requested
McKinley Agreement 15
<PAGE>
Consulting Agreement or relating to any of the inventions licensed under or by
said License Agreement.
McKinley Agreement 16
<PAGE>
[LOGO]
August 30, 1996
Mr. Harry R. McKinley
McKinley Optics Inc.
P.O. Box 356
Southampton, MA 01073
Dear Harry:
Our consulting agreement expires on September 14, 1996. I propose that we
renew the agreement for a further year (until September 14, 1997) on exactly
the same terms and conditions. If you are in agreement, I would be grateful
if you would sign and return the enclosed copy.
As you know from Ken, the cardiac market looks really promising in 1997!
Best regards,
/s/ John Lyon
- --------------
John Lyon
Extension Agreed: Signature: /s/ Harry R. McKinley
---------------------
Harry R. McKinley
Date: September 12, 1996
---------------------
cc: Ken Hori
Cliff Potocky
[address] JRL:ap
Encl.
<PAGE>
EXHIBIT 10.18
CONSULTING AGREEMENT
BY AND BETWEEN
UROHEALTH SYSTEMS, INC.
AND
VISTA MEDICAL TECHNOLOGIES, INC.
THIS CONSULTING AGREEMENT (this "Agreement") is entered into as of December
13, 1996 (the "Effective Date"), by and between UROHEALTH Systems, Inc.
("UROHEALTH"), and Vista Medical Technologies, Inc. ("Consultant") and, with
respect to Sections 1, 4, 6, 7, 8 and 9 below, Allen Newman, Consultant's
employee ("Newman").
WITNESSETH:
WHEREAS, UROHEALTH desires to retain the medical and consultation services
of Consultant to aid in UROHEALTH's continuing mission to develop, improve, and
expand its medical product business, including those products relating to
minimally invasive surgery;
WHEREAS, Consultant possesses the medical knowledge and professional
expertise to aid UROHEALTH in its mission to develop, improve and expand its
business as referenced above;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
SECTION 1. CONSULTING SERVICES. During the term of this Agreement,
Consultant shall serve as a consultant for UROHEALTH, using its reasonable
commercial efforts to make available to Urohealth 25% of the working time of
Newman. In connection herewith, Newman's duties shall include, but not be
limited to, assisting UROHEALTH in developing and obtaining regulatory approvals
for Licensed Products under the terms of that certain License Agreement, dated
the date hereof, between UROHEALTH and Consultant (the "License Agreement") and
otherwise exploiting the rights granted to UROHEALTH under the License
Agreement.
Newman shall also perform any other services as are mutually agreed upon by
the parties. Consultant shall use its reasonable commercial efforts to ensure
that Newman devotes sufficient time and best efforts as a consultant in order to
perform the responsibilities under this Agreement to the reasonable satisfaction
of UROHEALTH. Newman shall provide services under this Agreement as reasonably
requested by UROHEALTH at the times mutually agreeable to UROHEALTH and
Consultant.
<PAGE>
SECTION 2. TERM. The term of this Agreement shall begin on the Effective
Date of the License Agreement and shall continue until the first Licensed
Product (as defined in the License Agreement) under the License Agreement is
commercially introduced by UROHEALTH.
SECTION 3. TERMINATION. This Agreement may be terminated by either
party immediately upon written notice of termination in the event the other
party has materially breached this Agreement and has not cured such breach
within thirty (30) days following written notice of the breach from the
non-breaching party. In addition, this Agreement shall be terminated
automatically upon the (i) termination of the License Agreement or (ii) death
or incapacity, whether mental or physical, of Newman. UROHEALTH or its
designee shall determine in good faith whether Newman is incapacitated for
the purposes of this Section 3. In addition, UROHEALTH may in its sole
discretion terminate this Agreement if Newman is unavailable, unwilling or
unable to provide the consulting services contemplated hereby on behalf of
the Company. Notwithstanding anything to the contrary herein contained, in
the event performance by either party hereto of any term, covenant, condition
or provision of this Agreement shall (i) jeopardize the licensure of
UROHEALTH, (ii) jeopardize its participation in (a) Medicare, Medicaid, Blue
Cross, or other reimbursement or payment programs, or (b) the FDA approval
process, regulatory program and guidelines, or (c) any other state or
nationally recognized accrediting organization, or (iii) be in violation of
any statute, ordinance, or be otherwise deemed illegal, or be deemed
unethical by any recognized body, agency, or association in the medical
fields, UROHEALTH may, at its option, terminate this Agreement immediately.
SECTION 4. COMPENSATION. In consideration for the services rendered by
Consultant to UROHEALTH under this Agreement, UROHEALTH shall pay to Consultant
during the term of this Agreement, an amount equal to * * *
* * * of Consultant to employ Newman; provided, that such
annualized costs shall not exceed $* * * . Such sum shall be paid in monthly
installments to cover the cost of regular salary and benefits and an additional
amount shall be paid in the month following verification that a bonus has been
paid to Newman and the amount thereof. Consultant shall be reimbursed by
UROHEALTH for all proper, necessary and reasonable business expenses incurred as
a result of the performance of services requested by UROHEALTH. Consultant
shall submit a detailed bill and documentation as deemed necessary by UROHEALTH
for expenses which shall be subject to the reasonable approval of UROHEALTH's
Chief Financial Officer. Consultant is not required to, and nothing herein nor
in any other agreement shall be construed to require Consultant to, utilize
UROHEALTH products.
SECTION 5. INDEMNIFICATION. UROHEALTH shall indemnify Consultant with
respect to all matters relating to services rendered by Consultant hereunder,
except for those caused by Consultant's willful misconduct.
* * * Confidenial Treatment Requested
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<PAGE>
SECTION 6. CONFIDENTIALITY. During the term of this Agreement, UROHEALTH,
its clients, and its prospective clients may reveal to Consultant confidential
and proprietary information of UROHEALTH ("Confidential Information").
Confidential Information shall include, but not be limited to, that information
which is designated as confidential either in writing or orally, or that
information which is not generally known to the public. With respect to any
Confidential Information disclosed to Consultant, Consultant agrees to: (a) not
disclose such Confidential Information to third parties except: (i) third
parties for whom Consultant has secured the prior written approval of UROHEALTH,
and/or (ii) as required by law or by any court or governmental body, agency or
department of competent jurisdiction; (b) use at least the same degree of care
to protect the Confidential Information as used with respect to Consultant's
confidential and proprietary information, however in no event shall the degree
of care be less than holding the Confidential Information in confidence; and (c)
use the Confidential Information only for the purpose of performing its
obligations under this Agreement. Notwithstanding anything to the contrary
herein, Consultant shall not have an obligation to preserve the confidentiality
of any Confidential Information which was previously known to Consultant free of
any obligation to keep it confidential or is or becomes publicly available by
other than unauthorized disclosure. The provisions of this Section 6 shall
survive expiration or termination of this Agreement for any reason. As used
herein, "Confidential Information" shall not include anything which is not
"Confidential Information" as defined in the License Agreement.
SECTION 7. STATUS OF THE PARTIES. In the performance of this Agreement,
it is mutually understood and agreed that Consultant, Newman, its other
employees, officers, directors and agents are performing as independent
contractors with, and not as an employee, partner, or joint venturer of or with
UROHEALTH. Neither Consultant nor Newman shall have any claim under this
Agreement or otherwise against UROHEALTH for workers' compensation, unemployment
compensation, vacation pay, sick leave, disability benefits, retirement
benefits, social security benefits or any other employee benefits of any kind,
all of which shall be the sole responsibility of Consultant. UROHEALTH shall
not withhold on behalf of Consultant or Newman pursuant to this Agreement any
sums for income tax, unemployment insurance, social security or otherwise
pursuant to any law or requirement of any government agency, and all such
withholding, if any is required, shall also be the sole responsibility of
Consultant. Consultant shall indemnify and hold UROHEALTH harmless from any and
all loss or liability, if any, arising with respect to any of the foregoing
benefits or withholding requirements.
SECTION 8. GOVERNING LAW. This Agreement is being delivered and executed
in the State of California and the validity, construction, and enforcement of
this Agreement shall be governed in all respects by the laws of the State of
California. Venue shall be proper only in a court of competent jurisdiction
located in the State of California. The parties agree to be subject to personal
jurisdiction and consent to service of process issued by a court in which venue
is proper as defined in this Section 8.
-3-
<PAGE>
SECTION 9. MODIFICATION AND WAIVER. No modification of this Agreement
shall be deemed effective unless in writing and signed by each of the parties to
which it applies. Any waiver of a breach of any provision of this Agreement
shall not be deemed effective unless in writing and signed by the party against
whom enforcement of the waiver is sought.
SECTION 10. HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any provision hereof.
SECTION 11. ASSIGNMENT. Neither party may assign, delegate, subcontract,
or otherwise transfer its rights or obligations hereunder without the prior
written consent of the other party and any assignment or other transfer in
violation of this Section 11 shall be void; provided, however, that UROHEALTH
may assign its rights and delegate its duties pursuant to this Agreement to any
successor, subsidiary, or affiliate to the business of UROHEALTH to which this
Agreement relates without the written consent of the Consultant.
SECTION 12. SEVERABILITY. If, as a result of any valid Act of Congress or
act of any legislature or any regulation duly promulgated by the United States
or any state acting in accordance with the law, the terms and conditions of this
Agreement, or the payments made pursuant to this Agreement, are rendered illegal
or in violation of law, then the parties shall negotiate in good faith, and
shall take all steps necessary, including, but not limited to, amendment to the
terms and conditions of this Agreement or return of the compensation or any part
of the compensation paid pursuant to this Agreement, in order to reform this
Agreement such that the terms and conditions of this Agreement, or the payments
made pursuant to this Agreement, if any, shall not render any other relationship
or transaction between the parties, or any affiliate of the parties, illegal or
in violation of law.
SECTION 13. NOTICES. All notices, requests, demands, and other
communications provided for hereunder shall be in writing and shall be deemed to
been duly given if (i) delivered in person; (ii) given by prepaid telex or
telegram, or by facsimile or other instantaneous electronic transmission device;
or (iii) deposited in the United States mail, first class, registered or
certified, return receipt requested, with proper postage prepaid, as follows:
If to UROHEALTH:
UROHEALTH Systems, Inc.
5 Civic Plaza, Suite 100
Newport Beach, California 92660
Attention: General Counsel
Facsimile: (714) 668-5824
-4-
<PAGE>
If to Consultant:
Vista Medical Technologies, Inc.
5451 Avenida Encinas, Suite A
Carlsbad, California 92008
Facsimile: (619)603-9170
Attention: President
SECTION 14. ATTORNEYS' FEES. In the event any party hereto brings an
action or arbitration proceeding in connection with the performance, breach, or
interpretation of this Agreement, the prevailing party in such action or
proceeding shall be entitled to recover from the losing party all reasonable
cost and expenses of such litigation or proceeding, including attorneys' fees,
court costs, costs of investigation, and other costs, fees, and expenses
reasonably related to such action or proceeding.
SECTION 15. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns.
SECTION 16. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the parties concerning the subject matter
hereof, and supersedes all prior negotiations, agreements and understandings
between the parties, whether oral or in writing, concerning the subject matter
hereof.
INTENDING TO BE LEGALLY BOUND, the parties, or their duly authorized
representatives, have executed this Agreement to be effective on the Effective
Date.
UROHEALTH SYSTEMS, INC.
By: /s/ Kevin M. Higgins
----------------------------------
Title: Senior Vice-President
VISTA MEDICAL TECHNOLOGIES, INC.
By: /s/ John Lyon
------------------------------
Title: President
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<PAGE>
With Respect to Sections
1, 4, 6, 7, 8 and 9 only:
/s/ Allen Newman
- --------------------------------
Allen Newman
-6-
<PAGE>
EXHIBIT 10.22
LICENSE AND DEVELOPMENT AGREEMENT
THIS AGREEMENT, made and entered into this 18th day of December 1991 (the
"Effective Date") by and between Harry R. McKinley, an individual citizen of the
Commonwealth of Massachusetts (hereinafter referred to as "McKinley") and
McKinley Optics, Inc., a corporation duly organized and existing under the laws
of the Commonwealth of Massachusetts and having its principal office at 161
College Highway, Southampton, Massachusetts 01703 (hereinafter referred to as
"MOI", and sometimes together with McKinley, as "Licensor"), and American
Surgical Technologies Corporation, a corporation duly organized under the laws
of the State of Delaware and having its principal office at One McKinley Square,
Boston, Massachusetts 02109 (hereinafter referred to as "Licensee").
W I T N E S S E T H:
WHEREAS, Licensor is the owner of certain Technology (as defined below)
relating to a stereoscopic objective lens for use in stereoscopic endoscopes and
has the right to grant licenses thereunder;
WHEREAS, Licensor desires to have the Technology utilized by Licensee in
certain medical device products as hereinafter defined and is willing to grant a
license thereunder;
WHEREAS, Licensee has represented to Licensor, to induce Licensor to enter
into this Agreement, that the Licensee shall commit itself to a diligent program
of developing the Technology for commercial exploitation;
WHEREAS, Licensor is in the business of, and has expertise relative to
conducting research into, designing, developing, engineering and manufacturing
lenses for endoscopes and endoscopic video systems;
WHEREAS, Licensee desires to retain MOI and McKinley to conduct research
into, design, develop and engineer lenses for endoscopes and endoscopic video
systems utilizing the Technology; and
WHEREAS, in order to induce Licensor to enter into this Agreement, in
addition to the consideration set forth in this Agreement, Licensor has
previously issued to McKinley * * * shares of Licensee's Common Stock.
* * * Confidential Treatment Requested
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
ARTICLE 1 -- DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "Licensee" shall mean American Surgical Technologies Corporation and
any subsidiary of American Surgical Technologies Corporation.
1.2 "Subsidiary" shall mean any corporation, division, company or other
entity more than fifty percent (50%) of whose voting stock is owned or
controlled directly or indirectly by American Surgical Technologies Corporation.
1.3 "Technology" shall mean certain existing Patent Rights (as defined
below), Licensed Processes (as defined below), Know How, copyrights, trade
secrets, inventions and other intellectual property or proprietary rights, as
more fully described in Appendix A attached hereto and made a part hereof. As
Used herein, the term "Know-How" means all unpatented scientific, engineering,
or other know-how schematic designs, computer programs, code, software,
firmware, technical data or information, all methods, processes and procedures,
all products, formulations and kits and all instruments and apparatus materially
related to the Licensed Products.
1.4 "Patent Rights" shall mean only those United States patent
applications filed which are set forth in Appendix A or corresponding foreign
patent applications to be filed (hereinafter referred to as the "Patent Rights
Patent Application(s)"), and the United States patents and foreign patents
issuing therefrom (hereinafter referred to as "Patent Rights Patent(s)") and any
continuations, continuations-in part, divisions, reissues or extensions of any
of the foregoing.
1.5 "Licensed Products" shall mean any endoscope which (a) is designed,
marketed or sold for medical purposes AND (b) incorporates a stereo objective
lens for use in endoscopes of any length, diameter or configuration, as
disclosed in the patent application filed April 16, 1991 by McKinley (a copy of
which is attached hereto).
1.6 "Licensed Process(es)" shall mean a process(es) for making any item
relating to the above Technology which (a) is covered in whole or in part by a
pending claim contained in a Patent Rights Patent Application, (b) is covered in
whole or in part by a valid and unexpired claim contained in a Patent Rights
Patent, or (c) otherwise materially incorporates any of the Technology.
1.7 "Marketing Period" shall mean any twelve (12) month period commencing
on the second or any subsequent anniversary of the date of initial marketing
release by Licensee of a Licensed Product.
<PAGE>
1.8 "Net Sales" shall be determined based on Licensee's invoiced prices
for the Licensed Product(s) produced hereunder less the sum of the following:
(a) Discounts allowed in amounts customary in the trade;
(b) Sales, excise, turnover, value added and/or use taxes or tariff
duties directly imposed and with reference to particular sales;
(c) Outbound transportation prepaid or allowed; and;
(d) Amounts allowed or credited on returns;
provided however, that no deductions shall be made for commissions paid to
individuals whether they be with independent sales agencies or regularly
employed by Licensee and on its payroll, or for cost of collections. In the
event that Licensed Product(s) are sold as part of a larger endoscopic video
system and the invoice for such system does not set forth a separate price for
the Licensed Product(s), then, for purposes of determining Net Sales as set
forth above, the deemed invoiced price for the Licensed Product(s) in the system
shall be determined by multiplying (i) the total invoiced price for the system
by (ii) a fraction, the numerator of which is the Licensee's then-current list
price for the Licensed Product which is part of the system (or which is the
total of the Licensee's then-current list prices for all Licensed Product(s)
sold as part of the system, if the system includes more than one Licensed
Product) and the denominator of which is the total of the Licensee's then-
current list prices for all components of the system (including the Licensed
Product(s) in the system).
ARTICLE 2 -- GRANT; OWNERSHIP OF MODIFICATIONS
AND DEVELOPMENTS
2.1 Licensor, jointly and severally, hereby grants to Licensee a
perpetual, exclusive worldwide license to make, have made, modify, use, lease,
markets sell and otherwise distribute the Licensed Product(s) and any other
medical products embodying the Technology, and to practice the Licensed
Process(es) in the medical field, anywhere in the world, subject to the terms
and conditions (including, under certain circumstances termination of
exclusivity or termination of the license) hereinafter set forth.
2.2 Licensor, jointly and severally hereby also grants to Licensee a
perpetual, exclusive, worldwide license and the right to develop, make, use,
sell and distribute improvements, modifications and derivative works based on
the Licensed Products, the Licensed Processes or the Technology. Licensor
claims no ownership interest in any portion of an improvement, modification or
derivative work which is not part of the Licensed Products, Licensed Processes
or the Technology.
2.3 In the event that Licensor or (in the case of MOI) its officers or
employees invents, controls, or becomes aware of any improvement to the Licensed
Products, Licensed Processes or Technology, it or he, as the case may be, shall
forthwith communicate full details thereof in its or his, as the case may be,
possession to Licensee, such improvements
<PAGE>
shall be deemed improvements, modifications or derivative works developed by the
Licensee as provided under section 2.2 above.
2.4 The license granted hereunder shall cease to be exclusive and shall
become nonexclusive upon default (continuing beyond the applicable grace period)
in payment by Licensee of the license exclusivity maintenance royalty as
hereinafter provided. Upon the termination of said exclusivity, notwithstanding
any financial obligations which Licensee shall owe to Licensor and which
Licensee shall nevertheless satisfy according to the terms of this Agreement,
any nonexclusive license shall extend to the full end of the term or terms for
which royalties are payable pursuant to Section 3.1(c)(ii) below, unless this
Agreement is sooner terminated as hereinafter provided in Sections 7.2 and 7.3
below.
2.5 Licensee shall have the right to sublicense any of the rights,
privileges and license granted hereunder only during the exclusive period of
this Agreement. The termination or expiration of this Agreement shall not
terminate or affect sublicenses previously granted by Licensee in accordance
with this Agreement.
2.6 Licensee agrees that any sublicenses granted by it shall have privity
of contract between Licensor and sublicensee such that the obligations of this
Agreement shall be binding upon the sublicensee as if it were in the place of
Licensee. Licensee further agrees to attach copies of this Agreement (from
which the royalty provisions may be deleted) to all sublicense agreements.
2.7 Licensee agrees to forward to Licensor a copy of any and all fully
executed sublicense agreements, and further agrees to forward to Licensor
promptly after the end of each calendar quarter during which any sublicense is
in effect a copy of such reports received by Licensee from its sublicensees
during the preceding calendar quarter under the sublicenses as shall be
pertinent to a royalty accounting under said sublicense agreements.
ARTICLE 3 -- ROYALTIES
3.1 For the rights, privileges and license granted hereunder and for the
services to be performed by Licensor hereunder, Licensee shall pay royalties to
Licensor (in the manner hereinafter provided) to the end of the term of this
Agreement unless it shall be terminated as hereinafter provided:
(a) A license issue royalty of * * *, which said
license issue royalty shall be deemed earned and due immediately
upon the execution of this Agreement;
(b) A license exclusivity maintenance royalty of * * *
* * * per Marketing Period during the first * * *
Marketing Periods, which amount shall increase by the amount of
* * * per Marketing Period during each
subsequent Marketing Period until such time as the license
exclusivity maintenance royalty equals * * * , and
thereafter at a rate of * * * per Marketing
Period, which said license exclusivity maintenance royalty shall
be
* * * Confidential Treatment
<PAGE>
Requested payable in monthly installments, in arrears, and
shall be credited in full against the royalties on sales due
for each Marketing Period pursuant to Section 3.1(c)(ii);
(c) Royalties on sales in an amount equal to:
(i) * * * upon sale of the 25th 3-D Video System (as such
term is defined in the description of Technology set forth
in Appendix A attached hereto) incorporating a Licensed
Product, and an additional * * * upon sale of each of the
* * * and *** such 3-D Video Systems incorporating a
Licensed Product;
(ii) thereafter, through the date on which the Patent Rights
Patent(s) expire (or, if no Patent Right Patents issue
within three years of the date of this Agreement, through
the fifteenth anniversary of the date of this Agreement),
* * * first * * * of Net Sales, * * * of the next
* * * of Net Sales, and * * * of all
subsequent Net Sales.
(d) From and after the date on which the Patent Rights Patent(s)
expire (or, if no Patent Right Patents issue within * * * years
of the date of this Agreement, from and after the * * *
anniversary of the date of this Agreement), the obligation of
Licensee to pay a license exclusivity maintenance royalty or any
royalties on sales hereunder shall terminate and the license
granted herein shall become perpetual, exclusive and royalty-
free.
3.2 All royalties payable to Licensor under Section 3.1 above shall be
considered earned by Licensor * * * by Licensee of
payment for the license, use or sale of Licensed Products, and shall be
payable * * * as set forth in Article 4 of this Agreement, except for
license exclusivity maintenance royalties which shall be payable * * *
immediately at the * * * in the manner as provided above.
3.3 All payments that are not paid for whatever reason when they become
due shall be subject to the addition of interest at a floating rate per annum
equal to the prime rate as published from time to time in the WALL STREET
JOURNAL, calculated from said due date to the date a negotiable payment check is
mailed by certified mail to Licensor for all monies due and owed to Licensor.
Furthermore, Licensor shall not be obligated to give notice for interest to
begin to accrue.
3.4 No multiple royalties shall be payable because the Licensed Product(s)
or Licensed Process(es) are or shall be covered by more than one patent
application or patent licensed under this Agreement, nor shall royalties be
adjusted upon the granting of any patent or the finding of invalidity of any
patent or portion thereof governed by this Agreement.
* * * Confidential Treatment Requested
<PAGE>
3.5 Royalty payments shall be paid in United States dollars in Boston,
Massachusetts, or at such other place as Licensor may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
prevailing at a first-class foreign exchange bank on the last business day of
the calendar quarterly reporting period to which such royalty payments relate.
ARTICLE 4 -- REPORTS AND RECORDS
4.1 Licensee shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purposes of showing the
amount payable to Licensor under this Agreement as aforesaid. Said books of
account shall be kept at Licensee's principal place of business or the principal
place of business of the appropriate subsidiary of Licensee to which this
Agreement directly relates. Said books and the supporting data shall be open at
reasonable business times, for * * * years following the end of the calendar
year to which they pertain, to inspection, no more frequently than *** times
per year, by an independent certified public accountant retained by Licensor, at
Licensor's expense, for the purpose of verifying Licensee's royalty statement or
compliance in other respects with this Agreement.
4.2 Licensee, within * * * after * * *
and * * * of each calendar year shall deliver to Licensor true and
accurate reports, giving such particulars of the business conducted by Licensee
during the preceding * * * period under this Agreement as shall be
pertinent to a royalty accounting hereunder. These reports shall include at
least the following:
(a) All Licensed Products manufactured and sold;
(b) Total billings and receipts for Licensed Products sold;
(c) Accounting for all the Licensed Process(es) used or sold;
(d) Allowable deductions;
(e) Total royalties due; and
(f) List prices for the Licensee's products during such * * *
period; customer sales literature distributed during such * * *
period and press releases distributed during such * * *
period.
4.3 With each such report submitted, Licensee shall pay to Licensor the
royalties then due and payable under this Agreement. If no payments shall be
due, Licensee shall so report.
* * * Confidential Treatment Requested
<PAGE>
ARTICLE 5 -- DEVELOPMENT; TECHNICAL ASSISTANCE AND
RIGHT OF FIRST OFFER
5.1 Licensee hereby engages Licensor, and Licensor, jointly and severally,
accepts such engagement, for Licensor to use Licensor's best efforts to conduct
research into, design develop and engineer, at Licensee's direction, certain
improvements with respect to the Licensed Products (the "Licensed Product
Developments") and certain products relating to the Licensed Products
("Development Products"), each as specified on APPENDIX B hereto. The Licensee
and Licensor acknowledge that it is their intent to use their respective best
efforts to accomplish certain development in accordance with the following
schedule:
On or before April 5, 1992 Completion of four Prototypes (as defined in
APPENDIX B) and the related 3-D Video System
On or before September 5, 1992 Completion of four Pre-Production Products
and the related 3-D Video System
On or before October 5, 1992 Completion of Manufacturable Product (as
defined in APPENDIX B) and the related 3-D
Video System
Upon completion and delivery of the first of four Prototypes, Licensee shall pay
Licensor a one-time design fee of * * *
Any and all Licensed Product Developments, Development Products, and all
patents, patent applications,. copyrights, trade secrets, inventions know how
and other intellectual property or proprietary rights embodied in the Licensed
Product Developments and Development Products shall be owned by Licensee and
Licensee shall at all times have the exclusive title to the Licensed Product
Developments and Development Products and shall have the exclusive right to
license, sell, transfer and otherwise use and dispose of the Licensed Product
Developments, and Development Products.
5.2 In addition to the development services enumerated above, McKinley
and MOI will use their respective best efforts to assist the Company with
respect to (i) employee and customer training with respect "to the Licensed
Products and 3-D Video Systems; (ii) service and repair the Licensed Products
and 3-D Video Systems; (iii) securing adequate sources of optical lenses and
lens systems for the Licensed Products, as well as other components of 3-D
Video Systems; (iv) preparation of FDA and other regulatory submissions; and
(v) improvement and updating of the Technology in order to maintain the
Technology as the state-of-the-art.
5.3 In order to assist the Company in the development and marketing of the
Licensed Products and 3-D Video Systems, Licensor jointly and severally agrees
to loan to the Company the existing demonstration 3-D Video System until the 3-D
Video System developed in conjunction with the Prototype pursuant to subsection
5.1 above is available, so that Company may use the demonstration 3-D Video
System for purposes of testing, inspection, demonstrations, and marketing, and
other appropriate purposes, whether on its own premises, or in hospitals or
laboratories. The Licensor jointly and severally consents to any modification
and alteration of the demonstration 3-D Video System that the parties
* * * Confidential Treatment Requested
<PAGE>
agree may be necessary for such purposes. The Company agrees to indemnify and
hold harmless McKinley and MOI on account of any such use of the said
demonstration 3-D Video System, and to assume the cost of any modifications or
alterations of the demonstration 3-D Video System that may be necessary in
connection with the use of the demonstration 3-D Video System hereunder. The
Company, McKinley, and MOI will cooperate so that McKinley and MOI will also be
able to use the demonstration 3-D Video System on a reasonable basis. Upon
completion and delivery to the Company of the 3-D Video System developed in
conjunction with the first of the four Prototypes pursuant to subsection 5.1
above, the demonstration 3-D Video System will revert back to the Licensor.
5.4 McKinley and MOI each agree not to license, sublicense, assign, sell
or otherwise transfer any medical optical device (including, without limitation,
any endoscope capable of use for medical purposes) developed by either or both
of them during the period in which royalties are paid pursuant to this
Agreement, which device is not (a) otherwise the subject of an existing
agreement with the Company, or (b) developed as a work for hire for a third
party unaffiliated with MOI or McKinley pursuant to specifications provided by
such third party, (an "Option Product"), unless in each such case McKinley, MOI,
or both of them, as the case may be, have first complied with the provisions of
this subsection. McKinley, MOI or both of them, as the case may be, shall
deliver to the Company a written notice of any proposed or intended license,
sublicense, assignment, sale or other transfer of an Option Product (the
"Offer"), which Offer shall (i) identify and describe the Option Product, (ii)
describe the price and other terms upon which the Option Product is to be
licensed, sublicensed, assigned or sold and (iii) offer to license, sublicense,
assign, sell, or otherwise transfer, as the case may be, to the Company the
Option Product. The Company shall have the right, for a period of * * *
following delivery of the Offer, to license, sublicense, be assigned or
otherwise acquire, at a price and upon the other terms specified in the Offer,
the Option Product. The Offer by its terms shall remain open and irrevocable
for such * * * period. To accept an Offer, the Company must deliver a written
notice to McKinley, MOI or both, as the case may be, prior to the end of the
* * * period of the Offer (the "Notice of Acceptance"). In the event that the
Company does not deliver a Notice of Acceptance, McKinley, MOI, or both, as the
case may be, shall have * * * from the expiration of the * * * period of the
Offer to license, sublicense assign, sell or otherwise transfer the Option
Product, but only upon terms and conditions which are not more favorable to the
acquiring person or persons or less favorable to McKinley, MOI or both of them,
as the case may be, than those set forth in the Offer. In the event that the
Company determines to acquire the Option Product, the closing of such
acquisition must take place within * * * of the delivery date of the Notice of
Acceptance, subject in all cases to the preparation, execution and delivery by
the Company and McKinley, MOI or both, as the case may be, of an agreement
relating to such Option Product reasonably satisfactory in form and substance to
the Company. Any Option Product not acquired by the Company or other persons in
accordance with this subsection 5.4 may not be licensed, sublicensed, assigned,
sold or otherwise transferred, until such Option Product is again offered to the
Company under the procedures specified in this subsection 5.4.
* * * Confidential Treatment Requested
<PAGE>
ARTICLE 6 -- PATENT PROSECUTION
6.1 Licensor, at Licensor's sole expense, shall apply for and shall seek
prompt issuance of United States patents based upon the Patent Rights, PROVIDED
that this provision shall not be interpreted to prohibit Licensee from taking
such actions with respect to the Patent Rights if, in the reasonable judgment of
Licensee, Licensor is not diligently fulfilling its obligations under this
subsection 6.1. Unless the licenses granted hereunder have ceased to be
exclusive, the prosecution and maintenance of corresponding foreign Patent
Rights Patents and Patent Rights Applications and all expenses relating thereto,
shall be the responsibility of Licensee, PROVIDED that Licensee shall have no
obligation hereunder to reimburse Licensor for expenses incurred by Licensor to
date in connection with foreign Patent Rights Patents or Patent Rights
Applications. Licensor shall cooperate fully with Licensee in the prosecution
and maintenance of such foreign Patent Rights Patents.
6.2 Licensor agrees that upon Licensee's request and at Licensee's
expense, it shall promptly make all disclosures, execute all instruments and
documents and perform all acts whatsoever necessary or desirable to vest or
confirm in Licensee's, its successor's, assigns, and nominees, all rights
created or contemplated by Sections 2.2 and 2.3 of Article 2 above and by
Article 5 above including any and all applications, writings and documents as
may be necessary to permit Licensee to obtain any patents or copyrights or any
assignments thereof.
ARTICLE 7 -- TERMINATION
7.1 Should Licensee fail in its remittance to Licensor of license
exclusivity maintenance royalties due in accordance with Section 3.1(b) of this
Agreement, Licensor shall have the right to notify Licensee of termination of
exclusivity of the license granted under this Agreement effective 30 days after
such notice unless Licensee shall pay to Licensor, within the 30 day period, all
such royalties due and payable. Upon the expiration of the 30 day period, if
Licensee shall not have paid all such monies due and payable, the exclusive
rights, privileges and license granted hereunder shall thereupon immediately
terminate as provided in Section 2.2, and the license granted hereunder shall
thereupon be nonexclusive as provided in said Section 2.4.
7.2 Except as is provided in Section 7.1 above with respect to failure to
remit payment of exclusivity maintenance royalties, after the second anniversary
of the date of this Agreement, and not before, upon any breach or default of
this Agreement by Licensee, Licensor shall have the right to notify Licensee of
termination of this Agreement effective 45 days after mailing of such notice
unless Licensee shall have cured any breach underlying such notice within the
45 day period. Upon the expiration of the 45 day period, if Licensee shall not
have cured such breach, the rights, privileges and license granted hereunder
shall thereupon immediately terminate in full, provided, however, that if there
is a dispute relating to such breach which either party has submitted to
arbitration pursuant to Article 8 below, there shall be no termination prior to
the final decision in the arbitration and the decision reached in the
arbitration shall determine whether a termination may take place.
<PAGE>
7.3 Licensee shall have the right to terminate this Agreement at any time
upon 60 days prior notice to Licensor, provided that the Licensee shall continue
to pay the license exclusivity maintenance royalty payment according to the
terms of Article 3 above for the month in which such termination takes effect
and for the five months following such month. Upon such termination, Licensee
shall have no further rights, whether exclusive or non-exclusive, to the
Licensed Products, the Licensed Process(es) or the Technology hereunder.
7.4 Upon termination of this Agreement for any reason, Licensee and/or any
sublicensee thereof may sell all Licensed Products, and complete Licensed
Products in the process of manufacture at the time of such termination and sell
the same, provided that Licensee shall pay to Licensor the royalties therefor as
required by Article 3 of this Agreement and shall submit the reports required by
Article 4 hereof on such sales.
7.5 Upon termination of this Agreement, nothing herein shall be construed
to release either party from any obligation(s) that matured under this Agreement
prior to the effective date of such termination, which obligation(s) shall
continue until fully met by such party.
7.6 Notwithstanding the foregoing, following termination hereunder, the
provisions of Sections 2.5, 2.6, 3.1(c), 4.l, 4.2, 6.2, 10.2, 10.3, Article 11
and 12.4 shall remain in full force and effect.
ARTICLE 8 -- ARBITRATION; INJUNCTIVE RELIEF
8.1 Except as to issues relating to the validity, construction or effect
of any patent licensed hereunder, any and all claims, disputes or controversies
arising under, out of, or in connection with this Agreement, which have not been
resolved by communication between the parties, shall be resolved by final and
binding arbitration in Boston, Massachusetts under the rules of the American
Arbitration Association then obtaining. The arbitrators shall have no power to
add to, subtract from or modify any of the terms or conditions of this
Agreement. Any award rendered in such arbitration may be enforced by either
party in either the courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of Massachusetts, to whose jurisdiction
for such purposes Licensor and Licensee each hereby irrevocably consents and
submits.
8.2 Claims, disputes or controversies concerning the validity,
construction or effect of any patent licensed hereunder shall be resolved in any
court having jurisdiction thereof.
8.3 In the event that, in any arbitration proceeding, any issue shall
arise concerning the validity, construction or effect of any patent licensed
hereunder, the arbitrators shall assume the validity of all claims as set forth
in such patent, and the arbitrators shall not delay the arbitration proceeding
for the purpose of obtaining or permitting either party to obtain judicial
resolution of such issue, unless an order staying such arbitration proceeding
shall be entered by a court of competent jurisdiction. Neither party shall
raise any issue concerning the validity, construction or effect of any patent
<PAGE>
licensed hereunder in any proceeding to enforce any arbitration award hereunder
or in any proceeding otherwise arising out of any such arbitration award.
8.4 Notwithstanding the foregoing, nothing in this Article 8 shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement. Furthermore, nothing in this Article 8 shall be construed
to waive the right of Licensee to obtain, in addition to any and all other
remedies available to it at law or equity, injunctive relief to enforce the
exclusivity of the rights, privileges and license granted to it hereunder. In
that regard, Licensor acknowledges that any grant or attempted grant by it to
grant to any other person or entity a license or other right to use the
Technology or the Patent Rights for any medical purpose will cause irreparable
damage to Licensee and Licensor agrees that Licensee shall be entitled to
injunctive relief for the event of any such grant or attempted grant.
ARTICLE 9 -- INFRINGEMENT
9.1 Licensee and Licensor shall promptly inform each other in writing of
any alleged infringement of which it shall have notice committed by a third
party regarding any patents within the Patent Rights and shall provide each
other with any available evidence of such infringement.
9.2 During the term of this Agreement, Licensee shall have the right, but
shall not be obligated, to prosecute at its own expense any infringements of the
Patent Rights and, in furtherance of such right, Licensor hereby agrees that
Licensee may join Licensor as a party plaintiff in any infringement suit,
without expense to Licensor. The total cost of any infringement action
commenced or defended solely by Licensee shall be borne by Licensee, and
Licensee shall keep any recovery or damages for past infringement derived
therefrom.
9.3 If within * * * after having been notified of any alleged
infringement, Licensee shall not have obtained from the alleged infringer an
agreement to desist and shall not have brought and shall not be prosecuting any
infringement actions, or if Licensee shall notify Licensor at any time prior
thereto of its intention not to bring suit against any alleged infringer, then,
and in those events only, Licensor shall have the right, but shall not be
obligated, to prosecute at its own expense any infringement of the Patent
Rights, and Licensor may, for such purposes, use the name of Licensee as party
plaintiff, and shall pay Licensee's legal fees and expenses related thereto. No
settlement, consent judgment or other voluntary final disposition of the suit
may be entered into without the consent of Licensee, which consent shall not
unreasonably be withheld. Licensor shall indemnify Licensee against any order
for costs that may be made against Licensee in such proceedings.
9.4 If Licensee and Licensor agree to institute suit jointly, the suit
shall be brought in both of their names, and all expenses and recoveries
(whether by judgment, accord, decree or settlement) shall be borne equally.
Licensee shall exercise control over such suit, including employment of counsel
of its own selection at its own expense.
9.5 In any infringement suit as either party may institute to enforce the
Patent Rights pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have
* * * Confidential Treatment Requested
<PAGE>
its employees testify when requested and make available relevant records,
papers, information, samples, specimens, and the like.
9.6 Licensee, during the exclusive period of this Agreement, shall have
the sole right in accordance with the terms and conditions of this Agreement to
sublicense any alleged infringer under the Patent Rights.
ARTICLE 10 -- WARRANTIES AND COVENANTS
10.1 Licensor hereby covenants and agrees that as and from the effective
date of this Agreement through and until the second anniversary date of this
Agreement, and thereafter so long as the license granted hereunder remains
exclusive, neither McKinley nor MOI will design (including, without limitation,
designs for objective or relay lenses for use in endoscopes as described below)
develop, consult with, or otherwise assist in any manner, directly or indirectly
any person or entity other than Licensee in the design or development of any
endoscope which (a) is designed, marketed, or sold for medical purposes, or (b)
Licensor knew or should have known is capable of use for medical purposes,
unless Licensor limits, in writing, the use of such endoscope to non-medical
purposes; or (c) is manufactured by means of a Licensed Process(es), or (d)
otherwise materially incorporates the Technology.
10.2 Licensor hereby warrants and represents that (a) to the best knowledge
of McKinley and of MOI, the Technology does not infringe or otherwise violate
any other patent, license or agreement; (b) the Technology and other rights
granted hereunder are and will be licensed exclusively to Licensee for medical
use; (c) the Technology constitutes all of McKinley's and MOI's relevant and
necessary inventions, patents, patent applications, designs, art, and Know-How
with respect to 3-D Video Systems; and (d) there are no breaches of any
warranties or covenants, or other such undisclosed or contingent liabilities
with respect to the Technology or to this Agreement.
10.3 Licensee hereby warrants and represents that (a) it is a corporation
duly organized and in good standing in the State of Delaware and that it is
qualified to do business in the Commonwealth of Massachusetts, and (b) it is not
in breach of its warranties or covenants in this Agreement.
10.4 Licensor and Licensee shall at all times during the term of this
Agreement and thereafter, indemnify, defend and hold the other, its officers,
directors, employees and affiliates, harmless against all claims and expenses,
including legal expenses and reasonable attorneys' fees, arising out of any
breach of any or all of the foregoing warranties made by Licensor or Licensee,
as the case may be.
ARTICLE 11 -- PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified or first
<PAGE>
class mail, postage prepaid, addressed to such party at such party's address
below (or at an address as such party shall designate by written notice given to
the other parties);
In the case of Licensor:
Mr. Harry R. McKinley
McKinley Optics, Inc.
161 College Highway
Southampton, Massachusetts 01703
With a copy to:
W. Garth Janes, Esq.
Doherty, Wallace, Pillsbury and Murphy, P.C.
One Monarch Place
1414 Main St., 19th Floor
Springfield, Massachusetts 01144-1002
In the case of Licensee:
American Surgical Technologies Corporation
One McKinley Square
Boston, Massachusetts 02109
Attention: Mr. Gerald I. Brecher
With a copy to:
William E. Kelly, Esq.
Cuddy, Lynch, Manzi & Bixby
One Financial Center
Boston, Massachusetts 02111
ARTICLE 12 -- MISCELLANEOUS PROVISIONS
12.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the Commonwealth of Massachusetts, except that
questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
12.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
12.3 The provisions of this Agreement are severable, and in the event that
any provision of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the
<PAGE>
validity or enforceability of the remaining provisions hereof.
12.4 Licensee agrees to mark the Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed Products
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
12.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
12.6 This Agreement may not be assigned in whole or in part by Licensor
without the prior consent of Licensee. Subject to the preceding sentence, this
Agreement shall be binding upon the parties hereto and their respective
successors and assigns.
12.7 Licensee acknowledges that Licensor may be obligated to pay a fee to
* * * in connection with the transactions
contemplated by this Agreement and certain related transactions. Licensee
hereby agrees to reimburse Licensor for Licensor's payment of such fee, upon
receipt of written evidence from Licensor of payment therefor, up to a maximum
amount of * * * , provided that closing of Licensee's sale of its Series I
Preferred Stock, Common Stock and Warrants on the date hereof for an aggregate
sale price equal to or greater than * * * has occurred.
* * * Confidential Treatment Requested
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals and duly executed this License Agreement as of the day and year first
above written.
/s/ Harry R. McKinley
--------------------------------------------
Harry R. McKinley
MCKINLEY OPTICS, INC.
By: /s/ Harry R. McKinley
-----------------------------------------
Harry R. McKinley, President
AMERICAN SURGICAL TECHNOLOGIES
CORPORATION
By: /s/ illegible
----------------------------------------
<PAGE>
APPENDIX A
TECHNOLOGY
1. A stereo objective lens (the "Lens") for use in endoscopes of any
length, diameter, or configuration, as disclosed in the patent application filed
as of April 16, 1991 by McKinley (a copy of which is annexed hereto).
2. All Know-How, copyrights, trade secrets, inventions and other
intellectual property or proprietary rights relating to incorporating the Lens
into a commercially manufactured medical endoscope and connecting such endoscope
to an endoscopic video system in a manner which results in an apparent three
dimensional image of the object being viewed with the endoscope (a "3-D Video
System").
<PAGE>
APPENDIX B
LICENSED PRODUCT DEVELOPMENTS
Preparation of technical specifications and drawings for a working
prototype of the Licensed Product and design and development of such prototype
(the "Prototype"). Refinement and improvement of Prototype for pre-production
(the "Pre-Production Product"). Refinement and improvement of Pre-Production
Product for commercial manufacture (the "Manufacturable Product").
DEVELOPMENT PRODUCTS
Products required to make or connect a medical endoscope embodying the
Technology to video cameras or other electronic imaging devices.
Products and processes necessary to manufacture and market 3-D Video
Systems utilizing the Technology, which systems include (1) an endoscope
utilizing the Technology (2) a coupler or other means of attachment, alignment
and integration of the endoscope with the remainder of the system, (3) two video
cameras, (4) a suitable light source and its cables, connectors and the like,
and (5) a video display system using video switching or other appropriate
technology, resulting in the display of an apparent three-dimensional image of
the object being viewed with the endoscope.
<PAGE>
- --------------------------------------------------------------------------------
McKINLEY OPTICS, INC.
FAX: (413) 527-0753 161 COLLEGE HIGHWAY TEL: (413) 527-1829
P.O. BOX 356
SOUTHAMPTION, MASSACHUSETTS
01073-0356
- --------------------------------------------------------------------------------
June 28, 1994
AMERICAN SURGICAL TECHNOLO
300 BILLERICA ROAD
CHELMSFORD, MASSACHUSETTS
01824
ATTN: Ken Hayes
Dear Ken,
This letter constitutes an Agreement to alter the provisions of the LICENSE
AND DEVELOPMENT AGREEMENT between MCKINLEY OPTICS, Inc. and AMERICAN SURGICAL
TECHNOLOGIES CORPORATION, dated December 18, 1991.
For Paragraph 3.1(c)(i) substitute the following:
(i) * * * upon sale of the *** 3-D Video System (as such term is
defined in the description of Technology set forth in Appendix A attached
hereto) incorporating a Licensed Product, and an additional * * * upon
sale of each of the *** and *** such 3-D Video Systems incorporating a
Licensed Product, and * * * upon sale of the *** such 3-D Video Systems
incorporating a Licensed Product.
All other terms of the previous agreement shall remain in effect.
This change is hereby agreed to by the undersigned.
AMERICAN SURGICAL TECHNOLOGIES CORP.
/s/ Richard D. Fitzpatrick
- -----------------------------------
Richard D. Fitzpatrick, CFO
McKINLEY OPTICS, Inc.
/s/ Harry R. McKinley
- -----------------------------------
Harry R. McKinley, President
* * * Confidential Treatment Requested
<PAGE>
EXHIBIT 10.23
LICENSE AGREEMENT
BETWEEN
ALLEN NEWMAN
AND
VISTA MEDICAL TECHNOLOGIES, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS..................................................................... 1
Agreement.................................................................... 1
Article 1 Definitions.............................................. 1
Article 2 Grant.................................................... 2
Article 3 Vista's Undertakings..................................... 3
Article 4 Reversion Rights; Assignment Rights...................... 3
Article 5 Royalties................................................ 4
Article 6 Reports.................................................. 6
Article 7 Warranty................................................. 7
Article 8 Term and Termination..................................... 7
Article 9 Notices.................................................. 8
Schedule 1.2 Licensed Patents..........................................10
Schedule 1.5 Patents and Patent Applications...........................11
Schedule 7.1 Warranty Exclusions.......................................12
Attachment 5.4 Promissory Note...........................................13
i
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is entered into as of the 2nd day of
September 1994, by Allen Newman, an individual, ("Newman" or "Licensor") and
Vista Medical Technologies, Inc., 2752 Loker Avenue West, Carlsbad, California
92008 ("Vista", or "Licensee"), referred to individually as a Party and together
as the Parties.
RECITALS
A. Newman represents that he has conceived and developed certain technology
and products in the field of procedure specific medical instruments employing
advanced optical technologies ("Visual Instruments") and that, to the best of
his knowledge, he owns rights thereto; and,
B. Newman and Vista have entered into an employment agreement under which
Newman will be an employee of Vista as a member of Vista's senior management
team with Newman's responsibilities to include, among others, directing the
development and marketing of Visual Instruments employing advanced optical
technologies; and,
C. Newman and Vista now desire to enter into this License Agreement for
medical instruments utilizing optical technology, as set forth herein.
AGREEMENT
THEREFORE, the Parties agree as follows:
ARTICLE 1 -- DEFINITIONS
As used herein, the following terms have the meanings indicated.
1
<PAGE>
1.1 "Affiliate" shall mean (i) any other division of Vista, (ii) any company
in which more than fifty percent (50%) of the voting shares or other ownership
interests are owned or controlled, directly or indirectly, by Vista, or (iii)
any company which owns or controls, directly or indirectly, more than 50% of the
voting stock of Vista.
1.2 "Licensed Products" are those identified in Schedule 1.2.
1.3 "Licensee" means Vista Medical Technologies, Inc. and its affiliates.
1.4 "Licensor" means Allen Newman, an individual, and/or Newman Medical Inc.,
a corporation, to the extent that Newman Medical may have any rights to any of
the Licensed Products.
1.5 "Licensor's Technology" shall mean inventions directly related to the
Licensed Products (whether or not patentable), ideas, design concepts,
processes, formulas and know-how owned or controlled by Licensor and used by it
as of the date of this Agreement. Patents and patent applications are
identified in Schedule 1.5.
1.6 "Licensee's Technology" shall mean inventions (whether or not
patentable), ideas, design concepts, processes, formulas and know-how directly
related to developments and improvements of the Licensed Products and Licensor's
Technology made by Licensee during the term of this Agreement.
ARTICLE 2 -- GRANT
Newman hereby grants to Vista an exclusive license to use Licensor's Technology
to develop, make, use, have made, market, Lease, and sell the Licensed Products
and derivatives of them worldwide. Newman further grants to Vista the right to
sublicense such rights to the Licensor's Technology and Licensed Products to
third parties subject to Newman's prior approval of any such sublicense as
envisioned by Article 4.2, below, which approval will not be unreasonably
withheld.
2
<PAGE>
ARTICLE 3 -- VISTA'S UNDERTAKINGS
3.1 Vista intends to develop the Licensed Products at its expense and bring
them to market by appropriate means of distribution according to the time
schedule set forth in Schedule 1.2, Licensed Products. Provided, however, that
if delays in the regulatory process delay Vista's undertakings, the two year
commitment shall be extended to take into account the effects of such delay.
3.2 Vista has the right in its sole discretion not to develop, to discontinue
to develop, or to discontinue marketing any or all of the Licensed Products at
any time.
3.3 If Vista fails to meet its obligations under 3.1, above, or elects to
discontinue as provided by 3.2, above, then Newman's sole rights will be any
applicable reversion rights set forth in Article 4.1, below.
3.4 Vista will, at its expense, pursue an appropriate level of patent
protection for the Licensed Products, under Newman's name as inventor, but
assigned to Vista.
ARTICLE 4 -- REVERSION RIGHTS; ASSIGNMENT RIGHTS
4.1 If Newman becomes entitled to reversion rights to any Licensed Product
pursuant to 3.3, above, then upon written request by Newman to Vista, Vista will
transfer its rights to such Licensed Product and directly related Licensor's
Technology to Newman, subject to any rights that may have been granted pursuant
to Article 4.2, below, prior to Newman's right to reversion and subject further
to any rights that Vista reasonably may need to retain, on a non-exclusive basis
with Newman or any of his assigns, in order to develop or market Licensed
Products not reverting to Newman. If at the time of such reversion, Newman also
wishes to acquire rights to Licensee's Technology and other Visual Instrument
technology and products developed by Vista, Vista and Newman will negotiate in
good faith arrangements for such rights including, among other provisions,
3
<PAGE>
compensation to Vista for recovering its development costs for such Licensee's
Technology and other technology and products.
4.2 If Vista elects to sell or transfer its rights to the Licensor's
Technology or to a Licensed Product, then it may do so provided that Newman's
rights are protected in the transfer (i.e., the transferee accepts the principal
terms of this Licensing Agreement as a condition of the sale or transfer).
5. ROYALTIES
5.1 Royalties will be paid by Vista as a percentage of net sales of the
Licensed Products. Royalty rates (R) will be based on the cumulative
overall gross margin (G) of the Licensed Products as follows:
a. For the disposable or semi-disposable components line of products
(endoscopes, disposable packs, etc.): R = 0.2(G-45) where R and G
are in percent (%). If G drops below 45%, no royalty will be paid.
b. For the devices line of products (eye pieces, special cameras,
light sources, etc.): R = 1% if G > 50%; or R = 0% if G < 50%.
When total royalties due for all Licensed Products reach $400,000 in any
calendar year, then the royalty rate for the Licensed Products identified in
5.1(a) will change to R = 0.15 (G-45) for subsequent sales until the end of
that year.
The above gross margin percentages are based upon sale by Vista direct to end
users. In the event of indirect sales (such as to Original Equipment
Manufacturers, stocking distributors, and similar value-adding resellers) the
gross margin levels specified in the above formulae shall be reduced by
twenty five (25) percentage points (for example, 45% will be reduced to 20%;
50%, to 25%; etc.).
4
<PAGE>
5.3 (a) Under this Agreement, each Licensed Product will be considered as
sold when finally paid for by Vista's customer(s), but royalties paid on each
Licensed Product which is not finally accepted, or for which acceptance is
revoked, or is otherwise rejected, by Licensee's customer(s), shall be credited
against royalties payable hereunder.
(b) The foregoing royalties shall be payable * * * on or before
the * * * days of * * * of each year during the term of this
Agreement.
5.4 LOAN AGREEMENT. Vista immediately upon the signing by both Parties of
this Agreement will loan to Newman an advance in the amount of $37,500 secured
against royalties that may become due. A copy of the loan agreement is attached
hereto, identified as Attachment 5.4, Promissory Note. Such loan agreement
shall survive termination of this License Agreement. The first $37,500 of all
royalties due from Vista under the terms of this License Agreement shall be
applied toward repayment of the Promissory Note.
5.5 TERMINATION OF ROYALTY OBLIGATIONS; PAID-UP LICENSE. Vista is obligated
to pay royalties as provided herein on patented Licensed Products only while a
valid patent is in effect. For all other Licensed Products, Vista's royalty
obligation shall cease seven (7) years after Vista first begins marketing each
such Licensed Product. At the time that Vista satisfies each royalty obligation
hereunder, Vista shall have a fully paid-up, irrevocable license to the related
Licensed Product and patent (if any) without any further payments.
5.6 ADJUSTMENTS TO ROYALTY OBLIGATION IN THE EVENT OF NEWMAN'S EMPLOYMENT
TERMINATION. If Vista terminates Newman's employment other than for cause, then
Newman and Vista will appoint a mutually acceptable third party to determine
whether or not an adjustment to the royalty obligations of this Agreement would
be equitable. Such adjustments could address, for example, the equities of
whether or not to increase the rates set forth in Article 5.1, above, and
whether or not to establish an appropriate
* * * Confidential Treatment Requested
5
<PAGE>
minimum sales level of the Licensed Products to be achieved by Vista for the
three (3) years immediately following Newman's termination.
In the event that Newman voluntarily terminates his employment with Vista, or if
he is terminated by Vista with cause, then this Article 5.6 shall be void and
shall not apply.
5.7 REDUCTION OF ROYALTY OBLIGATION. In the event that Vista's use of its
rights granted under this Agreement infringes any third party's rights, then
Vista shall have the right to set off any compensation due to such third party
(or parties) against royalties due to Newman.
ARTICLE 6 -- REPORTS
6.1 Vista agrees to send * * * statements or reports to Licensor on or
before the * * * days of * * * of each year
during the life of this Agreement stating in each such report the number and
description of each Licensed Product sold and the amount of royalties payable to
Newman thereon. The first of such reports shall include all Licensed Products
sold between the effective date of this Agreement and the expiration of the
first full calendar quarter following the execution of this Agreement. Each
subsequent report shall include all Licensed Products sold during the preceding
* * * . Simultaneously with the making of each such report, Vista
agrees to pay any royalty then due and payable.
6.2 Vista agrees to maintain complete and accurate records in sufficient
detail to enable the royalties to be paid hereunder by Vista to be determined,
and further agrees to permit its books and records to be examined from
time-to-time to the extent necessary to verify the amount of royalty due and
payable to Newman under this Agreement. Vista shall retain and make available
for audit such records for a period of * * * * * * after each Licensed
Product is sold, provided that Vista shall not be required to retain such
records beyond a period of * * * after date of termination or expiration
of this Agreement or the conversion to a fully paid license.
* * * Confidential Treatment Requested
6
<PAGE>
ARTICLE 7 -- WARRANTY
7.1 Newman warrants, to the best of his knowledge, that he is the sole owner
of the Licensed Products and Technology free of any liens, encumbrances,
restrictions, and other legal or equitable claims, except as specifically stated
in Schedule 7.1 of this Agreement.
7.2 Newman shall use his best efforts to provide Vista with accurate
technical and engineering information, drawings, and data, but Newman makes no
other warranties concerning Licensed Products manufactured under this Agreement,
except as expressly stated in this Agreement.
ARTICLE 8 -- TERM AND TERMINATION
8.1 In case Vista fails to perform any of its obligations hereunder, Newman
may notify Vista in writing of such default and Newman shall have the option of
treating this Agreement as in full force and effect and taking proper steps to
recover royalties payable hereunder or of cancelling this License and Agreement,
provided, however, that in case Newman elects to cancel this License and
Agreement, he shall first send to Vista notice of his intention together with a
statement as to the basis of the intended action. If within ninety (90) days
after the receipt of such notice, Vista shall have met the objections presented
by Newman and shall have complied with the provisions of this Agreement, then
the notice shall become null and void and of no effect; otherwise the notice
shall remain effective and this License and Agreement shall cease and terminate
at the expiration of the ninety (90) days last mentioned above.
8.2 In the event that Newman materially breaches this Agreement, including
without limitation, the Warranty made in Article 7.1, then Vista may notify
Newman of his default. If Newman fails to cure the default within ninety
(90) days of receipt of Vista's notice, then Vista, in addition to other
remedies to which it may be entitled, may offset any monetary damages
suffered as a result of any such default against royalties owed to
7
<PAGE>
Newman and, depending on the circumstances, may seek to recover royalties
previously paid.
ARTICLE 9 -- NOTICES
All notices required or provided for in this Agreement shall be in writing and
served by delivering the same personally to Newman or Vista, as the case may be,
or by mailing the same certified United States mail to Newman addressed to:
MR. ALLEN NEWMAN
P.0. BOX 675583
RANCHO SANTA FE, CA 92067
and to Vista addressed to:
VISTA MEDICAL TECHNOLOGIES, INC.
2752 LOKER AVENUE WEST
CARLSBAD, CALIFORNIA 92008
ATTENTION: PRESIDENT
with a copy to:
KAISER AEROSPACE AND ELECTRONICS CORPORATION
950 TOWER LANE, SUITE 800
FOSTER CITY, CALIFORNIA 94404
ATTENTION: PRESIDENT
respectively, or to such other address as either Party hereto may designate in
writing from time-to-time.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day first above written.
ALLEN NEWMAN VISTA MEDICAL TECHNOLOGIES, INC.
/s/ Allen Newman By: /s/ John Lyon
- -------------------------------- ---------------------------------
Typed Name: Allen Newman Typed Name: John Lyon
--------------------- ---------------------
Date: 9-2-94 Title: President
------------------------- --------------------------
Date: September 2, 1994
----------------------
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SCHEDULE 1.2
LICENSED PRODUCTS
The following instruments are the Licensed Products:
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
Vista intends to bring to market in * * * regulatory delays excepted,
Products (i) (ii) and (iii).
Vista intends to begin development of within * * * and bring to market within
* * * after development begins, regulatory delays excepted, Products (iv)
through (ix).
* * * Confidential Treatment Requested
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NEWMAN-VISTA LICENSE
SCHEDULE 1.5
PATENTS AND PATENT APPLICATIONS
PATENTS: None
PATENT APPLICATIONS:
(i) U.S. patent application entitled * * * serial number
* * * filed * * * and an amendment filed * * * .
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NEWMAN-VISTA LICENSE
SCHEDULE 7.1
WARRANTY EXCLUSIONS
(There are no warranty exclusions.)
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ATTACHMENT 5.4
PROMISSORY NOTE
$37,500.00 CARLSBAD, CALIFORNIA
- ----------- DATE: SEPTEMBER 2, 1994
For value received, the undersigned (Payee) promises to pay to Vista
Medical Technologies, Inc., at Carlsbad, California, the sum of $37,500.00 in
legal tender of the United States.
This Note shall bear no interest.
If this Note is not paid in full according to its terms, the undersigned
agrees to pay all costs and expenses of collection, including reasonable
attorneys' fees.
The first $37,500 of net royalty payments that become due from Vista
Medical Technologies, Inc. to the Payee under the License Agreement dated
September 2, 1994 between Payee and Vista shall be applied toward repayment of
this Note.
If not paid prior thereto, this Note shall become due and payable on such
date as the undersigned resigns voluntarily (and not through any constructive
discharge or by reason of any substantial change in employment terms or
conditions caused by Vista), if such resignation occurs prior to September 2,
1997, or if Newman is terminated with good cause (amounting to gross misconduct
injurious to the Company) by Vista, or on September 2, 1999, whichever comes
first.
/s/ Allen Newman
-------------------------
ALLEN NEWMAN, PAYEE
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AMENDMENT TO
LICENSE AGREEMENT
This Amendment to License Agreement (the "Amendment") is entered into as
of the 13th day of December, 1996, by Allen Newman, an individual ("Newman" or
"Licensor") and Vista Medical Technologies, Inc., 5451 Avenida Encinas, Suite A,
Carlsbad CA 92008 ("Vista" or "Licensee"), referred to individually as a "Party"
and together as the "Parties."
RECITALS
Newman and Vista have entered into a License Agreement dated September 2,
1994 (the "License Agreement"), pursuant to which an exclusive license to use
Licensor's Technology worldwide was granted to Vista. Newman and Vista desire
to amend the License Agreement in connection with the proposed license by Vista
of certain technology to UROHEALTH Systems, Inc. ("UROHEALTH") and certain other
arrangements in connection therewith, so as to provide that to the extent the
terms of the License Agreement are inconsistent with the terms of that certain
License Agreement between Vista and UROHEALTH (the "UROHEALTH Agreement"), the
terms of the UROHEALTH Agreement shall govern. In connection with the execution
of the UROHEALTH Agreement, Vista and UROHEALTH are entering into a Consulting
Agreement pursuant to which Vista will use its commercially reasonable efforts
to provide the services of Newman to UROHEALTH as set forth in such agreement.
Capitalized terms used herein and not otherwise defined shall have the
meanings given them in the License Agreement.
NOW, THEREFORE, the Parties agree as follows:
1. APPROVAL OF SUBLICENSE. Pursuant to Article 2 of the License
Agreement, Newman hereby approves of the proposed sublicense of Licensor's
Technology and Licensed Products to UROHEALTH pursuant to the UROHEALTH
Agreement, a copy of which is attached hereto as EXHIBIT A. Newman hereby
acknowledges and agrees that, from and after the date hereof, UROHEALTH shall
pursue the development and commercialization of certain of the Licensed Products
and Vista shall no longer have any responsibility for the development and
commercialization of such Licensed Products. From and after the date hereof, to
the extent the terms of the License Agreement are inconsistent with the terms of
the terms and conditions of the UROHEALTH Agreement, the terms of the UROHEALTH
Agreement shall govern. For instance, Sections 3 and 5.5 and Exhibit 1.2 (e.g.,
the time limit for products set forth on such exhibit) of the License Agreement
contain terms contradictory to the terms and conditions of the UROHEALTH
Agreement; the terms and conditions of the UROHEALTH Agreement shall govern.
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2. PAYMENT. In consideration of the execution of this Amendment,
Vista shall pay to Newman, within * * * of the execution of this
Amendment, the sum of Two Hundred Thousand Dollars ($200,000).
3. AMENDMENT OF CERTAIN SECTIONS OF THE LICENSE AGREEMENT. Solely
with respect to Licensed Products under the UROHEALTH Agreement:
(a) Sections 5.1 and 5.3 of the License Agreement are hereby
deleted and replaced in their entirety as follows:
"5.1 Vista shall pay to Newman fifty percent (50%) of the
royalties received by Vista pursuant to Section 4.3 of the
UROHEALTH Agreement. Newman hereby acknowledges and agrees that
royalties are only payable by UROHEALTH to Vista on the
* * * manufactured by UROHEALTH and that no
royalties are payable by UROHEALTH to Vista on * * *
* * *
5.3 The foregoing payments shall be payable * * * on or
before the * * * day of * * * of
each year in which payments are received from UROHEALTH under the
UROHEALTH Agreement."
(b) The following sentence is hereby added Section 8.1 of the
License Agreement:
"Any notice delivered to Vista hereunder shall simultaneously be
sent to UROHEALTH at the address set forth in the UROHEALTH
Agreement. Newman shall not be entitled to terminate the license
under this Agreement unless and until UROHEALTH has been given the
same opportunity as Vista is entitled to hereunder to correct the
failure to perform."
4. This Amendment will be governed by and construed under the laws of
the State of California as applied to agreements among California residents
entered into and to be performed entirely within California.
5. This Amendment may be executed in two or more counterparts, each
of which will be deemed an original, but all of which together will constitute
one and the same instrument.
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6. This Amendment shall be binding upon, and inure to the benefit of,
the parties hereto, their respective successors and legal representatives and
their permitted assigns.
7. Except as specifically otherwise modified herein, the Agreement as
previously executed remains in full force and effect.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
VISTA MEDICAL TECHNOLOGIES, INC.
By: /s/ John Lyon
---------------------------------
John Lyon, President
and Chief Executive Officer
ALLEN NEWMAN
/s/ Allen Newman
------------------------------------
[SIGNATURE PAGE TO AMENDMENT TO
LICENSE AGREEMENT]
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EXHIBIT A
LICENSE AGREEMENT WITH UROHEALTH
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into as of
December 13, 1996 (the "Effective Date") between Urohealth Systems, Inc., a
Delaware corporation ("Urohealth"), and Vista Medical Technologies, Inc., a
Delaware corporation ("Vista").
RECITALS
A. Vista owns all right, title and interest in the Patent Rights (as
hereinafter defined) and Related Technical Information (as hereinafter defined).
B. Vista wishes to license the Patent Rights and Related Technical
Information to Urohealth, within the Field of Use (as hereinafter defined), on
the terms and conditions set forth below and Urohealth wishes 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 upon which both of the
following have been completed; (a) this Agreement has been executed by both
parties hereto and (b) the "closing" portion of the license fee set forth in
EXHIBIT D has been paid to Vista.
1.2 "IMPROVEMENTS" means improvements or derivations of the subject
matter covered by the Patent Rights which are developed by Vista, Urohealth or
through the joint efforts of the parties during the term of this Agreement which
would not already be included within the Patent Rights and which are applicable
to the Field of Use.
1.3 "FIELD OF USE" means gynecology, urology and general surgery.
1.4 "LICENSED PRODUCT" means Vista's Aspiroscope, those products or
potential products listed on EXHIBIT A attached hereto, any other products or
potential products utilizing or covered by the Patent Rights or the Related
Technical Information and Improvements.
1.5 "PATENT RIGHTS" means all right, title and interest in and to the
patents, patent applications and invention disclosures set forth in EXHIBIT B
attached hereto (as such exhibit may be amended by mutual agreement of the
parties) including (i) all corresponding patents, utility models, inventor
certificates, registrations or the like in any country of the world with respect
to the foregoing and (ii) all continuations, continuations-in-part, divisionals,
reissues, additions, reexaminations and extensions with respect to any of the
foregoing.
<PAGE>
1.6 "RELATED TECHNICAL INFORMATION" means any published or unpublished
research and development information, unpatented inventions, know-how, trade
secrets, copyrights, and all preclinical, clinical and other technical data in
the possession of Vista prior to the Effective Date, or during the term of this
Agreement, in each case which relates to the practice of the Patent Rights in
the Field of Use.
1.7 "VALID CLAIM" shall mean a claim of an issued and unexpired patent
included within the Patent Rights which has not been held unenforceable,
unpatentable or invalid by a court or other governmental agency of competent
jurisdiction, and which has not been admitted to be invalid or unenforceable
through reissue, disclaimer or otherwise.
ARTICLE 2
GRANT OF RIGHTS
2.1 LICENSE. In consideration of the license fees and royalties
payable by Urohealth to Vista pursuant to Article 4 below, and subject to the
terms and conditions of this Agreement, Vista hereby grants to Urohealth an
exclusive and worldwide license under the Patent Rights, Related Technical
Information and Improvements to make, use and sell Licensed Products within the
Field of Use. Urohealth shall have no right to sublicense any rights granted
hereunder except upon Vista's prior written approval (such approval to be given
in Vista's sole and absolute discretion).
2.2 DISCLOSURE OF TECHNOLOGY. Promptly after the Effective Date, and
throughout the term of this Agreement, Vista shall make available to Urohealth,
as reasonably requested by Urohealth, (i) copies of all patent applications
within the Patent Rights, all correspondence and written materials related
thereto, and all Related Technical Information; and (ii) all physical
embodiments of the Patent Rights and Related Technical Information, including,
without limitation, copies of all notebooks, drawings, diagrams, computer files,
manuscripts, patent prosecution documents and other materials created or
obtained in the course of developing the Patent Rights and/or Related Technical
Information or related to their conception, experimentation, design, fabrication
or use. Subject to Article 7 below and the licenses granted in Section 2.1
above, Urohealth may use and disclose such information and embodiments as it
deems appropriate.
2.3 RESTRICTIONS ON DISCLOSURE TO THIRD PARTIES. Vista agrees not to
disclose any Related Technical Information or any other non-public information
relating to the Patent Rights to any third party without the prior written
consent of Urohealth; PROVIDED, HOWEVER, that notwithstanding the foregoing,
Vista may disclose such information to third parties without Urohealth's consent
if (a) such disclosure is made to a third party solely for the purpose of such
third party's intended use outside of the Field of Use; and (b) such disclosure
would not, in Vista's reasonable discretion, conflict with or impair Urohealth's
rights under this Agreement; and (c) such disclosure is made by
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Vista to the third party under confidentiality restrictions at least as severe
as those contained in Article 7 of this Agreement.
2.4 IMPROVEMENTS.
(a) Vista shall, throughout the term of this Agreement, keep
Urohealth apprised of any Improvements that it has developed or is in the
process of developing. Subject to Section 6.1, Urohealth shall have the right,
but not the obligation, to file and to prosecute patent applications with
respect to any such Improvements that might reasonably constitute patentable
inventions. If Urohealth decides in its sole discretion not to file or
prosecute such patent applications with respect to any such Improvement, then
Vista shall have the right to do so for such Improvement at its expense.
(b) All Improvements shall be deemed to be part of the license
granted to Urohealth pursuant to Section 2.1 above and Vista shall own such
Improvements free and clear of any Urohealth claims. Upon Urohealth's request
for all materials reasonably necessary for Urohealth to exercise its license
with respect to such Improvements, Vista shall promptly deliver such to
Urohealth.
2.5 RIGHT OF FIRST REFUSAL TO MANUFACTURE AND SUPPLY.
(a) From the Effective Date through the date which is the
second anniversary of the cessation of Vista manufacturing a component of a
Licensed Product, Vista shall have the first right of refusal to manufacture and
supply to Urohealth Urohealth's requirements of the * * *
* * * (collectively, the "Video Equipment") for medical office use in
conjunction with a Licensed Product (the "Right of First Refusal"). Prior to
the first commercial sale of a Licensed Product, Urohealth shall notify Vista of
its requirements and specifications of the Video Equipment for such Licensed
Product (the "Requirements Notice").
(b) If such Requirements Notice is delivered prior to the ***
* * * of the Effective Date, Vista and Urohealth shall negotiate in good
faith and shall agree on the terms and conditions to be applicable to the
manufacture and supply of the Video Equipment by Vista to Urohealth; provided
that Vista shall be obligated to meet the mutually-agreed upon specifications
for the Video Equipment and shall provide Urohealth with competitive pricing for
such Video Equipment.
(c) If such Requirements Notice is delivered following the
third anniversary of the Effective Date through the termination of the Right of
First Refusal as set forth above, Vista and Urohealth shall negotiate in good
faith for a period of * * * the terms and conditions of the
manufacture and supply of the Video Equipment by Vista. The specifications and
pricing shall be mutually agreed upon by Vista and Urohealth. In the event that
a definitive manufacturing and supply agreement is not entered into within such
* * * period, Urohealth may immediately thereafter enter into
discussions with a third party regarding such Video Equipment. Urohealth shall
be permitted to enter into a definitive agreement with respect to such
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Video Equipment on terms and conditions no less favorable in the aggregate than
those last proposed by Urohealth or offered by Vista under this Section 2.4(c).
In the event that the terms and conditions offered by the third party are less
favorable in the aggregate than those last proposed by Urohealth or offered by
Vista, prior to entering into any agreement with such third party with respect
to the manufacture and supply of the specified Video Equipment, Urohealth shall
notify Vista in writing of the material terms and conditions of any such
proposed agreements. Such notice shall be deemed an offer to Vista to enter
into definitive agreements on the same proposed terms and conditions. Vista
shall have * * * to accept the offer contained in such notice.
Upon acceptance by Vista, the parties will negotiate in good faith to draft and
execute definitive agreements within * * * of acceptance. If no
definitive agreements have been executed in such * * * period, the
Right of First Refusal shall lapse with respect to the specified Video Equipment
and Urohealth shall be free to license such Video Equipment to any third party
on any terms and conditions.
(d) The obligations of Urohealth under subparagraphs (a) and
(b) above shall be subject to Vista's ability to then manufacture and provide to
Urohealth Video Equipment of a quality and design for its intended purpose equal
to or better, in the aggregate, to the quality and design of competitive video
equipment then available to Urohealth, taking into account the relative costs of
the Video Equipment and the competitive video equipment.
ARTICLE 3
OWNERSHIP AND FURTHER DEVELOPMENT
3.1 PATENTS AND TECHNOLOGY. Vista owns all right, title, and interest
in the Patent Rights and Related Technical Information. Urohealth shall have no
rights in the Patent Rights and Related Technical Information except as
expressly provided in this Agreement.
3.2 IMPROVEMENTS. Vista shall own all right, title, and interest in
any Improvements created during the term of this Agreement regardless of which
party is responsible for such Improvements, including all patent, copyright,
trade secret, and other intellectual property rights therein. Upon Vista's
reasonable request, Urohealth shall execute all documents necessary to vest
title in Vista to any such Improvements.
3.3 DEVELOPMENT OF LICENSED PRODUCTS. Urohealth shall assume and pay
all Licensed Product development costs incurred by Urohealth from and after the
Effective Date and throughout the term of this Agreement.
ARTICLE 4
LICENSE FEE AND ROYALTY
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4.1 LICENSE FEE. In consideration of the rights granted by Vista to
Urohealth pursuant to this Agreement, Urohealth shall pay Vista a license fee in
accordance with EXHIBIT D and royalties as set forth below.
4.2 ROYALTIES. For the purpose of calculating royalties due
hereunder, the following terms shall have the following meanings:
(a) "Gross Margin" shall mean 100 times (Net Revenue minus
Manufacturing Costs) divided by Net Revenue, calculated cumulatively for each
calendar year.
(b) "Net Revenue" means Urohealth's actual amounts invoiced
(exclusive of any separately itemized taxes, interest, service or maintenance
charges, finance charges, insurance and transportation costs actually paid by
Urohealth's customers) from all sales of the Licensed Products, less (i) any
customary and reasonable credits, refunds for returns or reasonable reserves for
bad debts, (ii) any customary and reasonable credits, rebates, discounts and
promotional allowances to customers and (iii) the amount of any sales, use or
other taxes required to be paid or withheld by Urohealth with respect to
payments due Vista. In the event that any particular Licensed Product is sold
by Urohealth as part of a bundle or kit, the invoiced price for that particular
product shall be determined by multiplying the net selling price of the bundle
or kit by the fraction A/A+B where A is the suggested list price for the
Licensed Product sold separately (as documented by Urohealth's records) and B is
the suggested list price for the remaining products in the bundle or kit sold
separately (as documented by Urohealth's records).
(c) "Manufacturing Costs" shall mean (i) Urohealth's
manufacturing costs for the Licensed Products, including manufacturing overhead
as determined under generally accepted accounting procedures applied
consistently by Urohealth and attributable to the production of the Licensed
Products by Urohealth, in the case that Urohealth manufactures Licensed
Products; and (ii) the purchase price to Urohealth in the case that Urohealth
purchases the Licensed Products from a third party provided that such purchase
price is subject to the prior written approval of Vista, which shall not be
unreasonably withheld.
(d) "U.S./Direct Royalty Rate" shall mean * * *
* * * and shall apply to all sales of Licensed Products to end-users located
in the United States and all direct sales of Licensed Products by Urohealth
(sales not through an independent distributor) in the rest of the world.
(e) "Foreign Indirect Royalty Rate" shall mean * * *
* * * and shall apply to all indirect sales of Licensed Products
(sales through independent distributors) to end-users located outside the United
States.
4.3 ROYALTY PAYMENT. Urohealth will pay to Vista an amount equal the
sum of the U.S./Direct Royalty Rate and Foreign Indirect Royalty Rate on a
product-by-product
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and country-by-country basis through the later of (i) the expiration of the
last-to-expire patent within the Patent Rights with claims covering such
Licensed Product or (ii) the ninth anniversary of the Effective Date (the
"Royalty Termination Date"). In no event shall either the U.S./Direct Royalty
Rate or the Foreign Indirect Royalty Rate exceed * * * or fall
below * * * for any payment period. All the foregoing amounts will
be calculated on a * * * basis and shall be paid in accordance with Section
4.4 below. Following the Royalty Termination Date, Urohealth shall a fully-paid
up license to such Patent Rights and the Related Technical Information and
Improvements for such Patent Rights, subject to termination pursuant to Article
5 below.
4.4 * * * PAYMENTS. All royalty payments owed by Urohealth to Vista
under this Agreement will be payable on a calendar * * * basis no later than
* * * * * * after the end of each * * * . Royalty reports shall
be provided by Urohealth to Vista with each royalty payment. The royalty
reports shall show (i) the number of Licensed Products invoiced during the
calendar * * * in question, (ii) the total gross sales invoiced amount, (iii)
the applicable Manufacturing Costs, (iv) an itemization of deductions, (v) the
amount of royalties due and (vi) the method of calculation of royalties for such
calendar * * * .
4.5 BOOKS AND RECORDS; AUDIT RIGHTS. Urohealth agrees to make and
maintain such books, records and accounts as are reasonably necessary to verify
the payments due Vista under this Agreement. At Vista's sole expense, an
independent certified public accountant, selected by Vista and reasonably
acceptable to Urohealth, who agrees to sign a nondisclosure agreement may, upon
reasonable notice and during normal business hours, but no more often than once
each year, inspect only those records of Urohealth on which the payments to
Vista under this Agreement are based. The accountant may report only the
accuracy of the payments, but may not disclose confidential information,
including specific customers, quantities and pricing by channel or distributor.
If any audit hereunder reveals that Urohealth has failed properly to account for
and pay royalties owing to Vista hereunder, and the amount of any royalties
which Urohealth has failed properly to account for and pay during any * * *
period exceeds by * * * or more the royalties actually accounted for
and paid to Vista for such period, Urohealth shall reimburse Vista for the cost
of the accountant. Urohealth shall also, within * * * after
notification by Vista, pay to Vista any amounts shown as due under such audit,
regardless of whether Urohealth is required to reimburse Vista for the cost of
the accountant.
ARTICLE 5
TERM AND TERMINATION
5.1 TERM. The term of this Agreement shall commence on the Effective
Date and, unless earlier terminated pursuant to this Article 5, shall continue
in full force and effect indefinitely. Notwithstanding the foregoing, the
royalty obligation set forth in
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Section 4.3 shall terminate as set forth therein and thereafter Urohealth shall
have a fully-paid up license as set forth herein.
5.2 TERMINATION FOR BREACH. In the event of a material breach of
this Agreement, the nonbreaching 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
nonbreaching party to the breaching party specifying the breach. The parties
agree that if: (i) two (2) consecutive royalty payments are not paid when due
under Section 4.4, and Urohealth fails to pay such royalties within the
thirty (30) days after written notification from Vista, (ii) Urohealth fails
to pay all prosecution, maintenance and infringement costs associated with
the Patent Rights within thirty (30) days after written notification from
Vista, (iii) Urohealth fails to comply with the additional qualifications set
forth in Article 9 of this Agreement within thirty (30) days after written
notification from Vista or (iv) fails to meet mutually-agreed upon
performance standards set forth on attached EXHIBIT C, including the
establishment of a direct sales force and a marketing plan and budget for the
United States and the rest of the world, each shall be deemed to be a
material breach by Urohealth permitting Vista to terminate this Agreement
immediately.
5.3 TERMINATION FOR INSOLVENCY. This Agreement may be terminated by a
party, with notice, (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, (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.
5.4 EFFECT OF TERMINATION.
(a) If Vista terminates this Agreement pursuant to Sections 5.2
or 5.3 hereof, (a) the licenses granted to Urohealth under Article 2 of this
Agreement shall terminate, (b) all rights to the Patent Rights, Related
Technical Information and Improvements shall revert to Vista and (c) all rights
to develop, make, have made, use, sell and import all Licensed Products shall
revert to Vista.
(b) If Urohealth terminates this Agreement pursuant to Sections
5.2 or 5.3 hereof, the provisions of Sections 2.1, 2.2, 2.3, 2.4, 5.4 and 5.5
and Articles 3 and 4 of this Agreement shall survive; PROVIDED, HOWEVER, if
Urohealth fails to perform or observe or otherwise breaches a material
obligations under this Agreement, which failure or breach is unremedied for a
period of thirty (30) days after receipt by Urohealth of written notice thereof
from Vista, Vista shall have the right to terminate this Agreement with the same
effect as if Vista were to terminate this Agreement pursuant to Section 5.4(a)
hereof.
5.5 SURVIVAL.
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(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,
Urohealth shall have the right to sell or otherwise dispose of its existing
stock of Licensed Products as completed products.
(c) Articles 7, 8, and 10 shall survive the expiration or
termination of this Agreement for any reason.
ARTICLE 6
PATENTS AND INFRINGEMENT
6.1 PATENT PROSECUTION. Urohealth shall have the right but not the
obligation to prosecute all patents under the Patent Rights within the Field of
Use at Urohealth's expense. If Urohealth does not prosecute a patent in a
particular country, Vista may do so, provided that Vista bears all costs and
expenses in connection with such prosecution. Vista and Urohealth agree,
throughout the term of this Agreement, to cooperate in: (i) formulation of a
general intellectual property strategy; (ii) foreign filings; and (iii)
determination of the content of each new application, divisional continuation or
continuation-in-part. Each further agrees to assist the other in any
formalities relating to the foregoing and each shall use its best efforts to
ensure that the other receives copies of all relevant correspondence.
6.2 INFRINGEMENT CLAIMS. If the production, sale or use of Licensed
Products by Urohealth results in any claim for patent infringement against
Urohealth, Urohealth shall promptly notify Vista thereof in writing. As between
the parties to this Agreement, Urohealth shall have the right at its own expense
to defend and control the defense of any such claim against Urohealth, by
counsel of its own choice. Vista shall provide such support to Urohealth as
Urohealth may reasonably request, in connection with such defense.
6.3 ENFORCEMENT OF PATENT RIGHTS. In the event that any of the Patent
Rights are infringed by a third party within the Field of Use, Urohealth shall
have the exclusive right, but not the obligation, to institute, prosecute and
control any action or proceeding with respect to such infringement, by counsel
of its choice, including any declaratory judgment action arising from such
infringement. Urohealth shall be entitled to any and all proceeds recovered
from third parties as a result of the enforcement of the Patent Rights. If
Urohealth does not take any action with respect to an infringement, then Vista
shall have the right to take action upon notice to Urohealth. In such case,
Vista shall be entitled to any and all proceeds as a result of the enforcement
of the Patent Rights. In the event both parties mutually agree to take action
against an infringer, then the proceeds as a result of the enforcement of the
Patent Rights shall be divided * * *
* * * to each party's expenditures in connection with such enforcement.
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ARTICLE 7
CONFIDENTIALITY
7.1 NONDISCLOSURE. Except as otherwise provided 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 "Confidential" or that is so disclosed
to it orally and confirmed in writing as confidential within * * *
after its initial disclosure ("Proprietary Information"). Proprietary
Information of a party shall not include:
(a) Information which at the time of disclosure is published or
otherwise generally available to the public;
(b) 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
(c) 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.
7.2 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 Patent Rights or obtaining product approvals
upon notice to the other party; or
(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 8
WARRANTIES
8.1 WARRANTY. Vista represents and warrants that:
(a) Vista is the owner or exclusive licensee of all of the
Patent Rights and has the full right and authority to enter into this Agreement,
to disclose any and all of the information disclosed to Urohealth hereunder, and
to grant the rights and licenses granted herein;
* * * Confidential Treatment Requested
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<PAGE>
(b) Vista has not previously granted and shall not grant any
rights in the Patent Rights that are inconsistent with the rights and licenses
granted to Urohealth herein;
(c) Vista 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 Urohealth
herein;
(d) To Vista's knowledge, as of the Effective Date, the
Licensed Products do not infringe any patent rights, trade secret rights or
other proprietary rights of any third party;
(e) As of the Effective Date, there are no existing or
threatened actions, suits or claims pending against Vista with respect to the
Patent Rights or the right of Vista to enter into and perform its obligations
under this Agreement; and
(f) EXHIBIT B includes all patents and patent applications
within the Patent Rights existing as of the Effective Date, and Vista does not
own rights in any other patent or patent application, the claims of which relate
to the manufacture, sale or use of a product within the Field of Use or that
would dominate the claims of a patent or application within the Patent Rights.
8.2 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, VISTA 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.
8.3 EFFECTS OF REPRESENTATIONS AND WARRANTIES. If Urohealth must pay
a third party claiming any rights to the rights granted herein royalties on a
Licensed Products pending resolution of any dispute with each third party or
subject to any injunction with the prior written consent of Vista, the royalty
payments of Urohealth due hereunder for such Licensed Product shall be reduced
by such payments, but such reduction shall be no more than * * *
of the amount due during such payment period.
ARTICLE 9
ADDITIONAL QUALIFICATIONS
9.1 CONSULTING. Concurrently with this Agreement, the parties shall
enter into a Consulting Agreement, attached hereto as EXHIBIT E (the "Consulting
Agreement").
9.2 UNITED STATES FOOD AND DRUG ADMINISTRATION APPROVAL. Urohealth
shall direct all submissions and registrations for the Licensed Products and
shall assume all costs related thereto in connection with United States Food and
Drug Administration and other foreign regulatory agencies. Urohealth shall
provide Vista with copies of all
* * * Confidential Treatment Requested
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<PAGE>
documentation in Urohealth's possession concerning such submissions and
registrations. In this regard, Urohealth shall be responsible for (i) the
development of a general strategy, (ii) the selection of clinical sites, and the
managing of clinical studies, and (iii) the content and timing of submissions.
ARTICLE 10
MISCELLANEOUS
10.1 PRODUCT LIABILITY INDEMNITY. Urohealth agrees to indemnify and
defend Vista 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 manufactured or distributed pursuant to this Agreement or as to
the exploitation of the Patent Rights 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 Vista or
its employees or agents. Such indemnity and defense obligation shall apply to
any claims made by employees, subcontractors, sublicensees or other agents of
Urohealth as well as any member of the general public.
10.2 CONFIDENTIALITY OF AGREEMENT. Both Urohealth 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:
(i) as required by any court or other governmental body;
(ii) as otherwise required by law (provided that the parties
shall mutually agree 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.
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<PAGE>
10.3 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.
10.4 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, Urohealth may assign this Agreement, and its rights
and obligations hereunder, to any business organization that succeeds to the
business of Urohealth to which this Agreement relates.
10.5 INDEPENDENT CONTRACTORS. The relationship of the parties hereto
is that of independent contractors. Neither party hereto is an agent, partner
or joint venturer of the other for any purpose.
10.6 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
550 West C Street, Suite 1300
San Diego, California 92101
Fax: (619) 234-3848
Attn: Craig S. Andrews, Esq.
Urohealth: Urohealth Systems, Inc.
5 Civic Plaza
Newport Beach, California 92660
Fax: (714) 668-5824
Attn: President
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<PAGE>
With a copy to:
Urohealth Systems, Inc.
5 Civic Plaza
Newport Beach, California 92660
Fax: (714) 668-5824
Attn: General Counsel
10.7 GOVERNING LAWS; 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.
10.8 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.
10.9 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.
10.10 FORCE MAJEURE. Nonperformance by either party (except for payment
obligations) shall be excused to the extent and for the period of time that
performance is rendered impossible by strike, fire, earthquake, flood,
governmental acts, orders or restrictions, failure of suppliers, or any other
reason where failure to perform is beyond the reasonable control and not caused
by the negligence of the nonperforming party.
10.11 NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER, EVEN IF NOTIFIED IN ADVANCE OF
THE POSSIBILITY OF SUCH DAMAGES.
10.12 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.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, both Vista and Urohealth have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized, the day and year first above written.
UROHEALTH SYSTEMS, INC. VISTA MEDICAL TECHNOLOGIES, INC.
By: By:
-------------------------------- ---------------------------------
Name: Name:
----------------------------- -------------------------------
Title: Title:
---------------------------- ------------------------------
[SIGNATURE PAGE TO LICENSE AGREEMENT]
<PAGE>
EXHIBIT A
LICENSED PRODUCTS
* * *
* * *
* * *
* * *
* * *
* * * Confidential Treatment Requested
A-1
<PAGE>
EXHIBIT B
PATENT RIGHTS
1. * * * U.S. Patent No. * * * dated * * *
2. * * * U.S. Patent Application No. * * * filed
* * * .
* * * Confidential Treatment Requested
B-1
<PAGE>
EXHIBIT C
UROHEALTH PERFORMANCE STANDARDS
1. Urohealth will staff a direct (company employee) sales force in the
United States. This sales force will be adequate in number to call on
gynecologists in their office practice, and in no event will be less than
*** representatives. *** of this sales force will be in place by
December 31, 1997.
2. Urohealth will complete the development of the * * * and begin
manufacturing and distribution in the United States by * * *
Urohealth will complete development of other Licensed Products, including
the * * * , within a time scale comparable to that for
similar medical devices. Urohealth will dedicate a reasonable allocation
of development resources to the Licensed Products, consistent with the
market results of the * * *
3. Urohealth will develop and implement marketing plans and budgets for the
introduction and continued promotion of the * * * and other
Licensed Products as they are distributed in the United States and
world-wide, employing Urohealth's international distribution network.
Such marketing budgets will be at levels appropriate for reasonably
similar products marketed by equivalent companies.
4. Urohealth will seek advice regarding clinical applications of the
* * * and other Licensed Products, including relevant advocacy
from appropriate physician scientific advisors with the objective of
creating awareness of product line benefits in the medical community.
5. Urohealth will exhibit the * * * and other Licensed Products as
they are introduced, at key national and international gynecology,
urology and other appropriate surgical trade shows and conventions.
6. Urohealth will develop and implement training programs for its domestic
sales force and international distributors to provide adequate levels of
knowledge of clinical applications and sales methods for the * * *
and other Licensed Products.
7. Urohealth will maintain active sales and marketing programs for the
* * * and other Licensed Products. If Urohealth discontinues a
Licensed Product, or fails to conduct reasonable active sales and
marketing programs for * * * within the context of these
performance standards, then such Licensed Products will revert to Vista,
its successors or assigns.
* * * Confidential Treatment Requested
C-1
<PAGE>
EXHIBIT D
A license fee consisting of (i) $1,000,000 cash and (ii) 110,000 shares
of Urohealth's common stock (the "Shares") shall be tendered to Vista upon the
execution of this Agreement. Vista's rights to register the resale of the
Shares shall be as set forth in that certain Investment Representations and
Registration Rights letter dated the date hereof.
D-1
<PAGE>
EXHIBIT E
CONSULTING AGREEMENT
E-1
<PAGE>
CONSULTING AGREEMENT
BY AND BETWEEN
UROHEALTH SYSTEMS, INC.
AND
VISTA MEDICAL TECHNOLOGIES, INC.
THIS CONSULTING AGREEMENT (this "Agreement") is entered into as of
December 13, 1996 (the "Effective Date"), by and between UROHEALTH Systems, Inc.
("UROHEALTH"), and Vista Medical Technologies, Inc. ("Consultant") and, with
respect to Sections 1, 4, 6, 7, 8 and 9 below, Allen Newman, Consultant's
employee ("Newman").
WITNESSETH:
WHEREAS, UROHEALTH desires to retain the medical and consultation
services of Consultant to aid in UROHEALTH's continuing mission to develop,
improve, and expand its medical product business, including those products
relating to minimally invasive surgery;
WHEREAS, Consultant possesses the medical knowledge and professional
expertise to aid UROHEALTH in its mission to develop, improve and expand its
business as referenced above;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
SECTION 1. CONSULTING SERVICES. During the term of this Agreement,
Consultant shall serve as a consultant for UROHEALTH, using its reasonable
commercial efforts to make available to Urohealth 25% of the working time of
Newman. In connection herewith, Newman's duties shall include, but not be
limited to, assisting UROHEALTH in developing and obtaining regulatory approvals
for Licensed Products under the terms of that certain License Agreement, dated
the date hereof, between UROHEALTH and Consultant (the "License Agreement") and
otherwise exploiting the rights granted to UROHEALTH under the License
Agreement.
Newman shall also perform any other services as are mutually agreed upon
by the parties. Consultant shall use its reasonable commercial efforts to
ensure that Newman devotes sufficient time and best efforts as a consultant in
order to perform the responsibilities under this Agreement to the reasonable
satisfaction of UROHEALTH. Newman shall provide services under this Agreement
as reasonably requested by UROHEALTH at the times mutually agreeable to
UROHEALTH and Consultant.
<PAGE>
SECTION 2. TERM. The term of this Agreement shall begin on the
Effective Date of the License Agreement and shall continue until the first
Licensed Product (as defined in the License Agreement) under the License
Agreement is commercially introduced by UROHEALTH.
SECTION 3. TERMINATION. This Agreement may be terminated by either
party immediately upon written notice of termination in the event the other
party has materially breached this Agreement and has not cured such breach
within thirty (30) days following written notice of the breach from the
non-breaching party. In addition, this Agreement shall be terminated
automatically upon the (i) termination of the License Agreement or (ii) death or
incapacity, whether mental or physical, of Newman. UROHEALTH or its designee
shall determine in good faith whether Newman is incapacitated for the purposes
of this Section 3. In addition, UROHEALTH may in its sole discretion terminate
this Agreement if Newman is unavailable, unwilling or unable to provide the
consulting services contemplated hereby on behalf of the Company.
Notwithstanding anything to the contrary herein contained, in the event
performance by either party hereto of any term, covenant, condition or provision
of this Agreement shall (i) jeopardize the licensure of UROHEALTH, (ii)
jeopardize its participation in (a) Medicare, Medicaid, Blue Cross, or other
reimbursement or payment programs, or (b) the FDA approval process, regulatory
program and guidelines, or (c) any other state or nationally recognized
accrediting organization, or (iii) be in violation of any statute, ordinance, or
be otherwise deemed illegal, or be deemed unethical by any recognized body,
agency, or association in the medical fields, UROHEALTH may, at its option,
terminate this Agreement immediately.
SECTION 4. COMPENSATION. In consideration for the services rendered by
Consultant to UROHEALTH under this Agreement, UROHEALTH shall pay to
Consultant during the term of this Agreement, an amount equal to * * *
* * * of Consultant to employ Newman;
provided, that such annualized costs shall not exceed * * * Such sum shall
be paid in monthly installments to cover the cost of regular salary and benefits
and an additional amount shall be paid in the month following verification that
a bonus has been paid to Newman and the amount thereof. Consultant shall be
reimbursed by UROHEALTH for all proper, necessary and reasonable business
expenses incurred as a result of the performance of services requested by
UROHEALTH. Consultant shall submit a detailed bill and documentation as deemed
necessary by UROHEALTH for expenses which shall be subject to the reasonable
approval of UROHEALTH's Chief Financial Officer. Consultant is not required to,
and nothing herein nor in any other agreement shall be construed to require
Consultant to, utilize UROHEALTH products.
SECTION 5. INDEMNIFICATION. UROHEALTH shall indemnify Consultant with
respect to all matters relating to services rendered by Consultant hereunder,
except for those caused by Consultant's willful misconduct.
* * * Confidential Treatment Requested
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<PAGE>
SECTION 6. CONFIDENTIALITY. During the term of this Agreement,
UROHEALTH, its clients, and its prospective clients may reveal to Consultant
confidential and proprietary information of UROHEALTH ("Confidential
Information"). Confidential Information shall include, but not be limited to,
that information which is designated as confidential either in writing or
orally, or that information which is not generally known to the public. With
respect to any Confidential Information disclosed to Consultant, Consultant
agrees to: (a) not disclose such Confidential Information to third parties
except: (i) third parties for whom Consultant has secured the prior written
approval of UROHEALTH, and/or (ii) as required by law or by any court or
governmental body, agency or department of competent jurisdiction; (b) use at
least the same degree of care to protect the Confidential Information as used
with respect to Consultant's confidential and proprietary information, however
in no event shall the degree of care be less than holding the Confidential
Information in confidence; and (c) use the Confidential Information only for the
purpose of performing its obligations under this Agreement. Notwithstanding
anything to the contrary herein, Consultant shall not have an obligation to
preserve the confidentiality of any Confidential Information which was
previously known to Consultant free of any obligation to keep it confidential or
is or becomes publicly available by other than unauthorized disclosure. The
provisions of this Section 6 shall survive expiration or termination of this
Agreement for any reason. As used herein, "Confidential Information" shall not
include anything which is not "Confidential Information" as defined in the
License Agreement.
SECTION 7. STATUS OF THE PARTIES. In the performance of this Agreement,
it is mutually understood and agreed that Consultant, Newman, its other
employees, officers, directors and agents are performing as independent
contractors with, and not as an employee, partner, or joint venturer of or with
UROHEALTH. Neither Consultant nor Newman shall have any claim under this
Agreement or otherwise against UROHEALTH for workers' compensation, unemployment
compensation, vacation pay, sick leave, disability benefits, retirement
benefits, social security benefits or any other employee benefits of any kind,
all of which shall be the sole responsibility of Consultant. UROHEALTH shall
not withhold on behalf of Consultant or Newman pursuant to this Agreement any
sums for income tax, unemployment insurance, social security or otherwise
pursuant to any law or requirement of any government agency, and all such
withholding, if any is required, shall also be the sole responsibility of
Consultant. Consultant shall indemnify and hold UROHEALTH harmless from any and
all loss or liability, if any, arising with respect to any of the foregoing
benefits or withholding requirements.
SECTION 8. GOVERNING LAW. This Agreement is being delivered and
executed in the State of California and the validity, construction, and
enforcement of this Agreement shall be governed in all respects by the laws of
the State of California. Venue shall be proper only in a court of competent
jurisdiction located in the State of California. The parties agree to be
subject to personal jurisdiction and consent to service of process issued by a
court in which venue is proper as defined in this Section 8.
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<PAGE>
SECTION 9. MODIFICATION AND WAIVER. No modification of this Agreement
shall be deemed effective unless in writing and signed by each of the parties to
which it applies. Any waiver of a breach of any provision of this Agreement
shall not be deemed effective unless in writing and signed by the party against
whom enforcement of the waiver is sought.
SECTION 10. HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any provision hereof.
SECTION 11. ASSIGNMENT. Neither party may assign, delegate,
subcontract, or otherwise transfer its rights or obligations hereunder without
the prior written consent of the other party and any assignment or other
transfer in violation of this Section 11 shall be void; provided, however, that
UROHEALTH may assign its rights and delegate its duties pursuant to this
Agreement to any successor, subsidiary, or affiliate to the business of
UROHEALTH to which this Agreement relates without the written consent of the
Consultant.
SECTION 12. SEVERABILITY. If, as a result of any valid Act of Congress
or act of any legislature or any regulation duly promulgated by the United
States or any state acting in accordance with the law, the terms and conditions
of this Agreement, or the payments made pursuant to this Agreement, are rendered
illegal or in violation of law, then the parties shall negotiate in good faith,
and shall take all steps necessary, including, but not limited to, amendment to
the terms and conditions of this Agreement or return of the compensation or any
part of the compensation paid pursuant to this Agreement, in order to reform
this Agreement such that the terms and conditions of this Agreement, or the
payments made pursuant to this Agreement, if any, shall not render any other
relationship or transaction between the parties, or any affiliate of the
parties, illegal or in violation of law.
SECTION 13. NOTICES. All notices, requests, demands, and other
communications provided for hereunder shall be in writing and shall be deemed to
been duly given if (i) delivered in person; (ii) given by prepaid telex or
telegram, or by facsimile or other instantaneous electronic transmission device;
or (iii) deposited in the United States mail, first class, registered or
certified, return receipt requested, with proper postage prepaid, as follows:
If to UROHEALTH:
UROHEALTH Systems, Inc.
5 Civic Plaza, Suite 100
Newport Beach, California 92660
Attention: General Counsel
Facsimile: (714) 668-5824
-4-
<PAGE>
If to Consultant:
Vista Medical Technologies, Inc.
5451 Avenida Encinas, Suite A
Carlsbad, California 92008
Facsimile: (619)603-9170
Attention: President
SECTION 14. ATTORNEYS' FEES. In the event any party hereto brings an
action or arbitration proceeding in connection with the performance, breach, or
interpretation of this Agreement, the prevailing party in such action or
proceeding shall be entitled to recover from the losing party all reasonable
cost and expenses of such litigation or proceeding, including attorneys' fees,
court costs, costs of investigation, and other costs, fees, and expenses
reasonably related to such action or proceeding.
SECTION 15. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns.
SECTION 16. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the parties concerning the subject matter
hereof, and supersedes all prior negotiations, agreements and understandings
between the parties, whether oral or in writing, concerning the subject matter
hereof.
INTENDING TO BE LEGALLY BOUND, the parties, or their duly authorized
representatives, have executed this Agreement to be effective on the Effective
Date.
UROHEALTH SYSTEMS, INC.
By:
-----------------------
Title: Senior Vice-President
VISTA MEDICAL TECHNOLOGIES, INC.
By:
------------------------------
Title: President
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<PAGE>
With Respect to Sections
1, 4, 6, 7, 8 and 9 only:
- ------------------------------------
Allen Newman
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<PAGE>
EXHIBIT 10.25
LICENSE AGREEMENT
This agreement (the "Agreement") is entered into effective July 19,
1995 (the "Effective Date"), by and between Kaiser Aerospace and Electronics
Corporation ("Kaiser"), a California corporation, having its principal place of
business at 950 Tower Lane, Foster City, CA 94404 and Vista Medical
Technologies, Inc. ("Vista"), a California corporation, having its principal
place of business at 2752 Loker Avenue West, Carlsbad, CA 92008.
1. LICENSE; COOPERATION; COMMERCIALIZATION
1.1 In consideration of Vista's obligations hereunder, Kaiser hereby
grants to Vista an exclusive, irrevocable, fully paid-up, perpetual, worldwide,
unlimited license (the "License") in the Field under the patent ("Patent") set
forth in Exhibit A, attached hereto and incorporated herein by this reference,
to use, sell, have sold and otherwise fully exploit the optical collimating
apparatus (the "Device") covered by the Patent and to manufacture (or have
manufactured) the Device pursuant to the terms of Section 1.4 below, as well as
a non-exclusive, irrevocable, fully paid-up, perpetual, worldwide license in the
Field to any underlying or related inventions, ideas, manufacturing processes,
methods of use, techniques, know-how, data, information, improvements,
modifications or derivatives, whether or not patentable or now existing that are
necessary or useful in exploiting the Device (the "Technology"), including,
without limitation, any and all patents and patent rights, copyrights, trade
secret rights, trademarks and other rights (the "Proprietary Rights") (the
Device and the Technology, including all Proprietary Rights contained therein,
shall be referred to collectively as the "Licensed Rights"). To enable Vista to
exercise the licenses granted herein and throughout the term of this Agreement,
Kaiser will promptly disclose and provide the Technology to Vista. For the
purposes of this Agreement, the "Field" shall be defined as all applications in
or relating to medicine.
1.2 Kaiser agrees to assist Vista in every proper way (i) to evidence
and perfect the License and (ii) to apply for, obtain and maintain any
regulatory approvals for the Device as incorporated into any and all medical
products developed pursuant to the licenses granted under this Agreement (the
"Products"), all of which Vista is granted the unilateral, exclusive,
transferable right (but not obligation) to do. All such regulatory approvals
will be obtained by Vista in its name and, to the extent allowed by law, any
such existing rights or approvals (or applications therefor) are hereby assigned
to Vista and shall otherwise be for the sole benefit of Vista. Kaiser will
execute all documents Vista may reasonably request for any of the foregoing
purposes.
1.3 The License granted in Section 1.1 above shall become
non-exclusive if and only if Vista has (i) failed to develop, with the intent to
market, a
<PAGE>
functional benchmark prototype of a Product incorporating the Device within
* * * * * * following the Effective Date and (ii) has not, before the
expiration of such * * * * * * period, entered into a development program
for a Product incorporating the Device with Kaiser or a Kaiser-affiliated
company.
1.4 The parties will, in good faith, enter into a separate Device
manufacturing agreement (the "Manufacturing Agreement"), whereby Kaiser shall
exclusively manufacture the Device for Vista to fill all of Vista's Device
requirements. Nevertheless, in the event that Kaiser or a Kaiser licensee fails
to supply Vista's Device requirements or otherwise materially breaches the terms
of the Manufacturing Agreement, Vista shall have the right to manufacture, or
have manufactured, the Device and Kaiser shall provide all reasonable and
necessary assistance therefor.
2. TERM AND TERMINATION
2.1 This Agreement shall continue in effect unless and until
terminated as provided in this Section 2.
2.2 If Vista determines that it is economically or technically
impractical or disadvantageous for it to continue development or marketing
regarding the Device, Vista may terminate this Agreement at any time upon ninety
(90) days written notice.
2.3 If Vista materially breaches this Agreement and fails to commence
action to cure such breach within ninety (90) days of receipt of written notice
thereof from Kaiser, Kaiser may terminate this Agreement by written notice;
provided that if Vista in good faith disputes an allegation of breach, the cure
period will commence upon resolution of such dispute.
2.4 If termination of this Agreement occurs, all rights licensed to
Vista hereunder shall revert to Kaiser and neither party shall have any
obligations to the other party under this Agreement, except for Sections 3, 5
and 6, which still survive termination; provided, however, that in no event will
Vista or any sublicensee, transferee or assignee be precluded from disposing of
its inventory or meeting its then existing supply obligations.
3. CONFIDENTIALITY; OWNERSHIP
3.1 Each party agrees that all inventions, processes, materials,
know-how and ideas and all other business, technical and financial information
it obtains from the other are the confidential property of the disclosing party
("Confidential Information" of the disclosing party). Except as expressly
allowed in this Agreement, the receiving party will hold in confidence and not
use or disclose any Confidential Information of the disclosing party and shall
similarly bind its employees in writing. The receiving party shall not be
obligated under this Section 3 with respect to information that:
* * * Confidential Treatment Requested
2.
<PAGE>
(1) is or has become readily publicly available through no fault
of the receiving party or its employees or agents; or
(2) is received from a third party lawfully in possession of
such information and lawfully empowered to disclose such information and
provided the receiving party abides by all restrictions imposed by such third
party; or
(3) was rightfully in the possession of the receiving party
prior to its disclosure by the other party provided the receiving party abides
by all restrictions imposed on its possession of such information; or
(4) was independently developed by employees or consultants of
the receiving party without access to such Confidential Information; or
(5) is required by order of a government agency or court of
competent jurisdiction to be disclosed.
3.2 As between the parties, and subject to the rights granted to
Vista under this Agreement, ownership of the Licensed Rights is and shall remain
in Kaiser.
3.3 All right, title and interest in and to any improvements or
modifications made to the Licensed Rights by Vista during the term of this
Agreement shall vest in Vista, subject to a non-exclusive, non-transferable,
royalty-free license to Kaiser for non-Field applications.
3.4 The parties agree to execute any and all documents necessary to
effectuate the ownership provisions of Sections 3.2 and 3.3 above.
4. REPRESENTATIONS
4.1 Kaiser represents and warrants to Vista that Kaiser (i) is the
sole owner of all rights, title and interest in and to the Licensed Rights, (ii)
has not assigned, transferred, licensed, pledged or otherwise encumbered the
Licensed Rights in a manner inconsistent with the rights granted in this
Agreement, (iii) has full power and authority to enter into this Agreement and
to grant the licenses set forth in Section 1.1 hereof, (iv) is not aware of any
actual or potential violation, infringement or misappropriation of any third
party's rights (or any claim or potential claim thereof) by the Licensed Rights
and (v) except as previously disclosed to Vista in writing, is not aware of any
questions or challenges with respect to the patentability or validity of any
claims of the Patent; Kaiser will promptly notify Vista of any change in such
information or circumstances of which it becomes aware.
4.2 During the term of this Agreement, Kaiser shall diligently
protect, maintain and enforce the Licensed Rights, which shall include taking
all necessary action to prevent and terminate any third party infringement of
the Licensed Rights.
3.
<PAGE>
5. GENERAL PROVISIONS
This Agreement is not assignable or transferable by either party
without the prior written consent of the other, except to a successor of all or
substantially all of either party's assets or business or as otherwise provided
elsewhere in this Agreement. Any notice, report, approval or consent required
or permitted hereunder shall be in writing and will be deemed to have been duly
given to a party if delivered personally or by carrier with delivery receipt
required, postage prepaid to the address of that party as set forth on the first
page of this Agreement; or such other address as is provided by that party to
the other upon ten (10) days written notice. No failure to exercise, and no
delay in exercising, on the part of either party, any privilege, any power or
any rights hereunder will operate as a waiver thereof, nor will any single or
partial exercise of any right or power hereunder preclude further exercise of
any other right hereunder. If any provision of this Agreement shall be adjudged
by any court of competent jurisdiction to be unenforceable or invalid, that
provision shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
This Agreement shall be governed by and construed pursuant to the laws of the
State of California and the United States without regard to conflicts of laws
provisions thereof. The prevailing party in any action to enforce this
Agreement shall be entitled to recover costs and expenses including, without
limitation, attorney's fees. Any waivers or amendments shall be effective only
if made in writing and signed by authorized representatives of the parties.
Both parties agree that this Agreement is the complete and exclusive statement
of the mutual understanding of the parties and supersedes and cancels all
previous written and oral agreements and communications relating to the subject
matter of this Agreement.
KAISER AEROSPACE AND VISTA MEDICAL
ELECTRONICS CORPORATION TECHNOLOGIES, INC.
By: /s/ Edward Durbin By: /s/ John Lyon
-------------------------------- --------------------------------
Name: Edward Durbin Name: John Lyon
Title: Senior Vice President Title: President
4.
<PAGE>
EXHIBIT A
<PAGE>
UNITED STATES PATENT [19] [11]PATENT NUMBER:- 4,859,031
BERMAN ET AL. [45]DATE OF PATENT:AUG. 22, 1989
- --------------------------------------------------------------------------------
[54] OPTICAL COLLIMATING APPARATUS
[75] Inventors: Arthur L. Berman, Milpitas; James E. Melzer, San Jose, both
of Calif.
[73] Assignee: Kaiser Electronics, San Jose, Calif.
[21] Appl. No.: 80,739
[22] Filed: Aug. 3, 1987
[51] Int. Cl.(4).........................................G02B 27/14; G02B 5/30;
G02F 1/13
ATTORNEY, AGENT, OR FIRM-Townsend and Townsend
[57] ABSTRACT
An optical collimating apparatus employs a semi-reflective concave mirror and
cholesteric liquid crystal element. In one embodiment, the optical collimating
apparatus is used as a heads-up display device. Images in the line of sight of
an observer substantially pass through a transmitter/combiner, semi-reflective
concave mirror, and cholesteric liquid crystal element to an observer. Images
generated by an image source are focussed on the transmitter/combiner such that
the transmitter/ combiner reflects the images into the line of sight of the
observer. The generated images are transmitted by the primarily transmissive
(convex) side of the semi-reflective concave mirror to the cholesteric liquid
crystal element. The cholesteric liquid crystal element reflects the generated
images back toward the primarily reflective (concave) side of the
semi-reflective concave mirror, which in turn reflects the images back toward
the cholesteric liquid crystal element, which transmits the generated images to
the Observer. In an alternative embodiment, such as in a flight simulator or
similar device, an image source projects images upon the primarily transmissive
(convex) side of a semi-reflective concave mirror which transmits the images to
a cholesteric liquid crystal element. The images are reflected by the
cholesteric liquid crystal element back toward the primarily reflective
(concave) side of the semi-reflective concave mirror. The images are then
reflected by the semi-reflective concave mirror back toward the cholesteric
liquid crystal element which transmits the images to the observer.
8 CLAIMS, 2 DRAWING SHEETS
<PAGE>
[52] U.S. Cl..................................................350/174; 350/172;
350/320; 350/352; 350/370
[58] Field of Search....................................350/174, 169, 320, 352,
350/370, 379, 171, 172
[56] References Cited
U.S. PATENT DOCUMENTS
Re. 27,356 5/1972 La Russa.......................................350/157
3,848,974 11/1974 Hosking et al. ................................350/174
3,915,548 10/1975 Opittek et al. ................................350/3.5
3,940,203 2/1976 La Russa.......................................350/3.5
4,093,347 6/1978 La Russa.......................................350/174
4,589,735 5/1986 Saunders.......................................350/338
OTHER PUBLICATIONS
Xerox Disclosure Journal, vol. 1, No. 3, Mar. 1976, pp. 85-86.
Physical Review Letters, Dependence of Pitch on Composition in Cholesteric
Liquid Crystals, by Adams et al., vol. 22, Jan. 20, 1969, pp. 92-94.
James Adams et al., "Cholesteric Films as Optical Filters", J. Applied Phys.,
vol. 42, No. 10, Sep. 1971.
PRIMARY EXAMINER--John K. Corbin
ASSISTANT EXAMINER--Ronald M. Kachmarik
"PICTURE"
<PAGE>
"PICTURE"
"PICTURE"
"PICTURE"
<PAGE>
"PICTURE"
"PICTURE"
"PICTURE"
<PAGE>
4,859,031
1
OPTICAL COLLIMATING APPARATUS
BACKGROUND OF THE INVENTION
1. Field of the Invention
The present invention relates generally to the field of visual display
systems for use in aircraft, flight simulators, etc., and more particularly to
an apparatus for collimating a projected image at or near infinity, having high
transmission of images incident thereupon.
2. Description of the Prior Art
Optical collimation apparatus capable of forming an image at or near
infinity of an object or a plurality of optically superimposed objects have been
known for some time. One such apparatus is described in U.S. Pat. No. Re 27,356,
reissued May 9, 1972. As disclosed, an apparatus having a single spherically
curved combining mirror is used as an image forming element. A primary image is
directed at the convex side of the mirror, which transmits the image to a
birefringent beam splitter array, positioned on the concave side of the mirror.
The Array reflects the image back to the spherical mirror, collimating the image
for viewing by an observer. Several polarizing filters in the light path
selectively direct that part of the primary image which returns to the spherical
mirror.
The apparatus taught in Re No. 27,356 may be assembled in compact size and
light weight. However, due to the required multiple filtering and reflections of
the primary image, transmissivity of the primary image is low. For example, each
filtering and reflection of the primary image successively reduces the image's
intensity by approximately one-half. The result is an ultimate transmission in
the neighborhood of 0.5 to 10 percent of the original intensity of the primary
image.
Another system, described in U.S. Pat. No. 3,940,203, issued Feb. 24, 1976,
is a variation on the previously discussed Pat. No. Re 27, 356 which replaces
the spherical mirror with a reflection-type holographic analog of a spherical
mirror. Because the disclosed apparatus must employ a relatively large number of
reflections and transmissions to properly control light which reaches the
observer, this technique also suffer from low transmission of the primary image.
By utilizing the improved reflection and transmission characteristics of the
holographic element, efficiency on the order of 6 to 10 percent of an image's
original intensity is achieved at best.
Thus, there is a present need in the art for an optical collimation
apparatus with improved transmisivity of images. Further, since application of
such optical collimation apparatus may include helmet-mounted display systems or
other applications where size and weight are critical, there is a present need
for such an optical collimation apparatus which is both compact and
light-weight.
SUMMARY OF THE INVENTION
The present invention is directed to an optical collimation apparatus that
utilizes the properties of cholesteric liquid crystals to form, preferably at or
near infinity, an image of an object or of a plurality of objects optically
superimposed, in the line of sight of an observer.
According to a preferred embodiment of the present invention, the
collimation apparatus is formed of a semi-reflective concave mirror and a
cholesteric liquid crystal element. The semi-reflective concave mirror and
cholesteric liquid crystal element are utilized together with a
transmitter/combiner placed in the line of sight of an observer. An image
source, such as a cathode ray tube (CRT), liquid crystal display (LCD), or other
display device is provided such that images projected thereby are reflected by
the transmitter/combiner into the line of sight of the observer.
The reflected image is passed through a circular polarizing filter to the
semi-reflective concave mirror, circularly polarizing the image. The
semi-reflective concave mirror transmits the image to the cholesteric liquid
crystal element which is polarized in a rotary sense opposite that of the image,
causing the image to be reflected without reversal of its rotary sense, back to
the concave side of the semi-reflective concave mirror. The image is then
reflected (and its rotary sense reversed) by the semi-reflective concave mirror
back toward the cholesteric liquid crystal element, which now transmits the
image or images to the observer.
An image from the outside environment is transmitted through the
transmitter/combiner, through the semi-reflective concave mirror, and partially
transmitted by the cholesteric liquid crystal element to the observer, and
partially reflected by the cholesteric liquid crystal element back toward the
concave side of the semi-reflective concave mirror. That portion of the image
reflected by the cholesteric liquid crystal element is in turn reflected by the
semi-reflective concave mirror back toward the cholesteric liquid crystal
element, which transmits the image to the observer.
Transmission efficiency for this embodiment is increased over the prior art
in that fewer reflections and transmissions of the image takes place and in
<PAGE>
that the cholesteric liquid crystal element transmits and/or reflects a higher
percentage of the incident light than the reflective devices of the prior art.
The invention will now be further described with reference to the
accompanying drawings.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 illustrates an embodiment of an optical collimation system according
to the present invention, in a heads-up display/image combiner application;
FIG. 2(a) illustrates the transmission characteristics of a cholesteric
liquid crystal element reflective to RHCP green light;
FIG. 2(b) is a graphical representation of transmission and polarization
efficiency of a cholesteric liquid crystal element;
FIG. 3 illustrates an alternate embodiment of an optical collimation system
according to the present invention;
FIG. 4 is a graph illustrating the angular dependence of the wavelength of
maximum reflection; and
FIGS. 5(a) and 5(b) illustrate the biasing of the reflection angle from the
cholesteric liquid crystal element through the use of surface tilt, untilted and
tilted cases respectively.
DETAILED DESCRIPTION OF THE
PREFERRED EMBODIMENT
With reference to FIG. 1, a preferred embodiment of an optical collimating
apparatus according to the present invention is shown. In such an embodiment,
optical collimating apparatus 30 is used in a heads-up display or image
combining display mode. Optical collimating apparatus 30 consists of image
generating source 34, example, relying on a property of cholesteric elements, as
demonstrated in FIG. 4, that the wavelength of maximum reflection is angular
sensitive (i.e., as the angle of incidence increases, the wavelength of maximum
reflection is shifted toward the shorter wavelenths) the wavelength of maximum
reflection of the cholesteric liquid crystal element for normally incident light
may be increased to compensate for the shift toward the shorter wavelengths of
reflection for non-normally incident light.
Another property of cholesteric elements, demonstrated in FIGS. 5(a) and
5(b), is that the separation between the angle of incidence (i) and angle of
reflection (r) is a function of the orientation, or tilt, of the helical axis of
the cholesteric layer. As the helical axis is tilted away from normal to the
surface of the cholesteric liquid crystal element the separation becomes
smaller.
Thus, positioning of the reflected image in the line-of-sight of the
observer may be controlled by the composition of the element (as opposed to
positioning of the image source).
Thus the disclosures and descriptions herein are purely illustrative and
are not intended to be in any sense limiting.
What is claimed is:
1. An optical collimating apparatus for focussing an image at or closer
than at an infinite distance from an observer, comprising the elements of:
a circular polarizing filter;
a semi-reflective concave mirror; and
a cholesteric liquid crystal element.
2. An optical collimating apparatus for focussing an image at or closer
than at an infinite distance from an observer, wherein the image is
substantially transmitted by a semi-reflective concave mirror and a first
portion of said transmitted image is further transmitted unreflected to the
observer by a cholesteric liquid crystal element and a second portion of said
transmitted image is reflected by the cholesteric liquid crystal element to the
concave mirror, which reflects the second portion of the transmitted image back
to the cholesteric liquid crystal element, which transmits the second portion of
the transmitted image to the observer, comprising the elements of:
an image source;
a circular polarizing filter;
a semi-reflective concave mirror; and
a cholesteric liquid crystal element.
3. The apparatus according to claim 2 further comprising:
a transmitter/combiner for combining a first image generated by said image
source with a second image in a line of sight plane of an observer prior to
incidence upon said semi-reflective concave mirror.
4. An optical collimating apparatus for focussing an image at or closer
than at an infinite distance from an observer, and further for combining the
focussed image with an image external to the optical collimating apparatus,
comprising the elements of:
an image source;
a circular polarizing filter;
a transmitter/combiner;
a semi-reflective concave mirror; and
a cholesteric liquid crystal element.
5. An optical collimating apparatus for focussing an image at or closer
than at an infinite distance from an observer, and further for combining the
focussed image with an image external to the optical collimating apparatus,
wherein projected images from an image source are reflected by a
transmitter/combiner acting as a combiner to combine the projected images with
the images in the line of sight of the observer and further wherein
<PAGE>
the projected images are reflected by a cholesteric liquid crystal element to
the semi-reflective concave mirror, which reflects the images back to the
cholesteric liquid crystal element, which substantially transmits the images to
the observer, and further wherein external images are substantially transmitted
by the semi-reflective concave mirror and further substantially transmitted to
the observer by the cholesteric liquid crystal element, comprising the elements
of:
an image source;
a circular polarizing filter;
a transmitter/combiner;
a semi-reflective concave mirror; and
a cholesteric liquid crystal element.
6. The apparatus according to claim 5, wherein said image source comprises
a monochrome cathode ray tube, focussing optics for focussing an image generated
by said monochrome cathode ray tube, and a circular polarizing filter for
imparting images generated by said monochrome cathode ray tube with a first
rotary sense.
7. A method for optically collimating an image at or closer than at an
infinite distance from an observer, comprising the steps of:
causing to be incident upon a semi-reflective concave mirror a primary
image, and substantially transmitting said primary image to a cholesteric
liquid crystal element, substantially transmitting a first portion of said
primary image to the observer, and reflecting a second portion of said
primary image to said semi-reflective concave mirror, said semi-reflective
concave mirror substantially reflecting said second portion of said primary
image back to said cholesteric liquid crystal element, said cholesteric
liquid crystal element transmitting said second portion of said primary
image to said observer.
8. A method for optically collimating an image at or closer than at an
infinite distance from an observer, and further for positioning said image in a
line of sight plane of an observer, comprising the steps of:
generating an image, projecting said generated image upon a
transmitter/combiner located in a line of sight plane of the observer which
acts as a combiner to combine said projected image with an image in said
line of sight of the observer, transmitting said combination of said
generated image and said image in said line of sight plane of the observer
to a semi-reflective concave mirror, said semi-reflective concave mirror
substantially transmitting said image combination to a cholesteric liquid
crystal element, said cholesteric liquid crystal element substantially
transmitting to the observer a first portion of said image combination
comprising a first portion of said image in said line of sight plane of the
observer, said cholesteric liquid crystal element substantially reflecting
a second portion of said image combination comprising a second portion of
said image in said line of sight plane of the observer together with said
generated image, to said semi-reflective concave mirror, which
substantially reflects said second portion of said image combination back
to said cholesteric liquid crystal element, said cholesteric liquid crystal
element substantially transmitting said second portion of said image
combination to the observer.
* * * * *
<PAGE>
EXHIBIT 10.27
Translation of the licensing agreement of Fuji patent US * * *
Fuji Film Co. "A"
Fuji Photo Optical Co. "B"
Vista Medical Tech. "C"
1. Definition of Word
1-1. Jointly Owned Patent:
"A" and "B" jointly owned U.S. patent * * * . Imaging System
having VariFocal Lens for use in Endoscope.
1-2. Licensed Product:
Endoscope covered by the jointly owned patent.
1-3. Net Sales Price:
Revenue received by "C" from the sale of the licensed product,
excluding returns, packing, transportation fee, insurance and tax.
1-4. Computation Period for License Fee:
* * * of each
year. Computation starts the first day of commencement for the first
year and end of the licensing day for the final year.
2. Non-exclusive Licensing
"A" and "B" shall grant a license to "C" use of the patent to manufacturing
(including consigning manufacturing) and sales of the licensed product, in
the USA. "A", "B" and "C" will discuss later, when "C" desires, in future,
a third party located not in USA manufactures the licensed product as
complete product by using portion of the licensed product manufactured by
"C" using the jointly owned patent in USA, and sold by the third party.
* * * Confidential Treatment Requested
<PAGE>
3. Fee
"C" shall pay to "A" and "B" as license fee:
2-1. Up-front license fee of * * * to each party "A", and "B", total
* * *. This up-front payment shall be a prepayment of the license fee
which will be generated during the licensed period.
2-2. a) * * * of the net sales to each party "A" and "B"
starting the date agreement was signed till * * * .
b) * * *
* * * to end of the agreement.
However, "C" sold the licensed product under OEM brand.
1. Whichever higher price, if the licensed product was sold under
own brand and OEM brand.
2. Net sales price plus * * * if no own brand product was sold.
4. Payment & Report
4-1. "C" shall pay 2-1) to "A" and "B" within * * * after signing the
agreement.
4-2. "C" shall report to "A" and "B", within * * * after closing date of
the computation period, model number, quantity and fee of the licensed
product sold during the period.
4-3. "C" shall pay the reported fee to "A" and "B" within * * * .
However, the payment shall be after the up-front fee (specified in
3-1) has been exhausted.
* * * Confidential Treatment Requested
<PAGE>
4-4. "C" shall keep the record/books of the fee computation for the
effective duration of the agreement and * * * after its termination.
"C" shall agree to have audit of the record/books by CPA designated by
"A" or "B".
4-5. Applicable income tax or any other tax generated by the up front fee
and the fee by US government or other government shall be responsible
by "A" and "B". "C" shall provide proof of payment of the tax to "A"
and "B".
4-6. The up front payment specified in 3) is non-refundable unless the
jointly owned patent became invalid. The agreement becomes void when
the jointly owned patent became invalid.
4-7. "C" shall pay the up-front fee and fee thereafter by US dollars.
4-8. * * * year interest shall be added to when the payment was delayed.
5. Duration and Termination:
5-1. The duration of this agreement shall be from the signing date till end
of effective date of the jointly owned patent. However, 4), 6), 7),
8), 9) and 10) shall remain effective.
5-2. "A" and "B" may terminate this agreement when "C' violates the
agreement and "C" did not correct the violation within 30 days after
"A" and "B" urge "C" for correction.
5-3. During this agreement, "A" and "B" are able to terminate this
agreement immediately when:
- "C" proceeds for bankruptcy under the law.
- Condemned bankruptcy and unable to pay.
- Start composition with creditors.
- Stop operation.
* * * Confidential Treatment Requested
<PAGE>
6. Report and payment of fee when the agreement was terminated during the
effective period or at end of the agreement.
6-1. "C" shall report and pay fee according to 4) for the duration starting
the next day of last closing of computation to the termination date
when this agreement ended or terminated middle of effective duration.
6-2. At the end of agreement or termination, finished goods or work in
process goods of the licensed product shall be computed as goods sold.
7. "A", "B" and "C" shall not leak of confidential information obtained from
the other party(ies) to any 3rd party during the agreement and after end of
the agreement, except the following:
7-1. Already public knowledge.
7-2. Known prior to obtaining information from the other party and present
proof of the fact.
7-3. Became a public knowledge by 3rd party after receiving information
from the other party.
7-4. Information disclosed by 3rd party without confidential obligation.
8. This agreement shall be governed by Japanese law.
9. "C" shall not transfer or use as a collateral the right and responsibility
generated from this non-exclusive license agreement.
10. Unless specified separately, it should NOT be understood as follows:
10-1. "C" shall obtain a right of sub-licensing to 3rd party.
<PAGE>
10-2. "A" and/or "B" shall have a responsibility to maintain the
jointly owned patent. "A" and/or "B" shall have a responsibility
to supply technical information, apply patent or obtain patent.
10-3. "A" and/or "B" guarantee non-necessity of any other industrial
property in order to manufacture, use and sale of the licensed
product.
10-4. "A" and/or "B" guarantees effectiveness of the jointly owned
patent.
10-5. "A" and/or "B" shall have a responsibility to eliminate any
infringement from 3rd party for the jointly owned patent.
11. "A", "B" and "C" shall mutually discuss and resolve amicably with good
faith, if any difficulty of understanding and operation of this agreement
or unspecified issue on this agreement arises.
3 agreements shall be signed, each party keeps one signed agreement.
"A" Fuji Film
"B" Fuji Photo Optical
"C" Vista Med. Tech.
The undersigned, an officer of Vista Medical Technologies, Inc., hereby
represents that this document is a fair and accurate English translation of
the Non-Exclusive License Agreement between Vista Medical Technologies,
Inc., Fuji Film Co. and Fuji Photo Optical Co., dated June 25, 1996.
By: /s/ Koichiro Hori
-------------------
Its: Senior Vice President, Advanced
--------------------------------
Technology
----------
<PAGE>
LICENSE AGREEMENT EXHIBIT 10.29
THIS LICENSE AGREEMENT ("Agreement") is made and entered into as of
December 13, 1996 (the "Effective Date") between Urohealth Systems, Inc., a
Delaware corporation ("Urohealth"), and Vista Medical Technologies, Inc., a
Delaware corporation ("Vista").
RECITALS
A. Vista owns all right, title and interest in the Patent Rights (as
hereinafter defined) and Related Technical Information (as hereinafter defined).
B. Vista wishes to license the Patent Rights and Related Technical
Information to Urohealth, within the Field of Use (as hereinafter defined), on
the terms and conditions set forth below and Urohealth wishes 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 upon which both of the following
have been completed; (a) this Agreement has been executed by both parties hereto
and (b) the "closing" portion of the license fee set forth in EXHIBIT D has been
paid to Vista.
1.2 "IMPROVEMENTS" means improvements or derivations of the subject matter
covered by the Patent Rights which are developed by Vista, Urohealth or through
the joint efforts of the parties during the term of this Agreement which would
not already be included within the Patent Rights and which are applicable to the
Field of Use.
1.3 "FIELD OF USE" means gynecology, urology and general surgery.
1.4 "LICENSED PRODUCT" means Vista's Aspiroscope, those products or
potential products listed on EXHIBIT A attached hereto, any other products or
potential products utilizing or covered by the Patent Rights or the Related
Technical Information and Improvements.
1.5 "PATENT RIGHTS" means all right, title and interest in and to the
patents, patent applications and invention disclosures set forth in EXHIBIT B
attached hereto (as such exhibit may be amended by mutual agreement of the
parties) including (i) all corresponding patents, utility models, inventor
certificates, registrations or the like in any country of the world with respect
to the foregoing and (ii) all continuations, continuations-in-part, divisionals,
reissues, additions, reexaminations and extensions with respect to any of the
foregoing.
<PAGE>
1.6 "RELATED TECHNICAL INFORMATION" means any published or unpublished
research and development information, unpatented inventions, know-how, trade
secrets, copyrights, and all preclinical, clinical and other technical data in
the possession of Vista prior to the Effective Date, or during the term of this
Agreement, in each case which relates to the practice of the Patent Rights in
the Field of Use.
1.7 "VALID CLAIM" shall mean a claim of an issued and unexpired patent
included within the Patent Rights which has not been held unenforceable,
unpatentable or invalid by a court or other governmental agency of competent
jurisdiction, and which has not been admitted to be invalid or unenforceable
through reissue, disclaimer or otherwise.
ARTICLE 2
GRANT OF RIGHTS
2.1 LICENSE. In consideration of the license fees and royalties payable
by Urohealth to Vista pursuant to Article 4 below, and subject to the terms and
conditions of this Agreement, Vista hereby grants to Urohealth an exclusive and
worldwide license under the Patent Rights, Related Technical Information and
Improvements to make, use and sell Licensed Products within the Field of Use.
Urohealth shall have no right to sublicense any rights granted hereunder except
upon Vista's prior written approval (such approval to be given in Vista's sole
and absolute discretion).
2.2 DISCLOSURE OF TECHNOLOGY. Promptly after the Effective Date, and
throughout the term of this Agreement, Vista shall make available to Urohealth,
as reasonably requested by Urohealth, (i) copies of all patent applications
within the Patent Rights, all correspondence and written materials related
thereto, and all Related Technical Information; and (ii) all physical
embodiments of the Patent Rights and Related Technical Information, including,
without limitation, copies of all notebooks, drawings, diagrams, computer files,
manuscripts, patent prosecution documents and other materials created or
obtained in the course of developing the Patent Rights and/or Related Technical
Information or related to their conception, experimentation, design, fabrication
or use. Subject to Article 7 below and the licenses granted in Section 2.1
above, Urohealth may use and disclose such information and embodiments as it
deems appropriate.
2.3 RESTRICTIONS ON DISCLOSURE TO THIRD PARTIES. Vista agrees not to
disclose any Related Technical Information or any other non-public information
relating to the Patent Rights to any third party without the prior written
consent of Urohealth; PROVIDED, HOWEVER, that notwithstanding the foregoing,
Vista may disclose such information to third parties without Urohealth's consent
if (a) such disclosure is made to a third party solely for the purpose of such
third party's intended use outside of the Field of Use; and (b) such disclosure
would not, in Vista's reasonable discretion, conflict with or impair Urohealth's
rights under this Agreement; and (c) such disclosure is made by
-2-
<PAGE>
Vista to the third party under confidentiality restrictions at least as severe
as those contained in Article 7 of this Agreement.
2.4 IMPROVEMENTS.
(a) Vista shall, throughout the term of this Agreement, keep
Urohealth apprised of any Improvements that it has developed or is in the
process of developing. Subject to Section 6.1, Urohealth shall have the right,
but not the obligation, to file and to prosecute patent applications with
respect to any such Improvements that might reasonably constitute patentable
inventions. If Urohealth decides in its sole discretion not to file or
prosecute such patent applications with respect to any such Improvement, then
Vista shall have the right to do so for such Improvement at its expense.
(b) All Improvements shall be deemed to be part of the license
granted to Urohealth pursuant to Section 2.1 above and Vista shall own such
Improvements free and clear of any Urohealth claims. Upon Urohealth's request
for all materials reasonably necessary for Urohealth to exercise its license
with respect to such Improvements, Vista shall promptly deliver such to
Urohealth.
2.5 RIGHT OF FIRST REFUSAL TO MANUFACTURE AND SUPPLY.
(a) From the Effective Date through the date which is the second
anniversary of the cessation of Vista manufacturing a component of a Licensed
Product, Vista shall have the first right of refusal to manufacture and supply
to Urohealth Urohealth's requirements of the * * *
* * * (collectively, the "Video Equipment") for medical office use in
conjunction with a Licensed Product (the "Right of First Refusal"). Prior to
the first commercial sale of a Licensed Product, Urohealth shall notify Vista of
its requirements and specifications of the Video Equipment for such Licensed
Product (the "Requirements Notice").
(b) If such Requirements Notice is delivered prior to the ***
* * * of the Effective Date, Vista and Urohealth shall negotiate in good
faith and shall agree on the terms and conditions to be applicable to the
manufacture and supply of the Video Equipment by Vista to Urohealth; provided
that Vista shall be obligated to meet the mutually-agreed upon specifications
for the Video Equipment and shall provide Urohealth with competitive pricing for
such Video Equipment.
(c) If such Requirements Notice is delivered following the third
anniversary of the Effective Date through the termination of the Right of First
Refusal as set forth above, Vista and Urohealth shall negotiate in good faith
for a period of * * * the terms and conditions of the manufacture and
supply of the Video Equipment by Vista. The specifications and pricing shall be
mutually agreed upon by Vista and Urohealth. In the event that a definitive
manufacturing and supply agreement is not entered into within such * * *
period, Urohealth may immediately thereafter enter into discussions with a
third party regarding such Video Equipment. Urohealth shall be permitted to
enter into a definitive agreement with respect to such
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Video Equipment on terms and conditions no less favorable in the aggregate than
those last proposed by Urohealth or offered by Vista under this Section 2.4(c).
In the event that the terms and conditions offered by the third party are less
favorable in the aggregate than those last proposed by Urohealth or offered by
Vista, prior to entering into any agreement with such third party with respect
to the manufacture and supply of the specified Video Equipment, Urohealth shall
notify Vista in writing of the material terms and conditions of any such
proposed agreements. Such notice shall be deemed an offer to Vista to enter
into definitive agreements on the same proposed terms and conditions. Vista
shall have * * * to accept the offer contained in such notice. Upon
acceptance by Vista, the parties will negotiate in good faith to draft and
execute definitive agreements within * * * of acceptance. If no
definitive agreements have been executed in such * * * period, the
Right of First Refusal shall lapse with respect to the specified Video Equipment
and Urohealth shall be free to license such Video Equipment to any third party
on any terms and conditions.
(d) The obligations of Urohealth under subparagraphs (a) and (b)
above shall be subject to Vista's ability to then manufacture and provide to
Urohealth Video Equipment of a quality and design for its intended purpose equal
to or better, in the aggregate, to the quality and design of competitive video
equipment then available to Urohealth, taking into account the relative costs of
the Video Equipment and the competitive video equipment.
ARTICLE 3
OWNERSHIP AND FURTHER DEVELOPMENT
3.1 PATENTS AND TECHNOLOGY. Vista owns all right, title, and interest in
the Patent Rights and Related Technical Information. Urohealth shall have no
rights in the Patent Rights and Related Technical Information except as
expressly provided in this Agreement.
3.2 IMPROVEMENTS. Vista shall own all right, title, and interest in any
Improvements created during the term of this Agreement regardless of which party
is responsible for such Improvements, including all patent, copyright, trade
secret, and other intellectual property rights therein. Upon Vista's reasonable
request, Urohealth shall execute all documents necessary to vest title in Vista
to any such Improvements.
3.3 DEVELOPMENT OF LICENSED PRODUCTS. Urohealth shall assume and pay all
Licensed Product development costs incurred by Urohealth from and after the
Effective Date and throughout the term of this Agreement.
ARTICLE 4
LICENSE FEE AND ROYALTY
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4.1 LICENSE FEE. In consideration of the rights granted by Vista to
Urohealth pursuant to this Agreement, Urohealth shall pay Vista a license fee in
accordance with EXHIBIT D and royalties as set forth below.
4.2 ROYALTIES. For the purpose of calculating royalties due hereunder,
the following terms shall have the following meanings:
(a) "Gross Margin" shall mean 100 times (Net Revenue minus
Manufacturing Costs) divided by Net Revenue, calculated cumulatively for each
calendar year.
(b) "Net Revenue" means Urohealth's actual amounts invoiced
(exclusive of any separately itemized taxes, interest, service or maintenance
charges, finance charges, insurance and transportation costs actually paid by
Urohealth's customers) from all sales of the Licensed Products, less (i) any
customary and reasonable credits, refunds for returns or reasonable reserves for
bad debts, (ii) any customary and reasonable credits, rebates, discounts and
promotional allowances to customers and (iii) the amount of any sales, use or
other taxes required to be paid or withheld by Urohealth with respect to
payments due Vista. In the event that any particular Licensed Product is sold
by Urohealth as part of a bundle or kit, the invoiced price for that particular
product shall be determined by multiplying the net selling price of the bundle
or kit by the fraction A/A+B where A is the suggested list price for the
Licensed Product sold separately (as documented by Urohealth's records) and B is
the suggested list price for the remaining products in the bundle or kit sold
separately (as documented by Urohealth's records).
(c) "Manufacturing Costs" shall mean (i) Urohealth's manufacturing
costs for the Licensed Products, including manufacturing overhead as determined
under generally accepted accounting procedures applied consistently by Urohealth
and attributable to the production of the Licensed Products by Urohealth, in the
case that Urohealth manufactures Licensed Products; and (ii) the purchase price
to Urohealth in the case that Urohealth purchases the Licensed Products from a
third party provided that such purchase price is subject to the prior written
approval of Vista, which shall not be unreasonably withheld.
(d) "U.S./Direct Royalty Rate" shall mean * * *
* * * and shall apply to all sales of Licensed Products to end-users located
in the United States and all direct sales of Licensed Products by Urohealth
(sales not through an independent distributor) in the rest of the world.
(e) "Foreign Indirect Royalty Rate" shall mean * * *
* * * and shall apply to all indirect sales of Licensed Products
(sales through independent distributors) to end-users located outside the United
States.
4.3 ROYALTY PAYMENT. Urohealth will pay to Vista an amount equal the sum
of the U.S./Direct Royalty Rate and Foreign Indirect Royalty Rate on a
product-by-product
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and country-by-country basis through the later of (i) the expiration of the
last-to-expire patent within the Patent Rights with claims covering such
Licensed Product or (ii) the ninth anniversary of the Effective Date (the
"Royalty Termination Date"). In no event shall either the U.S./Direct Royalty
Rate or the Foreign Indirect Royalty Rate exceed * * * or fall below
* * * for any payment period. All the foregoing amounts will be
calculated on a * * * basis and shall be paid in accordance
with Section 4.4 below. Following the Royalty Termination Date, Urohealth shall
a fully-paid up license to such Patent Rights and the Related Technical
Information and Improvements for such Patent Rights, subject to termination
pursuant to Article 5 below.
4.4 * * * PAYMENTS. All royalty payments owed by Urohealth to Vista
under this Agreement will be payable on a calendar * * * basis no later than
* * * * * * after the end of each * * * . Royalty reports
shall be provided by Urohealth to Vista with each royalty payment. The royalty
reports shall show (i) the number of Licensed Products invoiced during the
calendar * * * in question, (ii) the total gross sales invoiced amount, (iii)
the applicable Manufacturing Costs, (iv) an itemization of deductions, (v) the
amount of royalties due and (vi) the method of calculation of royalties for such
calendar * * * .
4.5 BOOKS AND RECORDS; AUDIT RIGHTS. Urohealth agrees to make and
maintain such books, records and accounts as are reasonably necessary to verify
the payments due Vista under this Agreement. At Vista's sole expense, an
independent certified public accountant, selected by Vista and reasonably
acceptable to Urohealth, who agrees to sign a nondisclosure agreement may, upon
reasonable notice and during normal business hours, but no more often than once
each year, inspect only those records of Urohealth on which the payments to
Vista under this Agreement are based. The accountant may report only the
accuracy of the payments, but may not disclose confidential information,
including specific customers, quantities and pricing by channel or distributor.
If any audit hereunder reveals that Urohealth has failed properly to account for
and pay royalties owing to Vista hereunder, and the amount of any royalties
which Urohealth has failed properly to account for and pay during any * * *
period exceeds by * * * or more the royalties actually accounted for
and paid to Vista for such period, Urohealth shall reimburse Vista for the cost
of the accountant. Urohealth shall also, within * * * after
notification by Vista, pay to Vista any amounts shown as due under such audit,
regardless of whether Urohealth is required to reimburse Vista for the cost of
the accountant.
ARTICLE 5
TERM AND TERMINATION
5.1 TERM. The term of this Agreement shall commence on the Effective Date
and, unless earlier terminated pursuant to this Article 5, shall continue in
full force and effect indefinitely. Notwithstanding the foregoing, the royalty
obligation set forth in
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Section 4.3 shall terminate as set forth therein and thereafter Urohealth shall
have a fully-paid up license as set forth herein.
5.2 TERMINATION FOR BREACH. In the event of a material breach of this
Agreement, the nonbreaching 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
nonbreaching party to the breaching party specifying the breach. The parties
agree that if: (i) two (2) consecutive royalty payments are not paid when due
under Section 4.4, and Urohealth fails to pay such royalties within the
thirty (30) days after written notification from Vista, (ii) Urohealth fails
to pay all prosecution, maintenance and infringement costs associated with
the Patent Rights within thirty (30) days after written notification from
Vista, (iii) Urohealth fails to comply with the additional qualifications set
forth in Article 9 of this Agreement within thirty (30) days after written
notification from Vista or (iv) fails to meet mutually-agreed upon
performance standards set forth on attached EXHIBIT C, including the
establishment of a direct sales force and a marketing plan and budget for the
United States and the rest of the world, each shall be deemed to be a
material breach by Urohealth permitting Vista to terminate this Agreement
immediately.
5.3 TERMINATION FOR INSOLVENCY. This Agreement may be terminated by a
party, with notice, (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, (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.
5.4 EFFECT OF TERMINATION.
(a) If Vista terminates this Agreement pursuant to Sections 5.2 or
5.3 hereof, (a) the licenses granted to Urohealth under Article 2 of this
Agreement shall terminate, (b) all rights to the Patent Rights, Related
Technical Information and Improvements shall revert to Vista and (c) all rights
to develop, make, have made, use, sell and import all Licensed Products shall
revert to Vista.
(b) If Urohealth terminates this Agreement pursuant to Sections 5.2
or 5.3 hereof, the provisions of Sections 2.1, 2.2, 2.3, 2.4, 5.4 and 5.5 and
Articles 3 and 4 of this Agreement shall survive; PROVIDED, HOWEVER, if
Urohealth fails to perform or observe or otherwise breaches a material
obligations under this Agreement, which failure or breach is unremedied for a
period of thirty (30) days after receipt by Urohealth of written notice thereof
from Vista, Vista shall have the right to terminate this Agreement with the same
effect as if Vista were to terminate this Agreement pursuant to Section 5.4(a)
hereof.
5.5 SURVIVAL.
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(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,
Urohealth shall have the right to sell or otherwise dispose of its existing
stock of Licensed Products as completed products.
(c) Articles 7, 8, and 10 shall survive the expiration or termination
of this Agreement for any reason.
ARTICLE 6
PATENTS AND INFRINGEMENT
6.1 PATENT PROSECUTION. Urohealth shall have the right but not the
obligation to prosecute all patents under the Patent Rights within the Field of
Use at Urohealth's expense. If Urohealth does not prosecute a patent in a
particular country, Vista may do so, provided that Vista bears all costs and
expenses in connection with such prosecution. Vista and Urohealth agree,
throughout the term of this Agreement, to cooperate in: (i) formulation of a
general intellectual property strategy; (ii) foreign filings; and (iii)
determination of the content of each new application, divisional continuation or
continuation-in-part. Each further agrees to assist the other in any
formalities relating to the foregoing and each shall use its best efforts to
ensure that the other receives copies of all relevant correspondence.
6.2 INFRINGEMENT CLAIMS. If the production, sale or use of Licensed
Products by Urohealth results in any claim for patent infringement against
Urohealth, Urohealth shall promptly notify Vista thereof in writing. As between
the parties to this Agreement, Urohealth shall have the right at its own expense
to defend and control the defense of any such claim against Urohealth, by
counsel of its own choice. Vista shall provide such support to Urohealth as
Urohealth may reasonably request, in connection with such defense.
6.3 ENFORCEMENT OF PATENT RIGHTS. In the event that any of the Patent
Rights are infringed by a third party within the Field of Use, Urohealth shall
have the exclusive right, but not the obligation, to institute, prosecute and
control any action or proceeding with respect to such infringement, by counsel
of its choice, including any declaratory judgment action arising from such
infringement. Urohealth shall be entitled to any and all proceeds recovered
from third parties as a result of the enforcement of the Patent Rights. If
Urohealth does not take any action with respect to an infringement, then Vista
shall have the right to take action upon notice to Urohealth. In such case,
Vista shall be entitled to any and all proceeds as a result of the enforcement
of the Patent Rights. In the event both parties mutually agree to take action
against an infringer, then the proceeds as a result of the enforcement of the
Patent Rights shall be divided * * * * * * to each party's
expenditures in connection with such enforcement.
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ARTICLE 7
CONFIDENTIALITY
7.1 NONDISCLOSURE. Except as otherwise provided 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 "Confidential" or that is so disclosed to
it orally and confirmed in writing as confidential within * * * after
its initial disclosure ("Proprietary Information"). Proprietary Information of
a party shall not include:
(a) Information which at the time of disclosure is published or
otherwise generally available to the public;
(b) 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
(c) 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.
7.2 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 Patent Rights or obtaining product approvals upon notice to
the other party; or
(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 8
WARRANTIES
8.1 WARRANTY. Vista represents and warrants that:
(a) Vista is the owner or exclusive licensee of all of the Patent
Rights and has the full right and authority to enter into this Agreement, to
disclose any and all of the information disclosed to Urohealth hereunder, and to
grant the rights and licenses granted herein;
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(b) Vista has not previously granted and shall not grant any rights
in the Patent Rights that are inconsistent with the rights and licenses granted
to Urohealth herein;
(c) Vista 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 Urohealth
herein;
(d) To Vista's knowledge, as of the Effective Date, the Licensed
Products do not infringe any patent rights, trade secret rights or other
proprietary rights of any third party;
(e) As of the Effective Date, there are no existing or threatened
actions, suits or claims pending against Vista with respect to the Patent Rights
or the right of Vista to enter into and perform its obligations under this
Agreement; and
(f) EXHIBIT B includes all patents and patent applications within the
Patent Rights existing as of the Effective Date, and Vista does not own rights
in any other patent or patent application, the claims of which relate to the
manufacture, sale or use of a product within the Field of Use or that would
dominate the claims of a patent or application within the Patent Rights.
8.2 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, VISTA 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.
8.3 EFFECTS OF REPRESENTATIONS AND WARRANTIES. If Urohealth must pay a
third party claiming any rights to the rights granted herein royalties on a
Licensed Products pending resolution of any dispute with each third party or
subject to any injunction with the prior written consent of Vista, the royalty
payments of Urohealth due hereunder for such Licensed Product shall be reduced
by such payments, but such reduction shall be no more than * * *
of the amount due during such payment period.
ARTICLE 9
ADDITIONAL QUALIFICATIONS
9.1 CONSULTING. Concurrently with this Agreement, the parties shall enter
into a Consulting Agreement, attached hereto as EXHIBIT E (the "Consulting
Agreement").
9.2 UNITED STATES FOOD AND DRUG ADMINISTRATION APPROVAL. Urohealth shall
direct all submissions and registrations for the Licensed Products and shall
assume all costs related thereto in connection with United States Food and Drug
Administration and other foreign regulatory agencies. Urohealth shall provide
Vista with copies of all
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documentation in Urohealth's possession concerning such submissions and
registrations. In this regard, Urohealth shall be responsible for (i) the
development of a general strategy, (ii) the selection of clinical sites, and the
managing of clinical studies, and (iii) the content and timing of submissions.
ARTICLE 10
MISCELLANEOUS
10.1 PRODUCT LIABILITY INDEMNITY. Urohealth agrees to indemnify and defend
Vista 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 manufactured or distributed pursuant to this Agreement or as to
the exploitation of the Patent Rights 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 Vista or
its employees or agents. Such indemnity and defense obligation shall apply to
any claims made by employees, subcontractors, sublicensees or other agents of
Urohealth as well as any member of the general public.
10.2 CONFIDENTIALITY OF AGREEMENT. Both Urohealth 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:
(i) as required by any court or other governmental body;
(ii) as otherwise required by law (provided that the parties shall
mutually agree 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.
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10.3 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.
10.4 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, Urohealth may assign this Agreement, and its rights
and obligations hereunder, to any business organization that succeeds to the
business of Urohealth to which this Agreement relates.
10.5 INDEPENDENT CONTRACTORS. The relationship of the parties hereto is
that of independent contractors. Neither party hereto is an agent, partner or
joint venturer of the other for any purpose.
10.6 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
550 West C Street, Suite 1300
San Diego, California 92101
Fax: (619) 234-3848
Attn: Craig S. Andrews, Esq.
Urohealth: Urohealth Systems, Inc.
5 Civic Plaza
Newport Beach, California 92660
Fax: (714) 668-5824
Attn: President
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With a copy to:
Urohealth Systems, Inc.
5 Civic Plaza
Newport Beach, California 92660
Fax: (714) 668-5824
Attn: General Counsel
10.7 GOVERNING LAWS; 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.
10.8 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.
10.9 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.
10.10 FORCE MAJEURE. Nonperformance by either party (except for payment
obligations) shall be excused to the extent and for the period of time that
performance is rendered impossible by strike, fire, earthquake, flood,
governmental acts, orders or restrictions, failure of suppliers, or any other
reason where failure to perform is beyond the reasonable control and not caused
by the negligence of the nonperforming party.
10.11 NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE
FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT
OR THE EXERCISE OF RIGHTS HEREUNDER, EVEN IF NOTIFIED IN ADVANCE OF THE
POSSIBILITY OF SUCH DAMAGES.
10.12 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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IN WITNESS WHEREOF, both Vista and Urohealth have executed this Agreement,
in duplicate originals, by their respective officers hereunto duly authorized,
the day and year first above written.
UROHEALTH SYSTEMS, INC. VISTA MEDICAL TECHNOLOGIES, INC.
By: /s/Kevin M. Higgins By: /s/John R. Lyon
------------------------------- -------------------------------
Name: Kevin M. Higgins Name: John R. Lyon
----------------------------- -----------------------------
Title: Senior Vice President Title: President
---------------------------- ----------------------------
[SIGNATURE PAGE TO LICENSE AGREEMENT]
<PAGE>
EXHIBIT A
LICENSED PRODUCTS
* * *
* * *
* * *
* * *
* * *
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EXHIBIT B
PATENT RIGHTS
1. * * * U.S. Patent No. * * * dated * * *
2. * * * U.S. Patent Application No. * * * filed
* * * .
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EXHIBIT C
UROHEALTH PERFORMANCE STANDARDS
1. Urohealth will staff a direct (company employee) sales force in the United
States. This sales force will be adequate in number to call on
gynecologists in their office practice, and in no event will be less than
*** representatives. *** of this sales force will be in place by December
31, 1997.
2. Urohealth will complete the development of the * * * and begin
manufacturing and distribution in the United States by * * *
Urohealth will complete development of other Licensed Products, including
the * * * , within a time scale comparable to that for similar
medical devices. Urohealth will dedicate a reasonable allocation of
development resources to the Licensed Products, consistent with the market
results of the * * *
3. Urohealth will develop and implement marketing plans and budgets for the
introduction and continued promotion of the * * * and other
Licensed Products as they are distributed in the United States and world-
wide, employing Urohealth's international distribution network. Such
marketing budgets will be at levels appropriate for reasonably similar
products marketed by equivalent companies.
4. Urohealth will seek advice regarding clinical applications of the * * *
and other Licensed Products, including relevant advocacy from appropriate
physician scientific advisors with the objective of creating awareness of
product line benefits in the medical community.
5. Urohealth will exhibit the * * * and other Licensed Products as
they are introduced, at key national and international gynecology, urology
and other appropriate surgical trade shows and conventions.
6. Urohealth will develop and implement training programs for its domestic
sales force and international distributors to provide adequate levels of
knowledge of clinical applications and sales methods for the * * *
and other Licensed Products.
7. Urohealth will maintain active sales and marketing programs for the
* * * and other Licensed Products. If Urohealth discontinues a
Licensed Product, or fails to conduct reasonable active sales and marketing
programs for * * * within the context of these performance
standards, then such Licensed Products will revert to Vista, its successors
or assigns.
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EXHIBIT D
A license fee consisting of (i) $1,000,000 cash and (ii) 110,000 shares of
Urohealth's common stock (the "Shares") shall be tendered to Vista upon the
execution of this Agreement. Vista's rights to register the resale of the
Shares shall be as set forth in that certain Investment Representations and
Registration Rights letter dated the date hereof.
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EXHIBIT E
CONSULTING AGREEMENT
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CONSULTING AGREEMENT
BY AND BETWEEN
UROHEALTH SYSTEMS, INC.
AND
VISTA MEDICAL TECHNOLOGIES, INC.
THIS CONSULTING AGREEMENT (this "Agreement") is entered into as of December
13, 1996 (the "Effective Date"), by and between UROHEALTH Systems, Inc.
("UROHEALTH"), and Vista Medical Technologies, Inc. ("Consultant") and, with
respect to Sections 1, 4, 6, 7, 8 and 9 below, Allen Newman, Consultant's
employee ("Newman").
WITNESSETH:
WHEREAS, UROHEALTH desires to retain the medical and consultation services
of Consultant to aid in UROHEALTH's continuing mission to develop, improve, and
expand its medical product business, including those products relating to
minimally invasive surgery;
WHEREAS, Consultant possesses the medical knowledge and professional
expertise to aid UROHEALTH in its mission to develop, improve and expand its
business as referenced above;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
SECTION 1. CONSULTING SERVICES. During the term of this Agreement,
Consultant shall serve as a consultant for UROHEALTH, using its reasonable
commercial efforts to make available to Urohealth 25% of the working time of
Newman. In connection herewith, Newman's duties shall include, but not be
limited to, assisting UROHEALTH in developing and obtaining regulatory approvals
for Licensed Products under the terms of that certain License Agreement, dated
the date hereof, between UROHEALTH and Consultant (the "License Agreement") and
otherwise exploiting the rights granted to UROHEALTH under the License
Agreement.
Newman shall also perform any other services as are mutually agreed upon by
the parties. Consultant shall use its reasonable commercial efforts to ensure
that Newman devotes sufficient time and best efforts as a consultant in order to
perform the responsibilities under this Agreement to the reasonable satisfaction
of UROHEALTH. Newman shall provide services under this Agreement as reasonably
requested by UROHEALTH at the times mutually agreeable to UROHEALTH and
Consultant.
<PAGE>
SECTION 2. TERM. The term of this Agreement shall begin on the Effective
Date of the License Agreement and shall continue until the first Licensed
Product (as defined in the License Agreement) under the License Agreement is
commercially introduced by UROHEALTH.
SECTION 3. TERMINATION. This Agreement may be terminated by either
party immediately upon written notice of termination in the event the other
party has materially breached this Agreement and has not cured such breach
within thirty (30) days following written notice of the breach from the
non-breaching party. In addition, this Agreement shall be terminated
automatically upon the (i) termination of the License Agreement or (ii) death
or incapacity, whether mental or physical, of Newman. UROHEALTH or its
designee shall determine in good faith whether Newman is incapacitated for
the purposes of this Section 3. In addition, UROHEALTH may in its sole
discretion terminate this Agreement if Newman is unavailable, unwilling or
unable to provide the consulting services contemplated hereby on behalf of
the Company. Notwithstanding anything to the contrary herein contained, in
the event performance by either party hereto of any term, covenant, condition
or provision of this Agreement shall (i) jeopardize the licensure of
UROHEALTH, (ii) jeopardize its participation in (a) Medicare, Medicaid, Blue
Cross, or other reimbursement or payment programs, or (b) the FDA approval
process, regulatory program and guidelines, or (c) any other state or
nationally recognized accrediting organization, or (iii) be in violation of
any statute, ordinance, or be otherwise deemed illegal, or be deemed
unethical by any recognized body, agency, or association in the medical
fields, UROHEALTH may, at its option, terminate this Agreement immediately.
SECTION 4. COMPENSATION. In consideration for the services rendered
by Consultant to UROHEALTH under this Agreement, UROHEALTH shall pay to
Consultant during the term of this Agreement, an amount equal to * * *
* * * of Consultant to employ Newman; provided,
that such annualized costs shall not exceed * * * Such sum shall be paid in
monthly installments to cover the cost of regular salary and benefits and an
additional amount shall be paid in the month following verification that a bonus
has been paid to Newman and the amount thereof. Consultant shall be reimbursed
by UROHEALTH for all proper, necessary and reasonable business expenses incurred
as a result of the performance of services requested by UROHEALTH. Consultant
shall submit a detailed bill and documentation as deemed necessary by UROHEALTH
for expenses which shall be subject to the reasonable approval of UROHEALTH's
Chief Financial Officer. Consultant is not required to, and nothing herein nor
in any other agreement shall be construed to require Consultant to, utilize
UROHEALTH products.
SECTION 5. INDEMNIFICATION. UROHEALTH shall indemnify Consultant with
respect to all matters relating to services rendered by Consultant hereunder,
except for those caused by Consultant's willful misconduct.
* * * Confidential Treatment Requested
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SECTION 6. CONFIDENTIALITY. During the term of this Agreement, UROHEALTH,
its clients, and its prospective clients may reveal to Consultant confidential
and proprietary information of UROHEALTH ("Confidential Information").
Confidential Information shall include, but not be limited to, that information
which is designated as confidential either in writing or orally, or that
information which is not generally known to the public. With respect to any
Confidential Information disclosed to Consultant, Consultant agrees to: (a) not
disclose such Confidential Information to third parties except: (i) third
parties for whom Consultant has secured the prior written approval of UROHEALTH,
and/or (ii) as required by law or by any court or governmental body, agency or
department of competent jurisdiction; (b) use at least the same degree of care
to protect the Confidential Information as used with respect to Consultant's
confidential and proprietary information, however in no event shall the degree
of care be less than holding the Confidential Information in confidence; and (c)
use the Confidential Information only for the purpose of performing its
obligations under this Agreement. Notwithstanding anything to the contrary
herein, Consultant shall not have an obligation to preserve the confidentiality
of any Confidential Information which was previously known to Consultant free of
any obligation to keep it confidential or is or becomes publicly available by
other than unauthorized disclosure. The provisions of this Section 6 shall
survive expiration or termination of this Agreement for any reason. As used
herein, "Confidential Information" shall not include anything which is not
"Confidential Information" as defined in the License Agreement.
SECTION 7. STATUS OF THE PARTIES. In the performance of this Agreement,
it is mutually understood and agreed that Consultant, Newman, its other
employees, officers, directors and agents are performing as independent
contractors with, and not as an employee, partner, or joint venturer of or with
UROHEALTH. Neither Consultant nor Newman shall have any claim under this
Agreement or otherwise against UROHEALTH for workers' compensation, unemployment
compensation, vacation pay, sick leave, disability benefits, retirement
benefits, social security benefits or any other employee benefits of any kind,
all of which shall be the sole responsibility of Consultant. UROHEALTH shall
not withhold on behalf of Consultant or Newman pursuant to this Agreement any
sums for income tax, unemployment insurance, social security or otherwise
pursuant to any law or requirement of any government agency, and all such
withholding, if any is required, shall also be the sole responsibility of
Consultant. Consultant shall indemnify and hold UROHEALTH harmless from any and
all loss or liability, if any, arising with respect to any of the foregoing
benefits or withholding requirements.
SECTION 8. GOVERNING LAW. This Agreement is being delivered and executed
in the State of California and the validity, construction, and enforcement of
this Agreement shall be governed in all respects by the laws of the State of
California. Venue shall be proper only in a court of competent jurisdiction
located in the State of California. The parties agree to be subject to personal
jurisdiction and consent to service of process issued by a court in which venue
is proper as defined in this Section 8.
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<PAGE>
SECTION 9. MODIFICATION AND WAIVER. No modification of this Agreement
shall be deemed effective unless in writing and signed by each of the parties to
which it applies. Any waiver of a breach of any provision of this Agreement
shall not be deemed effective unless in writing and signed by the party against
whom enforcement of the waiver is sought.
SECTION 10. HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any provision hereof.
SECTION 11. ASSIGNMENT. Neither party may assign, delegate, subcontract,
or otherwise transfer its rights or obligations hereunder without the prior
written consent of the other party and any assignment or other transfer in
violation of this Section 11 shall be void; provided, however, that UROHEALTH
may assign its rights and delegate its duties pursuant to this Agreement to any
successor, subsidiary, or affiliate to the business of UROHEALTH to which this
Agreement relates without the written consent of the Consultant.
SECTION 12. SEVERABILITY. If, as a result of any valid Act of Congress or
act of any legislature or any regulation duly promulgated by the United States
or any state acting in accordance with the law, the terms and conditions of this
Agreement, or the payments made pursuant to this Agreement, are rendered illegal
or in violation of law, then the parties shall negotiate in good faith, and
shall take all steps necessary, including, but not limited to, amendment to the
terms and conditions of this Agreement or return of the compensation or any part
of the compensation paid pursuant to this Agreement, in order to reform this
Agreement such that the terms and conditions of this Agreement, or the payments
made pursuant to this Agreement, if any, shall not render any other relationship
or transaction between the parties, or any affiliate of the parties, illegal or
in violation of law.
SECTION 13. NOTICES. All notices, requests, demands, and other
communications provided for hereunder shall be in writing and shall be deemed to
been duly given if (i) delivered in person; (ii) given by prepaid telex or
telegram, or by facsimile or other instantaneous electronic transmission device;
or (iii) deposited in the United States mail, first class, registered or
certified, return receipt requested, with proper postage prepaid, as follows:
If to UROHEALTH:
UROHEALTH Systems, Inc.
5 Civic Plaza, Suite 100
Newport Beach, California 92660
Attention: General Counsel
Facsimile: (714) 668-5824
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If to Consultant:
Vista Medical Technologies, Inc.
5451 Avenida Encinas, Suite A
Carlsbad, California 92008
Facsimile: (619)603-9170
Attention: President
SECTION 14. ATTORNEYS' FEES. In the event any party hereto brings an
action or arbitration proceeding in connection with the performance, breach, or
interpretation of this Agreement, the prevailing party in such action or
proceeding shall be entitled to recover from the losing party all reasonable
cost and expenses of such litigation or proceeding, including attorneys' fees,
court costs, costs of investigation, and other costs, fees, and expenses
reasonably related to such action or proceeding.
SECTION 15. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns.
SECTION 16. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the parties concerning the subject matter
hereof, and supersedes all prior negotiations, agreements and understandings
between the parties, whether oral or in writing, concerning the subject matter
hereof.
INTENDING TO BE LEGALLY BOUND, the parties, or their duly authorized
representatives, have executed this Agreement to be effective on the Effective
Date.
UROHEALTH SYSTEMS, INC.
By:
-------------------------------
Title: Senior Vice-President
VISTA MEDICAL TECHNOLOGIES, INC.
By:
------------------------------------
Title: President
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<PAGE>
With Respect to Sections
1, 4, 6, 7, 8 and 9 only:
- ----------------------------------------
Allen Newman
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<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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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 ***. 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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*** Confidential Treatment Requested
<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 *** 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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*** Confidential Treatment Requested
<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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(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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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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(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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(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:
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Brobeck, Phleger & Harrison LLP
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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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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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EXHIBIT A
LICENSED PRODUCTS
GDE SHALL DELIVER VERSIONS OF THE FOLLOWING LICENSED PRODUCTS WHICH DO NOT
CONTAIN U.S. GOVERNMENT "CLASSIFIED" INFORMATION:
***
***
***
***
***
***
***
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*** Confidential Treatment Requested
<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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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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EXHIBIT 10.38
AS AMENDED MARCH 3, 1997 AND MAY 19, 1997
VISTA MEDICAL TECHNOLOGIES, INC.
1997 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Option/Stock Issuance Plan is intended to promote the
interests of Vista Medical Technologies, Inc., a Delaware corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
- the Automatic Option Grant Program under which eligible non-
employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
<PAGE>
A. Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board.
Beginning with the Section 12 Registration Date, the Primary Committee shall
have sole and exclusive authority to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions
of any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under this program.
IV. ELIGIBILITY
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A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to non-employee Board members
who are elected or appointed to the Board after the Effective Date. A non-
employee Board member who has previously been in the employ of the Corporation
(or any Parent or Subsidiary) shall not be eligible to receive an option grant
under the Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues to
serve as a non-employee Board member.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
2,820,000 shares.
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B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 300,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1997 calendar year.
C. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option or the vesting of a stock issuance under the Plan,
then the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is exercised
or which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance.
Notwithstanding the above, no additional adjustment shall be made to any shares
or class of shares with respect to any transaction occurring prior to the
completion of an offering of shares of the Common Stock of the Company to the
public pursuant to an effective registration statement.
D. If any change is made to the Common Stock by reason of 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, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under this Plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made under
the Automatic Option Grant Program to new and continuing non-employee Board
members, (iv) the number and/or class of securities and the exercise price per
share in effect under each outstanding option under the Plan and (v) the number
and/or class of securities and price per share in effect under each outstanding
option incorporated into this Plan from the Predecessor Plan. Such adjustments
to the outstanding options are to be effected in a manner which shall preclude
the enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
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I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date, provided that
the Plan Administrator may fix the exercise price at less than 85% if the
optionee, at the time of the option grant, shall have made a payment to the
Company (including payment made by means of a salary reduction) equal to the
excess of the Fair Market Value of the Common Stock on the option grant date
over such exercise price.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Five and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no
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option shall have a term in excess of ten (10) years measured from the option
grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for that option
to such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
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(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the document evidencing
such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory
Option may be assigned in whole or in part during the Optionee's lifetime. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
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C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent
the Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding option
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. All outstanding repurchase rights shall terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
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D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
PROVIDED the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Any options so accelerated shall remain exercisable for
fully-vested shares until the EARLIER of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for fully-
vested shares until the EARLIER of (i) the expiration of the option term or (ii)
the expiration of the one (1)-year period measured from the effective date of
the Involuntary Termination. In addition, the Plan Administrator may provide
that one or more of the Corporation's outstanding repurchase rights with respect
to shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business
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structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of
Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess of
(a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless
it is approved by the Plan Administrator, either at the time of the
actual option surrender or at any earlier time. If the surrender is
so approved, then the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued at Fair Market
Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion
deem appropriate.
(iii) If the surrender of an option is not approved by
the Plan Administrator, then the Optionee shall retain whatever rights
the Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the LATER of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the
option is otherwise exercisable in
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accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted
limited stock appreciation rights with respect to their outstanding
options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for
a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the
option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock which
are at the time vested under each surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.
(iii) Neither the approval of the Plan Administrator nor
the consent of the Board shall be required in connection with such
option surrender and cash distribution.
(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents
evidencing such option.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
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A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be attained,
(ii) the number of installments in which the shares are
to vest,
(iii) the interval or intervals (if any) which are to
lapse between installments, and
(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator is to have upon the
vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock
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by reason of any stock dividend, stock split, 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 shall be
issued subject to (i) the same vesting requirements applicable to the
Participant's unvested shares of Common Stock and (ii) such escrow arrangements
as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those repurchase/cancellation rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed in the
Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance
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Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase/cancellation rights are assigned
to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
ARTICLE FOUR
AUTOMATIC OPTION GRANT/ISSUANCE PROGRAM
I. OPTION TERMS
A. GRANT DATES. On the date of each Annual Stockholders Meeting
held after the Effective Date, option grants shall be made to (i) each new
Eligible Director who is elected to the Board at that particular Annual Meeting
and (ii) each continuing Eligible Director who is elected to the Board at that
particular Annual Meeting. Each automatic option grant shall be a Non-Statutory
Option. Each Eligible Director shall be granted an option to purchase 15,000
shares of Common Stock at the Annual Meeting at which he or she is first elected
to the Board and an option to purchase 5,000 shares of Common Stock at each
Annual Meeting thereafter at which he or she is elected to the Board. There
shall be no limit on the number of such automatic option grants any one Eligible
Director may receive over his or her period of Board service, and non-employee
Board members who have previously been in the employ of the Corporation (or any
Parent or Subsidiary) or who have otherwise received a stock option grant from
the Corporation prior to the Effective Date shall be eligible to receive one or
more such annual option grants over their period of continued Board service.
B. EXERCISE PRICE FOR OPTION SHARES.
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1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the date of
the Annual Stockholders Meeting with respect to which the option is granted.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
exercisable only with respect to option shares with respect to which the
automatic option grant has become vested. Provided that the non-employee
director continues to be a Member of the Board, the 15,000 share option grant
shall vest over four years in successive equal monthly installments from the
date of grant and the 5,000 share option grants shall vest at the end of each
additional year of Service completed by the optionee. No portion of the
automatic option grant shall vest after the optionee has ceased to be a member
of the Board.
E. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares of Common Stock for which the option is exercisable
at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion
of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable
after the expiration of the option term. Upon the expiration of the
twelve
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(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised. However, the
option shall, immediately upon the Optionee's cessation of Board service
for any reason other than death or Permanent Disability, terminate and
cease to be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required in connection
with such option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be
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made to the exercise price payable per share under each outstanding option,
PROVIDED the aggregate exercise price payable for such securities shall remain
the same.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their
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shares. Such right may be provided to any such holder in either or both of the
following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan
Effective Date. Options may be granted under the Discretionary Option Grant or
Automatic Option Grant Program at any time on or after the Plan Effective Date.
However, no options granted under the Plan may be exercised, and no shares shall
be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options
outstanding under the Predecessor Plan on the Section 12 Registration Date shall
be incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the EARLIEST of (i) the tenth
anniversary of the Plan Effective Date, (ii) the date on which all shares
available for issuance under the
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Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Upon such
plan termination, all outstanding option grants and unvested stock issuances
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
if so determined by the Board or pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and shares of Common Stock may be issued under
the Stock Issuance Program that are in each instance in excess of the number of
shares then available for issuance under the Plan, provided any excess shares
actually issued under those programs shall be held in escrow until there is
obtained any required approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
approval is not obtained within twelve (12) months after the date the first such
excess issuances are made, then (i) any unexercised options granted on the basis
of such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
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B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the 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 such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
[Remainder of This Page Intentionally Left Blank]
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A)
have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
(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
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(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.
G. CORPORATION shall mean Vista Medical Technologies, Inc., a Delaware
corporation, and its successors.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program in effect under the Plan.
I. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), 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.
K. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to
the closing selling price per share of Common Stock on the date in
question, as such price is reported on the Nasdaq National Market or
any successor system. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the
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price per share at which the Common Stock is to be sold in the initial
public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator, after taking into account such factors as it deems
appropriate.
M. HOSTILE TAKE-OVER shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual'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 the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person 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 any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
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Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant or the Automatic Option Grant Program.
T. 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.
U. PARTICIPANT shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
W. PLAN shall mean the Corporation's 1997 Stock Option/Stock Issuance
Plan, as set forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean the date on which the Plan was adopted
by the Board.
Z. PREDECESSOR PLAN shall mean the Corporation's pre-existing Stock
Option Plan in effect immediately prior to the Plan Effective Date hereunder.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-
employee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders.
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AB. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
AC. SECTION 12 REGISTRATION DATE shall mean the date on which the Common
Stock is first registered under Section 12(g) or Section 15 of the 1934 Act.
AD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AE. SERVICE shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
AF. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
AG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
AH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
under the Plan.
AI. 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.
AJ. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AK. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
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AL. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AM. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AN. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
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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. 4 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.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
June 30, 1997
