<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UROSURGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3845 04-3222411
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2660 CROSSPARK ROAD
CORALVILLE, IOWA 52241
(319) 626-8311
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID H. MAUPIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UROSURGE, INC.
2660 CROSSPARK ROAD
CORALVILLE, IOWA 52241
(319) 626-8311
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
CHRISTOPHER D. MITCHELL, ESQ. ALISON S. RESSLER, ESQ.
WILSON SONSINI GOODRICH & ROSATI SULLIVAN & CROMWELL
PROFESSIONAL CORPORATION 444 S. FLOWER STREET, SUITE 1200
650 PAGE MILL ROAD LOS ANGELES, CALIFORNIA 90071
PALO ALTO, CALIFORNIA 94304 (213) 955-8000
(650) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
========================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
Common Stock, par value $.01................................ $40,480,000 $11,942
========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS 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 SUCH SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 9, 1998
PROSPECTUS
, 1998
SHARES
LOGO
UROSURGE, INC.
COMMON STOCK
All of the shares of Common Stock, par value $.01 (the
"Common Stock"), offered hereby are being issued and sold by UroSurge, Inc.
("UroSurge" or 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 $ and $ per share. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price.
The Company has applied to have the Common Stock approved for quotation on
the Nasdaq National Market, under the symbol "URSG."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Per Share................................ $ $ $
Total(3)................................. $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of this offering estimated at $800,000, which will
be paid by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of share certificates will be made in New
York, New York, on or about , 1998.
DONALDSON, LUFKIN & JENRETTE CIBC OPPENHEIMER
SECURITIES CORPORATION
<PAGE> 3
UroSurge(R), UroVive(TM), SANS(TM), SpiraStent(TM), FilaStent(TM),
AcuTrainer(R) and UroTherm(R) are trademarks of the Company. Trade names and
trademarks of other companies appearing in this Prospectus are the property of
their respective holders.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements and
notes thereto appearing elsewhere in this Prospectus. Except as otherwise
indicated, all information in this Prospectus assumes (i) the filing of the
Company's Restated Certificate of Incorporation authorizing a class of
undesignated Preferred Stock, to be effective upon the completion of this
offering, (ii) the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the completion of this offering, (iii) a - for- reverse
stock split of the Company's Common Stock to be effected prior to the completion
of this offering and (iv) no exercise of the Underwriters' over-allotment
option. See "Description of Capital Stock" and "Underwriting."
THE COMPANY
UroSurge develops, manufactures and markets medical devices for the
treatment and management of genito-urinary disorders. The Company is developing
a broad range of proprietary products to address segments of the urology market
that are currently underserved as a result of ineffective or costly therapies.
The Company is initially focusing much of its efforts on addressing urinary
incontinence ("UI"), which afflicts approximately 13 million people in the U.S.
and accounts for approximately $15 billion in annual treatment costs. The UI
market presents a significant opportunity because approximately two-thirds of UI
sufferers are dissatisfied with current treatment alternatives according to a
recent U.S. study by the National Association for Continence. The Company
believes that its lead products, UroVive for stress UI and the Stoller Afferent
Nerve Stimulation ("SANS") devices for urge UI, represent superior alternatives
to existing therapies by offering minimally invasive, cost-effective, long-term
solutions for patients suffering from these conditions. The Company launched
these products in Europe in March 1998 and is currently conducting pivotal
(late-stage) clinical trials in the U.S. Additionally, the Company is developing
and marketing a number of other products to treat a variety of urological
conditions.
UroVive is a minimally invasive urethral bulking system for the treatment
of certain types of stress UI. The UroVive procedure involves the permanent
implantation of one or more hydrogel-filled microballoons around the urethra and
is designed to close the bladder neck and immediately restore urinary
continence. The procedure can be performed in about 20 minutes in an outpatient
setting under local anesthesia. The Company believes that UroVive is a
practical, safe, long-term solution and is more convenient and cost-effective
than palliative approaches such as diapers and urethral plugs that do not cure
the problem. The Company also believes that UroVive offers significant
advantages over competing injectable urethral bulking agents that suffer from
problems of absorption and migration (which can lead to the need for repeat
procedures or raise safety concerns) and are not easily retrievable should
urinary retention occur. UroVive also provides an advantage over invasive
surgical procedures, which are costly and can result in post-surgical
complications. The Company is marketing and selling UroVive in Europe under CE
mark certification, and is currently conducting pivotal clinical trials of
UroVive in the U.S. Results of pilot (early-stage) clinical trials indicate a
90% efficacy rate for patients with the target indication for which the Company
has 18-month follow-up data. By comparison, clinical results of the only
urethral bulking agent sold commercially in the U.S. indicate only a 52%
probability that such patients will maintain their initial continence for one
year. The Company expects to submit a pre-market approval ("PMA") application to
the U.S. Food and Drug Administration ("FDA") for UroVive in mid-1999.
The Company has two SANS devices, percutaneous (through the skin) and
subcutaneous (below the skin), for the treatment of urge UI. Both are minimally
invasive systems that modulate bladder action through stimulation of the
afferent nerve fibers in the ankle area that lead to nerves located in the
spinal region that control bladder function. Such stimulation has been shown to
greatly reduce the likelihood that the patient will have an uncontrollable spasm
of the bladder wall muscle that can cause the bladder to empty. The percutaneous
SANS procedure entails approximately 30 minutes of electrical stimulation and is
repeated
3
<PAGE> 5
weekly in a physician's office. Percutaneous SANS consists of a generator that
delivers electrical impulses through a small disposable needle, temporarily
inserted near the ankle, and lead wire assembly. To facilitate in-home use and
enhance patient convenience, the Company is developing a second generation,
subcutaneous SANS device that involves the permanent implant of a small,
thumbtack-shaped electronic receiver near the patient's ankle, eliminating the
need for the use of a needle with each treatment. Few products exist for
effectively treating urge UI and the Company believes that SANS is superior to
other commercially available products due primarily to its minimally invasive
nature and cost-effectiveness. Clinical studies to date on percutaneous SANS,
encompassing over 1,000 treatment procedures in 90 patients with average
follow-up in excess of two years, indicate an 80% efficacy rate and no
complications. By comparison, clinical results of the only commercially
available implantable electronic nerve stimulation device also indicate a
comparable efficacy rate, but a high rate of post-treatment complications that
required reoperation in approximately one-third of all cases. This competing
product involves an invasive surgical implant procedure in the spinal area that
is costly and requires extensive physician training. The Company is marketing
and selling percutaneous SANS in Europe and is currently conducting a pivotal
clinical trial in the U.S. The Company expects to submit a PMA application for
acute use of percutaneous SANS by early 1999.
As part of its strategy of offering a broad range of products to physicians
treating genito-urinary disorders, the Company has also developed or licensed
SpiraStent, FilaStent and a kidney stone grasper for use in removing kidney
stones; AcuTrainer for diagnosing and managing urge UI; UroTherm for warming
irrigation fluids used in various gynecological and urological procedures;
demineralized bone paste for use in treating vesicoureteral reflux ("VUR") in
infants and children; and a urethral pressure catheter for the diagnosis of
stress UI. The Company has received FDA 510(k) clearance for U.S. marketing of
SpiraStent and AcuTrainer and has submitted 510(k) clearance applications for
FilaStent and UroTherm. The Company is currently marketing and selling
SpiraStent, FilaStent and AcuTrainer in Europe and SpiraStent and AcuTrainer in
the U.S.
STRATEGY
The Company's objective is to establish itself as the leader in the
development and commercialization of clinically effective solutions for UI and
other genito-urinary disorders treated by urologists, urogynecologists and
gynecologists. The following are the key elements of the Company's strategy.
Accelerate Commercialization of Existing Products. The Company has
substantially developed the infrastructure, including international
distributors, manufacturing capabilities and sales and marketing management,
that will help accelerate the commercialization of its products. The Company is
marketing and selling UroVive, percutaneous SANS, SpiraStent, FilaStent and
AcuTrainer in Europe and other international markets and is recognizing revenues
from these efforts in the second quarter of 1998. The Company is also marketing
and selling SpiraStent and AcuTrainer in the U.S. and intends to commence
marketing of UroVive and SANS in the U.S. upon receipt of PMA approval.
Become the Leader in the Treatment of UI. UI is a significant problem for a
large number of adults, particularly women and the elderly, and is one of the
most intractable and debilitating conditions treated by urologists and
urogynecologists. The UI market offers significant potential due primarily to
the inadequacy of existing treatments. The Company intends to offer improved
approaches for all levels of care, ranging from diagnosis to surgery, and for
all types of UI. The Company is focusing on the development of products that are
highly effective and minimally invasive, as compared to many current approaches
for managing UI, which are either palliative, such as diapers, or involve
invasive surgical procedures.
Offer a Comprehensive Product Line. Urologists, urogynecologists and
gynecologists are responsible for treating most genito-urinary disorders and use
a wide range of products. The Company is developing a broad line of products to
address the needs of these physicians while focusing on product opportunities
that represent significant improvements over currently available therapies. As
part of these efforts, the Company intends to explore the applicability of its
current products and technologies to additional clinical indications. The
Company also continually evaluates product concepts and technologies that may
present potential solutions for
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<PAGE> 6
unmet needs in its targeted markets and, in addition to internal development
efforts, actively seeks to license or acquire rights to such potential products
and technologies.
Penetrate International Markets. The Company believes that there is a
significant international market for its products. The Company distributes
products internationally through local distributors on a country-by-country
basis to access such distributors' established networks and specialized
expertise regarding the health care system, including reimbursement practices,
in their respective markets. The Company's current distributors cover 14
European countries, South Korea, Australia and Japan. In addition, as part of
its international marketing efforts, the Company has established clinical
research relationships with leading international urologists. The Company
believes that its country-specific approach will accelerate sales growth,
provide comprehensive geographic market coverage and enable the Company to
access particular markets and customers.
Build Specialized, Direct Sales Force in the U.S. According to industry
sources, there are approximately 8,000 urologists and 800 urogynecologists in
the U.S. The Company believes that this relatively small number of physicians to
which it will market its products affords a unique opportunity to develop a
cost-effective, direct sales effort. Accordingly, the Company has retained all
U.S. sales and marketing rights to its products and has commenced hiring of a
marketing and sales force in the U.S. To gain acceptance of its products, the
Company conducts physician training and disseminates clinical and patient
outcome data. In addition, the Company markets its products by raising patient
awareness of its available treatments through advertising, magazine articles and
other media.
HISTORY
UroSurge was incorporated in Delaware in August 1993. Since its inception,
the Company has received, licensed or obtained an option or right to license 10
issued or allowed U.S. patents and five pending U.S. patent applications and has
received three FDA investigational device exemption ("IDE") approvals for U.S.
clinical trials, two FDA 510(k) clearances and CE mark certifications for two
products. The Company's achievements to date are attributable to the experience
of its management team and to the Company's relationships with opinion leaders
at major research and treatment institutions, which include Children's Hospital
and Medical Center, an affiliate of Harvard Medical School, University of Iowa,
and University of California-San Francisco ("UCSF") School of Medicine. The
Company is located at 2660 Crosspark Road, Coralville, Iowa 52241 and its
telephone number is (319) 626-8311.
THE OFFERING
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Common Stock offered by the Company................... shares
Common Stock outstanding after this offering.......... shares(1)
Use of proceeds....................................... For increased research and development,
including clinical trials, expansion of sales
and marketing activities, expansion of
manufacturing capabilities and general
corporate purposes, including working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol................ URSG
</TABLE>
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(1) Based upon shares outstanding as of March 31, 1998. Excludes (i) 968,958
shares issuable upon exercise of options outstanding at a weighted average
exercise price of $0.65 per share, (ii) 300,000 shares reserved for future
issuance under the Company's 1998 Employee Stock Purchase Plan, (iii)
300,000 shares reserved for future issuance under the Company's 1998
Director Option Plan and (iv) 612,000 shares reserved for future issuance
under the Company's 1994 Amended and Restated Stock Plan. See
"Capitalization," "Management -- Incentive Stock Plans" and "Description of
Capital Stock."
5
<PAGE> 7
SUMMARY FINANCIAL DATA
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<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
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STATEMENTS OF OPERATIONS DATA:
Net revenues............................................ $ -- $ 20,166 $ 11,707
Operating expenses:
Cost of revenues...................................... -- 12,649 5,432
Research and development.............................. 848,301 1,940,795 3,594,613
Marketing and sales................................... 2,200 270,823 391,877
General and administrative............................ 466,207 771,047 1,479,722
----------- ----------- -----------
Total operating expenses...................... 1,316,708 2,995,314 5,471,644
----------- ----------- -----------
Loss from operations.................................... (1,316,708) (2,975,148) (5,459,937)
Net loss................................................ $(1,234,159) $(2,777,052) $(5,250,634)
=========== =========== ===========
Pro forma net loss per share(1)......................... $ (0.84)
Shares used in computing pro forma net loss per
share(1).............................................. 6,281,282
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------
ACTUAL AS ADJUSTED(2)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 3,266,386 $
Working capital(3).......................................... 3,544,983
Total assets................................................ 5,525,819
Long-term debt.............................................. 109,728
Accumulated deficit......................................... (10,012,436)
Total stockholders' equity.................................. 4,474,400
</TABLE>
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(1) See Note 1 of notes to the Company's financial statements for an explanation
of the method used to determine pro forma net loss per share.
(2) As adjusted to reflect the sale of shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share and
the receipt of the net proceeds therefrom.
(3) Working capital consists of current assets minus current liabilities.
6
<PAGE> 8
RISK FACTORS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in the following risk factors as well as those discussed
elsewhere in this Prospectus. The following risk factors should be considered
carefully in evaluating the Company and its business before purchasing the
shares of Common Stock offered hereby.
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT. Of the Company's
products, only UroVive, percutaneous SANS, SpiraStent, FilaStent and AcuTrainer
are being marketed in Europe; only SpiraStent and AcuTrainer have been cleared
for marketing in the U.S.; and only AcuTrainer has been approved for marketing
in Japan. The products the Company is marketing in Europe may not reach the U.S.
market and future products may not reach Europe, the U.S. or any other market
for a number of reasons. Such reasons include the possibilities that the
potential products will be found ineffective or cause harmful side effects
during preclinical testing or clinical trials, fail to receive necessary
regulatory approvals or clearances, be difficult to manufacture on a large
scale, be uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. No assurance can be
given that any of the Company's development programs will be successfully
completed, that clinical trials will generate anticipated results or will
commence or be completed as planned, that required regulatory approvals or
clearances will be obtained on a timely basis, if at all, or that any products
for which approval is obtained will contain acceptable labeling or be
commercially successful. If any of the foregoing do not occur as planned, the
Company's business, financial condition and results of operations would be
materially adversely affected.
The Company's business is subject to the risks inherent in the development,
licensing and acquisition of new products using new technologies and approaches.
There can be no assurance that unforeseen problems will not develop with these
technologies or applications, that the Company will be able to successfully
address technological challenges it encounters in its research and development
programs or that commercially feasible products will ultimately be developed,
licensed or acquired by the Company. See "Business -- Research and Development."
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATIONS OF FUTURE
LOSSES. The Company has a limited operating history upon which its prospects can
be evaluated. Such prospects must be considered in light of the substantial
risks, expenses and difficulties encountered by entrants into the medical device
industry, which is characterized by an increasing number of participants,
intense competition and a high failure rate. To date, the Company has engaged
primarily in research and development efforts, and a number of the Company's key
management and technical personnel have only recently joined the Company. To
date, the Company has only generated minimal revenues from product sales and
marketed only four of its products in Europe since March 1998. The Company has
experienced net losses since its inception and, as of December 31, 1997, the
Company had an accumulated deficit of $10.0 million. The development and
commercialization of its products will require substantial development,
regulatory, sales and marketing, manufacturing and other expenditures. The
Company expects its net losses to continue through 1999 as it continues to
expend substantial resources to build its marketing and sales organizations,
continue research and development, obtain regulatory clearances or approvals and
expand manufacturing capabilities. There can be no assurance that the Company
will ever achieve profitability or that profitability, if achieved, will be
sustained. Results of operations may fluctuate significantly from quarter to
quarter and will depend upon numerous factors, including actions relating to
regulatory and reimbursement matters, progress of clinical trials, discounts to
distributors, introduction of alternative therapies for UI and competition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Sales and Marketing," "-- Manufacturing,"
"-- Competition and Technological Change" and "-- Government Regulation."
LACK OF EXTENSIVE CLINICAL DATA. UroVive and percutaneous SANS are in the
pivotal stages of clinical testing in the U.S., and clinical data obtained to
date is insufficient to demonstrate the safety and efficacy of these products
under applicable FDA regulations and regulatory guidelines. The Company
completed pilot
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clinical trials and received FDA approval to conduct pivotal trials for UroVive
in the U.S. in December 1996. The Company obtained EC approval for UroVive in
March 1998 and anticipates submitting a PMA application to the FDA in mid-1999.
Percutaneous SANS received an Investigational Device Exemption ("IDE") approval
in the U.S. in January 1998. There can be no assurance that UroVive or
percutaneous SANS will prove to be safe and effective in clinical trials. In
addition, the clinical trials may identify significant technical or other
obstacles to be overcome prior to obtaining necessary regulatory or
reimbursement approvals. There can be no assurance that UroVive or SANS will
receive marketing approval from the FDA or that any of the Company's other
products will prove to be safe and effective or will be approved or cleared by
appropriate regulatory authorities or by health care payors. If UroVive, SANS
and the Company's other products under development do not prove to be safe and
effective in clinical trials, the Company's business, financial condition and
results of operations will be materially and adversely affected. The rate of
completion of the Company's clinical trials may be delayed by many factors,
including slower than anticipated patient enrollment or adverse events occurring
during clinical trials. Completion of preclinical and clinical activities may
take several years, and the length of time for completion of the required
studies is unpredictable. In addition, data obtained from preclinical and
clinical activities are susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. No assurance can be given that any
of the Company's clinical trials will be successfully completed on a timely
basis, or at all, that additional clinical trials will be allowed by the FDA or
other regulatory authorities or that such clinical trials will commence as
planned. See "Business -- Products and Products Under Development."
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company's success
will depend on its ability to obtain patent protection for its products,
preserve its trade secrets, prevent third parties from infringing upon its
proprietary rights, and operate without infringing upon the proprietary rights
of others, both in the U.S. and internationally. There can be no assurance that
the Company's pending or future patent applications will issue, or that the
claims of the Company's issued or licensed patents, or any patents that may
issue in the future, will provide any competitive advantages for the Company's
products or that they will not be successfully challenged, narrowed, invalidated
or circumvented in the future. The Company believes that obtaining foreign
patents may be more difficult than obtaining domestic patents because of
differences in patent laws and believes the protection afforded by foreign
patents or any other foreign intellectual property protection, if obtained, may
be more limited than that provided domestically. In addition, there can be no
assurance that competitors will not seek to apply for and obtain patents that
will prevent, limit or interfere with the Company's ability to make, use, offer
for sale, sell and import its products. Because patent applications in the U.S.
are confidential until the patents issue, and publication of discoveries in the
scientific and patent literature tends to lag behind actual discoveries, the
Company cannot be certain that Company inventors or licensors were the first to
conceive of inventions covered by pending patent applications or that the
Company was the first to file patent applications for such inventions.
The Company licenses certain technologies and may desire to or may be
required to obtain additional licenses to patents or proprietary rights of
others. No assurance can be given that any licenses required under any patents
or proprietary rights of third parties would remain or be made available on
terms acceptable to the Company, or at all. If the Company does not maintain or
obtain such licenses, it could encounter delays in product introductions while
it attempts to design around or otherwise avoid such patents, or it could find
that the development, manufacture or sale of products requiring such licenses is
foreclosed. In addition, the medical device industry has been characterized by
litigation regarding patents and other intellectual property rights, and many
companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. Litigation may be necessary to
defend against or assert claims of patent infringement or invalidity, to enforce
or defend patents issued to or licensed by the Company, to protect trade secrets
or know-how owned by the Company, or to determine the scope and validity of the
proprietary rights of others. In addition, interference proceedings in the U.S.
Patent and Trademark Office, or opposition proceedings in a foreign patent
office, may be necessary to determine the priority of inventions with respect to
patent applications of the Company or its licensors. Litigation, interference or
opposition proceedings could result in substantial costs to and diversion of
effort by the Company, and adverse determinations in any such proceedings could
prevent the Company from manufacturing, marketing or selling its products and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
8
<PAGE> 10
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its employees and consultants. The Company also
has invention or patent assignment agreements with its employees and certain,
but not all, consultants. There can be no assurance that relevant inventions
will not be developed by a person not bound by an invention assignment
agreement. There can be no assurance that binding 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
discovered by competitors. See "Business -- Patents and Proprietary Technology."
LACK OF REGULATORY APPROVALS. The design, manufacturing, labeling,
distribution and marketing of the Company's products is subject to extensive and
rigorous government regulation in the U.S. and certain other countries where the
process of obtaining and maintaining required regulatory clearance or approvals
is lengthy, expensive and uncertain. In order for the Company to market its
products in the U.S., the Company must obtain clearance or approval from the
FDA. The Company is required to obtain a PMA prior to U.S. commercial sales of
its two lead products, UroVive and SANS. The PMA process can take several years
from the initial filing and requires the submission of extensive supporting data
and clinical information. The Company has received 510(k) clearance in the U.S.
for SpiraStent and AcuTrainer and marketing approval in Europe for UroVive and
AcuTrainer. The Company also has submitted applications seeking clearance to
market FilaStent and UroTherm through the 510(k) premarket notification process
and will be required to submit PMA or 510(k) applications for additional
products it is developing or may develop, license or acquire in the future.
There can be no assurance that the FDA will act favorably or quickly on such PMA
or 510(k) submissions, or that significant difficulties and costs will not be
encountered during efforts to obtain FDA clearance or approval. Specifically,
the FDA may request additional data or require additional clinical trials be
conducted to obtain clearance. In addition, there can be no assurance that the
FDA will not impose strict labeling, training or other requirements as a
condition to 510(k) clearances or PMA approvals, any of which could limit the
Company's ability to market its products. Further, if the Company wishes to
modify a product after FDA clearance of a 510(k) premarket notification or
approval of a PMA, including changes in indications or other modifications that
could affect safety and efficacy, additional clearances or approvals will be
required from the FDA. Any request by the FDA for additional data or any
requirement by the FDA that the Company conduct additional clinical trials or
submit to the more rigorous and lengthier PMA process could result in a
significant delay in bringing such products to market and substantial additional
research and other expenditures by the Company. Similarly, any labeling,
training or other conditions or restrictions imposed by the FDA on the marketing
of the Company's products could hinder the Company's ability to effectively
market its products in the U.S. Any of the foregoing actions by the FDA could
delay or prevent altogether the Company's ability to market and distribute its
products and could have a material adverse effect on the Company's business,
financial condition and results of operations.
In order for the Company to market its products under development in Europe
and certain other foreign jurisdictions, the Company and its distributors and
agents must obtain required regulatory registrations or approvals and otherwise
comply with extensive regulations regarding safety, efficacy and quality in
those jurisdictions. Specifically, certain foreign regulatory bodies have
adopted various regulations governing product standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations, duties and tax
requirements. These regulations vary from country to country. There can be no
assurance that the Company will be successful in maintaining ISO 9001 or CE mark
certification. Failure to maintain ISO 9001 or CE mark certification or to
obtain or maintain other foreign regulatory approvals could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will obtain any required
regulatory registrations or approvals in such countries or that it will not be
required to incur significant costs in obtaining or maintaining such regulatory
registrations or approvals. Delays in obtaining any registrations or approvals
required to market the Company's products, failure to receive these
registrations or approvals, or future loss of previously obtained registrations
or approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.
9
<PAGE> 11
The Company will be required to adhere to applicable FDA Quality System
Regulations ("QSR"), which incorporate the FDA's former Good Manufacturing
Practice ("GMP") regulations, and similar regulations in other countries that
impose testing, control and documentation requirements. Ongoing compliance with
applicable QSRs and other applicable regulatory requirements will be strictly
enforced in the U.S. through periodic inspections by state and federal agencies,
including the FDA, and in foreign jurisdictions by comparable agencies. Failure
to comply with applicable regulatory requirements could result in, among other
things, warning letters, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, refusal of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of approvals previously obtained and criminal prosecution. The
restriction, suspension or revocation of regulatory approvals or any other
failure to comply with regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's products are based upon new
methods of treating UI and there can be no assurance that these products will
gain commercial acceptance among physicians, patients and health care payors,
even if necessary international and U.S. marketing approval is obtained. The
Company believes that recommendations and endorsements by physicians will be
essential for market acceptance of its products and there can be no assurance
that any such recommendations or endorsements will be obtained. Market
acceptance of the Company's products will also be dependent upon the Company's
ability to convince health care payors and providers that such products
represent cost-effective alternatives to existing therapies. Such assessments of
cost-effectiveness will depend in large part upon the duration of relief from UI
provided by the Company's products, and a thorough analysis of long-term patient
follow-up data may be necessary to assess such durability. Failure of the
Company's products to achieve significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Products and Products Under
Development."
COMPETITION. The medical device industry in general and the market for
products and treatments in the area of UI in particular are highly competitive.
In Europe, the Company competes and, in the U.S., the Company will compete with
other providers of products and treatments for UI. There is currently one
urethral bulking agent for stress UI and one implantable nerve stimulation
device for urge UI approved for commercial sale in the U.S. and other such
products are in development. In addition, a number of competitors are currently
marketing products, such as absorbents and pharmaceuticals, to treat UI. Some of
these products are widely accepted in the health care industry and have a long
history of use.
Many of the Company's current and potential competitors have substantially
greater financial, research, technical, manufacturing, marketing and
distribution resources than the Company and have greater name recognition and
lengthier operating histories in the health care industry. There can be no
assurance that the Company will be able to compete effectively against these and
other competitors or that the Company's products will replace any currently used
devices or systems. Furthermore, there can be no assurance that the Company's
competitors will not succeed in developing, either before or after the
development and commercialization of the Company's products, devices and
technologies that permit more efficient, less expensive and less invasive
treatment of UI. It is also possible that one or more pharmaceutical or other
health care companies will develop therapeutic drugs, treatments or other
products that will substantially reduce the prevalence of UI or otherwise render
the Company's products obsolete or irrelevant. Such competition could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Competition and Technological Change."
LIMITED MANUFACTURING EXPERIENCE. The Company is currently scaling up its
manufacturing facilities for clinical and early commercial production of its
products. The Company does not have experience in manufacturing its products in
commercial quantities. There can be no assurance that the Company will be able
to attract, train and retain the required personnel or will be able to
manufacture commercial quantities of its products in a timely manner, or at all.
Manufacturers often encounter difficulties in scaling up production of their
products, including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel. There can be
no assurance that the Company's manufacturing scale-up efforts will be
successful or that reliable, high-volume manufacturing can be established or
10
<PAGE> 12
maintained at commercially reasonable costs on a timely basis, or at all. In
addition, there can be no assurance that the Company will not encounter
unanticipated problems and delays in connection with its contract manufacturers
and suppliers. Delays associated with or difficulties encountered in
establishing high-volume manufacturing, or problems encountered with contract
manufacturers and suppliers, would result in disruptions of product supply. Any
of the foregoing would have a material adverse affect on the Company's business,
financial condition and results of operations.
Medical devices, such as the Company's products, can experience performance
problems in the field that require review and possible corrective action by the
manufacturer. There can be no assurance that component failures, manufacturing
errors or design defects that could result in an unsafe condition or injury to
the patient will not occur. If any such failures or defects were deemed serious,
the Company could be required to withdraw or recall products, which could result
in significant costs to the Company. Any future product problems could result in
market withdrawals or recalls of products, which could have a material adverse
affect on the Company's business, financial condition and results of operations.
Furthermore, prior to approval of a PMA application, the Company's facilities,
procedures and practices, and the facilities, procedures and practices of its
third-party manufacturers, will be subject to a preapproval inspection by the
FDA. In addition, if the Company wishes to significantly modify its
manufacturing processes or change the supplier of a critical component,
additional approvals will be required from the FDA before the change can be
implemented. Failure to maintain compliance with the applicable regulatory
requirements of various regulatory agencies would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Manufacturing."
DEPENDENCE UPON KEY SUPPLIERS. One of the primary components for the
manufacture of UroVive, the microballoon, is purchased by the Company from a
single source under a mutually exclusive supply agreement that expires in April
2000, subject to an automatic two-year extension. Other raw materials and
components used in the Company's products are purchased from various suppliers.
These materials have generally been readily available in the marketplace and
have not been the subject of shortages. There can, however, be no assurance that
the Company or its suppliers or contract manufacturers will not experience
shortages of materials in the future. Delays associated with any such future
shortages of materials or components, particularly as the Company scales up its
manufacturing activities in support of commercial sales, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Manufacturing."
LIMITED MARKETING AND SALES CAPABILITIES. The Company currently has limited
experience in marketing and selling its products. In order to achieve commercial
success for any product, UroSurge must increase its marketing and sales
capabilities or enter into arrangements with third parties to market and sell
its products. There can be no assurance that UroSurge will successfully develop
such marketing and sales capabilities or experience. As the Company develops its
own marketing and sales capabilities, it will compete with other companies that
currently have experienced and well-funded marketing and sales operations.
The Company markets and sells its products outside the U.S. primarily
through a network of international distributors, and the Company's international
sales are largely dependent on the marketing efforts of, and sales by, these
distributors. Sales through distributors are subject to several risks, including
the risk of financial instability of the distributors and the risk that
distributors will not effectively promote the Company's products. There can be
no assurance that the efforts of these third parties for the marketing and sale
of the Company's products will be successful. See "Business -- Sales and
Marketing."
INTERNATIONAL SALES AND OPERATING RISKS. The Company's limited sales of
UroVive, percutaneous SANS, SpiraStent and FilaStent have been outside the U.S.,
and the Company anticipates that a significant portion of its revenues for the
next several years will also be derived from international sales of its
products. A number of risks are inherent in international operations and
transactions. International sales and operations may be limited or disrupted by
the imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs or difficulties in staffing
and managing international operations. Foreign regulatory agencies often
establish product standards different from those in the U.S. and any inability
11
<PAGE> 13
to obtain foreign regulatory approvals on a timely basis could have an adverse
effect on the Company's international business and its financial condition and
results of operations. Additionally, the Company's business, financial condition
and results of operations may be adversely affected by fluctuations in currency
exchange rates as well as increases in duty rates. There can be no assurance
that the Company will be able to successfully commercialize its existing or
future products in any foreign market. See "Business -- Sales and Marketing."
NO ASSURANCE OF ABILITY TO MANAGE GROWTH. If demand for the Company's
products develops and grows, there can be no assurance that the Company will be
able to develop the necessary manufacturing capability for its products; build
the international sales and marketing capability for products; attract, retain
and integrate the required personnel; or implement the financial and management
systems necessary to meet the growing demand for its products. Failure of the
Company to successfully manage its growth could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Sales and Marketing," "-- Manufacturing," "-- Employees,"
"-- Facilities" and "Management."
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE. The development,
manufacture and sale of medical products entail significant risks of product
liability claims. The Company has product liability insurance subject to
specified coverage limits. There can no assurance that such insurance coverage
will be adequate to protect the Company from any liabilities, including any
adverse judgments or settlements, it might incur in connection with the
development, clinical testing, manufacture and sale of its products. In
addition, product liability insurance is expensive and may in the future 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 that results in
an adverse judgment against or settlement by the Company in excess of any
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Product Liability."
POSSIBLE FUTURE CAPITAL REQUIREMENTS. To the extent that the Company is
unable to successfully commercialize its products or experiences delays in
completing product testing and clinical trials or obtaining regulatory approvals
and clearances, it may be required to raise additional funds through public or
private financing or other arrangements. The Company believes that its existing
capital resources and the net proceeds of this offering will be sufficient to
satisfy its funding requirements through 1999. There can be no assurance that
any required additional funding, if needed, will be available on terms
attractive to the Company, or at all, which could have a material adverse effect
on the Company's business, financial condition and results of operations. Any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve restrictive covenants. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT. The Company's success
will be dependent upon, among other things, the ability of users of its products
to obtain satisfactory reimbursement from health care payors for the Company's
products and procedures employing such products. In the U.S. and international
markets, sales of medical products are dependent, in part, on the ability of
consumers of these products to obtain reimbursement for all or a portion of
their cost from third-party payors, such as government and private insurance
plans. Currently, third-party reimbursement is available for some existing
therapies used in the treatment of UI (other than for diapers and absorbents).
After such time, if ever, as FDA approval or clearance is received, third-party
reimbursement for UroVive and SANS will be dependent upon decisions by the
Health Care Financing Administration ("HCFA") for Medicare and Medicaid, as well
as by individual health maintenance organizations, private insurers and other
payors. Such reimbursement approvals will depend in part on the Company's
ability to convince payors that such products represent cost-effective
alternatives to existing therapies. Such assessments of cost-effectiveness will
depend in large part upon the duration of the relief from UI provided by the
Company's products, and a thorough analysis of long-term patient follow-up data
may be necessary to assess such durability. In addition, the Company has not
applied for or received either Medicare or private payor reimbursement approvals
for SpiraStent or AcuTrainer, and growth in SpiraStent or AcuTrainer sales in
the U.S. will be dependent upon the Company's ability to obtain such
reimbursement approvals.
12
<PAGE> 14
Reimbursement systems in international markets vary significantly by
country. Many international markets have governmentally managed health care
systems that govern reimbursement for new devices and procedures. In most
markets, there are private insurance systems as well as governmentally managed
systems. Market acceptance of the Company's products will depend on the
availability of reimbursement in international markets targeted by the Company
and will require reimbursement approvals in addition to those already obtained.
Regardless of the type of reimbursement system, the Company believes that
physician advocacy of the Company's products will be required to obtain
reimbursement. There can be no assurance that reimbursement will be available or
sufficient to allow the Company to sell its products on a competitive basis, or
that physicians will support reimbursement for the Company's procedures.
Furthermore, the Company could be adversely affected by changes in reimbursement
policies of governmental or private health care payors. Failure by physicians,
hospitals and other users of the Company's products to obtain sufficient
reimbursement from health care payors or adverse changes in governmental and
private third party payor's policies toward reimbursement for procedures
employing the Company's products would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third-Party Reimbursement."
DEPENDENCE UPON KEY PERSONNEL. The Company's ability to operate
successfully and manage its potential future growth depends in significant part
upon the continued service of certain key scientific, technical, managerial and
finance personnel and its ability to attract and retain additional highly
qualified scientific, technical, managerial and finance personnel. None of these
key employees has an employment contract with the Company nor are any of these
employees covered by key person or similar insurance. The Company faces intense
competition for qualified personnel, many of whom are often subject to competing
employment offers, and there can be no assurance that the Company will be able
to attract and retain such personnel. The loss of key personnel or inability to
hire and retain additional qualified personnel in the future could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Employees."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK. Prior to this offering, there has
been no public market for the Company's Common Stock, and there can be no
assurance that a regular trading market will develop and continue after this
offering or that the market price of the Common Stock will not decline below the
initial public offering price. The initial public offering price will be
determined through negotiations between the Company and the Underwriters and may
bear no relationship to the price at which the Common Stock will trade after
completion of this offering. The factors to be considered in determining the
initial public offering include the history of and the prospects for the
industry in which the Company competes, the past and present operations of the
Company, the historical results of operation of the Company, the prospects for
future earnings of the Company, the recent market prices of securities of
generally comparable companies and the general condition of the securities
markets at the time of the offering. See "Underwriting."
VOLATILITY OF COMMON STOCK PRICE. The market prices for securities of
medical device companies have historically been highly volatile, and the market
has from time to time experienced significant price and volume fluctuations that
are unrelated to the operating performance of particular companies. Factors such
as fluctuations in the Company's operating results, announcements of
technological innovations or new therapeutic products by the Company or others,
clinical trial results, government regulation, developments in patent or other
proprietary rights, public concern as to the safety of products developed by the
Company or others, future sales of substantial amounts of Common Stock by
existing stockholders, comments by securities analysts and general market
conditions can have an adverse effect on the market price of the Common Stock.
In addition, the realization of any of the risks described in these "Risk
Factors" could have a dramatic and material adverse impact on the market price
of the Company's Common Stock.
CONTROL BY EXISTING STOCKHOLDERS. After the completion of this offering,
current stockholders, including certain executive officers and directors of the
Company and their affiliates, will own approximately % of the outstanding
Common Stock. As a result, these stockholders will, to the extent they act
together, continue to have the ability to exert significant influence and
control over matters requiring the approval of the
13
<PAGE> 15
Company's stockholders, including the election of a majority of the Company's
Board of Directors. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of Common Stock (including shares
issued upon the exercise of outstanding options) in the public market after this
offering could materially adversely affect the market price of the Common Stock.
Such sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future. Upon completion of this
offering, the Company will have shares of Common Stock
outstanding, of which the shares offered hereby will be freely
tradable (unless held by affiliates of the Company). As a result of lock-up
agreements between certain stockholders and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), the remaining 6,956,037 shares will not become
available for sale in the public market until 180 days after the date of this
Prospectus, subject in some cases to the volume and other restrictions of Rule
144 and Rule 701 under the Securities Act of 1933, as amended (the "Securities
Act"). However, DLJ may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to the lock-up agreements.
See "Shares Eligible for Future Sale" and "Underwriting."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS ON PRICE OF
COMMON STOCK. Certain provisions of the Company's Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue Preferred Stock without
any vote or further action by the stockholders, eliminate the right of
stockholders to act by written consent without a meeting and specify procedures
for director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings. Certain provisions of Delaware law
applicable to the Company, including Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholders for a period of three
years unless certain conditions are met, could also delay or make more difficult
a merger, tender offer or proxy contest involving the Company. The possible
issuance of Preferred Stock, the procedures required for director nominations
and stockholder proposals and Delaware law could have the effect of delaying,
deferring or preventing a change in control of the Company. See "Description of
Capital Stock -- Preferred Stock" and "-- Certain Charter and Bylaws Provisions
and Delaware Anti-Takeover Statute."
DILUTION. Purchasers of Common Stock in this offering will experience
immediate and substantial dilution of $ per share in the net tangible book
value of the Common Stock from the initial public offering price. Additional
dilution is likely to occur upon the exercise of options, warrants and
conversion rights granted by the Company. See "Dilution."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby at an assumed initial public offering price of
per share are estimated to be million ( million if the
Underwriters' over-allotment option is exercised in full) after deducting the
underwriting discounts and commissions and the estimated expenses of this
offering.
The Company expects to use a majority of the net proceeds to fund increased
research and development activities, including clinical trials, expansion of
marketing and sales activities, expansion of manufacturing capabilities and
capital expenditures. The Company intends to use the remaining net proceeds for
working capital, general and administrative expenses and general corporate
purposes. The amounts actually expended for each purpose and the timing of such
expenditures may vary significantly depending upon numerous factors, including
the timing of regulatory actions regarding the Company's products, the cost and
timing of expansion of marketing, sales and manufacturing activities, results of
clinical trials and competition. The Company may also use a portion of the net
proceeds for the licensing or acquisition of technologies, businesses or
products that are complementary to those of the Company. No such acquisitions
are currently planned or are being negotiated, and no portion of the net
proceeds has been allocated for any specific licensing or acquisition. Pending
such uses, the Company intends to invest the net proceeds of this offering in
short-term, interest-bearing, investment grade securities.
In addition, a portion of the net proceeds may be used to repay certain
amounts the Company may borrow from stockholders under a financing arrangement.
Under this arrangement, which is expected to be entered into in April 1998,
certain principal stockholders would provide the Company with a line of credit
of up to $5.0 million in the event that the Company requires any additional
funding prior to receiving the net proceeds from this offering. In exchange for
this line, the Company has agreed to issue warrants to the stockholders to
purchase an aggregate of 50,000 shares of Common Stock at the initial public
offering price per share. The remaining terms of this credit facility are
currently being negotiated by the Company and such stockholders. To date, the
Company has not borrowed any amounts under this arrangement.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock.
The Company does not anticipate declaring or paying any cash dividends in the
foreseeable future.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth, as of December 31, 1997, (i) the actual
capitalization of the Company and (ii) the as adjusted capitalization of the
Company reflecting the conversion of all outstanding shares of Preferred Stock
into Common Stock; the sale of the shares of Common Stock offered
hereby (at an assumed initial public offering price of $ per share) and
receipt of the proceeds therefrom, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company; and the
restatement of the Company's Certificate of Incorporation to increase the
authorized number of shares of Common Stock to 50,000,000 shares and create a
class of undesignated Preferred Stock. See "Use of Proceeds." This table should
be read in conjunction with "Selected Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 3,266,386
=========== ========
Long-term debt (including current maturities)............... $ 174,691
Stockholders' equity:
Preferred Stock, par value $0.01 per share;
7,220,000 shares authorized, 5,834,404 shares issued
and outstanding on an actual basis; 5,000,000 shares
authorized, none issued and outstanding as adjusted.... 58,344
Common Stock, par value $0.01 per share; 15,000,000 shares
authorized, 1,121,633 shares issued and outstanding on
an actual basis; 50,000,000 shares authorized and
shares issued and outstanding as
adjusted(1)............................................ 11,216
Additional paid-in capital................................ 15,155,720
Deferred compensation..................................... (738,444)
Accumulated deficit....................................... (10,012,436)
----------- --------
Total stockholders' equity........................ 4,474,400
----------- --------
Total capitalization.............................. $ 4,649,091
=========== ========
</TABLE>
- ------------------------------
(1) Based upon shares outstanding as of December 31, 1997. Excludes (i) 734,458
shares issuable upon exercise of options outstanding at a weighted average
exercise price of $0.26 per share, (ii) 300,000 shares reserved for future
issuance under the Company's 1998 Employee Stock Purchase Plan (the
"Purchase Plan"), (iii) 300,000 shares reserved for future issuance under
the Company's 1998 Director Option Plan and (iv) 846,500 shares reserved for
future issuance under the Company's 1994 Stock Plan. See
"Management -- Incentive Stock Plans" and "Description of Capital Stock."
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<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
December 31, 1997, was $4,240,638 or $0.61 per share. Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding after giving effect to the conversion of outstanding shares of
Preferred Stock into Common Stock upon the completion of this offering. After
giving effect to the sale of the shares of Common Stock offered hereby (at an
assumed initial public offering price of $ per share) and after deducting
underwriting discounts and commissions and estimated offering expenses, the
Company's pro forma net tangible book value as of December 31, 1997 would have
been approximately $ or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors purchasing shares of Common Stock in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.................. $
Pro forma net tangible book value per share at
December 31, 1997................................. $
Increase per share attributable to new investors.....
Pro forma net tangible book value after this
offering.............................................
Dilution to new investors.............................. $
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing stockholders and by investors purchasing shares in this offering
(assuming an initial public offering price of $ per share and after
deducting underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 6,956,037 $14,428,653 % $ 2.07
New investors.................
--------- ----- ----------- -----
Total............... 100.0% 100.0%
========= ===== =========== =====
</TABLE>
17
<PAGE> 19
SELECTED FINANCIAL DATA
The selected financial data presented below with respect to the Company's
financial statements as of and for each of the periods ended December 31, 1993,
1994, 1995, 1996 and 1997 are derived from financial statements of the Company
that have been audited by McGladrey & Pullen, LLP, independent auditors. The
selected financial data set forth below is qualified in its entirety by, and
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 included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993(1) 1994(1) 1995 1996 1997
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues................ $ -- $ -- $ -- $ 20,166 $ 11,707
Operating expenses:
Cost of revenues.......... -- -- -- 12,649 5,432
Research and
development............ -- 238,212 848,301 1,940,795 3,594,613
Marketing and sales....... -- -- 2,200 270,823 391,877
General and
administrative......... -- 549,247 466,207 771,047 1,479,722
-------- --------- ----------- ----------- -----------
Total operating
expenses........ -- 787,459 1,316,708 2,995,314 5,471,644
-------- --------- ----------- ----------- -----------
Loss from operations........ -- (787,459) (1,316,708) (2,975,148) (5,459,937)
Interest income............. -- 36,868 85,003 184,099 187,010
Interest expense............ -- -- (2,454) (6,386) (9,023)
Income tax credits.......... -- -- -- 20,383 31,316
-------- --------- ----------- ----------- -----------
Net loss.......... $ -- $(750,591) $(1,234,159) $(2,777,052) $(5,250,634)
======== ========= =========== =========== ===========
Basic and diluted net loss
per share(2).............. $ -- $ (1.04) $ (1.23) $ (2.58) $ (4.72)
Weighted average shares
outstanding(2)............ -- 723,259 999,510 1,076,987 1,111,267
Pro forma net loss per
share(2).................. $ (0.84)
Shares used in computing pro
forma net loss per
share(2).................. 6,281,282
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------
1993(1) 1994(1) 1995 1996 1997
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term
investments............. $ -- $ 919,039 $ 4,821,063 $ 2,113,202 $ 3,266,386
Working capital(3)........ -- 844,636 4,742,010 1,686,566 3,544,983
Total assets.............. -- 1,032,889 5,373,922 2,890,545 5,525,819
Long-term debt............ -- -- 107,314 92,870 109,728
Accumulated deficit....... -- (750,591) (1,984,750) (4,761,802) (10,012,436)
Total stockholders'
equity.................. -- 926,171 5,022,789 2,254,435 4,474,400
</TABLE>
- ------------------------------
(1) The Company was incorporated August 6, 1993 and commenced operations in
March 1994.
(2) See Note 1 of notes to the Company's financial statements for an explanation
of the method used to determine basic and diluted net loss per share,
weighted average shares outstanding and pro forma net loss per share.
(3) Working capital is current assets minus current liabilities.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" as well as those discussed elsewhere in this Prospectus. The
following discussion should be read in conjunction with the Company's financial
statements and notes thereto included elsewhere in this Prospectus.
OVERVIEW
UroSurge develops, manufactures and markets medical devices for the
treatment and management of genito-urinary disorders. The Company believes that
its lead products, UroVive and SANS, represent a significant revenue opportunity
in Europe and the U.S. Additionally, the Company has a number of other products
approved or in development to treat a variety of urological conditions. The
Company commenced marketing UroVive, percutaneous SANS, SpiraStent, FilaStent
and AcuTrainer in Europe and other international markets in March 1998 and is
recognizing revenues from these efforts in the second quarter of 1998. The
Company is marketing SpiraStent and AcuTrainer in the U.S. and intends to
commence marketing UroVive and percutaneous SANS in the U.S. upon receipt of PMA
approval. In addition, the Company has submitted 510(k) clearance applications
for FilaStent and UroTherm.
Since its inception, the Company has financed operations primarily through
the private placement of equity securities totaling $14.4 million. The Company
has incurred net losses in each year since its inception, including net losses
of $5.3 million in 1997, $2.8 million in 1996 and $1.2 million in 1995. The
Company's net losses have resulted primarily from expenses incurred in
connection with the Company's research and development activities, including
clinical and preclinical trials, development of manufacturing processes, general
and administrative expenses and sales and marketing expenses. The Company
expects to incur net losses through at least 1999 and may incur net losses in
subsequent periods although the amount of future net losses and time required by
the Company to reach profitability are highly uncertain. Although the Company
only sold limited numbers of AcuTrainers in 1996 and 1997, it is recognizing
revenues from the sale of UroVive, percutaneous SANS, SpiraStent, FilaStent and
AcuTrainer in Europe in the second quarter of 1998. The Company will not
generate revenues from commercial sales of UroVive, percutaneous SANS and
FilaStent in the U.S. unless FDA approvals are received.
The Company has entered into license agreements with various parties under
which the Company obtained certain intellectual property rights relating to its
products. See "Business -- Patents and Proprietary Rights." The Company is
obligated to pay royalties of up to 6% on sales of all of its products, except
for FilaStent and UroTherm, under such license agreements. The Company currently
accounts for such royalties as operating expenses. The Company is also obligated
to make certain milestone payments under these license agreements, which could
aggregate approximately $1.0 million.
The Company intends to sell its products through a direct sales force in
the U.S. and through local distributors in foreign markets with non-exclusive
rights in their respective designated territories. The Company expects gross
margins on U.S. sales to be higher than gross margins on international sales due
to distributor discounts. The Company believes its gross margins will be
primarily affected by product mix, manufacturing costs, sales channels and
product pricing.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Net revenues decreased to $12,000 in 1997 from $20,000 in 1996. AcuTrainer
was the only product sold commercially by the Company during these periods and
is expected to comprise only a small portion of the Company's future revenues.
The Company's primary focus has been on the development of UroVive and SANS and,
as a result, the Company did not devote significant sales efforts to AcuTrainer
sales. The
19
<PAGE> 21
Company is recognizing revenues from sales of UroVive and percutaneous SANS in
Europe in the second quarter of 1998.
Research and development expenses increased to $3.6 million in 1997 from
$1.9 million in 1996. This increase was due primarily to increased costs of
development, including materials for UroVive and SANS pivotal clinical trials
and preclinical animal testing for the Company's other products. In addition,
the increase in expense is associated with the Company's build-up of its
research and development personnel as well as payments to consultants. The
Company currently employs 17 individuals in research and development and
manufacturing on a full-time basis and five individuals on a part-time basis.
Research and development expenses are expected to increase as the Company
continues to develop its products.
Marketing and sales expenses increased to $392,000 in 1997 from $271,000 in
1996. This increase was due to the Company's build-up of its sales and marketing
personnel, which currently includes six executives and two telemarketers. In
addition, the Company is continuing to develop promotional materials, train
physicians and attend trade shows, which also contributes to the increase in
such expenses. Marketing and sales expenses are expected to increase as the
Company commercializes its products and completes the hiring of a direct sales
force in the U.S.
General and administrative expenses increased to $1.5 million in 1997 from
$771,000 in 1996. This increase was due primarily to increased personnel costs
and associated costs related to obtaining product clearances and establishing
administrative functions to support the Company's operations. General and
administrative expenses are expected to increase as additional personnel are
hired to support the Company's operations and needs as a public company, but at
a lower rate than research and development and marketing and sales expenses.
Interest income increased to $187,000 in 1997 from $184,000 in 1996.
Interest expense increased to $9,000 in 1997 from $6,000 in 1996.
With respect to certain stock options made during 1997, the Company is
recognizing compensation charges of $860,000. The Company recognized $122,000 of
the compensation charges in 1997, and will recognize the remainder over the
related vesting period. The future compensation charges are subject to reduction
for any employee who terminates employment prior to the expiration of such
employee's vesting period. See Note 5 of notes to the Company's financial
statements.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
Net revenues were $20,000 in 1996 as a result of sales of AcuTrainers. No
revenues were recorded in 1995.
Research and development expenses increased to $1.9 million in 1996 from
$848,000 in 1995. This increase was due to increased costs for the development
of UroVive and SANS, including pilot clinical studies and preclinical animal
testing, the associated costs for the hiring of research and development
personnel and consultants and increased material and prototype expenses.
Marketing and sales expenses increased to $271,000 in 1996 from $2,000 in
1995. This increase was due primarily to advertising costs for AcuTrainer and
image brochures regarding the Company.
General and administrative expenses increased to $771,000 in 1996 from
$466,000 in 1995. This increase was due primarily to increased personnel and
associated costs related to obtaining an IDE for UroVive and a 510(k) clearance
for AcuTrainer and establishing administrative functions to support the
Company's operations.
Interest income increased to $184,000 in 1996 from $85,000 in 1995. This
increase is due primarily to higher cash balances as a result of a $5.3 million
private placement of equity securities completed in September and October 1995.
20
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1997, the Company has financed
operations primarily through the private placement of equity securities totaling
$14.4 million. The Company's principal source of liquidity as of December 31,
1997 consisted of cash, cash equivalents and short-term investments of $3.3
million. The Company's cash used in operating activities increased to $5.7
million in 1997 from $2.5 million in 1996, primarily resulting from an increase
in the Company's net loss due to increased research and development, sales and
marketing, and general and administrative expenses for preparation and support
of clinical trials for UroVive and percutaneous SANS.
As of December 31, 1997, the Company had approximately $110,000 in
long-term debt. The Company expects to enter into a financing arrangement with
certain of its principal stockholders during April 1998. Under this arrangement,
such stockholders would provide the Company with a line of credit of up to $5.0
million in the event that the Company requires any additional funding prior to
receiving the net proceeds of this offering. In exchange for this line, the
Company has agreed to issue warrants to purchase an aggregate of 50,000 shares
of Common Stock at the initial public offering price per share. The remaining
terms of this credit facility are currently being negotiated by the Company and
such stockholders. To date, the Company has not borrowed any amounts under this
arrangement.
The Company is completing improvements to a leased building to be used as a
manufacturing facility. Leasehold improvements and other capital equipment
purchases with an estimated cost of $500,000 are anticipated through the second
quarter of 1998. The Company does not anticipate that material capital or other
expenditures will be necessary in connection with computer problems associated
with year 2000 concerns.
The Company believes that the proceeds from this offering together with
current cash balances will be sufficient to meet the Company's operating and
capital requirements through 1999. The Company's liquidity and capital
requirements will depend on numerous factors, including the extent to which the
Company's products gain market acceptance, the timing of regulatory actions
regarding the Company's products, the costs and timing of expansion of sales,
marketing and manufacturing activities, obtaining and enforcing patents
important to the Company's business, results of clinical trials and competition.
There can be no assurance that the Company will not be required to raise
additional capital, or that such capital will be available on acceptable terms,
or at all.
21
<PAGE> 23
BUSINESS
OVERVIEW
UroSurge develops, manufactures and markets medical devices for the
treatment and management of genito-urinary disorders. The Company is developing
a broad range of proprietary products to address segments of the urology market
that are currently underserved as a result of ineffective or costly therapies.
The Company is initially focusing much of its efforts on addressing UI, which
afflicts approximately 13 million people in the U.S. and accounts for
approximately $15 billion in annual treatment costs. The UI market presents a
significant opportunity because approximately two-thirds of UI sufferers are
dissatisfied with current treatment alternatives according to a recent U.S.
study by the National Association for Continence. The Company believes that its
lead products, UroVive for stress UI and SANS devices for urge UI, represent
superior alternatives to existing therapies by offering minimally invasive,
cost-effective, long-term solutions for patients suffering from these
conditions. The Company launched these products in Europe in March 1998 and is
currently conducting pivotal clinical trials in the U.S. Additionally, the
Company is developing and marketing a number of other products to treat a
variety of urological conditions.
UroVive is a minimally invasive urethral bulking system for the treatment
of certain types of stress UI. The UroVive procedure involves the permanent
implantation of one or more hydrogel-filled microballoons around the urethra and
is designed to close the bladder neck and immediately restore urinary
continence. The procedure can be performed in about 20 minutes in an outpatient
setting under local anesthesia. The Company believes that UroVive is a
practical, safe, long-term solution and is more convenient and cost-effective
than palliative approaches such as diapers and urethral plugs that do not cure
the problem. The Company also believes that UroVive offers significant
advantages over competing injectable urethral bulking agents that suffer from
problems of absorption and migration (which can lead to the need for repeat
procedures or raise safety concerns) and are not easily retrievable should
urinary retention occur. UroVive also provides an advantage over invasive
surgical procedures, which are costly and can result in post-surgical
complications. The Company is marketing UroVive in Europe under CE mark
certification, and is currently conducting pivotal clinical trials of UroVive in
the U.S. Results of pilot clinical trials indicate a 90% efficacy rate for
patients with the target indication for which the Company has 18-month follow-up
data. By comparison, clinical results of the only urethral bulking agent sold
commercially in the U.S. indicate only a 52% probability that such patients will
maintain their initial continence for one year. The Company expects to submit a
PMA application to the FDA for UroVive in mid-1999.
The Company has two SANS devices, percutaneous (through the skin) and
subcutaneous (below the skin), for the treatment of urge UI. Both are minimally
invasive systems that modulate bladder action through stimulation of the
afferent nerve fibers in the ankle area that lead to nerves located in the
spinal region that control bladder function. Such stimulation has been shown to
greatly reduce the likelihood that the patient will have an uncontrollable spasm
of the bladder wall muscle that can cause the bladder to empty. The percutaneous
SANS procedure entails approximately 30 minutes of electrical stimulation and is
repeated weekly in a physician's office. Percutaneous SANS consists of a
generator that delivers electrical impulses through a small disposable needle,
temporarily inserted near the ankle, and lead wire assembly. To facilitate
in-home use and enhance patient convenience, the Company is developing a second
generation, subcutaneous SANS device that involves the permanent implant of a
small, thumbtack-shaped electronic receiver near the patient's ankle,
eliminating the need for the use of a needle with each treatment. Few products
exist for effectively treating urge UI and the Company believes that SANS is
superior to other commercially available products due primarily to its minimally
invasive nature and cost-effectiveness. Clinical studies to date on percutaneous
SANS, encompassing over 1,000 treatment procedures in 90 patients with average
follow-up in excess of two years, indicate an 80% efficacy rate and no
complications. By comparison, clinical results of the only commercially
available implantable electronic nerve stimulation device also indicate a
comparable efficacy rate, but a high rate of post-treatment complications that
required reoperation in approximately one-third of all cases. This competing
product involves an invasive surgical implant procedure in the spinal area and
requires extensive physician training. The Company is marketing percutaneous
SANS in Europe and is currently conducting a pivotal clinical trial in the U.S.
The Company expects to submit a PMA application for acute use of percutaneous
SANS by early 1999.
22
<PAGE> 24
As part of its strategy of offering a broad range of products to physicians
treating genito-urinary disorders, the Company has also developed or licensed
SpiraStent, FilaStent and a kidney stone grasper for use in removing kidney
stones; AcuTrainer for diagnosing and managing urge UI; UroTherm for warming
irrigation fluids used in various gynecological and urological procedures;
demineralized bone paste for use in treating VUR in infants and children; and a
urethral pressure catheter for the diagnosis of stress UI. The Company has
received FDA 510(k) clearance for U.S. marketing of SpiraStent and AcuTrainer,
and has submitted 510(k) clearance applications for FilaStent and UroTherm. The
Company is marketing SpiraStent, FilaStent and AcuTrainer in Europe and
SpiraStent and AcuTrainer in the U.S.
STRATEGY
The Company's objective is to establish itself as the leader in the
development and commercialization of clinically effective solutions for UI and
other genito-urinary disorders treated by urologists, urogynecologists and
gynecologists. The following are the key elements of the Company's strategy.
Accelerate Commercialization of Existing Products. The Company has
substantially developed the infrastructure, including international
distributors, manufacturing capabilities and sales and marketing management,
that will help accelerate the commercialization of its products. The Company is
marketing UroVive, percutaneous SANS, SpiraStent, FilaStent and AcuTrainer in
Europe and other international markets and is recognizing revenues from these
efforts in the second quarter of 1998. The Company is also marketing SpiraStent
and AcuTrainer in the U.S. and intends to commence marketing of UroVive and SANS
in the U.S. upon receipt of PMA approval.
Become the Leader in the Treatment of UI. UI is a significant problem for a
large number of adults, particularly women and the elderly, and is one of the
most intractable and debilitating conditions treated by urologists and
urogynecologists. The UI market offers significant potential due primarily to
the inadequacy of existing treatments. The Company intends to offer improved
approaches for all levels of care, ranging from diagnosis to surgery, and for
all types of UI. The Company is focusing on the development of products that are
highly effective and minimally invasive, as compared to many current approaches
for managing UI, which are either palliative, such as diapers, or involve
invasive open surgical procedures.
Offer a Comprehensive Product Line. Urologists, urogynecologists and
gynecologists are responsible for treating most genito-urinary disorders and use
a wide range of products. The Company is developing a broad line of products to
address the needs of these physicians while focusing on product opportunities
that represent significant improvements over currently available therapies. As
part of these efforts, the Company intends to explore the applicability of its
current products and technologies to additional clinical indications. The
Company also continually evaluates product concepts and technologies that may
present potential solutions for unmet needs in its targeted markets and, in
addition to internal development efforts, actively seeks to license or acquire
rights to such products and technologies.
Penetrate International Markets. The Company believes that there is a
significant international market for its products. The Company distributes
products internationally through local distributors on a country-by-country
basis to access such distributors' established networks and specialized
expertise regarding the health care system, including reimbursement practices,
in their respective markets. The Company's current distributors cover 14
European countries, South Korea, Australia and Japan. In addition, as part of
its international marketing efforts, the Company has established clinical
research relationships with leading international urologists. The Company
believes that its country-specific approach will accelerate sales growth,
provide comprehensive geographic market coverage and enable the Company to
access particular markets and customers.
Build Specialized, Direct Sales Force in the U.S. According to industry
sources, there are approximately 8,000 urologists and 800 urogynecologists in
the U.S. The Company believes that this relatively small number of physicians to
which it will market its products affords a unique opportunity to develop a
cost-effective, direct sales effort. Accordingly, the Company has retained all
U.S. sales and marketing rights to its products and has commenced building a
sales and marketing sales force in the U.S. To gain acceptance of its products,
the Company conducts physician training and disseminates clinical and patient
outcome data. In addition, the
23
<PAGE> 25
Company markets its products by raising patient awareness of its available
treatments through advertising, magazine articles and other media.
URINARY INCONTINENCE
In the normal urinary tract, continence, or the appropriate storage of
urine, is maintained by a complex interplay of anatomic structures. The primary
structures responsible for controlling continence are the bladder neck and the
urinary sphincter. The urinary sphincter is a muscle at the base of the bladder
that surrounds the bladder neck and urethra and aids the bladder in maintaining
continence. In a normal system, the bladder neck and the urinary sphincter work
in a coordinated fashion to act as a valve. As the bladder fills and relaxes,
the urinary sphincter contracts to prevent urination. During urination, the
urethra and urinary sphincter muscle relax and open, the bladder contracts and
the bladder neck opens, all in a coordinated fashion, causing the passage of
urine. In normal continence, when the bladder neck opens involuntarily in
response to intra-abdominal pressure, the lower portion of the urinary sphincter
tightens in turn so as to maintain continence. Similarly, the urethra is also
under muscular control so as to keep this tube closed during the urine storage
phase. The following diagram depicts the anatomy of the urinary tract.
[DIAGRAM OF URINARY TRACT]
A malfunction in any part of this system can cause UI. The most common
anatomic incontinence pathology is bladder neck or urethral hypermobility, which
results from a lack of bladder neck support caused primarily by weak surrounding
tissue. The weakening of tissue surrounding the bladder, urethra and bladder
neck arises most commonly in women as a consequence of pelvic trauma cause by
pregnancy and childbirth. Other causes of UI include birth defects, injuries to
the pelvic region or to the spinal cord, neurological diseases and degenerative
changes associated with aging.
UI may cause depression, discomfort and embarrassment about appearance and
odor. Patients suffering from UI may withdraw from social interaction with
others, including friends and family, and sexual activity may be restricted or
avoided entirely. Spouses and other intimates also may share the burden of the
condition. There are three main categories of UI.
Stress urinary incontinence. Stress UI refers to the involuntary loss of
urine during coughing, laughing, sneezing, jogging or any other physical
activity which causes a sufficient increase in intra-abdominal pressure. This
condition varies in severity from those women who leak urine as a result of
certain sudden movements or physical activities to those who leak urine simply
upon standing up. Stress UI is caused by one of two conditions (i) urethral
hypermobility, a lack of anatomic stability caused primarily by weak surrounding
tissues, which results in the abnormal movement of the bladder neck and urethra
in response to sufficient intra-abdominal pressure or exertion; and (ii)
intrinsic sphincter deficiency, or the inability of the urinary sphincter valve
muscle to function properly due to atrophy of the urinary sphincter muscle.
Approximately 15% of stress UI cases are solely the result of intrinsic
sphincter deficiency. Urethral hypermobility is the principal cause of the
remaining 85% of stress UI cases; however, the Company believes that many of
these patients have a mix of urethral hypermobility and intrinsic sphincter
deficiency.
24
<PAGE> 26
Urge urinary incontinence. Urge UI refers to the involuntary loss of urine
due to an unexpected bladder contraction that is associated with a strong,
uncontrollable desire to urinate, often referred to as urgency. Causes of urge
UI include an overactive bladder muscle, neurologic abnormalities, such as those
caused by a stroke, and urethral instability or abnormal bladder relaxation
patterns.
Mixed urinary incontinence. Mixed UI is a mixture of stress and urge UI.
URINARY INCONTINENCE MARKET
The U.S. Department of Health and Human Services reports that approximately
13 million adults suffer from UI in the U.S., although precise figures are
uncertain because of underreporting due to the stigma associated with the
condition. The National Association for Continence estimates that approximately
31% of adults with UI suffer from stress UI, approximately 21% of adults with UI
suffer from urge UI, and approximately 30% of adults with UI suffer from mixed
UI. The U.S. Department of Health and Human Services has estimated that the
annual cost for treatment of UI in the U.S. exceeds $15 billion. This amount
includes all costs associated with the treatment of UI, including physician fees
and nursing home and long-term care costs. The Company believes that medical
devices for UI, which amounted to an estimated $250 million in sales in 1997,
represent a relatively small portion of the potential market due primarily to
the limitations of currently available devices.
UI particularly affects the elderly and women. Industry sources estimate
that approximately 19% of people over 65 living in non-institutional settings
and 40% of such persons living in institutional settings suffer from UI. UI is
believed to be a primary reason for admission to long-term nursing care
facilities. In addition to being prevalent in the elderly, UI is a major women's
health concern with women accounting for approximately 85% of the estimated 13
million adults with UI in the U.S. The higher incidence of UI among women is
generally attributed to pelvic trauma during pregnancy and childbirth, menopause
and abdominal surgery. UI will continue to be a significant health care problem
in the elderly and institutionalized populations and among adult females, and
the number of individuals suffering from UI is expected to increase as the
population continues to age.
CURRENT TREATMENTS AND THEIR LIMITATIONS
The Company views the treatment of UI at five levels of intervention: (i)
diagnosis; (ii) simple self-management through the use of products and
approaches that manage, but do not cure the condition, such as disposable or
reusable absorbents, behavioral therapy and pelvic muscle training exercises;
(iii) complex self-management through the use of products or procedures that can
be performed by the patient but require a device to be manually inserted in the
body, such as urethral and vaginal inserts and plugs; (iv) minimally invasive
treatments that can be accomplished on an outpatient basis, such as urethral
bulking agents, pharmaceuticals and Foley catheters; and (v) invasive surgery
under general anesthesia that involves suspension and sling procedures,
artificial sphincters and implantable nerve stimulation devices.
Disposable or reusable absorbents. Many cases of stress and urge UI are
managed through the use of disposable adult diapers, shields and reusable
absorbent pads. These products are palliative and do not treat the causes of the
patient's UI. The cost of diapers and pads over time can be substantial and is
not covered by medical insurance, creating a continuous financial burden for the
patient. Industry sources estimate that the annual sales of disposable diapers
and pads in the U.S. constitutes a $1.0 to $2.0 billion market. In addition,
this management technique requires frequent changing of diapers and pads to
control odor. Diapers and pads are also uncomfortable and wearing them can be an
embarrassment to the patient.
Behavioral therapy and pelvic muscle training exercises. Behavioral therapy
and related techniques are also used to manage UI through bladder and habit
training, pelvic muscle exercises (known as Kegel exercises) and biofeedback.
These techniques are primarily used in managing stress UI but can also be used
by persons suffering from urge UI. These therapies and techniques first teach
the patient to be aware of the group of muscles in the perineal area and to
contract them in a way that builds muscle tone around the bladder neck. These
treatments are time consuming, take several weeks or months before results are
evident, present uncertain outcomes and require strict patient compliance.
25
<PAGE> 27
Urethral and vaginal inserts and plugs. Urethral inserts act as expandable
stoppers to block the flow of urine when inserted in the urethra. When the
patient feels the need to urinate, these devices are either opened or removed to
allow the patient to urinate. The insertion method and the need to periodically
replace or remove these devices require a high degree of complex self-management
by the patient, which limits the usefulness of these devices to a small segment
of highly-motivated, extremely compliant patients. Potential adverse side
effects include urinary tract infections. Vaginal inserts are used to manage
stress UI by obstructing the bladder neck and urethra by applying pressure
through the neighboring vaginal cavity. These devices are frequently ineffective
in preventing leakage because it is difficult to fit patients properly and apply
sufficient pressure to eliminate the leakage of urine without causing
discomfort. Potential side effects observed with vaginal inserts include vaginal
discharge and tissue erosion.
Urethral bulking agents. Bulking agents are either biologically derived or
synthetic materials designed to be injected or implanted in or near the bladder
neck to treat stress UI by increasing tissue bulk. These bulking agents decrease
the urethral opening at the sphincter and compensate for the lack of muscle tone
that is needed to offset the hydrodynamic pressure of the bladder, thus
preventing urine leakage under stress. Bulking procedures are gaining acceptance
as a method of treating certain types of stress UI as a result of the high
efficacy rates achieved in clinical trials. However, biologically-derived
bulking agents currently available have experienced problems with absorption by
the body and may require retreatments within six to twelve months. Synthetic
bulking agents currently available have experienced problems with migration
because particles may be small enough to migrate to other areas of the body such
as the brain, lungs or lymphatic system. In addition, both synthetic and
biologically-derived bulking materials are not encapsulated and cannot be
contained after injection and therefore are not easily retrievable in the event
of chronic urinary retention.
Pharmaceuticals. Drug treatments can be used to manage both urge UI and
stress UI, but have demonstrated a limited efficacy, particularly in managing
stress UI. Drugs for the management of urge UI affect the contraction of the
muscle tissue of the bladder. Drugs for the management of stress UI attempt to
either affect contraction of the muscle tissue of the bladder neck or improve
the quality of the mucosal lining of the bladder neck and urethra. Drugs seldom
represent a long-term, effective solution and potential side effects include
dryness of the eyes (resulting in blurred vision) and mouth, urinary retention,
nausea, dizziness and the possibility of adverse drug interactions.
Foley catheters. Foley catheters, which are typically used to assist
patients unable to urinate post-surgery, may also be used to manage UI in
hospitals and long-term care facilities. The Foley catheter is inserted through
the urethra into the bladder. Once in place, the catheter is either clamped at
the exit point from the body or connected to an external urine collection bag.
Aside from the physical and emotional discomfort experienced by patients, the
direct path from the exterior to the bladder provides a conduit for bacteria,
and often results in bladder infections.
Suspension and sling procedures. Bladder neck suspension and sling
procedures involve invasive surgical intervention to elevate and stabilize the
urethra and the bladder neck in order to treat stress UI. In a bladder neck
suspension, the bladder neck and urethra are elevated to prevent urethral and
bladder neck prolapse (descent) during exertion. In a sling procedure, either an
autologous (patient tissue) or synthetic piece of material is placed under the
urethral-bladder junction, pulling it forward in a way that reinforces and
strengthens the sphincter. Surgeries of this nature are costly, delicate and
complicated procedures in which the outcome depends on a number of factors,
including the degree of severity of the patient's condition and the surgeon's
experience.
Artificial sphincters. Artificial sphincters are implantable, miniature,
hydraulic medical devices consisting of an inflatable cuff placed around the
urethra and a pump and tubing required to activate the cuff. The most common
applications are for post-prostatectomy incontinence and patients with
neuropathic bladders. Artificial sphincter implantation currently requires a
major inpatient surgical procedure and hospitalization with associated
discomfort, lengthy recovery period and high expense. Initial complications that
may arise are mainly associated with post-operative infection or urethral or
bladder injury during implantation. Delayed complications include mechanical
problems such as pump malfunctioning, fluid leaks, tubing kinks and tissue
atrophy.
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Implantable Nerve Stimulation Devices. Implantable nerve stimulation
devices stimulate the nerve bundle located in the spinal column that controls
bladder activity in an attempt to reduce the bladder spasms that cause urge UI.
The only such device currently sold commercially is derived from traditional
pacemaker technology, and the implantation of the device is an open surgical
procedure which is usually performed by a urologist and assisted by a
neurosurgeon, if necessary. This device involves a lead that is attached to the
spinal column and connected to an electrical stimulation device (which contains
a battery) implanted in the abdomen. Periodically, the patient must submit to
additional surgical procedures in order to change the batteries or replace the
implanted device. Implantation of the device requires costly major invasive
surgery including exposure of the spine. In clinical testing, the device showed
efficacy in approximately 75% of patients. However, 35% of patients reported
long-term pain from the device and required additional surgery to reposition the
implant.
THE UROSURGE SOLUTION
Stress UI solution. The Company believes that UroVive is an effective
method for treating stress UI and addresses the major problems associated with
existing treatments. UroVive is a minimally invasive system that is initially
being targeted for the treatment of stress UI caused by intrinsic sphincter
deficiency. The Company may seek to expand the targeted indications for UroVive
by conducting additional clinical trials and seeking additional regulatory
approvals.
The Company believes that the following are the principal advantages of
UroVive compared to other urethral bulking agents and other approaches for
treating stress UI:
- No absorption. The membrane of the UroVive microballoon completely
contains the hydrogel filler material, preventing loss of volume through
absorption. In contrast, other injectibles such as collagen can be
absorbed by the body, resulting in the potential need for retreatments
within six to twelve months in order to maintain bulk in the urethral
sphincter. With UroVive, long-term bulking of the urethral sphincter can
be achieved in a single procedure.
- No migration. UroVive does not spread along tissue planes or migrate to
other parts of the body like unencapsulated bulking agents such as
teflon or silicone microparticles. Migration causes difficulty in
maintaining bulk in the desired area, requiring the injection of large
amounts of material as well as possible retreatment. Furthermore,
migration to other parts of the body may result in the occurrence of
unpredictable and unintended side effects.
- Ease of use and patient convenience. Placement of UroVive microballoons
is a relatively easy procedure that takes approximately 20 minutes and
is performed using a cystoscope, a visualization device that is commonly
used in urinary tract procedures. In addition, UroVive is convenient for
the patient who experiences immediate continence and who is not required
to adhere to ongoing treatment regimens, which are necessary with
reusable or disposable absorbents, behavioral therapy, pelvic muscle
training exercises, pharmaceuticals and urethral and vaginal inserts and
plugs.
- Minimally invasive procedure. The UroVive procedure is minimally
invasive and can be performed in an outpatient or physician office
setting under local anesthesia. Unlike suspension and sling procedures
and artificial sphincters that may require several days of
hospitalization, patient recovery time is minimal and hospitalization is
not required.
- Long-term, cost-effective solution. The UroVive procedure is designed to
provide immediate, long-term continence from a one-time treatment. As
such, UroVive offers a cost-effective solution compared to palliative
measures that do not restore continence, other urethral bulking agents
that often require costly retreatments or invasive surgery.
- Retrievability. In cases of chronic urinary retention, it may be
necessary to retrieve the urethral bulking agent. UroVive microballoons
are retrievable transurethrally through a small incision in the urethra.
No practical method exists for retrieving competing urethral bulking
agents, all of which are unencapsulated.
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<PAGE> 29
Urge UI solution. The Company believes that SANS is an effective system for
treating urge UI and addresses many of the problems with existing treatments.
SANS is a minimally invasive system that modulates bladder action through
stimulation of the afferent nerve fibers in the ankle area that lead to nerves
located in the spinal region that control bladder function.
The Company believes that the following are the principal advantages of
SANS compared to the only commercially available implantable electronic nerve
stimulation device and other approaches for treating urge UI:
- Effective and less invasive solution. SANS stimulates the same nerves
and achieves equivalent efficacy with significantly reduced invasiveness
and risk as compared to the only commercially available implantable
electronic nerve stimulation device, which requires an invasive
implantation of an electrical lead in close proximity to the spinal
column along with a battery operated electronic stimulation device in
the abdomen. Furthermore, clinical trials indicated that 35% of patients
treated with this spinal implant device required surgical reintervention
due to lead migration and other complications.
- Patient comfort. Percutaneous SANS delivers electrical stimulation
through a small diameter needle temporarily inserted in the ankle area
and subcutaneous SANS will deliver electrical stimulation through a
small receiver implanted in the ankle area. In contrast, the spinal
implant system delivers electrical stimulation through an implanted
device that is complex and bulky, which can result in patient
discomfort.
- Cost-effectiveness. The percutaneous SANS procedure is performed in
periodic, short visits to the doctor's office and uses a relatively
inexpensive disposable needle and lead wire assembly. By contrast, the
competing spinal implant entails the implantation of a costly,
self-contained electrical stimulation device in an invasive surgical
procedure, requiring retreatments for battery replacement and
reintervention due to complications. In addition, subcutaneous SANS
should enable the Company to reduce the cost of each SANS treatment by
ultimately enabling SANS treatments to be performed at home. Unlike the
spinal implant, SANS will not require reoperation for battery
replacement.
- Ease of use. Both percutaneous and subcutaneous SANS procedures are
relatively easy and will be performed in a physician office setting. The
percutaneous SANS treatment can be performed in approximately 30 minutes
by the urologist and implantation of the subcutaneous SANS receiver will
be performed in a short, outpatient procedure under local anesthesia.
- Curative approach. Other than a spinal implant, few approaches exist for
treating urge UI. SANS is designed to be a curative approach for
treating urge UI, unlike palliative approaches such as diapers. In
addition, SANS does not present the side-effects often associated with
pharmaceuticals, which also may have short-term effectiveness.
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PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The following table summarizes the status of the Company's products and
products under development as of March 31, 1998:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION PRIMARY INDICATION STATUS
<S> <C> <C> <C>
PRINCIPAL PRODUCTS
UroVive Self-detachable, self- Stress UI due to Commenced marketing in
sealing microballoon intrinsic sphincter Europe in March 1998.
implanted into the deficiency Pivotal clinical trials
urethral sphincter and in U.S. PMA expected to
permanently inflated be submitted in mid-
with a biocompatible 1999.
hydrogel.
Percutaneous SANS Needle device to Urge UI Commenced marketing in
electrically stimulate Europe in March 1998.
peripheral nerve fibers Pivotal clinical trials
located in ankle area in U.S. PMA expected to
that regulate bladder be submitted by early
and pelvic floor 1999.
function.
Subcutaneous SANS Implantable device to Urge UI IDE to be submitted in
electrically stimulate late 1998.
peripheral nerve fibers
located in ankle area
that regulate bladder
and pelvic floor
function.
OTHER PRODUCTS
SpiraStent Spiral-shaped stent Kidney drainage (i.e. Commenced marketing in
designed to facilitate urine, stones) U.S. and Europe in March
urine flow and removal 1998. 510(k) clearance
of kidney stones from received.
the kidney and ureter.
FilaStent Filament-reinforced Kidney drainage (i.e. Commenced marketing in
stent designed to urine, stones) Europe in March 1998.
facilitate urine flow 510(k) clearance
and removal of kidney application submitted.
stones from the kidney
and ureter.
AcuTrainer Non-invasive electric Urge UI Marketed in U.S. and
device to assist Europe.
patients with bladder
retraining exercises.
UroTherm Device to warm BPH surgical 510(k) clearance
irrigation fluids. procedures application submitted.
Kidney stone grasper Device to facilitate Kidney stones 510(k) clearance
removal of multiple application expected to
small and large kidney be submitted in late
stones from the ureter. 1998.
Demineralized bone paste Biologically derived VUR in infants and IDE approved in U.S.
paste. children
Urethral pressure catheter Hardware and disposable Intrinsic sphincter Functional prototype
device for measuring deficiency diagnosis expected by late 1998.
stress UI due to
intrinsic sphincter
deficiency.
</TABLE>
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<PAGE> 31
PRINCIPAL PRODUCTS
UROVIVE
UroVive system. The UroVive system includes a delivery system, a
microballoon and a syringe filled with biocompatible hydrogel, which will be
sold in an integrated kit. The microballoons are made of cross-linked silicone
polymer and are available in various sizes depending on the amount necessary to
provide the muscular tension for continence. The hydrogel material is a
hydrophilic, or water-absorbing polymer, which has been demonstrated to be safe
when used in other devices, including contact lenses. The microballoons can be
delivered periurethrally or transurethrally.
In a periurethral UroVive procedure, a cystoscope is inserted through the
urethra and used for visualization of the sphincter muscle while a catheter and
deflated microballoon are delivered directly into the sphincter muscle using a
needle and sheath. After proper needle positioning, the needle is removed, the
sheath is retracted and the deflated balloon is exposed in the tissue pocket
created in the sphincter muscle. Once inside the pocket, a syringe connected to
the catheter containing hydrogel is used to inflate the microballoon. When the
microballoon is sufficiently filled, the sheath and catheter are retracted, the
microballoon is detached, seals itself and remains in place. In a transurethral
UroVive procedure, a cystoscope is inserted in the urethra and a needle and
sheath are advanced through the working channel of the cystoscope and inserted
into the sphincter muscle, creating a small tissue pocket. The closed-end needle
is removed, leaving the sheath in place. A catheter and a deflated microballoon
are inserted through the lumen of the delivery sheath until the balloon is
positioned in the tissue pocket. As in a periurethral procedure, when the
microballoon is sufficiently filled, the microballoon is detached, seals itself
and remains in place.
[SERIES OF DIAGRAMS DEMONSTRATING THE UROVIVE PROCEDURE]
A typical UroVive procedure will involve the placement of three balloons
around the perimeter of the sphincter muscle to achieve closure. The procedure
can be performed in about 20 minutes in an outpatient
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setting and is designed to immediately restore the patient to normal urinary
continence. A typical procedure using three or four microballoons is comparable
to other urethral bulking agents.
UroVive clinical trials. In February 1996, the Company initiated clinical
testing of UroVive in a pilot study involving 27 women with stress UI due to
intrinsic sphincter deficiency. The study was completed in February 1997. The
Company's clinical investigators have been following the progress of these
patients, and the Company currently has one to two year follow-up data. Results
indicate a 90% efficacy rate for female patients with stress UI due to intrinsic
sphincter deficiency for which the Company has 18-month follow-up data. The
UroVive treatment is considered effective if the patient is either dry
(continent) or achieves an improvement on a scale, known as the Stamey Scale,
which is used to measure the grade and severity of UI symptoms.
The Company received FDA approval to enroll up to 216 patients at up to 10
U.S. sites in a pivotal clinical trial of UroVive for the treatment of females
with stress UI caused by intrinsic sphincter deficiency. This is a controlled,
randomized study in which two-thirds of the patients will be randomized into the
UroVive treated group and one-third will be randomized into a control group. The
control group patients will be treated with a commercially available collagen
urethral bulking agent. As of March 31, 1998, approximately 100 patients had
been enrolled with 70 patients in the UroVive treated group and 30 patients in
the control group. This clinical trial is designed to obtain data to support a
PMA application for UroVive, which the Company expects to submit in mid-1999.
The Company is conducting clinical trials for the treatment of other UI
indications using UroVive. For example, another indication in clinical trials
involves males who experience stress UI after undergoing a radical
prostatectomy. The Company is currently in the pilot phase of this trial in
which 10 patients will be treated. The Company plans to pursue regulatory
approvals for these other indications to expand UroVive's application.
SANS
Percutaneous SANS. The percutaneous SANS system consists of a generator
that delivers electrical impulses through a small disposable needle and lead
wire assembly. In a SANS procedure, the physician temporarily inserts the needle
into the proper location in the ankle area. After the lead wire and electrode
are attached, the SANS device is turned on and amplitude is slowly increased
until the patient's large toe starts to curl or the toe digits fan out,
indicating proximity to the nerve bundle. Amplitude is then reduced slightly and
the patient receives intermittent electrical pulses for approximately 30 minutes
per visit. The treatment is repeated weekly in a physician office setting and
after approximately 10 weeks, the physician can assess patient progress. If
improvement is significant, the physician may place the patient on a regimen
requiring less frequent treatments. SANS was originally developed by Dr.
Marshall Stoller, a leading urologist at UCSF School of Medicine.
Percutaneous SANS clinical trials. Clinical studies to date, encompassing
90 patients with average follow-up in excess of two-years, demonstrated an 80%
efficacy rate in the treatment of urinary urgency, frequency and pelvic pain
with no complications in over 1,000 treatment procedures. Efficacy is defined as
an at least 50% improvement in one or more of a patient's urge UI symptoms.
In the first quarter of 1998, the Company received FDA approval to enroll
up to 60 patients at up to four sites in a nonrandomized, pivotal clinical
trial. In this study, urgency and frequency will be used as benchmarks for
measuring patient progress over a period of at least 10 weeks and up to one
year. This clinical trial is designed to obtain data to support a PMA
application for percutaneous SANS, which the Company expects to submit in early
1999.
Subcutaneous SANS. To ultimately facilitate in-home use and enhance patient
convenience, the Company is developing a second generation, subcutaneous SANS
that involves the permanent implant of a small, thumbtack-shaped receiver near
the patient's ankle, eliminating the need for the use of a needle with each
treatment. The patient may then visit a physician weekly to receive the
electrical stimulus or perform the treatment on himself or herself at home.
Because the permanent implant is simply a receiver for a magnetic
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<PAGE> 33
pulse, it will not require batteries and the patient will not have to undergo
subsequent implants for battery replacement.
Subcutaneous SANS clinical status. The Company is currently conducting
preclinical animal studies of subcutaneous SANS and, depending upon the outcome
of these studies, expects to file an IDE for FDA approval to conduct pilot and
pivotal clinical trials in late 1998.
OTHER PRODUCTS
SpiraStent and FilaStent
SpiraStent and FilaStent are ureteral stents designed to facilitate urine
flow and the passage of kidney stone fragments generated by lithotripsy or other
procedures. Approximately 200,000 lithotripsy procedures are performed annually
in the U.S. for kidney stone removal. Currently available ureteral stents are
simple tubes with intermittent side holes along their length. To date, the
principal purpose of ureteral stents has been to dilate the ureter to allow
urine passage around the stone fragments. Stones typically do not pass through
the center lumen of the stent or through the side holes, but will move along the
outside wall of the stent. With conventional smooth walled stents, the natural
peristaltic motion of the ureter causes stone fragments to oscillate back and
forth along the outer wall of the stent, resulting in slow downward progression.
SpiraStent is differentiated by its extrusion screw-like shape, which is
designed to overcome the problem of slow movement by allowing stones to pass
down the channel of the screw as natural peristalsis and urine flow occur. The
ability of SpiraStent to provide improved expulsion of stone fragments has been
demonstrated in preclinical animal trials.
FilaStent is a smooth ureteral stent with an embedded high strength
filament within its wall designed to facilitate post-encrustation removal of the
device. In some cases, ureteral stents may be left in place for 30 days or
longer, particularly when used to provide a conduit for urine passage after
certain types of kidney and ureteral surgeries. As a result, stents may become
encrusted and brittle, resulting in breakage during removal. With conventional
stents, encrustation and breakage can lead to the need for surgical intervention
to remove the fractured stent. With FilaStent, in the event of encrustation and
fracture of the stent, the fragments would remain bonded to the filament and be
retrieved upon removal of the stent.
AcuTrainer
AcuTrainer is a hand-held, battery-operated device that facilitates
behavior modification by chiming or vibrating at increasing time intervals to
prompt urge UI patients to urinate. Patients with urge UI often attempt to keep
their bladder as empty as possible at all times to avoid accidental urination.
However, the more frequently they urinate, the more frequently they get the urge
to urinate. Bladder retraining, when used as a first-line treatment modality,
has been shown to non-invasively improve or correct the condition in many
patients. AcuTrainer circumvents the need for the patient to keep cumbersome
voiding diaries and provides the clinician with an effective tool for monitoring
several parameters pertaining to patient progress. After urinating, the patient
presses a button which resets the internal clock of the device. When a patient
has an incontinence or leak episode, they will press another button, registering
this event in the device memory. The physician can choose the initial time
interval, and the device automatically advances the patient to the next time
interval only after a specific success rate is achieved. The physician may
access AcuTrainer memory to determine patient compliance, frequency of
urination, nocturia (urinating during sleep) and urge UI episodes.
UroTherm
The Company is developing UroTherm, a device for warming irrigation fluids
used in surgical procedures to treat benign prostatic hyperplasia ("BPH"),
laparoscopic surgical procedures and other types of gynecological and urological
procedures. Approximately 200,000 BPH surgical procedures are performed annually
in the U.S.
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<PAGE> 34
During a typical laparoscopic or BPH surgical procedure, urologists may use
up to 30 liters of irrigation solution such as saline, which is warmed to body
temperature. Studies indicate that warmed irrigation fluid for urological
applications reduces infections, speeds healing and shortens hospital stays. The
current practice of heating bags of fluid is to place them in an oven and
replenish them from time to time as they are used. This process is inconvenient
and inefficient. To address this problem, the Company is developing UroTherm, a
system which will heat the solution in-line, eliminating the need to
continuously heat and replenish bags. UroTherm will consist of a small heating
unit that can be mounted onto an IV pole. The hardware unit will provide an
actual irrigation fluid temperature readout and an advanced electronic
temperature control system. The unit will consist of a plastic cartridge that is
disposable and will be included as part of the TURP infusion set. As the
irrigation solution flows through the disposable unit, it is warmed to body
temperature. The Company has submitted a 510(k) clearance application to the FDA
for UroTherm.
Kidney Stone Grasper
The Company is developing a kidney stone grasping device for removing
multiple small and large kidney stones or stone fragments from the ureter or
bladder. Current kidney stone graspers are typically either wire baskets or
pincers. These devices have sharp cutting edges, which can be painful and
traumatic to the patient. In addition, they typically can only grasp one stone
at a time. The Company's kidney stone grasper is designed with a soft,
collapsible polymeric net that can be opened in the ureter. Multiple stone
fragments can be snared as the net collapses around them and can then be
withdrawn through the ureteral catheter, minimizing trauma to the patient. The
Company plans to submit a 510(k) clearance application for the kidney stone
grasper in late 1998.
Demineralized Bone Paste
The Company is developing an injectable demineralized bone paste for
treatment of VUR in infants and children. VUR is a condition caused by an
abnormal interface between the ureter and the bladder resulting in backflow or
"reflux" of urine from the bladder to the kidney when the child urinates. VUR
can cause chronic urinary tract infections and necrosis of the kidney. Severe
cases of VUR must be treated with invasive and expensive surgery. The Company's
demineralized bone paste, which has been shown in preclinical trials
encompassing two years of data to be biocompatible, nonimmunogenic, nonmigratory
and nonresorbable, is injected at the junction of the bladder and uretero in a
minimally invasive outpatient procedure to restore proper functioning of the
child's urinary system. In January 1998, the Company received IDE approval to
commence a pilot study for treatment of VUR. This study is scheduled to begin in
July of 1998 and is expected to be followed by a non-randomized pivotal trial.
The development of this product is being partially funded by Child Healthcare
Corporation of America. The Company also intends to explore the use of the
demineralized bone paste in other UI indications, including the treatment of
urethral hypermobility.
Urethral Pressure Catheter
Urethral or sphincter pressure is an important factor in diagnosing
intrinsic sphincter deficiency. Establishing whether a patient's stress UI is
caused by intrinsic sphincter deficiency or another category of stress UI is
important because the treatments are specific to the indicated type of UI.
The current methods of testing for stress UI caused by intrinsic sphincter
deficiency consist of a video urodynamic profile procedure that costs
approximately $1,000 or use of a balloon catheter such as a Foley catheter that
is inflated partially in the bladder and then pulled past the sphincter muscle
to measure sphincter resistance. The urodynamic profile method is expensive and
the latter method can be inaccurate due to inconsistencies associated with the
pressure transducers in the balloon.
The Company's urethral pressure catheter will consist of a catheter with a
custom-designed tip. The tip has the appearance of an inverted umbrella. The
umbrella is folded shut and advanced into the bladder "handle first." The
umbrella tip can be opened to various degrees, thereby tailoring the
circumference of the device. After the umbrella tip is opened, the catheter is
retracted through the urethra. Pull force as a function of umbrella opening
diameter and urethral distance are measured. A correlation between pull force
and
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<PAGE> 35
intrinsic sphincter strength can be generated to obtain a diagnosis of intrinsic
sphincter deficiency. The Company's urethral pressure catheter is designed to
provide diagnostic accuracy comparable to urodynamic profiling at significantly
reduced cost. The Company expects to have completed development of a functional
prototype by late 1998.
SALES AND MARKETING
The Company is marketing UroVive, percutaneous SANS, SpiraStent, FilaStent
and AcuTrainer in Europe and other international markets and is recognizing
revenues from these efforts in the second quarter of 1998. The Company's current
distributors cover 14 European countries, South Korea, Australia and Japan. Each
distributor has non-exclusive rights in its designated territory. The Company
distributes its products internationally through distributors on a
country-by-country basis to access such distributors' established networks and
specialized expertise regarding the healthcare system, including reimbursement
practices, in their respective markets. In addition, the Company has established
clinical research relationships with leading international urologists. The
Company believes that its country-specific approach will accelerate sales
growth, provide comprehensive geographic market coverage and enable the Company
to access particular markets and customers.
The Company is also marketing SpiraStent and AcuTrainer in the U.S. and
intends to commence marketing of UroVive and SANS in the U.S. upon receipt of
PMA approval. The Company's U.S. direct sales and marketing staff currently
consists of six sales and marketing executives and two telemarketers. The
Company has retained U.S. marketing rights to its products and plans to continue
expanding its direct sales effort as regulatory approvals and clearances are
received. Industry sources estimate that there are approximately 8,000
urologists and 800 urogynecologists in the U.S. to which the Company could
market its products. The Company believes that this relatively small number of
physicians can initially be served by a sales force of fewer than 20 people. See
"Risk Factors -- Limited Marketing and Sales Capabilities."
MANUFACTURING
The Company is currently manufacturing AcuTrainer and is scaling up its
manufacturing facilities for the clinical and early commercial production of its
other products. The Company recently leased an additional 11,500 square foot
space adjacent to the Company's headquarters in order to meet its anticipated
supply requirements. Historically, the Company has relied on contract
manufacturers to produce development prototypes and products for clinical
trials. However, as products receive regulatory clearance, the Company intends
to manufacture its own products, beginning with the assembly or manufacture of
percutaneous SANS hardware and disposables, UroVive kits, SpiraStent and
FilaStent kits and the preparation of demineralized bone paste. The Company is
currently in the process of building out its facility which is expected to be
completed in July 1998. This facility will contain a class 10,000 clean room.
See "Risk Factors -- Limited Manufacturing Experience."
The Company purchases raw materials and components used in its products
from various suppliers. A contract supplier provides the Company with the
microballoons used in the UroVive system under a mutually exclusive supply
agreement executed in April 1995. The agreement expires in April 2000 subject to
an automatic two-year extension if the Company does not receive the FDA's
approval of the Company's PMA application for UroVive by April 1999, which
approval the Company does not expect to receive by such date. In addition to
UroVive balloons, certain materials and components are currently purchased by
the Company from single sources. To date, these materials have generally been
readily available and the Company has not experienced supply shortages. See
"Risk Factors -- Dependence Upon Key Suppliers."
The Company is also required to register as a medical device manufacturer
with the FDA and to list its products with the FDA. Furthermore, prior to
approval of a PMA application, the Company's facilities, procedures and
practices, and the facilities, procedures and practices of its third-party
manufacturers, will be subject to a preapproval inspection by the FDA. In
addition, if the Company wishes to significantly modify its manufacturing
processes or change the supplier of a critical component, additional approvals
will be required from the FDA before the change can be implemented. The Company
has not yet undergone an FDA QSR
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inspection of its facilities, but may undergo such an inspection before or after
submission of its initial PMA application. See "Risk Factors -- Government
Regulation."
RESEARCH AND DEVELOPMENT
The Company believes that its future success will depend in large part upon
its ability to enhance its existing products and to develop other new products.
Accordingly, the Company intends to continue to devote significant funds and
efforts to research and development. The Company currently employs 17
individuals on a full-time basis and five individuals on a part-time basis for
its research and development and manufacturing efforts, including five
individuals with advanced degrees.
To the extent that the Company's medical advisors develop new products
which the Company believes represent attractive opportunities, the Company will
seek to negotiate licenses to the technology related to such products.
For the years ended December 31, 1995, 1996 and 1997, the Company's
research and development expenses were $0.8 million, $1.9 million and $3.6
million, respectively.
PATENTS AND PROPRIETARY RIGHTS
Because of the substantial length of time and expense associated with
bringing new products through the development and regulatory approval processes
in order to reach the marketplace, the medical products industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Accordingly, the Company's strategy
regarding the protection of its proprietary rights and innovations is to seek
patents on those portions of its technology that it believes are patentable and
that provide a competitive advantage and to protect as trade secrets other
confidential and proprietary information.
The Company has received, licensed or has obtained an option or right to
license 10 issued or allowed U.S. patents and has five pending U.S. patent
applications. The Company or its licensors have obtained or applied for
corresponding patents for certain of these U.S. patents and applications in a
limited number of foreign countries. These patent rights relate to UroVive,
SANS, AcuTrainer, SpiraStent, FilaStent, UroTherm, the kidney stone grasper,
demineralized bone paste and the urethral pressure catheter. The issued U.S.
patents have expiration dates ranging from 2009 to 2015.
Patents and patent applications related to the Company's products are
either held directly by the Company or licensed from others. Much of the
original technology for the Company's products other than FilaStent and UroTherm
is licensed from others. The Company has developed improvements to the licensed
technologies related to UroVive and has filed additional patent applications to
broaden the coverage of existing patents for such improvements. See "Risk
Factors -- Dependence on Patents and Proprietary Technology."
The Company has licensed technologies relating to UroVive, SANS,
SpiraStent, AcuTrainer, the kidney stone grasper, demineralized bone paste and
the urethral pressure catheter. The Company holds an exclusive worldwide right
and license to the technologies underlying UroVive, subject to a royalty-free,
nonexclusive license granted to the U.S. government (for patents developed with
U. S. government funding) and a royalty-free, nonexclusive, irrevocable license
retained by the licensor to employ the licensed technologies and processes for
research purposes only. The Company has also obtained an exclusive license to
all U. S. and foreign patents and patent applications related to the technology
underlying SANS, as well as the right to issue sublicenses to third parties in
regard to SANS-related patents. The Company has also obtained similar licenses
related to technologies underlying SpiraStent and the kidney stone grasper from
the same licensor for SANS. All of such licenses for SANS, SpiraStent and the
kidney stone grasper are subject to the right of the licensor to use the
technologies for educational and research purposes. The Company also holds an
exclusive, worldwide license to and right to sublicense AcuTrainer as well as a
right of first refusal to any future intellectual property or patent rights held
by the AcuTrainer licensor. The Company also has exclusive, worldwide licenses
to and the right to grant sublicenses to demineralized bone paste (for
urological applications) and the urethral pressure catheter, subject to rights
held by the U. S. government and the licensors. All of the licenses generally
remain in effect for the term of the underlying patents, unless earlier
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terminated by the Company, upon the Company's breach or operation of law. For a
discussion of royalties payable under these licenses, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and the Company's financial statements and notes
thereto.
To date, no claims have been brought against the Company alleging that its
technology or products infringe intellectual property rights of others. However,
there can be no assurance that such claims will no be brought against the
Company in the future or that any such claims will not be successful. See "Risk
Factors -- Dependence on Patents and Proprietary Technology."
COMPETITION AND TECHNOLOGICAL CHANGE
The medical device industry, including in particular the UI product
industry, is highly competitive. The Company believes that primary competitive
factors include the level of physician and consumer awareness and acceptance of
available treatment methods, product efficacy, consistency of product quality
and delivery, price, technical capability and the training of health care
professionals and consumers in the use of available treatment methods. The
Company's ability to compete in this industry will also be affected by its
product development capabilities and innovation, its ability to obtain required
regulatory clearances, its ability to protect the proprietary technology
included in its products, its manufacturing and marketing capabilities and its
ability to attract and retain skilled employees.
C.R. Bard, Inc. sells the only urethral bulking agent currently sold
commercially in the U.S. and Medtronic, Inc. sells the only commercially
available implantable electronic nerve stimulation device for urge UI. Current
major competitors who compete in the urethral bulking agent market include C.R.
Bard, Inc., Uroplasty, Inc., Advanced UroScience, Inc., BioMatrix, Inc. and
Mentor Corporation. Current major competitors who compete in the stent market
include Boston Scientific Corporation, Circon Corporation and Cook Incorporated.
The Company's competitors may have greater experience in developing
products, conducting clinical trials, obtaining regulatory approvals, and
manufacturing and marketing products than the Company. Certain of these
competitors may obtain patent protection, approval or clearance by the FDA or
foreign countries or product commercialization earlier than the Company, any of
which could materially adversely affect the Company. Furthermore, if the Company
commences significant commercial sales of its products, it will also be
competing with respect to manufacturing efficiency and marketing capabilities,
areas in which it currently has limited experience. See "Risk
Factors -- Competition."
Other recently developed technologies or procedures are, or may in the
future be, the basis of competitive products. There can be no assurance that the
Company's current competitors or other parties will not succeed in developing
alternative technologies and products that are more effective, easier to use or
more economical than those which have or are being developed by the Company or
that would render the Company's technology and products obsolete and
non-competitive in these fields. In such event, the Company's business,
financial condition and results of operations could be materially adversely
affected.
GOVERNMENT REGULATION
United States
The Company's products and its research and development activities are
subject to stringent regulation by numerous governmental authorities,
principally the FDA and corresponding state and foreign regulatory agencies. The
Federal Food, Drug, and Cosmetic Act (the "FDC Act"), as amended, the
regulations promulgated thereunder, and other federal and state statutes and
regulations, govern, among other things, the preclinical and clinical testing,
design, manufacture, safety, efficacy, labeling, storage, record keeping,
advertising and promotion of medical devices.
In the U.S., medical devices are classified into three different classes,
class I, II and III, on the basis of controls deemed necessary to reasonably
ensure the safety and effectiveness of the device. Class I devices are subject
to general controls (e.g., labeling, premarket notification and adherence to
FDA's QSRs) and class II
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devices are subject to general and special controls (e.g., performance
standards, postmarket surveillance, patient registries, and FDA guidelines).
Generally, class III devices are those which must receive premarket approval by
the FDA to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting and implantable devices, or new devices which have been found
not to be substantially equivalent to legally marketed devices).
Percutaneous SANS is a class II medical device that requires PMA approval
prior to marketing in the U.S. UroVive, subcutaneous SANS and demineralized bone
paste are class III devices that require PMA approval prior to marketing in the
U.S. SpiraStent, FilaStent, AcuTrainer, UroTherm, the kidney stone grasper and
the urethral pressure catheter are eligible for clearance under the 510(k)
premarket notification process.
Generally, before a new medical device can be marketed, marketing clearance
must be obtained through a 510(k) premarket notification or approval of a PMA
application. A 510(k) clearance will typically be granted by the FDA if it can
be established that the device is substantially equivalent to a "predicate
device," which is a legally marketed class I or II device or a class III device
for which the FDA has not called for PMAs. The FDA has been requiring an
increasingly rigorous demonstration of substantial equivalence and this may
include a requirement to submit human clinical trial data. It generally takes
four to twelve months from the date of a 510(k) submission to obtain clearance,
but it may take longer. The Company made its 510(k) submission for FilaStent in
March 1998 and for UroTherm in November 1996.
The FDA may determine that a medical device is not substantially equivalent
to a predicate device, or that additional information is needed before a
substantial equivalence determination can be made. A "not substantially
equivalent" determination, or a request for additional information, could
prevent or delay the market introduction of new products that fall into this
category. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect the safety or
effectiveness, or that constitute a major change in the intended use of the
device, will require new 510(k) clearances.
A PMA application must be submitted if a proposed device is not
substantially equivalent to a legally marketed class I or class II device, or if
it is a preamendment class III device for which the FDA has called for PMAs. A
PMA application must be supported by valid scientific evidence to demonstrate
the safety and effectiveness of the device, typically including the results of
clinical trials, bench tests, and laboratory and animal studies. The PMA must
also contain a complete description of the device and its components, and a
detailed description of the methods, facilities and controls used to manufacture
the device. In addition, the submission must include the proposed labeling,
advertising, and any training materials. The PMA process can be expensive,
uncertain and lengthy, and a number of devices for which FDA approval has been
sought by other companies have never been approved for marketing. The Company
has not submitted a PMA application for UroVive, the SANS devices or
demineralized bone paste.
Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is sufficiently complete
to permit a substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review of
the PMA. The FDA review of a PMA application generally takes one to three years
from the date the PMA is accepted for filing, but may take significantly longer.
The review time is often significantly extended by the FDA asking for more
information or clarification of information already provided in the submission.
During the review period, an advisory committee, typically a panel of
clinicians, may be convened to review and evaluate the application and provide a
recommendation to the FDA as to whether the device should be approved. The FDA
accords substantial weight to the recommendation but is not bound by it. Toward
the end of the PMA review process, the FDA generally will conduct an inspection
of the manufacturer's facilities to ensure compliance with applicable QSRs,
which include elaborate testing, control documentation and other quality
assurance procedures. The Company has not yet undergone an FDA QSR inspection
and does not anticipate that it will undergo such an inspection until after
filing of its initial PMA application. Separate preapproval inspections are
required for each PMA application.
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If FDA evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which usually contains a number of conditions that must be
met in order to secure final approval of the PMA. When and if those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
approval letter, authorizing marketing of the device for certain indications. If
the FDA's evaluation of the PMA application or manufacturing facilities is not
favorable, the FDA will deny approval of the PMA application or issue a
"complete response" letter. The FDA may determine that additional clinical
trials are necessary, in which case the PMA may be delayed for one or more years
while additional clinical trials are conducted and submitted in an amendment to
the PMA. Modifications to a device that is the subject of an approved PMA, its
intended use or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA.
If human clinical trials of a device are required, either for a 510(k)
submission or a PMA application, and the device presents a "significant risk,"
the sponsor of the trial (usually the manufacturer or the distributor of the
device) must file an investigational device exemption ("IDE") application prior
to commencing human clinical trials. The Company has received an IDE for
UroVive, percutaneous SANS and the demineralized bone paste and expects to file
an IDE application for subcutaneous SANS. The IDE application must be supported
by data, typically including the results of animal and laboratory testing. If
the IDE application is approved by the FDA and one or more appropriate
Institutional Review Boards ("IRBs"), human clinical trials may begin at a
specific number of investigational sites with a specific number of patients, as
approved by the FDA. If the device presents a "nonsignificant risk" to the
patient, a sponsor may begin the clinical trial after obtaining approval for the
study by two or more appropriate IRBs without the need for FDA approval.
Submission of an IDE does not give assurance that FDA will approve the IDE and,
if it is approved, there can be no assurance that FDA will determine that the
data derived from the studies support the safety and efficacy of the device or
warrant the continuation of clinical trials. Sponsors of clinical trials are
permitted to sell investigational devices distributed in the course of the study
provided such compensation does not exceed recovery of the costs of manufacture,
research, development and handling. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.
If clearance or approval is obtained, any device manufactured or
distributed by the Company will be subject to pervasive and continuing
regulation by the FDA. The Company will be subject to routine inspection by the
FDA and other international regulatory authorities and will have to comply with
the host of regulatory requirements that usually apply to medical devices
marketed in the U.S., including labeling regulations, QSR requirements, the
Medical Device Reporting ("MDR") regulation (which requires a manufacturer to
report to the FDA certain types of adverse events involving its products), and
the FDA's general prohibitions against promoting products for unapproved or
"off-label" uses.
If the FDA believes that a company is not in compliance with law, it can
institute proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against the Company, its
officers and its employees. Failure to comply with the regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, regulations regarding the
manufacture and sale of the Company's products are subject to change. The
Company cannot predict the effect, if any, that such changes might have on its
business, financial condition and results of operations.
Among the requirements for product approval is the requirement that the
prospective manufacturer conform to the FDA's Quality Standard Regulation
("QSR") requirements, which incorporate the FDA's former GMP regulations. QSR
addresses the design and other applicable controls, methods, facilities and
quality assurance controls used in the manufacture, packaging, storing and
installation of products. In complying with the QSR regulations, manufacturers
must continue to expend time, money and effort in product, record keeping and
quality control to assure that the product meets applicable specifications and
other requirements. The FDA periodically inspects device and drug manufacturing
facilities in the U.S. in
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order to assure compliance with applicable QSR requirements. Failure of the
Company to comply with the QSR regulations or other FDA regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the device
provisions of the FDA Act and other provisions in the Act affecting the
regulation of devices. Among other things, the changes will affect the 510(k)
and PMA processes, and also will affect device standards and data requirement
procedures relating to humanitarian and breakthrough devices, tracking and
postmarket surveillance, accredited third-party review, and the dissemination of
off-label information. The Company cannot predict how or when these changes will
be implemented or what effect the change will have on the regulation of the
Company's products.
International
In order for the Company and its distributors to market its products in
Europe and other foreign countries, the Company and/or its distributors must
obtain required regulatory approvals and comply with extensive regulations
governing safety, quality and manufacturing processes. These regulations vary
significantly from country to country and with respect to the nature of the
particular medical device. The time required to obtain approval to market the
Company's products may be longer or shorter than that required in the U.S., and
requirements for licensing may differ from FDA requirements.
In order to market the Company's products in the member countries of the
European Union, the Company will be required to comply with the Medical Devices
Directive ("MDD") and obtain CE mark certification. CE mark certification is an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives. Under the system established
by the MDD, all medical devices other than active implants and in-vitro
diagnostic products must qualify for CE marking by June 14, 1998. In August
1997, the Company was granted ISO 9001 certification for its Coralville, Iowa
facility. The ISO 9001 designation, and certain other certifications received by
UroSurge under the auspices of a notified body designated under the MDD, allows
UroSurge to self-certify its products for the CE mark, other than permanent
implantables such as the subcutaneous SANS, which will require a separate CE
mark application through a designated notified body.
In order to sell a medical device in Japan, a company must obtain
regulatory approval from the Japanese Ministry of Health ("MOH"). UroSurge is
currently negotiating a consulting agreement with a contract research
organization to begin the registration process for UroVive. AcuTrainer is
currently being sold in Japan and does not require registration with the MOH.
THIRD-PARTY REIMBURSEMENT
Reimbursement and health care payment systems in international markets vary
significantly by country. In connection with international product
introductions, the Company may be required to seek international reimbursement
approvals. If required, there can be no assurance that any such approvals will
be obtained in a timely manner, or at all, and failure to receive such
international reimbursement approvals could have an adverse effect on market
acceptance of the Company's products in the international markets in which such
approvals are sought.
In the U.S., health care providers, such as hospitals and physicians, that
purchase medical devices such as the Company's products, generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or part of the cost of the treatment.
In the U.S., third-party reimbursement is generally available for surgical
procedures and minimally invasive treatments for UI but generally is unavailable
for patient management products such as diapers and pads.
In the U.S. and certain other countries, third-party reimbursement is
currently generally available for certain bulking agents for UI. The Medicare
reimbursement rate for commercially available injectable bulking agents is
currently approximately $300 per two and one-half milliliter syringe. The
Company believes that typically three to five syringes of such bulking agents
are used during an injection procedure. However, there is
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no uniform policy for such reimbursement and there is no assurance UroVive will
receive the same level of reimbursement, if any. In the U.S. and certain other
countries, third-party reimbursement is currently generally available for
SpiraStent, FilaStent and the kidney stone retriever as they represent
improvements on products that are currently being sold and reimbursed. In the
U.S., reimbursement has been available from certain private payors and from
Medicare for implantable nerve stimulation devices. Accordingly, the Company
believes that reimbursement may become available for the Company's SANS devices
following regulatory approval, subject to the Company's ability to demonstrate
the cost-effectiveness and clinical utility of such products to third-party
payors. The availability of third-party reimbursement for its products or
competitors' products and continuing efforts to reduce the costs of health care
by decreasing reimbursement rates may reduce the price received by the Company
for its products or the ability of the Company's products to gain market
acceptance.
Reimbursement for the Company's products and procedures employing such
products in the U.S. will be dependent on the Company's ability to obtain FDA
clearances and approvals to market products in the U.S. and on the Company's
ability to demonstrate the clinical utility and cost-effectiveness of its
products through clinical trials, peer reviewed articles in medical journals and
long-term follow-up data regarding the efficacy of its products. The Company
intends to work with managed care organizations to explore the possibility of
reimbursement for the use of its products in the U.S. Any such reimbursement is
likely to be variable among third-party payors. See "Risk Factors -- Uncertainty
Relating to Third-Party Reimbursement."
EMPLOYEES
As of March 31, 1998, the Company employed 34 persons. Of these employees,
22 are in research and development and manufacturing, nine are in sales and
marketing and three are in finance and administration and other business
functions. None of the Company's current employees is represented by a labor
union or is the subject of a collective bargaining agreement. The Company
believes that it maintains good relations with its employees.
PRODUCT LIABILITY
Although the Company has not been the subject of any product liability
litigation to date, the medical products industry is subject to substantial
litigation, and the Company, as a manufacturer of a medical products to be used
in the body, faces an inherent business risk of exposure to product liability
claims in the event that the use of its products is alleged to have resulted in
adverse effects to a patient. The Company currently has product liability
insurance with certain coverage limitations. There can be no assurance that the
Company's existing insurance coverage limits are adequate to protect the Company
from any liabilities which it might incur in connection with clinical trials or
the commercialization of its products. There can be no assurance that liability
claims will not exceed coverage limits. Such insurance is expensive and in the
future may not be available on acceptable terms, if at all. Furthermore, the
Company does not expect to be able to obtain insurance covering its costs and
losses as a result of any recall of its products due to alleged defects, whether
such recall is instituted by the Company or required by a regulatory agency. A
product liability claim, recall or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the business, financial condition and results of operations of the
Company. See "Risk Factors -- Product Liability Risk; Limited Insurance
Coverage."
FACILITIES
The Company's principal operations are conducted in Coralville, Iowa, in an
approximately 10,000 square foot facility. This facility serves as the site for
the Company's corporate headquarters. In addition, the Company occupies an
approximately 11,500 square foot manufacturing facility next to its corporate
headquarters. The Company is in the process of building out its manufacturing
facility and expects to be completed by July 1998. Both facilities are occupied
under a triple-net lease which expires in 2000. The Company has the option of
renewing the lease on both buildings for an additional five-year period. The
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Company believes that these facilities are sufficient to meet the Company's
requirements through at least the next several years.
LEGAL PROCEEDINGS
The Company is not currently a party to any material pending legal
proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company and
their ages as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David H. Maupin................ 54 President, Chief Executive Officer and Director
Michael J. Magliochetti,
Ph.D. ....................... 34 Senior Vice President and Chief Technical Officer
Donald R. Beussink............. 43 Vice President of Sales and Marketing
Randal L. Owens................ 53 Vice President of Finance and Chief Financial Officer
Steven J. Preiss............... 42 Vice President of Clinical and Regulatory Affairs
Dick P. Allen(1)............... 53 Director
William E. Engbers(2).......... 55 Director
Robert E. Curry, Ph.D.(2)...... 51 Director
Joseph F. Lovett(1)............ 49 Director
</TABLE>
- ------------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
DAVID H. MAUPIN has been President, Chief Executive Officer and a Director
since joining UroSurge in February 1994. Before joining UroSurge, Mr. Maupin
served as President and Chief Executive Officer of Menlo Care, Inc., a medical
device company, from June 1989 to February 1994. Prior to joining Menlo Care,
Inc., Mr. Maupin was President of Gambro, Inc., a Swedish dialysis company,
where he was responsible for all operations in the Western Hemisphere. Mr.
Maupin holds an M.A. and an M.B.A. from the University of Chicago and a B.A.
from Harvard College.
MICHAEL J. MAGLIOCHETTI, PH.D. has been Senior Vice President and Chief
Technical Officer of the Company since February 1997. From 1994 to February
1997, Dr. Magliochetti was Vice President of Research and Development and Chief
Technical Officer of the Company. From 1992 to 1994, Dr. Magliochetti was
Director of Advanced Development for the Haemonetics Corporation, a medical
device company. Prior to joining Haemonetics, Dr. Magliochetti held various
positions with Delta Suprenant Corporation, a polymer products company, serving
most recently as Director of New Product Development. Dr. Magliochetti is
currently an adjunct professor in the Department of Biomedical Engineering at
the University of Iowa and the Chairman of the Industry Development Committee
for the National Foundation for Bladder Research. Dr. Magliochetti holds a Ph.D.
in Chemical Engineering from the University of Massachusetts at Amherst, an
M.B.A. from Northeastern University and a B.S. in Chemical Engineering from
Northeastern University.
DONALD R. BEUSSINK has been Vice President of Sales and Marketing of the
Company since May 1997. From August 1995 to May 1997, Mr. Beussink was
responsible for U.S., Canadian and Latin American Sales at Meadox Medicals, a
subsidiary of Boston Scientific. Prior to joining Meadox Medicals, Mr. Beussink
spent fifteen years in various positions, most recently as Director of Sales and
Senior Marketing Manager, at Mallinckrodt Medical and Mallinckrodt Veterinary.
Mr. Beussink holds an M.B.A. from Lindenwood College.
RANDAL L. OWENS has been Vice President of Finance and Chief Financial
Officer of the Company since February 1998. Prior to joining the Company, Mr.
Owens was the president of Owens & Associates, an international management
consulting firm from 1994 to 1998. From 1974 to 1993, Mr. Owens served in
numerous financial management positions at NCR Corporation, a computer systems
manufacturing and marketing company, including Chief Financial Officer of the
Pacific Group. Mr. Owens holds a B.S.E. from the University of Pennsylvania,
Wharton School of Business and an M.B.A. from the University of Michigan.
STEVEN J. PREISS has been Vice President of Clinical and Regulatory Affairs
of the Company since April 1997. Mr. Preiss was president of CPROS, a regulatory
consulting firm, from May 1996 to April 1997. From August 1992 to May 1996, Mr.
Preiss held various positions at Bio-Pharm Clinical Services, a clinical
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research organization, including Vice President of Clinical Programs and Data
Management. Prior to joining Bio-Pharm Clinical Services, Mr. Preiss was
Clinical Programs Director at Ioptex Research, Inc., a medical device company.
Mr. Preiss holds a B.S. in Chemistry from St. Lawrence University.
DICK P. ALLEN joined the Company's Board of Directors in July 1994. Mr.
Allen has been President of DIMA Ventures, Inc., a private investment firm since
1987. Mr. Allen was a Founder and Vice-President of Caremark, Inc., a home
infusion therapy company acquired by Baxter International in 1987. He also
serves on the Board of Directors of MicroTherapeutics, Inc., a publicly traded
company. Mr. Allen holds an M.B.A. from Stanford University Graduate School of
Business and a B.S. from Yale University.
WILLIAM E. ENGBERS joined the Company's Board of Directors in September
1995. Since 1996, Mr. Engbers has been a Director of Venture Capital for
Allstate Insurance Company. From 1989 to 1996 Mr. Engbers was Venture Group
Manager for Allstate Insurance Co. He also serves on the Board of Directors of
La Jolla Pharmaceutical Company and DM Management, each of which is publicly
traded.
ROBERT E. CURRY, PH.D. joined the Company's Board of Directors in September
1995. Since 1991, Dr. Curry has been a General Partner and Vice President of the
Sprout Group, a venture capital management firm and affiliate of DLJ, one of the
underwriters in this offering. Dr. Curry also serves on the Boards of Directors
of AutoCyte, Inc., Biocircuits Corp., Diatide, Inc., Nanogen, Inc., and Photon
Technology International, Inc. and several private companies. He holds an M.S.
and Ph.D. in Chemistry from Purdue University and received his B.S. from the
University of Illinois.
JOSEPH F. LOVETT joined the Company's Board of Directors in August 1993.
Since 1988, Mr. Lovett has been a General Partner of Medical Science Partners
venture fund. From 1985 to 1988, Mr. Lovett was Executive Vice President of
Damon Biotech, a biotechnology company. Mr. Lovett holds an M.B.A. from
California State Polytechnic Institute and received his B.A. from the University
of Vermont.
MEDICAL ADVISORS
The Company has assembled a Medical Advisory Board comprised of six
individuals who are prominent in the field of urology research. Members of the
Medical Advisory Board review the Company's research and development activities
and are available for consultation with the Company's management and staff
relating to their respective areas of expertise. Several of the members of the
Medical Advisory Board meet more frequently, on an individual basis, with the
Company's management and staff to discuss the Company's ongoing research and
development projects.
The names and background of the current members of the Medical Advisory
Board are set forth below:
ANTHONY M. ATALA, M.D. has been a member of the Department of Urology at
Children's Hospital and Medical Center, an affiliate of Harvard Medical School,
since 1990. Dr. Atala is currently the Director of the Tissue Engineering
Program, is in charge of the Bladder Reconstruction Cohort and heads the
Laboratory for Cellular Therapeutics in the Department of Urology. Dr. Atala is
an Assistant Professor of Surgery (Urology) at Harvard Medical School. Dr. Atala
is a member of the Board of Directors, the Medical Advisory Board and Chairman
of the Research Scholar Program for the National Kidney Foundation of
Massachusetts and Rhode Island. He is also Chairman of the Board of Directors
for the National Bladder Foundation.
MICHAEL MARBERGER, M.D., PH.D. has been Professor and Chairman of the
Department of Urology of the Klinik Fur Urologie of the University of Vienna in
Vienna, Austria since 1990.
W. SCOTT MCDOUGAL, M.D. has been the Chief of Urology at Massachusetts
General Hospital (Harvard Medical School) since 1991.
MARTIN RESNICK, M.D. has been a Professor and Chairman of the Department of
Urology of Case Western University of Cleveland, Ohio since 1981. Dr. Resnick is
also affiliated with Metropolitan Hospital, the V.A. Hospital of Cleveland and
Henry Ford Hospital.
THOMAS STAMEY, M.D. has been a Professor at Stanford University since 1961.
From 1961 to 1994, Dr. Stamey was the Chairman of the Department of Urology of
Stanford University.
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RICHARD WILLIAMS, M.D. has been the Chairman of the Department of Urology
of the University of Iowa Hospitals and Clinics since 1984. Dr. Williams also
holds the Rubin H. Flock Endowed Chair in Urology.
BOARD COMPOSITION
The Company currently has five directors. In accordance with the terms of
the Company's Restated Certificate of Incorporation, effective upon the closing
of this offering, the terms of office of the Board of Directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held at the annual meeting of stockholders to be held in
1999; Class II, whose term will expire at the annual meeting of stockholders to
be held in 2000; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2001. The Class I directors are Robert E. Curry,
Ph.D. and Joseph F. Lovett, the Class II director is David H. Maupin and the
Class III directors are Dick P. Allen and William E. Engbers.
At each annual meeting of stockholders after the initial classification,
the successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the Company's Bylaws provide that the
authorized number of directors may be changed only by resolution of the Board of
Directors. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company.
Each officer is elected by and serves at the discretion of the Board of
Directors. Each of the Company's officers and directors, other than its
nonemployee directors, devote such time to the affairs of the Company as is
necessary to discharge their duties. There are no family relationships among any
of the directors, officers or key employees of the Company.
BOARD COMMITTEES
The Audit Committee of the Board of Directors (consisting of Dick P. Allen
and Joseph F. Lovett) reviews the internal accounting procedures of the Company
and consults with and reviews the services provided by the Company's independent
accountants. The Compensation Committee of the Board of Directors (consisting of
Robert E. Curry, Ph.D. and William E. Engbers) reviews and recommends to the
Board the compensation and benefits of all executive officers of the Company and
establishes and reviews general policies relating to compensation and benefits
of employees of the Company. The Board does not have a nominating committee or
any committee currently performing the functions of a nominating committee.
DIRECTOR COMPENSATION
The Company does not pay its directors for attending meetings of the Board
of Directors or for serving on Committees of the Board of Directors. Directors
are reimbursed for their out-of-pocket expenses incurred in attending meetings.
From time to time, certain directors of the Company have received grants of
options to purchase shares of the Company's Common Stock pursuant to the 1994
Stock Option Plan. After the closing of this offering, directors of the Company
will be eligible to receive grants of options to purchase Common Stock pursuant
to the 1998 Stock Option Plan. See "-- Incentive Stock Plans" and "Certain
Transactions."
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information for the year ended December 31, 1997 regarding the compensation of
the Company's Chief Executive Officer and the other executive officers of the
Company whose salary and bonus for such fiscal year were in excess of $100,000
(the "Named Executive Officers").
44
<PAGE> 46
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
1997 ANNUAL ------------
COMPENSATION SECURITIES ALL OTHER
--------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) ($)
<S> <C> <C> <C> <C>
David H. Maupin................................. 203,963 -- 50,000 --
President and Chief Executive Officer
Michael J. Magliochetti, Ph.D................... 176,947 -- 50,000 15,000(1)
Senior Vice President and Chief Technical
Officer
Donald R. Beussink.............................. 74,360 -- 75,000 30,263(2)
Vice President, Sales and Marketing
Steven J. Preiss................................ 75,000 -- 55,000 82,974(3)
Vice President, Clinical and Regulatory
Affairs
</TABLE>
- ------------------------------
(1) Dr. Magliochetti received a $60,000 Housing Assistance Loan on October 3,
1994, which was forgiven in 1995, 1996 and 1997 in the amount of $15,000 per
year plus accrued interest.
(2) Mr. Beussink was hired by the Company in June 1997 and received $30,263 for
relocation expenses.
(3) Mr. Preiss was hired by the Company in April 1997. Mr. Preiss received
$36,074 for relocation expenses, and a $46,900 loan to assist with housing
costs, which has been repaid in full as of March 31, 1998.
Option Grants in Last Fiscal Year. The following table sets forth each
grant of stock options made during the fiscal year ended December 31, 1997 to
each of the Named Executive Officers:
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OF BASE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL 1997(%)(1) ($/SH) DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
David H. Maupin............... 50,000 15.9 0.20 02/04/02 2,763 6,105
Michael J. Magliochetti,
Ph.D........................ 25,000 8.0 0.20 02/04/02 1,381 3,053
25,000 8.0 0.50 12/05/02 3,454 7,631
Donald R. Beussink............ 75,000 23.9 0.50 06/17/02 10,361 22,894
Steven J. Preiss.............. 35,000 11.2 0.20 04/01/02 1,934 4,274
20,000 6.4 0.50 12/05/02 2,763 6,105
</TABLE>
- ------------------------------
(1) In 1997, the Company granted employees options to purchase an aggregate of
313,500 shares of Common Stock.
(2) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted over the full option term. These assumed annual compound
rates of stock price appreciation are mandated by the rules of the
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.
45
<PAGE> 47
Option Exercises in Last Fiscal Year and Fiscal Year End Option Values. No
options were exercised by the Named Executive Officers in 1997. The following
table sets forth for each of the Named Executive Officers the number and value
of securities underlying unexercised options held at December 31, 1997:
AGGREGATE OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1997 AND
OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(#)(1) DECEMBER 31, 1997($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
David H. Maupin................................ 38,750 88,750
Michael J. Magliochetti, Ph.D.................. 104,167 95,833
Donald R. Beussink............................. -- 75,000
Steven J. Preiss............................... -- 55,000
</TABLE>
- ------------------------------
(1) Based upon an assumed fair market value of $ per share as of the date
of this Prospectus less the exercise price per share.
(2) Based upon an assumed initial public offering price of $ less the
exercise price per share.
INCENTIVE STOCK PLANS
1994 Stock Plan. The Company's 1994 Stock Plan, as amended and restated
(the "1994 Plan") provides for the granting to employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code"), and for the granting to employees and
consultants of nonstatutory stock options and stock purchase rights ("SPRs").
The 1994 Plan, as amended and restated, was approved by the Board of Directors
in April 1998 and is expected to be approved by the stockholders in May 1998.
Unless terminated sooner, the 1994 Plan will terminate automatically in July
2004. A total of 1,610,000 shares of Common Stock are currently reserved for
issuance pursuant to the 1994 Plan. The 1994 Plan may be administered by the
Board of Directors or a committee of the Board (the "Administrator"), which
Administrator shall, in the case of options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, consist of two or more "outside directors" within the meaning of Section
162(m) of the Code. The Administrator has the power to determine the terms of
the options or SPRs granted, including, but not limited to, the exercise price,
the number of shares subject to each option or SPR, the exercisability thereof,
and the form of consideration payable upon such exercise. In addition, the Board
has the authority to amend, suspend or terminate the 1994 Plan, provided that no
such action may affect any share of Common Stock previously issued and sold or
any option previously granted under the 1994 Plan. Options and SPRs granted
under the 1994 Plan are not generally transferable by the optionee, other then
by will or the laws of descent and distribution, and each option and SPR is
exercisable during the lifetime of the optionee only by such optionee. Options
granted under the 1994 Plan must generally be exercised within three months of
the end of optionee's status as an employee or consultant of the Company, or
within twelve months after such optionee's termination by death or disability,
but in no event later than the expiration of the option's ten year term. In the
case of SPRs, unless the Administrator determines otherwise, the restricted
stock purchase agreement shall grant the Company a repurchase option exercisable
upon the voluntary or involuntary termination of the purchaser's employment with
the Company for any reason (including death or disability). The purchase price
for shares repurchased pursuant to the restricted stock purchase agreement shall
be the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. The repurchase option shall
lapse at a rate determined by the Administrator. The exercise price of all
incentive stock options granted under the 1994 Plan must be at least equal to
the fair market value of the Common Stock on the date of grant, unless adjusted
by the Administrator to the fair market value on the date of such adjustment if
the fair market value of the Company's Common Stock shall have declined since
the date the option was granted. The exercise price of nonstatutory stock
options and SPRs granted under the 1994 Plan is determined by the Administrator,
but with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of
46
<PAGE> 48
Section 162(m) of the Code, the exercise price must at least be equal to the
fair market value of the Common Stock on the date of grant, unless adjusted by
the Administrator to the fair market value on the date of such adjustment if the
fair market value of the Company's Common Stock shall have declined since the
date the option was granted. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of the Company's
outstanding capital stock or any parent or subsidiary, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the term of such incentive stock option must not exceed
five years. The term of all other options granted under the 1994 Plan may not
exceed ten years. The 1994 Plan provides that in the event of a merger of the
Company with or into another corporation, a sale of substantially all of the
Company's assets or a like transaction involving the Company, options may be
granted with a per share exercise price of less than fair market value on the
date of the grant and each option shall be assumed or an equivalent option
substituted by the successor corporation. If the outstanding options are not
assumed or substituted as described in the preceding sentence, the Administrator
shall provide for the optionee to have the right to exercise the option or SPR
as to all of the optioned stock, including shares as to which it would not
otherwise be exercisable. If the administrator makes an option or SPR
exercisable in full in the event of a merger or sale of assets, the
administrator shall notify the optionee that the option or SPR shall be fully
exercisable for a period of fifteen days from the date of such notice, and the
option or SPR will terminate upon the expiration of such period.
1998 Director Option Plan. Non-employee directors are entitled to
participate in the 1998 Director Option Plan (the "Director Plan"). The Director
Plan was adopted by the Board of Directors in April 1998 and is expected
approved by the stockholders in May 1998, but it will not become effective until
its approval which shall be required within 12 months of the Board's adoption of
the Director Plan. The Director Plan has a term of ten years, unless terminated
sooner by the Board. A total of 300,000 shares of Common Stock have been
reserved for issuance under the Director Plan. The Director Plan provides for
the automatic grant of 9,000 shares of Common Stock (the "First Option") to each
non-employee director on the effective date of this offering. After the First
Option is granted to the non-employee director, he or she shall automatically be
granted an option to purchase 9,000 shares (a "Subsequent Option") each year on
the date of the annual stockholder's meeting of the Company, if on such date he
or she shall have served on the Board for at least six months. Each First Option
and each Subsequent Option shall have a term of 10 years and the shares subject
to the option shall vest in equal monthly increments over the one year period
immediately following the date of grant. The exercise price of the First Option
shall be the initial price to public of the shares offered in this Offering. The
exercise price of each Subsequent Option shall be 100% of the fair market value
per share of the Common Stock, generally determined with reference to the
closing price of the Common Stock as reported on the Nasdaq National Market on
the date of grant. In the event of a merger of the Company or the sale of
substantially all of the assets of the Company, each option shall become fully
vested and exercisable for a period of thirty days from the date the Board
notifies the optionee of the option's full exercisability, after which period
the option shall terminate. Options granted under the Director Plan must be
exercised within three months of the end of the optionee's tenure as a director
of the Company, or within twelve months after such director's termination by
death or disability, but in no event later than the expiration of the option's
ten year term. No option granted under the Director Plan is transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable, during the lifetime of the optionee, only by such
optionee.
1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was approved by the Board of Directors in
April 1998 and is expected to be approved by the stockholders in May 1998. The
Company has reserved a total of 300,000 shares of Common Stock for issuance
thereunder. No shares have been issued under the Purchase Plan to date. The
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), will be administered by the Board
of Directors of the Company or by a committee appointed by the Board of
Directors. Under the Purchase Plan, the Company will withhold a specified
percentage (not to exceed 15%) of each salary payment to participating employees
over certain offering periods. Any employee who is currently employed for at
least 30 hours per week will be eligible to participate in the Purchase Plan.
Unless the Board of Directors or its committee determines otherwise, each
offering period will run for 24 months and will be divided into four consecutive
purchase periods of approximately six months. The first offering period will
47
<PAGE> 49
commence on the effective date of this Prospectus and will end on December 31,
1999. The first purchase period will commence on the effective date of this
Prospectus and will end on December 31, 1998. New 24 month offering periods will
commence every January 1 and July 1 thereafter. In the event of a change in
control of the Company, including a merger of the Company with or into another
corporation, or the sale of all or substantially all of the assets of the
Company, the offering and purchase periods then in progress will be shortened
unless the rights to purchase stock are assumed by the successor or acquiring
company. The price at which Common Stock will be purchased under the Purchase
Plan is equal to 85% of the fair market value of the Common Stock on the first
day of the applicable offering period or the last day of the applicable purchase
period, whichever is lower. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. The maximum number
of shares that a participant may purchase on the last day of any offering period
is determined by dividing the payroll deductions accumulated during the purchase
period by the purchase price. However, no person may purchase shares under the
Purchase Plan to the extent such person would own and/or hold outstanding
options to purchase 5% or more of the total combined value or voting power of
all classes of the capital stock of the Company or of any of its subsidiaries,
or to the extent that such person's rights to purchase stock under all employee
stock purchase plans would accrue at a rate that exceeds $25,000 worth of stock
for any calendar year. The Board of Directors may amend the Purchase Plan at any
time. The Purchase Plan will terminate in April 2008, unless terminated earlier
in accordance with the provisions of the Purchase Plan.
CHANGE OF CONTROL ARRANGEMENTS
David H. Maupin and Michael J. Magliochetti, PhD. have been granted options
to purchase Common Stock pursuant to option agreements that provide for
acceleration of vesting of certain options so that such options shall
immediately become fully exercisable in the event of certain changes of control.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for
(i) any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit. Such limitation of liability does
not apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit it to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws would permit indemnification.
The Company will, prior to the completion of this offering, enter into
agreements to indemnify its directors and executive officers, in addition to
indemnification provided for in the Company's Bylaws. These agreements, among
other things, indemnify the Company's directors and executive officers for
certain expenses (including attorneys' fees), judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any
action by or in the right of the Company arising out of such person's services
as a director or executive officer of the Company, any subsidiary of the Company
or any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
48
<PAGE> 50
CERTAIN TRANSACTIONS
In September and October 1995, the Company issued shares of Series B
Preferred Stock to certain entities affiliated with directors of the Company and
certain 5% stockholders of the Company at a purchase price of $2.00 per share.
In June 1997, the Company issued shares of Series C Preferred Stock to certain
entities affiliated with directors of the Company and certain 5% stockholders of
the Company at a purchase price of $5.00 per share. The number of shares of
Common Stock issuable upon conversion of such shares of Series B Preferred Stock
and Series C Preferred Stock issued to each such entity is set forth below.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
----------------------------------
SERIES B SERIES C
--------------- ---------------
NAME OF INVESTOR PREFERRED STOCK PREFERRED STOCK
<S> <C> <C>
ENTITIES AFFILIATED WITH DIRECTORS
Entities affiliated with Medical Science Partners II,
L.P....................................................... 507,025 --
Entities affiliated with DIMA Ventures, Inc................. 8,775 9,000
Entities affiliated with Allstate Insurance Company......... 310,000 164,000
Entities affiliated with Sprout Capital VII, L.P............ 1,250,000 278,000
OTHER 5% STOCKHOLDERS
Medtronic, Inc.............................................. 200,000 118,000
</TABLE>
Pursuant to an Investor Rights Agreement, the holders of the Company's
Preferred Stock agreed to vote their shares of Preferred Stock to fix the number
of directors at five. Pursuant to this agreement, the board was to consist of
one director designated by the holders of the Company's Series A Preferred
Stock, to be designated by Medical Science Partners, L.P.; one director
designated by the holders of the Company's Series B Preferred Stock, to be
designated by Sprout Capital VII, L.P.; the duly elected, qualified and acting
President of the Company; and two directors designated jointly by the President
of the Company and all holders of the Company's Preferred Stock. Directors
Robert E. Curry, Ph.D. and David H. Maupin have served as members of the board
pursuant to this voting arrangement, which terminates upon completion of this
offering.
The Company entered into an agreement in March 1994 with David H. Maupin
containing antidilution provisions which allowed Mr. Maupin to purchase
additional shares of Common Stock at fair market value based upon a certain
formula. In November 1995, the Company issued 42,500 shares of Common Stock at
$0.20 per share under the agreement.
The Company expects to enter into a financing arrangement with certain of
its principal stockholders during April 1998. Under this arrangement, such
stockholders would provide the Company with a line of credit of up to $5.0
million in the event that the Company requires any additional funding prior to
receiving the net proceeds of this offering. In exchange for this line, the
Company has agreed to issue warrants to the stockholders to purchase an
aggregate of 50,000 shares of Common Stock at the initial public offering price
per share. The remaining terms of this credit facility are currently being
negotiated by the Company and such stockholders. To date, the Company has not
borrowed any amounts under this arrangement.
The Company has from time to time granted options and other compensation to
its directors and executive officers.
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
This offering is being made pursuant to Rule 2720 of the Conduct Rules of
the NASD because certain associates of DLJ own in excess of 10% of the Common
Stock of the Company prior to this offering. Rule 2720 provides that, among
other things, when an NASD member participates in the underwriting of equity
securities of a company in which there exists a conflict of interest, the price
at which such equity securities are to be distributed to the public can be no
higher than that recommended by a qualified independent underwriter ("QIU")
meeting certain standards. CIBC Oppenheimer Corp. will assume the
responsibilities of acting as the QIU in connection with this offering.
49
<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 and as adjusted to
reflect the sale by the Company of the Common Stock offered hereby, by (i) each
director of the Company, (ii) each Named Executive Officer, (iii) each person
known to the Company to be the beneficial owner of more than 5% of the Company's
Common Stock and (iv) all directors and executive officers of the Company as a
group. Except as otherwise indicated, based on information furnished by the
beneficial owners of the Common Stock listed below, the Company believes that
such owners have sole investment and voting power with respect to such shares,
subject to community property laws, where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING STOCK
NUMBER OF BENEFICIALLY OWNED
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED(1) OFFERING OFFERING
<S> <C> <C> <C>
Entities affiliated with Medical Science Partners II,
L.P.(2)................................................... 1,331,519 19.4%
20 Williams Street, Suite 250
Wellesley, MA 02181
Entities affiliated with Sprout Capital VII, L.P.(3)........ 1,528,000 22.0
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Entities affiliated with Allstate Insurance Company(4)...... 974,000 14.0
3075 Sanders Road, Suite G5D
Northbrook, IL 60062-2721
Medtronic, Inc.............................................. 648,000 9.3
7000 Central Avenue, N.E
Minneapolis, MN 55432
Premier Medical Partner Fund................................ 400,000 5.8
12730 High Bluff Drive
Suite 300
San Diego, CA 92130-2099
Dick P. Allen(5)............................................ 58,525 *
Donald R. Beussink(6)....................................... 18,750 *
Robert E. Curry, Ph.D.(7)................................... 1,540,000 22.1
William E. Engbers(8)....................................... 986,000 14.2
Joseph F. Lovett(9)......................................... 1,343,519 19.3
David H. Maupin(10)......................................... 392,448 5.6
Michael J. Magliochetti, Ph.D.(11).......................... 127,603 1.8
Steven J. Preiss(12)........................................ 9,479 *
All directors and executive officers as a group(9 persons)
(13)...................................................... 4,476,324 61.7
</TABLE>
- ------------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Percentage of beneficial ownership is based on
6,956,037 shares of Common Stock outstanding as of March 31, 1998 and
shares of Common Stock outstanding after completion of this
offering. Shares of Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days after March 31, 1998 are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing the
percentage of any other person.
(2) Includes 897,430 shares held by Medical Science Partners II, L.P., 330,000
shares held by Medical Science Partners, L.P., 98,583 shares held by
Medical Science II Co-Investment, L.P.("MSP II"), 2,753 shares held by
Eagle Constellation Fund Ltd. ("Eagle"), and 2,753 shares held by UEMCO XI
Limited Partnership ("UEMCO"). MSP II, Eagle and UEMCO are limited partners
of Medical
50
<PAGE> 52
Science Partners II, L.P. Excludes 12,000 shares issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998 held by Joseph F. Lovett.
See Note 9.
(3) Includes 1,410,582 shares held by Sprout Capital VII, L.P. and 117,418
shares held by DLJ Capital Corporation. Excludes 12,000 shares issuable
upon exercise of stock options exercisable within 60 days of March 31, 1998
held by Robert E. Curry, Ph.D. See Note 7. Sprout Capital VII, L.P. and DLJ
Capital Corporation are affiliates of DLJ, one of the Underwriters in this
offering.
(4) Includes 602,840 shares held by Allstate Insurance Company, 283,500 shares
held by Allstate Life Insurance Company, 40,500 shares held by Continental
Trust Company, as Trustee for the Allstate Retirement Plan, 32,400 shares
held by Continental Trust Company, as Trustee for the Agents Pension Plan,
8,200 shares held by CTC Illinois Trust Company, as Trustee for the
Allstate Retirement Plan, and 6,560 shares held by CTC Illinois Trust
Company, as Trustee for the Agents Pension Plan. Excludes 12,000 shares
issuable upon exercise of stock options exercisable within 60 days of March
31, 1998 held by William E. Engbers. See Note 8.
(5) Includes 13,500 shares held by DIMA Ventures Inc., 1,500 shares held by the
Brett Richard Allen Trust DTD 10/12/81, 1,500 shares held by the Jennifer
Lee Allen Trust DTD 10/12/81, and 1,275 shares held in the Allen Investment
Partnership. Also includes 40,750 shares issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998. Mr. Allen is a
director of the Company and President of DIMA Ventures, Inc. Mr. Allen
disclaims beneficial ownership of the shares held by Allen Investment
Partnership except to the extent of his proportionate partnership interest
therein.
(6) Includes 18,750 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.
(7) Includes 1,410,582 shares held by Sprout Capital VII, L.P. and 117,418
shares held by DLJ Capital Corporation. Dr. Curry is a director of the
Company and a general partner of Sprout Capital VII, L.P. Dr. Curry
disclaims beneficial ownership of the shares held by such entities except
to the extent of his proportionate partnership interest therein. Sprout
Capital is an affiliate of DLJ, one of the underwriters in this offering.
Also includes 12,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1998.
(8) Includes 602,840 shares held by Allstate Insurance Company, 283,500 shares
held by Allstate Life Insurance Company, 40,500 shares held by Continental
Trust Company, as Trustee for the Allstate Retirement Plan, 32,400 shares
held by Continental Trust Company, as Trustee for the Agents Pension Plan,
8,200 shares held by CTC Illinois Trust Company, as Trustee for the
Allstate Retirement Plan, and 6,560 shares held by CTC Illinois Trust
Company, as Trustee for the Agents Pension Plan. Mr. Engbers is a director
of the Company and a Director of Venture Capital at Allstate Insurance
Company. Mr. Engbers disclaims beneficial ownership of the shares held by
such entities except to the extent of his proportionate interest therein.
Also includes 12,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1998.
(9) Includes 897,430 shares held by Medical Science Partners II, L.P., 330,000
shares held by Medical Science Partners, L.P., 98,583 shares held by MSP
II, 2,753 shares held by Eagle and 2,753 shares held by UEMCO. MSP II,
Eagle, and UEMCO are limited partners of Medical Science Partners II, L.P.
Mr. Lovett is a director of the Company and a general partner of Medical
Science Partners II, L.P., and Medical Science Partners, L.P.. Mr. Lovett
disclaims beneficial ownership of the shares held by such entities except
to the extent of his proportionate partnership interest therein. Also
includes 12,000 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.
(10) Includes 62,448 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.
(11) Includes 127,603 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.
(12) Includes 9,479 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.
(13) Includes 295,030 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.
51
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of this offering, the total number of shares of all classes
of stock which the Company has authority to issue will be 50,000,000 shares of
Common Stock, par value $0.01 per share and 5,000,000 shares of Preferred Stock,
par value $0.01 per share. As of March 31, 1998, 1,121,633 shares of Common
Stock were issued and outstanding and held by 12 stockholders and 5,834,404
shares of Preferred Stock were issued and outstanding and held by 46
stockholders. All outstanding shares of Preferred Stock will be converted into
shares of Common Stock upon completion of this offering.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation or
dissolution of the Company, holders of Common Stock would be entitled to share
in the Company's assets remaining after the payment of liabilities and the
satisfaction of any liquidation preference granted the holders of any
outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company in this offering, when issued and paid for, will be, fully paid
and nonassessable. The rights, preferences and privileges of the holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, without stockholder approval, from time to time to provide in the
issuance of one or more series of Preferred Stock, each of such series to have
such rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by the Board of Directors. Issuances of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of approximately 5,834,404 shares of Common Stock (assuming the
conversion of all outstanding shares of Preferred Stock into Common Stock upon
completion of this offering) (the "Registrable Securities") or their transferees
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. These rights are provided under the terms of an
agreement between the Company and the holders of Registrable Securities. The
holders of at least 35% of the Registrable Securities may require, on two
occasions, that the Company use its best efforts to register the Registrable
Securities for public resale, provided, among other limitations, that the
proposed aggregate selling price to the public is at least $2 million. If the
Company registers any of its Common Stock either for its own account or for the
account of other security holders, the holders of Registrable Securities are
entitled to include their shares of Common Stock in the registration, subject to
the ability of the underwriters to limit the number of shares included in the
offering. The holders of at least 15% of the Registrable Securities may also
require the Company, on four occasions, but not more than once during any
12-month period, to register all or a portion of their Registrable Securities on
Form S-3 when use of such form becomes available to the Company, provided, among
other limitations, that the proposed aggregate selling price (net of any
underwriters' discounts or commissions) is at least $250,000. The Company will
not be required to effect any registration, other than a registration on
52
<PAGE> 54
Form S-3 or any successor form relating to secondary offerings within six months
after the effective date of any other Registration Statement of the Company. All
registration expenses must be borne by the Company and all selling expenses
relating to Registrable Securities must be borne by the holders of the
securities being registered. The holders of Registrable Securities have waived
their right to have shares of Common Stock registered under the Securities Act
as part of this offering and for a period of 180 days after the date of this
Prospectus.
CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUE
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue Preferred Stock without
any vote or further action by the stockholders, eliminate the right of
stockholders to act by written consent without a meeting and eliminate
cumulative voting in the election of directors. These provisions may make it
more difficult for stockholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of the Company. In
addition, the Company is subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder 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 by persons who are directors and also officers
and 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) on or subsequent to such date,
the business combination is approved by the Board of Directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Norwest
Bank Minnesota, N.A. Its telephone number is (800) 468-9716.
53
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. Sales
of substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse, or the availability of such shares for sale, could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon the completion of this offering, the Company will have
shares of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option. Of these shares, the shares sold in this
offering will be freely tradable without restriction under the Securities Act,
unless held by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act. As a result of lock-up agreements between certain
stockholders and the Underwriters, the remaining 6,956,037 shares will not
become available for sale in the public market until 180 days after the date of
this Prospectus subject in some cases to the volume and other restrictions of
Rule 144 and Rule 701 of the Securities Act. Shares of Common Stock outstanding
upon completion of this offering and held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the 1933 Act, which rules are
summarized below. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell in "broker's transactions" or to market makers, within
any three-month period, a number of shares that does not exceed the greater of
(i) one percent of the number of shares of Common Stock then outstanding
(approximately shares immediately after this offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. Sales
under Rule 144 are generally subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without having to comply with the manner
of sale, public information, volume limitation or notice provisions of Rule 144.
Under Rule 701 under the Securities Act, persons who purchase shares upon
exercise of options granted prior to the effective date of this offering are
entitled to sell such shares 90 days after the closing of this offering in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144.
Each of the Company, its executive officers and directors and certain
stockholders of the Company has agreed, subject to certain exceptions, not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable for
Common Stock or (ii) enter into any swap or other arrangement that transfers all
or substantially all or a portion of the economic consequences associated with
the ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of the Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ. In
addition, during such period, the Company has also agreed not to file any
registration statement with respect to, and each of its stockholders has agreed
not to make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without DLJ's prior written
consent.
Approximately 90 days after the date of this Prospectus, the Company
intends to file a Registration Statement on Form S-8 covering shares issuable
under the Company's 1994 Stock Plan (including shares subject to then
outstanding options under such plans), 1998 Director Option Plan and 1998
Employee Stock Purchase Plan, thus permitting the resale of such shares in the
public market without restriction under the Securities Act after expiration of
the applicable lock-up agreements.
54
<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement dated
, 1998 (the "Underwriting Agreement"), the Underwriters named below,
(the "Underwriters"), who are represented by DLJ and CIBC Oppenheimer Corp.
(collectively, the "Representatives"), have severally agreed to purchase from
the Company the respective number of shares of Common Stock set forth opposite
their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
CIBC Oppenheimer Corp.......................................
---------
Total.............................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially 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 dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representative at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of additional shares of Common Stock
at the initial public offering price less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the offering. To the extent
that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Each of the Company, its executive officers and directors and certain of
the stockholders of the Company has agreed, subject to certain exceptions, not
to (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ. In
addition, during such period, the Company has also agreed not to file any
registration statement with respect to, and each of its stockholders has
55
<PAGE> 57
agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without DLJ's prior written
consent. The Company and each of its executive officers, directors and certain
stockholders of the Company have also waived any right of first refusal that
they may have with respect to the Common Stock issued pursuant to this offering.
Prior to this offering, there has been no established trading market for
the Common Stock. The initial public offering price for the shares of Common
Stock offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering include the history of and the prospects for the industry in which the
Company competes, the past and present operations of the Company, the historical
results of operation of the Company, the prospects for future earnings of the
Company, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
offering.
Other than in the U.S., no action has been taken by the Company or the
Underwriters that would permit a public offering of the shares of Common Stock
offered hereby in any jurisdiction where action for that purpose is required.
The shares of Common Stock offered hereby may not be offered or sold, directly
or indirectly, nor may this Prospectus or any other offering material or
advertisement in connection with the offer and sale of any such shares of Common
Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the offering of the Common Stock and the distribution of this
Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation in unlawful.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
This offering is being made pursuant to Rule 2720 of the Conduct Rules of
the NASD because certain associates of DLJ own in excess of 10% of the Common
Stock of the Company prior to this offering. Rule 2720 provides that, among
other things, when an NASD member participated in the underwriting of equity
securities of a company in which there exists a conflict of interest, the price
at which such equity securities are to be distributed to the public can be no
higher than that recommended by a qualified independent underwriter meeting
certain standards. CIBC Oppenheimer Corp. will assume responsibilities of acting
as the QIU in connection with this offering.
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California and for the Underwriters by Sullivan & Cromwell, Los Angeles,
California. Mario M. Rosati and Christopher D. Mitchell, members of Wilson
Sonsini Goodrich & Rosati, are the Secretary and Assistant Secretary of the
Company. Members of and investment partnerships affiliated with Wilson Sonsini
Goodrich & Rosati beneficially own 3,350 shares of the Company's Common Stock.
56
<PAGE> 58
EXPERTS
The audited financial statements included in this Prospectus and the
Registration Statement have been audited by McGladrey & Pullen, LLP, independent
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report and upon the authority of such
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1,
including amendments thereto, under the Securities Act with respect to the
securities offered hereby. This Prospectus 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 securities offered hereby, reference is 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 referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. 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
copies of all or any part thereof may be obtained from such office upon the
payment of prescribed fees. Such information is also available electronically by
means of the Commission's web site on the Internet at http://www.sec.gov.
57
<PAGE> 59
UROSURGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
FINANCIAL STATEMENTS
Balance sheets............................................ F-3
Statements of operations.................................. F-4
Statements of stockholders' equity........................ F-5
Statements of cash flows.................................. F-6
Notes to financial statements............................. F-7
</TABLE>
F-1
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
UroSurge, Inc.
Coralville, Iowa
We have audited the accompanying balance sheets of UroSurge, Inc., a
development stage company, as of December 31, 1996 and 1997, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1995, 1996 and 1997 and the period from August 6, 1993, date
of incorporation, to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Urosurge, Inc., as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years ended December 31, 1995, 1996 and 1997 and the period from August
6, 1993, date of incorporation, to December 31, 1997 in conformity with
generally accepted accounting principles.
MCGLADREY & PULLEN, LLP
Iowa City, Iowa
April 6, 1998
F-2
<PAGE> 61
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $2,113,202 $ 136,990
Short-term investments.................................... -- 3,129,396
Trade and other receivables............................... 18,663 140,495
Inventories............................................... 50,385 930,204
Prepaid expenses.......................................... 47,556 149,589
---------- -----------
Total current assets............................... 2,229,806 4,486,674
---------- -----------
Leasehold Improvements and Equipment (Note 3)
Leasehold improvements.................................... 257,130 353,764
Furniture and office equipment............................ 189,944 369,731
Production equipment...................................... 63,370 285,125
---------- -----------
510,444 1,008,620
Less accumulated depreciation............................. 96,956 203,237
---------- -----------
413,488 805,383
---------- -----------
Intangibles, primarily licenses, less accumulated
amortization 1996 $57,444; 1997 $93,996 (Note 2).......... 247,251 233,762
---------- -----------
$2,890,545 $ 5,525,819
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 3)............. $ 34,415 $ 64,963
Accounts payable.......................................... 375,001 816,263
Accrued expenses.......................................... 1,424 10,465
License fees payable (Note 2)............................. 132,400 50,000
---------- -----------
Total current liabilities.......................... 543,240 941,691
---------- -----------
Long-Term Debt (Note 3)..................................... 92,870 109,728
---------- -----------
Commitments and Contingencies (Notes 2, 4, 6, and 8)
Stockholders' Equity (Note 4)
Preferred stock, $.01 par value; participating;
convertible; authorized 7,220,000 shares; to be issued
in Series:
Series A, issued 1,685,000 shares, liquidation
preference $1,685,000.................................. 16,850 16,850
Series B, issued 2,675,000 shares, liquidation
preference $5,350,000.................................. 26,750 26,750
Series C, issued 1,474,404 shares, liquidation
preference $7,372,020.................................. -- 14,744
Common stock, $.01 par value; authorized 15,000,000
shares; issued 1996 1,097,591 shares; 1997 1,121,633
shares.................................................. 10,976 11,216
Additional paid-in capital................................ 6,961,661 15,155,720
Deferred compensation (Note 5)............................ -- (738,444)
(Deficit) accumulated during the development stage........ (4,761,802) (10,012,436)
---------- -----------
2,254,435 4,474,400
---------- -----------
$2,890,545 $ 5,525,819
========== ===========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 62
UROSURGE, INC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND PERIOD FROM
AUGUST 6, 1993, DATE OF INCORPORATION, TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
CUMULATIVE
TOTALS SINCE
1995 1996 1997 INCORPORATION
<S> <C> <C> <C> <C>
Net revenues........................... $ -- $ 20,166 $ 11,707 $ 31,873
----------- ----------- ----------- ------------
Operating expenses:
Cost of revenues..................... -- 12,649 5,432 18,081
Research and development............. 848,301 1,940,795 3,594,613 6,621,921
Marketing and sales.................. 2,200 270,823 391,877 664,900
General and administrative........... 466,207 771,047 1,479,722 3,266,223
----------- ----------- ----------- ------------
Total operating expenses..... 1,316,708 2,995,314 5,471,644 10,571,125
----------- ----------- ----------- ------------
Loss from operations......... (1,316,708) (2,975,148) (5,459,937) (10,539,252)
Financial income (expense):
Interest income...................... 85,003 184,099 187,010 492,980
Interest expense..................... (2,454) (6,386) (9,023) (17,863)
----------- ----------- ----------- ------------
Loss before income taxes..... (1,234,159) (2,797,435) (5,281,950) (10,064,135)
Income tax credits (Note 7)............ -- 20,383 31,316 51,699
----------- ----------- ----------- ------------
Net loss..................... $(1,234,159) (2,777,052) (5,250,634) (10,012,436)
=========== =========== =========== ============
Basic and diluted loss per share....... $ (1.23) $ (2.58) $ (4.72)
=========== =========== ===========
Weighted average shares outstanding.... 999,510 1,076,987 1,111,267
=========== =========== ===========
Pro forma basic and diluted loss per
share................................ $ (.84)
===========
Shares used in computing pro forma
basic and diluted loss per share..... 6,281,282
===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 63
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND PERIOD FROM AUGUST 6, 1993,
DATE OF INCORPORATION, TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- ------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 6, 1993, date of
incorporation.............................. -- $ -- -- $ -- -- $ -- -- $ --
Issuance of common stock to founders:
March 9, 1994 ($.01 per share)........... -- -- -- -- -- -- 660,000 6,600
October 3, 1994 ($.01 per share)......... -- -- -- -- -- -- 330,000 3,300
Issuance of preferred stock:
March 11, 1994 ($1.00 per share)......... 1,675,000 16,750 -- -- -- -- -- --
November 2, 1994 ($1.00 per share)....... 10,000 100 -- -- -- -- -- --
Stock issuance costs..................... -- -- -- -- -- -- -- --
Net (loss)................................. -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balance, December 31, 1994.................. 1,685,000 16,850 -- -- -- -- 990,000 9,900
Issuance of preferred stock:
September 29, 1995 ($2.00 per share) -- -- 2,550,000 25,500 -- -- -- --
October 24, 1995 ($2.00 per share) -- -- 125,000 1,250 -- -- -- --
Stock issuance costs..................... -- -- -- -- -- -- -- --
Collection of stock subscription
receivable............................... -- -- -- -- -- -- -- --
Issuance of common stock under license
agreement on November 7, 1995............ -- -- -- -- -- -- 63,112 631
Net (loss)................................. -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balance, December 31, 1995.................. 1,685,000 16,850 2,675,000 26,750 -- -- 1,053,112 10,531
Issuance of common stock ($.20 per share)
on June 14, 1996 (Note 4)................ -- -- -- -- -- -- 42,500 425
Exercise of stock options (Note 5)......... -- -- -- -- -- -- 1,979 20
Net (loss)................................. -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balance, December 31, 1996.................. 1,685,000 16,850 2,675,000 26,750 -- -- 1,097,591 10,976
Exercise of stock options (Note 5)......... -- -- -- -- -- -- 24,042 240
Issuance of preferred stock:
June 13, 1997 ($5.00 per share)' -- -- -- -- 1,464,404 14,644 -- --
August 12, 1997 ($5.00 per share) -- -- -- -- 10,000 100 -- --
Stock issuance costs..................... -- -- -- -- -- -- -- --
Deferred compensation related to grant of
stock options (Note 5)................... -- -- -- -- -- -- -- --
Amortization of deferred compensation...... -- -- -- -- -- -- -- --
Net (loss)................................. -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balance, December 31, 1997.................. 1,685,000 $16,850 2,675,000 $26,750 1,474,404 $14,744 1,121,633 $11,216
========= ======= ========= ======= ========= ======= ========= =======
<CAPTION>
(DEFICIT)
ACCUMULATED
ADDITIONAL DEFERRED DURING THE STOCK
PAID-IN COMPENSATION DEVELOPMENT SUBSCRIPTION
CAPITAL (NOTE 5) STAGE RECEIVABLE TOTAL
<S> <C> <C> <C> <C> <C>
Balance, August 6, 1993, date of
incorporation.............................. $ -- $ -- $ -- $ -- $ --
Issuance of common stock to founders:
March 9, 1994 ($.01 per share)........... -- -- -- -- 6,600
October 3, 1994 ($.01 per share)......... -- -- -- (3,300) --
Issuance of preferred stock:
March 11, 1994 ($1.00 per share)......... 1,658,250 -- -- -- 1,675,000
November 2, 1994 ($1.00 per share)....... 9,900 -- -- -- 10,000
Stock issuance costs..................... (14,838) -- -- -- (14,838)
Net (loss)................................. -- -- (750,591) -- (750,591)
----------- --------- ------------ ------- -----------
Balance, December 31, 1994.................. 1,653,312 -- (750,591) (3,300) 926,171
Issuance of preferred stock:
September 29, 1995 ($2.00 per share) 5,074,500 -- -- -- 5,100,000
October 24, 1995 ($2.00 per share) 248,750 -- -- -- 250,000
Stock issuance costs..................... (23,154) -- -- -- (23,154)
Collection of stock subscription
receivable............................... -- -- -- 3,300 3,300
Issuance of common stock under license
agreement on November 7, 1995............ -- -- -- -- 631
Net (loss)................................. -- -- (1,234,159) -- (1,234,159)
----------- --------- ------------ ------- -----------
Balance, December 31, 1995.................. 6,953,408 -- (1,984,750) -- 5,022,789
Issuance of common stock ($.20 per share)
on June 14, 1996 (Note 4)................ 8,075 -- -- -- 8,500
Exercise of stock options (Note 5)......... 178 -- -- -- 198
Net (loss)................................. -- -- (2,777,052) -- (2,777,052)
----------- --------- ------------ ------- -----------
Balance, December 31, 1996.................. 6,961,661 -- (4,761,802) -- 2,254,435
Exercise of stock options (Note 5)......... 2,164 -- -- -- 2,404
Issuance of preferred stock:
June 13, 1997 ($5.00 per share)' 7,307,376 -- -- -- 7,322,020
August 12, 1997 ($5.00 per share) 49,900 -- -- -- 50,000
Stock issuance costs..................... (25,866) -- -- -- (25,866)
Deferred compensation related to grant of
stock options (Note 5)................... 860,485 (860,485) -- -- --
Amortization of deferred compensation...... -- 122,041 -- -- 122,041
Net (loss)................................. -- -- (5,250,634) -- (5,250,634)
----------- --------- ------------ ------- -----------
Balance, December 31, 1997.................. $15,155,720 $(738,444) $(10,012,436) $ -- $ 4,474,400
=========== ========= ============ ======= ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 64
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND PERIOD FROM
AUGUST 6, 1993, DATE OF INCORPORATION, TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
CUMULATIVE
TOTALS SINCE
1995 1996 1997 INCORPORATION
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss)........................... $(1,234,159) $(2,777,052) $(5,250,634) $(10,012,436)
Adjustments to reconcile net (loss)
to net cash (used in) operating
activities:
Depreciation...................... 33,570 64,462 106,281 204,879
Amortization of intangibles....... 17,271 32,824 38,489 99,260
Amortization of deferred
compensation.................... -- -- 122,041 122,041
Accretion of discount on
short-term investments.......... (35,561) (58,876) (31,650) (126,087)
Changes in certain working capital
items:
Trade and other receivables..... 3,329 7,323 (121,832) (140,495)
Inventories..................... -- (50,385) (879,819) (930,204)
Prepaid expenses................ (93,325) 57,769 (102,033) (149,589)
Accounts payable and accrued
expenses..................... 108,530 211,176 450,303 826,727
----------- ----------- ----------- ------------
Net cash (used in) operating
activities................. (1,200,345) (2,512,759) (5,668,854) (10,105,904)
----------- ----------- ----------- ------------
Cash Flows from Investing Activities
Purchase of short-term investments... (3,505,417) -- (6,097,746) (10,930,444)
Proceeds from maturities of
short-term investments............ 1,147,218 3,000,000 3,000,000 7,927,135
Payments for license agreements...... (50,000) (90,933) (107,400) (273,333)
Purchase of leasehold improvements
and equipment..................... (322,858) (134,297) (450,728) (911,588)
Other................................ -- (4,617) -- (9,689)
----------- ----------- ----------- ------------
Net cash provided by (used
in) investing activities... (2,731,057) 2,770,153 (3,655,874) (4,197,919)
----------- ----------- ----------- ------------
Cash Flows from Financing Activities
Proceeds from long-term debt......... 120,000 -- 40,000 160,000
Payments on long-term debt........... (11,111) (32,829) (40,042) (83,982)
Proceeds from issuance of capital
stock, net of issuance costs...... 5,330,777 8,698 7,348,558 14,364,795
----------- ----------- ----------- ------------
Net cash provided by (used
in) financing activities... 5,439,666 (24,131) 7,348,516 14,440,813
----------- ----------- ----------- ------------
Increase (decrease) in cash
and cash equivalents....... $ 1,508,264 $ 233,263 $(1,976,212) $ 136,990
Cash and cash equivalents:
Beginning............................ 371,675 1,879,939 2,113,202 --
----------- ----------- ----------- ------------
Ending............................... $ 1,879,939 $ 2,113,202 $ 136,990 $ 136,990
=========== =========== =========== ============
Supplemental disclosures:
Noncash financing for equipment...... $ 26,996 $ 24,230 $ 47,448 $ 51,226
Noncash financing for licenses....... -- 173,333 25,000 173,333
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 65
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: The Company has acquired various licenses that allow
it to develop, manufacture and market devices for the diagnosis, treatment and
management of urinary incontinence and other genito-urinary conditions.
Risk and uncertainties: The Company is in the development stage. It needs
to obtain regulatory approval from the Food and Drug Administration ("FDA")
prior to selling many of its products within the United States, and foreign
regulatory approval must be obtained to sell many of its products
internationally. There can be no assurance that the Company's products will
receive regulatory approvals and a substantial amount of time may pass before
significant revenue is realized. In addition, the primary component of one of
the Company's products is purchased from a single supplier under an agreement
that expires in 2000, subject to an automatic two-year extension.
Accounting estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
A summary of the Company's significant accounting policies follows:
Cash and cash equivalents: For purposes of reporting cash flows, the
Company considers all cash accounts which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments with a
maturity of three months or less, to be cash equivalents.
Short-term investments: Short-term investments include certificates of
deposit of $2,000,000 and held to maturity U.S. Government securities of
$1,129,396 which the Company has the positive intent and ability to hold to
maturity and are stated at amortized cost. The fair value of U.S. Government
securities, which matured in early 1998, approximates their carrying value.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market. The inventories consist primarily of purchased
materials available for sale and to be used in research and development
activities.
Leasehold improvements and equipment: Leasehold improvements and equipment
are stated at cost. Depreciation of furniture and equipment is computed
primarily by accelerated methods over estimated useful lives of five to seven
years. Leasehold improvements are amortized by the straight-line method over the
terms of the leases, plus optional renewals.
Licenses: License acquisition costs are amortized by the straight-line
method over their estimated economic life which varies between five and fifteen
years. These licenses are periodically reviewed for impairment based upon an
assessment of future operations to ensure that they are appropriately valued.
Revenue recognition: Sales of medical devices are recognized as the
products are shipped.
Research and development: Research and development costs are charged to
expense as incurred.
Deferred income taxes: Deferred income taxes are provided under the
liability method whereby deferred tax assets are recognized for deductible
temporary differences and net operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
F-7
<PAGE> 66
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
than not that some or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Stock options issued to employees and directors: Compensation expense for
stock issued through a stock option plan is accounted for using the intrinsic
value based method of accounting prescribed by APB Opinion 25, Accounting for
Stock Issued to Employees. Under this method, compensation is measured as the
difference, if any, between the fair value of the stock at the date of award
less the amount required to be paid for the stock. The difference, if any, is
charged to expense over the periods of service.
The estimated fair value used for the stock options granted was determined
on a periodic basis by the Company's Board of Directors.
Stock options issued to nonemployees: The Company uses the Black-Scholes
model to determine the fair value of stock options issued to nonemployees. The
fair value of options granted is amortized and expensed over the period of
service.
Loss per share: The FASB has issued SFAS No. 128, "Earnings Per Share,"
which supersedes APB Opinion No. 15. SFAS No. 128 requires the presentation of
basic and diluted earnings (loss) per share by all entities that have common
stock or potential common stock, such as options, warrants and convertible
securities outstanding. Basic per share amounts are computed by dividing net
income (loss) (the numerator) by the weighted-average number of common shares
outstanding (the denominator). Diluted per share amounts assume the conversion,
exercise or issuance of all potential common stock unless the effect is to
reduce the loss or increase the income per common share from continuing
operations. The dilutive effect of stock options is reflected by application of
the treasury stock method and the dilutive effect of convertible preferred stock
is reflected by application of the if-converted method. For each of the periods
basic and diluted loss per share were the same since there was no dilutive
effect from stock options or convertible preferred stock. There are no issuances
of stock options that are considered "nominal issuances" under the Securities
and Exchange Commission's Staff Accounting Bulletin No. 98.
Pro forma basic and diluted loss per share for the year ended December 31,
1997 is computed using the weighted average number of outstanding shares of
common stock determined above and the assumed conversion of Series A, B and C
convertible preferred stock into common stock (as of their date of original
issuance), which will occur upon the completion of the initial public offering,
as contemplated herein.
Fair value of financial instruments: The fair value of all the financial
instruments approximates their carrying value since all are liquid or have short
maturities.
Recent accounting pronouncements: In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period, resulting from
transactions and other events and circumstances from nonowner sources. The
impact of adopting SFAS No. 130, which is effective for the Company in 1998, has
not been determined.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information." SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-producing
segments of the entity for which such information is available and is utilized
by the chief operating decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements would be provided. SFAS No. 131 is
effective for the Company in 1998. The Company operates in one business segment.
F-8
<PAGE> 67
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. LICENSES
The Company has acquired seven licenses that allow it to develop,
manufacture and market a number of products. The licenses require the payment of
royalties which vary up to 6% of the revenues related to the products.
One license requires additional fees totaling $75,000 contingently payable
if the Company is able to meet specified regulatory milestones and receives FDA
clearance for the licensed product. This license also requires additional
license fees of $900,000 over five years upon receiving FDA approval.
Royalty expense totaled $0, $637, $1,067 and $1,704 for the years ended
December 31, 1995, 1996 and 1997 and the period from August 6, 1993, date of
incorporation, to December 31, 1997.
NOTE 3. PLEDGED ASSETS AND RELATED DEBT
The Company has various notes payable, collateralized by equipment and
leasehold improvements, totaling $174,690 as of December 31, 1997. These notes
are due in various monthly and annual installments through June 2002.
NOTE 4. STOCKHOLDERS' EQUITY
The Company has issued three series of convertible preferred stock under
investment agreements as follows: 1,685,000 shares of Series A convertible
preferred stock, ($.01 par value) ("Series A") for $1.00 per share under an
Investment Agreement dated March 11, 1994, 2,675,000 shares of Series B
convertible preferred stock, ($.01 par value) ("Series B") for $2.00 per share
under an Investment Agreement dated September 29, 1995 and 1,474,404 shares of
Series C convertible preferred stock, ( $.01 par value) ("Series C") for $5.00
per share under an Investment Agreement dated June 13, 1997.
Dividends: In each fiscal year of the Company, the holders of Series A,
Series B and Series C (collectively, the "Preferred") shall be entitled to
receive, when and if declared by the Board of Directors, dividends in preference
to the holders of Common Stock ("Common") in an amount per share at least equal
to the product of (i) the per share amount, if any, of the cash dividend
declared, paid or set aside for the Common during such fiscal year, multiplied
by (ii) the number of whole shares of Common into which each such share of
Preferred is then convertible. Dividends on the Preferred shall not be
cumulative.
Liquidation preference: In the event of any liquidation, dissolution or
winding up of the Company, the holders of Series A, Series B and Series C shall
be entitled to receive in preference to the holders of Common amounts equal to
$1.00, $2.00 and $5.00 per share, respectively, plus declared and unpaid
dividends. Thereafter the holders of Common shall receive the remaining assets
of the Company. A consolidation or merger or sale of all or substantially all of
the assets of the Company shall be deemed to be a liquidation, dissolution or
winding up for purposes of the liquidation preference.
Voting rights: Pursuant to an Investor Rights Agreement, the holders of
the Company's Preferred Stock agreed to vote their shares of Preferred Stock to
fix the number of directors at five. Pursuant to this agreement, the board was
to consist of one director designated by the holders of the Company's Series A
Preferred Stock, to be designated by Medical Science Partners, L.P.; one
director designated by the holders of the Company's Series B Preferred Stock, to
be designated by Sprout Capital VII, L.P.; the duly elected, qualified and
acting President of the Company and two directors designated jointly by the
President of the Company; and all holders of the Company's Preferred Stock.
Directors Robert E. Curry, Ph.D. and David H. Maupin have served as members of
the board pursuant to this voting arrangement, which terminates upon completion
of the initial public offering.
F-9
<PAGE> 68
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Protective provisions: So long as there shall be issued and outstanding at
least 67% of the total number of shares of Preferred ever issued, the Company
shall not, without first obtaining the affirmative vote of not less then 67% of
the then outstanding shares of Preferred (i) merge or consolidate into or with
any other corporation or sell all or substantially all of the Company's assets;
(ii) voluntarily or involuntarily liquidate, dissolve or wind up the Company or
its business; (iii) amend, repeal or add any provision to the Company's
Certificate of Incorporation if such action would alter or change any of the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, the Preferred, or increase or decrease the total number of
authorized shares of Preferred; (iv) authorize or issue any new or existing
class or series of capital stock (or any securities convertible into or
exercisable for any shares of capital stock) having any preference or priority
as to amounts distributable upon liquidation superior to or on parity with the
Preferred; (v) reclassify any Common into shares having any preference or
priority as to amounts distributable upon liquidation superior to or on parity
with the Preferred; or (vi) pay or declare any dividend or distribution on any
shares of its capital stock, or redeem, retire, repurchase or acquire any shares
of its capital stock (except for shares repurchased in accordance with
restricted stock purchase agreements with employees, consultants or directors
previously approved by the Board of Directors.)
Conversion: Each share of Preferred may be converted at the holder's
option at any time into one share of Common, subject to adjustment as provided
below.
Automatic conversion: The Preferred will be automatically converted into
Common at its then applicable conversion rate upon the earlier of (i) the
closing of an underwritten public offering of more than $15,000,000 of Company
stock for not less than $7.50 per share (a "Qualified Public Offering"), or (ii)
the date on which there are issued and outstanding a number of shares of
Preferred equal to less than 33% of the total number of shares of Preferred ever
issued by the Company.
Conversion price adjustments: The conversion price of the Series A, Series
B and Series C shall be subject to adjustment (i) proportionately for stock
splits, stock dividends, recapitalization, reclassifications, reorganizations,
etc. and (ii) on a broad-based weighted-average basis if the Company issues
additional shares of Common or Common equivalents (other than a total of
1,010,000 shares of Common under board approved stock option/stock purchase
plans and certain other customary exclusions) at a purchase price less than the
applicable conversion price. The conversion prices of the Series A, Series B and
Series C shall initially be $1.00, $2.00 and $5.00, respectively. The holders of
67% of each of the outstanding Series A, Series B and Series C may elect to
waive any price-based antidilution adjustment to the conversion price of their
stock.
Right of first refusal: In the event that the Company issues equity
securities or securities convertible or exercisable for equity securities (other
than up to 1,010,000 shares of Common issued pursuant to board approved stock
option/stock purchase plans and certain other customary exclusions), each of the
holders of Preferred shall be given the right to purchase a percentage of such
securities, on the same basis as the other investors, equal to the percentage
ownership of the Company (on a fully diluted basis) it holds prior to such
issuance, with an additional right of overallotment. A holder of Preferred may
apportion such holder's rights among itself and such general partners, officers
and other affiliates in such proportions as it deems appropriate. These rights
shall terminate upon the closing of the Company's first Qualified Public
Offering.
NOTE 5. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) plan covering all employees
fulfilling minimum age and service requirements. Employee contributions to the
plan are optional. The plan does not provide for a contribution by the employer.
The Company has a Stock Option Plan for certain officers, directors,
employees and consultants whereby 1,010,000 shares of Common have been reserved
for issuance. Options for 763,500 shares of Common have
F-10
<PAGE> 69
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
been granted as of December 31, 1997 to certain officers, directors, employees
and consultants at prices equal to the estimated fair value of the stock at the
date of the grant and are exercisable and vest in a range from immediately to
over a four-year period. The options expire five years from the date of the
grants.
For certain options granted, the Company recognizes as compensation expense
the excess of the deemed value for accounting purposes of the Common stock
issuable upon exercise of such options over the aggregate exercise price of such
options. In connection with these grants, $860,485 of deferred compensation has
been recorded. This compensation expense is being amortized over the vesting
period of each option. Compensation expense under the Plan totaled $122,041 for
the year ended December 31, 1997.
A summary of the status of the Company's Stock Option Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Outstanding at date of inception............................ -- $ --
Granted................................................... 177,000 0.10
-------
Outstanding at December 31, 1994............................ 177,000 0.10
Granted................................................... 43,500 0.10
Granted................................................... 137,000 0.20
-------
Outstanding at December 31, 1995............................ 357,500 0.14
Granted................................................... 33,500 0.20
Exercised on September 20, 1996........................... (1,979) 0.10
Forfeited................................................. (3,021) 0.10
-------
Outstanding at December 31, 1996............................ 386,000 0.15
Granted................................................... 174,000 0.20
Granted................................................... 198,500 0.50
Exercised:
April 26, 1997............................................ (10,000) 0.10
May 31, 1997.............................................. (625) 0.10
June 10, 1997............................................. (10,000) 0.10
October 3, 1997........................................... (2,667) 0.10
October 3, 1997........................................... (750) 0.20
-------
Outstanding at December 31, 1997............................ 734,458 0.26
=======
</TABLE>
Other pertinent information related to the options outstanding at December
31, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
OPTIONS CONTRACTUAL OPTIONS
EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE
<S> <C> <C> <C>
$0.10.................................. 192,208 1.6 157,008
0.20.................................. 343,750 3.6 114,791
0.50.................................. 198,500 4.7 3,333
------- -------
734,458 275,132
======= =======
</TABLE>
F-11
<PAGE> 70
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Upon merger or sale of the Company, an additional 171,460 shares would
become fully exercisable. As of December 31, 1997, options to purchase 246,500
shares of Common were available for future grants.
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." Had the Company elected to measure compensation based on the
grant date fair value of awards granted (the method described in FASB Statement
No. 123), reported net loss and loss per share would have been changed to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
<S> <C> <C> <C>
Pro forma net loss.................... $(1,234,345) $(2,779,311) $(5,318,835)
Pro forma basic and diluted loss per
share............................... $ (1.23) $ (2.58) $ (4.79)
</TABLE>
The pro forma amounts shown above are estimated using the following
assumptions for grants in 1995, 1996 and 1997: no dividends, no price
volatility, risk-free interest rate of 5.84%, 6.27% and 5.71% and expected life
of options of four years.
Subsequent to December 31, 1998, the Company reserved an additional 600,000
shares for future issuance under the plan discussed above, adopted a 1998
director stock option plan and a 1998 employee stock purchase plan. (see Note 9)
NOTE 6. LEASE COMMITMENTS
The Company leases its office building under a lease agreement that expires
June 30, 2000 with one five-year option to renew, whereby it pays monthly
rentals of $7,003 plus property taxes, special assessments, insurance and
maintenance costs. The Company signed a lease in December 1997 for an adjoining
building to be used for manufacturing. This lease commences on January 1, 1998
and requires monthly rentals of $8,050 plus property taxes, special assessments,
insurance and maintenance costs. The lease term is 29 months with one five year
option to renew. The Company plans to exercise both renewal options.
Estimated future minimum lease payments under operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1998............................................ $180,634
1999............................................ 180,634
2000............................................ 82,268
--------
$443,536
========
</TABLE>
The rent expense for the years ended December 31, 1995, 1996, 1997 and the
period from August 6, 1993, date of incorporation, to December 31, 1997 was
$54,414, $91,597, $91,597 and $239,153, respectively.
F-12
<PAGE> 71
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. INCOME TAXES
The composition of the income taxes (credits) are as follows:
<TABLE>
<CAPTION>
AUGUST 6,
1993,
DATE OF
INCORPORATION,
YEAR ENDED DECEMBER 31, TO
-------------------------------- DECEMBER 31,
1995 1996 1997 1997
<S> <C> <C> <C> <C>
Current............................. $ -- $(20,383) $(31,316) $(51,699)
Deferred............................ -- -- -- --
-------- -------- -------- --------
-- $(20,383) $(31,316) $(51,699)
======== ======== ======== ========
</TABLE>
The effective income tax rate is different than the statutory federal tax
rate as follows:
<TABLE>
<CAPTION>
AUGUST 6,
1993,
DATE OF
INCORPORATION,
YEAR ENDED DECEMBER 31, TO
----------------------------------- DECEMBER 31,
1995 1996 1997 1997
<S> <C> <C> <C> <C>
Income taxes (credits) at federal rate of
34%........................................ $(419,600) $(944,200) $(1,754,400) $(3,373,400)
State income taxes (credits) net of federal
benefit.................................... (74,000) (141,500) (279,500) (540,000)
Federal research and development tax
credits.................................... (27,300) (75,600) (229,400) (332,300)
State research and development tax credits... -- (20,383) (31,316) (51,699)
Nondeductible expenses....................... 900 2,400 5,500 9,600
Valuation allowance.......................... 520,000 1,158,900 2,257,800 4,236,100
--------- --------- ----------- -----------
$ -- $ (20,383) $ (31,316) $ (51,699)
========= ========= =========== ===========
</TABLE>
Net deferred income taxes consist of the following components as of
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Net operating loss carryforwards............................ $ 1,818,200 $ 3,836,500
Research and development credits 102,900 332,300
Other temporary differences................................. 57,200 67,300
Less valuation allowance.................................... (1,978,300) (4,236,100)
----------- -----------
Net deferred income taxes.......................... $ -- $ --
=========== ===========
</TABLE>
A valuation allowance totaling $4,236,100 as of December 31, 1997 was
established since it is uncertain if the Company will receive future income tax
benefit from loss carryovers. The amount of the carryforward is approximately
$9,591,000 of which $630,000 expires in 2009, $1,178,000 expires in 2010,
$2,690,000 expires in 2011 and $5,093,000 expires in 2012.
The above loss carryforwards are subject to certain annual limitations
resulting from issuances of equity securities and may be further limited by
additional issuances. Such events could limit the eventual tax utilization of
these carryforwards.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company has clinical service agreements with various research
institutions and medical centers who conduct clinical studies on behalf of the
Company and bill the Company as services are performed.
F-13
<PAGE> 72
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is completing improvements to a leased building to be used as a
manufacturing facility. Leasehold improvements and other capital equipment
purchases with an estimated cost of $500,000 are anticipated through the second
quarter of 1998.
NOTE 9. SUBSEQUENT EVENTS
In April 1998 the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to issue its common stock in an initial public offering.
The Company plans to use the proceeds to fund ongoing and future clinical
trials, research and development, marketing and sales activities, expansion of
manufacturing capabilities and for working capital and general corporate
purposes.
In April 1998 the Company's Board of Directors approved a Restated
Certificate of Incorporation which eliminates the previous class of preferred
stock, authorizes a class of undesignated preferred stock and changes the number
of common shares authorized to 50,000,000 shares. The Restated Articles are to
be filed following the effectiveness of the initial public offering.
In April 1998 the Company's Board of Directors approved a 1998 Director
Option Plan and has reserved 300,000 shares of common stock for issuance under
the plan. Nonemployee directors will annually be granted a nonstatutory option
to purchase 9,000 shares of common stock at the fair value on the date of the
grant, with the option vesting over four years.
In April 1998 the Company's Board of Directors approved a 1998 Employee
Stock Purchase Plan and has reserved 300,000 shares for issuance under the plan.
The Company will withhold up to 15% of salary for participating employees, who
may acquire common stock at 85% of fair value of the common stock on the dates
specified in the plan.
F-14
<PAGE> 73
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
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
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 22
Management............................ 42
Certain Transactions.................. 49
Principal Stockholders................ 50
Description of Capital Stock.......... 52
Shares Eligible for Future Sale....... 54
Underwriting.......................... 55
Validity of Common Stock.............. 56
Experts............................... 57
Additional Information................ 57
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS 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.
======================================================
======================================================
SHARES
LOGO
UROSURGE, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CIBC OPPENHEIMER
, 1998
======================================================
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 11,942
NASD filing fee............................................. 4,548
Nasdaq National Market listing fee.......................... 44,000
Printing and engraving costs................................ 150,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 150,000
Blue Sky fees and expenses.................................. 12,000
Transfer Agent and Registrar fees........................... 7,000
Miscellaneous expenses...................................... 170,510
--------
Total............................................. $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in the terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Restated
Certificate of Incorporation (Exhibit 3.1 hereto) and the Registrant's Bylaws
(Exhibit 3.3 hereto) provides for indemnification of the Registrant's directors,
officers, employees and other agents to the extent and under the circumstances
permitted by the Delaware General Corporation Law. The Registrant also intends
to enter into agreements with its directors and executive officers that will
require the Registrant among other things to indemnify them against certain
liabilities that may arise by reason of their status or service as directors to
the fullest extent not prohibited by Delaware law.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the Registrant, its directors and
officers, and by the Registrant of the Underwriters, for certain liabilities,
including liabilities arising under the Act, and affords certain rights of
contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 31, 1995, the Registrant has issued and sold the following
unregistered securities:
(a) Since March 31, 1995, the Registrant has granted stock options to
employees, consultants and directors under its stock option plans covering
an aggregate of 782,500 shares of the Registrant's Common Stock, at
exercise prices ranging from $0.10 to $2.00 per share. Since March 31,
1995, the Registrant has issued 794,500 shares of Common Stock to
employees, consultants and directors upon exercise of stock options.
(b) In September and October 1995, Registrant sold 2,675,000 shares of
Series B Preferred Stock to 18 private investors at a purchase price of
$2.00 per share.
(c) In June 1997, Registrant sold 1,474,404 shares of Series C
Preferred Stock to 36 private investors at a purchase price of $5.00 per
share.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public
II-1
<PAGE> 75
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with the Registrant, to information
about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant as
currently in effect.
3.2 Form of Restated Certificate of Incorporation to be in
effect upon completion of offering.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Bylaws of the Registrant, as proposed to be amended in
connection with this offering.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation.
10.1 Form of Amended and Restated 1994 Stock Plan.
10.2 Form of 1998 Employee Stock Purchase Plan.
10.3 Form of 1998 Director Option Plan.
10.4 Three-Party Agreement dated October 31, 1994 by and between
University of Iowa Research Park Corporation, Myriad
Developers, L.C. and the Registrant.
10.5 Lease Agreement dated December 12, 1997 between Myriad
Developers, L.C. and the Registrant.
10.6** Development and Supply Agreement dated April 19, 1995 by and
between the Registrant and a contract supplier.
10.7** License Agreement dated October 14, 1993, as amended and
assigned to the Registrant on February 23, 1994, with
Children's Medical Center Corporation.
10.8** Exclusive License Agreement dated June 30, 1996 between The
Regents of the University of California and the Registrant
for Electrode Acupuncture System.
10.9 Iowa Department of Economic Development CEBA Loan Agreement
dated August 21, 1997 by and between the Iowa Department of
Economic Development and the Registrant.
10.10 Amendment No. 1 to Iowa Department of Economic Development
CEBA Loan Agreement dated September 22, 1994.
10.11 Restated Investors Rights Agreement dated June 13, 1997.
10.12 Form of Indemnification Agreement.
10.13* Form of Note and Warrant Agreement.
11.1 Calculation of earnings per share.
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors.
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1).
</TABLE>
II-2
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------- -----------
<C> <S>
24.1 Power of Attorney (included in II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment has been requested for certain portions of this
exhibit.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing as 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.
II-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coralville, State of
Iowa, on the 9th day of April, 1998.
UROSURGE, INC.
By: /s/ DAVID H. MAUPIN
------------------------------------
David H. Maupin,
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David H. Maupin and Randal L. Owens and
each of them, his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ DAVID H. MAUPIN President, Chief Executive April 9, 1998
- ----------------------------------------------------- Officer and Director
David H. Maupin (Principal Executive
Officer)
/s/ RANDAL L. OWENS Vice President of Finance April 9, 1998
- ----------------------------------------------------- and Chief Financial Officer
Randal L. Owens (Principal Financial and
Accounting Officer)
/s/ DICK P. ALLEN Director April 9, 1998
- -----------------------------------------------------
Dick P. Allen
/s/ WILLIAM E. ENGBERS Director April 9, 1998
- -----------------------------------------------------
William E. Engbers
/s/ ROBERT E. CURRY, PHD. Director April 9, 1998
- -----------------------------------------------------
Robert E. Curry, PhD.
/s/ JOSEPH F. LOVETT Director April 9, 1998
- -----------------------------------------------------
Joseph F. Lovett
</TABLE>
II-4
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
----------- ------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant as
currently in effect.
3.2 Form of Restated Certificate of Incorporation to be in
effect upon completion of offering.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Bylaws of the Registrant, as proposed to be amended in
connection with this offering.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation.
10.1 Form of Amended and Restated 1994 Stock Plan.
10.2 Form of 1998 Employee Stock Purchase Plan.
10.3 Form of 1998 Director Option Plan.
10.4 Three-Party Agreement dated October 31, 1994 by and between
University of Iowa Research Park Corporation, Myriad
Developers, L.C. and the Registrant.
10.5 Lease Agreement dated December 12, 1997 between Myriad
Developers, L.C. and the Registrant.
10.6** Development and Supply Agreement dated April 19, 1995 by and
between the Registrant and a contract supplier.
10.7** License Agreement dated October 14, 1993, as amended and
assigned to the Registrant on February 23, 1994, with
Children's Medical Center Corporation.
10.8** Exclusive License Agreement dated June 30, 1996 between The
Regents of the University of California and the Registrant
for Electrode Acupuncture System.
10.9 Iowa Department of Economic Development CEBA Loan Agreement
dated August 21, 1997 by and between the Iowa Department of
Economic Development and the Registrant.
10.10 Amendment No. 1 to Iowa Department of Economic Development
CEBA Loan Agreement dated September 22, 1994.
10.11 Restated Investors Rights Agreement dated June 13, 1997.
10.12 Form of Indemnification Agreement.
10.13* Form of Note and Warrant Agreement.
11.1 Calculation of earnings per share.
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors.
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1).
24.1 Power of Attorney (included in II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment has been requested for certain portions of this
exhibit.
<PAGE> 1
EXHIBIT 1.1
__________Shares
UROSURGE, INC.
Common Stock
UNDERWRITING AGREEMENT
__________, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CIBC OPPENHEIMER CORP.
As representatives of the
several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
UroSurge, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell _________shares of its Common Stock, $.01 par value per share
(the "Firm Shares") to the several underwriters named in Schedule I hereto (the
"Underwriters"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional__________ shares of its Common Stock,
$.01 par value per share (the "Additional Shares") if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter referred to collectively as the "Shares". The shares of
common stock of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Common Stock".
Section 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to
-1-
<PAGE> 2
Rule 430A under the Act, is hereinafter referred to as the "Registration
Statement"; and the prospectus in the form first used to confirm sales of Shares
is hereinafter referred to as the "Prospectus". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"Rule 462(b) Registration Statement"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
Section 2. Agreements to Sell and Purchase and Lock-Up
Agreements. On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell, and each Underwriter agrees, severally and not jointly, to purchase
from the Company at a price per Share of $______ (the "Purchase Price") the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto.
On the basis of the representations and warranties contained in
this Agreement, and subject to its terms and conditions, the Company agrees to
issue and sell the Additional Shares and the Underwriters shall have the right
to purchase, severally and not jointly, up to_______. Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof, which date shall be a business
day (I) no earlier than two business days after such notice has been given (and,
in any event, no earlier than the Closing Date (as hereinafter defined)) and
(ii) no later than ten business days after such notice has been given. If any
Additional Shares are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
The Company hereby agrees not to (I) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers all
or a portion of the economic consequences associated with the ownership of
-2-
<PAGE> 3
any Common Stock (regardless of whether any of the transactions described in
clause (I) or (ii) is to be settled by the delivery of Common Stock, or such
other securities, in cash or otherwise), except to the Underwriters pursuant to
this Agreement, for a period of 180 days after the date of the Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. Notwithstanding the foregoing, during such period (I) the Company
may grant stock options pursuant to the Company's existing stock option plan and
(ii) the Company may issue shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof. The
Company also agrees not to file any registration statement with respect to any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. Notwithstanding the foregoing, the Company may during
such period file a registration statement on Form S-8 relating to its employee
benefit plans; provided, however, that in no event shall such registration
statement on Form S-8 be used for resale of shares issued upon exercise of stock
options or stock purchase rights during such 180 day period and, provided
further that the Company shall not, during such 180 day period, waive any
provision of any stock option or stock purchase agreement that obligates the
optionee or purchaser, as the case may be, to enter into a 180 day lockup
agreement following the offering of the Company's Common Stock contemplated
hereby without the prior written consent of Donaldson Lufkin & Jenrette
Securities Corporation. The Company shall, prior to or concurrently with the
execution of this Agreement, deliver an agreement executed by the stockholders
of the Company listed on Schedule II hereto to the effect that such person will
not, during the period commencing on the date such person signs such agreement
and ending 180 days after the date of the Prospectus, without the prior written
consent of Donaldson, Lufkin & Jenrette Corporation, (A) engage in any of the
transactions described in the first sentence of this paragraph or (B) make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock. Such individuals shall also waive any right of
first refusal they may have with respect to the shares of Common Stock issuable
pursuant to the public offering contemplated hereby. The Company will not, in
the case of stockholders of the Company that are not listed on Schedule II
hereto, waive any provision of any stock option, stock purchase, registration
rights or similar agreement to which such stockholder and the Company are
parties which provides that stockholder(s) will enter into a 180 day lockup
agreement following the offering of the Company's Common Stock contemplated
hereby without the prior written consent of Donaldson Lufkin & Jenrette
Securities Corporation.
The Company hereby confirms its engagement of CIBC Oppenheimer
("Oppenheimer") as, and Oppenheimer hereby confirms its agreement with the
Company to render services as, a "qualified independent underwriter", within the
meaning of Section (b)(15) of Rule 2720 of the National Association of
Securities Dealers, Inc. with
-3-
<PAGE> 4
respect to the offering and sale of the Shares. Oppenheimer, solely in its
capacity as the qualified independent underwriter and not otherwise, is referred
to herein as the "QIU". [As compensation for the services of the QIU hereunder,
the Company agrees to pay the QIU $10,000 on the Closing Date.] The price at
which the Shares will be sold to the public will not be higher than the maximum
price recommended by the QIU.
Section 3. Terms of Public Offering. The Company is advised by
you that the Underwriters propose (I) to make a public offering of their
respective portions of the Shares as soon after the execution and delivery of
this Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
Section 4. Delivery and Payment Section. The Shares shall be
represented by definitive certificates and shall be issued in such authorized
denominations and registered in such names as Donaldson, Lufkin & Jenrette
Securities Corporation shall request no later than two business days prior to
the Closing Date or the applicable Option Closing Date (as defined below), as
the case may be. The Company shall deliver the Shares, with any transfer taxes
thereon duly paid by the respective Sellers, to Donaldson, Lufkin & Jenrette
Securities Corporation through the facilities of The Depository Trust Company
("DTC"), for the respective accounts of the several Underwriters, against
payment to the Company of the Purchase Price therefor by wire transfer of
immediately available Federal funds immediately available in New York City. The
certificates representing the Shares shall be made available for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date (as defined below), as the
case may be, at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of delivery and payment for the Firm Shares shall be
10:00 A.M., New York City time, on ________, 1998 or such other time on the same
or such other date as Donaldson, Lufkin & Jenrette Securities Corporation and
the Company shall agree in writing. The time and date of delivery for the Firm
Shares are hereinafter referred to as the "Closing Date". The time and date of
delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be 10:00 A.M., New York City time, on the date specified in
the applicable exercise notice given by you pursuant to Section 2 or such other
time on the same or such other date as Donaldson, Lufkin & Jenrette Securities
Corporation and the Company shall agree in writing. The time and date of
delivery for the Option Shares are hereinafter referred to as an "Option Closing
Date".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 8 of this Agreement
shall be delivered at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, California 94304, and the Shares shall be delivered at the
Designated Office, all on the Closing Date or such Option Closing Date, as the
case may be.
-4-
<PAGE> 5
Section 5. Agreements of the Company. The Company agrees with
you:
(a) To advise you promptly and, if requested by you, to confirm
such advice in writing, (I) of any request by the Commission for amendments to
the Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you one signed copy of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter designated by
you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which
shall be satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period specified in Rule 424(b) under the Act;
during the period specified in Section 5(d) below, not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been advised
or to which you shall reasonably object after being so advised; and, during such
period, to prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or amendment or supplement
to the Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first
business day after the date of this Agreement and from time to time thereafter
for such period as in the opinion of counsel for the Underwriters a prospectus
is required by law to be delivered in connection with sales by an Underwriter or
a dealer, to furnish in New York City to each
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<PAGE> 6
Underwriter and any dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer may
reasonably request.
(e) If during the period specified in Section 5(d), any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if, in the opinion of counsel for the Underwriters, it is necessary to amend
or supplement the Prospectus to comply with applicable law, forthwith to prepare
and file with the Commission an appropriate amendment or supplement to the
Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with applicable
law, and to furnish to each Underwriter and to any dealer as many copies thereof
as such Underwriter or dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with
you and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as
soon as practicable an earnings statement covering the twelve-month period
ending June 30, 1999 that shall satisfy the provisions of Section 11(a) of the
Act, and to advise you in writing when such statement has been so made
available.
(h) During the period of three years after the date of this
Agreement, to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company as you may reasonably request.
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<PAGE> 7
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's independent auditors in connection with the
registration and delivery of the Shares under the Act and all other fees and
expenses in connection with the preparation, printing, filing and distribution
of the Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
reproducing this Agreement (excluding fees and expenses of counsel to the
Underwriters) and any other agreements or documents in connection with the
offering, purchase, sale or delivery of the Shares, (iv) all expenses in
connection with the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of the several states and all costs
of printing or producing any Preliminary and Supplemental Blue Sky Memoranda in
connection therewith (including the filing fees and fees and disbursements of
counsel for the Underwriters in connection with such registration or
qualification and memoranda relating thereto), (v) the filing fees and
disbursements of counsel for the Underwriters in connection with the review and
clearance of the offering of the Shares by the National Association of
Securities Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to the listing of the Shares on
the Nasdaq National Market, (vii) the cost of printing certificates representing
the Shares, (viii) the costs and charges of any transfer agent, registrar and/or
depositary, and (ix) all other costs and expenses incident to the performance of
the obligations of the Company hereunder for which provision is not otherwise
made in this Section.
(j) To use its best efforts to list for quotation the Shares on
the Nasdaq National Market and to use its best efforts to maintain the listing
of the Shares on the Nasdaq National Market for a period of three years after
the date of this Agreement.
(k) To use its best efforts to do and perform all things required
or necessary to be done and performed under this Agreement by the Company prior
to the Closing Date or any Option Closing Date, as the case may be, and to
satisfy all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Shares, to file a Rule
462(b) Registration Statement with the Commission registering the Shares not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the
date of this Agreement and to pay to
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<PAGE> 8
the Commission the filing fee for such Rule 462(b) Registration Statement at the
time of the filing thereof or to give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
Section 6. Representations and Warranties of the Company.
Representations and Warranties of the Company. The Company represents and
warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to
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<PAGE> 9
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in any preliminary prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(d) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of Delaware and
has the corporate power and authority to carry on its business as described in
the Prospectus and to own, lease and operate its properties, and is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company. The Company has no subsidiaries.
(e) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens granted or
issued by the Company relating to or entitling any person to purchase or
otherwise to acquire any shares of the capital stock of the Company, except as
otherwise disclosed in the Registration Statement.
(f) All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights; and the Shares have been
duly authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
(g) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(h) The Company is not in violation of its respective charter or
by-laws or in default in the performance of any obligation, agreement, covenant
or condition contained in any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Company, to which the
Company is a party or by which the Company or its property is bound.
(i) The execution, delivery and performance of this Agreement by
the Company, the compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will not (i) require
any consent,
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<PAGE> 10
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the charter or
by-laws of the Company or any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Company, to which the
Company is a party or by which the Company or its property is bound, (iii)
violate or conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, or its property or (iv) result in the suspension,
termination or revocation of any Authorization (as defined below) of the Company
or any other impairment of the rights of the holder of any such Authorization.
(j) There are no legal or governmental proceedings pending or
threatened to which the Company is or could be a party or to which any of its
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described; nor are there
any statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so described or filed as
required.
(k) The Company has not violated any foreign, federal, state or
local law or regulation relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), any provisions of the Employee Retirement
Income Security Act of 1974, as amended, or any provisions of the Foreign
Corrupt Practices Act, or the rules and regulations promulgated thereunder,
except for such violations which, singly or in the aggregate, would not have a
material adverse effect on the business, prospects, financial condition or
results of operation of the Company.
(l) The Company has such permits, licenses, consents, exemptions,
franchises, authorizations and other approvals (each, an "Authorization") of,
and has made all filings with and notices to, all governmental or regulatory
authorities and self-regulatory organizations and all courts and other
tribunals, including, without limitation, under any applicable Environmental
Laws, as are necessary to own, lease, license and operate its properties and to
conduct its business, except where the failure to have any such Authorization or
to make any such filing or notice would not, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company. Notwithstanding the foregoing, the term
"Authorizations" shall not, for purposes hereof, include U.S. Food and Drug
Administration and other governmental or private medical device regulatory
approvals or certifications (collectively, "Device Approvals"), and, with
respect to Device Approvals, the Company represents that its current Device
Approval status is as set forth in the
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<PAGE> 11
Prospectus. Each such Device Approval that the Prospectus discloses that the
Company has obtained ("Obtained Device Approval") and each such Authorization is
valid and in full force and effect and the Company is in compliance with all the
terms and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto; and
no event has occurred (including, without limitation, the receipt of any notice
from any authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any such
Obtained Device Approval or Authorization or results or, after notice or lapse
of time or both, would result in any other impairment of the rights of the
holder of any such Obtained Device Approval or Authorization; and such Obtained
Device Approval or Authorizations contain no restrictions that are burdensome to
the Company; except where such failure to be valid and in full force and effect
or to be in compliance, the occurrence of any such event or the presence of any
such restriction would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of operations
of the Company.
(m) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company.
(n) The Company owns or possesses, or can acquire on reasonable
terms, all patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names ("intellectual property") currently employed by it in connection
with the business now operated by the Company except where the failure to own or
possess or otherwise be able to acquire such intellectual property would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operation of the Company; and the
Company has not received any notice of infringement of or conflict with asserted
rights of others with respect to any of such intellectual property which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the business, prospects,
financial condition or results of operation of the Company.
(o) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; and the Company (i) has
not received notice from any insurer or agent of such insurer that substantial
capital improvements or other material expenditures will have to be made in
order to continue such insurance and
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<PAGE> 12
(ii) has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers at a cost that would not have a material adverse
effect on the business, prospects, financial conditions or results of operation
of the Company.
(p) This Agreement has been duly authorized, executed and
delivered by the Company.
(q) McGladrey & Pullen, LLP are independent public accountants
with respect to the Company as required by the Act.
(r) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company on the basis stated therein at the respective dates or
for the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(s) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
(t) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the Company
to file a registration statement under the Act with respect to any securities of
the Company, except as described in the Registration Statement, or to require
the Company to include such securities with the Shares registered pursuant to
the Registration Statement, except as have been waived prior to the date of this
Agreement.
(u) Since the respective dates as of which information is given
in the Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse
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<PAGE> 13
change in the condition, financial or otherwise, or the earnings, business,
management or operations of the Company, (ii) there has not been any material
adverse change or any development involving a prospective material adverse
change in the capital stock or in the long-term debt of the Company and (iii)
the Company has not incurred any material liability or obligation, direct or
contingent.
(v) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
Section 7. Indemnification. (a) The Company agrees to indemnify
and hold harmless each Underwriter, its directors, its officers and each person,
if any, who controls any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus (as then
amended or supplemented, provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages
and liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in such Prospectus and such Prospectus was required by law to
be delivered at or prior to the written confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indemnity
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<PAGE> 14
from the Company to such Underwriter but only with reference to information
relating to such Underwriter furnished in writing to the Company by such
Underwriter through you expressly for use in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto) or
any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by Donaldson, Lufkin & Jenrette Securities Corporation and shall be
reasonably acceptable to the Company, in the case of parties indemnified
pursuant to Section 7(a), and by the Company, in the case of parties indemnified
pursuant to Section 7(b). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of
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<PAGE> 15
the indemnifying party) and, prior to the date of such settlement, the
indemnifying party shall have failed to comply with such reimbursement request.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this
Section 7 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an
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indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
incurred by such indemnified party in connection with investigating or defending
any matter, including any action, that could have given rise to such losses,
claims, damages, liabilities or judgments. Notwithstanding the provisions of
this Section 7, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 7(d) are several in
proportion to the respective number of Shares purchased by each of the
Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
Section 8. Indemnification of QIU. (a) The Company agrees to
indemnify and hold harmless the QIU, its directors, its officers and each
person, if any, who controls the QIU within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) related to, based upon or arising out of (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) the
QIU's activities as QIU under its engagement pursuant to Section 2 hereof,
except in the case of this clause (ii) insofar as any such losses, claims,
damages, liabilities or judgments are found in a final judgment by a court of
competent jurisdiction, not subject to further appeal, to have resulted solely
from the willful misconduct or gross negligence of the QIU.
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) (the "QIU
Indemnified Party"), the QIU Indemnified Party shall promptly notify the Company
in writing and the Company shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the QIU Indemnified Party
and the
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<PAGE> 17
payment of all fees and expenses of such counsel, as incurred. Any QIU
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the QIU Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Company, (ii) the Company shall have failed to assume the defense of such
action or employ counsel reasonably satisfactory to the QIU Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the QIU Indemnified Party and the Company, and the QIU Indemnified
Party shall have been advised by such counsel that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
assume the defense of such action on behalf of the QIU Indemnified Party). In
any such case, the Company shall not, in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all QIU Indemnified Parties, which firm shall be
designated by the QIU, and all such fees and expenses shall be reimbursed as
they are incurred. The Company shall indemnify and hold harmless the QIU
Indemnified Party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the Company
shall have received a request from the QIU Indemnified Party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the Company) and, prior to the date of such settlement,
the Company shall have failed to comply with such reimbursement request. The
Company shall not, without the prior written consent of the QIU Indemnified
Party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the QIU Indemnified Party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the QIU Indemnified
Party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the QIU Indemnified Party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the QIU Indemnified Party.
(c) To the extent the indemnification provided for in this
Section 8 is unavailable to a QIU Indemnified Party or insufficient in respect
of any losses, claims, damages, liabilities or judgments referred to therein,
then the Company, in lieu of indemnifying such QIU Indemnified Party, shall
contribute to the amount paid or payable by such QIU Indemnified Party as a
result of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the QIU on the other hand from the offering of the
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<PAGE> 18
Shares or (ii) if the allocation provided by clause 8(c)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(c)(i) above but also the
relative fault of the Company on the one hand and the QIU on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the QIU on the other hand shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company as set forth in the table on the cover page of
the Prospectus, and the fee received by the QIU pursuant to Section 2 hereof,
bear to the sum of such total net proceeds and such fee. The relative fault of
the Company on the one hand and the QIU on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the QIU and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission and whether the QIU's activities as QIU under
its engagement pursuant to Section 2 hereof involved any willful misconduct or
gross negligence on the part of the QIU.
The Company and the QIU agree that it would not be just and
equitable if contribution pursuant to this Section 8(c) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by a QIU Indemnified Party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such QIU
Indemnified Party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) The remedies provided for in this Section 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any QIU Indemnified Party at law or in equity.
Section 9. Conditions of Underwriters' Obligations. Conditions of
Underwriters Obligations. The several obligations of the Underwriters to
purchase the Firm Shares under this Agreement are subject to the satisfaction of
each of the following conditions:
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<PAGE> 19
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by David H. Maupin and Randal L. Owens, in their
capacities as the President and Chief Executive Officer and Vice President of
Finance and Chief Financial Officer of the Company, confirming the matters set
forth in Sections 6(u), 9(a) and 9(b) and that the Company has complied with all
of the agreements and satisfied all of the conditions herein contained and
required to be complied with or satisfied by the Company on or prior to the
Closing Date.
(d) Since the respective dates as of which information is given
in the Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company, (ii) there shall not have
been any change or any development involving a prospective change in the capital
stock or in the long-term debt of the Company and (iii) the Company shall not
have incurred any liability or obligation, direct or contingent, the effect of
which, in any such case described in clause 9(d)(i), 9(d)(ii) or 9(d)(iii), in
your judgment, is material and adverse and, in your judgment, makes it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Wilson Sonsini Goodrich & Rosati, counsel for the Company, to the effect
that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of
Delaware and has the corporate power and authority to carry on its
business as described in the Prospectus and to own, lease and operate
its properties;
(ii) the Company is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in
which the nature of
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<PAGE> 20
its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company;
(iii) all the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights;
(iv) the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided by
this Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any preemptive or
similar rights;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(vii) the Registration Statement has become effective under the
Act, no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the best of such counsel's
knowledge after due inquiry, pending before or contemplated by the
Commission;
(viii) the statements under the captions "Risk Factors--Lack of
Regulatory Approvals", "Business--Government Regulation", "Certain
Transactions", "Description of Capital Stock", "Shares Eligible for
Future Sale" and "Underwriting" in the Prospectus and Items 14 and 15 of
Part II of the Registration Statement, insofar as such statements
constitute a summary of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings;
(ix) the Company is not in violation of its certificate of
incorporation or by-laws;
(x) the execution, delivery and performance of this Agreement by
the Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby will
not (A) require any consent, approval, authorization or other order of,
or qualification with, any court or governmental body or agency (except
such as may be required under the
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<PAGE> 21
securities or Blue Sky laws of the various states), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, the certificate of incorporation or by-laws of the Company or any
indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company to which the Company is a
party or by which the Company or property is bound, (C) violate or
conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, or its property or (D) result in the
suspension, termination or revocation of any Authorization of the
Company or any other impairment of the rights of the holder of any such
Authorization;
(xi) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
is a party or to which any of its respective property is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described, or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not so described or filed as
required;
(xii) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended;
and
(xiii) to the best of such counsel's knowledge after due inquiry,
there are no contracts, agreements or understandings between the Company
and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any
securities of the Company, except as described in the Registration
Statement, or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement, except as have
been waived prior to the date of this Agreement.
Such counsel shall state that (except for financial statements and schedules and
other financial data derived therefrom as to which such counsel need express no
opinion) the Registration Statement and the Prospectus comply as to form with
the Act. In addition, such counsel shall also state that such counsel has
participated in the preparation of the Registration Statement and the
Prospectus, involving, among other things, review and discussion of the contents
thereof, discussion and inquiries concerning various legal matters and the
review of certain records, documents and proceedings, and participation in
conferences with certain officers and other representatives of the Company,
including its independent auditors, and with the Underwriters and their counsel
at which the contents of the Registration Statement and the Prospectus were
discussed, but without
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<PAGE> 22
independent check or verification of the accuracy or completeness of such
information, except as specified in such counsel's opinion. On the basis of such
consideration, review and discussion, but without independent check or
verification of the accuracy or completeness of such information, nothing has
come to our attention which causes such counsel to believe (A) that (except for
financial statements and schedules and other financial data derived therefrom
included therein as to which such counsel need express no opinion) the
Registration Statement and the Prospectus included therein at the time the
Registration Statement became effective contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or (B) that (except
for financial statements and schedules and other financial data derived
therefrom included therein as to which such counsel need express no opinion) the
Prospectus on the Closing Date contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
The opinion of Wilson Sonsini Goodrich & Rosati described in
Section 9(e) above shall be rendered to you at the request of the Company and
shall so state therein.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Lahive &Cockfield, LLP, patent counsel for the Company, to the effect that:
(i) the statements under the caption "Business - Patents and
Proprietary Rights" in the Prospectus, insofar as such statements
constitute a summary of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings; and
(ii) such counsel is not aware that the Company lacks ownership
or possession or cannot acquire on reasonable terms, all patents, patent
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names ("intellectual property") currently employed by it
in connection with the business now operated by the Company except as
described in the Registration Statement and Prospectus and except where
the failure to own or possess or otherwise be able to acquire such
intellectual property would not, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition
or results of operation of the Company; and, to the best of such
counsel's knowledge after due
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<PAGE> 23
inquiry, the Company has not received any notice of infringement of or
conflict with asserted rights of others with respect to any of such
intellectual property which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a material
adverse effect on the business, prospects, financial condition or
results of operations of the Company.
Such counsel shall also state that although they have not independently
verified the statements contained in the Registration Statement and the
Prospectus under the caption "Risk Factors -- Dependence on Patents and
Proprietary Technology" and "Business --- Patents and Property Rights," nothing
has come to their attention that leaves them to believe that, at the time the
Registration Statement became effective or at the Closing Date, the Registration
Statement and the Prospectus under the captions "Risk Factors ---Dependence on
Patents and Propriety Technology" and "Business -- Patents and Proprietary
Rights" contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
The opinion of Lahive & Cockfield, LLP described in Section 9(f)
above shall be rendered to you at the request of the Company and shall so state
therein.
(g) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Sullivan & Cromwell, counsel for the Underwriters, as to
the matters referred to in Sections 9(e)(iv), 9(e)(v), 9(e)(viii) (but only with
respect to the statements under the caption "Description of Capital Stock" and
"Underwriting") and 9(e)(xvi).
In giving such opinions with respect to the matters covered by
Section 9(e)(xvi) counsel for the Company and counsel for the Underwriters may
state that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof, but are
without independent check or verification except as specified.
(h) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from McGladrey & Pullen, LLP,
independent public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements
specified in Section 2 hereof which agreements shall be in full force and effect
on the Closing Date.
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<PAGE> 24
(j) The Shares shall have been duly listed for quotation on the
Nasdaq National Market.
(k) The Company shall not have failed on or prior to the Closing
Date to perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company on or prior to the
Closing Date.
The several obligations of the Underwriters to purchase any
Additional Shares hereunder are subject to the delivery to you on the applicable
Option Closing Date of such documents as you may reasonably request with respect
to the good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
Section 10. Effectiveness of Agreement and Termination.
Effectiveness of Agreement and Termination. This Agreement shall become
effective upon the execution and delivery of this Agreement by the parties
hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market or limitation on prices for securities or other instruments on
any such exchange or the Nasdaq National Market, (iii) the suspension of trading
of any securities of the Company on any exchange or in the over-the-counter
market, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects,
or will materially and adversely affect, the business, prospects, financial
condition or results of operations of the Company and makes it impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus,
(v) the declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as
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<PAGE> 25
the case may be, which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the total number of
Firm Shares or Additional Shares, as the case may be, to be purchased on such
date by all Underwriters, each non-defaulting Underwriter shall be obligated
severally, in the proportion which the number of Firm Shares set forth opposite
its name in Schedule I bears to the total number of Firm Shares which all the
non-defaulting Underwriters have agreed to purchase, or in such other proportion
as you may specify, to purchase the Firm Shares or Additional Shares, as the
case may be, which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date; provided that in no event shall the number
of Firm Shares or Additional Shares, as the case may be, which any Underwriter
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 9 by an amount in excess of one-ninth of such number of Firm Shares
or Additional Shares, as the case may be, without the written consent of such
Underwriter. If on the Closing Date any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased by all Underwriters and arrangements
satisfactory to you and the Company for purchase of such Firm Shares are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter and the Company. In any
such case which does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. If, on an Option Closing Date, any Underwriter or Underwriters
shall fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such
date, the non-defaulting Underwriters shall have the option to (i) terminate
their obligation hereunder to purchase such Additional Shares or (ii) purchase
not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase on such date in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
Section 11. Miscellaneous. Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (i) if to the
Company, to UroSurge, Inc., 2660 Crosspark Road, Coralville, Iowa 52241,
Attention: David H. Maupin, and (ii) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
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<PAGE> 26
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company and the several
Underwriters set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Shares, regardless of (i) any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, any QIU
Indemnified Party, the Company, the officers or directors of the Company or any
person controlling the Company, (ii) acceptance of the Shares and payment for
them hereunder and (iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of
the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 9), the Company agrees to reimburse the
several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse the
several Underwriters, their directors and officers, any persons controlling any
of the Underwriters and the QIU Indemnified Parties for any and all fees and
expenses (including, without limitation, the fees disbursements of counsel)
incurred by them in connection with enforcing their rights hereunder (including,
without limitation, pursuant to Section 7 hereof).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, the Underwriters' directors and officers, any controlling persons
referred to herein, the QIU Indemnified Parties, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
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<PAGE> 27
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the several Underwriters.
Very truly yours,
UROSURGE, INC.
By:
--------------------------------
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CIBC OPPENHEIMER CORP.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
-------------------------------
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<PAGE> 28
SCHEDULE I
Underwriters Number of Firm Shares
to be Purchased
Donaldson, Lufkin & Jenrette Securities
Corporation
CIBC Oppenheimer Corp.
-------------------
Total
===================
SCHEDULE II
Stockholders
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<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF UROSURGE, INC.
UroSurge, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
A. The name of the Corporation is UroSurge, Inc. The Corporation was
originally incorporated under the same name and the original Certificate of
Incorporation was filed with the Delaware Secretary of State on August 18, 1993.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of this Corporation.
C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
FIRST. The name of the Corporation is UroSurge, Inc.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows: to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH. The Corporation is authorized to issue two classes of stock to be
designated Common Stock and Preferred Stock. The total number of shares of
Common Stock which the Corporation has authority to issue is fifty million
(50,000,000) with par value of $.01 per share. The total number of shares of
Preferred Stock which the Corporation has authority to issue is 12,220,000 with
a par value of $.01 per share. One million six hundred eighty-five thousand
(1,685,000) shares of Preferred Stock
<PAGE> 2
are designated as Series A Convertible Preferred Stock ("Series A Preferred
Stock"), three million five hundred thirty five thousand (3,535,000) shares of
Preferred Stock are designated as Series B Convertible Preferred Stock ("Series
B Preferred Stock") and two million (2,000,000) shares of Preferred Stock are
designated as Series C Convertible Preferred Stock ("Series C Preferred Stock").
The remaining 5,000,000 shares shall be undesignated Preferred Stock and
may be issued from time to time in one or more series pursuant to a resolution
or resolutions providing for such issue duly adopted by the board of directors
(authority to do so being hereby expressly vested in the board). The board of
directors is further authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares of any series of
Preferred Stock and the designation of any such series of Preferred Stock. The
board of directors, within the limits and restrictions stated in any resolution
or resolutions of the board of directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
shares in any such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
The authority of the board of directors with respect to each such class
or series shall include, without limitation of the foregoing, the right to
determine and fix:
(i) the distinctive designation of such class or series and the number
of shares to constitute such class or series;
(ii) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
(iii) the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(iv) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(v) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;
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<PAGE> 3
(vi) the obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(vii) voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock;
(viii) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
(ix) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the board of directors of the
Corporation, acting in accordance with this Certificate of Incorporation, may
deem advisable and are not inconsistent with law and the provisions of this
Certificate of Incorporation.
The corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion of the Preferred
Stock.
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one
vote for each share held at all meetings of stockholders (and written actions in
lieu of meetings). There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
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1. Dividends. In each fiscal year of the Corporation, the
holders of shares of Preferred Stock shall be entitled to receive, before any
cash dividends shall be declared and paid upon or set aside for the Common Stock
in such fiscal year, when and as declared by the Board of Directors of the
Corporation out of funds legally available for that purpose, dividends payable
in cash in an amount per share for such fiscal year at least equal to the
product of (i) the per share amount, if any, of the cash dividend declared, paid
or set aside for the Common Stock during such fiscal year, multiplied by (ii)
the number of whole shares of Common Stock into which each such share of
Preferred Stock is then convertible. Any cash dividends payable to holders of
shares of Preferred Stock shall be payable pari passu among the holders of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
and in preference and priority to any payment of any cash dividend on the Common
Stock. The right to such dividends shall not be cumulative, and no right shall
accrue to holders of Common Stock or Preferred Stock by reason of the fact that
dividends on said shares are not declared in any prior period.
2. Liquidation, Dissolution or Winding Up.
(a) Preferred Stock Preference. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall be entitled to receive on a pari passu basis,
prior and in preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of Common Stock by reason of their
ownership of such shares, an amount equal to $1.00, $2.00 and $5.00 per share,
respectively, plus an amount equal to any declared but unpaid dividends thereon,
with respect to such liquidation, dissolution or winding up. If the assets and
funds thus distributed among the holders of the Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock shall be insufficient to permit
the payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
(b) Remaining Assets. After the payment or irrevocable
setting apart of all preferential amounts required to be paid to the holders of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
upon the dissolution, liquidation or winding up of the Corporation as set forth
in subsection 2(a) above, the holders of shares of Common Stock then outstanding
shall be entitled to receive the remaining assets and funds of the Corporation
available for distribution to its stockholders.
(c) Consolidation or Merger. The merger or consolidation
of the Corporation into or with another corporation, or the sale of all or
substantially all the assets of the Corporation, in which transaction the
Corporation's stockholders immediately prior to such transaction own immediately
after such transaction less than 50% of the voting securities of the surviving
corporation (or its parent), shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this Section 2. The amount deemed
distributed to the holders of Preferred Stock upon any such merger or
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consolidation shall be the cash or the value of the property, rights or
securities distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation.
3. Voting.
(a) General. Each holder of outstanding shares of Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Preferred Stock held by such
holder are convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law or by the provisions of subsection 3(b)
below, the holders of Preferred Stock shall vote together with the holders of
Common Stock as a single class.
(b) Board of Directors. Notwithstanding Section 3(a) above, the
holders of Series A Preferred Stock shall be entitled to elect one (1) director
of the Corporation, the holders of Series B Preferred Stock shall be entitled to
elect one (1) director of the Corporation, and the holders of Common Stock and
Preferred Stock, voting together, shall be entitled to elect all remaining
directors of the Corporation. Notwithstanding any bylaw provision to the
contrary, the stockholders entitled to elect a particular director shall be
entitled to remove such director or to fill a vacancy in the seat formerly held
by such director, all in accordance with the applicable provisions of the
Delaware General Corporation Law.
(c) General Protective Provisions. In addition to any other
rights provided by law or by this Section 3, so long as there shall be issued
and outstanding a number of shares of Preferred Stock equal to at least 67% of
the total number of shares of Preferred Stock ever issued by the Corporation
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares), the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than 67% of the then outstanding shares of
Preferred Stock consenting or voting (as the case may be) together as a single
class:
(i) Merge or consolidate into or with any other
corporation or sell all or substantially all of the Corporation's assets;
(ii) Voluntarily or involuntarily liquidate, dissolve or
wind up the Corporation or its business;
(iii) Amend or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or Bylaws, if such
action would alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, any series of Preferred Stock,
or increase or decrease the number of authorized shares of any series of
Preferred Stock;
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(iv) Authorize or issue any new or existing class or
classes or series of capital stock having any preference or priority as to
amounts distributable upon dissolution, liquidation or winding up of the
Corporation superior to or on a parity with any such preference or priority of
any series of Preferred Stock, or authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of stock of
the Corporation having any preference or priority as to amounts distributable
upon dissolution, liquidation or winding up of the Corporation superior to or on
a parity with any such preference or priority of any series of Preferred Stock;
(v) Reclassify any Common Stock into shares having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of any series of Preferred Stock; or
(vi) Pay or declare any dividend or distribution on any
shares of its capital stock, or apply any of its assets to the redemption,
retirement, purchase or acquisition, directly or indirectly, through
subsidiaries or otherwise, of any shares of its capital stock (other than in
accordance with the terms of restricted stock or similar agreements with
employees or directors of, or consultants to, the Corporation previously
approved by the Board of Directors).
(d) Special Series C Protective Provision. In addition to any
other rights provided by law or by this Section 3, so long as there are any
issued and outstanding shares of Series C Preferred Stock, the Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of not less than 75% of the then outstanding shares of Series C
Preferred Stock consenting or voting (as the case may be) together as a separate
class, amend, modify, or repeal any provision of Article Fourth, Section B,
Subsection 2 (Liquidation, Dissolution or Winding Up).
4. Optional Conversion. The holders of Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Preferred Stock. Each share of Preferred Stock shall be convertible into
the number of shares of Common Stock which results from dividing the "Conversion
Price" per share in effect for such series of Preferred Stock at the time of
conversion into the "Conversion Value" per share of such series of Preferred
Stock. The number of shares of Common Stock into which a series of Preferred
Stock is convertible is hereinafter referred to as the "Conversion Rate" for
such series of Preferred Stock. The Conversion Price per share of Series A
Preferred Stock shall initially be $1.00, and the Conversion Value per share of
Series A Preferred Stock shall be $1.00. The Conversion Price per share of
Series B Preferred Stock shall initially be $2.00 and the Conversion Value per
share of Series B Preferred Stock shall be $2.00. The Conversion Price per share
of Series C Preferred Stock shall initially be $5.00 and the Conversion Value
per share of Series C Preferred Stock shall be $5.00. The Conver sion Price of
the Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock shall be subject to adjustment as hereinafter provided. In the
event of a liquidation of the Corporation,
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the Conversion Rights shall terminate at the close of business on the first full
day preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective applicable Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Preferred Stock to convert
shares of Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Preferred Stock, at
the office of the transfer agent for the Preferred Stock (or at the principal
office of the Corporation if the Corporation serves as its own transfer agent),
together with written notice that such holder elects to convert all or any
number of the shares of the Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the Conversion Date, issue and deliver at such
office to such holder of Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share.
(ii) The Corporation shall at all times when the
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Preferred Stock, such number of its duly authorized shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding Preferred Stock. Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value of the shares
of Common Stock issuable upon conversion of the Preferred Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any accrued and unpaid dividends, if any, on
the Preferred Stock surrendered for conversion or on the Common Stock delivered
upon conversion.
(iv) All shares of Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect
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to such shares, including the rights, if any, to receive notices and to vote,
shall immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in exchange
therefor and payment of any declared and unpaid dividends thereon. Any shares of
Preferred Stock so converted shall be retired and canceled and shall not be
reissued, and the Corporation may from time to time take such appropriate action
as may be necessary to reduce the authorized Preferred Stock accordingly.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Article
FOURTH, the following definitions shall apply:
(A) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities (as defined below), excluding
rights, options or warrants to acquire shares described in clause V of
subsection 4(d)(i)(D) below;
(B) "Filing Date" shall mean the date on which
this Restated Certificate of Incorporation is filed with the Delaware Secretary
of State.
(C) "Convertible Securities" shall mean any
evidence of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" with
respect to the Preferred Stock shall mean all shares of Common Stock issued (or,
pursuant to subsection 4(d)(iii) below deemed to be issued) by the Corporation
after the Filing Date, other than:
(I) all shares of Common Stock and
Preferred Stock outstanding on the date of filing of this certificate with the
Delaware Secretary of State;
(II) all shares of Common Stock issued or
issuable upon conversion of shares of Preferred Stock;
(III) all shares of Common Stock issued or
issuable as a dividend or distribution on Preferred Stock;
(IV) all shares of Common Stock issued or
issuable as a result of any stock split, combination, dividend, distribution,
reclassification, exchange or substitution for which an adjustment is provided
in subsections 4(e), (f), (g) or (h) below; or
(V) all shares of Common Stock,
outstanding from time to time, or shares of Common Stock issued or issuable upon
exercise of rights, options or warrants, outstanding from time to time, granted
or issued to officers, directors or employees of, or consultants to, the
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Corporation pursuant to a stock grant, stock option plan, employee stock
purchase plan, restricted stock plan or other similar plan or agreement or
otherwise, in each case as approved by the Board of Directors, in an amount not
to exceed in the aggregate at any time 1,010,000 shares (subject to appropriate
adjustment for any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
(ii) No Adjustment of Conversion Price. No adjustment in
the number of shares of Common Stock into which any series of Preferred Stock is
convertible shall be made, by adjustment in the applicable Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
subsection 4(d)(v) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the Conversion Price for such series
of Preferred Stock in effect on the date of, and immediately prior to, the
issuance of such Additional Share of Common Stock, or (b) if prior to such
issuance, the Corporation receives written notice from the holders of at least
67% of the then outstanding shares of such series of Preferred Stock agreeing
that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
(iii) Issue of Securities; Deemed Issue of Additional
Shares of Common Stock. If the Corporation, at any time or from time to time
after the Filing Date for the applicable series of Preferred Stock, shall issue
any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to subsection 4(d)(v) hereof) of such Additional Shares of
Common Stock would be less than the Conversion Price for such series of
Preferred Stock in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case
in which such Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue date thereof (or
upon the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or
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decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) No readjustment pursuant to clause (B) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date;
(D) Upon the expiration or termination of any
unexercised Option, the Conversion Price shall not be readjusted but the
Additional Shares of Common Stock deemed issued as the result of the original
issue date of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of such Conversion Price; and
(E) In the event of any change in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange of any
Option or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Conversion Price then
in effect shall forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change been made
upon the basis of such change, but no further adjustment shall be made for the
actual issuance of Common Stock upon the exercise or conversion of any such
Option or Convertible Security.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall, at any
time after the Filing Date, issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to subsection
4(d)(iii), but excluding shares issued as a dividend or distribution as provided
in subsection 4(f) or upon a stock split or combination as provided in
subsection 4(e)), without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, such Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue plus (2) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued; provided that, for the purpose
of this subsection 4(d)(iv), (i) all shares of Common Stock issuable upon
exercise or conversion of Options or Convertible Securities outstanding
immediately prior to such issue shall be deemed to be outstanding, and (ii) the
number of shares of Common Stock deemed issuable upon conversion of such
outstanding Options and Convertible Securities shall not give effect to any
adjustments to the conversion price or conversion rate of such Options or
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
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Notwithstanding the foregoing, the applicable Conversion Price shall not
be so reduced at such time if the amount of such reduction would be an amount
less than $.01, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.01 or more.
(v) Determination of Consideration. For purposes of this
subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be
computed at the aggregate of cash received by the Corporation, excluding amounts
paid or payable for accrued interest or accrued dividends;
(II) insofar as it consists of property
other than cash, be computed at the fair market value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other assets
of the Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (I) and (II)
above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating the relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
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(e) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the Filing Date effect
a subdivision of the outstanding Common Stock, the Conversion Price for each
series of Preferred Stock then in effect immediately before that subdivision
shall be proportionately decreased. If the Corporation shall at any time or from
time to time after the Filing Date combine the outstanding shares of Common
Stock, the Conversion Price for each series of Preferred Stock then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this paragraph shall become effective at the close of business
on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the
event the Corporation at any time, or from time to time after the Filing Date,
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for each series of Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction:
(i) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution:
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) Adjustments for Other Dividends and Distributions. In the
event the Corporation at any time or from time to time after the Filing Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had their Preferred Stock been converted into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the Conversion Date, retained such
securities receivable by them as aforesaid during such period giving application
to all adjustments called for during such period, under this paragraph with
respect to the rights of the holders of the Preferred Stock.
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(h) Adjustment for Reclassification Exchange, or Substitution.
If the Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or sale of assets provided
for below), then and in each such event the holder of each such share of
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of
any consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the Corporation to
another corporation (other than a consolidation, merger or sale which is treated
as a liquidation pursuant to subsection 2(c)), each share of Preferred Stock
shall thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Section 4
set forth with respect to the rights and interest thereafter of the holders of
the Preferred Stock, to the end that the provisions set forth in this Section 4
(including provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment. This provision shall not restrict the
Corporation from amending its Certificate of Incorporation in accordance with
the General Corporation Law of the State of Delaware.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for the Preferred Stock
pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price for the series of
Preferred Stock held by such holder then in effect, and (iii) the
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number of shares of Common Stock and the amount, if any, of other property which
then would be received upon the conversion of the Preferred Stock held by such
holder.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Preferred Stock, and shall cause to be
mailed to the holders of the Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least ten days prior
to the record date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend,
distribution, subdivision or combination, or, if record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to such
dividend, distribution subdivision or combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
5. Mandatory Conversion.
(a) Mandatory Conversion Time. All outstanding shares of
Preferred Stock shall automatically be converted into shares of Common Stock, at
the then current Conversion Price, upon the earlier (the "Mandatory Conversion
Date") of (i) the closing of the sale of shares of Common Stock at a price of at
least $7.50 per share (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other similar recapitalizations affecting such
shares) in an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, resulting in at least
$15,000,000 of gross proceeds to the Corporation, or (ii) the date on which
there are issued
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and outstanding a number of shares of Preferred Stock equal to less than 33% of
the total number of shares of Preferred Stock ever issued by the Corporation
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares).
(b) Mechanics of Conversion. All holders of record of shares of
Preferred Stock will be given written notice of the Mandatory Conversion Date
and the place designated for mandatory conversion of all such shares of
Preferred Stock pursuant to this Section 5. Such notice need not be given in
advance of the occurrence of the Mandatory Conversion Date. Such notice shall be
sent by first class or registered mail, postage prepaid, to each record holder
of Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Preferred Stock (or the records of the corporation, if it
serves as its own transfer agent). Upon receipt of such notice, each holder of
shares of Preferred Stock shall surrender his or its certificate or certificates
for all such shares to the corporation at the place designated in such notice,
and shall thereafter receive certificates for the number of shares of Common
Stock to which such holder is entitled pursuant to this Section 5. On the
Mandatory Conversion Date, all rights with respect to the Preferred Stock so
converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such shares of Preferred Stock have
been converted, and payment of any declared or accrued but unpaid dividends
thereon (all of which shall be deemed to be declared by the Board of Directors
on the Mandatory Conversion Date). If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for
Preferred Stock, the Corporation shall cause to be issued and delivered to such
holder, or on his or its written order, a certificate or certificates for the
number of full shares of Common Stock issuable on such conversion in accordance
with the provisions hereof and cash as provided in subsection 4(b) in respect of
any fraction of a share of Common Stock otherwise issuable upon such conversion.
(c) Retirement of Shares. All certificates evidencing shares of
Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and cancelled and the shares of
Preferred Stock presented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Preferred Stock accordingly.
FIFTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
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<PAGE> 16
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation.
SIXTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
Corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom.
With respect to any action, suit, proceeding or investigation for which
indemnity will or could be sought, the Corporation will be entitled to
participate therein at its own expense and/or to assume the
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defense thereof at its own expense, with legal counsel reasonably acceptable to
the person seeking indemnification.
In the event that the Corporation does not assume the defense of any
action, suit, proceeding or investigation for which indemnity will or could be
sought, any expenses (including attorneys' fees) incurred by the person seeking
indemnification in defending a civil or criminal action, suit, proceeding or
investigation or any appeal therefrom shall be paid by the Corporation in
advance of the final disposition of such matter upon receipt of an undertaking
by the person indemnified to repay such payment if it is ultimately determined
that such person is not entitled to indemnification under this Article, which
undertaking may be accepted without reference to the financial ability of such
person to make such repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article EIGHTH (i) shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of such persons. The Corporation may, to the extent
authorized from time to time by its Board of Directors, grant indemnification
rights to other employees or agents of the Corporation or other persons serving
the Corporation and such rights may be equivalent to, or greater or less than,
those set forth in this Article.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stock holders herein are granted
subject to this reservation.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by David H. Maupin, its President, as of April ___, 1998.
UROSURGE, INC.
By:______________________________________
David H. Maupin, President
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<PAGE> 1
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF UROSURGE, INC.
UroSurge, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
A. The name of the Corporation is UroSurge, Inc. The Corporation was
originally incorporated under the same name and the original Certificate of
Incorporation was filed with the Delaware Secretary of State on August 18, 1993.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of this Corporation.
C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
The name of the Corporation is UroSurge, Inc.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
Corporation is as follows: to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated Common Stock and Preferred Stock. The Corporations shall have
authority to issue fifty million (50,000,000) shares of Common Stock, $.01 par
value per share ("Common Stock"), and (ii) five million (5,000,000) shares of
Preferred Stock, $.01 par value per share ("Preferred Stock").
The shares of Preferred Stock shall be undesignated Preferred Stock and
may be issued from time to time in one or more series pursuant to a resolution
or resolutions providing for such issue duly adopted by the board of directors
(authority to do so being hereby expressly vested in the board). The board of
directors is further authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares of any series of
Preferred Stock and the designation of any such series of Preferred Stock. The
board of directors, within the limits and restrictions stated in any resolution
or resolutions of the board of directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
shares in any such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
The authority of the board of directors with respect to each such class
or series shall include, without limitation of the foregoing, the right to
determine and fix:
(i) the distinctive designation of such class or series and the number
of shares to constitute such class or series;
(ii) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
(iii) the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(iv) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(v) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;
(vi) the obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
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<PAGE> 3
(vii) voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock;
(viii) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
(ix) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the board of directors of the
Corporation, acting in accordance with this Certificate of Incorporation, may
deem advisable and are not inconsistent with law and the provisions of this
Certificate of Incorporation.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE VII
The number of directors which constitute the whole Board of Directors of
the Corporation shall be as specified in the Bylaws of the corporation.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
Holders of stock of any class or series of the Corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matters submitted to a vote of the stockholders.
ARTICLE X
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
Bylaws and no action shall be taken by the stockholders by written consent. The
affirmative vote of sixty-six and two thirds percent (66 2/3%) of the then
outstanding voting securities of the corporation, voting together as a single
class, shall be required
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<PAGE> 4
for the amendment, repeal or modification of the provisions of Article IX or X
of this Amended and Restated Certificate of Incorporation or Sections 1.3, 1.5
and 2.2(b) of the corporation's Bylaws.
ARTICLE XI
To the fullest extent permitted by the Delaware General Corporation Law,
a director of the corporation shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director. Neither any amendment nor repeal of this Article XI nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article XI, shall eliminate or reduce the effect of this Article XI in respect
of any matter occurring, or any cause of action, suit or claim that, but for
this Article XI, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE XII
1. The corporation shall indemnify each of the corporation's
directors and officers in each and every situation where, under Section 145 of
the General Corporation Law of the State of Delaware, as amended from time to
time ("Section 145"), the corporation is permitted or empowered to make such
indemnification. The corporation may, in the sole discretion of the Board of
Directors of the corporation, indemnify any other person who may be indemnified
pursuant to Section 145 to the extent the Board of Directors deems advisable, as
permitted by Section 145. The corporation shall promptly make or cause to be
made any determination required to be made pursuant to Section 145.
2. No person shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware is subsequently amended to
further eliminate or limit the liability of a director, then a director of the
corporation, in addition to the circumstances in which a director is not
personally liable as set forth in the preceding sentence, shall not be liable to
the fullest extent permitted by the amended General Corporation Law of the State
of Delaware. For purposes of this Article XII, "fiduciary duty as a director"
shall include any fiduciary duty arising out of serving at the corporation's
request as a director of another corporation, partnership, joint venture or
other enterprise, and "personal liability to the corporation or its
stockholders" shall include any liability to such other corporation,
partnership, joint venture, trust or other enterprise, and any liability to the
corporation in its capacity as a security holder, joint venturer, partner,
beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise.
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<PAGE> 5
ARTICLE XIII
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
ARTICLE XIV
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and this Certificate of Incorporation, and all
rights conferred upon stock holders herein are granted subject to this
reservation.
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<PAGE> 6
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by David H. Maupin, its President, as of April ___, 1998.
UROSURGE, INC.
By:______________________________________
David H. Maupin, President
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<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
UROSURGE, INC.
ARTICLE 1
STOCKHOLDERS
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary
<PAGE> 2
business hours, for a period of at least 10 days prior to the meeting, at a
place within the city where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time of
the meeting, and may be inspected by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the votes cast on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such
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<PAGE> 3
action were present and voted. Prompt notice of the taking of corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE 2
DIRECTORS
2.1 General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased
at any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
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2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
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2.14 Removal. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3
OFFICERS
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
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<PAGE> 6
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resigna tion or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
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<PAGE> 7
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the-office of
treasurer" including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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<PAGE> 8
ARTICLE 4
CAPITAL STOCK
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
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<PAGE> 9
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5
GENERAL PROVISIONS
5.1 Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
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<PAGE> 10
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the Board
of Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
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ARTICLE 6
AMENDMENTS
6.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
UROSURGE, INC.
(A DELAWARE CORPORATION)
AS AMENDED AND RESTATED EFFECTIVE ___________, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE 1 - Meetings of Stockholders.............................................................1
1.1 Place of Meetings.................................................................1
1.2 Annual Meeting....................................................................1
1.3 Special Meetings..................................................................1
1.4 Notice of Meetings................................................................2
1.5 Advance Notice of Stockholder Nominees
and Stockholder Business..........................................................2
1.6 Manner of Giving Notice; Affidavit of Notice......................................3
1.7 Quorum............................................................................3
1.8 Adjournments......................................................................4
1.9 Voting............................................................................4
1.10 Stockholder Action by Written Consent Without a Meeting...........................4
1.11 Record Date for Stockholder Notice; Voting........................................5
1.12 Proxies...........................................................................5
1.13 Organization......................................................................5
1.14 List of Stockholders Entitled to Vote.............................................6
1.15 Waiver of Notice..................................................................6
ARTICLE 2 - Directors............................................................................6
2.1 General Powers....................................................................6
2.2 Number; Election and Qualification................................................6
2.3 Election and Term of Office of Directors..........................................7
2.4 Resignation and Vacancies.........................................................7
2.5 Removal of Directors..............................................................8
2.6 Place of Meetings; Meetings by Telephone. .......................................8
2.7 First Meetings....................................................................8
2.8 Regular Meetings..................................................................9
2.9 Special Meetings..................................................................9
2.10 Quorum............................................................................9
2.11 Waiver of Notice..................................................................9
2.12 Adjournment......................................................................10
2.13 Notice of Adjournment............................................................10
2.14 Board Action by Written Consent Without a Meeting................................10
2.15 Fees and Compensation of Directors...............................................10
2.16 Approval of Loans to Officers....................................................10
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE 3 - Committees..........................................................................10
3.1 Committees of Directors..........................................................10
3.2 Meetings and Action of Committees................................................11
3.3 Committee Minutes. .............................................................11
ARTICLE 4 - Officers............................................................................12
4.1 Officers.........................................................................12
4.2 Election.........................................................................12
4.3 Subordinate Officers.............................................................12
4.4 Removal and Resignation of Officers..............................................12
4.5 Vacancies........................................................................12
4.6 Chairman of the Board............................................................13
4.7 President........................................................................13
4.8 Vice Presidents..................................................................13
4.9 Secretary........................................................................13
4.10 Chief Financial Officer..........................................................14
4.11 Assistant Secretary..............................................................14
4.12 Authority and Duties of Officers.................................................14
4.13 Salaries.........................................................................14
ARTICLE 5 - Indemnification of Directors, Officers, Employees
and Other Agents.................................................................15
5.1 Indemnification of Directors and Officers........................................15
5.2 Indemnification of Others........................................................16
5.3 Insurance........................................................................16
ARTICLE 6 - Records and Reports.................................................................16
6.1 Maintenance and Inspection of Records............................................16
6.2 Inspection by Directors..........................................................17
6.3 Annual Statement to Stockholders.................................................17
6.4 Representation of Shares of Other Corporations...................................17
6.5 Certification and Inspection of Bylaws...........................................17
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE 7 - General Matters.....................................................................17
7.1 Record Date for Purposes Other than Notice and Voting............................17
7.2 Checks; Drafts; Evidences of Indebtedness........................................18
7.3 Corporate Contracts and Instruments; How Executed................................18
7.4 Stock Certificates; Transfer; Partly Paid Shares.................................18
7.5 Special Designation on Certificates..............................................19
7.6 Lost certificates................................................................19
7.7 Transfer Agents and Registrars...................................................19
7.8 Construction; Definitions........................................................19
ARTICLE 8 - Amendments..........................................................................20
</TABLE>
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<PAGE> 5
BYLAWS
OF
UROSURGE, INC.
(A DELAWARE CORPORATION)
ARTICLE 1
MEETINGS OF STOCKHOLDERS
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held each year on a date and at
a time designated by the Board of Directors or the President. In the absence of
such designation, the annual meeting of stockholders shall be held on the
first,Monday in May in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding business day.
1.3 Special Meetings. Special meetings of stockholders may be called
at any time by the President or by the Board of Directors. No other person or
persons are permitted to call a special meeting.
If a special meeting is called by any person or persons other than
the board of directors, then the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the chairman of the board, the
president, or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of Sections 1.4 and 1.6 of these bylaws,
that a meeting will be held at the time requested by the person or persons
calling the meeting, so long as that time is not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after receipt of the request, then the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 1.3 shall be construed as limiting, fixing or
affecting the time when a meeting of stockholders called by action of the board
of directors may be held.
<PAGE> 6
1.4 Notice of Meetings. All notices of meetings of stockholders shall
be sent or otherwise given in accordance with Section 1.6 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notices of all
meetings shall state the place, date and hour of the meeting. The notice of a
special meeting shall specify the place date and hour of meeting and (i) in the
case of a special meeting, the purpose or purposes for which the meeting is
called (no business other than that specified in the notice may be transacted)
or (ii) in the case of the annual meeting, those matters which the board of
directors, at the time of giving the notice, intends to present for action by
the stockholders (but any proper matter may be presented at the meeting for such
action). The notice of any meeting at which directors are to be elected shall
include the name of any nominee or nominees who, at the time of the notice, the
board intends to present for election.
1.5 Advance Notice of Stockholder Nominees and Stockholder Business.
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
(1) nominations for the election of directors, and
(2) business proposed to be brought before any stockholder
meeting may be made by the board of directors or proxy committee appointed by
the board of directors or by any stockholder entitled to vote in the election of
directors generally if such nomination or business proposed is otherwise proper
business before such meeting. However, any such stockholder may nominate one or
more persons for election as directors at a meeting or propose business to be
brought before a meeting, or both, only if such stockholder has given timely
notice in proper written form of their intent to make such nomination or
nominations or to propose such business. To be timely, such stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the corporation not less than one hundred twenty (120) calendar days in
advance of the date specified in the corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy state ment, notice by the stockholder to be timely must be
so received a reasonable time before the solicitation is made. To be in proper
form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends
to make the nominations or propose the business and, as the case may be,
of the person or persons to be nominated or of the business to be
proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the corporation entitled to vote at such meeting and,
if applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
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<PAGE> 7
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or
each matter of business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nominee been
nominated, or intended to be nominated, or the matter been proposed, or
intended to be proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve
as director of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedure.
1.6 Manner of Giving Notice; Affidavit of Notice. Written notice of
any meeting of stockholders shall be given either personally or by first-class
mail or by telegraphic or other written communication. Notices not personally
delivered shall be sent charges prepaid and shall be addressed to the
stockholder at the address of that stockholder appearing on the books of the
corpo ration or given by the stockholder to the corporation for the purpose of
notice. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
An affidavit of the mailing or other means of giving any notice
of any stockholders' meeting, executed by the secretary, assistant secretary or
any transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
1.7 Quorum. The holders of a majority in voting power of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise pro vided by
statute or by the certificate of incorporation. If, however, such quorum is not
present or represented at any meeting of the stockholders, then either (i) the
chairman of the meeting or (ii) the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting in accordance with Section 1.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the laws of the State of
Delaware or of the certificate of incorporation or these bylaws, a different
vote is required, in which case such express provision shall govern and control
the decision of the question.
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<PAGE> 8
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
1.8 Adjournments. Any meeting of stockholders may be adjourned to any
other time and place at which a meeting of stockholders may be held under these
bylaws. Unless these bylaws otherwise require, it shall not be necessary to
notify any stockholder of any adjournment of less than 30 days if the time and
place of the adjourned meeting are announced at the meeting at which adjournment
is taken. At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
1.9 Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
1.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation or these bylaws, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder and stockholders shall
not be entitled to cumulate their votes in the election of directors or with
respect to any matter submitted to a vote of the stockholders.
1.10 Record Date for Stockholder Notice; Voting. For purposes of
determining the stockholders entitled to notice of any meeting or to vote
thereat, the board of directors may fix, in advance, a record date, which shall
not precede the date upon which the resolution fixing the record date is adopted
by the board of directors and which shall not be more than sixty (60) days nor
less than ten (10) days before the date of any such meeting, and in such event
only stockholders of record on the date so fixed are entitled to notice and to
vote, notwithstanding any transfer of any shares on the books of the corporation
after the record date.
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If the board of directors does not so fix a record date, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the business day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting unless the board of directors fixes a new record date for the adjourned
meeting, but the board of directors shall fix a new record date if the meeting
is adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in
Section 7.1 of these bylaws.
1.12 Proxies. Every person entitled to vote for directors, or on any
other matter, shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
secretary of the corporation, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period. A proxy shall be deemed signed if the stockholder's name is placed on
the proxy (whether by manual signature, typewriting, telegraphic transmission,
telefacsimile or otherwise) by the stockholder or the stockholder's
attorney-in-fact. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Section 212(e) of the General
Corporation Law of Delaware.
1.13 Organization. The president, or in the absence of the president,
the chairman of the board, or, in the absence of the president and the chairman
of the board, one of the corporation's vice presidents, shall call the meeting
of the stockholders to order, and shall act as chairman of the meeting. In the
absence of the president, the chairman of the board, and all of the vice
presidents, the stockholders shall appoint a chairman for such meeting. The
chairman of any meeting of stockholders shall determine the order of business
and the procedures at the meeting, including such matters as the regulation of
the manner of voting and the conduct of business. The secretary of the
corporation shall act as secretary of all meetings of the stockholders, but in
the absence of the secretary at any meeting of the stockholders, the chairman of
the meeting may appoint any person to act as secretary of the meeting.
1.14 List of Stockholders Entitled to Vote. The officer who has charge
of the stock ledger of the corporation shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
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1.15 Waiver of Notice. Whenever notice is required to be given under
any provision of the General Corporation Law of Delaware or of the certificate
of incorporation or these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
bylaws.
ARTICLE 2
DIRECTORS
2.1 General Powers. Subject to the provisions of the General
Corporation Law of Delaware and to any limitations in the certificate of
incorporation or these bylaws relating to action required to be approved by the
stockholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
2.2 Number; Election and Qualification.
(a) The board of directors shall consist of five (5) members.
The number of directors may be changed by an amendment to this bylaw, duly
adopted by the board of directors or by the stockholders, or by a duly adopted
amendment to the certificate of incorporation. If the number of directors is
hereafter changed, any newly created directorships or decrease in directorships
shall be so apportioned among the classes as to make all classes as nearly equal
in number as is practicable, provided that no decrease in the number of
directors constituting the board of directors shall shorten the term of any
incumbent director.
(b) Upon the closing of the first sale of the corporation's
common stock pursuant to a firmly underwritten registered public offering (the
"IPO"), the directors shall be divided into three classes, with the term of
office of the first class, which class shall initially consist of two directors,
to expire at the first annual meeting of stockholders held after the IPO; the
term of office of the second class, which class shall initially consist of one
director, to expire at the second annual meeting of stockholders held after the
IPO; the term of office of the third class, which class shall initially consist
of two directors, to expire at the third annual meeting of stockholders held
after the IPO; and thereafter for each such term to expire at each third
succeeding annual meeting of stockholders held after such election.
2.3 Election and Term of Office of Directors. Except as provided in
Section 2.4 of these bylaws, directors shall be elected at each annual meeting
of stockholders to hold office as provided
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in Section 2.4 of these bylaws. Each director, including a director elected or
appointed to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
2.4 Resignation and Vacancies. Any director may resign effective on
giving written notice to the chairman of the board, the president, the secretary
or the board of directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation of a director is effective
at a future time, the board of directors may elect a successor to take office
when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of
the remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office for
a term expiring at the next annual meeting of the stockholders at which the term
of office of the class to which such director has been elected expires.
Unless otherwise provided in the certificate of incorporation or
these bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause,
the corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or
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stockholders holding at least ten (10) percent of the total number of the shares
at the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office as aforesaid, which election shall be governed by the provisions of
Section 211 of the General Corporation Law of Delaware as far as applicable.
2.5 Removal of Directors. Except as otherwise provided by the General
Corporation Law of Delaware, any one or more or all of the directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, provided, however, that, if and so
long as stockholders of the corporation are entitled to cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire board of directors.
2.6 Place of Meetings; Meetings by Telephone. Regular meetings of the
board of directors may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the board.
In the absence of such a designation, regular meetings shall be held at the
principal executive office of the corporation. Special meetings of the board may
be held at any place within or outside the State of Delaware that has been
designated in the notice of the meeting or, if not stated in the notice or if
there is no notice, at the principal executive office of the corporation.
Any meeting of the board, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another; and all such
participating directors shall be deemed to be present in person at the meeting.
2.7 First Meetings. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
2.8 Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors. If any regular meeting day shall fall on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day.
2.9 Special Meetings. Special meetings of the Board of Directors for
any purpose or purposes may be called at any time by the Chairman of the Board,
President, any Vice President, the Secretary or any two directors.
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Notice of the time and place of special meeting of directors shall
be Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
2.10 Quorum. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 2.13 of these bylaws. Every act or decision done or made by
a majority of the directors present at a duly held meeting at which a quorum is
present shall be regarded as the act of the board of directors, subject to the
provisions of the certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of director, if any action
taken is approved by at least a majority of the quorum for that meeting.
2.11 Waiver of Notice. Notice of a meeting need not be given to any
director (i) who signs a waiver of notice, whether before or after the meeting,
or (ii) who attends the meeting other than for the express purposed of objecting
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened. All such waivers shall be filed with
the corporate records or made part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
board of directors.
2.12 Adjournment. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting of the board to another time and
place.
2.13 Notice of Adjournment. Notice of the time and place of holding an
adjourned meeting of the board need not be given unless the meeting is adjourned
for more than twenty-four (24) hours. If the meeting is adjourned for more than
twenty-four (24) hours, then notice of the time and place of the adjourned
meeting shall be given before the adjourned meeting takes place, in the manner
specified in Section 2.10 of these bylaws, to the directors who were not present
at the time of the adjournment.
2.14 Board Action by Written Consent Without a Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee of the Board of Directors may be taken without a meeting, if all
members of the Board or committee, as the case
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may be, consent to the action in writing, and the written consents are filed
with the minutes of proceedings of the Board or committee. Such written consent
and any counterparts thereof shall be filed with the minutes of the proceedings
of the board of directors.
2.15 Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
board of directors. This Section 2.16 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
ARTICLE 3
COMMITTEES
3.1 Committees of Directors. The board of directors may, by resolution
adopted by a majority of the authorized number of directors, designate one (1)
or more committees, each consisting of two or more directors, to serve at the
pleasure of the board. The board may designate one (1) or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of directors. Any committee, to the extent provided in the resolution of the
board, shall have and may exercise all the powers and authority of the board,
but no such committee shall have the power or authority to (i) amend the
certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151(a) of the
General Corporation Law of Delaware, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), (ii) adopt an agreement of merger or consolidation under Sections
251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution or (v) amend the
bylaws of the corporation; and, unless the board resolution establishing the
committee, the bylaws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
3.2 Meetings and Action of Committees. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
following provisions of Article III of these bylaws: Section 2.6 (place of
meetings; meetings by telephone), Section 2.8 (regular meetings), Section 2.9
(special meetings; notice), Section 2.10 (quorum), Section 2.11 (waiver of
notice), Section 2.12 (adjournment), Section 2.13 (notice of adjournment) and
Section 2.14 (board action by
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written consent without meeting), with such changes in the context of those
bylaws as are necessary to substitute the committee and its members for the
board of directors and its members; provided, however, that the time of regular
meetings of committees may be determined either by resolution of the board of
directors or by resolution of the committee, that special meetings of committees
may also be called by resolution of the board of directors, and that notice of
special meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.
3.3 Committee Minutes. Each committee shall keep regular minutes of
its meetings and report the same to the board of directors when required.
ARTICLE 4
OFFICERS
4.1 Officers. The officers of the corporation shall consist of a
president, a secretary and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents (however denominated), one or more assistant
secretaries, a treasurer and one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 4.3 of
these bylaws. Any number of offices may be held by the same person.
In addition to the Corporate Officers of the Company described
above, there may also be such Administrative Officers of the corporation as may
be designated and appointed from time to time by the president of the
corporation in accordance with the provisions of Section 5.12 of these bylaws.
4.2 Election of Officers. The Corporate Officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3.3 or Section 3.5 of these bylaws, shall be chosen by the board of
directors, subject to the rights, if any, of an officer under any contract of
employment, and shall hold their respective offices for such terms as the board
of directors may from time to time determine.
4.3 Subordinate Officers. The board of directors may appoint, or may
empower the presi dent to appoint, such other Officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such power and authority, and perform such duties as are provided in these
bylaws or as the board of directors may from time to time determine.
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4.4 Removal and Resignation of Officers. Subject to the rights, if
any, of a Officer under any contract of employment, any Officer may be removed,
either with or without cause, by the board of directors at any regular or
special meeting of the board or, except in case of a Officer chosen by the board
of directors, by any Officer upon whom such power of removal may be conferred by
the board of directors.
Any Officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Officer is a
party.
4.5 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these bylaws for regular appointments to that office. Each such
successor shall hold office for the unexpired term of his predecessor and until
his successor is elected and qualified, or until his earlier death, resignation
or removal.
4.6 Chairman of the Board. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise such other powers and perform such other duties as may
from time to time be assigned to him by the board of directors or as may be
prescribed by these bylaws. If there is no president, then the chairman of the
board shall also be the chief executive officer of the corporation and shall
have the powers and duties prescribed in Section 5.7 of these bylaws.
4.7 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
4.8 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
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4.9 Secretary. The secretary shall keep or cause to be kept, at the
principal executive office of the corporation or such other place as the board
of directors may direct, a book of minutes of all meetings and actions of the
board of directors, committees of directors and stockholders. The minutes shall
show the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolu tion of the board of
directors, a share register or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors required to be given
by law or by these bylaws. He or she shall keep the seal of the corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the board of directors or by these
bylaws.
4.10 Chief Financial Officer. The chief financial officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director
for a purpose reasonably related to his position as a director.
The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the board of directors. He or she shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all of his or her transactions as chief financial officer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the board of directors or
these bylaws.
4.11 Assistant Secretary. The assistant secretary, if any, or, if there
is more than one, the assistant secretaries in the order determined by the board
of directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
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4.12 Authority and Duties of Officers. In addition to the foregoing
powers, authority and duties, all officers of the corporation shall respectively
have such authority and powers and perform such duties in the management of the
business of the corporation as may be designated from time to time by the board
of directors.
4.13 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 5
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
5.1 Indemnification of Directors and Officers. The corporation shall,
to the maximum extent and in the manner permitted by the General Corporation Law
of Delaware as the same now exists or may hereafter be amended, indemnify any
person against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit, or proceeding in which such
person was or is a party or is threatened to be made a party by reason of the
fact that such person is or was a director or officer of the corporation. For
purposes of this Section 5.1, a "director" or "officer" of the corporation shall
mean any person (i) who is or was a director or officer of the corporation, (ii)
who is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
or (iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
The corporation shall be required to indemnify a director or
officer in connection with an action, suit, or proceeding (or part thereof)
initiated by such director or officer only if the initiation of such action,
suit, or proceeding (or part thereof) by the director or officer was authorized
by the Board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 5.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director of officer is
not entitled to be indemnified under this Section 5.1 or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the
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corporation's Certificate of Incorporation, these bylaws, agreement, vote of the
stockholders or disinterested directors or otherwise.
Any repeal or modification of the foregoing provisions of this
Article shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
5.2 Indemnification of Others. The corporation shall have the power,
to the maximum extent and in the manner permitted by the General Corporation Law
of Delaware as the same now exists or may hereafter be amended, to indemnify any
person (other than directors and officers) against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding, in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was
an employee or agent of the corporation. For purposes of this Section 5.2, an
"employee" or "agent" of the corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
5.3 Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any 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 the General
Corporation Law of Delaware.
ARTICLE 6
RECORDS AND REPORTS
6.1 Maintenance and Inspection of Records. The corporation shall,
either at its principal executive office or at such place or places as
designated by the board of directors, keep a record of its stockholders listing
their names and addresses and the number and class of shares held by each
stockholder, a copy of these bylaws as amended to date, accounting books and
other records of its business and properties.
Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other
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books and records and to make copies or extracts therefrom. A proper purpose
shall mean a purpose reasonably related to such person's interest as a
stockholder. In every instance where an attorney or other agent is the person
who seeks the right to inspection, the demand under oath shall be accompanied by
a power of attorney or such other writing that authorizes the attorney or other
agent to so act on behalf of the stockholder. The demand under oath shall be
directed to the corporation at its registered office in Delaware or at its
principal place of business.
6.2 Inspection by Directors. Any director shall have the right to
examine (and to make copies of) the corporation's stock ledger, a list of its
stockholders and its other books and records for a purpose reasonably related to
his or her position as a director.
6.3 Annual Statement to Stockholders. The board of directors shall
present at each annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
6.4 Representation of Shares of Other Corporations. The chairman of
the board, if any, the president, any vice president, the chief financial
officer, the secretary or any assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent and exercise on behalf of this
corporation all rights incident to any and all shares of the stock of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
6.5 Certification and Inspection of Bylaws. The original or a copy of
these bylaws, as amended or otherwise altered to date, certified by the
secretary, shall be kept at the corporation's principal executive office and
shall be open to inspection by the stockholders of the corporation, at all
reasonable times during office hours.
ARTICLE 7
GENERAL MATTERS
7.1 Record Date for Purposes Other than Notice and Voting. For
purposes of determining the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the board of directors
may fix, in advance, a record date, which shall not precede the date upon which
the resolution fixing the record date is adopted and which shall not be more
than sixty (60) days before any such action. In that case, only stockholders of
record at the close of business on the date so fixed are entitled to receive the
dividend, distribution or allotment of rights, or to exercise such rights, as
the case may be, notwith-
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standing any transfer of any shares on the books of the corporation after the
record date so fixed, except as otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
applicable resolution.
7.2 Checks; Drafts; Evidences of Indebtedness. From time to time, the
board of directors shall determine by resolution which person or persons may
sign or endorse all checks, drafts, other orders for payment of money, notes or
other evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
7.3 Corporate Contracts and Instruments; How Executed. The board of
directors, except as otherwise provided in these bylaws, may authorize and
empower any officer or officers, or agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the corporation; such
power and authority may be general or confined to specific instances. Unless so
authorized or ratified by the board of directors or within the agency power of
an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
7.4 Stock Certificates; Transfer; Partly Paid Shares. The shares of
the corporation shall be represented by certificates, provided that the board of
directors of the corporation may provide by resolution or resolutions that some
or all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the corporation.
Notwithstanding the adoption of such a resolution by the board of directors,
every holder of stock represented by certificates and, upon request, every
holder of uncertificated shares, shall be entitled to have a certificate signed
by, or in the name of the corporation by, the chairman or vice-chairman of the
board of directors, or the president or vice-president, and by the treasurer or
an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the
board of directors may designate and shall state the name of the record holder
of the shares represented thereby; its number; date of issuance; the number of
shares for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a
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statement as to any applicable voting trust agreement; if the shares be
assessable, or, if assessments are collectible by personal action, a plain
statement of such facts.
Upon surrender to the secretary or transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the con sideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
7.5 Special Designation on Certificates. If the corporation is
authorized to issue more than one class of stock or more than one series of any
class, then the powers, the designations, the preferences and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate that the corporation shall issue to represent such class or
series of stock; provided, however, that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
7.6 Lost certificates. Except as provided in this Section 7.6, no new
certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the corporation and canceled at
the same time. The board of directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of replacement certificates on such terms and conditions as the board
may require; the board may require indemnification of the corporation secured by
a bond or other adequate security sufficient to protect the corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of the certificate or the
issuance of the replacement certificate.
7.7 Transfer Agents and Registrars. The board of directors may appoint
one or more transfer agents or transfer clerks, and one or more registrars, each
of which shall be an incorporated bank or trust company -- either domestic or
foreign, who shall be appointed at such times and places as the requirements of
the corporation may necessitate and the board of directors may designate.
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7.8 Construction; Definitions. Unless the context requires otherwise,
the general provisions, rules of construction and definitions in the General
Corporation Law of Delaware shall govern the construction of these bylaws.
Without limiting the generality of this provision, as used in these bylaws, the
singular number includes the plural, the plural number includes the singular,
and the term "person" includes both an entity and a natural person.
ARTICLE 8
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote or by the board of directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
UROSURGE, INC.
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Assistant Secretary of UroSurge, Inc. and that the foregoing Bylaws,
comprising twenty-three (20) pages, were adopted as the Bylaws of the
corporation effective as of , 1998.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this day of 1998.
-----------------------------------------
Christopher D. Mitchell
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EXHIBIT 10.1
UROSURGE, INC.
AMENDED AND RESTATED
1994 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means UroSurge, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
<PAGE> 2
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
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<PAGE> 3
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1994 Stock Plan, as amended and restated.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
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(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,610,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
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(iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
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(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
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(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 300,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 300,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
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(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
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(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
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<PAGE> 10
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason
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<PAGE> 11
(including death or Disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock Purchase Agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate determined
by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights.
Unless determined otherwise by the Administrator, an Option or Stock Purchase
Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee, only by the Optionee.
If the Administrator makes an Option or Stock Purchase Right transferable, such
Option or Stock Purchase Right shall contain such additional terms and
conditions as the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
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<PAGE> 12
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determinatioen granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the
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<PAGE> 13
determination shall be provided to each Optionee within a reasonable time after
the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
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<PAGE> 14
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE> 15
UROSURGE, INC.
1994 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: ________________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates.
<PAGE> 16
Termination Period:
This Option may be exercised for 30 days after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for one year after Optionee ceases to be a Service Provider. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Chief Financial Officer of the Company. The
Exercise Notice shall be accompanied by payment of the aggregate Exercise Price
as to all Exercised Shares. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by
such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
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<PAGE> 17
3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
4. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair
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<PAGE> 18
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an Employee or a former Employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
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<PAGE> 19
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of Delaware.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: UROSURGE, INC.
___________________________________ ____________________________________
Signature By
___________________________________ ____________________________________
Print Name Title
____________________________________
Residence Address
____________________________________
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<PAGE> 20
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
-6-
<PAGE> 21
EXHIBIT A
1994 STOCK PLAN
EXERCISE NOTICE
UroSurge, Inc.
2660 Crosspark Road
Coralville, Iowa 52241
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of UroSurge, Inc. (the "Company") under and
pursuant to the 1994 Stock Plan (the "Plan") and the Stock Option Agreement
dated __________, 19___ (the "Option Agreement"). The purchase price for the
Shares shall be $______, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in [Section 13] of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
<PAGE> 22
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
Delaware.
Submitted by: Accepted by:
PURCHASER: UROSURGE, INC.
__________________________________ _____________________________________
Signature By
__________________________________ _____________________________________
Print Name Its
Address: Address:
_________________________________ UroSurge, Inc.
_________________________________ 2660 Crosspark Road
Coralville, Iowa 52241
_____________________________________
Date Received
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<PAGE> 1
Exhibit 10.2
UROSURGE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock
Purchase Plan of UroSurge, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean UroSurge, Inc. and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is a full-time
regular Employee of the Company for tax purposes whose customary employment with
the Company is at least thirty (30) hours per week. For purposes of the Plan,
the employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the Company.
Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
<PAGE> 2
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board, or;
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial
price to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after January 1 and July
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date
on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or
before December 31, 1999. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
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<PAGE> 3
(p) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after January 1 and July 1 of each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
December 31, 1999. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
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<PAGE> 4
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding 15% of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to
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<PAGE> 5
purchase during each Purchase Period more than 30,000 shares of the Company's
Common Stock (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason,
he or she shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such
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<PAGE> 6
participant's account during the Offering Period but not yet used to exercise
the option shall be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 15 hereof, and
such participant's option shall be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 300,000 shares. If, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of shares then
available under the Plan, the Company shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall deter mine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
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<PAGE> 7
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
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<PAGE> 8
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or
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<PAGE> 9
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with amounts
withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE> 10
EXHIBIT A
UROSURGE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________hereby elects to participate in the
UroSurge, Inc. 1998 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to pur chase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
____________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for
the shares. I hereby agree to notify the Company in writing within 30
days after the date of any disposition of my shares and I will make
adequate provision for Federal, state or other tax withholding
obligations, if any, which arise upon the disposition of the Common
Stock. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or
<PAGE> 11
benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)___________________________________________________________
(First) (Middle) (Last)
_______________________________ _________________________________________
Relationship
_________________________________________
(Address)
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ____________________________________
Signature of Employee
____________________________________
Spouse's Signature (If beneficiary
other than spouse)
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<PAGE> 12
EXHIBIT B
UROSURGE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned is a participant in the Offering Period of the UroSurge,
Inc. 1998 Employee Stock Purchase Plan. He or she hereby directs the Company to
pay to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
____________________________________
____________________________________
____________________________________
Signature:
____________________________________
Date:_______________________________
<PAGE> 1
Exhibit 10.3
UROSURGE, INC.
1998 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1998 Director Option
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means UroSurge, Inc., a Delaware corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock for the last market
<PAGE> 2
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Optioned Stock" means the Common Stock subject to an Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1998 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section
10 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 300,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
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<PAGE> 3
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted
an Option to purchase 9,000 Shares (the "First Option") on the effective date of
the Company's initial public offering ("IPO") of Common Stock registered with
the Securities and Exchange Commission.
(iii) Commencing in 1999, each Outside Director shall be
automatically granted an Option to purchase 9,000 Shares (the "Annual Option")
on the date of the annual stockholders' meeting of each year provided he or she
is then an Outside Director and if as of such date, he or she shall have served
on the Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsection (ii) or
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be
as follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of
the initial price to public of the Shares offered in the IPO as set forth in
the final prospectus included within the registration statement on Form S-1
filed with the Securities and Exchange Commission.
(D) subject to Section 10 hereof, the First Option
shall become exercisable as to one-twelfth (1/12) of the Shares subject to the
First Option at the end of each full month commencing upon the last date of the
month in which the First Option is granted, provided that the Optionee continues
to serve as a Director on such dates.
(vi) The terms of each Annual Option granted hereunder
shall be as follows:
(A) the term of the Annual Option shall be ten (10)
years.
(B) the Annual Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of
the Fair Market Value per Share on the date of grant of the Annual Option.
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<PAGE> 4
(D) subject to Section 10 hereof, the Annual Option
shall become exercisable as to one-twelfth (1/12) of the Shares subject
to the Annual Option at the end of each full month after the date of grant
commencing upon the last date of the month in which the Option is granted,
provided that the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms set
forth in Section 4 hereof. The Plan shall not confer upon any Optionee any right
with respect to continuation of service as a Director or nomination to serve as
a Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case
of Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (v) any combination of the foregoing
methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to
-4-
<PAGE> 5
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment may consist
of any consideration and method of payment allowable under Section 7 of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the number
of Shares so acquired shall be issued to the Optionee as soon as practicable
after exercise of the Option. No adjustment shall be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such ter mination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
-5-
<PAGE> 6
9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options shall become fully vested and exercisable,
including as to Shares for which it would not otherwise be exercisable. In such
event the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of thirty (30) days from the date of such notice, and
upon the expiration of such period the Option shall terminate.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
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<PAGE> 7
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated there
under, state securities laws, and the requirements of any stock exchange upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the degree and
manner required under applicable state and federal law and any stock exchange
rules.
-7-
<PAGE> 1
EXHIBIT 10.4
THREE-PARTY AGREEMENT
THIS AGREEMENT, is made and executed as of the 31st day of October
1994, by and between UNIVERSITY OF IOWA RESEARCH PARK CORPORATION, an Iowa
corporation, hereinafter referred to as "RESEARCH," MYRIAD DEVELOPERS, L.C., an
Iowa limited liability company, hereinafter referred to as "MYRIAD," and
UROSURGE, INC., a Delaware corporation, hereinafter referred to as "UROSURGE"
WITNESSETH:
WHEREAS, Research has leased property from the Iowa State Board of
Regents for the development of a research park in Coralville, Iowa, which
consists of certain real estate located at the University's Oakdale Campus, and
WHEREAS, Research has entered into a certain Land Lease dated October
31, 1994, whereunder Research is the Lessor and Myriad is the Lessee with
respect to a portion of Lot 4, on the Oakdale Research Park Subdivision Final
Plat, and
WHEREAS, Myriad has entered into a certain Lease Agreement dated
October 31, 1994, whereunder Myriad is the Landlord and Urosurge is the Tenant
with respect to a portion of said Lot 4 the real estate which is the subject of
the lease between Research and Myriad, and
WHEREAS, the parties have agreed to enter into a certain agreement
which provides for the respective rights of the parties upon default by Myriad
under its Land Lease with Research.
IT IS, THEREFORE, AGREED BY AND BETWEEN THE PARTIES FOR GOOD AND
VALUABLE CONSIDERATION:
1. That Research acknowledges that it has reviewed the Lease
Agreement dated October 31, 1994, whereunder Myriad is the Landlord and Urosurge
is the Tenant, and Research hereby consents to the terms and conditions thereof
and hereby consents to the subleasing of the property by Myriad to Urosurge.
2. That in the event of any default by Myriad under its Land Lease
with Research, Research hereby agrees to give written notice thereof to
Urosurge and allow Urosurge to cure any of said defaults on behalf of Myriad,
within the terms provided therefor under the Land Lease. Any cost incurred by
Urosurge in curing Myriad's said defaults may be offset by Urosurge against its
obligations under the Lease Agreement with Myriad.
3. That any and all notices, requests, or communications given
hereunder shall be in writing and shall be delivered or mailed by first class
registered or certified mail, postage prepaid, with return receipt requested,
directed to the party at the following addresses:
<PAGE> 2
-2-
TO: University of Iowa Research Park Corporation
Oakdale Campus
University of Iowa
Iowa City, Iowa 52242
Attention Director
TO: Myriad Developers, L.C.
1400 Highway 13 S.E.
Cedar Rapids, Iowa 52406-2517
Attention Dennis L. Murdock
and Patrick Murphy
TO: Urosurge, Inc.
5. That this Agreement and the terms and conditions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, assigns, and assignees, where permitted by this Agreement.
6. That this instrument constitutes the full and complete agreement
of the parties with respect to the subject matter hereof. All modifications,
amendments, or changes shall be in writing, to be effective, and shall be
executed by all parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day, month, and year first above-written.
UNIVERSITY OF IOWA RESEARCH MYRIAD DEVELOPERS, L.C.
PARK CORPORATION
By [SIG] By /s/ PATRICK H. MURPHY
----------------------------- -----------------------------
Patrick H. Murphy, Manager
RESEARCH MYRIAD
UROSURGE, INC.
By /s/ DAVID H. MAUPIN
-----------------------------
David H. Maupin
UROSURGE
<PAGE> 3
LEASE AGREEMENT
This Lease Agreement is made this 31st day of October 1994, between
MYRIAD DEVELOPERS, L.C., an Iowa limited liability company, (the "LANDLORD") and
UROSURGE, INC., a Delaware corporation, (the "TENANT").
Schedule
NAME OF TENANT: Urosurge, Inc.
LOCATION OF BUILDING: Oakdale Campus
Coralville, Iowa
LEGAL DESCRIPTION: Lot 4, Oakdale Research Park
TENANT'S USE OF BUILDING: Laboratory, offices and production
RENTABLE SQUARE FEET: 10,004
ANNUAL BASE RENT: $84,033.60 MONTHLY RENT: $7,002.80
RATE PER SQUARE FOOT PER YEAR: $8.40 subject to adjustment
TERM OF LEASE: Five years with one five-year option to
renew.
COMMENCEMENT DATE: Completion of construction.
TOTAL RENTABLE SQUARE FOOTAGE: 10,004
PROPORTIONATE SHARE OF TAXES: 100%
TAXES/BASE YEAR: Not applicable, Tenant pays all taxes.
REQUIRED DEPOSIT: None
PARKING: _____spaces surrounding the Building.
TERMINATION DATE OF LEASE: 5 years from commencement date.
LANDLORD -- MYRIAD DEVELOPERS, L.C.
an Iowa limited liability company
By Patrick H. Murphy
------------------------------------
Manager
------------------------------------, Agent
TENANT -- UROSURGE, INC.
By David H. Maupin
------------------------------------
------------------------------------
<PAGE> 4
-2-
1. LEASING AGREEMENT. Landlord hereby leases to Tenant, and Tenant
hereby leases the Building, from the Landlord for a term commencing on the
completion of construction of Landlord and Tenant's improvements as evidenced by
the issuance of a certificate of occupancy, and terminating five years from the
commencement date, unless sooner terminated or renewed according to the terms
hereof. The Building shall be occupied and used by the Tenant only for the uses
described herein.
2. USE OF BUILDING. The Building shall be occupied and used by the
Tenant only for those purposes and uses allowable hereunder. The Tenant's use,
and this Lease, are subject to the terms and conditions of a certain Land Lease
entered into on the 31st day of October 1994, by and between IOWA RESEARCH PARK
CORPORATION, as "Lessor" and MYRIAD, DEVELOPMENT, L.C., as "Lessee," a copy of
which is attached hereto, however, Tenant is not obligated to pay any sums
thereunder. The Tenant acknowledges that it has reviewed all provisions
contained therein, including those provisions applicable to the use of the
Building. The Tenant hereby acknowledges that the building will be used for the
following purposes: laboratory, administrative offices for research and
development, and light prototype manufacturing. Any changes in said use shall be
subject to and in compliance with the provisions hereof.
3. RENT. Tenant shall pay to Landlord at Landlord's office in the
City of Cedar Rapids, Iowa or to such other person or at such other place as
directed from time to time by notice to the Tenant from Landlord the annual base
rent as set forth in the Schedule in equal monthly installments as set forth in
the Schedule. Each monthly installment shall be payable in advance promptly on
the first day of each calendar month during the term of this Lease and shall
bear interest at the rate of 10 percent (10%) per annum from and after the 10th
day of the month if not then paid until the date when paid. If the term should
commence or terminate on a day other than the first day of the month, then the
rent for the first and last month shall be prorated for such fractional month.
All rent payable by Tenant hereunder shall be net to Landlord. All expenses and
obligations of every kind and nature whatsoever relating to the building, which
may arise or become due during the term of this Lease including, but not limited
to, taxes, utilities, insurance, and maintenance shall be paid by the Tenant and
Tenant shall indemnify and hold the Landlord harmless from said expenses. This
Lease is a net, net, net Lease and Landlord shall have no expenses associated
with the Building.
4. ADDITIONAL RENT AND TAXES. In addition to the base rent provided
for above and on the Schedule, the Tenant shall pay, as additional rent, all of
the real estate taxes prorated from the commencement date and all special
assessments due and payable during the lease term, and all prorated taxes. and
special assessments becoming payable after the termination of the Lease for
periods during the term of the Lease, which amounts shall be paid monthly with
the base rent. The Landlord shall notify the Tenant of any increases in taxes
during the term of this Lease. All other sums required to be paid by Tenant
hereunder shall be deemed additional rent.
<PAGE> 5
-3-
5. Utilities. Landlord will furnish nonducted heating ventilation and
air conditioning, telephone, electric service and plumbing as described in
paragraph 19 hereof. Tenant will pay for all utility costs and charges during
the lease term.
6. Services. Tenant shall keep the leased Building clean, neat, and
shall provide its own janitor and cleaning services. Tenant will keep the
windows clean inside and out and keep the inner walls painted or washed to
maintain a neat appearance.
7. Parking. The Tenant for itself and its invitees and guests shall
have use of the space surrounding the Building which has been constructed by the
Landlord for parking purposes, subject to parking rights granted to tenants and
their invitees of other buildings within Lot 4, Oakdale Research Park. The
Tenant shall have the exclusive use of 6 parking spaces requested by Tenant.
8. Recording. Except for recording of a memorandum of this Lease
which may be accomplished only if approved by Landlord, nothing contained shall
empower Tenant to do any act which can, shall or may encumber the interest or
title of Landlord or its assignee in and to the ground or building.
9. Mortgage by Landlord. From time to time either before or after the
execution of this Lease and before the termination of the term thereof, Landlord
may execute a mortgage or trust deed in the nature of a mortgage of Landlord's
interest in the building. IN SUCH EVENT:
A. If requested by the mortgagee or trustee, Tenant will
subordinate its interest in this Lease to said mortgage or
trust deed and will execute such subordination agreement or
agreements as may be reasonably required by said mortgagee
or trustee, provided, however, that so long as Tenant shall
not be in default under this Lease, its right of possession
and enjoyment of the Building shall be and remain
undisturbed and unaffected by said mortgage or trust deed or
by any foreclosure proceedings thereunder, and any
subordination agreement executed pursuant to this paragraph
shall contain language specifically so providing.
B. Should such mortgage be foreclosed, the liability of the
mortgagee, trustee or purchaser at such foreclosure sale or
the liability of a subsequent owner designated as Landlord
under this Lease, shall exist only so long as such trustee,
mortgagee, purchaser or owner is the owner of the subject
real estate and such liability shall not continue or survive
after further transfer of ownership.
<PAGE> 6
-4-
C. Landlord agrees promptly to notify Tenant of the placing of
any mortgage or trust deed against the leasehold estate of
which the Building forms a part and Tenant agrees in the
event of any act or omission by Landlord which would give
Tenant the right to terminate this Lease or to claim a
partial or total eviction, Tenant shall not exercise any
such right (i) until it has notified in writing the holder
of any mortgage which at the time shall be a lien on the
Building, if the name and address of such holder shall
previously have been furnished by written notice to Tenant,
of such act or omission, and (ii) until a reasonable period,
not exceeding thirty (30) days, for commencing the remedying
of such act or omission shall have lapsed following the
giving of such notice, and (iii) such holder, with
reasonable diligence shall not have so commenced and
continued to remedy such act or omission or to cause the
same to be remedied. During the period between the giving of
such notice and the remedying of such act or omission, the
rental herein recited shall be abated and apportioned to the
extent that any part of the Building shall be untenantable.
D. If such mortgage be foreclosed, upon request of the
mortgagee or trustee, Tenant will attorn to the purchaser at
any foreclosure sale thereunder and will execute such
instruments as may be necessary or appropriate to evidence
such attornment. Likewise Tenant will attorn to the
leasehold mortgagee in the event said leasehold mortgagee
should ever become the owner of the leasehold estate covered
by its mortgage or should become the owner of any new lease
in replacement or substitution of such leasehold estate.
10. Certain Rights Reserved to the Landlord. The Landlord preserves
the following rights:
A. Occupancy. During the last one hundred twenty (120) days of
the term of this Lease, if during or prior to that time the
Tenant vacates the Building, to decorate, remodel, repair,
alter or otherwise prepare the Building for reoccupancy.
B. Pass keys. To have pass keys to the Building for access to
the Building in the event of
<PAGE> 7
-5-
emergencies requiring Landlord's action to prevent or
limit damages to the Building.
C. Access for Inspections. To have access for the purpose of
inspecting the condition of the Building, at convenient
times and with reasonable advance notice provided to Tenant.
D. Show Building. To show the Building to prospective tenants
or brokers during the last 120 days of the term of this
Lease as extended, and to prospective purchasers at all
reasonable times provided prior notice is given to Tenant in
each case and the Tenant's use and occupancy of the Building
shall not be materially inconvenienced by any such action of
the Landlord.
E. Heavy Equipment. To approve the weight, size and location of
safes or heavy equipment of articles which articles may be
moved, in, about, or out of the Building only at such times
and in such manner as Landlord shall approve and, in all
events, however, at Tenant's sole risk and responsibility.
The Landlord may enter the Building and may exercise any or all of
the foregoing rights hereby reserved without being deemed guilty of an eviction
or disturbance of the Tenant's use or possession and without being liable in any
manner to the Tenant.
11. Liability Claims. Tenant waives all claims it may have against
Landlord, its agents or Employees or damage to person or property sustained by
Tenant or any occupant or other person resulting from any cause, except if
caused by the negligence of the Landlord, its agents or employees.
Tenant shall carry fire and extended coverage insurance insuring the
full replacement value of the building and the Tenant improvements in the
Building and its interest in its furniture, equipment, and supplies, and Tenant
shall waive any rights of action against Landlord for loss or damage covered by
such insurance, and the policies shall permit such waiver.
Tenant will secure and maintain general liability insurance naming
the Tenant and Landlord as insureds from financially responsible insurance
companies. If Tenant occupies space in which there is exterior plate glass, then
Tenant shall be responsible for the damage, breakage or repair of such plate
glass. If any damage to the Building results from any act or neglect of the
Tenant, the Landlord may at the Landlord's option, without any obligation to do
so, repair such damage,
<PAGE> 8
-6-
and the Tenant shall thereupon pay to the Landlord the total cost of such
repairs and damages to the Building.
The parties agree that Tenant shall maintain public liability
insurance, pursuant to the terms of this paragraph, with minimum limits of
$2,000,000 and shall furnish the certificate to Landlord showing said insurance
is in full force and effect.
12. Conditions of Building. During the term of this Lease, Tenant
shall maintain at its sole cost the building and all components thereof in good
condition and repair, with its failing to do so constituting a default
hereunder. In the event Tenant fails to maintain the Building as required
hereunder, Landlord may restore the Building to such condition, and the Tenant
shall pay the cost thereof. At the termination of this Lease, Tenant shall
return the Building to the Landlord in good condition and repair, and, if the
Tenant is not in default hereunder, the Tenant may remove any removable fixtures
other than light fixtures and other like equipment installed by Tenant if, and
only if, such removals are done in a good and workmanlike manner and if the
Building and all surfaces are restored to conditions reasonably acceptable to
the Landlord.
13. Alterations. After construction of the Building by Landlord and
completion of fixtures and interior improvements by Tenant, Tenant shall not
make alterations in or additions to the Building unless Tenant has obtained
Landlord's written permission to do so, and subject to Tenant's not being in
default hereunder and subject to furnishing Landlord with acceptable plans and
specifications, the names and addresses of contractors, copies of contracts,
necessary permits and indemnifications as requested by the Landlord and lien
waivers as to any and all claims, costs, liabilities, and expenses which may
arise in connection with said alterations or additions. As a further condition
to Landlord's consent to said alterations or additions, Tenant shall advise all
subcontractors, suppliers, materialmen, and laborers that they shall not have
the right to file a Mechanic's Lien against the Building and property owned by
the Landlord. Whether the Tenant furnished the Landlord the foregoing or not,
the Tenant hereby agrees to hold the Landlord harmless from any and all
liabilities of every kind and description which may arise out of or be conducted
in any way with said alterations or additions. Before commencing any work in
connection with alterations or additions, the Tenant, if requested by Landlord,
shall furnish the Landlord with certificates of insurance from all contractors
performing labor or furnishing materials insuring the Landlord against any and
all liabilities which may arise out of or be connected in any way with said
additions or alterations. The Tenant shall pay the cost of all such alterations
and additions and also the cost of decorating the Building occasioned by such
alterations and additions.
Upon completing any alterations or additions, the Tenant, if
requested by Landlord, shall furnish the Landlord with contractors' affidavits
and full and final waiver of lien and receipted bills
<PAGE> 9
-7-
covering all labor and material expended and used. All alterations and additions
shall comply with all insurance requirements and with all relevant laws,
ordinances, or regulations of municipalities, counties, state, or departments
and agencies thereof. All alterations and additions shall be constructed in a
good and workmanlike manner and only good grades of materials shall be used. All
additions, excepting removable fixtures other than light fixtures, shall become
the Landlord's property and shall remain upon the Building at the termination of
this Lease by lapse of time or otherwise without compensation or allowance or
credit to the Tenant. If the Tenant does not remove the Tenant's fixed
furniture, equipment, machinery, fixtures, and all other items of personal
property of every kind and description from the Building prior to the end of the
term, however ended, which the Tenant does not have the right to remove if it
is in default hereunder, then Tenant shall conclusively presumed to have
conveyed the same to the Landlord under this Lease as a bill of sale without
further payment or credit by Landlord to the Tenant. All structural changes made
by Tenant shall be restored to their original condition at the Tenant's expense
if Landlord so requests. Tenant's violation of any of the terms and conditions
of this numbered paragraph 13 shall constitute a default hereunder.
14. Rules and Regulations. The Tenant shall abide by all reasonable
rules and regulations adopted by Landlord pertaining to the operation and
management of the building. If any rules and regulations are contrary to the
terms of this Lease, the terms of the Lease shall govern.
15. Fire and Casualty. If the Building or any part thereof shall be
damaged or partially destroyed by fire or other casualty, the Tenant shall
promptly notify the Landlord, and, at the Tenant's sole cost and expense, and
whether or not the insurance proceeds are sufficient, restore, repair, replace,
or rebuild the Building. Said restoration shall be at least equal in quality and
class to the original construction, shall be of a design approved in writing by
the Landlord, shall be performed pursuant to plans and specifications approved
by the Landlord and in accordance with all provisions applicable to said work
and all other provisions of this Lease. The restoration shall be commenced
within ninety (90) days from the date of damage or partial destruction,
provided, however, the Landlord may grant such extensions of time for the
adjustment of insurance and the preparation of plans and specifications as
reasonably may be required. The architect or engineer in charge of such work
shall be selected by the Tenant and approved in writing by the Landlord. The
Tenant shall diligently complete the restoration. The Landlord agrees to oversee
and supervise all construction required under this paragraph 15; without
altering or modifying the Tenant's responsibilities hereunder.
No partial destruction or damage to the Building or any part thereof
shall permit the Tenant to surrender this Lease or relieve the Tenant from its
obligations to pay rent or from any other obligations hereunder. The Tenant
waives any rights now or in the future conferred
<PAGE> 10
-8-
upon it by statute or otherwise to quit or surrender this Lease or to any
rebate, refund, suspension, diminution, abatement, or reduction of rent on
account of any partial destruction or damage to the Building.
If the Building is totally destroyed by fire or by any other
casualty, the Tenant shall promptly notify the Landlord, and, at the Tenant's
sole discretion, restore, replace, repair or rebuild the Building in accordance
with the provisions of this paragraph, or terminate this Lease. In the event the
Tenant elects to terminate this Lease, the Tenant shall, at the Tenant's sole
expense, restore the building site to its condition as of the date hereof, prior
to construction, to the satisfaction of Landlord.
16. Holding Over. If the Tenant retains possession of the Building or
any part thereof, by lapse of time or otherwise, after the termination of this
Lease, the Tenant shall pay the Landlord rent at double the rate payable for the
year immediately preceding said holdover computed on per month basis, for the
time the Tenant thus remains in possession. The provisions of this paragraph do
not waive the Landlord's rights of re-entry or any other right hereunder. Any
retention of the Building after the termination of this lease or any extension
thereof shall be considered as a month-to-month holdover unless otherwise agreed
to in writing by both parties.
17. Landlord's Remedies. All rights and remedies of the Landlord
herein enumerated shall be cumulative, and this Lease shall not exclude any
other right or remedy allowed herein or by law. If any provision hereof shall be
held invalid or unenforceable, the remaining provisions hereof shall continue
valid, enforceable and applicable.
A. If the Tenant defaults in the payment of base rent,
additional rent, or with regard to the payment of any other
sums due hereunder and if said default is not remedied
within ten (10) days after written demand is made by
Landlord, then in any such event, Landlord may, if the
Landlord so elects but not otherwise, either forthwith
terminate this Lease and the Tenant's right to possession of
the Building, or, without terminating this Lease, forthwith
terminate the Tenant's right to possession of the Building
and the Landlord may exercise any and all remedies available
to it under Iowa law, including but not limited to, the
foreclosure of its Landlord's lien against all tangible
personal property excepting property that is confidential or
otherwise proprietary in nature such as patents, copyrights,
trade secrets, software programs, data and the like of the
Tenant maintained within the Building.
<PAGE> 11
-9-
B. If the Tenant defaults in the prompt and full performance of
any other provision of this Lease; and if such default is
not remedied or prompt and full performance is not
accomplished by Tenant or Tenant has not promptly instituted
and is not vigorously pursuing such remedies as are
necessary to rectify such default within thirty days after
written demand is made by Landlord, or if the Tenant
abandons the Building, then and in any such event, the
Landlord may, if the Landlord so elects but not otherwise,
forthwith terminate this Lease and the Tenant's right to the
Building or without terminating this Lease, forthwith
terminate the Tenant's right to possession of the Building
and exercise any and all other remedies available to the
Landlord under Iowa law, including but not limited to the
foreclosure of its Landlord's lien as limited above.
C. Upon any termination of this Lease, whether by lapse of time
or otherwise, or upon termination of the Tenant's right to
possession without termination of the Lease, the Tenant
shall immediately surrender possession and vacate the
Building and deliver possession thereof to the Landlord, and
the Tenant hereby grants to the Landlord full and free
license to enter the Building with or without process of
law, and to repossess and remove any and all property
therefrom using such force as may be necessary, without
being deemed guilty of trespass, eviction, or forcible entry
or detainer, and without relinquishing the Landlord's right
to rent or any other right given to the Landlord hereunder
or by operation of law.
D. Any and all property which may be removed from the Building
by the Landlord pursuant to the authority of the Lease or of
law, to which the Tenant is or may be entitled may be
handled, removed and stored by the Landlord at the risk,
cost and expense of the Tenant, provided, however, that
Landlord shall use reasonable care and caution to prevent
any damage or loss to such property in removing and storing
such property. The Tenant shall pay to the Landlord, upon
demand, any and all reasonable expenses incurred in such
removal and all reasonable storage charges against
<PAGE> 12
-10-
such property as long as the same shall be in the
Landlord's possession or under the Landlord's control. Any
such property of the Tenant not removed from the Building
or retaken from storage by the Tenant within 60 days after
the end of the term, however, terminated, or any extension
thereof, shall be conclusively deemed to have been
forever abandoned by the Tenant.
E. If Tenant is adjudicated to be bankrupt or is found
insolvent in any court of record, or if a receiver or
trustee for the benefit of Tenant's creditors is appointed,
Landlord at its sole option may terminate this Lease without
notice and shall be entitled to damages as provided by law
or the terms hereof, provided, however, that such
adjudication, finding or appointment is not set aside within
30 days or an appeal therefrom shall not be prosecuted
within said 30 days and said appeal is either pending or is
concluded with the determination that Tenant is not bankrupt
or insolvent.
F. If Tenant should default under the terms of this Lease,
Landlord shall be entitled to all reasonable costs, charges,
expenses, and attorneys' fees incurred by Landlord in
connection therewith.
G. Tenant hereby pledges and assigns to Landlord subject to
purchase money security interests and prior perfected
security interests all of the furniture, fixtures, goods,
and tangible personal property of Tenant except that
property excepted in paragraph 17A above, which shall or may
be brought or put on the Building as security for the
payment of the rent herein reserved and Tenant agrees that
said lien hereby created by operation of law may be enforced
by foreclosure or otherwise at the election of the Landlord.
Tenant agrees to execute any and all financing statements,
security agreements and other forms necessary to perfect
this lien.
H. Tenant hereby waives and renounces any and all exemption
rights it may have now, or hereafter, under or by virtue of
the constitution and laws of the state in which the Building
is located or of any other state
<PAGE> 13
-11-
or of the United States, as against the payment of said
rental or any portion hereof, or any other obligation or
damages that may accrue under the terms of this Agreement.
I. it is mutually agreed by and between Landlord and Tenant
that the respective parties hereto shall and they hereby do.
waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against
the other on any matter whatsoever, arising out of or in any
way connected with this Lease, the relationship of Landlord
and Tenant, Tenant's use or occupancy of said Building, or
any claim of injury or damage, and any emergency statutory
or any other statutory remedy. It is further mutually agreed
that in the event Landlord commences any summary proceeding
for nonpayment of rent, Tenant will not interpose any
counterclaim of whatever nature or description in any such
proceeding.
J. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in
the event of Tenant being evicted or dispossessed for any
cause, or in the event of Landlord obtaining possession of
Building, by reason of the violation by Tenant of any of the
covenants and conditions of this Lease, or otherwise.
18. Basic Finish. The Landlord agrees to provide Tenant a "shell
Building" which will include the following basic interior finish:
A. Concrete floor.
B. Exterior walls with finish concrete masonry unit face.
C. Exterior windows and doors with glazing but no interior
trim.
D. Warehouse level ambient light (approximately 10 foot
candles).
E. Two 200 amp 3 phase panels at approximately the center of
the west wall of the Building.
F. Plumbing services will be stubbed into that same location
(sewer and water).
<PAGE> 14
-12-
G. The heating, venting, and air conditioning units will be in
place with some main runs but no secondary runs or defusers.
H. Exterior landscaping and parking will be in place.
I. Sprinklers in place for open space.
Landlord, at its sole cost, shall provide the above and such other
improvements as are shown by the plans and specifications prepared by John Rice
R.A. dated August 29, 1994 and by this reference made a part hereof.
All interior improvements shall be completed by the Tenant consistent
with floor plans, specifications, and descriptions of materials provided by the
Tenant to the Landlord, and to be approved by the Landlord. The Landlord agrees
to advance the costs of the Tenant's improvements in an amount not to exceed
$60,000.00, and the Tenant agrees to repay said $60,000.00 at the rate of
$12,000.00 per year without interest until all sums are paid in full. The
parties agree to execute all necessary notes, security agreements, and financing
statements to provide the Landlord with security for the repayment of said sum.
The Landlord and Tenant agree to complete its respective improvements in a
timely fashion. The Landlord shall commence construction on or about November 2,
1994. The Tenant shall provide Landlord with plans and specifications for Tenant
improvements to be approved by Landlord which improvements shall be
substantially completed within 90 days from the date Landlord releases the
Building to Tenant for construction of Tenant improvements.
19. Option to Renew. The Tenant shall have one option to renew the
term of this Lease for one five-year term, which term shall commence immediately
upon the expiration of the original term of this Lease. Said extension shall be
upon the same terms and conditions contained herein, except for the rental rate
described in this paragraph. In the event the Tenant desires to exercise its
option to renew this lease, the Tenant shall notify the Landlord, in writing,
not less than 120 days prior to the expiration of the term hereof. During the
option period, the rent payable shall equal the rent described above,
($84,033.60 annually), adjusted by the change in the Bureau of Labor Statistics
Consumer Price Index, U.S. City Average. All Urban Consumers (C.P.I.-U) for the
month immediately preceding the end of the initial lease term from the index
(expressed as a percentage or otherwise) for the month of October 1994. If
publication of that index is terminated, a substantially equivalent successor
thereto shall be used to determine the adjustment in rent during the option
period.
<PAGE> 15
-13-
20. Environmental Matters. Tenant shall comply with all applicable
environmental rules, regulations, and laws and the Tenant shall indemnify,
defend and hold Landlord harmless from and against any and all claims,
judgments, damages, penalties, fines, costs, liabilities, and losses (including
reasonable attorneys' fees), arising out of a breach of or violation of any
applicable environmental laws. The Tenant shall not cause any hazardous
material, as described by state or federal law, to be used, generated, stored,
or disposed of on, about, or under or transported to or from the building,
without first receiving the landlord's written consent, which consent may be
withheld for any reason and revoked at any time. The Tenant acknowledges that
the Landlord shall have no liability with respect to violations of the
provisions of this paragraph.
21. Subletting and Assignment. For purposes of this paragraph, any
transfer of stock, change in equity ownership within the Tenant or any change of
the Tenant's capital structure shall constitute an assignment or subletting,
with the exception of changes resulting from public offerings and other changes
where less than 49% of the Tenant's equity ownership has been transferred. With
the exception stated above, the Tenant shall not assign or sublet this Lease or
any part of the Building without the prior written consent of the Landlord,
which consent shall not be unreasonably withheld under the following conditions:
A. The assignee is at least as creditworthy, based upon
financial statements submitted to the Landlord, as the
Tenant.
B. The assignee shall agree to abide by all the terms and
conditions of this Lease.
C. There shall be no defaults under the terms of this Lease at
that time.
Any assignment or subletting by the Tenant contrary to the terms
hereof shall have the effect of accelerating all sums due hereunder during the
remaining term of this Agreement, and shall constitute a default hereunder,
thereby entitling Landlord to pursue any and all remedies available to it. No
assignment or sublease shall relieve the Tenant of its obligations hereunder.
22. Notices. All notice to be given by one party to the other party
under this Lease shall be given in written form and mailed or delivered to the
following:
A. To the Landlord, 1400 Highway 13 S.E., Cedar Rapids, Iowa
52406-2577, or to such other person at such other address
designated by Notice sent to Tenant and after commencement
of the term of the address to which rent is payable.
<PAGE> 16
-14-
B. To the Tenant at the place set forth in the Schedule until
Tenant takes possession of the Building, and thereafter at
the Building or at such other address designated by notice
to the Landlord.
Mailed notices shall be sent by United States mail, Certified or
Registered, postage prepaid. Such notice shall be deemed to have been given upon
depositing in the United States mail.
23. Quiet Possession. So long as Tenant shall observe and perform the
covenants and agreements binding on it hereunder, Tenant shall at all times
during the term herein granted peacefully and quietly have and enjoy the
possession of the Building without any encumbrance or hindrance by, from or
through the Landlord, its successors or assigns.
24. Miscellaneous.
A. Each provision hereof shall extend to and shall, as the case
may require, bind and inure to the benefit of the Landlord
and the Tenant and their respective heirs, legal
representatives and successors, and assigns.
B. All amounts owed to the Landlord hereunder, for which the
date of payment is not expressly fixed herein, shall be paid
within thirty (30) days from the date the Landlord renders
statements of account therefore and shall bear interest at
the rate of ten (10%) per annum thereafter until paid.
C. Tenant shall deliver to Landlord or to its mortgagee,
auditors, or prospective purchaser when requested by
Landlord, a certificate to the effect that Landlord is not
in default therein, or stating specifically any exceptions
thereto. Failure to give such a certificate within two (2)
weeks after written request shall be conclusive evidence
that the Lease is in full force and effect and Landlord is
not in default and Tenant shall be estopped from asserting
any defaults known to Tenant at that time.
D. In the event that all or a substantial portion of the
Building is taken by eminent domain so that the Building
cannot be reasonably used by Tenant for the purposes for
which it is demised, then at the option of either party the
Lease may be terminated, effective as of the date of the
taking. In this event, the
<PAGE> 17
-15-
entire award shall be paid to and retained by Landlord
excepting however, that Tenant may receive therefrom any
portion paid on account of its moving expenses.
MYRIAD DEVELOPERS, L.C. UROSURGE, INC.,
an Iowa limited liability company an corporation
----------------
BY /s/ Patrick H. Murphy BY
------------------------------ ------------------------------
LANDLORD TENANT
<PAGE> 1
Exhibit 10.5
LEASE AGREEMENT
This Lease Agreement is made this 12th day of December 1997, between
MYRIAD DEVELOPERS, L.C., an Iowa limited liability company, (the "LANDLORD") and
UROSURGE, INC., A Delaware corporation, (the "TENANT")
Schedule
<TABLE>
<S> <C>
NAME OF TENANT: UroSurge, Inc.
LOCATION OF BUILDING: Oakdale Campus (Building 2)
Coralville, Iowa
LEGAL DESCRIPTION: A portion of Lot 4, Oakdale Research Park
See attached.
DESCRIPTION OF LEASED 11,500 square feet located in the
PREMISES: center and east end of the Building.
TENANT'S USE OF PREMISES: office space
RENTABLE SQUARE FEET: 11,500
ANNUAL BASE RENT: $96,600.00
MONTHLY RENT: $8,050
RATE PER SQUARE FOOT PER YEAR: $8.40, plus additional rent, subject to adjustment
TERM OF LEASE: 29 months with one five-year
option to renew.
COMMENCEMENT DATE: January 1, 1998
TOTAL RENTABLE SQUARE FOOTAGE
IN BUILDING: 14,904
PROPORTIONATE SHARE OF TAXES,
INSURANCE, MAINTENANCE AND
OTHER EXPENSES: As set by Landlord.
REQUIRED DEPOSIT: None
PARKING: 33 spaces surrounding the Building.
TERMINATION DATE OF LEASE: 29 months from commencement date subject to option.
</TABLE>
LANDLORD -- MYRIAD DEVELOPERS, L.C.
an Iowa limited liability company
By /s/ PATRICK H. MURPHY
------------------------------------
MANAGER , AGENT
-----------------------------
TENANT -- UROSURGE, INC.
A Delaware corporation
By [SIG]
------------------------------------
PRES. & C.E.O.
------------------------------------
<PAGE> 2
-2-
1. LEASING AGREEMENT AND TERM. Landlord hereby leases to Tenant, and
Tenant hereby leases the Premises, from the Landlord for a term commencing
January 1, 1998, and terminating June 1, 2000 unless sooner terminated or
renewed according to the terms hereof. The Premises shall be occupied and used
by the Tenant only for the uses described herein.
2. USE OF PREMISES. The Premises shall be occupied and used by the Tenant
only for those purposes and uses allowable hereunder. The Tenant's use, and this
Lease, are subject to the terms and conditions of a certain Land Lease entered
into on the 31st day of October 1994, by and between IOWA RESEARCH PARK
CORPORATION, as "Lessor" and MYRIAD DEVELOPERS, L.C., as "Lessee," a copy of
which is attached hereto. The Tenant represents that it has reviewed all
provisions contained therein, including those provisions applicable to the use
of the Building and Tenant covenants it shall comply with the terms and
conditions thereof applicable to Tenant. The Tenant hereby represents that the
Premises will be used for the following purposes: laboratory; business and
administrative; offices for research, development, marketing, and sales
activities; and light manufacturing. Any changes in said use shall be subject to
and in compliance with the provisions hereof.
3. RENT. Tenant shall pay to Landlord at Landlord's office in the City of
Cedar Rapids, Iowa or to such other person or at such other place as directed
from time to time by notice to the Tenant from Landlord the annual base rent as
set forth in the Schedule in equal monthly installments as set forth in the
Schedule. Each monthly installment shall be payable in advance promptly on the
first day of each calendar month during the term of this Lease and shall bear
interest at the rate of 10 percent (10%) per annum from and after the l0th day
of the month if not then paid until the date when paid. If the term should
commence or terminate on a day other than the first day of the month, then the
rent for the first and last month shall be prorated for such fractional month.
All rent payable by Tenant hereunder shall be net to Landlord. All expenses and
obligations of every kind and nature whatsoever relating to the Building, which
may arise or become due during the term of this Lease including, but not limited
to, taxes, utilities, insurance, and maintenance shall be paid by the Tenant and
Tenant shall indemnify and hold the Landlord harmless from said expenses. This
Lease is a net Lease and Landlord shall have no expenses associated with the
Building.
4. ADDITIONAL RENT. In addition to the base rent provided for above and on
the schedule, the Tenant shall pay, as additional rent, the following:
A. Taxes and Special Assessments. The Tenant shall pay, as
additional rent, its proportionate share of the real estate
taxes accruing from the commencement date and all special
assessments due and payable during the Lease term, and a
prorated share of all taxes and special assessments becoming
payable after the termination of the Lease for
<PAGE> 3
-3-
periods during the term of the Lease, which amounts shall be
paid monthly with the base rent. The Landlord shall notify the
Tenant of any increases in taxes during the term of this
Lease. All other sums required to be paid by tenant hereunder
shall be deemed additional rent. Tenant's proportionate share
shall be rentable square feet (11,SOO square feet) divided by
total rentable square footage in the building (14,904 square
feet) times the actual taxes for building number two and taxes
for the associated parking.
B. Insurance. The Tenant shall pay and reimburse the Landlord,
upon request by the Landlord, its proportionate share of the
cost of insurance procured and maintained by the Landlord
hereunder as per section 11 of the Agreement based on the
square footage of the Leased Premises compared to the total
square footage of the Building. All sums requested hereunder
by the Landlord shall be paid by the Tenant within 15 days
thereof, or the Landlord has the right to require the Tenant
to pay one-twelfth of the cost of all insurance monthly with
the base rent. Tenant's proportionate share shall be rentable
square feet (11,500 square feet) divided by total rentable
square footage in the building (14,904 square feet) times the
cost of insurance procured and maintained by the Landlord as
described above.
C. Maintenance. The Tenant shall pay its proportionate share of
all the costs of maintaining, repairing, operating and
replacing all improvements to the real estate on which the
rental premises is located including, but not limited to,
parking lot, lighting, exterior maintenance of the Building,
hallways, entryways, heating, cooling, and ventilating
systems, any and all facilities and services provided to the
Building (except where the Tenant is responsible for all such
costs hereunder), snow removal, care of lawn and landscaping,
and utilities. The Tenant shall pay to the Landlord, upon
demand, monthly with all other sums due hereunder, Tenant's
proportionate share of all such maintenance costs incurred by
Landlord. Tenant's proportionate share shall be rentable
square feet (11,500 square feet) divided by total rentable
square footage in the Myriad Technology Plaza (currently
24,908 square feet), located on lot 4 of the Oakdale Research
Park, times maintenance costs for the complex; excluding
replacement of HVAC and EDPM roof for the complex
<PAGE> 4
-4-
buildings. Tenant shall also contribute a proportionate share
to reserve for replacement EDPM roof and HVAC. Tenants annual
share to reserve replacement EDPM roof and HVAC shall be
$3,570 to be paid monthly with all other sums due hereunder.
5. Utilities. Landlord will furnish nonducted heating, ventilation and air
conditioning, telephone, electric service and plumbing as described in paragraph
19 hereof. Tenant will pay for all utility costs and charges during the lease
term with respect to the Premises upon demand by the Landlord. The Premises
shall be separately metered and the Tenant shall pay all such utility charges
directly to the provider.
6. Services. Tenant shall keep the Premises clean, neat, and shall provide
its own janitor and cleaning services. Tenant will keep the windows clean inside
and keep the inner walls painted or washed to maintain a neat appearance.
7. Parking. The Tenant for itself and its invitees and guests shall have
use of the space surrounding the Building which has been constructed by the
Landlord for parking purposes, subject to parking rights granted to other
tenants and their invitees. The Tenant shall have the exclusive use of 33
parking spaces requested by Tenant.
8. Recording. Except for recording of a memorandum of this Lease which may
be accomplished only if approved by Landlord, nothing contained shall empower
Tenant to do any act which can, shall or may encumber the interest or title of
Landlord or its assignee in and to the ground or Building.
9. Mortgage by Landlord. From time to time either before or after the
execution of this Lease and before the termination of the term thereof, Landlord
may execute a mortgage or trust deed in the nature of a mortgage of Landlord's
interest in the Building. IN SUCH EVENT:
A. If requested by the mortgagee or trustee, Tenant will
subordinate its interest in this Lease to said mortgage or
trust deed and will execute such subordination agreement or
agreements as may he reasonably required by said mortgagee or
trustee, provided, however, that so long as Tenant shall not
be in default under this Lease, its right of possession and
enjoyment of the Premises shall be and remain undisturbed and
unaffected by said mortgage or trust deed or by any
foreclosure proceedings thereunder, and any subordination
agreement executed pursuant to this paragraph shall contain
language specifically so providing.
B. Should such mortgage be foreclosed, the liability of the
mortgagee, trustee or purchaser at such
<PAGE> 5
-5-
foreclosure sale or the liability of a subsequent owner
designated as Landlord under this Lease, shall exist only so
long as such trustee, mortgagee, purchaser or owner is the
owner of the subject real estate and such liability shall not
continue or survive after further transfer of ownership.
C. Landlord agrees promptly to notify Tenant of the placing of
any mortgage or trust deed against the leasehold estate of
which the Building forms a part and Tenant agrees in the event
of any act or omission by Landlord which would give Tenant the
right to terminate this Lease or to claim a partial or total
eviction, Tenant shall not exercise any such right (i) until
it has notified in writing the holder of any mortgage which at
the time shall be a lien on the Building, if the name and
address of such holder shall previously have been furnished by
written notice to Tenant, of such act or omission, and (ii)
until a reasonable period, not exceeding thirty (30) days, for
commencing the remedying of such act or omission shall have
lapsed following the giving of such notice, and (iii) such
holder, with reasonable diligence shall not have so commenced
and continued to remedy such act or omission or to cause the
same to be remedied. During the period between the giving of
such notice and the remedying of such act or omission, the
rental herein recited shall be abated and apportioned to the
extent that any part of the Building shall be untenantable.
D. If such mortgage be foreclosed, upon request of the mortgagee
or trustee, Tenant will attorn to the purchaser at any
foreclosure sale thereunder and will execute such instruments
as may be necessary or appropriate to evidence such
attornment. Likewise Tenant will attorn to the leasehold
mortgagee in the event said leasehold mortgagee should ever
become the owner of the leasehold estate covered by its
mortgage or should become the owner of any new lease in
replacement or substitution of such leasehold estate.
10. Certain Rights Reserved to the Landlord. The Landlord preserves the
following rights:
A. Occupancy. During the last one hundred twenty (120) days of
the term of this Lease, if during or prior to that time the
Tenant vacates the Premises,
<PAGE> 6
-6-
to decorate, remodel, repair, alter or otherwise prepare the
Premises for reoccupancy.
B. Pass keys. To have pass keys to the Premises for access to the
Premises in the event of emergencies requiring Landlord's
action to prevent or limit damages to the Building.
C. Access for Inspections. To have access for the purpose of
inspecting the condition of the Premises, at convenient times
and with reasonable advance notice provided to Tenant.
D. Show Building. To show the Premises to prospective tenants or
brokers during the last 120 days of the term of this Lease as
extended, and to prospective purchasers at all reasonable
times provided prior notice is given to Tenant in each case
and the Tenant's use and occupancy of the Premises shall not
be materially inconvenienced by any such action of the
Landlord.
E. Heavy Equipment. To approve the weight, size and location of
safes or heavy equipment of articles which articles may be
moved, in, about, or out of the Premises only at such times
and in such manner as Landlord shall approve and, in all
events, however, at Tenant's sole risk and responsibility.
The Landlord may enter the Premises and may exercise any or all of the
foregoing rights hereby reserved without being deemed guilty of an eviction or
disturbance of the Tenant's use or possession and without being liable in any
manner to the Tenant.
11. Liability Claims. Tenant waives all claims it may have against
Landlord, its agents or Employees for damage to person or property sustained by
Tenant or any occupant or other person resulting from any cause, except if
caused by the negligence of the Landlord, its agents or employees.
Landlord shall carry fire and extended coverage insurance insuring the
full replacement value of the Premises provided by the Landlord, and Tenant
shall waive any rights of action against Landlord for loss or damage covered by
such insurance, and the policies shall permit such waiver. Tenant shall
reimburse the Landlord for the proportionate share of cost of said insurance and
all other insurance the Landlord deems necessary, as provided in paragraph 4
above. Tenant shall carry fire and extended coverage insurance insuring the full
replacement value of Tenant improvements in the Building and its interest in
furniture, and supplies, and Tenant shall waive any rights of action against
Landlord for loss or damage covered by such insurance, and the policies shall
permit such waiver.
<PAGE> 7
-7-
Tenant will secure and maintain general liability insurance naming the
Tenant and Landlord as insureds from financially responsible insurance
companies. If Tenant occupies space in which there is exterior plate glass, then
Tenant shall be responsible for the damage, breakage or repair of such plate
glass. If any damage to the Building results from any act or neglect of the
Tenant, the Landlord may at the Landlord's option, without any obligation to do
so, repair such damage, and the Tenant shall thereupon pay to the Landlord the
total cost of such repairs and damages to the Building.
The parties agree that Tenant shall maintain public liability insurance,
pursuant to the terms of this paragraph, with minimum limits of $1,000,000
aggregate and shall furnish the certificate to Landlord showing said insurance
is in full force and effect.
12. Conditions of Building. During the term of this Lease, Tenant shall
maintain, at its sole cost, in good condition and repair, the Premises, all
leasehold improvements contained therein and all components including, but not
limited to utilities, heating, ventilating, and cooling systems, electrical and
plumbing, and plate glass for which the Tenant is responsible hereunder. In the
event the Tenant fails to maintain the Premises as required by this paragraph,
then the Landlord may restore the Premises in such condition, and the Tenant
shall pay the costs thereof. Failure of the Tenant to fulfill its obligations of
this paragraph, shall constitute a default hereunder. At the termination of the
lease, the Tenant shall return the Premises to the Landlord in good condition
and repair with reasonable wear and tear excepted, and, if the Tenant does not
default hereunder, the Tenant may remove any removable fixtures other than light
fixtures and other like equipment installed by the Tenant if, and only if, such
removals are done and good and workmanlike manner and if the Premises and all
surfaces are restored to conditions reasonably acceptable to the Landlord.
13. Alterations. After construction of the Building by Landlord and
completion of fixtures and interior improvements by Tenant, Tenant shall not
make alterations in or additions to the Building unless Tenant has obtained
Landlord's written permission to do so, and subject to Tenant's not being in
default hereunder and subject to furnishing Landlord with acceptable plans and
specifications, the names and addresses of contractors, copies of contracts,
necessary permits and indemnifications as requested by the Landlord and lien
waivers as to any and all claims, costs, liabilities, and expenses which may
arise in connection with said alterations or additions. As a further condition
to Landlord's consent to said alterations or additions, Tenant shall advise all
subcontractors, suppliers, materialmen, and laborers that they shall not have
the right to file a Mechanic's Lien against the Building and property owned by
the Landlord. Whether the Tenant furnished the Landlord the foregoing or not,
the Tenant hereby agrees to hold the Landlord harmless from any and all
liabilities of every kind and description which may arise out of or be conducted
in any way with said alterations or additions. Before commencing any work in
connection
<PAGE> 8
-8-
with alterations or additions, the Tenant, if requested by Landlord, shall
furnish the Landlord with certificates of insurance from all contractors
performing labor or furnishing materials insuring the Landlord against any and
all liabilities which may arise out of or be connected in any way with said
additions or alterations. The Tenant shall pay the cost of all such alterations
and additions and also the cost of decorating the Premises occasioned by such
alterations and additions.
Upon completing any alterations or additions, the Tenant, if requested by
Landlord, shall furnish the Landlord with contractors' affidavits and full and
final waiver of lien and receipted bills covering all labor and material
expended and used. All alterations and additions shall comply with all insurance
requirements and with all relevant laws, ordinances, or regulations of
municipalities, counties, state, and other governmental units or departments and
agencies thereof. All alterations and additions shall be constructed in a good
and workmanlike manner and only good grades of materials shall be used. All
additions, excepting removable fixtures other than light fixtures, shall become
the Landlord's property and shall remain upon the Premises at the termination of
this Lease by lapse of time or otherwise without compensation or allowance or
credit to the Tenant. If the Tenant does not remove the Tenant's fixed
furniture, equipment, machinery, fixtures, and all other items of personal
property of every kind and description from the Premises prior to the end of the
term, however ended, which the Tenant does not have the right to remove if it is
in default hereunder, then Tenant shall conclusively presumed to have conveyed
the same to the Landlord under this Lease as a bill of sale without further
payment or credit by Landlord to the Tenant. All structural changes made by
Tenant shall be restored to their original condition at the Tenant's expense if
Landlord so requests. Tenant's violation of any of the terms and conditions of
this numbered paragraph 13 shall constitute a default hereunder.
14. Rules and Regulations. The Tenant shall abide by all reasonable rules
and regulations adopted by Landlord pertaining to the operation and management
of the Building. if any rules and regulations are contrary to the terms of this
Lease, the terms of the Lease shall govern.
15. Damage or Destruction.
A. Damage or Destruction of Premises Provided by the Landlord. If
the Premises or any part thereof shall be damaged or partially
destroyed by fire or any other casualty, the Tenant shall
promptly notify the Landlord, and the Landlord will repair or
rebuild the Premises, except as hereinafter provided. The
restoration shall commence within ninety (90) days from the date
of damage or partial destruction, provided, however, the Landlord
may be granted such extensions of time for the adjustment
<PAGE> 9
-9-
of insurance and the preparation of plans and specifications
as reasonably may be required.
No partial destruction or damage to the Premises or any part
thereof shall permit the Tenant to surrender this Lease or
relieve the Tenant from its obligations to pay rent or from
any other obligations hereunder. The Tenant waives any rights
now or in the future conferred upon it by statute or otherwise
to quit or surrender this Lease or to any rebate, refund,
suspension, diminution, abatement, or reduction of rent on
account of any partial destruction or damage to the Building.
If the Premises is totally destroyed by fire or any other
casualty, Tenant may elect to terminate this lease and
promptly notify the Landlord, in writing, within thirty (30)
days after the date of damage or destruction, and this Lease
shall thereupon terminate. In the event the Tenant does not
elect to terminate this Lease in case of total destruction,
then the Landlord shall repair or rebuild the Premises, using
any and all insurance proceeds therefor.
The Tenant hereby acknowledges that any and all insurance
proceeds payable upon damage or destruction to the Premises,
shall be payable to the Landlord and the Landlord may apply
and use said proceeds as it deems appropriate, in its sole
discretion.
B. Damage or Destruction of Tenant Interior Improvements. If the
Tenant-provided interior improvements thereof shall be damaged
or partially destroyed by fire or other casualty, the Tenant
shall notify the Landlord, and, at the Tenant's sole cost and
expense, and whether or not the insurance proceeds are
sufficient, restore, repair, replace, or rebuild such
Tenant-provided interior improvements. Said restoration shall
be at least equal in quality and class to the original
construction, shall be of a design approved in writing by the
Landlord, shall be performed pursuant to plans and
specifications approved by the Landlord and in accordance with
all procedures applicable to said work and all other
provisions of this Lease. The restoration shall be commenced
within ninety (90) days from the date of damage or partial
destruction; however, the Landlord may grant such extensions
of time for the adjustment of
<PAGE> 10
-10-
insurance and the preparation of plans and specifications as
reasonably may be required. if the Premises as provided by the
Landlord shall be totally destroyed, and the Tenant has not
terminated this lease as provided in section 15A, then
construction shall commence as soon as practicable after said
damage or destruction. The architect or engineer in charge of
restoration of Tenant provided interior improvements shall be
selected by the Tenant and approved in writing by the
Landlord. The Tenant shall diligently complete the
restoration.
No partial destruction or damage to the Tenant-provided
interior improvements shall permit the Tenant to surrender
this Lease or relieve the Tenant from its obligations to pay
rent or from any other obligations hereunder. The Tenant
waives any rights now or in the future conferred upon it by
stature or otherwise to quit or surrender this Lease or to any
rebate, refund, suspension, diminution, abatement, or
reduction of rent on account of any partial destruction or
damage to the Tenant provided interior improvements.
16. Holding Over. If the Tenant retains possession of the Premises or any
part thereof, by lapse of time or otherwise, after the termination of this
Lease, the Tenant shall pay the Landlord rent at double the rate payable for the
year immediately preceding said holdover computed on per month basis, for the
time the Tenant thus remains in possession. The provisions of this paragraph do
not waive the Landlord's rights of re-entry or any other right hereunder. Any
retention of the Premises after the termination of this lease or any extension
thereof shall be considered as a month-to-month holdover unless otherwise agreed
to in writing by both parties.
17. Landlord's Remedies. All rights and remedies of the Landlord herein
enumerated shall be cumulative, and this Lease shall not exclude any other right
or remedy allowed herein or by law. If any provision hereof shall be held
invalid or unenforceable, the remaining provisions hereof shall continue valid,
enforceable and applicable.
A. If the Tenant defaults in the payment of base rent, additional
rent, or with regard to the payment of any other sums due
hereunder and if said default is not remedied within ten (10)
days after written demand is made by Landlord, then in any
such event, Landlord may, if the Landlord so elects but not
otherwise, either forthwith terminate this Lease and the
Tenant's right to possession of the Premises, or, without
terminating this Lease, forthwith terminate the Tenant's right
to
<PAGE> 11
-11-
possession of the Premises and the Landlord may exercise any
and all remedies available to it under Iowa law, including but
not limited to, the foreclosure of its Landlord's lien against
all tangible personal property excepting property that is
confidential or otherwise proprietary in nature such as
patents, copyrights, trade secrets, software programs, data,
and the like of the Tenant maintained within the Building.
B. If the Tenant defaults in the prompt and full performance of
any other provision of this Lease; and if such default is not
remedied or prompt and full performance is not accomplished by
Tenant or Tenant has not promptly instituted and is not
vigorously pursuing such remedies as are necessary to rectify
such default within thirty days after written demand is made
by Landlord, or if the Tenant abandons the Premises, then and
in any such event, the Landlord may, if the Landlord so elects
but not otherwise, forthwith terminate this Lease and the
Tenant's right to the Premises or without terminating this
Lease, forthwith terminate the Tenant's right to possession of
the Premises and exercise any and all other remedies available
to the Landlord under Iowa law, including but not limited to
the foreclosure of its Landlord's lien as limited above.
C. Upon any termination of this Lease, whether by lapse of time
or otherwise, or upon termination of the Tenant's right to
possession without termination of the Lease, the Tenant shall
immediately surrender possession and vacate the Premises and
deliver possession thereof to the Landlord, and the Tenant
hereby grants to the Landlord full and free license to enter
the Premises with or without process of law, and to repossess
and remove any and all property therefrom using such force as
may be necessary, without being deemed guilty of trespass,
eviction, or forcible entry or detainer, and without
relinquishing the Landlord's right to rent or any other right
given to the Landlord hereunder or by operation of law.
D. Any and all property which may be removed from the Premises by
the Landlord pursuant to the authority of the Lease or of law,
to which the Tenant is or may be entitled may be handled,
removed and stored by the Landlord at the risk, cost and
expense of the Tenant, provided, however, that Landlord shall
use reasonable care and caution to prevent any,
<PAGE> 12
-12-
damage or loss to such property in removing and storing such
property. The Tenant shall pay to the Landlord, upon demand,
any and all reasonable expenses incurred in such removal and
all reasonable storage charges against such property as long
as the same shall be in the Landlord's possession or under the
Landlord's control. Any such property of the tenant not
removed from the Premises or retaken from storage by the
Tenant within 60 days after the end of the term, however,
terminated, or any extension thereof, shall be conclusively
deemed to have been forever abandoned by the Tenant.
E. If Tenant is adjudicated to be bankrupt or is found insolvent
in any court of record, or if a receiver or trustee for the
benefit of Tenant's creditors is appointed, Landlord at its
sole option may terminate this Lease without notice and shall
be entitled to damages as provided by law or the terms hereof,
provided, however, that such adjudication, finding or
appointment is not set aside within 30 days or an appeal
therefrom shall not be prosecuted within said 30 days and said
appeal is either pending or is concluded with the
determination that Tenant is not bankrupt or insolvent.
F. If Tenant should default under the terms of this Lease,
Landlord shall be entitled to all reasonable costs, charges,
expenses, and attorneys' fees incurred by Landlord in
connection therewith.
18. Tenant's Remedies Upon Default. If the Landlord is in default in
performing any of the terms or provisions of this Lease and the Landlord fails
to cure such default within thirty (30) days after receipt of written notice
from the Tenant stating with particularity the nature and extent of the default
(provided the nature of the default is of a character as to require more than 30
days to cure, the Landlord shall have an additional reasonable period of time to
cure such default if the Landlord has commenced to cure such default within 30
days as is diligently pursuing the remedies or steps necessary to cure or
correct such default), the Tenant shall have the following rights and remedies,
which distinct and separate:
A. The Tenant may cure the default, and the Landlord shall
reimburse the Tenant, upon demand, for all the Tenant's direct
costs;
D. The Tenant shall have the right to exercise any and all rights
and remedies available to it under applicable laws.
<PAGE> 13
-13-
19. Basic Finish. The Landlord agrees to provide Tenant "shell" Premises
which will include the following basic interior finish:
A. Concrete floor.
B. Exterior walls with finish concrete masonry unit face.
C. Exterior windows and doors with glazing but no interior trim.
D. Warehouse level ambient light (approximately 10 foot candles).
E. A 200 amp 3 phase panel at approximately the center of the
north wall of the Building with the Tenant, at its own
expense, extending electrical service to the Leased Premises.
P. Plumbing services will be stubbed to the north wall of the
Building with the Tenant, at its own expense, extending
plumbing services to the Leased Premises.
G. The heating, venting, and air conditioning units will be in
place with some main runs but no secondary runs or defusers.
H. Exterior landscaping and parking will be in place.
Landlord, at its sole cost, shall provide the above and such other
improvements as are shown by the plans and specifications prepared by John Rice,
R.A. dated August 29, 1994, and by this reference made a part hereof.
All interior improvements shall be completed by the Tenant consistent with
floor plans, specifications, and descriptions of materials provided by the
Tenant to the Landlord, and to be approved by the Landlord. The Tenant shall
provide Landlord with plans and specifications for Tenant improvements to be
approved by Landlord which improvements shall be substantially completed within
90 days from the date Landlord releases the Premises to Tenant for construction
of Tenant improvements. The Landlord agrees to advance the costs of the Tenant's
improvements in an amount not to exceed $40,000.00 and the Tenant agrees to
repay said $40,000.00 as per the attached amortization schedule with three
percent interest per annum (amortization table attached) until all sums are paid
in full. The parties agree to execute all necessary notes, security agreements,
and financing statements to provide the Landlord with security agreements, and
financing statements to provide the Landlord with security for the repayment of
said sum.
<PAGE> 14
-14-
20. Option to Renew. The Tenant shall have one option to renew the term of
this lease for one five-year term, which term shall commence immediately upon
the expiration of the original term of this Lease. Said extension shall be upon
the same terms and conditions contained herein, except for the rental rate
described in this paragraph. In the event the Tenant desires to exercise its
option to renew this lease, the Tenant shall notify the Landlord, in writing,
not less than 120 days prior to the expiration of the term hereof. During the
option period the rent payable shall equal the rent described above, $96,600.00
annually, adjusted by the change in the Bureau of Labor Statistics Consumer
Price Index, U.S. City Average, All Urban Consumers (C.P.I.U.) for the month
immediately preceding the end of the initial lease term from the index
(expressed as a percentage or otherwise) for the month of October 1994. If
publication of that index is terminated, a substantially equivalent successor
thereto shall be used to determine the adjustment in rent during the option
period.
21. Environmental Matters. Tenant shall comply with all applicable
environmental rules, regulations, and laws and the Tenant shall indemnify,
defend and hold Landlord and the Iowa Research Park Corporation harmless from
and against any and all claims, judgments, damages, penalties, fines, costs,
liabilities, and losses (including reasonable attorneys' fees), arising out of
a breach of or violation of any applicable environmental laws. The Tenant shall
not cause any hazardous material, as described by state or federal law, to be
used, generated, stored, or disposed of on, about, or under or transported to or
from the Building, without first receiving the landlord's written consent, which
consent may be withheld for any reason and revoked at any time. The Tenant
acknowledges that the Landlord shall have no liability with respect to
violations of the provisions of this paragraph.
22. Subletting and Assignment. For purposes of this paragraph, any
transfer of stock, change in equity ownership within the Tenant or any change of
the Tenant's capital structure shall constitute an assignment or subletting,
with the exception of changes resulting from public offerings and other changes
where less than 49% of the Tenant's equity ownership has been transferred. With
the exception stated above, the Tenant shall not assign or sublet this Lease or
any part of the Building without the prior written consent of the Landlord,
which consent shall not be unreasonably withheld under the following conditions:
A. The assignee is at least as creditworthy, based upon financial
statements submitted to the Landlord, as the Tenant.
B. The assignee shall agree to abide by all the terms and
conditions of this Lease.
C. There shall be no defaults under the terms of this Lease at
that time.
<PAGE> 15
-15-
Any assignment or subletting by the Tenant contrary to the terms hereof
shall have the effect of accelerating all sums due hereunder during the
remaining term of this Agreement, and shall constitute a default hereunder,
thereby entitling Landlord to pursue any and all remedies available to it. No
assignment or sublease shall relieve the Tenant of its obligations hereunder.
23. Notices. All notice to be given by one party to the other party under
this Lease shall be given in written form and mailed or delivered to the
following:
A. To the Landlord, 1400 Highway 13 S.E., Cedar Rapids, Iowa
52403-9803, or to such other person at such other address
designated by Notice sent to Tenant and after commencement of
the term of the address to which rent is payable.
B. To the Tenant at the place set forth in the Schedule until
Tenant takes possession of the Building, and thereafter at the
Building or at such other address designated by notice to the
Landlord.
Mailed notices shall be sent by United States mail, Certified or
Registered, postage prepaid. Such notice shall be deemed to have been given upon
depositing in the United States mail.
24. Quiet Possession. So long as Tenant shall observe and perform the
covenants and agreements binding on it hereunder, Tenant shall at all times
during the term herein granted peacefully and quietly have and enjoy the
possession of the Premises without any encumbrance or hindrance by, from or
through the Landlord, its successors or assigns.
25. Miscellaneous.
A. Each provision hereof shall extend to and shall, as the case
may require, bind and inure to the benefit of the Landlord and
the Tenant and their respective heirs, legal representatives
and successors, and assigns.
B. All amounts owed to the Landlord hereunder, for which the date
of payment is not expressly fixed herein, shall be paid within
thirty (30) days from the date the Landlord renders statements
of account therefore and shall bear interest at the rate of
ten (10%) per annum thereafter until paid.
C. Tenant shall deliver to Landlord or to its mortgagee,
auditors, or prospective purchaser when requested by Landlord,
a certificate to the effect that Landlord is not in default
therein, or stating specifically any exceptions thereto.
Failure to
<PAGE> 16
-16-
give such a certificate within two (2) weeks after written
request shall be conclusive evidence that the Lease is in full
force and effect and Landlord is not in default and Tenant
shall be estopped from asserting any defaults known to Tenant
at that time.
D. In the event that all or a substantial portion of the Premises
is taken by eminent domain so that the Premises cannot be
reasonably used by Tenant for the purposes for which it is
demised, then at the option of either party the Lease may be
terminated, effective as of the date of the taking. In this
event, the entire award shall be paid to and retained by
Landlord excepting however, that Tenant may receive therefrom
any portion paid on account of its moving expenses.
MYRIAD DEVELOPERS, L.C. UROSURGE, INC.
an Iowa limited liability company a corporation
By /s/ PATRICK H. MURPHY By [SIG]
------------------------------- ---------------------------------
LANDLORD TENANT
<PAGE> 17
AMORTIZATION TABLE
<TABLE>
<S> <C> <C> <C>
Principal: $40,000.00 Payment $ 1,486.00
Term: 28 Monthly Rate: 0.23%
Annual Rate: 3.00% Tot. Interest $ 1,461.32
Start Date: 02/01/98 Tot. Payments $40,000.00
</TABLE>
<TABLE>
<CAPTION>
PAYMENT PRINCIPAL EXTRA PRINCIPAL
PMT# DATE INTEREST PORTION PRINCIPAL BALANCE
---- ---------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1 02/01/98 101.92 1,383.08 38,616.92
2 03/01/98 88.87 1,396.13 37,220.79
3 04/01/98 94.84 1,390.16 35,830.63
4 05/01/98 88.35 1,396.65 34,433.98
5 06/01/98 87.74 1,397.26 33,036.72
6 07/01/98 81.46 1,403.54 31,633.18
7 08/01/98 80.60 1,404.40 30,228.78
8 09/01/98 77.02 1,407.98 28,820.80
9 10/01/98 71.06 1,413.94 27,406.86
10 11/01/98 69.83 1,415.17 25,991.69
11 12/01/98 64.09 1,420.91 24,570.78
12 01/01/99 62.61 1,422.39 23,148.39
13 02/01/99 58.98 1,426.02 21,722.37
14 03/01/99 51.78 1,433.22 20,289.15
15 04/01/99 51.70 1,433.30 18,855.85
16 05/01/99 46.49 1,438.51 17,417.34
17 06/01/99 44.38 1,440.62 15,976.72
18 07/01/99 39.39 1,445.61 14,531.11
19 08/01/99 37.02 1,447.98 13,083.13
20 09/01/99 33.34 1,451.66 11,631.47
21 10/01/99 28.68 1,456.32 10,175.15
22 11/01/99 25.93 1,459.07 8,716.08
23 12/01/99 21.49 1,463.51 7,252.57
24 01/01/2000 18.48 1,466.52 5,786.05
25 02/01/2000 14.74 1,470.26 4,315.79
26 03/01/2000 9.93 1,475.07 2,840.72
27 04/01/2000 7.24 1,477.76 1,362.96
28 05/01/2000 3.36 1,362.96 0.00
</TABLE>
<PAGE> 1
EXHIBIT 10.6
DEVELOPMENT AND SUPPLY AGREEMENT
This DEVELOPMENT AND SUPPLY AGREEMENT ("Agreement") effective as of
April 19, 1995 (the "Effective Date") by and between Urosurge Inc., a Delaware
corporation, with offices at Technology Innovation Center, Suite 104, University
of Iowa, Iowa City, Iowa 52242-5000, ("Urosurge"), and Interventional
Therapeutics Corporation, a California corporation, with offices at 48668
Milmont Drive, Fremont, California, 94538 ("ITC").
BACKGROUND
A. Urosurge and ITC desire that ITC perform development work on
behalf of Urosurge with respect to Products (as defined herein), on the terms
and conditions set forth herein.
B. ITC desires to manufacture and sell Products (as defined herein)
exclusively for and to Urosurge, and Urosurge is willing to purchase its
requirements Products from ITC in the United States, on the terms, and
conditions herein.
C. Urosurge and ITC have entered into a Regulatory Affairs and
Indemnity Agreement of even date herewith (the "Regulatory Affairs Agreement").
NOW, THEREFORE, Urosurge and ITC agree as follows:
1. DEFINITIONS
The following terms shall have the following meanings herein:
1.1 "FDA" shall mean the U.S. Food and Drug Administration.
1.2 "GMP" shall mean Good Manufacturing Practices as established by
FDA regulations.
1.3 "Intellectual Property Rights" shall mean all current and future
worldwide patents and other patent rights, copyrights, trade secrets, and all
other intellectual property rights, including without limitation all
applications and registrations with respect thereto.
1.4 "Products" shall mean the products to be developed by ITC as set
forth in Exhibit A and supplied to Urosurge hereunder.
1.5 "Specifications" shall mean the technical and other
specifications for the Products as set forth on Exhibit A.
<PAGE> 2
1.6 "Technology" shall mean all tangible and intangible results
created in the performance of any Product development, including the Products
and all Intellectual Property Rights embodied in the Products.
2. PRODUCT DEVELOPMENT AND PROTOTYPES
2.1 Development. If Urosurge requests modifications to the Product,
ITC agrees to develop the modified Products in accordance with specifications,
schedules and acceptance procedures to be mutually agreed upon. ITC shall not
subcontract any aspect of such development work without Urosurge's prior written
consent. ITC shall be responsible for all costs associated with such development
work related to the Product described in Exhibit A. If Urosurge requests
extensive revisions to the specifications on Exhibit A or requests future
product development the parties shall negotiate in good faith the terms on which
such development work shall be conducted.
2.2 Supply of Prototypes. ITC shall deliver a prototype Product to
Urosurge. Following the acceptance by Urosurge of the prototype, ITC shall
provide Urosurge with 300 Products suitable for use in clinical trials at the
prices indicated in Exhibit B.
2.3 Ownership.
(a) Each party shall retain ownership of all Intellectual Property
Rights owned by it as of the Effective Date. ITC shall own all right, title, and
interest in the Technology.
(b) ITC agrees, during the term of this Agreement, not to use any
equipment and tooling purchased by it to enable the manufacture of Products for
any purpose other than to fulfill its supply obligations to Urosurge hereunder.
3. PRODUCT MANUFACTURE AND SALE
3.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, ITC agrees to manufacture and sell to Urosurge all Products ordered
by Urosurge during the term of this Agreement. Unless otherwise agreed by the
parties, ITC shall sell the Products exclusively to Urosurge.
3.2 Exclusive Supplier. During the term of this Agreement, ITC shall
be the exclusive supplier of Products to Urosurge for sale in the U.S. ITC shall
be the exclusive supplier outside the U.S., as soon as practicable, provided ITC
demonstrates to Urosurge that the Product is available outside the U.S. and that
the Product is free from U.S. FDA limitations on distribution. Urosurge shall be
solely responsible for regulatory clearances deemed necessary by
-2-
<PAGE> 3
individual foreign countries or regulatory bodies. ITC shall use its best
efforts to provide technical information and physical test date as requested by
Urosurge in support of such efforts. ITC shall ensure that U.S. and foreign
manufacturing facilities conform to European Community (EC) and ISO standards
requirements when necessary. Notwithstanding the foregoing, if ITC is unable to
supply Urosurge's requirements for Products, Urosurge shall have the right to
purchase the Products or any components from any other source without obligation
to ITC. In that event, ITC shall license the other source to manufacture the
Products at a reasonable customary royalty rate.
3.3 Orders. Urosurge may initiate purchases under this Agreement by
telephone contact, telex, fax or by submitting written purchase orders to ITC at
the address above. Any purchase order initiated by telephone, fax or telex order
must be confirmed within ten (10) working days by a written purchase order. All
purchase orders shall contain: (a) purchase order number and date; (b) Product
model number; (c) specification number and revision level; (d) part number and
revision level; (e) quantity of Product(s) to be purchased; (f) shipping
instructions; (g) specified delivery date; (h) destination and billing address
(if different from address listed above); (i) the net unit price for the
Product(s); and (j) an authorized signature.
3.4 Acceptance. Purchase orders shall be binding when accepted by
ITC. ITC shall acknowledge each purchase order in writing within ten (10)
business days of receipt. Within such ten (10) day period, ITC may only reject
an order which does not conform with the terms and conditions of this Agreement.
Notice of rejection must be sent to Urosurge by telex or fax, followed by
registered letter. If an order is neither confirmed nor rejected by ITC within
ten (10) business days of receipt, it shall be deemed to have been accepted.
3.5 Delivery Date. Unless otherwise agreed in writing by the parties,
ITC shall deliver Products no later than five (5) days after the date specified
in an accepted purchase order, provided ITC receives such purchase order at
least ninety (90) days prior to the specified delivery date. If ITC receives a
purchase order less than ninety (90) days before the specified delivery date,
ITC shall use reasonable commercial efforts to deliver such Products on the
specified delivery date.
3.6 Shipping. All Products subject to this Agreement shall be
suitably packed for shipment in containers adequate to insure safe arrival of
the goods at Urosurge's designated delivery destination, marked for shipment to
the address specified in Urosurge's purchase order or such other address as
Urosurge may specify in writing, and delivered to a carrier or forwarding agent
chosen by Urosurge. ITC shall mark all containers with necessary lifting,
handling and shipping information, purchase order numbers, and date of shipment.
An itemized packing list must accompany each shipment. Urosurge will reimburse
ITC for all transportation, shipping and insurance expenses. In the event that
Urosurge requests special packaging or
-3-
<PAGE> 4
finishing for any order, Urosurge shall pay the incremental cost for such
special packaging or finishing; provided, however, ITC agrees to pack any
special documentation regarding the Products requested by Urosurge, at no
additional charge. Shipment will be F.O.B., ITC's plant, Fremont, California.
All shipping papers and/or invoices shall include the purchase order number and
serial numbers of Products shipped.
3.7 Terms and Conditions. This Agreement contains the exclusive terms
and conditions which shall apply to all purchases of Products by Urosurge. In
ordering and delivering Products, Urosurge and ITC may use their standard forms
but nothing in such forms shall amend or modify the terms of this Agreement. In
case of conflict between such forms and this Agreement, the terms of this
Agreement shall control.
4. CANCELLATION AND RESCHEDULING
4.1 Changes. Urosurge may cancel or reschedule for up to thirty (30)
days a purchase order previously accepted by ITC, provided Urosurge provides ITC
notice at least sixty (60) days prior to the specified delivery date. ITC will
use reasonable commercial efforts to meet all rescheduled delivery dates.
Cancellation or rescheduling requests made by Urosurge less than sixty (60) days
prior to the specified delivery date may be accepted or rejected at ITC's
discretion.
4.2 Delayed Delivery. ITC shall promptly notify Urosurge if any
circumstance arises which could result in delivery of a Product after the
specified delivery date in an accepted purchase order. If Urosurge has not
received Products for which ITC accepted a purchase order more than twenty (20)
days following the specified delivery date, Urosurge shall be entitled to cancel
such order, in whole or part, without any obligation or liability to ITC.
5. PRICING
5.1 Product Prices. Except as otherwise provided in this Section 51,
the price for Products subject to this Agreement shall be those listed on
attached Exhibit B. All prices are in United States dollars. The prices as set
forth on said Exhibit shall remain in effect and fixed during the term of this
Agreement. If during the term of this Agreement reduced prices are put into
effect by ITC, such reduced prices shall apply to released but unshipped
Products and all subsequent release orders issued hereunder. ITC warrants that
the prices charged Urosurge hereunder are not in excess of the lowest prices
charged by ITC to other purchasers of the similar Products in like quantities
and under similar circumstances.
5.2 Taxes. All prices described herein are exclusive of federal,
state and local excise, sales, use and similar taxes. Urosurge shall be liable
for and shall pay all applicable
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taxes invoiced by ITC, unless Urosurge provides ITC with a properly executed tax
exemption certificate prior to delivery.
6. PAYMENT
6.1 Payment. ITC shall issue Urosurge individual invoices for each
Product shipment. Each such invoice shall separately list the price of each
Product, taxes, transportation, shipping and insurance charges, and any special
packaging or finishing charges. Urosurge shall pay each invoice within thirty
(30) days of the date of such invoice or the delivery date, whichever is later.
Payment of an invoice shall not constitute implied acceptance of Products.
6.2 Payment Method. Urosurge shall make payment to ITC for Products
by check or by wire transfer to an account specified by ITC.
6.3 Overdue Payments. Payments more than thirty (30) days overdue
will be subject to a service charge of one percent (1%) per month or the
maximum amount allowed by law, whichever is less.
7. FORECASTS
On a quarterly basis thereafter Urosurge shall provide ITC with a
forecast of Urosurge's anticipated quarterly requirements of Products for the
following twelve (12) month period commencing on the date of such forecast. It
is understood that such forecast is not binding but Urosurge shall use all
reasonable efforts to make each forecast as accurate as possible, particularly
as it pertains to the six (6) months immediately following the date of such
forecast.
8. PRODUCT QUALITY
8.1 Quality Assurance. ITC agrees to assure the quality level of
Products through the use of a formal quality assurance program reasonably
acceptable to Urosurge. Such program shall require ITC to prepare and maintain
written records sufficient to enable Urosurge to trace the history of each
Product. Pursuant to such program, ITC shall place serial numbers on all
Products to enable the identification and tracing of Products. During the term
of the Agreement, Urosurge shall have the right to audit such quality assurance
program, at its expense, during regular business hours.
8.2 Inspection. ITC shall conduct a final inspection and quality
control test on each Product prior to shipment to verify that such Products meet
and conform with the Specifications.
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<PAGE> 6
Each shipment of Products shall be accompanied by a quality assurance analytical
data sheet (the "Q.A. Data Sheet").
8.3 Presence at Facility. During the first six (6) months during
which each Product is commercially manufactured for Urosurge and thereafter upon
reasonable written notice to ITC, Urosurge shall have the right to have its
representatives visit, from time to time, the facility at which such Product is
being manufactured, to verify ITC's compliance with the warranties in Section 10
below.
8.4 Inspection and Acceptance. Urosurge shall have the right and ITC
shall cooperate to the fullest extent practicable in giving Urosurge an
opportunity to inspect the Products at all times and places including during the
period of manufacture. However, no inspection or test made prior to final
inspection and acceptance at Urosurge's facility shall relieve ITC of
responsibility for defects or other failure to supply conforming Products. Final
inspection and acceptance shall be at Urosurge's facility, and shall be
performed within a reasonable time after receipt of the Products.
8.5 Latent Defects. It is understood that Products may have defects
("defects" meaning that such Products fail to conform to the applicable
Specifications or otherwise fail to conform to the warranties given by ITC
herein) which would not be discoverable upon reasonable physical inspection or
testing (the "Latent Defects"). As soon as either Urosurge or ITC becomes aware
of a Latent Defect in any Product it shall immediately notify the other party
and, at Urosurge's election, such Products shall be deemed non-conforming to the
Specifications and rejected as of the date of such notice.
9. PRODUCT CHANGES
9.1 Design Modifications. ITC shall have the right to make design
modifications to the Products to the extent such modifications do not affect the
form, fit, function, safety, reliability, or performance of a Product; provided,
however, that ITC shall notify Urosurge of any such modifications that
materially affect the form, fit, function, safety, reliability, or performance
of the Products. Within twenty (20) days after receiving any such notice from
ITC, Urosurge may disapprove of such design modifications. If Urosurge fails to
provide ITC with notice during such twenty (20) day period, Urosurge shall be
deemed to approve such modifications.
9.2 Requested Modifications. Urosurge may request changes in the
design or operation of the Products relating to improvements, or the reliability
or serviceability of the Products. The parties shall discuss such modifications
in good faith; provided, however, it is understood that ITC shall have no
obligation to make such modifications to the Products.
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<PAGE> 7
9.3 Mandatory Modifications. ITC shall make any changes to Products
required to comply with official requirements (including governmental regulation
or industrial standards). With respect to products changed to comply with such
requirements that have been ordered but not yet delivered, an appropriate
adjustment of the delivery date shall be agreed by the parties.
9.4 Validation Units. In the event ITC proposes any change which
affecting form, fit, function, safety, reliability or performance of a Product,
ITC, at its expense, shall ship Urosurge ten (10) validation units incorporating
all such changes. Within ninety (90) days after receipt of such validation unit,
Urosurge shall notify ITC whether it approves or disapproves the proposed
changes. Failure by Urosurge to advise ITC that it disapproves a proposed change
within such ninety (90) days shall constitute Urosurge approval of such proposed
changes; provided, however, ITC shall not make the proposed changes until the
end of such ninety (90) day period or until Urosurge provides notice of its
approval of such changes, whichever occurs earlier.
10. PRODUCT WARRANTY
10.1 Express Warranty. ITC hereby warrants to Urosurge that:
(a) on the date of shipment, all Products sold by ITC to
Urosurge hereunder are new, will comply with the Specifications for such
Products and any further specifications, standards and/or criteria agreed upon
by the parties, conform fully with the Q.A. Data Sheet provided for the
particular Product according to Section 8.2 hereof, and do not contain Latent
Defects;
(b) Products purchased hereunder shall be free from defects in
material and workmanship for a period of twelve (12) months from the date of
shipment to Urosurge;
(c) all of the Products sold hereunder shall have been
manufactured, packaged and stored and shipped in conformance with all applicable
current Good Manufacturing Practices which are in force or hereinafter adopted
by the FDA or any successor agency thereto;
(d) title to all Products sold hereunder shall pass to Urosurge
as provided herein free and clear of any security interest, lien, or other
encumbrance;
(e) ITC shall meet Urosurge's required shipment and/or delivery
schedule(s); and
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<PAGE> 8
(f) the Products sold hereunder shall have been manufactured,
packaged and stored in facilities which are approved by the FDA at the time of
such manufacture, packaging and storage, to the extent such approval is required
by law.
10.2 Effect of Warranty.
(a) If any Products purchased hereunder do not meet the
warranties specified herein or otherwise applicable, Urosurge may, at its option
(i) require ITC to replace or correct at no cost to Urosurge any defective or
nonconforming Products, (ii) return any nonconforming Products to ITC at ITC's
expense and recover from ITC the full market price thereof or (iii) replace or
correct the defective or nonconforming Products itself and charge ITC with the
cost of such correction. In the event that ITC fails to meet Urosurge's shipment
and/or delivery schedules Urosurge may, at its option, (i) procure equivalent or
similar replacement Products in a commercially reasonable manner from an
alternate source, charging ITC for the price differential, if any, or (ii) if an
alternate source is not available, recover from ITC all financial losses of any
nature resulting therefrom. The foregoing remedies are in addition to all other
remedies at law or in equity or under this Agreement and shall not be deemed to
be exclusive thereof. All warranties and remedies for breach thereof available
to Urosurge under this Agreement shall also be available to Urosurge's
customers.
(b) No inspection or acceptance, approval or acquiescence by
Urosurge with respect to ITC's Products shall relieve ITC from any portion of
its warranty obligation, nor shall waiver by Urosurge of any specification
requirement for one or more items constitute a waiver of such requirements for
remaining items unless expressly agreed by Urosurge in writing.
10.3 Exclusions. The express warranties set forth in Section 10.1
above shall not apply to defects to a Product which result from normal wear and
tear or improper, unqualified or unauthorized repair of Products.
10.4 Disclaimer. EXCEPT FOR THE ABOVE EXPRESS WARRANTIES, ITC MAKES
NO WARRANTIES WITH RESPECT TO THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY, OR IN
ANY OTHER PROVISION OF THIS AGREEMENT, AND ITC SPECIFICALLY DISCLAIMS ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10.5 Warranty Procedures. Subject to Section 10.2 above, Urosurge may
send Products with defects covered by the foregoing warranties to ITC's repair
center at an address specified by ITC from time to time. Urosurge shall request
authorization from ITC prior to the return of each defective Product for
replacement by ITC. Upon such request, ITC shall provide Urosurge with a
Material Return Authorization (MRA) tracer number to be prominently
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<PAGE> 9
displayed on the shipping container for the defective Product. Once ITC
authorizes the return of any defective Product, Urosurge shall ship such Product
to the repair facility, freight prepaid, in its original shipping container or
in a container of equivalent protective constitution. If such defective Product
is received by ITC during the applicable warranty period, ITC shall, and shall
ship the replaced Product to Urosurge, freight prepaid.
11. CONFIDENTIALITY
11.1 Confidential Information. Pursuant to this Agreement, each party
may disclose to the other certain proprietary technical or business information
or materials ("Confidential Information"). Each party agrees that it will not
use any Confidential Information received from the other except for the purposes
of this Agreement and agrees not to disclose any such Confidential Information
to third parties, and to maintain and follow reasonable procedures to prevent
unauthorized disclosure or use of the Confidential Information and to prevent it
from falling into the public domain or the possession of unauthorized persons.
Each party agrees to disclose to its employees only such Confidential
Information as is necessary to each employee's responsibilities in performing
the acts allowed by this Agreement. Each party shall immediately advise the
disclosing party of any disclosure, loss or use. of Confidential Information in
violation of this Agreement. Each party agrees that for a period of five (5)
years after the termination of this Agreement it will hold the Confidential
Information disclosed to it hereunder in strict confidence and not disclose to
any third party any such Confidential Information except as expressly agreed
upon in writing.
11.2 Exclusions. Confidential Information shall not include
information:
(a) that becomes lawfully known or available to the receiving
party from a source other than the disclosing party without breach of this
Agreement;
(b) that was already known to the receiving party, as shown by
written records, before its disclosure by the disclosing party;
(c) developed independently by the receiving party without the
use or consideration of or reference to the Confidential Information;
(d) that is within, or later falls within, the public domain
without breach of this Agreement;
(e) publicly disclosed with the written approval of the
disclosing party; or
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<PAGE> 10
(f) disclosed pursuant to the requirement or demand of a lawful
governmental or judicial authority, but only to the extent required by operation
of law, regulation or court order.
12. REPRESENTATIONS AND WARRANTIES
12.1 Urosurge. Urosurge represents and warrants on a continuing basis
that: (i) it has the right to enter this Agreement, is a corporation duly
organized, validly existing, and in good standing under the laws of Delaware,
(ii) has the power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, (iii) has by all necessary corporate action
duly and validly authorized the execution and delivery of this Agreement and the
performance of its obligations hereunder, and (iv) has not and will not during
the term of this Agreement enter into any agreement which conflicts with or
which will result in any breach of, or constitute a default under, any note,
security agreement, commitment, contract or other agreement, instrument or
undertaking to which Urosurge is a party.
12.2 ITC. ITC represents and warrants on a continuing basis that: (i)
ITC has the right to enter this Agreement, is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
(ii) has the power and authority, to execute and deliver this Agreement and to
perform its obligations hereunder, (iii) it has by all necessary corporate
action duly and validly authorized the execution and delivery of this Agreement
and the performance of its obligations hereunder, and (iv) it has not and will
not during the term of this Agreement enter into any agreement which conflicts
with or which will result in any breach of, or constitute a default under, any
note, security agreement, commitment, contract or other agreement, instrument or
undertaking to which ITC is a party.
12.3 Effect of Representations and Warranties. It is understood that
if the representations and warranties under this Section 12 are not true and
accurate at any time during the term of the Agreement and the nonbreaching party
(i.e., ITC or Urosurge, as the case may be) incurs any liabilities, costs or
other expenses as a result of such falsity, the breaching party shall indemnify
and hold harmless the other party and its affiliates for any such liabilities,
costs or expenses incurred, in accordance with Section 6 of the Regulatory
Affairs Agreement.
13. TERM AND TERMINATION
13.1 Term. This Agreement shall commence on the Effective Date and
shall have a term of five (5) years unless terminated earlier as provided
herein; provided, however, if Urosurge does not receive FDA approval for the
sale of the Product within four (4) years of the Effective Date of the
Agreement, the Agreement shall automatically be extended for one additional two
(2) year period.
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<PAGE> 11
13.2 Termination for Cause. Either party may, without penalty,
terminate this Agreement or cancel any purchase order or portion thereof
effective upon written notice to the other party in the event of one of the
following events:
(a) The other party materially breaches this Agreement or the
Regulatory Affairs Agreement, including, without limitation, by failing to
deliver conforming Products on the requested delivery dates set forth on
Urosurge's purchase orders, and such breach remains uncured for thirty (30) days
following written notice of breach by the nonbreaching party, unless such breach
is incurable in which event termination shall be immediate upon receipt of
written notice;
(b) Any cause as set forth in Section 15.6 delays the other
party's performance for more than sixty (60) days; or
(c) A petition for relief under any bankruptcy statute is filed
by or against the other party, or the other party makes an assignment for the
benefit of creditors, or a receiver is appointed for all or a substantial part
of the other party's assets, and such petition, assignment or appointment is not
dismissed or vacated within sixty (60) days.
13.3 Effect of Termination or Expiration.
(a) In the event of a termination or expiration of this
Agreement the provisions of this Agreement shall continue to apply to all
purchase orders accepted by ITC prior to the effective date of such termination
or expiration. Termination or expiration of this Agreement shall not relieve or
release either party from making payments which obligation has accrued prior to
such termination.
(b) In the event of the default by ITC, Urosurge may take any
reasonable steps which Urosurge deems appropriate and which are authorized by
law or this Agreement to obtain the benefit of its bargain pursuant to this
Agreement in addition to or in lieu of the termination procedure set forth in
this Paragraph.
13.4 Survival. Sections 10, 11, 12, 13, 14 and 15 shall survive the
termination of this Agreement for any reason.
14. DISPUTE RESOLUTION
If a dispute arises between the parties relating to the
interpretation or performances of this Agreement or the grounds for the
termination thereof, representatives of the parties with decision-making
authority shall meet to attempt in good faith to negotiate a resolution of the
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<PAGE> 12
dispute prior to pursuing other available remedies. If within thirty (30) days
after such meeting the parties have not succeeded in negotiating a resolution of
the dispute, such dispute shall be submitted to final and binding arbitration
under the then current Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), by one (1) arbitrator in Iowa City, Iowa. Such arbitrator
shall be selected by the mutual agreement of the parties or, failing such
agreement, shall be selected according to the aforesaid AAA rules. The
arbitrator will be instructed to prepare and deliver a written, reasoned opinion
stating his decision within thirty (30) days of the completion of the
arbitration. Such arbitration shall be concluded within nine (9) months
following the filing of the initial request for arbitration. The parties shall
bear the costs of arbitration equally and shall bear their own expenses,
including professional fees. The decision of the arbitrator shall be final and
non-appealable and may be enforced in any court of competent jurisdiction.
15. MISCELLANEOUS
15.1 Governing Law . This Agreement shall be governed by the laws of
Iowa, without reference to principles of conflicts of laws.
15.2 Compliance with Laws. ITC shall perform this Agreement in
compliance with all applicable federal, state and local laws, rules and
regulations. ITC shall indemnify Urosurge and its customers for loss or damage
sustained because of ITC's noncompliance with any such law, rule or regulation.
ITC shall furnish to Urosurge any information requested or required by Urosurge
during the term of this Agreement or any extensions hereof to enable Urosurge to
comply with the requirements of any U.S. or foreign federal, state and/or
government agency.
15.3 Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR SPECIAL DAMAGES OF THE OTHER
PARTY ARISING OUT OF THIS AGREEMENT, UNDER ANY THEORY OF LIABILITY.
15.4 Urosurge Trademarks. Urosurge, in its sole discretion, may
select the trademarks, trade names and trade dresses to be used in connection
with each Product and all such trademarks, trade names and trade dresses shall
be and become the exclusive property of Urosurge. ITC shall not adopt any
trademark, trade name or trade dress that may be confusingly similar therewith.
ITC shall acquire no interest or rights in and to any trademarks, trade names
and trade dresses selected or used by Urosurge. Urosurge shall have the right to
remove any ITC trademarks incorporated in marked on, or fixed to the Products.
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15.5 No Conflicting Obligations. ITC agrees not, to engage in any
work or services on its behalf or for any other party which would conflict with
its obligations under this Agreement.
15.6 Force Majeure. Neither party shall be held responsible for any
delay or failure in performance hereunder caused by strikes, embargoes,
unexpected government requirements, civil or military authorities, acts of God,
or by the public enemy or other causes reasonably beyond such party's control
and without such party's fault or negligence.
15.7 Independent Contractors. ITC shall perform its obligations
hereunder as an independent contractor and shall be solely responsible for its
own financial obligations. Nothing contained herein shall be construed to imply
a joint venture or principal and agent relationship between the parties, and
neither party shall have any right, power or authority to create any obligation,
express or implied, on behalf of the other in connection with the performance
hereunder. ITC will not act as an agent of Urosurge and ITC's employees shall
not be deemed to be employees of Urosurge for the purpose of any employee
benefit program, tax withholding, FICA taxes, unemployment benefits or
otherwise.
15.8 Confidentiality of Agreement. Except as required by law, ITC
shall not disclose the contents or any term of this Agreement to any person or
entity without the prior written consent of Urosurge.
15.9 Further Assurances. At any time or from time to time on and
after the date of this Agreement, ITC shall at the request of Urosurge (i)
deliver to Urosurge such records, data or other documents consistent with the
provisions of this Agreement, and (ii) execute, and deliver or cause to be
delivered, all such assignments, consents, documents or further instruments of
transfer or license, and (iii) take or cause to be taken all such other actions,
as Urosurge may reasonably deem necessary or desirable in order for Urosurge to
obtain the full benefits of this Agreement and the transactions contemplated
hereby.
15.10 Notices. All notices or reports permitted or required under
this Agreement shall be in writing and shall be delivered in person, mailed by
first class mail, postage prepaid, (registered or certified), or sent by
telecopy, to the party to receive the notice at the address set forth at the
beginning of this Agreement or such other address as either party may specify in
writing. All such notices shall be effective upon receipt.
15.11 No Use of Names. Neither party will use the name of the other
in its advertising or promotional materials without the prior written consent of
such other party.
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15.12 Assignment. ITC shall not assign this Agreement or any rights
hereunder without the prior written consent of Urosurge. Urosurge may assign
this Agreement without restrictions.
15.13 Severability. If any provision(s) of this Agreement shall be
held invalid, illegal or unenforceable by a court of competent jurisdiction,
this Agreement shall continue in full force and effect without said provision.
15.14 Modification; Waiver. This Agreement may not be altered,
amended or modified in any way except by a writing signed by both parties. The
failure of a party to enforce any provision of the Agreement shall not be
construed to be a waiver of the right of such party to thereafter enforce that
provision or any other provision or right.
15.15 Entire Agreement and Indemnity. This Agreement, the exhibits
hereto and the Regulatory Affairs Agreement represent and constitute the entire
agreement between the parties and supersede all prior agreements and
understandings with respect to the matters covered by this Agreement. This
Agreement may only be amended in writing signed by both parties.
UROSURGE INTERVENTIONAL THERAPEUTICS CORPORATION
By: /s/ DAVID MAUPIN By: /s/ BILL DORMANDY
---------------------------- ----------------------------
Print Name: DAVID MAUPIN Print Name: BILL DORMANDY
-------------------- --------------------
Title: PRES/CEO Tide: PRESIDENDT
------------------------- --------------------------
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EXHIBIT A
SPECIFICATIONS
[TO BE DETERMINED BY MUTUAL AGREEMENT]
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<PAGE> 16
EXHIBIT B
Product Prices
The following prices apply based on the cumulative number of units
ordered annually:
<TABLE>
<CAPTION>
No. of Units Price per Unit
------------ --------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
[*] Confidential treatment requested.
<PAGE> 17
REGULATORY AFFAIRS AND INDEMNITY AGREEMENT
This REGULATORY AFFAIRS AND INDEMNITY AGREEMENT ("Agreement") is
effective as of August 30, 1995 (the "Effective Date") by and between Urosurge
Inc., a Delaware corporation, with offices at 2660 Crosspark Road, Coralville,
Iowa 52241, ("Urosurge"), and Interventional Therapeutics Corporation, a
California corporation, with offices at 48668 Milmont Drive, Fremont,
California, 94538 ("ITC").
BACKGROUND
A. Urosurge and ITC have entered into an agreement under which ITC
will manufacture and sell products to Urosurge ('Products") on the terms and
conditions of a Development and Supply Agreement of even date herewith (the
"Supply Agreement").
B. Urosurge and ITC wish to set forth their respective obligations
regarding regulatory affairs associated with the Supply Agreement.
NOW, THEREFORE, Urosurge and ITC agree as follows:
1. General Obligations. Each party agrees to conduct its activities
pursuant to the Supply Agreement in accordance with state and federal regulatory
laws as applied to clinical trial protocols, device commercialization and the
protection of patient health, welfare and safety.
2. Notification. Each party agrees to notify the other party in a
timely manner of (A) (i) any adverse event, technical or clinical which may
involve a Product and (ii) any FDA communications or inquiries pertaining to
adverse events or adverse actions by FDA, pertaining to a Product. Urosurge
agrees to monitor the use of the Products in accordance with state and federal
regulatory laws, and in a manner to ensure adequate and timely data collection
in order to identify, quantify and correct any anticipated or unanticipated
adverse events. In the event Urosurge determines a recall is necessary, ITC will
cooperate fully with Urosurge in effecting the recall.
3. Progress Reports. Urosurge agrees to provide timely copies of
United States Food and Drug Administration ("FDA") progress reports concerning
clinical trial protocols involving the Products to ITC at the time such reports
are submitted to the FDA. Urosurge shall provide ITC with any regulatory filings
made with respect to the Products.
4. FDA Inquiries. Each party agrees to notify the other in the event
of any FDA inspection, notification or communication which may involve the
Products. ITC agrees to cooperate with Urosurge in responding to. FDA queries
regarding the Products.
<PAGE> 18
9.5 Severability. If any provision(s) of this Agreement shall be held
invalid, illegal or unenforceable by a court of competent jurisdiction, this
Agreement shall continue in full force and effect without said provision.
9.6 Modification, Waiver. This Agreement may not be altered, amended
or modified in any way except by a writing signed by both parties. The failure
of a party to enforce any provision of the Agreement shall not be construed to
be a waiver of the right of such party to thereafter enforce that provision or
any other provision or right.
9.7 Entire Agreement. This Agreement and the Supply Agreement
represent and constitute the entire agreement between the parties with respect
to the subject matter thereof and supersede all prior agreements and
understandings with respect to the matters covered by this Agreement. This
Agreement may only be amended in writing signed by both parties.
Urosurge, Inc. Interventional Therapeutics Corporation
/s/ DAVID MAUPIN /s/ JULIE D. BELL
- ------------------------------- -------------------------------
BY: BY: Julie D. Bell
VP, Regulatory Affairs & Risk
Pres/CEO Management
- ------------------------------- -------------------------------
TITLE: TITLE:
9/12/95 August 30, 1995
- ------------------------------- -------------------------------
DATE DATE:
4
<PAGE> 1
Exhibit 10.7
LICENSE AGREEMENT
TABLE OF CONTENTS
PREAMBLE
ARTICLES:
I DEFINITIONS
II GRANT
III DUE DILIGENCE
IV ROYALTIES
V REPORTS AND RECORDS
VI PATENT PROSECUTION
VII INFRINGEMENT
VIII PRODUCT LIABILITY
IX EXPORT CONTROLS
X NON-USE OF NAMES
XI ASSIGNMENTS
XII ARBITRATION
XIII TERMINATION
XIV PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
XV MISCELLANEOUS PROVISIONS
This Agreement is made and entered into this 14th day of October,
1993 (the effective Date), by and between CHILDREN'S MEDICAL CENTER CORPORATION,
a corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 300 Longwood Avenue, Boston,
Massachusetts, 02115, U.S.A. (hereinafter referred to as CMCC), and Medical
Science Partners a partnership duly organized under the laws of the Commonwealth
of Massachusetts and having its principal office at 68 Harvard Street,
Brookline, MA 02146 (hereinafter referred to as LICENSEE).
<PAGE> 2
WITNESSETH
WHEREAS, CMCC is the owner of certain "Patent Rights" (as later
defined herein) relating to CMCC Case No. 263 Treatment of Vesico-ureteral
Reflux by Drs. Anthony Atala and James Mandell and has the right to grant
licenses under said Patent Rights, (subject only to a royalty-free, nonexclusive
license heretofore granted to the United States Government);
WHEREAS, CMCC desires to have the Patent Rights utilized in the
public interest and is willing to grant a license thereunder;
WHEREAS, LICENSEE has represented to CMCC, to induce CMCC to enter
into this Agreement, that LICENSEE is capable of the development, production,
manufacture, marketing and sale of products similar to the "Licensed Product(s)"
(as later defined herein) and/or the use of the "Licensed Process(es)" (as later
defined herein) and that it shall commit itself to a thorough, vigorous and
diligent program of exploiting the Patent Rights so that public utilization
shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the Patent Rights
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein, the parties hereto agree as follows:
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<PAGE> 3
ARTICLE I -- DEFINITIONS
For the purpose of this Agreement, the following words and phrases
shall have the following meanings:
1.1 "LICENSEE" shall mean Medical Science Partners , any Subsidiary
or joint venture of Medical Science Partners , or any entity
formed by Medical Science Partners.
1.2 "Subsidiary" shall mean any corporation, company or other
entity more than fifty percent (50%) of whose voting stock is
owned or controlled directly or indirectly by LICENSEE.
1.3 "Patent Rights" shall mean all of the following CMCC
intellectual property:
a. The United States and foreign patents and/or patent
applications listed in Appendix A;
b. United States and foreign patents issued from the
applications listed in Appendix A and from divisionals and
continuations of these applications;
c. Claims of U.S. and foreign continuation-in-part
applications, and of the resulting patents, which are
directed to subject matter specifically described in the
U.S. and foreign applications listed in Appendix A;
d. Claims of all later filed foreign patent applications, and
of the resulting patents, which are directed to subject
matter specifically described in the United States patent
and/or patent applications described in (a) , (b) , or (c)
above;
e. Any reissues of United States patents described in (a), (b),
(c), or (d) above.
1.4 A "Licensed Product" shall mean any product or part thereof
which:
a. Is covered in whole or in part by an issued, unexpired claim
or a pending claim contained in the Patent Rights in the
country in which any Licensed Product is made, used, or
sold;
b. Is manufactured by using a process which is covered in whole
or in part by an issued, unexpired claim or a pending claim
contained in the Patent Rights in the country in which any
Licensed Process is used or in which the Licensed Product is
used or sold.
1.5 A "Licensed Process" shall mean any process which is covered in
whole or in part by an issued, unexpired
- 3 -
<PAGE> 4
claim or a pending claim contained in the Patent Rights.
1.6 "Net Sales Price" shall mean LICENSEE's billings for Licensed
Products produced hereunder less the sum of the following:
a. Discounts allowed in amounts customary in the trade;
b. Sales, tariff duties and/or use taxes directly imposed and
with reference to particular sales;
c. Outbound transportation prepaid or allowed; and
d. Amounts allowed or credited on returns. 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.
Licensed Products shall be considered "sold" when bills or
invoices are collected.
1.7 "Field of Use" shall mean the use of the detachable balloon
catheter for the treatment of vesico-ureteral reflux, urinary
incontinence, and contraceptives.
ARTICLE II -- GRANT
2.1 CMCC hereby grants to LICENSEE the exclusive worldwide right
and license to make, have made, use, lease and sell the
Licensed Products, and to practice the Licensed Processes for
the Field of Use to the end of the term for which the Patent
Rights are granted unless sooner terminated according to the
terms hereof; provided however, CMCC shall retain a
royalty-free, nonexclusive, irrevocable license to practice the
Patent Rights for research purposes only.
2.2 LICENSEE agrees that Licensed Products leased or sold in the
United States shall be manufactured substantially in the United
States.
2.3 In order to establish exclusivity for LICENSEE, CMCC hereby
agrees that it shall not grant any other license to make, have
made, use, lease and/or sell Licensed Products or to utilize
Licensed Processes for the Field of Use during the period of
time in which this Agreement is in effect.
2.4 LICENSEE shall have the right to enter into sublicense
agreements sublicensing any or all of the rights, privileges,
and licenses granted hereunder.
- 4 -
<PAGE> 5
2.5 LICENSEE shall have the right to enter into sublicensing
agreements for the rights, privileges, and licenses granted
hereunder. LICENSEE agrees that any sublicense agreement to
which it shall be a party and which shall relate to the rights,
privileges or licenses granted hereunder, shall contain a
statement setting forth the date (if any) upon which LICENSEE's
exclusive rights, privileges and licenses hereunder shall
terminate. LICENSEE agrees to provide to CMCC notice of any and
all sublicenses granted under this Agreement, which notice
shall include a copy of the sublicense agreement and the
sublicensee's address. CMCC agrees that if LICENSEE has
provided notice to CMCC that LICENSEE has granted a sublicense,
then in the event CMCC terminates this Agreement for any reason
as provided hereunder, CMCC shall, no less than thirty (30)
days prior to the effective date of termination of this
Agreement, give such sublicensee written notice of said
termination at the address specified by LICENSEE in LICENSEE's
notice to CMCC of the sublicense. CMCC hereby agrees that, at
the request of the sublicensee as set forth below, provided the
sublicensee is not in breach under its sublicense, CMCC shall
grant to such sublicensee license rights and terms equivalent
to the sublicense rights and terms which the sublicense shall
have granted to said sublicensee; provided that the sublicensee
shall remain a sublicensee under this Agreement for a period of
at least sixty (60) days following receipt of notice from CMCC.
Such right shall be exercisable upon written notice from the
sublicensee to CMCC during said sixty (60) day period wherein
the sublicensee: (i) reaffirms the terms and conditions of its
sublicense and the terms and conditions of this Agreement
appearing in Articles II, V, VII, VIII, IX, X, XI, XII, XIII,
XIV and XV (hereafter referred to collectively as the
"Pertinent Terms"); (ii) agrees to abide by all of the terms
and conditions of its sublicense agreement and the requirements
of the Pertinent Terms of this Agreement; provided that in the
event of any inconsistency or other conflict between the
sublicense and the Pertinent Terms of this Agreement, the
Pertinent Terms of this Agreement shall control and to
discharge directly to CMCC (aa) all obligations of sublicensee
which sublicensee is obligated under the sublicense agreement
to discharge; and (bb) the obligations of LICENSEE arising
after the date of the new agreement between CMCC and the
sublicencee which LICENSEE would have been obligated to
discharge under the Pertinent Terms of this Agreement if this
Agreement had not been terminated and (iii) acknowledges that
CMCC
- 5 -
<PAGE> 6
shall have no obligations to the sublicensee other than its
obligations set forth in this Agreement with regard to
LICENSEE.
2.6 All sublicenses granted by LICENSEE hereunder shall include a
requirement that the sublicensee use its good faith and
diligent efforts to bring the subject matter of the sublicense
into commercial use as quickly as is reasonably possible. In
addition, LICENSEE agrees that any sublicense granted by it
shall provide that the obligations to CMCC of Articles II, V,
VII, VIII, IX, X, XII, XIII, and XV of this Agreement shall be
binding upon the sublicensee as if it were a party to this
Agreement. LICENSEE further agrees to attach copies of these
Articles to sublicense agreements.
2.7 LICENSEE agrees to forward to CMCC a copy of any and all fully
executed sublicense agreements, and further agrees to forward
to CMCC annually a copy of such reports received by LICENSEE
from its sublicensees during the preceding twelve (12) month
period under the sublicenses as shall be pertinent to a royalty
accounting under said sublicense agreements.
2.8 LICENSEE shall not receive from sublicensees anything of value
in lieu of cash payments based upon payment obligations of any
sublicense under this Agreement, without the express prior
written permission of CMCC.
2.9 The license granted hereunder shall not be construed to confer
any rights upon LICENSEE by implication, estoppel or otherwise
as to any technology not specifically set forth in Appendix A
hereof.
ARTICLE III -- DUE DILIGENCE
3.1 LICENSEE shall use reasonable efforts to bring one or more
Licensed Products or Licensed Processes to market through a
thorough, vigorous and diligent program for exploitation of the
Patent Rights.
In connection with such reasonable efforts LICENSEE agrees to
satisfy the following due diligence milestones:
a. Commence human clinical trials by [*] if LICENSEE
determines that a 510K should be filed for the licensed
products or by [*] if
[*] Confidential treatment requested.
-6-
<PAGE> 7
LICENSEE determines that a PMA should be filed for the Licensed
Products.
b. If LICENSEE determines that a 510K should be filed with the
FDA then LICENSEE shall file the 510K by October 1997 or if
LICENSEE determines that a PMA should be filed for the Licensed
Products such PMA shall be filed by October 1998.
LICENSOR'S sole remedy for LICENSEE'S failure to use its
reasonable efforts under this Section 3.1 shall be termination
of this Agreement or conversion of the license to a
non-exclusive license.
ARTICLE IV -- ROYALTIES
4.1 For the rights, privileges and license granted hereunder,
LICENSEE shall pay to CMCC in the manner hereinafter provided
to the end of the term of the Patent Rights or until this
Agreement shall be terminated as hereinafter provided:
a. A license issue fee of [*] which said license issue fee
shall be deemed earned and due:
(i) [*] immediately upon the execution of this Agreement
(ii) [*] one year from the effective signing date of
this Agreement
(iii) [*] two years from the effective signing date.
b. A royalty based on the Net Sales Price of the Licensed
Products or Licensed Processes, leased or sold by LICENSEE or a
joint venture in which LICENSEE is involved, which said royalty
shall be [*] while patent applications are still pending, and
[*] as soon as at least one patent in the Patent Rights has
been issued in the country where the royalty obligation is
accruing, whether or not other patent applications are still
pending in that country. If no patent issues in a specified
country, royalty shall be [*] in that country only.
C. Where sublicenses have been granted, LICENSEE shall pay to
CMCC [*] of any and all sublicensing fees, signing fees,
milestone payments and royalties received from sublicensees,
provided that CMCC shall receive royalties not less than [*] of
the Net Sales Price of the Licensed Products, or Licensed
Processes, leased or sold by LICENSEE's sublicensees.
- 7 -
[*] Confidential treatment requested.
<PAGE> 8
d. In the event that LICENSEE participates in the formation of
a company to commercialize the Patent Rights, LICENSEE shall
cause such company to issue to CMCC common stock of such
company such that CMCC's percentage ownership interest therein
(on a fully diluted basis) shall not be less than [*] until
such time as [*] has been invested in such company (CMCC
to enjoy no anti-dilution protection thereafter).
4.2 No multiple royalties shall be payable because any Licensed
Product, its manufacture, use, lease or sale are or shall be
covered by more than one Patent Rights Patent Application or
Patent Rights Patent licensed under this Agreement.
4.3 Royalty payments shall be paid in United States dollars in
Boston, Massachusetts, or at such other place as CMCC 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 the Bank of Boston on the last business day
of the calendar quarterly reporting period to which such
royalty payments relate.
ARTICLE V -- REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the
purpose of showing the amounts payable to CMCC hereunder. Said
books of account shall be kept at LICENSEE's principal place of
business or the principal place of business of the appropriate
Division of LICENSEE to which this Agreement relates. Said
books and the supporting data shall be open at all reasonable
times for five (5) years following the end of the calendar year
to which they pertain, to the inspection of CMCC or its agents
for the purpose of verifying LICENSEE's royalty statement or
compliance in other respects with this Agreement.
5.2 LICENSEE, within thirty (30) days after March 31, June 30,
September 30 and December 31, of each year, shall deliver to
CMCC true and accurate reports, giving such particulars of the
business conducted by
- 8 -
[*] Confidential treatment requested.
<PAGE> 9
(i) LICENSEE and (ii) and within forty-five (45) days of such
dates its sublicensees during the preceding three-month period
under this Agreement as shall be pertinent to a royalty
accounting hereunder. These shall include at least the
following:
a. Number of Licensed Products manufactured and sold.
b. Total collections for Licensed Products sold.
c. Accounting for all Licensed Products sold.
d. Deductions applicable as provided in Paragraph 1.6
e. Total royalties due.
f. Names and addresses of all sublicensees of LICENSEE.
g. Licensed Products manufactured and sold to the United States
Government. (No royalty obligations shall arise due to use by,
for or on behalf of the United States Government in view of the
royalty-free, nonexclusive license heretofore granted to the
United States Government.)
5.3 With each such report submitted, LICENSEE shall pay to CMCC the
royalties due and payable under this Agreement. If no royalties
shall be due, LICENSEE shall so report.
5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall allow an independent
certified public accountant to review LICENSEE's financial
statements, for the preceding fiscal year including, at a
minimum, a Balance Sheet and an Operating Statement. In
addition, until LICENSEE brings one or more Licensed Products
or Licensed Processes to market, CMCC shall have the right to
send a representative, reasonably acceptable to LICENSEE, to
observe board meetings of the LICENSEE entity attempting to
bring Licensed Products or Licensed Processes to market.
5.5 The royalty payments set forth in this Agreement shall, if
overdue, bear interest until payment at a per annum rate of [*]
above the prime rate in effect at the Bank of Boston on the due
date. The payment of such interest shall not foreclose CMCC
from exercising any other rights it may have as a consequence
of the lateness of any payment.
- 9 -
[*] Confidential treatment requested.
<PAGE> 10
ARTICLE VI -- PATENT PROSECUTION
6.1 The prosecution, filing and maintenance of all Patent Rights
Patents and Applications shall be the primary responsibility of
LICENSEE once the license has been executed; provided,
however, CMCC shall have reasonable opportunities to advise
LICENSEE and shall cooperate with LICENSEE in such prosecution,
filing and maintenance.
6.2 Payment of all fees and costs relating to the filing,
prosecution, and maintenance of the Patent Rights shall be the
responsibility of LICENSEE, whether such fees and costs were
incurred before or after the date of this Agreement.
ARTICLE VII -- INFRINGEMENT
7.1 LICENSEE shall inform CMCC promptly in writing of any alleged
infringement of the Patent Rights by a third party and of any
available evidence thereof.
7.2 During the term of this Agreement, LICENSEE shall have the
right, but shall not be obligated, to prosecute at its own
expense any such infringements of the Patent Rights and, in
furtherance of such right, CMCC hereby agrees that LICENSEE may
join CMCC as a party plaintiff in any such suit, without
expense to LICENSEE. The total cost of any such 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.
7.3 If within six (6) months after having been notified of any
alleged infringement, LICENSEE shall have been unsuccessful in
persuading the alleged infringer to desist and shall not have
brought and shall not be diligently prosecuting an infringement
action, or if LICENSEE shall notify CMCC at any time prior
thereto of its intention not to bring suit against any alleged
infringer, then, and in those events only, CMCC shall have the
right, but shall not be obligated, to prosecute at its own
expense any infringement of the Patent Rights. No settlement,
consent judgment of other voluntary final disposition of the
suit may be entered into without the consent of the party not
bringing the suit, which consent shall not unreasonably be
withheld.
- 10 -
<PAGE> 11
7.4 In the event that LICENSEE shall undertake the enforcement
and/or defense of the Patent Rights by litigation, LICENSEE may
withhold up to fifty percent (50%) of the royalties otherwise
thereafter due CMCC hereunder and apply the same toward
reimbursement of its expenses, including reasonable attorneys,
fees, in connection therewith. Any recovery of damages by
LICENSEE for any such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of
LICENSEE relating to the suit, next toward reimbursement of
CMCC for any royalties past due or withheld and applied
pursuant to this Article VII, and to royalties due to CMCC for
infringing sales as if sales had been made by LICENSEE. The
balance remaining from any such recovery shall belong to
LICENSEE.
7.5 In the event that a declaratory judgment action alleging
invalidity or non-infringement of any of the Patent Rights
shall be brought against LICENSEE, CMCC, at its option, shall
have the right, within thirty (30) days after commencement of
such action, to intervene and take over the sole defense of the
action at its own expense.
7.6 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 the expense of the party
initiating such suit, cooperate in all respects and, to the
extent possible, have its employees testify when requested and
make available relevant records, papers, information, samples,
specimens, and the like.
7.7 LICENSEE, during the period of this Agreement, shall have the
sole right in accordance with the terms and conditions herein
to sublicense any alleged infringer for the Field of Use for
future use of the Patent Rights.
ARTICLE VIII -- INDEMNIFICATION,
PRODUCT LIABILITY AND INSURANCE
8.1. Indemnification
(a) LICENSEE shall indemnify, defend and hold harmless CMCC and its
trustees, officers, medical and professional staff, employees, and
agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss or expense
(including
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<PAGE> 12
reasonable attorney's fees and expenses of litigation) incurred by or
imposed upon the Indemnitees or any one of them in connection with any
claims, suits, actions, demands or judgments arising out of any theory
of product liability (including, but not limited to, actions in the
form of tort, warranty, or strict liability) concerning, any product,
process or service made, used or sold pursuant to any right or license
granted under this Agreement.
(b) LICENSEE's indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is directly
attributable to the negligent activities, reckless misconduct or
intentional misconduct of the Indemnitees.
(c) LICENSEE agrees, at its own expense, to provide attorneys
reasonably acceptable to CMCC to defend against any actions brought or
filed against any party indemnified hereunder with respect to the
subject of indemnity contained herein, whether or not such actions are
rightfully brought.
(d) This Section 8.1 shall survive expiration or termination of this
Agreement.
8.2. Insurance.
(a) Beginning at the time as any such product, process or service is
being commercially distributed or sold (other than for the purpose of
obtaining regulatory approvals) by LICENSEE or by a sublicensee,
affiliate or agent of LICENSEE, LICENSEE shall, at its sole cost and
expense, procure and maintain comprehensive general liability insurance
in amounts not less than [*] per incident and [*] annual aggregate and
naming the Indemnitees as additional insureds. Such comprehensive
general liability insurance shall provide (i) product liability
coverage and (ii) broad form contractual liability coverage for
LICENSEE's indemnification under Section 8.1 of this Agreement. If
LICENSEE elects to self-insure all or part of the limits described
above (including deductibles or retentions which are in excess of [*]
annual aggregate) such self-insurance program must be acceptable to the
CMCC and the Risk Management Foundation of the Harvard Medical
Institutions, Inc. The minimum amount of insurance coverage required
under this Section 8.2 shall not be construed to create a limit of
LICENSEE's liability with respect to its indemnification under Section
8.1 of this Agreement.
(b) LICENSEE shall provide CMCC with written evidence of such insurance
upon request of CMCC. LICENSEE shall
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[*] Confidential treatment requested.
<PAGE> 13
provide CMCC with written notice at lease fifteen (15) days prior to
the cancellation, non-renewal or material change in such insurance; if
LICENSEE does not obtain replacement insurance providing comparable
coverage within such fifteen (15) day period, CMCC shall have the right
to terminate this Agreement effective at the end of such fifteen (15)
day period without notice of any additional waiting periods.
(c) LICENSEE shall maintain such comprehensive general liability
insurance during (i) the period that any such product, process or
service is being commercially distributed or sold (other than for the
purpose of obtaining regulatory approvals) by LICENSEE or by a
sublicensee, affiliate or agent of LICENSEE and (ii) a reasonable
period after the period referred to in (c) (i) above which in no event
shall be less than fifteen (15) years.
(d) This ARTICLE 8.2 shall survive expiration or termination of this
Agreement.
ARTICLE IX -- EXPORT CONTROLS
It is understood that CMCC is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the Export Administration Act of 1979), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United States
Government and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries without prior approval of such
agency. CMCC neither represents that a license shall not be required nor that,
if required, it shall be issued.
ARTICLE X -- NON-USE OF NAMES
LICENSEE shall not use the names of the Children's Medical Center
corporation nor of any of its employees, nor any adaptation thereof, in any
advertising, promotional or sales literature without prior written consent
obtained from CMCC in each case except that LICENSEE may state that it is
licensed by CMCC under one or more of the patents and/or applications comprising
the Patent Rights, and LICENSEE may comply with disclosure requirements of all
applicable laws
- 13 -
<PAGE> 14
relating to its business, including United States and state security laws.
ARTICLE XI -- ASSIGNMENT
This Agreement is not assignable by LICENSEE without the express
written consent of CMCC which shall not be unreasonably withheld; provided,
however, that LICENSEE shall have the right to assign this Agreement to a
Subsidiary without the consent of CMCC.
ARTICLE XII -- ARBITRATION
12.1 Any and all claims, disputes or controversies arising under,
out of, or in connection with this Agreement, which have not
been resolved by good faith negotiations between the parties,
shall be resolved by final and binding arbitration in Boston,
Massachusetts, under patent arbitration 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 CMCC and LICENSEE each
hereby irrevocably consents and submits.
12.2 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any
obligations existing under this Agreement.
ARTICLE XIII -- TERMINATION
13.1 If LICENSEE shall cease to carry on its business, this
Agreement shall terminate upon notice by CMCC.
13.2 Should LICENSEE fail to pay CMCC royalties due and payable
hereunder, CMCC shall have the right to terminate this
Agreement on thirty (30) days' notice, unless LICENSEE shall
pay CMCC within the thirty (30) day period, all such royalties
and interest due and payable. Upon the expiration of the thirty
(30) day period, if LICENSEE shall not have paid all such
royalties and interest due and
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<PAGE> 15
payable, the rights, privileges and license granted hereunder
shall terminate.
13.3 Upon any material breach or default of this Agreement by
LICENSEE, other than those occurrences set out in Paragraphs
13.1 and 13.2 hereinabove, which shall always take precedence
in that order over any material breach or default referred to
in this Paragraph 13.3, CMCC shall have the right to terminate
this Agreement and the rights, privileges and license granted
hereunder by ninety (90) days' notice to LICENSEE. Such
termination shall become effective unless LICENSEE shall have
cured any such breach or default prior to the expiration of the
ninety (90) day period.
13.4 LICENSEE shall have the right to terminate this Agreement at
any time on six (6) months' notice to CMCC, and upon payment of
all amounts due CMCC through the effective date of termination,
in no case prior to the end of the first year of full funding.
13.5 Upon termination of this Agreement for any reason, nothing
herein shall be construed to release either party from any
obligation that matured prior to the effective date of such
termination. LICENSEE and any sublicensee thereof may, however,
after the effective date of such termination, 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 CMCC the royalties thereon
as required by Article IV of this Agreement and shall submit
the reports required by Article V hereof on the sales of
Licensed Products.
ARTICLE XIV -- 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 the mailing if sent to such
party by certified first class mail, postage prepaid, addressed to it at its
address below or as it shall designate by written notice given to the other
party:
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<PAGE> 16
In the case of CMCC:
Technology Transfer Manager
Office of Research Administration
The Children's Hospital
300 Longwood Avenue
Boston, MA 02115
In the case of LICENSEE:
Joseph F. Lovett
General Partner
Medial Science Partners
68 Harvard Street
Brookline, MA 02146
ARTICLE XV -- MISCELLANEOUS PROVISIONS
15.1 This Agreement shall be construed, governed, interpreted and
applied in accordance with the laws of the Commonwealth of
Massachusetts, U.S.A., 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.
15.2 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.
15.3 The provisions of this Agreement are severable, and in the
event that any provisions 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 validity or enforceability of the remaining
provisions hereof.
15.4 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.
15.5 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
- 16 -
<PAGE> 17
subsequent failure to perform any such term or condition by the other
party.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals and duly executed this Agreement the day and year set forth below.
CHILDREN'S MEDICAL CENTER CORPORATION
By [SIG]
-------------------------------------
Name William New
-------------------------------------
Title Director, Research Administrator
-------------------------------------
Date 10/25/93
-------------------------------------
LICENSEE
By /s/ Joseph F. Lovett
-------------------------------------
Name Joseph F. Lovett
-------------------------------------
Title General Partner
-------------------------------------
Date 10/25/93
-------------------------------------
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<PAGE> 18
APPENDIX A
Children's Medical Center Corporation Case #263
U.S. Patent Application Serial #07/782,058 filed 10/24/91
PCT US/92/09037 filed 10/23/92
CIP 08/054,375 filed 4/28/93
By: Drs. Anthony Atala and James Mandell
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<PAGE> 19
[MEDICAL SCIENCE PARTNERS, L.P. LETTERHEAD]
Children's Medical Center Corporation
300 Longwood Avenue
Boston, MA 02115
February 23, 1994
UroSurge, Inc.
c/o Medical Science Partners, L.P.
68 Harvard Street
Brookline, MA 02146
Medical Science Partners, L.P.
68 Harvard Street
Brookline, MA 02146
Gentlemen:
Children's Medical Center Corporation ("CMCC"), UroSurge, Inc.
("UroSurge") and Medical Science Partners, L.P. ("MSP") hereby agree as to the
following with respect to the License Agreement dated as of October 14, 1993
between the CMCC and MSP (the "License Agreement"):
1. UroSurge, an entity formed by MSP (as described in the License
Agreement), shall be the sole licensee under the License Agreement and shall be
bound by and subject to the terms of the License Agreement;
2. CMCC consents to the assignment of the License Agreement by MSP to
UroSurge; and
3. MSP shall have no further rights or obligations under the License
Agreement.
If you are in agreement with the above paragraphs, please indicate such
agreement by signing in the spaces below.
CHILDREN'S MEDICAL CENTER CORPORATION
By: [SIG]
---------------------------------
Title: Director, Research Administration
---------------------------------
<PAGE> 20
Agreed and Acknowledged this
___ day of February, 1994
UROSURGE, INC.
By: [SIG]
---------------------------------
Title: Treasurer
------------------------------
MEDICAL SCIENCE PARTNERS, L.P.
By: Medical Science Ventures, L.P.
its General Partner
By: [SIG]
---------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 10.8
EXCLUSIVE LICENSE AGREEMENT
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND
UROSURGE, INC.
FOR
ELECTRODE ACUPUNCTURE SYSTEM
U.C. CASE NO. 88-064
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS...............................................................2
2. GRANT.....................................................................4
3. LICENSE ISSUE FEE.........................................................6
4. ROYALTIES.................................................................7
5. DUE DILIGENCE............................................................10
6. PROGRESS AND ROYALTY REPORTS.............................................12
7. BOOKS AND RECORDS........................................................13
8. LIFE OF THE AGREEMENT....................................................14
9. TERMINATION BY THE REGENTS...............................................15
10. TERMINATION BY LICENSEE.................................................15
11. DISPOSITION OF PATENT PRODUCTS ON HAND UPON TERMINATION.................16
12. USE OF NAMES AND TRADEMARKS.............................................16
13. LIMITED WARRANTY........................................................17
14. PATENT PROSECUTION AND MAINTENANCE......................................18
15. PATENT MARKING..........................................................20
16. PATENT INFRINGEMENT.....................................................20
17. INDEMNIFICATION.........................................................22
18. NOTICES.................................................................23
19. ASSIGNABILITY...........................................................24
20. LATE PAYMENTS...........................................................25
21. WAIVER..................................................................25
22. FAILURE TO PERFORM......................................................25
23. GOVERNING LAWS..........................................................25
24. GOVERNMENT APPROVAL OR REGISTRATION.....................................26
25. EXPORT CONTROL LAWS.....................................................26
26. FORCE MAJEURE...........................................................26
27. CONFIDENTIALITY.........................................................27
28. MISCELLANEOUS...........................................................28
</TABLE>
<PAGE> 3
June 24 1996
EXCLUSIVE LICENSE AGREEMENT
FOR
ELECTRODE ACUPUNCTURE SYSTEM
This license agreement ("Agreement") is effective this 30 day of June, 1996, by
and between The Regents of the University of California ("The Regents"), a
California corporation, having its statewide administrative offices at 300
Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 and UroSurge, Inc.
("Licensee"), a Delaware corporation, having a principal place of business at
2660 Crosspark Road, Coralville, Iowa 52241.
Recitals
Whereas, certain inventions, characterized as "Electrode Acupuncture
System" ("Invention"), useful for the control of incontinence, were made at the
University of California, San Francisco ("UCSF") by Dr. Gleason, et al. and are
claimed in Patent Rights defined below;
Whereas, the Licensee is a "small entity" as defined in 37 CFR
Section 1.9 and a "small-business concern" defined in 15 U.S.C. Section 632;
Whereas, both parties recognize that royalties due under this
Agreement will be paid on pending patent applications and issued patents;
Whereas, Licensee requested certain rights from The Regents to
commercialize the Invention; and
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<PAGE> 4
Whereas, The Regents responded to the request of Licensee by granting
the following rights to Licensee so that the products and other benefits derived
from the Invention can be enjoyed by the general public.
oo 0 oo - -
The parties agree as follows:
1 Definitions
As used in this Agreement, the following terms will have the meaning set forth
below:
1.1. "Patent Rights" means all U.S. patents and patent applications and foreign
patents and patent applications assigned to The Regents 14.3 including any
reissues, extensions, substitutions, continuations, divisions, and
continuation-in-part applications (only to the extent, however, that claims in
the continuation-in-part applications are entitled to the priority filing date
of the parent patent application) based on and including any subject matter
claimed in or covered by the following:
1.1.1. U.S. Patent Number 5,094,242, entitled "Implantable Nerve
Stimulation Device," issued on March 10, 1992 by Dr.
Gleason, et al. and assigned to The Regents; and
1.1.2. U.S. Patent Number 5,211,175, entitled "Method for
Implanting Electro-Acupuncture Needle," issued on May 18,
1993 by Dr. Gleason, et al. and assigned to The Regents
1.2. "Patent Products" means:
1.2.1. any kit, composition of matter, material, or product;
1.2.2. any kit, composition of matter, material, or product to be
used in a manner requiring the performance of the Patent
Method; or
1.2.3. any kit, composition of matter, material, or product
produced by the Patent Method;
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<PAGE> 5
to the extent that the manufacture, use, or sale of such kit, composition of
matter, material, or product, in a particular country, would be covered by or
infringe, but for the license granted to Licensee pursuant to this Agreement, an
unexpired claim of a patent or pending claim of a patent application were it
issued as a claim in a patent under Patent Rights in that country in which such
patent has issued or application is pending.
1.3. "Patent Method" means any process or method covered by the claims of a
patent application or patent within Patent Rights or the use or practice of
which would constitute in a particular country, but for the license granted to
Licensee pursuant to this Agreement, an infringement of an unexpired claim of a
patent or pending claim of a patent application were it issued as a claim in a
patent within Patent Rights in that country in which the Patent Method is used
or practiced.
1.4. "Net Sales" means the gross invoice prices from the sale of Patent Products
by Licensee, an Affiliate, a Joint Venture, or a Sublicensee to independent
third parties for cash or other forms of consideration in accordance with
generally accepted accounting principles limited to the following deductions (if
not already deducted from the gross invoice price and at rates customary within
the industry): (a) allowances (actually paid and limited to rejections, returns,
and prompt payment and volume discounts granted to customers of Patent Products,
whether in cash or Patent Products in lieu of cash); (b) freight, transport
packing, insurance charges associated with transportation; and (c) taxes,
tariff, or import/export duties based on sales when included in gross sales, but
not value-added taxes or taxes assessed on income derived from such sales. Where
Licensee distributes Patent Products for end use to itself, an Affiliate, a
Joint Venture, or a Sublicensee, then such distribution will be considered a
sale at list price normally charged to independent third parties, and The
Regents will be entitled to collect fees and royalties on such sale at the rate
set forth in Article 4. (Royalties).
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1.5. "Affiliate(s)" of Licensee means any entity which, directly or indirectly,
controls Licensee, is controlled by Licensee, or is under common control with
Licensee ("control" for these purposes being defined as the actual, present
capacity to elect a majority of the directors of such affiliate, or if not, the
capacity to elect the members that control fifty percent (50%) of the
outstanding stock or other voting rights entitled to elect directors) provided,
however, that in any country where the local law will not permit foreign equity
participation of a majority, then an "Affiliate" will include any company in
which Licensee will own or control, directly or indirectly, the maximum
percentage of such outstanding stock or voting rights permitted by local law.
Each reference to Licensee herein will be meant to include its Affiliates.
1.6. "Joint Venture" means any separate entity established pursuant to an
agreement between a third party and Licensee to constitute a vehicle for a joint
venture, in which the separate entity manufactures, uses, purchases, sells, or
acquires Patent Products from Licensee. Each reference to Licensee herein will
be meant to include its Joint Venture.
1.7. "Sublicensee" means any non-Affiliate third party that is granted by
Licensee the right to make, have made, use, or sell any Patent Products, or use
the Patent Method.
2. Grant
2.1. Subject to the limitations set forth in this Agreement, The Regents hereby
grants to Licensee exclusive licenses under Patent Rights to make, have made,
use, sell, offer for sale, and import Patent Products and to practice the Patent
Method.
2.2. The manufacture of Patent Products and the practice of the Patent Method
will be subject to applicable government importation laws and regulations of a
particular country on Patent Products made outside the particular country in
which such Patent Products are used or sold.
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2.3. The Regents also grants to Licensee the right to issue sublicenses to third
parties to make, have made, use, sell, offer for sale, and import Patent
Products and to practice Patent Method, provided Licensee retains current
exclusive rights thereto, under this Agreement. To the extent applicable, such
sublicenses will include all of the rights of and obligations due to The
Regents, including the payment of royalties, fees, and other consideration as
specified in Subparagraph 4.1.2 herein that are contained in this Agreement.
2.4. The right to enter into a royalty-free license for Patent Rights with any
third parties is expressly prohibited. Licensee will use its diligent efforts in
reaching favorable royalty rates and license issue fees from Sublicensees.
2.5. Licensee will notify The Regents of each sublicense granted hereunder and
provide The Regents with a copy of each sublicense. The copy of each sublicense
will be treated as Proprietary Information pursuant to Article 27
(Confidentiality) herein. Licensee will collect and pay all fees and royalties
due The Regents as set forth in Paragraph 4.1.2 herein (and guarantee all such
payments due from Sublicensees). Licensee will require Sublicensees to provide
it with progress and royalty reports in accordance with the provisions herein,
and Licensee will collect and deliver to The Regents all such reports due from
Sublicensees.
2.6. Upon termination of this Agreement for any reason, all sublicenses that are
granted by Licensee in accordance with this Agreement will remain subject to the
terms of such sublicenses in effect and will be assigned to and assumed by The
Regents, except that The Regents will not be bound by any duties and obligations
contained in the sublicenses that extend beyond the duties and obligations
assumed by The Regents in this Agreement and shall have no right to receive any
payment from such sublicensees except the amounts due under this Agreement for
the activities of such sublicensees.
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<PAGE> 8
2.7. Nothing in this Agreement will be deemed to limit the right of The Regents
to publish any and all technical data resulting from any research performed by
The Regents relating to the Invention and to make and use the Invention, Patent
Products, Patent Method, and associated technology owned by The Regents solely
for educational and research purposes.
3. License Issue Fee
3.1. As partial consideration for all the rights and licenses granted to
Licensee, Licensee will pay to The Regents a license issue fee of [*] in three
installments according to the following schedule:
3.1.1. [*] to be sent by Licensee to The Regents within thirty
days following the execution of this Agreement by
Licensee; and
3.1.2. [*] to be sent by Licensee to The Regents on or before
December 30,1996; and
3.1.3. [*] to be sent by Optionee to The Regents on or before
June 30, 1997,
3.2. Licensee will also pay to The Regents a license maintenance fee of [*]
beginning on the one-year anniversary date of the effective date of this
Agreement and continuing annually thereafter on each anniversary date of the
effective date of this Agreement. The license maintenance fee will not be due
and payable on any anniversary date of the effective date of this Agreement if
on such date Licensee is commercially selling Patent Products and paying an
earned royalty to The Regents on the Net Sales of such Patent Products.
3.3. The fee set forth in Paragraphs 3.1 and 3.2 above are non-refundable,
noncreditable, and not an advance against royalties.
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[*] Confidential treatment requested.
<PAGE> 9
4. Royalties
4.1. As further consideration for all the rights and licenses granted to
Licensee, Licensee will also pay to The Regents an earned royalty according to
the following:
4.1.1. a royalty rate of [*] based on the Net Sales of Patent
Products sold by Licensee; and
4.1.2. an amount equal to [*] of all consideration, fees, and
royalties received by Licensee from its Sublicensees with
respect to Patent Products and Patent Methods. Not
withstanding the above, The Regents will not be entitled
to any portion of any amounts received by Licensee from
Sublicensee with respect to: (i) the purchase of equity in
Licensee at or below [*] of the fair market value of such
equity, (ii) debt financing, (iii) research funding, and
(iv) reimbursement of patent filing, prosecution, and
maintenance expenses. The Regents will be entitled to
receive [*] of any amounts received by Licensee from
Sublicense with respect to the purchase of equity in
Licensee in an amount above [*] of the fair market value
of such equity. Any consideration received by Licensee
from its Sublicensees will be converted into a U.S. dollar
cash equivalent for purposes of computing the royalties
due The Regents under this Subparagraph.
4.1.3. For the avoidance of doubt, it is understood and agreed
that in the event that Licensee assigns its rights under
this Agreement in connection with the sale or transfer of
all or substantially all of the assets of Licensee
relating to the subject matter of this Agreement pursuant
to Section 19.1 herein, The Regents shall not be entitled
to any portion of any consideration received by Licensee
in connection with such sale or transfer.
4.2. Paragraphs 1.1, 1.2, and 1.3 define Patent Rights, Patent Products, and
Patent Method so that royalties will be payable on Patent Products and Patent
Method covered by both pending patent applications and issued patents. Earned
royalties will accrue in each country for the duration of Patent Rights in that
country and will be payable to The Regents when Patent Products are invoiced, or
if not invoiced, when delivered to a third party or to itself, an Affiliate, or
Sublicensee in the case where such delivery of the
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[*] Confidential treatment requested.
<PAGE> 10
Patent Products to Licensee, an Affiliate, or Sublicensee is intended for end
use for purposes other than clinical trials.
4.3. In the event that no patent issues in a particular country under Patent
Rights within five (5) years (except for Japan which shall be eight (8) years)
from the effective date recited on page one of this Agreement, then earned
royalties and minimum annual royalties (set forth in Paragraphs 4.1.1 and 4.1.2
above due The Regents in connection with the sale of Patent Products in such
country shall be suspended from that date. At the time a patent under Patent
Rights does issue in a particular country, Licensee's obligations to pay earned
royalties (in accordance with Paragraphs 4.1.1 and 4.1.2 on Patent Products)
shall resume with respect to sales of Patent Products after such date only in
connection with the Patent Products that would, but for the licenses granted
herein, infringe a valid claim of such issued, unexpired patent in such country,
and payment of such royalties and minimum annual royalties shall continue for
the life of this Agreement, subject to the provisions of Paragraphs 4.1.1,
4.10, and 8.2.
4.4. No more than one royalty payment will be due to The Regents with respect to
a sale of a particular Patent Products. No multiple royalties will be payable
whether or not any Patent Products, or their manufacture, use, or sale is
covered by more than one claim within the Patent Rights.
4.5. Royalties from Licensee and the payment of fees, royalties, and other
consideration by Licensee from its Sublicensees accruing to The Regents will be
paid to The Regents quarterly on or before the following dates of each calendar
year:
February 28 for the calendar quarter ending December 31
May 31 for the calendar quarter ending March 31
August 31 for the calendar quarter ending June 30
November 30 for the calendar quarter ending September 30
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Each such payment will be for royalties from Licensees and the payment of fees,
royalties and other consideration from Sublicensees which accrued up to the most
recently completed calendar quarter of Licensee or its Sublicensees.
4.6. Beginning in the year 1998, or in the year of first commercial sale,
whichever is earlier, Licensee will pay to The Regents a minimum annual royalty
in the amounts and at the times set forth below:
<TABLE>
<S> <C>
1998 - [*]
1999 - [*]
2000 - [*]
</TABLE>
Licensee will pay a minimum annual royalty of $50,000 in each succeeding
calendar year after the year 2000 for the life of this Agreement. This minimum
annual royalty will be paid to The Regents by February 28 of each year and will
be credited against the earned royalty due and owing for the calendar year in
which the minimum payment was made.
4.7. All monies due The Regents will be payable in United States funds
collectible at par in San Francisco, California. When Patent Products are sold
for monies other than United States dollars, the earned royalties will first be
determined in the foreign currency of the country in which such Patent Products
were sold and then converted into equivalent United States funds. The exchange
rate will be that rate quoted in the Wall Street Journal on the last business
day of the calendar quarter.
4.8. Earned royalties on sales of Patent Products occurring in any country
outside the United States will not be reduced by any taxes, fees, or other
charges imposed by the government of such country except those taxes, fees, and
charges allowed under the provisions of Paragraph 1.4 (Net Sales). Licensee will
also be responsible for all bank transfer charges.
4.9. Notwithstanding the provisions of Article 26. (Force Majeure), if at any
time legal restrictions prevent prompt remittance of part or all royalties owed
to The Regents by
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<PAGE> 12
Licensee with respect to any country where Patent Products are sold or
distributed, Licensee will convert the amount owed to The Regents into United
States funds and will pay The Regents directly from another source of funds for
the amount impounded.
4.10. In the event that any patent or any claim thereof included within the
Patent Rights is held invalid in a final decision by a court of competent
jurisdiction and last resort and from which no appeal has or can be taken, all
obligation to pay royalties based on such patent or claim or any claim
patentably indistinct therefrom will cease as of the date of such final
decision. Licensee will not, however, be relieved from paying any royalties that
accrued before such decision or that are based on another patent or claim that
has not expired or that is not involved in such decision.
5. Due Diligence
5.1. Licensee, upon execution of this Agreement, will diligently proceed with
the development, manufacture, and sale of Patent Products and will earnestly and
diligently market Patent Products after execution of this Agreement and in
quantities sufficient to meet the market demands therefor.
5.2. Licensee will be entitled to exercise prudent and reasonable business
judgment in the manner in which it meets its due diligence obligations
hereunder. In no case, however, will Licensee be relieved of its obligations to
meet the due diligence provisions of this Article 5. (Due Diligence).
5.3. Licensee will obtain all necessary governmental approvals in each country
in which Patent Products are manufactured, used, and sold.
5.4. If Licensee is unable to perform the following:
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<PAGE> 13
5.4.1. submit to the United States Food and Drug Administration
("FDA") an application for a 510(k) to market Patent
Products in the United States on or before [*]; and
5.4.2. introduce Patent Products to the market in the United
States on or before [*]; or
5.4.3. file an IDE for Patent Products by [*]; and
5.4.4. enter phase II/III clinical trials for Patent Products in
the United States on or before [*]; and
5.4.5. submit to the United States Food and Drug Administration
("FDA") an application for a Pre-Market Approval (PMA)
to market Patent Products in the United States on or
before [*]; and
5.4.6. introduce Patent Products to the market in the United
States within six (6) months after receiving marketing
approval from the United States FDA for such Patent
Products and reasonably fill the market demand for a
Patent Products following commencement of marketing at any
time during the exclusive period of this Agreement;
then The Regents will have the right and option to either terminate this
Agreement or reduce the exclusive licenses granted to Licensee to non-exclusive
licenses in accordance with Paragraph 5.5 hereof. The exercise of this right and
option by The Regents supersedes the rights granted in Article 2. (Grant).
5.5. To exercise either the right to terminate this Agreement or reduce the
exclusive licenses granted to Licensee to non-exclusive licenses for lack of
diligence required in this Article 5. (Due Diligence), The Regents will give
Licensee written notice of the deficiency. Licensee thereafter has 60 days to
cure the deficiency. Licensee will have the right to present written tangible
evidence that it has made good faith efforts to diligently meet and cure any
milestone; and The Regents will take into consideration the evidence provided by
Licensee. However, if The Regents has not received written tangible evidence
satisfactory to The Regents that the deficiency has been cured by the end of the
60-day period or if The Regents is not satisfied with the evidence provided to
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[*] Confidential treatment requested.
<PAGE> 14
Licensee that it has made good-faith efforts to meet and cure a missed
milestone, then The Regents may, at its option, terminate this Agreement or
reduce the exclusive licenses granted to Licensee to non-exclusive licenses by
giving written notice to Licensee. These notices will be subject to Article 18.
(Notices).
6. Progress and Royalty Reports
6.1. Beginning August 31, 1996 and semi-annually thereafter, Licensee will
submit to The Regents a progress report covering activities by Licensee related
to the development and testing of all Patent Products and obtaining governmental
approvals necessary for marketing. These progress reports will be provided to
The Regents to cover the progress of the research and development of the Patent
Products until their first commercial sale in the United States.
6.2. The progress reports submitted under Paragraph 6.1 will include, but not be
limited to, the following topics so that The Regents may be able to determine
the progress of the development of Patent Products and may also be able to
determine whether or not Licensee has met its diligence obligations set forth in
Article 5. (Due Diligence) above:
- summary of work completed key scientific discoveries summary of
- work in progress current schedule of events or milestones
- anticipated market introduction date of Patent Products,
- activities of Sublicensees, if any.
6.3. Licensee will also report to The Regents in its immediately subsequent
progress and royalty report the date of first commercial sale of Patent Products
in each country. After the first commercial sale of Patent Products, Licensee
will provide The Regents with quarterly royalty reports to The Regents on or
before each February 28, May 31,
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<PAGE> 15
August 31, and November 30 of each year. Each such royalty report will cover the
most recently completed calendar quarter of Licensee (October through December,
January through March, April through June, and July through September) and will
show:
6.3.1. the gross sales and Net Sales of Patent Products sold by
Licensee and reported to Licensee as sold by its Sublicensees
during the most recently completed calendar quarter;
6.3.2. the number of Patent Products sold or distributed by Licensee
and reported to Licensee as sold or distributed by its
Sublicensees;
6.3.3. the royalties from Licensee, and the payment of fees, royalties
and other consideration from Sublicensees in U.S. dollars,
payable hereunder with respect to Net Sales; and
6.3.4. the exchange rates used, if any.
6.4. If no sales of Patent Products have been made during any reporting period
after the first commercial sale of Patent Products, then a statement to this
effect is required.
7. Books and Records
7.1. Licensee will keep books and records accurately showing all Patent Products
manufactured, used, and/or sold under the terms of this Agreement. Such books
and records will be preserved for at least four years after the date of the
royalty payment to which they pertain and will be open to inspection by an
independent certified accountant retained by The Regents at reasonable times and
during normal business hours to determine the accuracy of the books and records
and to determine compliance by Licensee with the terms of this Agreement. Such
independent certified public accountant will be bound to hold all information in
confidence except as necessary to communicate to The Regents any non-compliance
of Licensee with respect to this Agreement.
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7.2. The fees and expenses of The Regents accountant performing such an
examination will be borne by The Regents. If an error in royalties of more than
five percent (5%) of the total royalties due for any year is discovered, then
the fees and expenses of such accountant will be borne by Licensee.
8. Life of the Agreement
8.1. Unless otherwise terminated by operation of law or by acts of the parties
in accordance with the terms of this Agreement, this Agreement will be in force
from the effective date recited on page one and will remain in effect for the
life of the last-to-expire patent licensed under this Agreement, or until the
last patent application licensed under this Agreement is abandoned.
8.2. Any termination of this Agreement will not affect the rights and
obligations set forth in the following Articles:
Article 7 Books and Records
Article 11 Disposition of Patent Products on Hand Upon
Termination
Article 12 Use of Names and Trademarks
Article 13 Limited Warranty
Paragraph 14.6 Patent Prosecution and Maintenance
Article 17 Indemnification
Article 22 Failure to Perform
Article 27 Confidentiality
8.3. Termination of this Agreement for any reason shall not release
any party hereto from any liability which, at the time of such termination, has
already accrued to the other party or which is attributable to a period prior to
such termination, or preclude
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<PAGE> 17
either party from pursuing any rights and remedies it may have hereunder or at
law or in equity which accrued or are based upon any event occurring prior to
such termination.
9. Termination by The Regents
9.1. If Licensee should violate or fail to perform any material term or
covenant of this Agreement, then The Regents may give written notice of such
default ("Notice of Default") to Licensee. If Licensee should fail to repair
such default within 60 days after the date of such notice takes effect, The
Regents will have the right to terminate this Agreement and the licenses herein
by a second written notice ("Notice of Termination") to Licensee. If a Notice of
Termination is sent to Licensee, this Agreement will automatically terminate on
the date such notice takes effect. Such termination will not relieve Licensee of
its obligation to pay any royalty or license fees owing at the time of such
termination and will not impair any accrued right of The Regents. These notices
will be subject to Article 18. (Notices).
10. Termination by Licensee
10.1. Licensee will have the right at any time to terminate this Agreement in
whole or as to any portion of Patent Rights by giving notice in writing to The
Regents. Such Notice of Termination will be subject to Article 18. (Notices) and
termination of this Agreement will be effective 60 days after the effective date
thereof.
10.2. Any termination pursuant to the above paragraph will not relieve
Licensee of any obligation or liability accrued hereunder prior to such
termination or rescind anything done by Licensee or any payments made to The
Regents hereunder prior to the time such termination becomes effective, and such
termination will not affect in any manner any rights of The Regents arising
under this Agreement prior to such termination.
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11. Disposition of Patent Products on Hand Upon Termination
11.1. Upon termination of this Agreement, Licensee will have the privilege of
disposing all previously made or partially made Patent Products, but no more,
within a period of 120 days, provided, however, that the sale of such Patent
Products will be subject to the terms of this Agreement including, but not
limited to the payment of royalties based on the Net Sales of Patent Products
sold by Licensee and the payment of fees, royalties, or other consideration by
Sublicensee at the rates and at the times provided herein and the rendering of
reports in connection therewith.
12. Use of Names and Trademarks
12.1. Nothing contained in this Agreement will be construed as conferring any
right to use in advertising, publicity, or other promotional activities any
name, trade name, trademark, or other designation of either party hereto by the
other (including contraction, abbreviation or simulation of any of the
foregoing). Unless required by law, the use by Licensee of the name "The Regents
of the University of California" or the name of any campus of the University of
California for use in advertising, publicity, or other promotional activities is
expressly prohibited.
12.2. It is understood that The Regents will be free to release to the
inventors and senior administrative officials employed by The Regents the terms
of this Agreement upon their request. If such release is made, The Regents will
request that such terms will be kept in confidence in accordance with the
provisions of Article 27. (Confidentiality) and not be disclosed to others. It
is further understood that should a third party inquire whether a license to
Patent Rights is available, The Regents may disclose the existence of this
Agreement and the extent of the grant in Article 2. (Grant) to such third party,
but will not disclose the name of Licensee, except where The
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Regents is required to release such information under either the California
Public Records Act or other applicable law.
13. Limited Warranty
13.1. The Regents warrants to Licensee that it has the lawful right to grant
this license.
13.2. THE REGENTS MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY OTHER WARRANTY EXPRESS OR IMPLIED WITH RESPECT TO THE
LICENSES GRANTED UNDER THIS AGREEMENT AND THE ASSOCIATED INVENTION, PATENT
PRODUCTS, PATENT METHOD, AND PATENT RIGHTS. THE REGENTS MAKES NO REPRESENTATION
OR WARRANTY THAT THE INVENTION, PATENT PRODUCTS, PATENT METHOD, AND PATENT
RIGHTS WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.
13.3. IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL, OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF THE
INVENTION, PATENT PRODUCTS, PATENT METHOD AND PATENT RIGHTS.
13.4. Nothing in this Agreement will be construed as:
13.4.1. a warranty or representation by The Regents as to the validity,
enforceability, or scope of any Patent Rights; or
13.4.2. a warranty or representation that anything made, used, sold, or
otherwise disposed of under any license granted in this
Agreement is or will be free from infringement of patents of
third parties; or
13.4.3. an obligation to bring or prosecute actions or suits against
third parties for patent infringement except as provided in
Article 16. (Patent Infringement); or
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13.4.4. conferring by implication, estoppel, or otherwise any license or
rights under any patents of The Regents other than Patent Rights
as defined herein, regardless of whether such patents are
dominant or subordinate to Patent Rights; or
13.4.5. an obligation to furnish any know-how not provided in Patent
Rights.
14. Patent Prosecution and Maintenance
14.1. The Regents will diligently prosecute and maintain the United States and
foreign patent applications and patents comprising Patent Rights using counsel
of its choice that is reasonably acceptable to Licensee, provided, however, that
if Licensee rejects The Regents' choice of new counsel three times consequently
(i.e. three different new attorneys), then The Regents will be free, in its sole
discretion, to choose an attorney of its choice. The Regents will promptly
instruct its outside counsel to provide Licensee with copies of all documents
received from every patent office, so that Licensee may be currently and
promptly informed and apprised of the continuing prosecution, and The Regents
will instruct its outside counsel to provide Licensee with copies of proposed
drafts of all documents to be filed with any patent office so that Licensee may
comment upon such documentation sufficiently in advance of any initial deadline
for filing a response, provided, however, that if Licensee has not commented
upon such documentation prior to the initial deadline for filing a response with
the relevant government patent office or The Regents must act to preserve Patent
Rights, The Regents will be free to respond appropriately without consideration
of comments by Licensee, if any. Both parties hereto will keep this
documentation in confidence in accordance with the provisions of Article 27.
(Confidentiality) herein. Counsel for The Regents will take instructions only
from The Regents.
14.2. The Regents will use all reasonable efforts to amend any patent
application to include claims requested by Licensee and required to protect the
Patent Products contemplated to be sold or Patent Method to be practiced under
this Agreement.
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<PAGE> 21
14.3. The Regents will, at the request of Licensee, file, prosecute, and
maintain patent applications and patents covered by Patent Rights in foreign
countries if available. The Regents will have the right to file patent
applications at its own expense in any country Licensee has not included in its
list of desired countries, and such applications and resultant patents, if any,
will not be included in the licenses granted under this Agreement.
14.4. All past, present and future costs of preparing, filing, prosecuting and
maintaining all United States and foreign patent applications and all costs and
fees relating to the preparation and filing of patents covered by Patent Rights
in Paragraph 1.1 will be borne by Licensee. This includes patent preparation and
prosecution costs for the Invention incurred by The Regents prior to the
execution of this Agreement. Such costs will be due upon execution of this
Agreement and will be payable at the time that the license issue fee is payable.
The costs of all interferences and oppositions will be considered prosecution
expenses and also will be borne by Licensee. Licensee will reimburse The Regents
for all costs and charges within 30 days following receipt of an itemized
invoice from The Regents for same.
14.5. The obligation of Licensee to underwrite and to pay patent preparation,
filing, prosecution, maintenance, and related costs will continue for costs
incurred until three months after receipt by either party of a Notice of
Termination. Licensee will reimburse The Regents for all patent costs incurred
during the term of the Agreement and for three months thereafter whether or not
invoices for such costs are received during the three-month period after receipt
of a Notice of Termination. Licensee may with respect to any particular patent
application or patent terminate its obligations with the patent application or
patent in any or all designated countries upon three months written notice to
The Regents. The Regents may continue prosecution and/or maintenance of such
application(s) or patent(s) at its sole discretion and expense, provided,
however, that Licensee will have no further right or licenses thereunder.
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<PAGE> 22
14.6. Licensee will notify The Regents of any change of its status as a small
entity (as defined by the United States Patent and Trademark Office) and of the
first sublicense granted to an entity that does not qualify as a small entity as
defined therein.
15. Patent Marking
15.1. Licensee will mark all Patent Products made, used, or sold under the
terms of this Agreement, or their containers, in accordance with the applicable
patent marking laws.
16. Patent Infringement
16.1. In the event that Licensee or the licensing associate employed by The
Regents who is responsible for administering this Agreement or Resident Counsel
of the Office of Technology Transfer learn of the substantial infringement of
any patent licensed under this Agreement, and to the extent it is contractually
able to, such party will call the attention of the other party thereto in
writing and will provide The Regents with reasonable evidence of such
infringement. Both parties to this Agreement acknowledge that during the period
and in a jurisdiction where Licensee has exclusive rights under this Agreement,
neither will notify a third party of the infringement of any of Patent Rights
without first obtaining consent of the other party, which consent will not be
unreasonably withheld. Both parties will use their best efforts in cooperation
with each other to terminate such infringement without litigation.
16.2. Licensee may request that The Regents take legal action against the
infringement of Patent Rights. Such request must be made in writing and must
include reasonable evidence of such infringement and damages to Licensee. If the
infringing activity has not been abated within 90 days following the effective
date of such request, The Regents will have the right to elect to:
20
<PAGE> 23
16.2.1. commence suit on its own account; or
16.2.2. refuse to participate in such suit
and The Regents will give notice of its election in writing to Licensee by the
end of the 100th day after receiving notice of such request from Licensee.
Licensee may thereafter bring suit for patent infringement if and only if The
Regents elects not to commence suit and if the infringement occurred during the
period and in a jurisdiction where Licensee had exclusive rights under this
Agreement. However, in the event Licensee elects to bring suit in accordance
with this paragraph, The Regents may thereafter join such suit at its own
expense.
16.3. Such legal action as is decided upon will be at the expense of the party
on account of whom suit is brought and all recoveries recovered thereby will
belong to such party, provided, however, that legal action brought jointly by
The Regents and Licensee and participated in by both will be at the joint
expense of the parties and all recoveries will be allocated in the following
order: a) to each party reimbursement in equal amounts of the attorney's costs,
fees, and other related expenses to the extent each party paid for such costs,
fees, and expenses until all such costs, fees, and expenses are consumed for
each party; and b) any remaining amount to be divided among the parties in the
following manner: 1) [*] for Licensee and [*] for The Regents of any recoveries
based on lost profits or other theories; and 2) [*] for Licensee and [*] for The
Regents of any recoveries based on statutory enhanced damages.
16.4. Each party will cooperate with the other in litigation proceedings
instituted hereunder but at the expense of the party on account of whom suit is
brought. Such litigation will be controlled by the party bringing the suit,
except that The Regents may be represented by counsel of its choice in any suit
brought by Licensee.
21
[*] Confidential treatment requested.
<PAGE> 24
17. Indemnification
17.1. Licensee will(and require its Sublicensees to)indemnify, hold harmless,
and defend The Regents, its officers, employees, and agents; the sponsors' of
the research that led to the Invention; the inventors of any invention covered
by patents or patent applications in Patent Rights (including the Patent
Products and Patent Method contemplated thereunder) and their employers against
any and all claims, suits, losses, damage, costs, fees, and expenses resulting
from or arising out of exercise of this license or any sublicense. This
indemnification will include, but will not be limited to, any product liability.
17.2. Licensee, at its sole cost and expense, will insure its activities in
connection with the work under this Agreement and obtain, keep in force, and
maintain insurance as follows: (or an equivalent program of self insurance)
Comprehensive or Commercial Form General Liability Insurance (contractual
liability included) with limits as follows:
(a) Each Occurrence...........................................[*]
(b) Products/Completed Operations Aggregate...................[*]
(c) Personal and Advertising Injury...........................[*]
(d) General Aggregate (commercial form only)..................[*]
As of and following the date of commencement of any clinical trial, Licensee
shall increase insurance coverage under Paragraph 17.2 from [*] to [*] for each
occurrence and an aggregate of [*]. As of and following the date of commencement
of and sales of Patent Products, Licensee shall increase insurance coverage from
[*] to an aggregate of [*] and maintain [*] for each occurrence. Specifically
with regard to product liability insurance, Licensee shall not be required to
insure its activities until commencement of any clinical trail or any sales of
Patent Product(s) for human use, at which time Licensee shall increase insurance
coverage under this Paragraph 17.2 in the case of the commencement of
22
[*] Confidential treatment requested.
<PAGE> 25
any clinical trial to an aggregate of $2,000,000, and in the case of the
commencement of any sales of Patent Products to an aggregate of $5,000,000. It
should be expressly understood, however, that the coverages and limits referred
to under the above will not in any way limit the liability of Licensee. Licensee
will furnish The Regents with certificates of insurance evidencing compliance
with all requirements. Such certificates will:
(a) Provide for 30 day advance written notice to The Regents of any
modification;
(b) Indicate that The Regents has been endorsed as an additional
Insured under the coverages referred to under the above; and
(c) Include a provision that the coverages will be primary and will
not participate with nor will be excess over any valid and
collectable insurance or program of self-insurance carried or
maintained by The Regents.
17.3. The Regents will promptly notify Licensee in writing of any claim or
suit brought against The Regents in respect of which The Regents intends to
invoke the provisions of this Article 17. (Indemnification). Licensee will keep
The Regents informed on a current basis of its defense of any claims pursuant to
this Article 17. (Indemnification).
17.4. Licensee will have the right to control the defense and settlement of any
such claim or suit except Licensee shall not enter into any settlement which (i)
makes any admission of wrongdoing on the part of The Regents; or (ii) admits
that any Patent Rights of The Regents are invalid, unenforceable, or not
infringed, without prior written consent of The Regents.
18. Notices
18.1. Any notice or payment required to be given to either party will be
deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in
23
<PAGE> 26
person or (b) five days after mailing if mailed by first-class certified mail,
postage paid, to the respective addresses given below, or to another address as
it may designate by written notice given to the other party.
In the case of Licensee: UROSURGE, INC.
2660 Crosspark Road
Coralville, Iowa 52241
Tel: (319) 626-8311
Fax: (319) 626-8312
Attention: President
In the case of The Regents: THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
1320 Harbor Bay Parkway, Suite 150
Alameda, California 94502
Tel: (510) 748-6600
Fax: (510) 748-6639
Attention: Executive Director;
Office of Technology Transfer
Referring to: U.C. Case No. 88-064
19. Assignability
19.1. This Agreement is binding upon and will inure to the benefit of The
Regents, its successors and assigns, but will be personal to Licensee and
assignable by Licensee only with the written consent of The Regents which
consent will not be unreasonably withheld, provided, however, that Licensee may
assign this Agreement in connection with the sale or transfer of substantially
all the assets of Licensee relating to the subject matter of this Agreement,
without the consent of The Regents.
24
<PAGE> 27
20. Late Payments
20.1. In the event royalty payments or fees or patent prosecution costs are
not received by The Regents when due, Licensee will pay to The Regents interest
charges at a rate of ten percent (10%) simple interest per annum. Such interest
will be calculated from the date payment was due until actually received by The
Regents. Acceptance by The Regents of any late payment interest from Licensee
under this Paragraph 20 will in no way affect the provision of Article 21.
(Waiver) herein.
21. Waiver
21.1. It is agreed that no waiver by either party hereto of any breach or
default of any of the covenants or agreements herein set forth will be deemed a
waiver as to any subsequent and/or similar breach or default.
22. Failure to Perform
22.1. In the event of a failure of performance due under the terms of this
Agreement and if it becomes necessary for either party to undertake legal action
against the other on account thereof, then the prevailing party will be entitled
to reasonable attorney's fees in addition to costs and necessary disbursements.
23. Governing Laws
23.1. THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA, excluding any choice of law rules that would
direct the application of the laws of another jurisdiction, but the scope and
validity of any patent or patent application will be governed by the applicable
laws of the country of such patent or patent application.
25
<PAGE> 28
24. Government Approval or Registration
24.1. If this Agreement or any associated transaction is required by the law
of any nation to be either approved or registered with any governmental agency,
Licensee will assume all legal obligations to do so. Licensee will notify The
Regents if it becomes aware that this Agreement is subject to a United States or
foreign government reporting or approval requirement. Licensee will make all
necessary filings and pay all costs including fees, penalties, and all other
out-of-pocket costs associated with such reporting or approval process.
25. Export Control Laws
25.1. Licensee will observe all applicable United States and foreign laws with
respect to the transfer of Patent Products and related technical data to foreign
countries, including, without limitation, the International Traffic in Arms
Regulations (ITAR) and the Export Administration Regulations.
26. Force MaJeure
26.1. The parties to this Agreement will be excused from any performance
required hereunder if such performance is rendered impossible or unfeasible due
to any acts of God, catastrophes, or other major events beyond their reasonable
control, including, without limitation, war, riot, and insurrection; laws,
proclamations, edicts, ordinances, or regulations; strikes, lock-outs, or other
serious labor disputes; and floods, fires, explosions, or other natural
disasters. However, any party to this Agreement will have the right to terminate
this Agreement upon 30 days' prior written notice if either party is unable to
fulfill its obligations under this Agreement due to any of the causes mentioned
above and such inability continues for a period of one year. Notices will be
subject to Article 18. (Notices). When such events have abated, the parties'
respective obligations hereunder will resume.
26
<PAGE> 29
27. Confidentiality
27.1. Licensee and The Regents respectively will treat and maintain the
proprietary business, patent prosecution, software, engineering drawings,
process and technical information, and other proprietary information
("Proprietary Information") of the other party in confidence using at least the
same degree of care as that party uses to protect its own proprietary
information of a like nature for a period from the date of disclosure until five
years after the date of termination of this Agreement.
27.2. All Proprietary Information will be labeled or marked confidential or as
otherwise similarly appropriate by the disclosing party, or if the Proprietary
Information is orally disclosed, it will be reduced to writing or some other
physically tangible form, marked and labeled as set forth above by the
disclosing party, and delivered to the receiving party within 30 days after the
oral disclosure as a record of the disclosure and the confidential nature
thereof. Notwithstanding the foregoing, Licensee and The Regents may use and
disclose Proprietary Information to their employees, agents, consultants,
contractors, and, in the case of Licensee, its Sublicensees, provided that any
such parties are bound by a like duty of confidentiality.
27.3. Nothing contained herein will in any way restrict or impair the right of
Licensee or The Regents to use, disclose, or otherwise deal with any Proprietary
Information:
27.3.1. that recipient can demonstrate by written records was previously
known to it;
27.3.2. that is now, or becomes in the future, public knowledge other
than through acts or omissions of recipient;
27.3.3. that is lawfully obtained without restrictions by recipient from
sources independent of the disclosing party;
27.3.4. that is required to be disclosed to a governmental entity or
agency in connection with seeking any governmental or regulatory
approval, or
27
<PAGE> 30
pursuant to the lawful requirement or request of a governmental
entity or agency;
27.3.5. that is furnished to a third party by the recipient with similar
confidentiality restrictions imposed on such third party, as
evidenced in writing; or
27.3.6. that The Regents is required to disclose pursuant to the
California Public Records Act or other applicable law.
27.4. Upon termination of this Agreement, Licensee and The Regents will
destroy or return to the disclosing party Proprietary Information received from
the other in its possession within 15 days following the effective date of
termination. Licensee and The Regents will provide each other within 30 days
following termination with a written notice that Proprietary Information has
been returned or destroyed. Each party may, however, retain one copy of
Proprietary Information for archival purposes in nonworking files.
28. Miscellaneous
28.1. The headings of the several sections are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
28.2. This Agreement will not be binding upon the parties until it has been
signed below on behalf of each party, in which event, it will be effective as of
the date recited on page one.
28.3. No amendment or modification hereof will be valid or binding upon the
parties unless made in writing and signed on behalf of each party.
28.4. This Agreement embodies the entire understanding of the parties and will
supersede all previous communications, representations or understandings, either
oral or written, between the parties relating to the subject matter hereof.
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<PAGE> 31
28.5. In case any of the provisions contained in this Agreement are held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability will not affect any other provisions hereof, but this
Agreement will be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
The Regents and Licensee execute this Agreement in duplicate originals by their
respective, authorized officers on the date indicated.
UroSurge, Inc. The Regents of the University
of California:
By /s/ DAVID MAUPIN By /s/ TERENCE A. FEUERBORN
--------------------------------- ----------------------------------
(Signature) (Signature)
Name /s/ DAVID MAUPIN Name Terence A. Feuerborn
-------------------------------
Title PRESIDENT & CEO Title Executive Director
------------------------------ Research Administration and
Technology Transfer
Date 6/28/96 Date 6/24/96
------------------------------ -------------------------------
29
<PAGE> 1
Promissory Note EXHIBIT 10.9
CEBA 98-CEBA-03
PAGE 1
IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT
CEBA LOAN AGREEMENT
CEBA LOAN NUMBER: 98-CEBA-03
AWARD DATE: AUGUST 21, 1997
KIND OF AWARD: Loan/Forgivable Loan
AWARD AMOUNT: $70,000
THIS COMMUNITY ECONOMIC BETTERMENT ACCOUNT ("CEBA") AGREEMENT is made by
and among the IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT, 200 East Grand Avenue,
Des Moines, Iowa 50309 ("Department" or "IDED"), City of Coralville, City Hall,
1512 Coralville, Iowa 52241 ("Community"), and Urosurge, Inc. 2660 Crosspark
Road, Coralville, Iowa 52241 ("Business").
The Department desires to make a loan to the Community for the benefit of
the Business and the Community desires to accept this loan, all upon the terms
and conditions set forth in this Agreement. The Community desires to make a loan
to the Business and the Business desires to accept this loan, all upon the terms
and conditions set forth in this Agreement.
THEREFORE, in consideration of the mutual promises contained in this
Agreement and other good and valuable consideration, it is agreed as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall apply:
1.1 AGREEMENT EXPIRATION DATE. "Agreement Expiration Date" means the
date the Agreement ceases to be in force and effect. The Agreement expires upon
the occurrence of one of the following: a) the Loan is repaid in full or
required part, including accrued interest, court costs and any penalties; b) the
Agreement is terminated by the Department due to any default under Article X; c)
no disbursement of CEBA funds has occurred within the twenty four months
immediately following the Award Date; or d) if the Agreement includes only a
Forgivable Loan, at the end of the three (3) year period beginning with the
Project Completion Date during which the Job Attainment Obligation has been
fulfilled and notice of same has been provided by IDED.
1.2 AWARD DATE. "Award Date" means the date on which the Economic
Development Board approved the IDED CEBA participation.
1.3 COMMUNITY BASE JOBS. "Community Base Jobs" means the number of
Full-time Equivalent (FTE) Jobs the Department determines are in place in the
Community at the time of application for CEBA funds and which will remain in the
Community whether or not CEBA funds are awarded. Said jobs must be maintained
for a minimum of thirteen (13) weeks beyond the Project Completion Date. If the
Agreement includes a Forgivable Loan, said jobs must again be in place at the
third (3rd) year anniversary of the Project Completion Date.
1.4 CREATED JOBS. "Created Jobs" means the number of new Full-time
Equivalent (FTE) Jobs the Business will add to the Community which meet the
Project Wage Obligation over and above the number of Community Base Jobs and/or
Retained Jobs. Said jobs must be maintained for a minimum of thirteen (13)
weeks beyond the Project Completion Date. If the Agreement includes a Forgivable
Loan, said jobs must again be in place at the third (3rd) year anniversary date
of the Project Completion Date.
<PAGE> 2
Promissory Note
CEBA 98-CEBA-03
PAGE 2
1.5 FORGIVABLE LOAN. "Forgivable Loan" means a loan for which repayment
is eliminated in part or entirely if the Community and Business satisfy the
terms of this Agreement, including the Job Attainment and Wage Obligations
stated in Article VII.
1.6 FULL-TIME EQUIVALENT (FTE) JOB. "Full-time Equivalent (FTE) Job"
means the equivalent of employment of one (1) person for eight (8) hours per day
for a five (5) day forty (40) hour workweek for fifty two (52) weeks per year.
1.7 JOB ATTAINMENT OBLIGATION. "Job Attainment Obligation" means the
aggregate total number of Community Base Jobs, Retained Jobs, Created Jobs and
State Employment Level pledged by the Community and Business.
1.8 LOAN. "Loan" means either a conventional loan or a Forgivable Loan,
or both, the terms of which are or may be set forth in this Loan Agreement.
1.9 LOAN AGREEMENT or AGREEMENT. "Loan Agreement" or "Agreement" means
this Agreement, the Project budget and all of the notes, leases, assignments,
mortgages, and similar documents referred to in the Agreement and all other
instruments or documents executed by the Business or Community or otherwise
required in connection with the Agreement, including but not limited to the
following:
a. Attachment A, Project Budget.
b. Attachment B1, Promissory Note of the Business.
c. Attachment B2, Promissory Note of the Community.
d. Attachment C, CEBA Application for Assistance
e. List of positions and associated hourly rate of pay to be
created and/or retained as a result of this project. Those positions
paying equal to or greater than the project Wage Threshold must be
highlighted.
1.10 PROJECT. "Project" means the detailed description of the work,
services, job attainment requirements and other obligations to be performed or
accomplished by the Community and Business as described in this Agreement and
the CEBA application approved by the Department.
1.11 PROJECT COMPLETION DATE. "Project Completion Date" means September
30, 1999 and is the date by which the Project tasks shall have been fully
accomplished including fulfillment of the Job Attainment Obligation.
1.12 PROJECT WAGE OBLIGATION. The "Project Wage Obligation" is at least
85% of the County Average wage as compiled from data from the Department of
Employment Services. The "Project Wage Obligation" for this project is a
starting wage of at least $8.09/hour.
1.13 RETAINED JOBS. "Retained Jobs" means the number of Full-time
Equivalent (FTE) Jobs the Department determines are in place in the Community at
the time of application for CEBA assistance and which the Business and Community
agree will be retained due to receipt of the CEBA funds. Said jobs must be
maintained for a minimum of thirteen(13)weeks beyond the Project Completion
Date. If the Agreement includes a Forgivable Loan, said jobs must again be in
place at the third (3rd) year anniversary of the Project Completion Date.
<PAGE> 3
Promissory Note
CEBA 98-CEBA-03
PAGE 3
ARTICLE II
FUNDING
2.1 FUNDING SOURCE. The source of funding for the Loan is an
appropriation by the State legislature for the CEBA Program. With respect to the
closing of the Loan, processing of post-closing documents and administration of
the Loan until paid in full, the Business and Community shall comply with the
requirements, conditions and rules of the Department and any other public or
private entity having authority over the funds or the Loan.
2.2 RECEIPT OF FUNDS. All payments under this Agreement are subject to
receipt by the Department of sufficient State funds for the CEBA program. Any
termination, reduction or delay of CEBA funds to the Department shall, at the
option of the Department, result in the termination, reduction or delay of CEBA
funds to the Community and the Business.
2.3 PRIOR COSTS. No expenditures made prior to the Award Date may be
included as Project costs for the purposes of this Agreement.
2.4 DISBURSEMENT OF LESS THAN THE TOTAL AWARD AMOUNT. If the total award
amount has not been disbursed within one hundred twenty (120) days of the
Project Completion Date, then the Department shall be under no obligation for
further disbursement. And, the Community and Business shall be obligated to the
extent of Loan proceeds received.
ARTICLE III
TERMS OF LOAN
3.1 LOAN. The Department agrees to make a LOAN in the amount of $35.000
with interest at Zero (0%) percent for Five (5) years and a FORGIVABLE LOAN in
the amount of $35,000 with interest at Six (6%) percent for Five (5) years to
the Community on behalf of the Business to assist in the financing of the
Project. Interest begins accruing at the date of disbursement of funds.
3.2 PROMISSORY NOTES. The obligation to repay the Loan shall be
evidenced by Promissory Notes executed by the Business and the Community.
3.3 OTHER TERMS.
1) UCC-1 security filing covering: Machinery and Equipment owned
by the Business with a value of at least $70,000.
3.4 PREPAYMENT. The outstanding principal and accrued interest of this
Loan, or any part thereof that is not forgiven, may be prepaid in part or in
full at any time without penalty.
3.5 ACCELERATION UPON DEFAULT. If there is a failure to pay any
installment of principal and interest when due, or only a portion is paid, or in
the event of any other default under this Loan, the Department may declare the
entire unpaid principal and all accrued interest immediately due and payable.
3.6 FORGIVABLE LOAN AMORTIZATION. If the award includes a Forgivable
Loan, the Department will, in its sole discretion, determine if the Business has
satisfied the terms of this Agreement, including fulfillment of the Job
Attainment and Wage Obligation by the Project Completion Date. If the Department
determines that the Business has satisfied said terms and has continued to
satisfy said terms for thirteen (13) weeks past the Project Completion Date,
then principal and interest which would otherwise have accrued for the time
period beginning with the Award Date and ending with the Project
<PAGE> 4
Promissory Note
CEBA 98-CEBA-03
PAGE 4
Completion Date shall be waived and, barring default, no payments on the
Forgivable Loan shall be due until the third (3rd) year anniversary of the
Project Completion Date. If the Department determines that the Business has
satisfied said terms, including fulfillment of the Job Attainment Obligation, at
the third (3rd) year anniversary of the Project Completion Date, then repayment
of the Forgivable Loan shall be permanently waived.
ARTICLE IV
CONDITIONS TO DISBURSEMENT OF FUNDS
Unless and until the following conditions have been satisfied, the
Department shall be under no obligation to disburse to the Community or Business
any amounts under the Loan Agreement:
4.1 AUTHORITY. The Business shall have submitted the following documents
to the Department:
a. Certificate of Good Standing of the corporation.
b. Certified copy of the corporation's Articles of Incorporation.
c. Certificate of Incumbency naming the current officers and directors
of the corporation.
d. Resolution of the Board of Directors authorizing the corporation's
execution and delivery of this Loan Agreement and the Note and borrowing
hereunder, and such other papers as the Department may reasonably request;
and specifying the officer(s) authorized to execute the Loan Agreement and
bind the corporation.
4.2 PROJECT SCHEDULE. The Community and the Business shall have
submitted a completed Project schedule on the form provided by the Department
and received the Department's approval of the Project schedule.
4.3 CONSULTATION WITH EMPLOYMENT SERVICES. The Business shall have
provided documentation to the Department that it has consulted with the area
Department of Employment Services (DES) Workforce Center office to discuss
employment services available. In addition, the Business must provide to DES
agencies a list of positions to be created including job descriptions and
qualifications.
4.4 LOAN AGREEMENT EXECUTED. The Loan Agreement shall have been properly
executed and, where required, acknowledged.
4.5 PROJECT FINANCIAL COMMITMENTS. The Business and Community shall have
submitted a letter from each of the following committing to the specified
financial involvement in the Project and received the Department's approval of
the letters of commitment including rate and terms:
<TABLE>
<CAPTION>
Source Type Amount
------ ---- ------
<S> <C> <C>
City of Coralville Grant/leasehold improvements $70,000
Urosurge Equity $7,012,000
</TABLE>
Each letter shall include the amount, terms and conditions of the financial
commitment, as well as any applicable schedules.
4.6 RECORDING. The Business and Community shall have properly recorded
in the appropriate office of the Recorder of Deeds and/or the Secretary of State
any mortgage, security agreement, financing statement or similar document
required by the Department under the Loan Agreement, with all recording
<PAGE> 5
Promissory Note
CEBA 98-CEBA-03
PAGE 5
charges paid.
4.7 SOLID AND HAZARDOUS WASTE REDUCTION PLAN. A Business which generates
solid or hazardous waste shall have submitted the following information
concerning the project site:
a. A copy of the completed audit and management plan if the
Business has conducted an in-house or an external audit and a corresponding
management plan within the last three years; or
b. If the Business has not conducted an in-house or external
audit and corresponding management plan within the last three years, a copy of a
letter from the Iowa Department of Natural Resources or the Iowa Waste Reduction
Center indicating they have met with the Business and an external audit has been
initiated, or, a copy of the outline of the Business' proposed in-house audit
and a description of how and when the audit will be performed. Furthermore, the
Business shall submit a copy of the completed in-house or external audit within
30 days of its completion or receipt, which time period shall not exceed 90 days
from the disbursement date of the financial assistance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUSINESS
To induce the Department to make the Loan referred to in this Agreement,
the Business represents, covenants and warrants that:
5.1 AUTHORITY. The Business is a corporation duly organized and validly
existing under the laws of the state of incorporation and is in good standing,
and has complied with all applicable laws of the State of Iowa. The Business is
duly authorized and empowered to execute and deliver the Loan Agreement. All
action on the Business' part, such as appropriate resolution of its Board of
Directors for the execution and delivery of the Loan Agreement, has been
effectively taken.
5.2 FINANCIAL INFORMATION. All financial statements and related
materials concerning the Business and the Project provided to the Department are
true and correct in all material respects and completely and accurately
represent the subject matter thereof as of the effective date of the statements
and related materials, and no material adverse change has occurred since that
date.
5.3 APPLICATION. The contents of the application the Business submitted
to the Department for CEBA funding is a complete and accurate representation of
the Business and the Project as of the date of submission and there has been no
material adverse change in the organization, operation, business prospects,
fixed properties or key personnel of the Business since the date the Business
submitted its CEBA application to the Department.
5.4 CLAIMS AND PROCEEDINGS. There are no actions, lawsuits or
proceedings pending or, to the knowledge of the Business, threatened against the
Business affecting in any manner whatsoever their rights to execute the Loan or
the ability of the Community or Business to make the payments required under the
Loan, or to otherwise comply with the obligations of the Business contained
under the Loan. There are no actions, lawsuits or proceedings at law or in
equity, or before any governmental or administrative authority pending or, to
the knowledge of the Business, threatened against or affecting the Business or
any property or collateral pledged as security for the Loan.
5.5 PRIOR AGREEMENTS. The Community and the Business separately or
jointly have not entered into any verbal or written contracts, agreements or
arrangements of any kind which are inconsistent with the Loan Agreement.
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5.6 EFFECTIVE DATE. The covenants, warranties and representations of
this Article are made as of the date of this Agreement and shall be deemed to be
renewed and restated by the Business at the time of each advance or request for
disbursement of funds.
ARTICLE VI
COVENANTS OF BUSINESS
6.1 AFFIRMATIVE COVENANTS. Until payment in full or required part, or
forgiveness of the Loan, the Business covenants with the Community and IDED
that:
(a) PROJECT WORK AND SERVICES. The Business shall complete the
work and services detailed in its CEBA application by the Project Completion
Date.
(b) JOB ATTAINMENT OBLIGATION. By the Project Completion Date and
as the Agreement may require for additional time periods thereafter,, the
Business shall have fulfilled its Job Attainment Obligation described in Article
VII of this Agreement.
(c) BUSINESS RETENTION. The Business shall have and maintain in
the Community (and State, if required) the Business premises and operations at
least through the Agreement Expiration Date.
(d) RECORDS AND ACCOUNTS. The Business shall maintain job data
information, books, records, documents and other evidence pertaining to all
costs and expenses incurred and revenues received under this Loan Agreement
concerning the project, in sufficient detail to reflect all costs, direct and
indirect, of labor, materials, equipment, supplies, services and other costs and
expenses of whatever nature, for which payment is claimed under this Loan
Agreement. The Business shall retain all records for a period of three (3) years
from the Agreement Expiration Date.
(e) ACCESS TO RECORDS/INSPECTIONS. The Business shall, without
prior notice and at any time (during normal business hours), permit the
Community and its representatives and the Department, its representatives or the
State Auditor to examine, audit and/or copy (i) any plans and work details
pertaining to the Project, (ii) all of the Business' books, records and
accounts, and (iii) all other documentation or materials related to this Loan;
the Business shall provide proper facilities for making such examination and/or
inspection.
(f) USE OF LOAN FUNDS. The Business shall expend funds received
under the Loan only for the purposes and activities described in its CEBA
Application and approved by the Department.
(g) DOCUMENTATION. The Business shall deliver to the Community
and/or IDED, upon request, (i) copies of all contracts or agreements relating to
the Project, (ii) invoices, receipts, statements or vouchers relating to the
Project, (iii) a list of all unpaid bills for labor and materials in connection
with the Project, (iv) budgets and revisions showing estimated Project costs and
funds required at any given time to complete and pay for the Project, and (v)
current and year-to-date operating statements, including but not limited to a
Profit and Loss and Balance Sheet, not older than sixty (60) days from the date
of request.
(h) NOTICE OF PROCEEDINGS. The Business shall promptly notify the
Community and IDED of the initiation of any claims, lawsuits, bankruptcy
proceedings or other proceedings brought against the Business which would
adversely impact the project, including, but not limited to, any proceedings to
assert or enforce liens against collateral securing the Loan.
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(i) REPORTS. The Business shall prepare, sign and submit the
following reports to the Community throughout the Project period:
Report Due Date
Project Schedule Prior to the first draw of CEBA Loan
proceeds
Semi-Annual Progress May 10th and November 10th for the period
Report ending April 30th and October 31st
respectively
Quarterly "Employees May 10th and November 10th for the previous
Contribution and calendar quarter
Payroll Report"
Semi-Annual Payroll May 10th and November 10th for the payroll
Register with created and/or period ending April 30th and October 31st
retained jobs paying at least respectively
$8.09 /hr. highlighted.
Status of CEBA Funds Report To request funds
Annual Report Within 90 days after the Business' fiscal
year end
Final "Employees Within 30 days after the Project Completion
Contribution and Payroll Date
Report" with created and/or
retained jobs paying at least
$8.09/hr highlighted.
Final Expenditure Summary Within 30 days of Project Completion Date
Solid and Hazardous Waste Within 30 days of completion which shall not
Plan exceed 90 days from the date of fund
disbursement
Annual Solid and Hazardous March 31 of each calendar year
Waste Progress Report
Payroll Register and "Employer's Within 120 days of Project Completion Date
Contribution Payroll Register"
90 days past the Project
Completion Date with created and/
or retained jobs highlighted
If the Agreement includes a Forgivable Loan, the Business shall prepare,
sign and submit the following reports to the Community during the time period
beginning with the Project completion Date and ending with the Agreement
Expiration Date:
Report Due Date
------ --------
"Employees Contribution and Within 30 days after Project Completion Date
Payroll Report" anniversary
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Business Payroll Register Within 30 days after Project Completion Date
(for the pay period ending anniversary
closest to the Project
Completion Date anniversary)
with created and/or retained jobs
paying at least $8.09/hr highlighted
(j) NOTICE OF BUSINESS CHANGES. The Business shall provide prompt
advance notice to the Community and the Department of any proposed change in the
Business ownership, structure or control which would materially affect the
Project.
(k) NOTICE OF MEETINGS. The Business shall notify the Community
and the Department at least ten (10) working days in advance of all Board of
Directors and Stockholders meetings at which the subject matter of this Loan
Agreement or Project is proposed to be discussed. The Business shall provide the
Department with copies of the agenda and minutes of such meetings and expressly
agrees that a representative of the Department has a right to attend any and all
such meetings for the purposes of the discussion of the Project and the Loan.
(l) MAINTENANCE OF PROJECT PROPERTY AND INSURANCE. The Business
shall maintain the Project property in good repair and condition, ordinary wear
and tear excepted, and shall not suffer or commit waste or damage upon the
Project property. At the Department's request, the Business shall pay for and
maintain insurance against loss or damage by fire, tornado, and other hazards,
casualties, and contingencies and all risks from time to time included under
"extended coverage" policies. This insurance shall be in an amount not less than
the full insurable value of the Project property. The Business shall name the
Community and Department as a mortgagee and/or an additional loss payee as
appropriate and submit copies of the policies to the Department.
(m) INDEMNIFICATION. The Business shall indemnify and hold
harmless the Department, its officers and employees, from and against any and
all losses, except those losses incurred by the Department resulting from
willful misconduct or negligence on its or their part. The Business shall
indemnify and hold harmless the Community, its officers and employees from and
against any and all losses, except those losses incurred by the Community
resulting from willful misconduct or negligence on its or their part, which
losses shall include losses of the Community incurred in indemnifying and
holding harmless the Department.
(n) PROJECT FEES. The Business shall promptly pay all appraisal,
survey, recording, title, license, permit and other fees and expenses incurred
incident to the Loan.
(o) INTEREST AND SURPLUS PROCEEDS. The Business shall return all
unexpended Loan proceeds and interest accrued on Loan proceeds to the Community
within thirty (30) days after the Project Completion Date.
(p) (PROJECTS WITH CEBA AWARDS GREATER THAN $500,000). Business
shall provide at least 80% of the cost of standard medical and dental insurance
for FTE employees.
6.2 NEGATIVE COVENANTS. So long as the Business is indebted to IDED
and/or Community, the Business shall not, without prior written disclosure to
the Community and IDED and prior written consent of IDED (unless IDED prior
approval is expressly waived below), directly or indirectly:
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(a) BUSINESS' INTEREST. Assign, waive or transfer any of Business'
rights, powers, duties or obligations under this Loan Agreement.
(b) PROPERTY/COLLATERAL. Sell, transfer, convey, assign, encumber
or otherwise dispose of any of the real property or other collateral securing
the Loan.
(c) RESTRICTIONS. Place or permit any restrictions, covenants or
any similar limitations on the real property and/or other collateral securing
the Loan.
(d) REMOVAL OF COLLATERAL. Remove from the Project site or the
State all or any part of the collateral securing the Loan.
(e) RELOCATION OR ABANDONMENT. Relocate its operations, physical
facilities or jobs (including Created, Retained and Community Base Jobs)
assisted with the Loan proceeds outside the Community or abandon its operations
or facilities or a substantial portion thereof within the Community during the
Loan term.
(f) BUSINESS OWNERSHIP. Materially change the ownership structure
or control of the business affecting the Project, including but not limited to,
entering into any merger or consolidation with any person, firm or corporation
or permitting substantial distribution, liquidation or other disposal of
business assets directly associated with the Project. Changes in the business
ownership, structure or control which do not materially affect the Project shall
require forty-five (45) days prior written notice of the Community and
Department, but not written consent of, the Department. The materiality of the
change and whether or not the change affects the Project shall be determined by
the Department.
(g) BUSINESS OPERATION. Materially change the nature of the
business being conducted, or proposed to be conducted, as described in the
Business application for CEBA funding.
ARTICLE VII
JOB ATTAINMENT AND WAGE OBLIGATION
7.1 COMMUNITY EMPLOYMENT LEVEL. On the Project Completion Date, the
Business shall have in the Community a total of 50 FTE Jobs as set forth below:
Project Employment Attainment Obligation Wage Obligation
Community Base Jobs 22 NA
Retained Jobs NA NA
Created Jobs *28 at least $ 8.09 /hr
----------- -------------------
Total 50 @$8.09/hr.
* Created positions must have a minimum starting wage of at least
$8.09 per hour and must average at least $11.80 per hour.
7.2 STATE EMPLOYMENT LEVEL. On the Project Completion Date, the Business
shall have a minimum employment level in the State of Iowa, exclusive of its
Community employment level, of at least Not Applicable FTE Jobs. This State
minimum employment level shall also be maintained through the thirteenth (13th)
week after the Project Completion Date, and, if the CEBA participation includes
a Forgivable Loan, the State employment level shall again be attained at the
third (3rd) year anniversary of the Project Completion Date.
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7.3 CALCULATION OF JOB ATTAINMENT OBLIGATION. The Department has the
final authority to assess whether the Business has met its Job Attainment and
Wage Obligation at the Project Completion Date. The Department shall determine
the number of Community Base, Retained and Created FTE Jobs maintained, retained
and created by the Business. The Community and the Department reserve the right
to monitor and measure at any time during the Agreement term the number of FTE
jobs maintained and/or retained and/or created by the Business.
ARTICLE VIII
COVENANTS OF THE COMMUNITY
8.1 AFFIRMATIVE COVENANTS. Until payment in full or required part, or
forgiveness of the Loan, the Community covenants with IDED that:
(a) PROJECT WORK AND SERVICES. The Community shall perform work
and services detailed in the CEBA application by the Project Completion Date.
(b) REPORTS REVIEW. The Community shall review and sign the
reports prepared by the Business as required under the Loan Agreement and
forward them to the Department. The reports shall be submitted by the Community
by the 15th of the month of receipt, and for the final reports, within sixty
(60) days after the Project Completion Date or Agreement Expiration Date period,
whichever is applicable.
(c) RECORDS. The Community shall maintain books, records and
documents in sufficient detail to demonstrate compliance with the Loan Agreement
and shall maintain these materials for a period of three (3) years beyond the
Agreement Expiration Date.
(d) FILING. The Community shall file in a proper and timely manner
any and all Security Instruments required in connection with the Loan, naming
the Department as co-security holder as required in Article 9.1 and promptly
providing the Department with date-stamped copies of said Security Instruments.
The Community shall, at the Department's request, obtain and provide to the
Department lien searches or attorney's title opinions.
(e) INDEMNIFICATION. The Community shall indemnify and hold
harmless the Department, its officers and employees from and against any and all
losses, including any loss due to the failure of the Community to file any and
all Security Instruments in a proper and timely manner.
(f) REQUESTS FOR LOAN FUNDS. The Community shall review the
Business' requests for Loan funds to ensure that the requests are in compliance
with the Department's requisition procedures and shall execute and forward the
requests to the Department for processing.
(g) REPAYMENTS. The Community shall promptly forward to the
Department all Loan repayments received from the Business.
(h) UNUSED LOAN PROCEEDS. The Community shall return all unused
Loan proceeds, including interest accrued on Loan proceeds, to the Department
within thirty (30) days after the Project Completion Date.
(i) NOTICE OF MEETINGS. The Community shall notify the Department
at least ten (10) days in advance of all public or closed meetings at which the
subject matter of this Loan and/or the Project is proposed to be discussed. The
Community shall provide the Department with copies of the agenda and minutes of
such meetings and expressly agrees that a representative of the Department has
the right to attend any such meetings for the purposes of the discussion of the
Project and/or the Loan.
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(j) NOTICE TO DEPARTMENT. In the event the Community becomes aware
of any material alteration in the Project, initiation of any investigation or
proceeding involving the Project or Loan, change in the Business' ownership,
structure or operation, or any other similar occurrence, the Community shall
promptly notify the Department.
(k) RESPONSIBILITY UPON DEFAULT. If the Business fails to perform
under the terms of the Loan Agreement and the Department declares the Business
in default, the Community shall be primarily responsible for recovery of Loan
proceeds, as well as penalties, interest, costs and foreclosure on collateral.
The Department may also initiate an action to recover such proceeds, or may
intervene in any action commenced by the Community.
8.2 NEGATIVE COVENANTS. So long as the Business is indebted to IDED and
loan payments are in arrears or past due, the Community shall not, without
written consent of IDED, accept any loan repayments and/or settlements on
community funds considered local effort in this agreement:
(a) ASSIGNMENT. Assign its rights and responsibilities under this
Loan Agreement.
(b) ALTER FINANCIAL COMMITMENTS. Alter, accelerate or otherwise
change the terms of the Community's financial commitment to the Business as set
forth in Article 4.5.
(c) ADMINISTRATION. Discontinue administration or loan servicing
activities under the Loan Agreement.
ARTICLE IX
SECURITY
9.1 SECURITY INSTRUMENTS. The Business shall execute in joint favor of
the Community and the Department all security agreements, financing statements,
mortgages, personal and/or corporate guarantees (hereafter, "Security
Instruments") as required by the Department. The following Security Instruments
shall be executed by the Business:
1) UCC-1 security filing covering: Machinery and Equipment owned
by the Business with a value of at least $70,000.
9.2 FINANCING STATEMENT. If the Department requires the filing of a
financing statement, the Community shall provide the Department with a copy of
the date-stamped financing statement and a certified lien search which reflects
the recordation of the security interests of the Department and the Community
and all other lienholder of record. The Community shall ensure that the
financing statement(s) include language approved by the Department to secure its
interests.
9.3 MORTGAGE. If the Department requires the filing of a mortgage, the
Community shall provide the Department with a copy of the date-stamped, recorded
mortgage and an attorney's Opinion of Title reflecting the interests of the
Community and the Department.
9.4 COMMUNITY LIABILITY.
(a) The Community shall be solely responsible for the proper and
timely filing of all Security Instruments executed by the Business pursuant to
this Article.
(b) The Community's liability under this Loan Agreement is limited
to those amounts which the Community recovers from the Business in unused Loan
proceeds, enforcement of judgments against the Business and through its good
faith enforcement of the Security Instruments executed by the
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Business under this Article. Notwithstanding this limited financial liability,
the Community shall indemnify and hold harmless the Department, its officers and
employees from and against any and all losses which are the result of the
Community's failure to file, or improper or untimely filing, of any Security
Instrument executed by the Business pursuant to this Article. Nothing in this
paragraph shall limit the recovery of principal and interest by the Department
in the event of Community's fraud, negligence, or gross mismanagement in the
application for, or use of, sums loaned under the Loan Agreement.
9.5 COST VARIATION. In the event that the total Project cost is less
than the amount specified in this Agreement, the CEBA participation shall be
reduced at the same ratio as CEBA funds are to the total Project cost, and any
disbursed excess above the reduced CEBA participation amount shall be returned
immediately to IDED with interest at the rate of six percent (6%) per annum from
the date of disbursement by IDED.
ARTICLE X
DEFAULT AND REMEDIES
10.1 EVENTS OF DEFAULT. The following shall constitute Events of Default
under this Loan Agreement:
(a) MATERIAL MISREPRESENTATION. If at any time any representation,
warranty or statement made or furnished to the Department by, or on behalf of,
the Business or Community in connection with this Loan Agreement or to induce
the Department to make a loan to the Community and/or Business shall be
determined by the Department to be incorrect, false, misleading or erroneous in
any material respect when made or furnished and shall not have been remedied to
the Department's satisfaction within thirty (30) days after written notice by
the Department is given to the Business or Community.
(b) NON-PAYMENT. If the Business fails to make a payment when due
under the terms of this Loan Agreement within thirty (30) days following written
notice of such overdue payment is given to the Business by the Department.
(c) NONCOMPLIANCE. If there is a failure by the Business or
Community to comply with any of the covenants, terms or conditions contained in
this Agreement or Security Instruments executed pursuant to this Agreement.
(d) PROJECT COMPLETION DATE. If the Project, in the sole judgment
of the Department, is not completed on or before the Project Completion Date.
(e) JOB ATTAINMENT OBLIGATION. If the Business, in the exclusive
judgment of the Department, fails to meet its Job Attainment and Wage
Obligation.
(f) BUSINESS CHANGES. If there is a material change in the
Business ownership, structure or control which occurs without the prior written
disclosure to and if required, written permission of the Department.
(g) RELOCATION OR ABANDONMENT. If there is a relocation or
abandonment of the Business or jobs created or retained under the Project.
(h) MISSPENDING. If the Business or Community expends Loan
proceeds for purposes not described in the CEBA application or authorized by the
Department.
(i) INSOLVENCY OR BANKRUPTCY. If the Business becomes insolvent or
bankrupt, or admits in writing its inability to pay its debts as they mature, or
makes an assignment for the benefit of
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creditors, or the Business applies for or consents to the appointment of a
trustee or receiver for the Business or for the major part of its property; or
if a trustee or receiver is appointed for the Business or for all or a
substantial part of the assets of the Business and the order of such appointment
is not discharged, vacated or stayed within sixty (60) days after such
appointment; or if bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or against the
Business and, if instituted against the Business, is consented to, or, if
contested by the Business is not dismissed by the adverse parties or by an
order, decree or judgment within sixty (60) days after such institution.
(j) INSURANCE. If loss, theft, damage or destruction of any
substantial portion of the property of the Business occurs for which there is
either no insurance coverage or for which, in the opinion of the Department,
there is insufficient insurance coverage.
(k) INSECURITY. The Department shall deem itself insecure in good
faith and reasonably believes, after consideration of all the facts and
circumstances then existing, that the prospect of payment and satisfaction of
the obligations under this Agreement, or the performance of or observance of the
covenants in this Agreement, or the value of its collateral is or will be
materially impaired.
10.2 NOTICE OF DEFAULT. The Department shall issue a written notice of
default providing therein a thirty (30) day period in which the Business shall
have an opportunity to cure, provided that cure is possible and feasible.
10.3 REMEDIES UPON DEFAULT. If the default remains unremedied, IDED shall
have the right, in addition to any rights and remedies available to it under any
of the Security Instruments, to do one or more of the following:
(a) exercise any remedy provided by law;
(b) declare the unpaid principal plus interest then accrued on the
Note due and payable immediately without presentment, demand,
protest, notice of protest, notice of intention to accelerate
or other notice of any kind, all of which are expressly waived
by the Business.
10.4 FAILURE TO MEET JOB ATTAINMENT OBLIGATION. If the Business is
determined by the Department to be in default of the Loan Agreement due to
meeting less than one hundred percent (100%) of its Job Attainment and Wage
Obligation, the Department may require full Loan repayment as described in
section 10.2 above or, at its discretion, the Department may permit repayment of
Loan proceeds using the following criteria:
(a) FORGIVABLE LOANS. If the CEBA award is a Forgivable Loan,
interest buy-down or interest subsidy, the Department may require repayment of
Loan proceeds as follows:
A five-year $35,000 forgivable loan. There will be no principal or
interest payments or accruals for years one and two. At the project completion
date, if the Business has fulfilled at least 50% of its job creation/retention
(if applicable) and wage obligation, $1,250 will be forgiven for each new FTE
job created/retained (if applicable) and maintained for at least ninety days
past the project completion date. Any balance (shortfall) will be amortized over
the remaining three years of the contract period (beginning at the project
completion date) at six (6%) percent interest per annum with equal annual
payments. And, interest will be charged at six (6%) percent per annum from the
date of the first CEBA disbursement on the shortfall amount with that amount
accrued as of the project completion date being due and payable immediately.
And, further, the Department will at the end of the agreement expiration date
determine the number of full-time equivalent jobs, and, if that number is less
than the job attainment obligation in 7.1 and 7.2 of this agreement, the
Business will reimburse funds to the Department on the cost-per-job basis set
out above. If the Business has failed to fulfill at least 50% of its job
creation/retention (if applicable) and wage obligation, 100% of the CEBA award
will be repaid as the shortfall amount under the above-described terms and
conditions.
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(b) CONVENTIONAL LOANS. If the Business received a Loan at a rate
that is below the annual interest rate for non-compliance as set periodically by
the IDED Board, the remaining principal amount of the Loan may be prorated
between the percentage of FTE Jobs created/retained (if applicable) at the
Project Wage Threshold and the percentage of the shortfall. The shortfall
principal portion may be amortized over the remaining term of the Loan,
beginning at the Project Completion Date, at an annual interest rate as
determined periodically by the IDED Board. Interest will be charged beginning
from the date Loan proceeds were disbursed to the Community on behalf of the
Business; interest accrued from this date will be due immediately. The pro rata
portion of the Loan associated with the percentage of FTE Jobs created will be
amortized at the original rate and term.
ARTICLE XI
DISBURSEMENT PROCEDURES
1.11 REQUEST FOR REIMBURSEMENT. All disbursements of proceeds shall be
subject to receipt by the Department of requests for disbursement submitted by
the Community. Requests for disbursement shall be in form and content acceptable
to the Department.
ARTICLE XII
GENERAL TERMS AND PROVISIONS
12.1 BINDING EFFECT. This Loan Agreement shall be binding upon and shall
inure to the benefit of the Department, Community and Business and their
respective heirs, successors, legal representatives and assigns. The
obligations, covenants, warranties, acknowledgments, waivers, agreements, terms,
provisions and conditions of this Loan Agreement shall be jointly and severally
enforceable against the parties to this Loan Agreement.
12.2 COMPLIANCE WITH LAWS AND REGULATIONS. The Community and Business
shall comply with all applicable State and federal laws, rules (including the
administrative rules adopted by the Department for the CEBA Program - 261 Iowa
Administrative Code, chapter 22), ordinances, regulations and orders.
12.3 TERMINATION FOR CONVENIENCE. In addition to termination due to an
Event of Default or nonappropriation of CEBA funds, this Loan Agreement may be
terminated in whole, or in part, when the Department, Community and the Business
agree that the continuation of the Project would not produce beneficial results
commensurate with the future disbursement of Loan funds. The Department,
Community and Business shall agree upon the termination conditions. The
Community and Business shall not incur new obligations after the effective date
of the termination and shall cancel as many outstanding obligations as is
reasonably possible. The Department will allow full credit to the Community or
the Business for the Department share of the noncancellable obligations
allowable under the Loan Agreement and properly incurred by the Community or
Business prior to termination.
12.4 PROCEDURE UPON TERMINATION. If the Loan Agreement is terminated for
convenience, an Event of Default or nonappropriation of CEBA funds,
disbursements shall be allowed for costs up to the date of termination
determined by the Department to be in compliance with this Loan Agreement. The
Community and the Business shall return to the Department all unencumbered Loan
proceeds within one (1) week of receipt of Notice of Termination. Any costs
previously paid by the Department which are subsequently determined to be
unallowable through audit, monitoring or closeout procedures shall be returned
to the Department within thirty (30) days of the disallowance.
12.5 SURVIVAL OF AGREEMENT. If any portion of this Loan Agreement is held
to be invalid or unenforceable, the remainder shall be valid and enforceable.
The provisions of this Loan Agreement shall survive the execution of all
instruments herein mentioned and shall continue in full force until the Loan is
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CEBA 98-CEBA-03
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paid in full.
12.6 GOVERNING LAW. This Loan Agreement and all Security Instruments
shall be interpreted in accordance with the law of the State of Iowa, and any
action relating to the Loan Agreement shall only be commenced in the Iowa
District Court for Polk County or the United States District Court for the
Southern District of Iowa.
12.7 MODIFICATION. Neither this Loan Agreement nor any provision of the
Security Instruments executed in connection with this Loan Agreement may be
changed, waived, discharged or terminated orally, but only by a written document
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
12.8 NOTICES. Whenever this Loan Agreement requires or permits any notice
or written request by one party to another, it shall be in writing, enclosed in
an envelope, addressed to the party to be notified at the address heretofore
stated (or at such other address as may have been designated by written notice),
properly stamped, sealed and deposited in the United State Mail. Any such notice
given hereunder shall be deemed delivered upon the earlier of actual receipt or
two (2) business days after posting. The Department may rely on the addresses of
the Business and Community set forth heretofore, as modified from time to time,
as being the addresses of the Community and Business.
12.9 INVESTMENT OF LOAN FUNDS. Temporarily idle Loan proceeds held by the
Community or Business may be invested provided such investments shall be in
accordance with State law, shall be controlled by the Community or Business, and
any interest accrued shall be credited to and expended on the Project prior to
the expenditure of other Loan proceeds. All Loan proceeds remaining, including
accrued interest, after all allowable Project costs have been paid or obligated
shall be returned to the Department within thirty (30) days after the Project
Completion Date.
12.10 RESOLUTION OF DISAGREEMENT. In the event of any disagreement between
the parties to this Loan Agreement relating to the technical competence of the
work and services being performed and its conformity to the requirements of this
Loan Agreement, the Department shall resolve the disagreement. The decision of
the Department shall be binding on the Community and the Business.
12.11 WAIVERS. No waiver by the Department of any default hereunder shall
operate as a waiver of any other default or of the same default on any future
occasion. No delay on the part of the Department in exercising any right or
remedy hereunder shall operate as a waiver thereof. No single or partial
exercise of any right or remedy by the Department shall preclude future exercise
thereof or the exercise of any other right or remedy.
12.12 LIMITATION. It is agreed between the Community and the Business that
the Department shall not, under any circumstances, be obligated financially
under this Loan Agreement except to disburse funds according to the terms of the
Agreement.
12.13 ENFORCEMENT EXPENSES. The Business shall pay upon demand any and all
reasonable fees and expenses of the Community and/or the Department, including
the fees and expenses of their attorneys, experts and agents, in connection with
the exercise or enforcement of any of the rights of the Department and/or
Community under the Loan Agreement.
12.14 HEADINGS. The headings in this Loan Agreement are intended solely
for convenience of reference and shall be given no effect in the construction
and interpretation of this Loan Agreement.
12.15 FINAL AUTHORITY. The Department shall have the final authority to
assess whether the Business has met its Job Attainment Obligation and whether
the Community and Business have otherwise complied with the terms of this
Agreement.
<PAGE> 16
Promissory Note
CEBA 98-CEBA-03
PAGE 16
12.16 INTEGRATION. This Loan Agreement contains the entire understanding
between the Community, Business and the Department and any representations that
may have been made before or after the signing of this Loan Agreement, which are
not contained herein, are nonbinding, void and of no effect. None of the parties
have relied on any such prior representation in entering into this Loan
Agreement.
12.17 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Loan Agreement
effective as of the Award Date first stated.
COMMUNITY:
Attorney for Coralville Mayor
Approved as to form and content.
BY:_____________________________ BY:_____________________________________
(City Attorney) James Fausett, Mayor
IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT:
BY:_____________________________ BY:_____________________________________
Michael E. Miller, Chief David J. Lyons, Director
Bureau of Business Finance
BUSINESS:
Urosurge, Inc.
BY:_________________________________
David H. Maupin, President
<PAGE> 17
Promissory Note
CEBA 98-CEBA-03
PAGE 17
ATTACHMENT B1-
PROMISSORY NOTE-
BUSINESS
IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT
CEBA PROGRAM
PROMISSORY NOTE
Loan Number 98-CEBA-03
Des Moines, Iowa
--------------------------
(City and State)
$70,000 August 21, 1997
--------------------------
(Date)
FOR VALUE RECEIVED, the undersigned (hereafter called the "Maker")
promises to pay to the order of the City of Coralville (hereafter called the
"Payee"), at its office at City Hall, or upon notice to the Maker, at such
other place as may be designated from time to time by the holder, the principal
sum of Seventy Thousand ($70,000) dollars, to be paid as follows:
A $35,000 LOAN AT ZERO (0%) PERCENT INTEREST TO BE PAID AS FOLLOWS:
59 monthly payments of $583.33 and 1 final payment of $583.53 beginning on
the 15th day of the third month from the date CEBA funds are disbursed.
Final payment may vary depending upon dates payments are received. Such
payments shall be applied first on interest then due and the remainder on
principal.
AND; A $35,000 FORGIVABLE LOAN AT SIX (6%) PERCENT INTEREST TO BE PAID AS
FOLLOWS:
A five-year $35,000 forgivable loan. There will be no principal or
interest payments or accruals for years one and two. At the project
completion date, if the Business has fulfilled at least 50% of its job
creation/retention (if applicable) obligation, $1,250 will be forgiven for
each new FTE job created/retained (if applicable) and maintained for at
least ninety days past the project completion date. Any balance
(shortfall) will be amortized over the remaining three years of the
contract period (beginning at the project completion date) at six (6%)
percent interest per annum with equal annual payments. And, interest will
be charged at six (6%) percent per annum from the date of the first CEBA
disbursement on the shortfall amount with that amount accrued as of the
project completion date being due and payable immediately. And, further,
the Department will at the end of the agreement expiration date determine
the number of full-time equivalent jobs, and, if that number is less than
the number at the project completion date, the Business will reimburse
funds to the Department on the cost-per-job basis set out above. If the
Business has failed to fulfill at least 50% of its job creation/retention
(if applicable) obligation, 100% of the CEBA award will be repaid as the
shortfall amount under the above-described terms and conditions.
1. PAYMENTS. All payments under the Note shall be applied in this order:
(1) to interest, and (2) to principal.
2. LOAN AGREEMENT; ACCELERATION UPON DEFAULT. This Note is issued by Maker
to evidence an obligation to repay a loan according to the terms of Loan
Agreement # 98-CEBA-03 of
<PAGE> 18
Promissory Note
CEBA 98-CEBA-03
PAGE 18
August 21, 1997 between the Payee and Maker and, at the election of the holder
without notice to the Maker, shall become immediately due and payable in the
event any payment is not made when due or upon the occurrence of any event of
default under the terms of the Loan Agreement.
3. REDUCED AMOUNT. In the event the Maker fails to requisition and spend
the full face amount of the Note as set out above, then the amount of each
installment payment shall be reduced accordingly in equal amounts.
4. SECURITY. Payment of this Note is secured by a UCC-1 LIEN ON MACHINERY
& EQUIPMENT and the holder is entitled to the benefits of the security therein
described.
In case of a decline in the market value of the collateral, or any part
thereof, the Payee may demand that additional collateral of quality and value
satisfactory to holder be delivered, pledged and transferred to holder.
5. WAIVER. No delay or omission on the part of the holder in exercising
any right under this Note shall operate as a waiver of that right or of any
other right under this Note. A waiver on any one occasion shall not be construed
as a bar to or waiver of any right and/or remedy on any future occasion.
6. WAIVER OF PROTEST. Each maker, surety, indorser and guarantor of this
Note, expressly waives presentment, protest, demand, notice of dishonor or
default, and notice of any kind with respect to this Note.
7. COSTS OF COLLECTION. The Maker will pay an demand all costs of
collection, maintenance of collateral, legal expenses, and attorneys' fees
incurred or paid by the holder in collecting and/or enforcing this Note on
default.
8. MEANING OF TERMS. As used in this Note, "holder" shall mean the Payee
or other indorsee of this Note, who is in possession of it, or the bearer
hereof, if this Note is at the time payable to the bearer. The word "Maker"
shall mean each of the undersigned. If this Note is signed by more than one
person, it shall be the joint and several liabilities of such persons.
9. MISCELLANEOUS. The captions of paragraphs in this Promissory Note are
for the convenience of reference only, shall not define or limit the provisions
hereof and shall not have any legal or other significance whatsoever.
ADDRESS: BY: /s/ DAVID H. MAUPIN
Urosurge. Inc. -------------------------------------
2660 Crosspark Road David H. Maupin, President
Coralville, Iowa 52241
ATTEST: _________________________________
(Signature of Secretary)
<PAGE> 19
Promissory Note
CEBA 98-CEBA-03
PAGE 19
ATTACHMENT B2
PROMISSORY NOTE-
COMMUNITY
IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT
CEBA PROGRAM
PROMISSORY NOTE
Loan Number 98-CEBA-03
Des Moines, Iowa
--------------------------
(City and State)
$70,000 August 21, 1997
--------------------------
(Date)
FOR VALUE RECEIVED, the undersigned (hereafter called the "Maker")
promises to pay to the order of the State of Iowa, Department of Economic
Development (hereafter called the "Payee"), at its office at 200 East Grand
Avenue, Des Moines, Iowa 50309, or upon notice to the Maker, at such other place
as may be designated from time to time by the holder. the principal sum of
Seventy Thousand ($70,000) dollars, to be paid as follows:
A $35,000 LOAN AT ZERO(0%) PERCENT INTEREST TO BE PAID AS FOLLOWS:
59 monthly payments of $583.33 and 1 final Payment of $583.53 beginning on
the last day of the third month from the date CEBA funds are disbursed.
Final payment may vary depending upon dates payments are received. Such
payments shall be applied first on interest then due and the remainder on
principal.
AND; A $35,000 FORGIVABLE LOAN AT SIX (6%) PERCENT INTEREST TO BE PAID AS
FOLLOWS:
A five-year $35,000 forgivable loan. There will be no principal or
interest payments or accruals for years one and two. At the project
completion date, if the Business has fulfilled at least 50% of its job
creation/retention (if applicable) obligation, $1,250 will be forgiven for
each new FTE job created/retained (if applicable) and maintained for at
least ninety days past the project completion date. Any balance
(shortfall) will be amortized over the remaining three years of the
contract period (beginning at the project completion date) at six (6%)
percent interest per annum with equal annual payments. And, interest will
be charged at six (6%) percent per annum from the date of the first CEBA
disbursement on the shortfall amount with that amount accrued as of the
project completion date being due and payable immediately, And, further,
the Department will at the end of the agreement expiration date determine
the number of full-time equivalent jobs, and, if that number is less than
the number at the project completion date, the Business will reimburse
funds to the Department on the cost-per-job basis set out above. If the
Business has failed to fulfill at least 50% of its job creation/retention
(if applicable) obligation, 100% of the CEBA award will be repaid as the
shortfall amount under the above-described terms and conditions.
1. PAYMENTS. All payments under the Note shall be applied in this order,
(1) to interest, and (2) to principal.
2. LOAN AGREEMENT; ACCELERATION UPON DEFAULT. This Note is issued by Maker
to evidence an obligation to repay a loan according to the terms of Loan
Agreement # 98-CEBA-03 of August 21, 1997 between the Payee and Maker and, at
the election of the holder without notice to
<PAGE> 20
Promissory Note
CEBA 98-CEBA-03
PAGE 20
the Maker, shall become immediately due and payable in the event any payment is
not made when due or upon the occurrence of any event of default under the terms
of the Loan Agreement.
3. LIMITATION. Maker's liability for the repayment of this Note is limited
to those amounts Maker collects through its good faith enforcement of security
interest which Maker represents that it has obtained or will obtain as required
by the above-referenced Loan Agreement Upon exhaustion of its rights in the
collateral granted by such security interest, the Maker will have no liability
for any deficiency owing Payee under this Note. Nothing in this paragraph shall
limit the recovery of principal and interest by Payee in the event of Maker's
fraud, negligence, or gross mismanagement in the application for, or use of,
sums loaned under the above-referenced Loan Agreement.
4. REDUCED AMOUNT. In the event the Maker fails to requisition and spend
the full face amount of the Note as set out above, then the amount of each
installment payment shall be reduced accordingly in equal amounts.
5. SECURITY. Payment of this Note is secured by a UCC-1 LIEN ON MACHINERY
& EQUIPMENT and the holder is entitled to the benefits of the security therein
described.
In case of a decline in the market value of the collateral, or any part
thereof, the Payee may demand that additional collateral of quality and value
satisfactory to holder be delivered, pledged and transferred to holder.
6. WAIVER. No delay or omission on the part of the holder in exercising
any right under this Note shall operate as a waiver of that right or of any
other right under this Note. A waiver on any one occasion shall not be construed
as a bar to or waiver of any right and/or remedy on any future occasion.
7. WAIVER OF PROTEST. Each maker, surety, indorser and guarantor of this
Note, expressly waives presentment, protest, demand, notice of dishonor or
default, and notice of any kind with respect to this Note.
8. COSTS OF COLLECTION. The Maker will pay on demand all costs of
collection, maintenance of collateral, legal expenses, and attorneys' fees
incurred or paid by the holder in collecting and/or enforcing this Note on
default.
9. MEANING OF TERMS. As used in this Note, "holder" shall mean the Payee
or other indorsee of this Note, who is in possession of it, or the bearer
hereof, if this Note is at the time payable to the bearer. The word "Maker"
shall mean each of the undersigned. If this Note is signed by more than one
person, it shall be the joint and several liabilities of such persons.
10. MISCELLANEOUS. The captions of paragraphs in this Promissory Note are
for the convenience of reference only, shall not define or limit the provisions
hereof and shall not have any legal or other significance whatsoever.
ADDRESS: COMMUNITY:
City of Coralville
City Hall BY:______________________________________
Coralville, Iowa 52241 James Fausett, Mayor
ATTEST:__________________________________
(Signature of City Clerk)
<PAGE> 1
Exhibit 10.10
Agreement Amendment Number: (1) Agreement Number: 95-17
Issuing Agency: Agreement Title:
Department of Economic Development Community Economic Betterment Account
Community: Business:
City of Coralville Urosurge, Inc.
Amendment Effective Date: Project Completion/Job Attainment Date:
March 19, 1997 September 30, 1997
Final loan Repayment Date:
January 31, 2000
WHEREAS, the Department of Economic Development (hereafter referred to as
the Department), approved CEBA Agreement Number 95-17 with the City of
Coralville (hereafter referred to as the Community) and Urosurge, Inc.
(hereafter referred to as the Business) on September 22, 1994 for the
expenditure of Community Economic Betterment funds, and
WHEREAS, the Community and Business are now desirous of amending said
agreement and have requested to change the Project Completion Date.
THEREFORE, said Agreement by and between the Department, the Community and
the Business is hereby amended as follows:
Amend Article 1.3 Community Base Jobs to read:
1.3 COMMUNITY BASE JOBS. "Community Base Jobs" means the number of
Full-time Equivalent (FTE) Jobs the Department determines are in place in the
Community at the time of application for CEBA funds and which will remain in the
Community whether or not CEBA funds are awarded. Said jobs must be maintained
for a minimum of thirteen (13) weeks beyond the Project Completion Date. If the
Agreement includes a Forgivable Loan, said jobs must again be in place at the
second (2nd) year anniversary of the Project Completion Date.
Amend Article 1.4 Created Jobs to read:
1.4 CREATED JOBS. "Created Jobs" means the number of new Full-time
Equivalent (FTE) Jobs the Business will add to the Community which meet the
Project Wage Obligation over and above the number of Community Base Jobs and/or
Retained Jobs. Said jobs must be maintained for a minimum of thirteen (13)
weeks beyond the Project Completion Date. If the Agreement includes a Forgivable
Loan, said jobs must again be in place at the second (2nd) year anniversary date
of the Project Completion Date.
Amend Article l.11 Project Completion Date to read:
1.11 PROJECT COMPLETION DATE. "Project Completion Date" means September
30, 1997 and is the date by which the Project tasks shall have been fully
accomplished including fulfillment of the Job Attainment Obligation.
Amend Article 1.13 Retained Jobs to read:
1.13 RETAINED JOBS. "Retained Jobs" means the number of Full-Time
Equivalent (FTE) jobs the Department determines are in place in the
Community at the time of
<PAGE> 2
CEBA #95-17
Amendment #1
Page 2
application for CEBA assistance and which the Business and Community agree
will be retained due to the receipt of the CEBA funds. Said jobs must be
maintained for a minimum of thirteen (13) weeks beyond the Project
Completion Date. If the Agreement includes a Forgivable Loan, said jobs
must again in place at the second (2nd) year anniversary of the Project
completion Date.
Amend Article 7.2 State Employment Level to read:
7.2 STATE EMPLOYMENT LEVEL.
Not Applicable
Amend Article 10.4(a)i to read:
i. Not Applicable
Amend Article 10.4(a)ii to read:
ii. Not Applicable
Amend Article 10.4(a)iii to read:
iii. Not Applicable
IN WITNESS THEREOF, the parties hereto have executed this Amendment on the day
and year last specified below:
Community: Issuing Agency:
City of Coralville Department of Economic Development
By: /s/ JIM L. FAUSETT By:
--------------------------------- ----------------------------------
Mayor David J. Lyons, Director
Date: 4-30-97 Date:
------------------------------- --------------------------------
By:
----------------------------------
Michael E. Miller, Bureau Chief
Date:
--------------------------------
Business:
Urosurge, Inc.
By: /s/ DIANE GALLAGHER
-------------------------------
Diane Gallagher, Manager
Date: 5/2/97
------------------------------
<PAGE> 1
EXHIBIT 10.11
UROSURGE, INC.
RESTATED INVESTORS RIGHTS AGREEMENT
This Restated Investors Rights Agreement is made as of June 13, 1997 by
and between UroSurge, Inc. a Delaware corporation (the "Company"), those
entities and persons listed on Exhibit A attached hereto (individually an
"Investor" and collectively the "Investors"), and those entities and persons
listed on Exhibit B attached hereto (individually a "Management Stockholder" and
collectively the "Management Stockholders").
WHEREAS, the Company intends to enter into a Series C Preferred Stock
Purchase Agreement of even date herewith (the "Stock Purchase Agreement") with
certain of the Investors, and in this connection, the Company and the Investors
wish to amend and restate the Restated Investors Rights Agreement dated as of
October 16, 1995 (the "Prior Agreement") to read as set forth herein.
1. Inspection Rights. The Company shall permit each Investor, or any
authorized representative thereof, to visit and inspect the properties of the
Company, including its corporate and financial records, and to discuss its
business and finances with officers of the Company, during normal business hours
following reasonable notice and as often as may be reasonably requested. All
rights granted to Investors under this Section 1 shall terminate upon the
closing of the sale of shares of Common Stock in an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, which results in the automatic conversion of all outstanding
Preferred Stock into Common Stock in accordance with the Company's Certificate
of Incorporation (a "Qualified Public Offering").
2. Financial Statements and Other Information.
2.1 Delivery to Investors. The Company will deliver to each
Investor:
(a) within 90 days after the end of each fiscal year of
the Company, an audited balance sheet of the Company as at the end of such year
and audited statements of income and of cash flows of the Company for such year,
certified by certified public accountants of established national reputation
selected by the Company, and prepared in accordance with generally accepted
accounting principles; and
(b) within 45 days after the end of each fiscal quarter of
the Company, an unaudited balance sheet of the Company as at the end of such
quarter, and unaudited statements of income and of cash flow of the Company for
such fiscal quarter and for the current fiscal year to the end of such fiscal
quarter.
2.2 Delivery to Major Investors. The Company will deliver to each
Major Investor (as defined in Section 2.4 below):
<PAGE> 2
(a) as soon as available, but in any event within 60 days
after commencement of each new fiscal year, a business plan and projected
financial statements for such fiscal year; and
(b) with reasonable promptness, such other notices,
information and data with respect to the Company as the Company delivers to the
holders of its Common Stock, and such other information and data as such Major
Investor may from time to time reasonably request.
2.3 Consolidated Basis. The foregoing financial statements shall
be prepared on a consolidated basis if the Company then has any subsidiaries.
2.4 Definition of Major Investor. For purposes of this Agreement,
the term "Major Investor" shall mean an Investor holding not less than one
hundred thousand (100,000) shares of Preferred Stock, so long as such Investor
continues to own not less than one hundred thousand (100,000) shares of
Preferred Stock. For purposes of determining the number of shares held by an
Investor, (i) the foregoing number shall be adjusted for any stock splits, stock
dividends, recapitalizations or similar events, (ii) shares of Preferred Stock
shall include shares which have been converted into Common Stock so long as such
Common Stock is held by such Investor, and (iii) with respect to Investors that
are corporations or partnerships, shares of Preferred Stock shall include shares
distributed to and held by their respective shareholders and partners.
2.5 Termination of Rights. The obligations of the Company under
this Section 2 shall terminate upon the closing of a Qualified Public Offering.
3. Right of First Refusal.
3.1 Grant of Right of First Refusal. The Company hereby grants to
each Investor a right of first refusal to purchase all or part of its or his pro
rata share of any New Securities (as defined below) which the Company may, from
time to time, propose to sell and issue following the date of this Agreement,
subject to the terms and conditions set forth below. An Investor's pro rata
share, for purposes of this Section 3, shall equal a fraction, the numerator of
which is the number of shares of Common Stock then held by such Investor or
issuable upon conversion or exercise of any shares of Preferred Stock or other
convertible securities, options, rights or warrants then held by such Investor,
and the denominator of which is the total number of shares of Common Stock then
outstanding plus the number of shares of Common Stock issuable upon conversion
or exercise of then outstanding Preferred Stock or other convertible securities,
options, rights or warrants.
3.2 Definition of New Securities. "New Securities" shall mean any
capital stock of the Company whether now authorized or not, and rights, options
or warrants to purchase capital stock, and securities of any type whatsoever
which are, or may become, convertible into capital stock; provided, however,
that the term "New Securities" does not include (i) the shares of Series C
Preferred Stock issued or issuable pursuant to the terms of the Stock Purchase
Agreement; (ii) the shares of Common Stock issued or issuable upon conversion of
shares of Preferred Stock; (iii) securities offered to the public pursuant to a
Registration Statement (as defined in Section 4.1); (iv) securities issued for
<PAGE> 3
the acquisition of another corporation by the Company by merger, purchase of
substantially all the assets of such corporation or another reorganization
resulting in the ownership by the Company of not less than a majority of the
voting power of such corporation; (v) not more than 1,010,000 shares of Common
Stock (such number being subject to adjustment for any stock dividend, stock
split, subdivision, combination or other recapitalization of the Common Stock of
the Company) issued to directors or employees of or consultants to the Company
pursuant to a stock option plan, employee stock purchase plan, restricted stock
plan or other employee stock plan or agreement or otherwise (and, in the case of
rights, options or warrants, the Common Stock issuable upon exercise thereof);
or (vi) securities issued as a result of any stock split, stock dividend or
reclassification of Common Stock, distributable on a pro rata basis to all
holders of Common Stock.
3.3 Procedure. In the event the Company intends to issue New
Securities, it shall give each Investor written notice of such intention,
describing the type of New Securities to be issued, the price thereof and the
general terms upon which the Company proposes to effect such issuance. Each
Investor shall have 20 days from the date of any such notice to agree to
purchase all or part of its or his pro rata share of such New Securities for the
price and upon the general terms and conditions specified in the Company's
notice by giving written notice to the Company stating the quantity of New
Securities to be so purchased. Each Investor shall have a right of overallotment
such that if any Investor fails to exercise his or its right hereunder to
purchase his or its total pro rata portion of New Securities, the other
Investors may purchase such portion on a pro rata basis, by giving written
notice to the Company within five days from the date that the Company provides
written notice to the other Investors of the amount of New Securities with
respect to which such nonpurchasing Investor has failed to exercise its or his
right hereunder.
3.4 Failure to Exercise Right of First Refusal. In the event any
Investor or Investors fail to exercise the foregoing right of first refusal with
respect to any New Securities within such 20-day period (or the additional
five-day period provided for overallotments), the Company may within 120 days
thereafter sell any or all of such New Securities not agreed to be purchased by
the Investors, at a price and upon general terms no more favorable to the
purchasers thereof than specified in the notice given to each Investor pursuant
to Section 3.3 above. In the event the Company has not sold such New Securities
within such 120-day period, the Company shall not thereafter issue or sell any
New Securities without first offering such New Securities to the Investors in
the manner provided above.
3.5 Definition of Investor. For purposes of this Section 3,
"Investor" shall include the general partners, officers or other affiliates of
an Investor, and an Investor may apportion its pro rata share among itself and
such general partners, officers and other affiliates in such proportions as it
deems appropriate.
3.6 Termination of Rights. All rights granted to Investors under
this Section 3 shall terminate on the closing of a Qualified Public Offering.
<PAGE> 4
4. Registration Rights.
4.1 Certain Definitions. As used in this Section 4 and elsewhere
in this Agreement, the following terms shall have the following respective
meanings:
"Commission" means the Securities and Exchange Commission,
or any other Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Preferred Stock" shall mean (i) the shares of Series A
Preferred Stock issued pursuant to the Series A Convertible Preferred Stock
Purchase Agreement dated as of March 11, 1994, as amended (the "Series A
Agreement"), (ii) the shares of Series B Preferred Stock issued pursuant to the
Series B Preferred Stock Purchase Agreement dated as of September 29, 1995, as
amended (the "Series B Agreement"), and (iii) the shares of Series C Preferred
Stock issued pursuant to the Stock Purchase Agreement.
"Registration Statement" means a registration statement
filed by the Company with the Commission for a public offering and sale of
securities of the Company (other than a registration statement on Form S-8 or
Form S-4, or their successors, or any other form for a limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
"Registration Expenses" means the expenses described in
Section 4.5.
"Registrable Shares" means (i) the shares of the Company's
Common Stock issued or issuable upon conversion of shares of Preferred Stock,
and (ii) any other shares of Common Stock of the Company issued in respect of
such shares (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
Stock which are Registrable Shares shall cease to be Registrable Shares upon any
sale of such shares pursuant to a Registration Statement or Rule 144 under the
Securities Act or any sale in any manner to a person or entity which, by virtue
of Section 5 of this Agreement, is not entitled to the rights provided by this
Section 4. Wherever reference is made in this Agreement to a request or consent
of holders of a certain percentage of Registrable Shares, the determination of
such percentage shall include shares of Common Stock issuable upon conversion of
shares of Preferred Stock or Preferred Stock previously issued even if such
conversion has not been effected.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
<PAGE> 5
4.2 Required Registrations.
(a) At any time after the earlier of December 31, 1998 or
the closing of the Company's first underwritten public offering of shares of
Common Stock pursuant to a Registration Statement, an Investor or Investors
holding in the aggregate at least 35% of the Registrable Shares may request, in
writing, that the Company effect the registration on Form S-1 or Form S-2 (or
any successor form) of Registrable Shares owned by such Investor or Investors
having an aggregate offering price of at least $2,000,000 (based on the then
current market price or fair value). If the holders initiating the registration
intend to distribute the Registrable Shares by means of an underwriting, they
shall so advise the Company in their request. In the event such registration is
underwritten, the right of other Investors to participate shall be conditioned
on such Investors' participation in such underwriting. Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all Investors. Such Investors shall have the right, by giving
written notice to the Company within 30 days after the Company provides its
notice, to elect to have included in such registration such of their Registrable
Shares as such Investors may request in such notice of election, subject to the
approval of the underwriter managing the offering as provided below. Thereupon,
the Company shall, as expeditiously as possible, use its best efforts to effect
the registration, on Form S-1 or Form S-2 (or any successor form), of all
Registrable Shares which the Company has been requested to so register.
Notwithstanding any other provision of this Section 4.2, if the managing
underwriter advises the holders of Registrable Shares initiating the
registration in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the holders of Registrable Shares
initiating the registration shall so advise all holders of Registrable Shares
which would otherwise be included in the underwriting and the number of
Registrable Shares that may be included in the underwriting shall be allocated
among all such holders of Registrable Shares, including the holders of
Registrable Shares initiating the registration, in proportion (as nearly as
practicable) to the amount of Registrable Shares of the Company owned by each
such holder. If the managing underwriter does not limit the number of
Registrable Shares to be underwritten, the Company or other holders of
securities of the Company who have registration rights similar to those set
forth in Section 4.2 hereof may include Common Stock for their respective
accounts in such registration if the managing underwriter states that such
inclusion would not adversely affect the offering of Registrable Shares for any
reason and if the number of Registrable Shares which would otherwise have been
included in such registration and underwriting will not thereby be limited or
reduced.
(b) At any time after the Company becomes eligible to file
a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), an Investor or Investors holding in the aggregate at least
15% of the Registrable Shares may request in writing that the Company effect the
registration on Form S-3 (or such successor form), of Registrable Shares having
an aggregate offering price of at least $250,000 (based on the then current
public market price). Upon receipt of any such request, the Company shall
promptly give written notice of such proposed registration to all Investors.
Such Investors shall have the right, by giving written notice to the Company
within 30 days after the Company provides its notice, to elect to have included
in such registration such of their Registrable Shares as such Investors may
request in such notice of election. Thereupon, the Company
<PAGE> 6
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3, or such successor form, of all Registrable Shares
which the Company has been requested to register.
(c) The Company shall not be required to effect more than
two registrations pursuant to paragraph (a) above or more than four
registrations pursuant to paragraph (b) above. In addition, the Company shall
not be required to effect any registration (other than on Form S-3 or any
successor form relating to secondary offerings) within six months after the
effective date of any other Registration Statement of the Company.
(d) If at the time of any request to register Registrable
Shares pursuant to this Section 4.2, the Company is engaged or has fixed plans
to engage within 30 days of the time of the request in a registered public
offering as to which the Investors may include Registrable Shares pursuant to
Section 4.3 or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely affected
by the requested registration to the material detriment of the Company, then the
Company may at its option direct that such request be delayed for a period not
in excess of six months from the effective date of such offering or the date of
commencement of such other material activity, as the case may be, such right to
delay a request to be exercised by the Company not more than once in any two
year period.
4.3 Incidental Registration.
(a) Whenever the Company proposes to file a Registration
Statement (other than pursuant to Section 4.2) at any time and from time to
time, it will, prior to such filing, give written notice to all Investors of its
intention to do so and, upon the written request of an Investor or Investors
given within 20 days after the Company provides such notice (which request shall
state the intended method of disposition of such Registrable Shares), the
Company shall use its best efforts to cause all Registrable Shares which the
Company has been requested by such Investor or Investors to register to be
registered under the Securities Act to the extent necessary to permit their sale
or other disposition in accordance with the intended methods of distribution
specified in the request of such Investor or Investors; provided that the
Company shall have the right to postpone or withdraw any registration effected
pursuant to this Section 4.3 without obligation to any Investor.
(b) In connection with any offering under this Section 4.3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not, in the
opinion of the underwriters, jeopardize the success of the offering by the
Company. If in the opinion of the managing underwriter the registration of all,
or part of, the Registrable Shares which the holders have requested to be
included would materially and adversely affect such public offering, then the
Company shall be required to include in the underwriting only that number of
Registrable Shares which the managing underwriter believes may be sold without
causing such adverse effect; provided, however, that in no event shall the
amount of Registrable Shares included in the registration be reduced below
twenty-five percent (25%) of the total amount of securities included in such
registration, unless such offering is the
<PAGE> 7
initial underwritten public offering of the Company's securities, in which event
any or all of the Registrable Shares requested to be included in the
registration may be excluded. If the number of Registrable Shares to be included
in the underwriting in accordance with the foregoing is less than the total
number of shares which the holders of Registrable Shares have requested to be
included, then the holders of Registrable Shares who have requested registration
and other holders of shares of Common Stock entitled to include shares of Common
Stock in such registration shall participate in the underwriting pro rata based
upon their total ownership of shares of Common Stock of the Company. If any
holder would thus be entitled to include more shares than such holder requested
to be registered, the excess shall be allocated among other requesting holders
pro rata based upon their total ownership of Registrable Shares.
4.4 Registration Procedures. If and whenever the Company is
required by the provisions of this Agreement to use its best efforts to effect
the registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period of not less than 120 days from
the effective date;
(c) as expeditiously as possible furnish to each selling
Investor such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling Investor may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Investor; and
(d) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the selling Investors
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Investors to consummate the public
sale or other disposition in such states of the Registrable Shares owned by the
selling Investor; provided, however, that the Company shall not be required in
connection with this paragraph (d) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Investors and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly notify
the selling Investors and, if requested, the selling Investors shall immediately
cease making offers of Registrable Shares and return all prospectuses to the
Company. The
<PAGE> 8
Company shall promptly provide the selling Investors with revised prospectuses
and, following receipt of the revised prospectuses, the selling Investors shall
be free to resume making offers of the Registrable Shares.
4.5 Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if a
registration is withdrawn at the request of the Investors requesting such
registration (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Investors after
the date on which such registration was requested) and if the requesting
Investors elect not to have such registration counted as a registration
requested under Section 4.2, the requesting Investors shall pay the Registration
Expenses of such registration pro rata in accordance with the number of their
Registrable Shares included in such registration. For purposes of this Section,
the term "Registration Expenses" shall mean all expenses incurred by the Company
in complying with this Agreement including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company and the fees and expenses of one
counsel selected by the selling Investors to represent the selling Investors,
state Blue Sky fees and expenses, and the expense of any special audits incident
to or required by any such registration, but excluding underwriting discounts,
selling commissions and the fees and expenses of selling Investors' own counsel
(other than the counsel selected to represent all selling Investors).
4.6 Indemnification. In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or omission made in such Registration Statement, preliminary prospectus or
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use in
the preparation thereof.
<PAGE> 9
In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller, specifically for use in connection with the preparation
of such Registration Statement, prospectus, amendment or supplement; provided,
however, that the obligations of such Stockholders hereunder shall be limited to
an amount equal to the proceeds to each Stockholder of Registrable Shares sold
as contemplated herein.
Each party entitled to indemnification under this Section 4.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement unless the Indemnifying Party is adversely
affected by such failure. The Indemnified Party may participate in such defense
at such party's expense; provided, however, that the Indemnifying Party shall
pay such expense if representation of such Indemnified Party by the counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential differing interests between the Indemnified Party and any other party
represented by such counsel in such proceeding. No Indemnifying Party, in the
defense of any such claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect of such claim or litigation, and no Indemnified Party shall consent
to entry of any judgment or settle such claim or litigation without the prior
written consent of the Indemnifying Party.
4.7 Indemnification with Respect to Underwritten Offering. In the
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Section 4.2(a), the Company agrees to enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities
<PAGE> 10
being registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
4.8 Information by Holder. Each holder of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
4.9 "Stand-Off" Agreement. Each Investor, if requested by the
Company and an underwriter of Common Stock or other securities of the Company,
shall agree not to sell or otherwise transfer or dispose of any Registrable
Shares or other securities of the Company held by such Stockholder for a
specified period of time (not to exceed 180 days) following the effective date
of a Registration Statement; provided, that:
(a) such agreement shall only apply to the first such
Registration Statement covering Common Stock of the Company to be sold on its
behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company enter into
similar agreements.
Such agreement shall be in writing in a form satisfactory to the Company and
such underwriter. The Company may impose stop-transfer instructions with respect
to the Registrable Shares or other securities subject to the foregoing
restriction until the end of the stand-off period.
4.10 Limitations on Subsequent Registration Rights. The Company
shall not, without the prior written consent of Investors holding at least a
majority of the Registrable Shares, enter into any agreement (other than this
Agreement) with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder to include
securities of the Company in any registration filed under Sections 4.2 or 4.3
that would reduce the number of Registrable Shares includable by the Investors
under this Agreement.
4.11 Rule 144 Requirements. After the earliest of (i) the closing
of the sale of securities of the Company pursuant to a Registration Statement,
(ii) the registration by the Company of a class of securities under Section 12
of the Exchange Act, or (iii) the issuance by the Company of an offering
circular pursuant to Regulation A under the Securities Act, the Company agrees
to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
<PAGE> 11
(c) furnish to any holder of Registrable Shares upon
request a written statement by the Company as to its compliance with the
reporting requirements of said Rule 144 (at any time after 90 days following the
closing of the first sale of securities by the Company pursuant to a
Registration Statement), and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents of the Company as such holder may reasonably request to avail
itself of any similar rule or regulation of the Commission allowing it to sell
any such securities without registration.
5. Transfers of Certain Rights.
5.1 In General. The rights granted to each Investor pursuant to
the terms of Sections 2, 3 and 4 of this Agreement may be transferred by such
Investor to another Investor, to any affiliate of such Investor or to any person
or entity acquiring at least 50,000 Registrable Shares (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common Stock of the Company);
provided, however, that the Company is given written notice by the transferee at
the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which such rights are being assigned;
and provided further, however, that the Company receives the written instrument
provided in Section 5.2 below.
5.2 Transferees. Any transferee to whom rights hereunder are
transferred shall, as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the
obligations imposed upon Investors under this Agreement to the same extent as if
such transferee were a party hereto.
5.3 Subsequent Transferees. A transferee to whom rights are
transferred pursuant to this Section 5 may not again transfer such rights to any
other person or entity, other than as provided in Section 5.1 or 5.2 above.
5.4 Partners and Stockholders. Notwithstanding anything to the
contrary herein, any Investor which is a partnership or corporation may transfer
rights granted to such Investor hereunder to any partner or stockholder thereof
who delivers to the Company a written instrument in accordance with Section 5.2
above and containing the representation that the transfer is exempt from
registration under the Securities Act. In the event of such transfer, such
partner or stockholder shall be deemed a Investor for purposes of this Section 5
and may again transfer such rights to any other person or entity which acquires
Registrable Shares from such partner or stockholder, in accordance with, and
subject to, the provisions of this Section 5.
6. Confidentiality. Each Investor agrees that he or it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Investor may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
such Investor pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or until
such information becomes known, to the
<PAGE> 12
public. Notwithstanding the foregoing, an Investor that is a partnership may
disclose summary financial and operating information to its limited partners if
required by its partnership agreement.
7. Voting Covenants.
7.1 Voting of Shares.
(a) In any and all elections of directors of the Company
(whether at a meeting or by written consent in lieu of a meeting), each Investor
and Management Stockholder (collectively the "Stockholders") shall vote or cause
to be voted all Shares (as defined in Section 7.2 below) owned by him or it, or
over which he or it has voting control, and otherwise use his or its respective
best efforts, so as to fix the number of directors of the Company at five and to
elect (i) one member designated by the holders of the Company's Series A
Preferred Stock (which designee shall be designated by Medical Science Partners,
L.P. ("MSP"), and who shall initially be Andre L. Lamotte); (ii) one member
designated by the holders of the Company's Series B Preferred Stock (which
designee shall be designated by Sprout Capital VII, L.P. ("Sprout"), and who
shall initially be Robert Curry); (iii) the then duly elected, qualified and
acting President of the Company (currently David H. Maupin); and (iv) two
members designated jointly by the President of the Company and all holders of
the Company's Preferred Stock, by action of the President and the holders of a
majority of the Shares held by such holders.
(b) The Company shall provide the Stockholders with 20
days' prior written notice of any intended mailing of a notice to stockholders
for a meeting at which directors are to be elected. The Stockholders shall give
written notice to all other parties to this Agreement, no later than 10 days
prior to such mailing, of the persons designated by the Stockholders pursuant to
Section 7.1(a) as nominees for election as directors. If the Stockholders shall
fail to give notice to the Company as provided above, it shall be deemed that
the designees of the Stockholders, then serving as directors shall be their
designees for reelection.
(c) The Management Stockholders shall not vote to remove
any director designated by the holders of the Company's Preferred Stock, except
for bad faith or willful misconduct.
7.2 Shares. "Shares" shall mean and include any and all shares of
Common Stock and/or shares of capital stock of the Company, by whatever name
called, which carry voting rights (including voting rights which arise by reason
of default) and shall include any shares now owned or subsequently acquired by a
Stockholder, however acquired, including without limitation stock splits and
stock dividends.
7.3 Amendment, Waiver and Termination. This Section 7 may only be
modified, waived or amended in writing signed by MSP, Sprout and the holders of
a majority of the then outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, each voting as a separate class.
This Section 7 shall terminate in its entirety upon the closing of a Qualified
Public Offering.
<PAGE> 13
7.4 No Revocation. The voting agreements contained herein are
coupled with an interest and may not be revoked, except by written consent of
all of the Stockholders.
7.5 Indemnification. In the event that any director elected
pursuant to this Section 7 shall be made or threatened to be made a party to any
action, suit or proceeding with respect to which he may be entitled to
indemnification by the Company pursuant to its Certificate of Incorporation or
Bylaws, or otherwise, he shall be entitled to be represented in such action,
suit or proceeding by counsel of his choice and the reasonable expenses of such
representation shall be reimbursed by the Company to the extent provided in or
authorized by said Certificate of Incorporation or Bylaws. Each Stockholder
agrees not to take any action to amend any provisions of the Certificate of
Incorporation or the Bylaws of the Company relating to indemnification of
directors, as presently in effect, without the prior written consent of all of
the Stockholders.
7.6 Restrictive Legend. All certificates representing Shares
owned or hereafter acquired by the Stockholders or any transferee of the
Stockholders bound by this Agreement shall have affixed thereto a legend
substantially in the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN VOTING AGREEMENTS AS SET FORTH IN AN INVESTORS RIGHTS
AGREEMENT BY AND AMONG THE REGISTERED OWNER OF THIS CERTIFICATE,
THE COMPANY AND CERTAIN OTHER STOCKHOLDERS OF THE COMPANY, A COPY
OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
SECRETARY OF THE COMPANY.
7.7 Transfers of Rights. Any transferee to whom Shares are
transferred by a Stockholder, whether voluntarily or by operation of law, shall
be bound by the voting obligations imposed upon the transferor under this
Agreement, and shall be entitled to the rights granted to the transferor under
this Agreement, to the same extent as if such transferee were a Stockholder
hereunder.
8. Waivers and Amendments.
8.1 Waivers. Certain Investors, as the holders of a majority of
the Registerable Shares (as defined in the Prior Agreement), hereby waive on
behalf of all Investors any right of first refusal which the Investors may have
under the Prior Agreement or otherwise to purchase any of the shares of the
Company's Series C Preferred Stock pursuant to the Stock Purchase Agreement.
8.2 Termination of Prior Agreement. The Company and the Investors
and Management Stockholders hereby terminate the Prior Agreement in its entirety
and replace such agreement with the provisions of this Restated Investors Rights
Agreement. For purposes of Section 7 of the Prior Agreement, MSP, Sprout and the
holders of a majority of the outstanding shares of Series A Preferred Stock and
Series B Preferred Stock, each voting as a separate class, hereby consent and
agree to such termination. It is understood and acknowledged that termination of
the Prior
<PAGE> 14
Agreement shall not affect in any way the termination of Sections 7, 8 (except
for subsection 8.2), 9 and 10 of the Series A Agreement pursuant to subsection
8.2 of the Prior Agreement, nor shall it affect the termination of the Voting
Agreement (as defined in the Prior Agreement) pursuant to subsection 8.3 of the
Prior Agreement, all of which shall be and remain terminated unless expressly
agreed otherwise in writing by the Company and the Investors hereunder.
9. General Provisions.
9.1 Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Delaware, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
9.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto.
9.3 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement among the parties with regard to the subjects
hereof and no party shall be liable or bound to any other party in any manner by
any representations, warranties, covenants, or agreements except as specifically
set forth herein. Nothing in this Agreement, express or implied, is intended to
confer upon any party, other than the parties hereto and their respective
successors and assigns, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided herein.
9.4 Severability. In case any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision; provided, however, that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
9.5 Specific Performance. In addition to any and all other
remedies that may be available at law in the event of any breach of this
Agreement, the Company and each Stockholder shall be entitled to specific
performance of the agreements and obligations of the Company and the
Stockholders hereunder and to such other injunctive or other equitable relief as
may be granted by a court of competent jurisdiction.
9.6 Amendment and Waiver. With the written consent of the Company
and the holders of more than 50% of the Registrable Shares, the obligations of
the Company and the rights of the Stockholders under this Agreement may be
waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its board of
directors, may enter into a supplementary agreement for the purpose of adding
any provisions to or changing in any manner or
<PAGE> 15
eliminating any of the provisions of this Agreement; provided, however, that no
such waiver or supplemental agreement shall reduce the aforesaid percentage of
Registrable Shares, the holders of which are required to consent to any waiver
or supplemental agreement without the consent of the holders of all of the
Registrable Shares; and provided, further, that such provisions shall not apply
to the amendment or waiver of any provision of Section 7, the amendment or
waiver of which shall be governed by Section 7.3. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by a signed statement in writing. Any amendment, waiver or supplementary
agreement effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Shares then outstanding, each future holder of all
such Registrable Shares and the Company.
9.7 Delays or Omissions. No delay or omission to exercise any
right, power, or remedy accruing to the Company or the Stockholders (or any of
their permitted assigns) upon any breach, default or noncompliance under this
Agreement shall impair any such right, power, or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. Any waiver, permit, consent, or approval of any kind or
character on the Company's or the Stockholders' part of any breach, default or
noncompliance under this Agreement or any waiver on the Company's or the
Stockholders' part of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing, and that all remedies, either under this Agreement, by law, or
otherwise afforded to the Company or the Stockholders, shall be cumulative and
not alternative.
9.8 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon deposit with a reputable same-day or overnight
delivery service, or with the United States Post Office, by first class mail,
postage prepaid, addressed: (a) if to the Investors, at the Investors' address
as set forth on Exhibit A, or at such other address as the Investors shall have
furnished to the Company in writing, or (b) if to the Management Stockholders,
at the Management Stockholders' address as set forth on Exhibit B, or at such
other address as the Management Stockholders shall have furnished to the Company
in writing, or (c) if to the Company, at the address of the Company's principal
place of business.
Notices provided in accordance with this Section 9.8 shall be
deemed delivered upon personal delivery or two business days after deposit in
the mail.
9.9 Titles and Subtitles. The titles of the sections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
9.10 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
9.11 New Investors. Notwithstanding anything to the contrary
herein, if new Investors purchase shares of Series C Preferred Stock pursuant to
Section 2.3 of the Stock Purchase Agreement,
<PAGE> 16
then each such new Investor shall become a party to this Agreement as an
"Investor" hereunder, without the need for any consent, approval or signature of
any Investor or other party hereunder when such new Investor has both: (a)
purchased shares of Series C Preferred Stock and (b) executed one or more
counterpart signature pages to this Agreement as an "Investor," with the
Company's consent.
<PAGE> 17
The foregoing Restated Investors Rights Agreement is executed as of the
date first above written.
UROSURGE, INC.
By:________________________________
David Maupin, President
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EXHIBIT 10.12
UROSURGE, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of April
____, 1998, by and between UroSurge, Inc., a Delaware corporation (the
"Company"), and _______________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, the Company and Indemnitee desire to continue to have in place
the additional protection provided by an indemnification agreement and to
provide indemnification and advancement of expenses to the Indemnitee to the
maximum extent permitted by Delaware law;
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified and advanced expenses by the
Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended, (the "Exchange Act")), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company acting in such
capacity or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Exchange Act), directly or indirectly, of
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securities of the Company representing more than 50% of the total voting power
represented by the Company's then outstanding Voting Securities, (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
UroSurge, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which UroSurge, Inc. (or
any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Covered Event" shall mean any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
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(e) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld), actually and
reasonably incurred, of any Claim and any federal, state, local or foreign taxes
imposed on the Indemnitee as a result of the actual or deemed receipt of any
payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee
pursuant to Section 3 of Expenses in advance of the settlement of or final
judgement in any action, suit, proceeding or alternative dispute resolution
mechanism, hearing, inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm
of attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless
otherwise indicated.
(k) "Voting Securities" shall mean any securities of the
Company that vote generally in the election of directors.
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2. Indemnification.
(a) Indemnification of Expenses. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a Covered Event), including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid in indemnifying Indemnitee; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee is entitled to
be indemnified hereunder under applicable law, any determination made by any
Reviewing Party that Indemnitee is not entitled to be indemnified hereunder
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expenses theretofore paid in indemnifying
Indemnitee until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expenses shall be
unsecured and no interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding
Effect. If any Reviewing Party determines that Indemnitee substantively is not
entitled to be indemnified hereunder in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by such
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and, subject to the provisions of Section 15, the Company hereby
consents to service of process and to appear in any such proceeding. Absent such
litigation, any determination by any Reviewing Party shall be conclusive and
binding on the Company and Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there
has not been a Change in Control, any Reviewing Party shall be selected by the
Board of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnification of Expenses under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, or under any other applicable law, if
desired by Indemnitee, shall be Independent Legal Counsel selected by
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Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion to
the Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall not be required to pay Expenses of more than one Independent Legal
Counsel in connection with all matters concerning a single Indemnitee, and such
Independent Legal Counsel shall be the Independent Legal Counsel for any or all
other Indemnitees unless (i) the Company otherwise determines or (ii) any
Indemnitee shall provide a written statement setting forth in detail a
reasonable objection to such Independent Legal Counsel representing other
Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
(a) Obligation to Make Expense Advances. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts if
it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified therefor by the Company, the Company shall make Expense Advances to
Indemnitee.
(b) Form of Undertaking. Any written undertaking by the
Indemnitee to repay any Expense Advances hereunder shall be unsecured and no
interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties
agree that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
(a) Timing of Payments. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee pursuant
to this Agreement shall be made to the fullest extent permitted by law as soon
as practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than forty-five (45) business days after
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such written demand by Indemnitee is presented to the Company, except in the
case of Expense Advances, which shall be made no later than twenty (20) business
days after such written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement or applicable law, shall be a defense
to Indemnitee's claim or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such
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notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently employed by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any rights
to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware,
or otherwise. The indemnification and the payment of Expense Advances provided
under this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
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7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgement. Both the Company and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law; provided, however, that notwithstanding any limitation set forth in this
Section10(a) regarding the Company's obligation to provide indemnification,
Indemnitee shall be entitled under Section 3 to receive Expense Advances
hereunder with respect to any such Claim unless and until a court having
jurisdiction over the Claim shall have made a final judicial determination (as
to which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee has engaged in acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or applicable
law.
(b) Claims Initiated by Indemnitee. To indemnify or make
Expense Advances to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim,
except (i) with respect to actions or proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other agreement
or insurance policy or under the Company's Certificate of Incorporation or
Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in
specific cases if the Board of Directors has approved the initiation or bringing
of such Claim, or (iii) as otherwise required under Section 145 of
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the Delaware General Corporation Law, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification or insurance
recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any
Expenses incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Exchange Act, or
any similar successor statute; provided, however, that notwithstanding any
limitation set forth in this Section 10(d) regarding the Company's obligation to
provide indemnification, Indemnitee shall be entitled under Section 3 to receive
Expense Advances hereunder with respect to any such Claim unless and until a
court having jurisdiction over the Claim shall have made a final judicial
determination (as to which all rights of appeal therefrom have been exhausted or
lapsed) that Indemnitee has violated said statute.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee under
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including without limitation attorneys' fees),
regardless of whether Indemnitee is
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ultimately successful in such action, unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee in
defense of such action (including without limitation costs and expenses incurred
with respect to Indemnitee's counterclaims and cross-claims made in such
action), unless as a part of such action a court having jurisdiction over such
action makes a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that each of the material defenses
asserted by Indemnitee in such action was made in bad faith or was frivolous;
provided, however, that until such final judicial determination is made,
Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to principles of conflicts of laws.
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18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
UROSURGE, INC.
By:________________________________________
Name: David H. Maupin
Title: President and Chief Executive Officer
Address: UroSurge, Inc.
2660 Crosspark Road
Coralville, Iowa 52241
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AGREED TO AND ACCEPTED
INDEMNITEE:
_________________________________________
(signature)
_________________________________________
Address:
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EXHIBIT 11.1
CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Shares of common stock, beginning....................... 990,000 1,053,112 1,097,591
=========== =========== ===========
Shares of common stock, ending.......................... 1,053,112 1,097,591 1,121,633
=========== =========== ===========
Computation of weighted average number of basic and
diluted shares:
Common shares outstanding at the beginning of the
year............................................... 990,000 1,053,112 1,097,591
Weighted average number of net shares issued.......... 9,510 23,875 133,676
----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC)... 999,510 1,076,987 1,111,267
Weighted average of potential dilutive shares for:
Stock options granted, computed using the treasury
stock method..................................... -- -- --
Convertible preferred stock, computed using the "if
converted" method................................ -- -- --
----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES (DILUTED)... 999,510 1,076,987 1,111,267
=========== ===========
Weighted average of additional shares deemed
outstanding from the conversion of preferred
stock.............................................. 5,170,015
-----------
TOTAL PRO FORMA AVERAGE SHARES OUTSTANDING.... 6,281,282
===========
Net loss................................................ $(1,234,159) $(2,777,052) $(5,250,634)
=========== =========== ===========
Basic and diluted loss per share........................ $ (1.23) $ (2.58) $ (4.72)
=========== =========== ===========
Pro forma basic and diluted loss per share.............. $ (0.84)
===========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
To The Board of Directors
UroSurge, Inc.
Coralville, Iowa
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated April 6, 1998, relating to the financial statements of
UroSurge, Inc., and to the reference to our Firm under the captions "Selected
Financial Data" and "Experts" in the Prospectus.
/s/ MCGLADREY & PULLEN, LLP
Iowa City, Iowa
April 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 136,990
<SECURITIES> 3,129,396
<RECEIVABLES> 140,495
<ALLOWANCES> 0
<INVENTORY> 930,204
<CURRENT-ASSETS> 4,486,674
<PP&E> 1,008,620
<DEPRECIATION> 203,237
<TOTAL-ASSETS> 5,525,819
<CURRENT-LIABILITIES> 941,691
<BONDS> 109,728
0
58,344
<COMMON> 11,216
<OTHER-SE> 4,404,840
<TOTAL-LIABILITY-AND-EQUITY> 5,525,819
<SALES> 11,707
<TOTAL-REVENUES> 11,707
<CGS> 5,432
<TOTAL-COSTS> 5,471,644
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,023
<INCOME-PRETAX> (5,281,950)
<INCOME-TAX> (31,316)
<INCOME-CONTINUING> (5,250,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,250,634)
<EPS-PRIMARY> (4.72)
<EPS-DILUTED> (4.72)
</TABLE>
