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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MICRO THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3841 33-0569235
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1062 CALLE NEGOCIO #F,
SAN CLEMENTE, CALIFORNIA 92673
(714) 361-0616
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE WALLACE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MICRO THERAPEUTICS, INC.
1062 CALLE NEGOCIO #F
SAN CLEMENTE, CALIFORNIA 92673
(714) 361-0616
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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BRUCE FEUCHTER, ESQ. STEPHEN M. TENNIS, ESQ.
STRADLING, YOCCA, CARLSON & RAUTH MORRISON & FOERSTER LLP
660 NEWPORT CENTER DRIVE, SUITE 1600 755 PAGE MILL ROAD
NEWPORT BEACH, CALIFORNIA 92660 PALO ALTO, CALIFORNIA 94304-1018
(714) 725-4000 (415) 813-5600
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
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Common Stock, ($.001 par value).......................... $29,900,000 $9,060.61
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</TABLE>
(1) Includes 300,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
------------------------
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 SAID SECTION 8(A),
MAY DETERMINE.
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<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 January , 1997
PROSPECTUS
2,000,000 SHARES
[LOGO]
MICRO THERAPEUTICS, INC.
COMMON STOCK
------------------------
All of the 2,000,000 shares of Common Stock offered hereby are being sold
by Micro Therapeutics, Inc. ("MTI" 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 of the Common Stock
will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The shares of Common Stock have been approved for quotation on the Nasdaq
National Market under the symbol "MTIX."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," COMMENCING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY (2)
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Per Share.............................. $ $ $
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Total(3)............................... $ $ $
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</TABLE>
(1) For information concerning indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
(3) The Company has granted to the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 300,000 additional shares of
Common Stock on the same terms and conditions as set forth above, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public will be $ , the Underwriting Discounts and
Commissions will be $ and the Proceeds to the Company will be
$ . See "Underwriting."
------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
, 1997.
------------------------
UBS SECURITIES VOLPE, WELTY & COMPANY
, 1997
<PAGE> 3
[PICTURES AND TEXT]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus, including the information under "Risk Factors." This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under "Risk Factors."
THE COMPANY
Micro Therapeutics, Inc. ("MTI" or the "Company") develops, manufactures
and markets minimally invasive medical devices for the diagnosis and treatment
of vascular disease. MTI focuses its efforts in two underserved markets: (i) the
treatment of neuro vascular disorders of the brain associated with stroke; and
(ii) the treatment of peripheral vascular disease, including blood clot therapy
in hemodialysis access grafts, arteries and veins. The Company's objective is to
provide physicians with new interventional treatment alternatives which improve
outcomes, reduce costs, shorten procedure times, reduce drug usage and allow
access to difficult-to-reach anatomical locations. The Company currently markets
more than fifty products for the treatment of peripheral vascular disease and
will introduce products for the treatment of neuro vascular disease in 1997.
Vascular disease is the leading cause of death in the industrialized world,
and is responsible for over 40% of all deaths in the United States. Vascular
disease may occur in any blood vessel in the body, and is generally manifested
as an occlusion or rupture in a vessel. The vascular disease market consists of
three segments, defined by anatomical location: cardiovascular disease, or
disease in the coronary arteries; neuro vascular disease, or disease in the
vessels in the brain; and peripheral vascular disease, or disease in blood
vessels throughout the rest of the body. MTI is focused on the two segments it
believes to be underserved: neuro vascular and peripheral vascular disease.
The leading complication of neuro vascular disease is stroke, the
diminished blood flow to critical regions of the brain. The medical need for
effective stroke therapy exists because of the severity of the disorder, its
prevalence in society, the inadequacy of current therapies and the high cost of
treatment and care. There are approximately 500,000 cases of stroke per year in
the United States. Strokes are typically caused either by blockages
(vaso-occlusive stroke) or ruptures (hemorrhagic stroke) of arteries within or
leading to the brain. The most common type of vaso-occlusive stroke is caused by
the existence of a blood clot within an artery, blocking blood flow. Hemorrhagic
stroke is generally caused by the rupture of a blood vessel in the brain
resulting from a vascular defect such as an aneurysm or arteriovenous
malformation ("AVM"). While 30,000 stroke cases are related to ruptured
aneurysms, unruptured aneurysms may occur in 2% to 5% of the general population
in the United States.
Approximately eight million people have been diagnosed with peripheral
vascular disease in the United States, of which an estimated one million are
treated annually. The majority of these patients are treated with invasive
surgical procedures. Vascular obstruction causes discernible clinical symptoms
including skin discoloration, pain, ulceration, swelling or a change in blood
chemistry.
The Company's products and products under development in the neuro vascular
market designed to address stroke include (i) a range of infusion micro
catheters incorporating shaft designs and innovative materials, which allow
access to the smallest, most remote blood vessels and (ii) the Liquid Embolic
System ("LES"), which combines a unique material and special purpose micro
catheters designed to treat aneurysms and AVMs.
The LES, currently in preclinical testing, utilizes a material which is
delivered as a liquid that fills and conforms to the shape of an aneurysm or
AVM. It then transforms into a solid polymer cast. The Company believes these
features will allow the physician to fill such defects in a controlled fashion,
leading to better outcomes. The Company anticipates that it will commence
clinical trials outside of the United States in the first half of 1997.
3
<PAGE> 5
The Company's products in the peripheral vascular market designed for less
invasive treatment of blood clots include (i) a broad offering of infusion
catheters, micro catheters and infusion wires and (ii) the Cragg Thrombolytic
Brush designed for rapid interventional clot disruption and dissolution through
mechanical mixing of a thrombolytic drug with the clot. The Company's line of
catheters and infusion wires incorporate proprietary features, including the
Cragg MicroValve which allows for efficient sidehole infusion with or without a
guidewire in place.
The Cragg Thrombolytic Brush, currently in advanced clinical trials,
consists of a soft nylon brush mounted on a wire cable which is introduced
through a catheter and rotated with a motor as thrombolytic drugs are infused.
The rotation of the brush within the clot actively mixes the drug into the clot,
exposing more clot surface to the drug, thus accelerating the thrombolytic
process. A 510(k) market clearance application for the Cragg Thrombolytic Brush
was submitted to the FDA in September 1996.
The Company's goal is to be a leading provider of interventional solutions
for treatment of neuro vascular and peripheral vascular disease. The Company
intends to achieve this goal by: (i) focusing its efforts on developing products
for the treatment of vascular disease in the neuro vascular and peripheral
vascular markets, which the Company believes are currently underserved; (ii)
establishing early market presence through the development, rapid regulatory
approval and distribution of a broad product offering for the interventional
radiologist; and (iii) developing new interventional technologies such as the
LES and Cragg Thrombolytic Brush, which it believes will expand the pool of
patients who may be candidates for interventional therapy.
The Company was incorporated in California in 1993 and reincorporated in
Delaware in 1996. All references to "MTI" or the "Company" in this Prospectus
refer to Micro Therapeutics, Inc., a Delaware corporation and its predecessor.
The Company's headquarters and principal place of business is located at 1062
Calle Negocio #F, San Clemente, California 92673, and its telephone number is
(714) 361-0616. Cragg-McNamara(TM), Cragg MicroValve(TM), ProStream(TM),
Patency(TM), MicroPatency(TM), MicroMewi(TM), Cragg Thrombolytic Brush(TM),
Katzen Select(TM), LES(TM), Easy Rider(TM) and the Company's logo are trademarks
of the Company. This Prospectus also includes trademarks of companies other than
the Company.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Risk factors of this Offering include, among others, early stage of
development, uncertain market acceptance, rapid technological change, new
product development and intense competition.
4
<PAGE> 6
THE OFFERING
Common Stock offered by the Company... 2,000,000 shares
Common Stock to be outstanding after
the Offering.......................... 6,505,113 shares(1)
Use of proceeds....................... To fund research and development,
clinical trials, expansion of
marketing and sales activities, and
for working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol......... MTIX.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 11, 1993
(DATE OF INCEPTION) NINE MONTHS
TO DECEMBER 31, YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------- ------------------------- -------------------------
1993 1994 1995 1995 1996
------------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $ -- $ 26,229 $ 292,302 $ 135,084 $ 968,990
Cost of sales....................................... -- 26,978 316,404 161,261 1,115,658
--------- ----------- ----------- ----------- -----------
Gross profit (loss)................................. -- (749) (24,102) (26,177) (146,668)
Research and development expenses................... 92,421 768,788 1,485,371 947,184 1,589,156
Selling, general and administrative expenses........ 23,782 546,817 1,499,103 928,776 2,303,113
--------- ----------- ----------- ----------- -----------
Operating loss...................................... (116,203) (1,316,354) (3,008,576) (1,902,137) (4,038,937)
Interest and other income (591) 16,590 201,578 161,327 117,713
(expense), net....................................
--------- ----------- ----------- ----------- -----------
Net loss............................................ $(116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
========= =========== =========== =========== ===========
Pro forma net loss per common and common equivalent $ (0.59) $ (0.83)
share (2).........................................
Pro forma weighted average common and common
equivalent shares outstanding (2)................. =========== ===========
4,738,000 4,728,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, -------------------------------
BALANCE SHEET DATA: 1995 PRO FORMA(3) AS ADJUSTED(4)
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Cash, cash equivalents and short term investments....................... $ 2,417,644 $ 6,065,067 $ 27,946,209
Working capital......................................................... 2,358,050 6,212,247 28,162,367
Total assets............................................................ 3,220,977 7,831,791 29,582,813
Accumulated deficit..................................................... (4,223,556) (8,144,780) (8,144,780)
Total stockholders' equity.............................................. 2,878,041 7,110,982 28,930,982
</TABLE>
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(1) Excludes (i) 730,495 shares of Common Stock issuable upon exercise of
outstanding stock options as of November 30, 1996 at a weighted average
exercise price of $1.81 per share, of which options to purchase 258,263
shares were then exercisable; and (ii) 13,683 shares of Common Stock
issuable upon exercise of certain warrants at an exercise price of $5.22 per
share. See "Capitalization," "Description of Securities,"
"Management -- 1993 Stock Option Plan" and "-- 1996 Stock Incentive Plan."
(2) See Note 2 of Notes to Financial Statements for information regarding
calculation of pro forma net loss per share.
(3) The pro forma data gives effect to the conversion of all outstanding shares
of convertible Preferred Stock into shares of Common Stock that will occur
in connection with the closing of the Offering as if such conversion had
occurred at the beginning of the period indicated.
(4) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 2,000,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $12.00 per share, and after deducting the estimated
underwriters discounts and commissions and estimated offering expenses
payable by the Company. See "Use of Proceeds," "Capitalization" and
"Selected Financial Data."
Unless otherwise indicated, all information in this Prospectus assumes (i)
the Underwriters' over-allotment option is not exercised, (ii) a 0.65 for 1.0
reverse stock split of the outstanding shares of the Company's Common Stock,
which will be effective upon the closing of this Offering, (iii) the filing of
the Company's Certificate of Incorporation, authorizing 5,000,000 shares of
undesignated Preferred Stock and increasing the number of shares of authorized
Common Stock to 20,000,000, which will be effective upon the closing of this
Offering, and (iv) the conversion of all outstanding shares of Preferred Stock
into Common Stock prior to or effective upon the closing of this Offering. See
"Description of Capital Stock," "Capitalization" and "Underwriting."
5
<PAGE> 7
RISK FACTORS
Prospective investors in the shares of Common Stock offered hereby should
carefully consider the following risk factors, in addition to the other
information contained in this Prospectus.
Early Stage of Development. The Company has only recently commercially
introduced a number of products. Several of its key products are in the early
stage of development. The Liquid Embolic System ("LES") has not yet entered
clinical trials in the United States and the Company recently filed its 510(k)
market clearance application covering the Cragg Thrombolytic Brush.
Commercialization of the Company's products will depend on a number of factors,
including the Company's ability to demonstrate the safety and efficacy of such
products in the clinical setting. There can be no assurance that the Company's
products will be safe and effective in clinical trials or will ultimately be
cleared for marketing by U.S. or foreign regulatory authorities. Failure to
develop safe and effective products, which are approved for sale on a timely
basis would have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- Government Regulation" and
"-- Products."
Uncertainty of Market Acceptance. Even if the Company is successful in
developing safe and effective products that have received marketing clearance,
there can be no assurance that the Company's products will gain market
acceptance. Acceptance of the Company's LES and Cragg Thrombolytic Brush will
require the Company to satisfactorily address the needs of potential customers.
The target customers for the Company's products are interventional radiologists
and interventional neuroradiologists. However, there can be no assurance that
acceptance of the Company's products by interventional radiologists and
interventional neuroradiologists will translate into sales. In addition, no
assurance can be given that the Company's market share for its existing products
will grow or that its products which have yet to be introduced will be accepted
in the market. If the Company is unable to gain market acceptance of its current
and future products, the Company's business, operating results and financial
condition would be materially adversely affected. See "Business -- Products,"
"-- Sales and Marketing" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Rapid Technological Change; New Product Development. The markets for the
Company's products are characterized by rapidly changing technologies and new
product introductions and enhancements. In addition to the risks associated with
market acceptance of the Company's products, the Company's success will depend
to a significant extent upon its ability to enhance and expand the utility of
its products and to develop and introduce innovative new products that gain
market acceptance. Moreover, the Company may encounter technical problems in
connection with its product development that could delay introduction of new
products or product enhancements. There can be no assurance that new
technologies, products or drug therapies developed by others will not reduce the
demand for the Company's products. The Company maintains research and
development programs to continually improve its product offerings, including
adding interventional devices. There can be no assurance however that such
efforts will be successful or that other companies will not develop and
commercialize products based on new technologies that are superior in either
performance or cost-effectiveness to the Company's products. See
"Business -- Research and Development," "-- Background" and "-- Sales and
Marketing."
Intense Competition. The medical technology industry is characterized by
intense competition. The Company's products will compete with other medical
devices, surgical procedures and pharmaceutical products. A number of the
companies in the medical technology industry, including manufacturers of neuro
vascular and peripheral vascular products, have substantially greater capital
resources, larger customer bases, broader product lines, greater marketing and
management resources, larger research and development staffs and larger
facilities than the Company. Such entities have developed, or may develop,
additional products competitive with the Company's products. There can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more readily accepted than those
developed or marketed by the Company or that such competing products would not
render the Company's technology and products obsolete or noncompetitive.
Although the Company believes that its products may offer certain advantages
over its competitors' currently-marketed products, earlier entrants in the
market often obtain and maintain significant market share relative to later
entrants. While the Company has designed its
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<PAGE> 8
products to be cost effective and more efficient than competing technologies,
there can be no assurance that competitors will not provide better methods or
products at comparable or lower costs. The Company may experience competitive
pricing pressures that may adversely affect unit prices and sales levels and,
consequently, materially adversely affect the Company's business, operating
results and financial condition.
The Company also competes with other manufacturers of medical devices for
clinical sites to conduct human trials. The Company's ability to locate such
clinical sites on a timely basis could have a material adverse effect on the
Company's ability to conduct trials of its products which may be necessary to
obtain required FDA clearance or approval of such products. Such delays could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Competition."
Limited Operating History; Absence of Profitability. The Company was
incorporated in 1993. To date, the Company's business has generated limited
product sales. From its inception through September 30, 1996, the Company
incurred cumulative losses of approximately $8.1 million. The Company expects to
incur additional losses as it expands its research and development,
manufacturing and marketing efforts. No assurance can be given that the Company
will achieve significant sales of its products or that such sales will lead to
profitability. There can be no assurance that the Company will not encounter
substantial delays and unexpected expenses related to the introduction of its
current and future products, or the Company's research and development,
manufacturing and marketing efforts. Such delays or expenses could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Products" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Possible Need for Additional Funds; Uncertainty of Additional
Financing. The Company's operations to date have consumed substantial amounts
of cash, and the Company expects its capital and operating expenditures to
increase. The Company believes that its existing capital resources and
anticipated cash flow from planned operations, together with the net proceeds of
this Offering and the interest earned thereon, should be adequate to satisfy its
capital requirements for at least the next two years. There can be no assurance,
however, that the Company will not need additional capital before such time. The
Company's need for additional financing will depend upon numerous factors,
including the extent and duration of the Company's future operating losses, the
level and timing of future revenues and expenditures, market acceptance of new
products, the results and scope of ongoing research and development projects,
competing technologies, and market and regulatory developments. The Company
currently has no committed external sources of funds. To the extent that
existing resources are insufficient to fund the Company's activities, the
Company may seek to raise additional funds through public or private financing.
There can be no assurance that additional financing will be available or, if
available, that it will be available on acceptable terms. If additional funds
are raised by issuing equity securities, further dilution to then-existing
stockholders may result. If adequate funds are not available, the Company's
business, operating results and financial condition may be materially adversely
affected. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business."
Dependence on Patents and Proprietary Technology. The success of the
Company will depend, in part, on its ability to obtain and maintain patent
protection for its products, to preserve its trade secrets and to operate
without infringing the proprietary rights of others. The patent position of a
medical device company may involve complex legal and factual issues. As of
November 30, 1996, the Company held eight issued U.S. patents, one issued
foreign patent and has seventeen U.S. and eight foreign patent applications
pending. The Company's issued U.S. patents cover technology underlying the Cragg
MicroValve, infusion wire, Cragg Thrombolytic Brush, Liquid Embolic System and
cartoid and intra-cerebral stent products. The expiration dates of these patents
range from February 2009 to December 2015. The pending claims cover various
aspects of its infusion catheter, infusion wire, Thrombolytic Brush, micro
catheter, Liquid Embolic System, cartoid and intra-cerebral stent technologies
and non-vascular liquid embolic products. Each product area the Company is
pursuing is covered by at least one issued and pending patent. One of the
patents used by the Company is currently licensed by the Company from Andrew
Cragg, MD. There can be no assurance that issued patents will provide
significant proprietary protection, that pending patents will be issued, or that
products incorporating the technology in issued patents or pending applications
will be free of challenge from competitors. There also can be no assurance that
patents belonging to competitors will not require the
7
<PAGE> 9
Company to alter its technology and products, pay licensing fees or cease to
market or develop its current or future technology and products. The Company
also relies on trade secrets to protect its proprietary technology, and no
assurance can be given that others will not independently develop or otherwise
acquire equivalent technology or that the Company can maintain such technology
as trade secrets. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as the laws of the United
States. The failure of the Company to protect its intellectual property rights
could have a material adverse effect on its business, operating results and
financial condition. See "Business -- Patents and Proprietary Rights."
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. There can be no
assurance that infringement, invalidity, right to use or ownership claims by
third parties will not be asserted against the Company in the future. Although
patent and intellectual property disputes in the medical device industry have
often been settled through licensing or similar arrangements, costs associated
with such arrangements may be substantial and there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, should the Company decide to litigate such claims, such litigation
could be expensive and time consuming, could divert management's attention from
other matters and could have a material adverse effect on the Company's
business, operating results and financial condition, regardless of the outcome
of the litigation.
Limited Marketing Experience; Lack of Distribution. The Company's sales
force consists of nine people in the United States and one person in Europe all
of whom have been with the Company for a limited time. The Company believes it
will have to increase the number of sales personnel to fully cover its target
markets. Recently, there has been an increase in competition for sales personnel
experienced in interventional medical device sales and, as a result, the Company
has experienced significant turnover in its sales force. There can be no
assurance that the Company will be able to successfully respond to this
competition and attract, motivate and retain qualified sales personnel. The
Company intends to market and sell its products outside the United States
principally through distributors and believes that it will need to significantly
expand its distributor network or develop its own sales force. The Company's
ability to market its products in certain areas may depend on strategic
alliances with marketing partners. There can be no assurance that the Company
will be able to enter into distribution agreements on acceptable terms or at
all, that such agreements will be successful in developing the Company's
marketing capabilities or that the Company will be able to successfully develop
a direct sales force. Such failure could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Sales and Marketing."
Limited Manufacturing Experience. The Company's experience in
manufacturing its products is limited. The Company anticipates that it will be
necessary to expand its manufacturing capacity in connection with the continued
commercialization of its products. Such commercialization may require the
additional commitment of capital resources for facilities, tooling and equipment
and for leasehold improvements. Any delay or inability in expanding its
manufacturing capacity or in obtaining the commitment of such resources could
materially adversely affect the Company's manufacturing ability, business,
operating results and financial condition. See "Business -- Sales and Marketing"
and "-- Manufacturing."
Government Regulation. The development, testing, manufacturing and
marketing of MTI's products in the United States are regulated by the U.S. Food
and Drug Administration ("FDA") as well as various state agencies. The FDA
requires governmental clearance of such products before they are marketed. The
process of obtaining FDA and other required regulatory clearances is lengthy,
expensive and uncertain. Moreover, regulatory clearance, if granted, may include
significant limitations on the indicated uses for which a product may be
marketed. Failure to comply with applicable regulatory requirements can result
in, among other things, warning letters, fines, suspensions of approvals,
product seizures, injunctions, recalls of products, operating restrictions and
criminal prosecutions. The restriction, suspension or revocation of regulatory
approvals or any other failure to comply with regulatory approvals or
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations. The offer and sale of the
Company's
8
<PAGE> 10
current products required the submission of information to the FDA in the form
of a 510(k) pre-market notification to substantiate label claims and to
demonstrate "substantial equivalence" to a legally marketed Class I or II
medical device or a Class III medical device for which the FDA has not called
for PMAs. Although the Company has received FDA clearance for many of these
products, there can be no assurance that the Company will be able to obtain the
necessary regulatory clearance for the manufacture and marketing of enhancements
to its existing products or future products either in the United States or in
foreign markets on a timely basis or at all. Utilization of the Company's LES
and its Cragg Thrombolytic Brush may require submission of a premarket approval
("PMA") application to the FDA which generally involves a substantially longer
and less certain review process than that of a 510(k) pre-market notification.
In either event, such approvals or clearances may require human clinical testing
prior to any action on such products by the FDA. Based on the information
presented by the Company regarding the material composition of the LES, the
Company believes the LES would be regulated as a device. There can be no
assurance, however, that upon more detailed review of the LES, the FDA will not
at a later date determine that the LES should be regulated as a drug. Such a
change could significantly delay the commercial availability of the LES and have
a material adverse effect on the Company's business, operating results and
financial condition. Delays in receipt of, or failure to receive, regulatory
approvals or clearances to market such products, or loss of previously received
approvals or clearances, would materially adversely affect the marketing of such
products and the Company's business, operating results and financial condition.
In the European Community ("EC"), the Company will be required to obtain
the certifications necessary to affix the CE Mark to its products by mid-1998 in
order to continue sales in member countries of the EC. Although the CE Mark
requirement for medical devices does not become effective until June 1998, the
Company's experience to date in EC countries is that the CE Mark is already
necessary to achieve meaningful sales. The Company intends to acquire the
certifications necessary to affix the CE Mark to its products; however, there
can be no assurance that the Company will be able to obtain such certifications
in a timely manner, if at all. In addition, federal, state, local and
international government regulations regarding the manufacture and sale of
health care products and diagnostic devices are subject to future change and
additional regulations may be adopted which may materially adversely affect the
Company's business, operating results and financial condition.
Commercial distribution and clinical trials in most foreign countries also
are subject to varying government regulations which may delay or restrict
marketing of the Company's products. Any inability or delay in obtaining
approvals would materially adversely affect the Company's business, operating
results and financial condition.
Manufacturers of medical devices for marketing in the United States are
required to adhere to applicable regulations setting forth detailed Good
Manufacturing Practices requirements, which include testing, control and
documentation requirements. The Company's manufacturing processes also are
subject to stringent federal, state and local regulations governing the use,
generation, manufacture, storage, handling and disposal of certain materials and
wastes. Although the Company believes that it has complied in all material
respects with such laws and regulations, the Company is subject to periodic
inspection to ensure its compliance with such laws and regulations. There can be
no assurance that the Company will not be required to incur significant costs in
the future in complying with manufacturing and environmental regulations, or
that the Company will not be required to cease operations in the event of its
continued failure to effect compliance. See "Business -- Government Regulation."
Risk of Product Liability Claims. The nature of the Company's business
exposes it to risk from product liability claims. The risk of such claims has
increased in light of a U.S. Supreme Court decision in 1996 concluding that the
FDA regulatory framework does not necessarily preempt personal injury actions
against medical device manufacturers. The Company currently maintains product
liability insurance for its products, with limits of $2 million per occurrence
and an annual aggregate maximum of $2 million. However, such coverage is
becoming increasingly expensive and there can be no assurance that the Company's
insurance will be adequate to cover future product liability claims, or that the
Company will be successful in maintaining adequate product liability insurance
at acceptable rates. Any losses that the Company may suffer from any liability
claims, and the effect that any product liability litigation may have upon the
reputation and
9
<PAGE> 11
marketability of the Company's products, may divert management's attention from
other matters and may have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Product Liability
and Insurance."
Dependence on Single Source Suppliers; Independent Contract
Manufacturers. The Company purchases certain components used in its products
and receives certain services with respect to its products from third parties.
The Company's dependence on third-party suppliers involves several risks,
including limited control over pricing, availability, quality and delivery
schedules. Any delays in delivery of such components or provision of such
services or shortages of such components could cause delays in the shipment of
the Company's products, which could cause the Company's business, operating
results and financial condition to be adversely affected. The Company's
single-source components are generally acquired pursuant to purchase orders
placed in the ordinary course of business, and the Company has no guaranteed
supply arrangements with any of its single-source suppliers. Because of the
Company's reliance on these vendors, the Company may also be subject to
increases in component costs which could have a material adverse effect on its
business, operating results and financial condition. There can be no assurance
that the Company will not experience quality control problems, supply shortages
or price increases with respect to one or more of these components in the
future. The establishment of additional or replacement suppliers for certain of
these components may delay accessibility of such components as the Company
qualifies such suppliers. Any quality control problems, interruptions in supply
or component price increases with respect to one or more components could have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company relies on independent contract manufacturers for the
manufacture and assembly of certain of its products and components. Reliance on
independent contract manufacturers involves several risks, including the
potential inadequacy of capacity, the unavailability of or interruptions in
access to certain process technologies and reduced control over product quality,
delivery schedules, manufacturing yields and costs. Such manufacturers have
possession of and at times title to molds for certain manufactured components of
the Company's products. Shortages of raw materials, production capacity
constraints or delays by the Company's contract manufacturers could negatively
affect the Company's ability to meet its production obligations and result in
increased prices for affected parts. Any such reduction, constraint or delay may
result in delays in shipments of the Company's products or increases in the
prices of components, either of which could have a material adverse effect on
the Company's business, operating results and financial condition. The Company
has no supply agreements with its current contract manufacturers and utilizes
purchase orders which are subject to supplier acceptance. The unanticipated loss
of any of the Company's contract manufacturers could cause delays in the
Company's ability to deliver product while the Company identifies and qualifies
a replacement manufacturer. There can be no assurance that current or future
independent contract manufacturers will be able to meet the Company's
requirements for manufactured products. Such an event would have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Manufacturing."
Dependence Upon Key Personnel. The Company is dependent to a significant
extent upon the contributions, experience and expertise of its founders, certain
members of its management team and key consultants. In addition, the Company's
success will depend upon its ability to attract and retain additional highly
qualified management, sales, technical, clinical and consulting personnel,
particularly as the Company increases its manufacturing capability. The loss of
the services of any of such key personnel or the inability to attract and retain
such personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Management."
Third-Party Reimbursement. In the United States, health care providers
such as hospitals and physicians that purchase medical devices generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or part of the cost of therapeutic and
diagnostic procedures. With the implementation of Medicare's Prospective Payment
System for hospital inpatient care (Diagnosis Related Groups or "DRGs") in the
1980s, public and private payors began to reimburse providers on a fixed payment
schedule for patients depending on the nature and severity of the illness. Many
tests and procedures that would have been performed under cost-plus
reimbursement formulas are subject to scrutiny
10
<PAGE> 12
and must be justified in terms of their impact on patient outcomes. As a result,
the incentives are now to conduct only those tests that will optimize
cost-effective care.
The Company could be materially adversely affected by changes in
reimbursement policies of governmental (both domestic and international) or
private healthcare payors to the extent any such changes affect reimbursement
for therapeutic or diagnostics procedures in which the Company's products are
used. Adverse changes in governmental and private third party payors' policies
toward reimbursement for such procedures would have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Third-Party Reimbursement."
Risks Associated with International Sales. To date, the Company has
derived very little revenue from international sales. The Company believes that
its future performance will be dependent in part upon its ability to increase
international sales. Although the perceived demand for certain products may be
lower outside the United States, the Company intends to continue to expand its
international operations and to enter additional international markets, which
will require significant management attention and financial resources. There can
be no assurance, however, that the Company will be able to successfully expand
its international sales. The Company's success in international markets will
depend on its ability to establish and maintain agreements with suitable
distributors, or establish a direct sales presence.
Furthermore, international sales in general are subject to inherent risks,
including unexpected changes in regulatory requirements, fluctuating exchange
rates, difficulties in staffing and managing foreign sales and support
operations, additional working capital requirements, customs, duties, tariff
regulations, export license requirements, political and economic instability,
potentially limited intellectual property protection and difficulties with
distributors. In addition, sales and distribution of the Company's products
outside the United States are subject to extensive foreign government
regulation. The Company has in the past avoided losses due to fluctuating
exchange rates associated with international sales by selling its products in
U.S. dollars; however, the Company expects to sell products in selected markets
in local currency and thus be subject to currency exchange risks in association
with such sales. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's future international sales and,
consequently, on the Company's business, operating results and financial
condition. See "Business -- Government Regulation -- International" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Large-scale market acceptance of the Company's products will depend on the
availability and level of reimbursement in international markets targeted by the
Company. Reimbursement systems in international markets vary significantly by
country, and by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. Many international markets have
government managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Obtaining reimbursement approvals in each country
can require 12-18 months or longer.
Substantial and Immediate Dilution; Absence of Dividends. Purchasers of
the shares of Common Stock offered hereby will incur immediate dilution of
approximately $7.59 per share in net tangible book value (assuming an initial
public offering price of $12.00). The exercise of existing options and warrants
may also have a dilutive effect on the interests of the investors in this
Offering. See "Dilution." The Company has not paid any dividends on its Common
Stock since its inception and does not contemplate or anticipate paying any
dividends in the foreseeable future. It is currently anticipated that earnings,
if any, will be used to finance the development and expansion of the Company's
business. See "Dividend Policy."
Broad Discretion of Management to Allocate Offering Proceeds. The Company
expects that the proceeds of this Offering will be used for research and
development, sales and manufacturing activities, working capital and general
corporate purposes. The Company is not currently able to estimate precisely the
allocation of the proceeds among such uses, and the timing and amount of
expenditures will vary depending upon numerous factors. The Company's management
will have broad discretion to allocate the proceeds of this Offering and to
determine the timing of expenditures. See "Use of Proceeds."
11
<PAGE> 13
Anti-Takeover Provisions. The Company's Certificate of Incorporation
provides for 5,000,000 authorized shares of Preferred Stock, the rights,
preferences, qualifications, limitations and restrictions of which may be fixed
by the Board of Directors without any further vote or action by the
stockholders. In addition, the Company's stock option plans provide for the
acceleration of vesting of options granted under such plan in the event of
certain transactions which result in a change of control of the Company.
Further, Section 203 of the General Corporation Law of Delaware prohibits the
Company from engaging in certain business combinations with interested
stockholders. These provisions may have the effect of delaying or preventing a
change in control of the Company without action by the stockholders, and
therefore could materially adversely affect the price of the Company's Common
Stock. See "Description of Capital Stock."
Absence of Public Trading Market; Possible Volatility of Stock
Price. Prior to this Offering, there has been no public market for the
Company's Common Stock, and there can be no assurance that a significant public
trading market will develop or be sustained after the Offering. The initial
public offering price will be determined by negotiations among the Company and
the Underwriters. See "Underwriting." The negotiated initial public offering
price may not be indicative of the market price for the Common Stock after the
Offering. The stock market has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may materially adversely
affect the market price of the Company's Common Stock. In addition, the market
price of the shares of Common Stock is likely to be highly volatile. Factors
such as fluctuations in the Company's results of operations, failure of such
results of operations to meet the expectations of public market analysts and
investors, timing and announcements of technological innovations or new products
by the Company or its competitors, FDA and foreign regulatory actions,
developments with respect to patents and proprietary rights, timing and
announcements of developments related to the Company's products, public concern
as to the safety of technology and products developed by the Company or others,
changes in health care policy in the United States and internationally, changes
in stock market analyst recommendations regarding the Company, the medical
device industry generally and general market conditions may have a material
adverse effect on the market price of the Common Stock. In addition, it is
likely that during a future quarterly period, the Company's results of
operations will fail to meet the expectations of stock market analysts and
investors and, in such event, the Company's stock price could be materially and
adversely effected.
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after the Offering could adversely affect the
prevailing market price of the Common Stock. In addition to the 2,000,000 shares
of Common Stock offered hereby, there will be 4,505,113 shares of Common Stock
outstanding as of the effective date of this Prospectus, assuming no exercise of
outstanding options after November 30, 1996. There are 52,545 shares which
relate to vested options exercisable at November 30, 1996 by former employees
and former consultants of the Company. All such shares are "restricted shares"
(the "Restricted Shares") under the Securities Act of 1933, as amended (the
"Securities Act"). Beginning 180 days after the date of this prospectus,
3,236,505 Restricted Shares will become eligible for sale in the public market
pursuant to the expiration of certain lockup agreements with the Company,
subject to the volume and other restrictions of Rule 144 promulgated under the
Securities Act. If public sales of these shares occur contemporaneously in
substantial amounts, they could materially adversely affect the trading prices
of the Common Stock. In addition, the Company entered into an Amended and
Restated Investors' Rights Agreement (the "Investors' Rights Agreement") with
the holders of its then outstanding Common Stock and convertible preferred
stock, which, subject to the 180-day lock-up agreements, requires the Company to
register an offering of Common Stock held by such persons or their transferees
at their request, subject to certain conditions and restrictions. The Investors'
Rights Agreement also allows the parties thereto and their transferees to
include their Common Stock in a registered offering of Common Stock initiated by
the Company or by another stockholder of the Company. There can be no assurance
as to what effect, if any, the availability of such shares for sale may have on
the market price for the Common Stock or on the ability of the Company to raise
additional capital. See "Shares Eligible for Future Sale" and "Description of
Capital Stock -- Registration Rights."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share are estimated to be $21,820,000 ($25,168,000 assuming
the Underwriters' over-allotment is exercised in full), after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company expects to use approximately $8 million of the net proceeds
from this Offering to fund research and development, including clinical trials
and approximately $7 million to fund the expansion of the Company's sales and
marketing force to commercially market its products in the United States and
internationally. The balance of the net proceeds will be used for working
capital and other general corporate purposes. These amounts are estimates, and
the amount and timing of the expenditures of the net proceeds for these purposes
will depend on numerous factors, including the status of the Company's product
development efforts, the results of clinical trials, the regulatory approval
process, competition, manufacturing activities and the market acceptance of the
Company's products. See "Risk Factors -- Broad Discretion of Management to
Allocate Offering Proceeds." Pending such uses, the Company plans to invest the
net proceeds from this Offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has not paid a dividend on its capital stock and does not
anticipate paying any dividends in the foreseeable future.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on a pro forma basis to give effect to the conversion of
outstanding shares of convertible Preferred Stock into shares of Common Stock
upon the closing of this Offering; (ii) to reflect an amendment to the Company's
Certificate of Incorporation that will be effective upon the closing of this
Offering increasing the number of authorized shares of Common Stock to
20,000,000 and authorizing the issuance of up to 5,000,000 shares of Preferred
Stock; and (iii) as adjusted to reflect the sale by the Company of 2,000,000
shares of Common Stock at an assumed initial public offering price of $12.00 per
share and after deducting the underwriting discount and estimated offering
expenses. This table should be read in conjunction with the Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------
PRO FORMA AS ADJUSTED
----------- --------------
<S> <C> <C>
Long-term portion of equipment line of credit.................... $ 152,011 $ 152,011
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized
pro forma and as adjusted; no shares outstanding, pro forma
and as adjusted............................................. -- --
Common stock, $0.001 par value; 20,000,000 shares authorized,
pro forma and as adjusted; 4,503,487 shares issued and
outstanding, pro forma; 6,503,487 shares issued and
outstanding, as adjusted(1)................................. 4,503 6,503
Additional paid-in capital..................................... 15,664,544 37,482,544
Unearned compensation.......................................... (413,285) (413,285)
Accumulated deficit............................................ (8,144,780) (8,144,780)
----------- -----------
Total stockholders' equity................................ 7,110,982 28,930,982
----------- -----------
Total capitalization................................... $ 7,262,993 $ 29,082,993
=========== ===========
</TABLE>
- ---------------
(1) Excludes (i) 624,650 shares of Common Stock issuable pursuant to the
exercise of stock options outstanding as of September 30, 1996, at a
weighted average exercise price of $1.18 per share, of which 229,364 shares
were then exercisable under such options and of which 1,626 of such options
have been exercised subsequent to September 30, 1996; and (ii) 13,683 shares
of Common Stock issuable upon exercise of certain warrants at a weighted
average exercise price of $5.22 per share. See Notes 6, 10 and 15 to Notes
to Financial Statements. As of November 30, 1996, there were 730,495 shares
of Common Stock issuable upon exercise of outstanding stock options at a
weighted average exercise price of $1.81 per share, of which 258,263 shares
were then exercisable under such options.
14
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was approximately $6,892,000, or $1.53 per share of Common Stock. "Pro
forma net tangible book value" per share represents the amount of total tangible
assets of the Company less total liabilities, divided by the pro forma number of
shares of Common Stock outstanding. After giving effect to the sale of 2,000,000
shares of Common Stock offered hereby and the receipt by the Company of the
estimated net proceeds therefrom, based on an assumed initial public offering
price of $12.00 per share and after deducting the underwriting discount and the
estimated offering expenses, the pro forma net tangible book value of the
Company as of September 30, 1996, would have been approximately $28,712,000, or
$4.41 per share. This represents an immediate increase in the net tangible book
value of $2.88 per share to existing stockholders and an immediate dilution of
$7.59 per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $12.00
Pro forma net tangible book value per share as of September 30,
1996........................................................... $1.53
Increase per share attributable to new investors.................. 2.88
------
Pro forma net tangible book value per share after the Offering...... 4.41
------
Dilution per share to new investors................................. $ 7.59
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by investors purchasing shares of Common Stock in this
Offering (based on an assumed initial public offering price of $12.00 per share
and before deducting the underwriting discount and the 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............... 4,503,487 69.2% $15,255,762 38.9% $ 3.39
New Investors....................... 2,000,000 30.8% 24,000,000 61.1% 12.00
--------- ----- ----------- ------
Total..................... 6,503,487 100.0% $39,255,762 100.0%
========= ===== =========== ======
</TABLE>
The foregoing table assumes no exercise of outstanding options or warrants
to purchase Common Stock after September 30, 1996. At September 30, 1996, there
were (i) 624,650 shares of Common Stock issuable upon exercise of outstanding
stock options granted under the Company's stock option plans at a weighted
average exercise price of $1.18 per share, of which 229,364 shares were then
exercisable under such options and (ii) 13,683 shares of Common Stock issuable
upon exercise of certain warrants at a weighted average exercise price of $5.22
per share.
15
<PAGE> 17
SELECTED FINANCIAL DATA
The following table contains certain selected financial data and is
qualified by, and should be read in conjunction with, the Financial Statements
and the related Notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this Prospectus. The selected statement of operations data
for the periods ended December 31, 1993, 1994 and 1995 and the balance sheet
data at December 31, 1995 are derived from the Company's financial statements
which have been audited by Coopers & Lybrand L.L.P., independent accountants.
The selected financial data at September 30, 1996 and for the nine-month periods
ended September 30, 1995 and 1996 are derived from unaudited financial
statements included elsewhere in this Prospectus and include, in the opinion of
the Company, all adjustments consisting of only normal recurring adjustments
necessary for a fair presentation of the Company's results of operations for
those periods and financial position at that date. Operating results for the
nine month period ended September 30, 1996 are not necessarily indicative of
operating results for any subsequent period.
<TABLE>
<CAPTION>
JUNE 11, 1993 NINE MONTHS
(DATE OF INCEPTION) YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
TO DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $ -- $ 26,229 $ 292,302 $ 135,084 $ 968,990
Cost of sales................. -- 26,978 316,404 161,261 1,115,658
--------- ----------- ----------- ----------- -----------
Gross profit (loss)........... -- (749) (24,102) (26,177) (146,668)
Research and development
expenses.................... 92,421 768,788 1,485,371 947,184 1,589,156
Selling, general and
administrative expenses..... 23,782 546,817 1,499,103 928,776 2,303,113
--------- ----------- ----------- ----------- -----------
Operating loss................ (116,203) (1,316,354) (3,008,576) (1,902,137) (4,038,937)
Interest and other income
(expense), net.............. 209 17,390 202,378 161,327 118,513
--------- ----------- ----------- ----------- -----------
Loss before income taxes...... (115,994) (1,298,964) (2,806,198) (1,740,810) (3,920,424)
Income tax expense............ 800 800 800 -- 800
--------- ----------- ----------- ----------- -----------
Net loss...................... $(116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
========= =========== =========== =========== ===========
Pro forma net loss per common
and common equivalent
share(1).................... $ (0.59) $ (0.83)
=========== ===========
Pro forma weighted average
common and common equivalent
shares(1)................... 4,738,000 4,728,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
DECEMBER 31, -------------
1995
------------ (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term investments................. $ 2,417,644 $ 6,065,067
Working capital................................................... 2,358,050 6,212,247
Total assets...................................................... 3,220,977 7,831,791
Long-term portion of equipment line of credit..................... -- 152,011
Accumulated deficit............................................... (4,223,556 ) (8,144,780)
Stockholders' equity.............................................. 2,878,041 7,110,982
</TABLE>
- ---------------
(1) See Note 2 of Notes to Financial Statements for information regarding
calculation of pro forma net loss per share.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under "Risk
Factors."
OVERVIEW
Since its inception in June 1993, MTI has been primarily engaged in the
design, development and marketing of minimally invasive devices for treatment of
neuro vascular and peripheral vascular disease. The Company has a limited
history of operations and has experienced significant operating losses since
inception. Operating losses are expected to continue as the Company expends
substantial resources to fund research and development, clinical trials,
regulatory approvals and increased marketing and sales activities.
The Company commenced U.S. commercial shipments of its first infusion
catheters in November 1994, but did not generate significant revenues until it
established a direct domestic sales force in the second half of 1995. The
Company currently sells its products in international markets through a limited
number of distributors. In September 1996, four of the Company's sales
representatives left the Company to join other companies. The Company has hired
four sales representatives to replace them and has hired a sales representative
to cover an additional territory. The temporary reduction of the sales force had
the effect of reducing the rate of growth of sales during the fourth quarter of
1996. The Company plans to increase its direct sales force in the United States
and has hired a Director of International Operations based in Europe to
establish a sales presence outside North America. Any increase in the Company's
direct sales force will require significant expenditures of capital and
additional management resources.
To date virtually all the Company's revenues have been derived from sales
of its initial infusion catheters, wires and related accessories. The Company
expects sales of these and similar products to provide the majority of the
Company's revenues at least through 1997. Clinical trials of the Cragg
Thrombolytic Brush are currently underway and market introduction is expected in
1997. However, there can be no assurance that FDA approval will be obtained or,
if obtained, that the Company will be successful in generating sales of this or
other future products. In addition, the Company expects to generate only minimal
revenues in the European Community nations until it obtains CE Mark notification
for its products.
The Company's infusion catheters, sidehole infusion wires and Cragg
Thrombolytic Brush are currently manufactured by the Company at its facility in
San Clemente, California. Certain other products and components are manufactured
by contract manufacturers. The Company recently expanded its manufacturing
facilities in order to provide sufficient capacity for future products and to
better control product costs and quality. Future revenues and results of
operations may fluctuate significantly from quarter to quarter and will depend
upon, among other factors, actions relating to regulatory and reimbursement
matters, the extent to which the Company's products gain market acceptance, the
rate at which the Company establishes its domestic and international sales and
distribution network, the progress of clinical trials and the introduction of
competitive products for diagnosis and treatment of neuro vascular and
peripheral vascular disease. The Company's limited operating history makes
accurate prediction of future operating results difficult or impossible.
Although the Company has experienced sales growth in recent periods, there can
be no assurance that, in the future, the Company will sustain sales growth or
gain profitability on a quarterly or annual basis or that its growth will be
consistent with predictions made by securities analysts.
The Company currently manufactures product for stock and ships product
shortly after the receipt of orders and anticipates that it will do so in the
future. Accordingly, the Company has not developed a significant backlog and
does not anticipate that it will develop one in the future.
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<PAGE> 19
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 and 1995
Net sales for the nine months ended September 30, 1996 increased to
$969,000 from $135,000 for the same period in 1995. The increase was the result
of the growth in sales of its infusion products. Substantially all of the growth
occurred in the domestic market due to the establishment of a domestic sales
force in the second half of 1995.
Cost of sales for the nine months ended September 30, 1996 increased to
$1.1 million from $161,000 for the same period in 1995. The increase was
attributable to the increase in sales as well as non-recurring production costs
and inefficiencies associated with the rapid increase and expansion of
production operations, and the expansion of the Company's manufacturing
facilities in conjunction with its move to a new facility in November 1995 and
the subsequent expansion in July 1996.
Research and development expenses, which include clinical and regulatory
expenses, for the nine months ended September 30, 1996 increased to $1.6 million
from $947,000 for the same period in 1995. The increase was primarily
attributable to increases in the number of employees, increased expenditures
related to development of the Liquid Embolic System ("LES") and commencement of
clinical trials of the Cragg Thrombolytic Brush.
Selling, general and administrative expenses for the nine months ended
September 30, 1996 increased to $2.3 million from $929,000 for the same period
in 1995. The increase was primarily the result of the growth of a direct sales
force in the United States, marketing expenses associated with the initial
promotion of the Company's products, facility expansion costs, hiring of
additional administrative personnel and the amortization of non-cash deferred
compensation charges associated with stock option grants to employees.
Net interest and other income decreased to $119,000 for the nine months
ended September 30, 1996 from $161,000 for the same period ended in 1995. This
difference was attributable to lower average cash balances versus the prior
year.
As a result of the items discussed above, the Company had a net loss of
$3.9 million for the nine months ended September 30, 1996 compared to a net loss
of $1.7 million for the same period in 1995.
Years ended December 31, 1995 and 1994
Net sales for the year ended December 31, 1995 increased to $292,000 from
$26,000 for the year ended December 31, 1994. The increase was the result of the
U.S. market launch of the Cragg-McNamara valved tip infusion catheters.
Substantially all of the growth occurred in the U.S. market due to the
establishment of a domestic sales force in the second half of 1995.
International sales represented 12% of total sales for the year ended December
31, 1995, versus 71% of total sales for the year ended December 31, 1994.
Cost of sales for the year ended December 31, 1995 increased to $316,000
from $27,000 for the year ended December 31, 1994. The increase was attributable
to the increase in sales as well as non-recurring production costs and
inefficiencies associated with the rapid increase and expansion of production
operations, and the expansion of the Company's manufacturing facilities in
conjunction with its move to a new facility in November 1995.
Research and development expenses, which include regulatory and clinical
expenses, for the year ended December 31, 1995 increased to $1.5 million from
$769,000 for the year ended December 31, 1994. The increase was primarily
attributable to increases in the number of employees and increased expenditures
related to development of the LES and the Cragg Thrombolytic Brush.
Selling, general and administrative expenses increased for the year ended
December 31, 1995 to $1.5 million from $547,000 for the year ended December 31,
1994. This increase was primarily attributable to the establishment of a direct
sales force in the United States, the addition of administrative personnel and
the development of marketing programs and materials in support of new product
introductions.
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<PAGE> 20
Net interest and other income for the year ended December 31, 1995
increased to $202,000 from $17,000 for the year ended December 31, 1994. This
difference was attributable to higher average cash balances in 1995 due to the
sale of equity securities for $5.2 million in February 1995.
As a result of the items discussed above, the Company had a net loss of
$2.8 million for the year ended December 31, 1995 compared to a net loss of $1.3
million for the year ended December 31, 1994.
INFLATION
The Company does not believe that inflation has had a significant impact on
the Company's operating results to date.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have significantly
exceeded its sales, resulting in an accumulated deficit of $8.1 million at
September 30, 1996. The Company has funded its operations since inception
primarily through the private placement of equity securities, as well as through
interest income and equipment financing. Through September 30, 1996, the Company
has raised approximately $15.2 million from a series of private placements of
equity securities.
As of September 30, 1996 the Company had cash equivalents and short-term
investments of $6.1 million compared to $2.4 million at December 31, 1995, and
$457,000 at December 31, 1994. The balance at December 31, 1994 is primarily the
result of the private placement of $1.1 million of equity securities in July
1994. The increase during 1995 was due primarily to the private placement of
$5.2 million of equity securities in February 1995. The increase from December
31, 1995 to September 30, 1996 was due to the private placement of $8.2 million
of equity securities in May and June 1996.
Cash used in the Company's operations increased to $4.0 million for the
nine months ended September 30, 1996 from $1.8 million for the same period in
1995. This cash was used primarily to fund increasing levels of research and
development of the Company's products, clinical trials, the initial marketing of
the products in the United States and general and administrative expenses to
support increased operations. The Company's capital expenditures during the
first nine months of 1996 were $458,000, which included equipment purchased
under a lease-line of credit. The Company plans to finance its capital and
operational needs principally from the net proceeds of the recent private
placement of equity securities and this Offering, including interest thereon,
its existing capital resources, and, to the extent available, from bank and
lease financing.
MTI believes that the anticipated net proceeds from this Offering together
with interest thereon and the Company's existing capital resources will be
sufficient to fund its operations for at least two years. However, the Company's
future liquidity and capital requirements will depend upon numerous factors,
including the progress of the Company's clinical research and product
development programs, the receipt of and the time required to obtain regulatory
clearances and approvals, and the resources the Company devotes to developing,
manufacturing and marketing its products. The Company's capital requirements
will also depend on, among other things, (i) the resources required to expand
its direct sales force in the United States and increase its marketing and sales
presence internationally, (ii) the resources required to expand manufacturing
capacity and facilities requirements and (iii) the extent to which the Company's
products gain market acceptance. Accordingly, there can be no assurance that the
Company will not require additional financing within this time frame and,
therefore, may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Additional
funding may not be available when needed or on terms acceptable to the Company,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
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<PAGE> 21
BUSINESS
Micro Therapeutics, Inc. ("MTI" or the "Company") develops, manufactures
and markets minimally invasive medical devices for the diagnosis and treatment
of vascular disease. MTI focuses its efforts in two underserved markets: (i) the
treatment of neuro vascular disorders of the brain associated with stroke; and
(ii) the treatment of peripheral vascular disease, including blood clot therapy
in hemodialysis access grafts, arteries and veins. The Company's objective is to
provide physicians with new interventional treatment alternatives which improve
outcomes, reduce costs, shorten procedure times, reduce drug usage and allow
access to difficult-to-reach anatomical locations. The Company currently markets
more than fifty products for the treatment of peripheral vascular disease and
will introduce products to treat neuro vascular disease in 1997.
The Company's products and products under development in the neuro vascular
market designed to address stroke include (i) a range of infusion micro
catheters incorporating shaft designs and innovative materials, which allow
access to the smallest, most remote blood vessels and (ii) the Liquid Embolic
System ("LES"), which combines a unique material and special purpose micro
catheters designed to treat aneurysms and arteriovenous malformations ("AVMs").
The Company's products in the peripheral vascular market, designed for less
invasive treatment of blood clots, include (i) a broad offering of infusion
catheters, micro catheters and infusion wires and (ii) the Cragg Thrombolytic
Brush designed for rapid interventional clot disruption and dissolution through
mechanical mixing of a thrombolytic drug with the clot.
BACKGROUND
Vascular disease is the leading cause of death in the industrialized world,
and is responsible for over 40% of all deaths in the United States. Vascular
disease may occur in any blood vessel in the body, and is generally manifested
as an occlusion or rupture in a vessel. The vascular disease market consists of
three segments, defined by anatomical location: cardiovascular disease, or
disease in the coronary arteries; neuro vascular disease, or disease in the
vessels in the brain; and peripheral vascular disease, or disease in blood
vessels throughout the rest of the body. MTI is focused on the two segments it
believes to be underserved: neuro vascular and peripheral vascular disease.
Neuro Vascular Disease
The leading complication of neuro vascular disease is stroke, the
diminished blood flow to critical regions of the brain. A significant need for
effective stroke therapy exists because of the severity of the disorder, its
prevalence in society, the inadequacy of current therapies and the high cost of
treatment and care. Acute stroke is the third leading cause of death in the
United States and a major cause of long-term disability, with an estimated
annual cost of over $30 billion. There are approximately 500,000 cases of stroke
per year in the United States, of which approximately one-third of the victims
die as a result of the event and another one-third become severely and
permanently disabled. Over three million people in the United States are stroke
survivors and stroke is the leading cause of disability among adults. The
disabilities caused by stroke include paralysis, coma, impaired cognition,
reduced coordination, loss of visual acuity, loss of speech, loss of sensation
or a combination of these effects. Currently, no medical intervention exists
that can reverse the brain damage resulting from stroke.
Strokes are typically caused either by blockages (vaso-occlusive stroke) or
ruptures (hemorrhagic stroke) of vessels within or leading to the brain. The
most common type of vaso-occlusive stroke, thromboembolic stroke, is caused by
the existence of a blood clot, or thrombus, within an artery, blocking blood
flow. These blood clots can originate in the heart or a peripheral vascular site
and travel into the neuro vasculature. The other type of vaso-occlusive stroke,
atherosclerotic stroke, results from blockage of blood flow by plaque in a
vessel. The majority of atherosclerotic strokes result from blockage in the
carotid artery in the neck. The annual number of cases of thromboembolic and
atherosclerotic stroke in the United States is estimated to be 325,000 and
95,000, respectively.
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<PAGE> 22
Hemorrhagic stroke is generally caused by the rupture of a blood vessel in
the brain resulting from a vascular defect such as an aneurysm or AVM. There are
approximately 80,000 cases of hemorrhagic stroke per year in the United States.
An aneurysm is a balloon-shaped structure which forms at a weak point in
the vessel wall and fills with blood. Aneurysms typically grow over time and,
due to pressure placed on the wall of the aneurysm, are prone to rupture. Burst
aneurysms result in massive intracranial bleeding and often death. Patients with
unruptured aneurysms may experience symptoms such as blurred vision, headaches
or dizziness; however, the large majority of these patients are asymptomatic.
While 30,000 hemorrhagic stroke cases are related to ruptured intracranial
aneurysms, autopsy studies have suggested that unruptured aneurysms may occur in
2% to 5% of the general population in the United States. The Company believes
that with the development of new diagnostic and interventional technologies, the
pool of candidate patients may be expanded to include those with unruptured
aneurysms discovered in conjunction with other examinations.
In an AVM, the flow of blood between arteries and veins, which normally
occurs through capillary vessels, is shortcut by the development of larger
vessels connecting directly from arteries to veins. The higher pressure on the
arterial side makes these vessels highly prone to rupture.
The Company believes that, while the interventional treatment of stroke in
the United States is estimated to be 30,000 procedures today, this market will
grow significantly, driven by the development of improved diagnostic, imaging
and interventional technologies; conversion from surgical to interventional
procedures; the acceptance of preventive treatment of unruptured aneurysms; the
increasing number of trained interventional neuroradiologists; the continued
development of stroke centers; and the impact of stroke public awareness
programs.
Peripheral Vascular Disease
Approximately eight million people have been diagnosed with peripheral
vascular disease in the United States, of which an estimated one million are
treated annually. The majority of these patients are treated with invasive
surgical procedures. Generally, these patients suffer from degenerative
atherosclerosis or blood clots, the same process that produces coronary artery
disease. For patients diagnosed with peripheral vascular disease, there is
currently no therapy of which the Company is aware, able to halt the
degenerative process.
Vascular obstruction, or the resulting lack of blood flow, can lead to skin
discoloration, pain, ulceration, swelling or a change in blood chemistry. These
symptoms are most often present in the legs and arms and may also develop in the
neck, stomach and kidneys.
Thrombosis, or the stagnation and clotting of blood, most often occurs at
locations in blood vessels where the flow of blood has become restricted. This
is most evident in vascular grafts placed to augment blood flow and in native
arteries where the vessel bifurcates or atherosclerosis has narrowed the channel
through which blood flows. Blood clots may form at the point of narrowing or may
originate elsewhere in the cardiovascular system, break off, travel downstream
and lodge in a smaller peripheral vessel, decreasing or completely blocking
flow. Unless this condition is alleviated, tissue ischemia and gangrene can
occur.
One common site for vascular obstruction is in hemodialysis access grafts.
The Company believes hemodialysis access grafts have been surgically implanted
in approximately 140,000 kidney dialysis patients in the United States. These
grafts are used as the access site for dialysis needles which are inserted to
withdraw and return blood from a dialyzer, a procedure performed every 2-3 days
for each such patient. These hemodialysis access grafts occlude over time and
fail approximately every 6-18 months, requiring treatment, generally surgery.
The Company estimates thrombosis in peripheral arteries affects 500,000
people per year in the United States. Approximately 200,000 of these patients
receive surgical or interventional treatment.
Clotting of the deep veins in the lower extremities and torso is commonly
referred to as deep venous thrombosis ("DVT"). DVT and other venous thrombosis
associated with superficial veins are responsible for approximately 250,000
hospitalizations annually in the United States and approximately 600,000
additional
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<PAGE> 23
cases result from long-term hospital stays. Currently, virtually all treatment
is systemic infusion of anticoagulant drug over a seven day period or longer on
an inpatient basis, followed by an oral medication regimen for the remainder of
the patient's life. This treatment only stops the progression of the clotting
and does not remove the clot. Surgical removal of the obstruction is not
considered to be a desirable treatment alternative for DVT because of the
potential injury to the vein.
The Company estimates that the interventional market of peripheral blood
clots in the United States is approximately 100,000 procedures per year, and
believes this market will grow significantly, driven by the conversion from
surgical to interventional procedures and the development of advanced
technologies that decrease overall procedure costs.
BUSINESS STRATEGY
MTI's goal is to be a leading provider of interventional solutions for
treatment of neuro vascular and peripheral vascular disorders. The Company's
strategy is composed of the following key elements:
- Focus on Underserved Markets. MTI is focusing on the development of
products for treatment of neuro vascular disorders associated with stroke
and peripheral vascular disorders, two market segments which the Company
believes are underserved. The Company works closely with leading
interventional radiologists and neuroradiologists worldwide who are
committed to advancing interventional techniques for treating these
disorders.
- Establish Early Market Presence. The Company has established an early
presence in the U.S. peripheral blood clot therapy market through the
development and rapid regulatory approval of a broad offering of
catheters and infusion wires for the interventional radiologist, and by
distributing these products through a direct sales force focused on this
specialty. The Company believes this early market penetration strategy
has enabled it to establish a strong foundation in the peripheral
vascular therapy market and facilitate the introduction of new
technologies.
- Expand Interventional Therapy Alternatives. Through its development
efforts MTI is addressing the key issues to growth in interventional
vascular therapies, including ease of vessel access, ease of therapeutic
delivery, completeness and efficacy of therapy, conversion from an
inpatient to an outpatient setting, and reduction of procedure time and
cost. In so doing, MTI is expanding the pool of patients who may be
candidates for interventional therapy.
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PRODUCTS
The following table sets forth the Company's principal products and
products under development and their current status:
<TABLE>
<CAPTION>
PRODUCT LINE U.S. STATUS INTERNATIONAL STATUS
- ---------------------------------------- --------------------------- ----------------------
<S> <C> <C>
NEURO VASCULAR - STROKE THERAPY
Micro Catheters
Easy Rider Valved Tip Sidehole
Infusion 510(k) submission 1997 Submission for CE Mark
expected 1997
Easy Rider Endhole Infusion 510(k) submission 1997 Submission for CE Mark
expected 1997
Flow Directed Infusion 510(k) submission 1997 Submission for CE Mark
expected 1997
Liquid Embolic System Preclinical Clinical trials
PERIPHERAL VASCULAR - BLOOD CLOT THERAPY
Infusion Catheters
Cragg-McNamara Valved Tip Sidehole 510(k) approved; 21 models Marketed in 7
currently marketed; countries
6 models to be launched in
first half 1997
Patency Sidehole and Endhole 510(k) approved; 10 models Marketed in 7
currently marketed
MicroMewi Sidehole 510(k) approved; 4 models Submission for CE Mark
currently marketed expected first half
1997
MicroPatency Endhole 510(k) approved; 3 models Marketed in 7
currently marketed
Katzen Select Variable Infusion
Length 510(k) approved Submission for CE Mark
expected 1997
Infusion Wires
ProStream Multiple Sidehole 510(k) approved; 4 models Submission for CE Mark
currently marketed expected first half
1997
ProStream Endhole 510(k) approved; 2 models Submission for CE Mark
currently marketed expected first half
1997
Cragg Thrombolytic Brush 510(k) submitted Approved 2 countries;
September 1996 Submission for CE Mark
expected first half
1997
</TABLE>
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<PAGE> 25
NEURO VASCULAR -- STROKE THERAPY PRODUCTS
Micro Catheters
The Company has developed multiple lines of micro catheters incorporating
unique shaft designs and innovative materials which allow access to small,
remote blood vessels in the brain. These micro catheters may be used for
infusion of drugs to dissolve blood clots associated with thromboembolic stroke.
The conventional treatment for neuro vascular blood clots involves the
systemic delivery of thrombolytic drugs capable of dissolving the clot.
Interventional thrombolytic therapy for neuro vascular occlusions involves the
use of subselective micro catheters to reach the site of the occlusion, followed
by the local infusion of thrombolytic drugs to dissolve the blood clot. The
Company believes that site-specific delivery of thrombolytic drugs may prove to
be more effective than traditional intravenous systemic administration by
requiring less drug, which may lead to reduced side effects such as bleeding in
other parts of the body.
Of the 325,000 patients who experience thromboembolic stroke each year, the
Company estimates that 150,000 of these patients could be treated by
interventional procedures with early intervention, patient selection and
improved micro catheters. One line of the Company's micro catheters is designed
for endhole infusion of thrombolytic drugs to dissolve short clots. Another
line, designed for longer clots, incorporates the Cragg MicroValve at the tip of
the catheter, which, when closed, forces fluid out infusion side holes over the
length of the clot.
The Company expects to submit a 510(k) for its neuro micro catheters and to
introduce these products in 1997.
Liquid Embolic System
The Company's proprietary LES, currently under development, is designed for
rapid and controlled embolization of aneurysms and AVMs. The LES consists of
unique biomaterials and special purpose micro catheters. The micro catheters are
used to deliver the material, in liquid form, to small remote blood vessels in
the brain where it fills a vascular defect and transforms into a solid polymer
cast. The LES offers a unique form, fill and seal approach to the interventional
treatment of aneurysms or AVMs associated with hemorrhagic stroke.
The conventional treatment of hemorrhagic stroke requires highly-invasive
neurosurgery, in which a portion of the skull is removed and brain tissue is
manipulated to gain access to the diseased vessel. This type of surgery
generally involves extensive blood loss and prolonged hospitalization.
Interventional treatment of aneurysms currently involves advancing a micro
catheter through the cerebral vasculature to the aneurysm site. Tiny metal coils
attached to a delivery wire are passed, one at a time, through the catheter and
into the aneurysm. The coil is then released from the delivery wire, the wire is
removed and the next coil is advanced through the catheter. This process is
repeated until approximately 30% of the volume of the aneurysm is filled with
coils. The presence of these coils in the aneurysm disrupts blood flow, leading
to the formation of thrombus in the spaces within the coil mass. Numerous
embolization coils are required to fill an aneurysm, a procedure which generally
takes two to three hours to complete.
Surgical treatment of AVMs includes both open neurosurgery and
radiosurgery. The Company estimates that 75% of AVM surgical procedures are
preceded by interventional embolization of the AVM. In the United States,
interventional AVM embolization, either as stand-alone treatment or as a bridge
to surgery, involves depositing polyvinyl alcohol ("PVA") particles, coils or
other embolic material into the AVM to reduce or stop blood flow. Embolization
with PVA particles is challenging due to the difficulty of placing the particles
into the proper location, the inability to visually confirm the placement of the
particles and the tendency for embolized vessels to reopen. Outside the United
States, the most widely used embolization technique for AVMs is the injection of
acrylic-based glues which have not been approved for use in the United States.
Glues have multiple drawbacks, such as lack of control in delivery and extreme
adhesion to all surfaces, including the delivery catheter.
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<PAGE> 26
In an LES procedure, the micro catheter is positioned at the embolization
site and the material is delivered with a single injection. The LES material is
visible under fluoroscopy and thus the interventionalist is able to see and
continuously monitor the penetration and location of the material. When the
vascular defect is completely filled with the polymer cast, the delivery
catheter is removed. Since the LES material is nonadhesive, the controlled
injection and filling of the vascular defect can take place over a 30-second or
longer period, whereas a glue injection must be instantaneous to avoid gluing
the delivery catheter in place.
(SKETCH OF AN ANEURYSM, BEFORE AND AFTER TREATMENT
USING LES AND AN AVM BEFORE AND AFTER TREATMENT USING LES)
The Company believes that its LES will allow the interventionalist to fill
defects in a controlled fashion, leading to better outcomes for aneurysm and AVM
therapy by:
- Providing a means to fill an aneurysm or AVM feeder with a single
delivery through a micro catheter, thereby reducing the
catheter/guidewire manipulation, exchange time and procedure time;
- Completely filling the vascular defect, rather than inducing formation of
thrombus; and
- Reducing potential for reformation of an aneurysm or AVM resulting from
inadequate filling.
The Company is currently conducting preclinical trials of the LES. This
will be followed by human clinical trials to be conducted at selected sites
outside of the United States, commencing in the first half of 1997, for the
treatment of AVMs and later for the treatment of aneurysms. The Company will
apply for an investigational device exemption ("IDE") to conduct human clinical
trials in the United States after completion of sufficient preclinical and
clinical testing. The Company anticipates that the first indicated use of the
LES for which it will seek an IDE is the treatment of AVMs. There can be no
assurance, however, that the Company will be successful in obtaining an IDE.
Additional potential uses for LES include tumor embolization, urinary
incontinence and reproductive sterilization. The Company does not intend to
devote significant resources to these applications, although it has undertaken
preliminary animal testing.
PERIPHERAL VASCULAR -- BLOOD CLOT THERAPY PRODUCTS
Catheters and Infusion Wires
MTI is introducing to the market a broad offering of less invasive
interventional catheters, micro catheters and infusion wires capable of
efficient delivery of thrombolytic agents for the dissolution of blood clots.
MTI's current offering of Cragg-McNamara valved tip infusion catheters and
ProStream infusion wires represents advanced technology in thrombolytic therapy
for the three peripheral vascular market subsegments: hemodialysis access
grafts, arteries and veins.
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<PAGE> 27
Surgical embolectomy is the most common procedure for removing blood clots
from the vascular system, including hemodialysis access grafts. In this
procedure, a surgical incision is made down to the occluded vessel, the vessel
is cut open and a balloon catheter is used to remove the clot through the
incision.
Vascular bypass surgery with native vessels or synthetic grafts is also
performed. In this procedure, either a native vessel, usually a vein surgically
harvested from the patient's leg, or an artificial graft is surgically connected
above and below the occlusion. Blood can then flow around, or bypass, the
occlusion.
These surgical procedures require an operating room and attendant staff,
anesthesia, intensive care and associated in-hospital recovery facilities and
supplies. If the surgery is performed on an occluded graft through which the
patient had been receiving hemodialysis, the dialysis therapy must be
discontinued at the site of the graft for approximately two weeks and an
alternate access site established for hemodialysis.
Thrombolysis, or the dissolving of blood clots, can be performed
interventionally, often on an outpatient basis, by delivering thrombolytic drugs
through an infusion catheter directly into the clot. Various techniques are used
in these procedures including the "pulse-spray" infusion technique where boluses
of the drug are repeatedly hand injected into the thrombus with high pressure
syringes, and the "weep" infusion technique where the drug is slowly infused
into the clot over a longer period of time.
Available treatments for blood clots in veins are much more limited than
those for arteries. Currently, virtually all treatment for DVT is systemic
infusion of anticoagulant drugs over a seven day period, or longer, on an
inpatient basis, followed by an oral medication regimen for the rest of the
patient's life. This treatment only stops the progression of the clotting and
does not remove the clot already present. Surgical embolectomy is not considered
to be a treatment alternative for DVT because of the potential for injury to the
veins.
Recently, a number of high profile interventional radiology centers in the
United States have begun treating DVT with the infusion of thrombolytic drugs at
the site of the clot through sidehole infusion catheter and infusion wire
systems. The Company believes the interventional treatment of DVT with its
catheters and infusion wires may represent a significant opportunity to expand
the patient population for interventional therapy.
Of the 140,000 hemodialysis access graft treatments currently performed
each year in the United States, the Company estimates that one third are treated
interventionally. Of the 200,000 arterial blood clot treatments currently
performed each year in the United States, the Company estimates that 45,000 are
interventional. The Company also estimates that an additional 10,000 vein
procedures are performed interventionally each year in the United States for a
total of 100,000 interventional treatments for peripheral blood clots.
Cragg-McNamara Valved Tip Catheters. These catheters incorporate the
Company's Cragg MicroValve which allows a catheter to be advanced over a
guidewire, and when the wire is removed, the valve at the tip of the catheter
closes completely. This valve technology allows the use of the entire catheter
lumen for sidehole fluid delivery as compared to competitive products which
require a wire to be in place to occlude the catheter tip during sidehole
infusion.
Katzen Select Variable Infusion Length Catheters. With the introduction of
the Katzen Select variable infusion length catheters, the Company will expand
the interventionalist's capability in thrombolytic therapy by offering, for the
first time, the ability to change the desired infusion characteristics while the
catheter is in the patient. With this catheter, the physician has the option of
changing the desired infusion length to match changing anatomical needs as the
blood clot dissolves. This unique sidehole infusion capability is made possible
by the proprietary Cragg MicroValve.
ProStream Infusion Wires. The Company's infusion wires can be inserted
into blood vessels, and navigated to the site of an obstruction to allow the
infusion of fluids through the wire to the distal anatomy. These infusion wires
can also be passed through infusion catheters to allow simultaneous infusion at
multiple sites. The Company is developing a coiled sidehole infusion wire that
can be mechanically manipulated in-vivo from a straight to a coiled
configuration. Fluids can then be infused directly to the blood vessel wall.
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<PAGE> 28
MTI received 510(k) clearance of its Cragg-McNamara valved tip infusion
catheters in October 1994 and is currently marketing 21 models both domestically
and internationally. The Company received 510(k) clearance of the ProStream
sidehole infusion wires in January 1996, is currently marketing six models of
ProStream infusion wires in the United States and intends to begin selling
internationally in the first half of 1997. These products, together with MTI's
line of Patency infusion catheters and MicroPatency endhole infusion catheters
are, or will be, marketed in the United States through its direct sales force
and internationally through a combination of direct sales and distributors.
Cragg Thrombolytic Brush
The Company believes that most treatments for blood clots in the peripheral
vasculature could be performed interventionally. However, in order for
interventional thrombolysis procedures to surpass surgical procedures as the
treatment of choice, three main issues need to be addressed, all of which have a
direct impact on procedure cost.
First, the length of time to achieve lysis of the clot must be shortened.
If a clot is relatively "fresh," that is, several hours old or less when
treated, dissolution time is quick and the procedure can be completed in a
single session in the catheterization or special procedures lab. If, however,
the clot becomes more "organized" in the vessel, dissolution time lengthens. In
these circumstances, thrombolysis starts in the catheterization lab and
continues in a hospital room for 24-72 hours, making it an inpatient procedure.
The patient is then moved back to the lab a second time for angiographic imaging
to determine whether the infusion has been successful. Even a single setting
thrombolytic procedure on a fresh clot can require the interventional
radiologist to administer the drug for a considerable length of time. Second,
the dissolution of the clot must be complete. An established clot is resistant
to complete dissolution and any residual clot becomes a site for repropagation
of new clot. Third, drug cost must be reduced. The cost of drugs for a long-term
thrombolytic infusion lasting several days is thousands of dollars.
MTI is conducting a controlled clinical evaluation of the Cragg
Thrombolytic Brush in hemodialysis access grafts, which addresses the clinical
issues that remain in standard thrombolysis. The Cragg Thrombolytic Brush is
designed for rapid interventional clot disruption and dissolution through
mechanical mixing of a thrombolytic drug with the blood clot. A cylindrical,
soft nylon brush mounted on a wire cable is introduced into the vessel through
an infusion catheter. The cable drive is attached to a battery powered, low
speed motor drive. A side port on the catheter allows thrombolytic drugs to be
infused through the catheter immediately adjacent to the brush. Once positioned
in the clotted graft, infusion of thrombolytic drug is begun and the motor is
switched on, starting the brush rotation. The rotation of the brush within the
clot actively mixes the drug into the clot, exposing more clot surface to the
drug, thus accelerating the thrombolytic process. The Company is developing an
over-the-wire version of the Cragg Thrombolytic Brush that the Company believes
will further improve vascular access and ease of use. Future studies using this
design may include clinical evaluation in other applications, including native
vessel grafts, arteries and veins.
In September 1996, the Company filed a 510(k) market clearance application
with the FDA for the Cragg Thrombolytic Brush. Included in the application was
statistical analysis covering the first 40 patients treated under an IDE
clinical study. In this study, patients are randomized to treatment with either
the Cragg Thrombolytic Brush or conventional pulse-spray thrombolytic infusion.
The key clinical endpoints being measured in the study are the length of time to
reopen the occluded graft and the amount of thrombolytic drug used. The results
as of November 30, 1996, including 60 patients, demonstrate substantial
improvements with reductions in both of these clinical endpoints for the Cragg
Thrombolytic Brush, as compared to conventional pulse-spray thrombolytic
infusion. See "Government Regulation."
SALES AND MARKETING
The primary users of the Company's products are interventional radiologists
and neuroradiologists. Approximately 1,500 hospitals in the United States
perform interventional radiology procedures and an estimated 500 institutions
provide some neuro vascular and peripheral vascular therapy.
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In order to achieve early adoption of its products, the Company believes it
will need to establish and maintain relationships with the key interventional
radiologists and neuroradiologists. The Company believes that these
relationships can only be formed through the presence of a direct sales
organization. Currently the Company's domestic sales force consists of eight
direct sales representatives covering the United States. To date, sales
representatives have concentrated their efforts on 200 selected interventional
radiology centers, which the Company believes account for a majority of the
total procedures. It is anticipated that the interventional radiology and
neuroradiology centers will overlap substantially, allowing for efficient
selling into the overall interventional marketplace.
The Company has established international distribution arrangements in
Germany, the United Kingdom, The Netherlands, Belgium, Japan, Australia and
Canada through a network of specialty medical device distributors. These
arrangements provide the Company with distributors experienced in the
interventional device markets who are able to access the top interventional
physicians and institutions worldwide. MTI's distributor network has initially
focused on the introduction and market penetration of peripheral vascular
products. The Company's Director of International Operations, based in Europe,
directs the Company's international sales efforts, oversees the existing
distributor network, evaluates new distribution opportunities, and acts as a
liaison for the Company's clinical investigation programs.
RESEARCH AND DEVELOPMENT
The Company is directing its research efforts towards development of
products which expand the therapeutic alternatives available to interventional
radiologists and interventional neuroradiologists for treatment of vascular
disease. The primary efforts are directed at further expansion of its catheter
and infusion wire product offerings to simplify access to the venous system for
treatment of DVT, and extension of the Cragg Thrombolytic Brush technology for
application in native vessel grafts, arteries and veins.
While the development efforts for the LES are focused on AVMs and aneurysms
in the neuro vasculature, the Company believes the LES may also have utility for
a variety of procedures throughout the vascular system, including embolization
of certain types of tumors whose growth is dependent on adequate blood supply,
and the Company has performed studies on representative animal models. In
addition, the Company has filed patents related to certain non-vascular
applications of the LES, and is sponsoring preclinical studies of its use in
certain urological and gynecological procedures.
In addition to its work on the LES, the Company is actively investigating
alternative treatment modalities for disease associated with stroke. The primary
focus of this work is the application of stent technology in the head and neck.
Stents are small tubular frameworks introduced percutaneously and deployed to
reestablish blood flow in an occluded section of a vessel. In recent years
stents have been used increasingly in coronary and certain peripheral arteries
that are blocked by atherosclerotic plaque. The Company believes stents may
provide a viable alternative to surgery for exclusion of such plaque in the
carotid arteries and exclusion of certain types of aneurysms in cerebral
arteries.
Work performed to date in the Company's stent program has been directed
principally towards establishment of intellectual property rights in relevant
technologies, development of designs and fabrication of initial prototypes. The
Company has executed two license agreements covering four issued and several
pending U.S. patents for certain stent technology and has filed an additional
patent of its own. Should the early research further confirm the potential of
the Company's technologies, efforts in 1997 would be directed towards refinement
of designs and initiation of preclinical trials.
All of these research efforts are at an early stage, and there can be no
assurance that any products will be successfully developed from them, receive
regulatory approvals, be capable of being manufactured cost-effectively, be
successfully introduced or receive market acceptance. See "Risk Factors" for
additional information regarding risks generally applicable to development of
new products.
The Company's research and development staff consists of 20 full-time
engineers, technicians and regulatory personnel, and two full time consultants,
all of whom have substantial experience in medical device development. In
addition to these technical personnel, the Company's product development process
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incorporates teams organized around each of the Company's core technologies or
product groups, with each team having representatives from marketing, regulatory
and clinical affairs, manufacturing and finance. Consultants are utilized where
additional specialized expertise is required. See "Management -- Other Key
Advisors."
MANUFACTURING
The Company manufactures its proprietary catheters, infusion wires and the
Cragg Thrombolytic Brush in a clean room setting at its facilities in San
Clemente, California. The Company has implemented quality control systems as
part of its manufacturing process, which comply with U.S. Good Manufacturing
Practices ("GMP") requirements and are designed to enable the Company to achieve
ISO 9001 certification in the first half of 1997. The Company has also been
inspected by the California Department of Health Services ("CDHS") on behalf of
the State and under contract with the FDA, and is registered with the State of
California to manufacture its medical devices. The Company believes that it is
in compliance with FDA GMP for medical devices. There can be no assurance,
however, that the Company will achieve ISO 9001 certification or that the
Company will remain in compliance with GMP. Failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company has developed the necessary capabilities for micro valve
molding, hole drilling, bonding, catheter assembly, balloon fabrication,
infusion wire assembly, tip forming, packaging and testing, and has developed
proprietary know-how and manufacturing expertise in several of these areas. An
endhole infusion wire and certain accessories are manufactured for the Company
on an OEM basis; all other fabrication and assembly operations are performed in
the Company's manufacturing facilities. The Company uses outside contractors for
extrusion, injection molding, hydrophilic coating, motor drive componentry and
sterilization. Outside services will be brought in-house as necessary or
appropriate to meet the Company's production, quality and profitability
objectives.
Raw materials are purchased from various qualified vendors, subjected to
stringent quality specifications and assembled by the Company into final
products. The Company routinely conducts quality audits of suppliers and has
adopted a vendor qualification program. Certain products are obtained by the
Company from single source suppliers. However, the Company believes that
alternative suppliers are available for its raw materials and other product
components and plans to qualify additional suppliers as sales volume warrants.
Although the Company intends to maintain sufficient levels of inventory to avoid
any material disruption resulting from increased manufacturing, there can be no
assurance that the Company will be able to manufacture and supply products to
meet potential demand.
COMPETITION
The medical device industry is characterized by rapidly evolving
technologies and significant competition. The Company expects competition in the
interventional radiology and interventional neuroradiology markets to increase
substantially. The Company believes that interventional procedures with products
like its own are substantially less costly than highly invasive surgical
procedures and may ultimately replace these procedures in certain applications.
In certain cases, the Company's products may be used in conjunction with
traditional surgical techniques.
The Company competes primarily with other producers of catheter and wire
based products for interventional treatment of neuro vascular and peripheral
vascular disease. In neuro vascular interventional applications Target
Therapeutics, Inc. is the market leader. The Company expects to compete against
Target Therapeutics and other recent entrants in the neuro vascular
interventional market including Boston Scientific, Inc., the Cordis, Inc.
subsidiary of Johnson & Johnson, and Medtronic Micro Interventional Systems. In
peripheral blood clot therapy applications the Company competes with the
MediTech division of Boston Scientific, Inc., Cook, Inc., Target Therapeutics
and the AngioDynamics division of E-Z-EM Corporation. All of these companies
have significantly greater financial, manufacturing, marketing, distribution and
technical resources, name recognition and experience than the Company. There can
be no assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective than
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<PAGE> 31
those developed by the Company or that would render the Company's products
obsolete or noncompetitive. Additionally, there can be no assurance that the
Company will be able to compete effectively against such competitors based on
its ability to manufacture, market and sell its products.
The length of time required for product development and regulatory approval
plays an important role in a company's competitive position. Consequently, the
Company's success will depend in part on its ability to respond quickly to
medical and technological changes through the development, clinical evaluation
and commercialization of new products. Product development involves a high
degree of risk and there can be no assurance that the Company's research and
development efforts will result in commercially successful products.
MEDICAL ADVISORY BOARD
The Company has a group of physicians which advise it on medical matters in
areas of the Company's business. The Company's Medical Advisory Board (the
"MAB") includes experts in vascular disease diagnosis and therapy in
interventional radiology and interventional neuroradiology. The Company
regularly consults with members of the MAB regarding the Company's research and
development, preclinical trials and clinical trials.
The Micro Therapeutics Medical Advisory Board is composed of the following
individuals:
<TABLE>
<S> <C>
Andrew H. Cragg, M.D........ Director, Interventional Vascular Medicine,
Chairman of MAB and a Fairview Riverside Medical Center and Clinical
Founder of the Company Associate Professor of Radiology, University of
Minnesota Hospitals
Flavio Castaneda, M.D. ..... Clinical Associate Professor of Radiology and
Surgery, and Radiology Research Director, University
of Illinois College of Medicine at Peoria
Bart Dolmatch, M.D. ........ Section Head, Vascular and Interventional Radiology,
The Cleveland Clinic Foundation
Barry Katzen, M.D. ......... Medical Director, Miami Vascular Institute, and
Clinical Professor of Radiology, University of Miami
School of Medicine
Thomas O. McNamara, M.D. ... Professor of Radiological Sciences, UCLA School of
Medicine, Vascular Interventional Radiology
Section, UCLA Medical Center for the Health
Sciences
Mark Mewissen, M.D. ........ Associate Professor of Radiology, Director of
Vascular/ Interventional Radiology, Medical College
of Wisconsin, Froedtert Memorial Lutheran Hospital
Alex Norbash, M.D. ......... Assistant Professor of Interventional
Neuroradiology, Stanford University Hospital
John Perl II, M.D. ......... Section of Neuroradiology, The Cleveland Clinic
Foundation
Cass Pinkerton, M.D. ....... Senior Consultant, Interventional Cardiology,
Nasser, Smith & Pinkerton Cardiology
Don F. Schomer, M.D. ....... Assistant Professor of Radiology, The University of
Texas, M.D. Anderson Cancer Center, Diagnostic
Radiology
Donald Schwarten, M.D. ..... Director of Interventional Radiology, St. Vincent's
Hospital
</TABLE>
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<TABLE>
<S> <C>
Tony Smith, M.D. ........... Professor of Radiology and Director of
Interventional Neuro and Peripheral Vascular
Radiology, Duke University Medical Center
Sidney Wallace, M.D. ....... Professor Emeritus, Deputy Division Head for
Research, Division of Diagnostic Imaging, The
University of Texas, M.D. Anderson Cancer Center
</TABLE>
Except for Dr. Cragg, who receives compensation and holds a significant
number of shares of the Company's Common Stock, all MAB members have been
granted options to purchase shares of the Company's Common Stock for their
services and are reimbursed for reasonable expenses, but receive no other
compensation. All of the members of the MAB are employed by employers other than
the Company and may have commitments to, or consulting or advisory agreements
with, other entities, including potential competitors of the Company, that may
limit their availability to the Company. Although these advisors may contribute
significantly to the affairs of the Company, none, other than Dr. Cragg, is
expected to devote more than a small portion of his time to the Company.
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to aggressively protect its proprietary position
by, among other things, filing U.S. and foreign patent applications to protect
technology, inventions and improvements that are important to the development of
its business. The Company's strategy includes extending the patent protection of
its licensed technology by filing procedure-specific method patents wherever
possible for the use of the Company's products in new clinical applications.
As of November 30, 1996, the Company held eight issued U.S. patents, one
issued foreign patent and has seventeen U.S. and eight foreign patent
applications pending. The Company's issued U.S. patents cover technology
underlying the Cragg MicroValve, infusion wire, Cragg Thrombolytic Brush, Liquid
Embolic System and cartoid and intra-cerebral stent products. The expiration
dates of these patents range from February 2009 to December 2015. The pending
claims cover various aspects of its infusion catheter, infusion wire,
Thrombolytic Brush, micro catheter, Liquid Embolic Systems, cartoid and
intra-cerebral stent technologies and non-vascular liquid embolic products.
Although the Company aggressively works to protect its technology, no
assurance can be given that any patents from pending patent applications or from
any future patent applications will be issued, that the scope of any patent
protection will exclude competitors or provide competitive advantages to the
Company, that any of the Company's patents will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held by the Company. Furthermore, there can be no
assurance that others have not developed or will not develop similar products,
duplicate any of the Company's products or design around the Company's patents.
In addition, others may hold or receive patents or file patent applications
which contain claims having a scope that covers products developed by the
Company.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and many companies in
the industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement litigation or an interference proceeding
declared by the U.S. Patent and Trademark Office ("PTO") to determine the
priority of inventions. The defense and prosecution of patent suits, PTO
interference proceedings and related legal and administrative proceedings are
both costly and time consuming. Litigation may be necessary to enforce patents
issued to the Company, to protect the Company's trade secrets or know-how or to
determine the enforceability, scope and validity of the proprietary rights of
others.
Any litigation or interference proceedings involving the Company would
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties. Although patent and
intellectual property disputes in the medical device area have often
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<PAGE> 33
been settled through licensing or similar arrangements, costs associated with
such arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
operating results and financial condition.
In addition to patents, the Company relies on trade secrets and proprietary
know-how to compete, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
individuals by the Company during the course of the relationship with the
Company is to be kept confidential and not disclosed to third parties, except in
specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering service to the
Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with
employees, consultants and others will not be breached, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors.
GOVERNMENT REGULATION
United States
The research, development, manufacture, labeling, distribution and
marketing of the Company's products are subject to extensive and rigorous
regulation by the FDA and, to varying degrees, by state and foreign regulatory
agencies. The Company's products are regulated in the United States as medical
devices by the FDA under the Federal Food, Drug, and Cosmetic Act (the "FDC
Act") and require clearance or approval by the FDA prior to commercialization.
In addition, significant changes or modifications to medical devices also are
subject to regulatory review and clearance or approval. Under the FDC Act, the
FDA regulates the research, clinical testing, manufacturing, safety, labeling,
storage, record keeping, advertising, distribution, sale and promotion of
medical devices in the United States. The testing for, preparation of and
subsequent review of applications by the FDA and foreign regulatory authorities
is expensive, lengthy and uncertain. Noncompliance with applicable requirements
can result in, among other things, warning letters, proceedings to detain
imported products, fines, injunctions, civil and criminal penalties against the
Company, its officers and its employees, 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 marketing approvals
and a recommendation by the FDA that the Company not be permitted to enter into
government contracts.
In the United States, medical devices are classified into one of three
classes (Class I, II or III) on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and efficacy. Under FDA regulations,
Class I devices are subject to general controls (for example, labeling,
premarket notification and adherence to GMPs) and Class II devices are subject
to general and special controls (for example, performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, Class III
devices are those that must receive premarket approval ("PMA") by the FDA to
ensure their safety and efficacy (for example, life-sustaining, life-supporting
and implantable devices, or new devices that have not been found substantially
equivalent to legally marketed Class I or Class II devices).
The FDA also has the authority to require clinical testing of certain
medical devices as part of the clearance or approval process. If clinical
testing of a device is required and if the device presents a "significant risk,"
an IDE application must be approved prior to commencing clinical trials. The IDE
application must be supported by data, typically including the results of
laboratory and animal testing. If the IDE application is approved by the FDA,
clinical trials may begin at a specific number of investigational sites with a
maximum number of patients, as approved by the agency. Sponsors of clinical
trials are permitted to sell those devices distributed in the course of the
study provided such costs do not exceed recovery of the costs of manufacture,
research, development and handling. The clinical trials must be conducted under
the auspices of investigational sites institutional review boards pursuant to
FDA regulations.
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Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) submission or approval of a PMA application. If a medical device
manufacturer or distributor can establish, among other things, that a device is
"substantially equivalent" in intended use and technological characteristics to
a legally marketed Class I or Class II medical device, or to a Class III medical
device for which the FDA has not required a PMA, the manufacturer or distributor
may seek clearance from the FDA to market the device by filing a 510(k). The
510(k) submission must establish to the satisfaction of the FDA the claim of
substantial equivalence to the predicate device. In recent years, the FDA has
been requiring a more rigorous demonstration of substantial equivalence,
including the requirement for IDE clinical trials.
Following submission of the 510(k), the manufacturer or distributor may not
place the device into commercial distribution unless and until an order is
issued by the FDA finding the product to be substantially equivalent. In
response to a 510(k), the FDA may declare that the device is substantially
equivalent to another legally marketed device and allow the proposed device to
be marketed in the United States. The FDA, however, may require further
information, including clinical data, to make a determination regarding
substantial equivalence, or may determine that the proposed device is not
substantially equivalent and require a PMA. Such a request for additional
information including clinical trials or a determination that the device is not
substantially equivalent would delay market introduction of the products that
are the subject of the 510(k). It generally takes four to twelve months from the
date of submission to obtain 510(k) clearance, although it may take longer, in
particular if clinical trials are required.
If the manufacturer or distributor cannot establish that a proposed device
is substantially equivalent to a legally marketed Class I or II predicate
device, the manufacturer or distributor must seek premarket approval of the
proposed device through submission of a PMA application. A PMA application must
be supported by extensive data, including laboratory, preclinical and clinical
trial data to prove the safety and efficacy of the device, as well as extensive
manufacturing information. If the FDA determines, upon initial review, that a
submitted PMA application is sufficiently complete to permit substantive review,
the FDA will accept the PMA application for filing. FDA review of a PMA
application generally takes approximately two years or more from the date of
acceptance for filing, but review times vary depending upon FDA resources and
workload demands and the complexity of PMA submissions. There can be no
assurance that the FDA will review and approve the PMA in a timely manner, if at
all. Failure to obtain PMA approvals could have a material adverse effect on the
Company's business, operating results and financial condition. Additionally, as
one of the conditions for approval, the FDA will inspect the manufacturing
establishment at which the subject device will be manufactured to determine
whether the quality control and manufacturing procedures conform to GMP
regulations. If granted, the PMA approval may include significant limitations on
the indicated uses for which a product may be marketed.
As of November 30, 1996, the Company had received three 510(k) clearances
for certain diagnostic or therapeutic indications of its infusion catheters,
micro catheters and infusion wires which cover 48 products offered to the
market. The Company has made modifications to its cleared devices that the
Company believes do not require the submission of new 510(k) notices. There can
be no assurance, however, that the FDA would agree with any of the Company's
determinations not to submit a new 510(k) notice for any of these changes or
would not require the Company to submit a new 510(k) notice for any of the
changes made to the device. If the FDA requires the Company to submit a new
510(k) notice for any device modification, the Company may be prohibited from
marketing the modified device until the 510(k) notice is cleared by the FDA.
The use of certain materials may require that the device be evaluated as a
drug rather than as a device, and thus the FDA's investigational new drug
("IND") and new drug application ("NDA") regulations would be applicable to the
clinical study and commercialization of the product. Otherwise the product will
be treated as a medical device. The steps required before a drug may be marketed
in the United States include preclinical and laboratory tests, the submission to
the FDA of an application for an IND which must become effective before clinical
trials may commence, adequate and well controlled clinical trials to establish
the safety and efficacy of the drug, the submission to the FDA of an NDA, and
FDA approval of the NDA prior to any commercial sale or shipment of the product.
In January 1996, the Company met with representatives of both the drug and
device divisions of the FDA to discuss their respective new product approval
requirements. Based
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<PAGE> 35
on the information presented by the Company regarding the material composition
of the LES, the Company believes the LES would be regulated as a device. There
can be no assurance, however, that upon more detailed review of the LES, the FDA
will not at a later date determine that the LES should be regulated as a drug.
Such a change could significantly delay the commercial availability of the LES
and have a material adverse effect on the Company's business, operating results
and financial condition.
There can be no assurance that the Company will be able to obtain necessary
510(k) clearances or PMA or NDA approvals to market its products for the
intended uses on a timely basis, if at all, and delays in receipt of or failure
to receive such approvals, the loss of previously received approvals, or failure
to comply with existing or future regulatory requirements would have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company is also required to register as a medical device manufacturer
with the FDA and state agencies, such as the CDHS and to list its products with
the FDA. As such, the Company will be inspected by both the FDA and CDHS for
compliance with GMP and other applicable regulations. These regulations require
that the Company manufacture its products and maintain its documents in a
prescribed manner. The Company has not yet been inspected by the FDA for GMP
compliance. In September 1995, the Company's original facility in Aliso Viejo,
California was inspected by the CDHS, acting on behalf of the State and under
contract with the FDA. The Company received no significant inspection
observations and was subsequently granted a California medical device
manufacturing license. In November 1995, the Company's present facility in San
Clemente was inspected by the CDHS, again acting on behalf of the State and
under contract with the FDA. No significant inspection observations were
received. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations now or in the
future or that such laws or regulations will not have a material adverse effect
upon the Company's ability to do business.
The Company is required to provide information to the FDA on death or
serious injuries that its medical devices have allegedly caused or contributed
to, as well as product malfunctions that would likely cause or contribute to
death or serious injury if the malfunction were to recur. In addition, the FDA
strictly prohibits the marketing of approved devices for uses other than those
specifically cleared for marketing by the FDA. If the FDA believes that a
company is not in compliance with the law or regulations, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against a company, its
officers and its employees. Failure to comply with the regulatory requirements
could have a material adverse effect on the Company's business, operating
results and financial condition.
Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain circumstances, by the Federal Trade Commission. Current FDA
enforcement policy prohibits the marketing of approved medical devices for
unapproved uses. The Company is also subject to regulation by the Occupational
Safety and Health Administration and by other government entities.
Regulations regarding the manufacture and sale of the Company's products
are subject to change. The Company cannot predict what impact, if any, such
changes might have on its business, operating results and financial condition.
International
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain clearance required by foreign countries may be longer or
shorter than that required for FDA clearance, and requirements for licensing a
product in a foreign country may differ significantly from FDA requirements.
Some countries have historically permitted human studies earlier in the product
development cycle than regulations in the United States permit. Other countries,
such as Japan, have requirements similar to those of the United States. This
disparity in the regulation of medical devices may result in more rapid product
clearance in certain countries than in others.
The Company or its distributors have received registrations and approvals
to market its Cragg-McNamara and Patency infusion catheters in Germany, The
Netherlands, Belgium, the United Kingdom, Canada, Japan and Australia.
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The European Union has promulgated rules which require that medical
products receive by mid-1998 the right to affix the CE Mark, an international
symbol of adherence to quality assurance standards and compliance with
applicable European Union Medical Device Directives. The ISO 9000 series of
standards for quality operations have been developed to ensure that companies
know the standards of quality to which they must adhere to receive European
Union certification. ISO 9000 certification is one of the CE Mark certification
requirements. Failure to receive the right to affix the CE Mark will prohibit
the Company from selling its products in member countries of the European Union
after mid-1998. The Company is in the process of developing and implementing
policies and procedures that are intended to allow the Company to receive ISO
9001 certification of its processes and its CE Mark. There can be no assurance
that the Company will be successful in meeting certification requirements.
Exports of products subject to the 510(k) notification requirements, but
not yet cleared to market, are permitted without FDA export approval provided
certain requirements are met. Unapproved products subject to the PMA
requirements must receive prior FDA export approval unless they are approved for
use by any member country of the European Union and certain other countries,
including Australia, Canada, Israel, Japan, New Zealand, Switzerland and South
Africa, in which case they can be exported to any country without prior FDA
approval. To obtain FDA export approval, when it is required, certain
requirements must be met and information must be provided to the FDA, including
documentation demonstrating that the product is approved for import into the
country to which it is to be exported and, in some instances, safety data from
animal or human studies. The Company has received export approvals for the Cragg
Thrombolytic Brush in The Netherlands and Australia, and is seeking approvals
for other key European countries. There can be no assurance that the Company
will receive FDA export approval when such approval is necessary, or that
countries to which the devices are to be exported will approve the devices for
import. Failure of the Company to receive import approval from foreign
countries, or to obtain Certificates for Products for Export, meet FDA's export
requirements, or obtain FDA export approval when required to do so, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
THIRD-PARTY REIMBURSEMENT
In the United States, hospitals, catheterization laboratories, physicians
and other healthcare providers that purchase medical devices generally rely on
third-party payors, such as private health insurance plans, to reimburse all or
part of the costs associated with the treatment of patients.
The Company's success will depend upon, among other things, its customer's
ability to obtain satisfactory reimbursement from healthcare payors for its
products. Reimbursement in the United States for the Company's infusion catheter
and infusion wire products is currently available under existing procedure codes
from most third-party payors, including most major private health care insurance
plans, Medicare and Medicaid. The Company does not expect that third-party
reimbursement in the United States will be available for use of its other
products unless and until FDA clearance or approval is received. If FDA
clearance or approval is received, third-party reimbursement for these products
will be dependent upon decisions by individual health maintenance organizations,
private insurers and other payors. However, the Company believes that procedures
using its Cragg Thrombolytic Brush may be reimbursed in the United States under
existing procedure codes for diagnosis and re-establishment of patency of
hemodialysis access grafts and native vessels. Similarly, the Company believes
that procedures using its LES may be reimbursed in the United States under
existing procedure codes for diagnosis and treatment of aneurysms and AVMs.
However, there can be no assurance that such procedure codes will remain
available or that the reimbursement under these codes will be adequate. Given
the efforts to control and decrease health care costs in recent years, there can
be no assurance that any reimbursement will be sufficient to permit the Company
to achieve or maintain profitability.
Reimbursement systems in international markets vary significantly by
country, and by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. Many international markets have
government managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Large-scale market acceptance of the Company's
thrombolytic infusion and other products will depend on the
35
<PAGE> 37
availability and level of reimbursement in international markets targeted by the
Company. Currently, the Company has been informed by its international
distributors that its Cragg-McNamara and Patency infusions catheters have been
approved for reimbursement in countries in which the Company markets such
products. Obtaining reimbursement approvals can require 12-18 months or longer.
There can be no assurance that the Company will obtain reimbursement in any
country within a particular time, for a particular amount, or at all. Failure to
obtain such approvals could have a material adverse effect on the Company's
sales, business, operating results and financial condition.
Regardless of the type of reimbursement system, the Company believes that
physician advocacy of its products will be required to obtain reimbursement.
Availability of reimbursement will depend on the clinical efficacy and cost of
the Company's products. There can be no assurance that reimbursement for the
Company's products will be available in the United States or in international
markets under either government or private reimbursement systems, or that
physicians will support and advocate reimbursement for use of the Company's
systems for all uses intended by the Company. Failure by physicians, hospitals
and other users of the Company's products to obtain sufficient reimbursement
from health care payors or adverse changes in government and private third-party
payors' policies toward reimbursement for procedures employing the Company's
products would have a material adverse effect on the Company's business,
operating results and financial condition.
PRODUCT LIABILITY AND INSURANCE
The Company's business involves an inherent risk of exposure to product
liability claims. The risk of such claims has increased in light of a U.S.
Supreme Court decision in 1996 concluding that the FDA regulatory framework does
not necessarily preempt personal injury actions against medical device
manufacturers. Although the Company has not experienced any product liability
claims to date, there can be no assurance that the Company will be able to avoid
significant product liability claims and potential related adverse publicity.
The Company maintains product liability insurance with coverage limits of $2
million per occurrence and an annual aggregate maximum of $2 million, which the
Company believes is comparable to that maintained by other companies of similar
size serving similar markets. However, there can be no assurance that product
liability claims will not exceed such insurance coverage limits, which could
have a material adverse effect on the Company, or that such insurance will
continue to be available on commercially reasonable terms, or at all.
FACILITIES
The Company occupies approximately 19,000 square feet in a multi-user
complex in San Clemente, California. The facility is subject to a lease which
expires in May 1997, with two one-year renewal options. The current monthly rent
is approximately $13,300. The Company believes that this space is adequate for
its immediate needs, and that it will be able to renew its lease or obtain
additional space if necessary.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
36
<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information concerning the executive
officers, directors and key employees of the Company as of November 30, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- ------------------------------------------------
<S> <C> <C>
George Wallace...................... 38 Chief Executive Officer, President, Director
Thomas Berryman..................... 41 Chief Financial Officer
George (Robert) Greene, Jr.......... 43 Vice President -- Research & Development
William M. McLain................... 46 Vice President -- Operations
Glenn Latham........................ 42 Vice President -- Sales
John L. Gehrich, Ph.D............... 60 Vice President -- Regulatory & Clinical Affairs
Karen L. Davis...................... 37 Director of Marketing
Martine Forissier................... 47 Director of International Operations
Helene Spencer...................... 49 Director of Quality and Compliance
H. DuBose Montgomery(1)(2).......... 47 Chairman of the Board, Director
Dick Allen(1)(2).................... 52 Director
Wende Hutton(1)(2).................. 37 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Mr. Wallace is a founder of the Company and has served as President and
Chief Executive Officer since the Company's formation in June 1993. From 1989 to
1993, Mr. Wallace was with Applied Medical Resources (AMR) holding a number of
positions, the last of which was the General Manager of its Applied Vascular and
Applied Urology Divisions. AMR is a manufacturer of specialty surgical products
used in general, vascular and urologic surgery. From 1986 to 1989, Mr. Wallace
was Vice President of Marketing and Sales for Vaser, Inc., a laser angioplasty
company with peripheral and coronary laser angioplasty systems. From 1980 to
1986, Mr. Wallace held various positions in sales, sales management, marketing
and marketing management at Edwards Laboratories, a division of American
Hospital Supply and later Baxter International. Mr. Wallace holds a B.S. in
Marketing from Arizona State University.
Mr. Berryman initially served as a consultant to the Company beginning in
December 1993, and joined the Company as Chief Financial Officer on a full time
basis in January 1995. During 1994, Mr. Berryman served as Chief Financial
Officer of Oncotech, Inc., a biotechnology company focused on the oncology
market. From June 1988 to December 1993, Mr. Berryman was Chief Financial
Officer of Advanced Surgical Intervention, Inc., a medical device company
focused on the urology market. From March 1985 through June 1988, Mr. Berryman
was Chief Financial Officer of VLI Corporation, a publicly held manufacturer of
women's healthcare products. Mr. Berryman holds an M.B.A. from the University of
California, Irvine and a B.S. in Accounting from California State Polytechnic
University, Pomona. Mr. Berryman is a licensed CPA in the State of California.
Mr. Greene joined the Company in October 1995 as Vice
President -- Operations and became Vice President -- Research & Development in
September 1996. From January 1994 to September 1995, he served as Vice President
of Operations of Vesica Medical, Inc., a medical device company focused on
developing and manufacturing products for urological applications, with
responsibilities including research, development and manufacturing. From May
1987 to September 1993, Mr. Greene served as Vice President of Manufacturing at
Advanced Surgical Intervention, Inc., a medical device company focused on the
urology market. From May 1979 to May 1987, Mr. Greene served as Senior
Manufacturing Engineer for Shiley, Inc., a division of Pfizer, Inc. and
manufacturer of artificial heart valves. Mr. Greene holds a B.S. in Industrial
Technology from California State University, Long Beach.
37
<PAGE> 39
Mr. McLain joined the Company in September 1996 as Vice
President -- Operations. From January 1990 until joining the Company, Mr. McLain
held several positions at Applied Medical Resources, including Vice President of
Operations from January 1994 until January 1995, Director of Materials and
Planning, Director of Product Development for Laparoscopy and Director of
Process Development from January 1990 until January 1994. From 1976 to 1990, Mr.
McLain held various engineering and management positions with C.R. Bard,
American Hospital Supply, and Allergan, Inc. Mr. McLain holds an M.B.A. from
Pepperdine University and a B.S. in Physics from the University of Colorado.
Mr. Latham joined the Company in May 1995 as National Sales Manager and
became Vice President -- Sales in January 1996. From 1981 to 1995, Mr. Latham
held various sales and marketing positions with Cordis, Inc., a medical device
manufacturer, serving most recently as Sales Manager for its Cordis Endovascular
Systems subsidiary, specializing in the development and marketing of
interventional radiology and neuroradiology devices. From 1978 to 1981, Mr.
Latham held positions in market research and sales administration with Althin
Medical (formerly Cordis Dow Corporation), a manufacturer of hemodialysis
disposable products. Mr. Latham holds a B.S. in Chemistry and an M.B.A. in
Marketing from the University of Florida.
Mr. Gehrich joined the Company in December 1996 as Vice
President -- Regulatory & Clinical Affairs. From 1981 to 1996, Mr. Gehrich was
with Cardiovascular Devices, Inc. (CDI), a division of 3M Healthcare, holding a
number of positions, the last of which was Vice President, R&D and Scientific
and Regulatory Affairs. CDI, which Mr. Gehrich co-founded, is a manufacturer of
products for real time measurement of blood gases. From 1978 to 1981, Mr.
Gehrich was Manager, Product Evaluation and Planning for the Edwards
Laboratories division of American Hospital Supply, a manufacturer of
cardiovascular catheters and artificial heart valves. Mr. Gehrich holds a Ph.D.
in Electrical/Biomedical Engineering from the University of Southern California
(USC), an MSEE from USC, and BSEE from the University of Dayton.
Ms. Davis joined the Company in April 1995 as Marketing Manager and became
Director of Marketing in July 1995. From 1992 to 1994, Ms. Davis was Product
Director for Applied Medical Resources. From 1989 to 1992, Ms. Davis was a Vice
President in Corporate Finance for Needham & Company, Inc., an investment
banking firm based in New York City. From 1984 to 1988, Ms. Davis was an
Associate in Corporate Finance for Merrill Lynch Capital Markets. Ms. Davis
holds an M.B.A. from Stanford University and a B.A. in Mathematics from The
Colorado College, Colorado Springs.
Ms. Forissier joined the Company in August 1996, as a Director of
International Operations. From 1993 to 1996, Ms. Forissier served as
International Clinical Manager with Cyberonics, Inc., a manufacturer of a vagus
nerve stimulation devices for epilepsy patients. From 1990 to 1993, she was
Manager of Trade Marketing and Sales for Magneti Marelli Distribution, a
division of Group FIAT. From 1986 to 1990, Ms. Forissier was Area Sales Manager
with Valeo, a major supplier to Renault. From 1975 to 1986, she held various
positions in marketing management with Renault. Ms. Forissier holds a D.U. in
International Management from the University of Paris -- Val de Marne.
Ms. Spencer joined the Company in January 1996, as the Director of Quality
and Compliance. From 1993 to 1995, Ms. Spencer was the Director of Regulatory
Affairs and Quality Assurance for Vesica Medical, Inc., a medical device company
focused on developing and manufacturing products for urological applications,
which was acquired by Boston Scientific, Inc. From 1992 to 1993, she held the
same position at Pilot Cardiovascular Systems, Inc., a manufacturer of
angioplasty guidewires, which was acquired by C.R. Bard. Prior to 1992, Ms.
Spencer directed quality assurance and regulatory functions of start-up
companies, including Directed Energy, Inc. and Orange Medical Instruments, Inc.
Ms. Spencer holds a B.S. in Chemistry from the University of California at Santa
Barbara.
Mr. Montgomery has served as Chairman of the Board of the Company since
December 1993. Since 1976, Mr. Montgomery has been a general partner of Menlo
Ventures, a venture capital firm in Menlo Park, California. Mr. Montgomery is a
director of Gilead Sciences, Inc., Matrix Pharmaceuticals, Inc., EndoVascular
Technologies, Inc. and Infoseek Corporation, as well as several private
companies. Mr. Montgomery holds a B.S. in Electrical Engineering and Management
Science and an M.S. in Electrical Engineering from M.I.T. and an M.B.A. from the
Harvard University Graduate School of Business.
38
<PAGE> 40
Mr. Allen has been a director of the Company since June 1994. He is the
President of DIMA Ventures, Inc., a private investment firm providing seed
capital and board-level support for start-up companies in the healthcare field
which he founded in 1987. He was a founder of Caremark, Inc., a home infusion
therapy company, and served as a Vice President from its inception in 1979 until
1986. From 1969 to 1979, Mr. Allen held various management positions with Baxter
International. Mr. Allen also served as a Lecturer in Management at the Stanford
University Graduate School of Business from 1989 to 1992. He was a founder and
Director of Pyxis Corporation (recently acquired by Cardinal Health Inc.) and a
member of the boards of Hoag Memorial Hospital Presbyterian, Hycor Biomedical,
Inc., and several private companies. Mr. Allen holds a B.S. from Yale University
and an M.B.A. from Stanford University Graduate School of Business.
Ms. Hutton has been a director of the Company since February 1995. From
July 1993 until March 1995, Ms. Hutton was a venture partner, and since March
1995 has been a general partner of Mayfield Fund VIII, a venture capital firm,
in Menlo Park, California. Since August 1993, Ms. Hutton has served as a
director of Heartstream where she served as Vice President of Marketing from
February 1993 until November 1993. From March 1991 to January 1993 she was
General Manager of the Transgenic Laboratory products division of GenPharm
International, Inc., a biotechnology company. From August 1986 to March 1991,
Ms. Hutton was employed by Nellcor, Inc., where she held various senior
positions in international marketing and business development. Ms. Hutton holds
a B.A. in Human Biology from Stanford University and an M.B.A. from Harvard
University Graduate School of Business.
OTHER KEY ADVISORS
Ms. Linda D'Abate joined the Company in August 1994 as Vice
President -- Regulatory & Clinical Affairs. Starting in January 1997, Ms.
D'Abate became a consultant for the Company, focusing her efforts on regulatory
and clinical support for the Liquid Embolic System.
Richard Greff, Ph.D. began consulting for the Company in August 1994. Dr.
Greff has focused on the development and clinical evaluation of the Company's
Liquid Embolic System.
Jay Lenker, Ph.D. began consulting for the Company in August 1996. Dr.
Lenker has focused on the development and clinical evaluation of the Company's
carotid and intracerebral stent technology.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid or accrued for services rendered to the Company in all capacities during
the year ended December 31, 1996, to the Company's Chief Executive Officer, and
the Company's other most highly compensated executive officers whose salary and
bonus exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ---------------------
----------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION(1)
- -------------------------------------------- -------- ------ --------------------- ---------------
<S> <C> <C> <C> <C>
George Wallace.............................. $159,000 $ -- -- $ --
Chief Executive Officer and President
Thomas Berryman............................. 113,250 -- 9,750 --
Chief Financial Officer
Robert Greene, Jr........................... 107,333 -- 3,250 --
Vice President -- Research & Development
Glenn Latham................................ 100,875 5,775(2) 22,750 50,855(3)
Vice President -- Sales
</TABLE>
- ---------------
(1) Does not reflect certain personal benefits, which in the aggregate are less
than 10% of each Named Executive Officer's salary and bonus.
(2) Performance bonus based upon achieving certain revenue amounts.
(3) Consists of an automobile allowance of $6,000 and a moving expense
reimbursement of $44,855 to reimburse Mr. Latham for his expenses incurred
in moving from Florida to Southern California.
39
<PAGE> 41
OPTION GRANTS TABLE
The following table sets forth information with respect to options to
purchase shares of the Company's Common Stock granted in fiscal year 1996 to the
Named Executive Officers.
STOCK OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE
NAME GRANTED (#)(1) FISCAL YEAR(%)(2) ($ PER SHARE) EXPIRATION DATE
- ------------------------------------ -------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
George Wallace...................... -- -- -- --
Thomas Berryman..................... 9,750 3.0 1.54 5/23/02
Robert Greene, Jr................... 3,250 1.0 1.54 5/23/02
Glenn Latham........................ 22,750 7.0 1.87 1/01/02 - 10/09/02
</TABLE>
- ---------------
(1) One quarter of the options vest on the first anniversary of the date of
grant and the remainder vest in equal quarterly installments over the next
three succeeding years.
(2) Options to purchase an aggregate of 325,325 shares of Common Stock were
granted to employees, including the Named Executive Officers, during the
year ended December 31, 1996.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
None of the Named Executive Officers exercised any options to purchase
shares of the Company's Common Stock during fiscal year 1996. The following
table sets forth certain information regarding options held at December 31, 1996
by the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
George Wallace............................. 9,750 16,250 $ 112,500 $ 187,500
Thomas Berryman............................ 25,148 39,202 290,169 441,832
Robert Greene, Jr.......................... 10,563 34,937 121,881 399,619
Glenn Latham............................... 10,157 28,843 117,199 300,801
</TABLE>
- ---------------
(1) Calculated by determining the difference between an assumed initial public
offering price of $12.00 per share and the exercise price of the options.
1993 Stock Option Plan
The Company's 1993 Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan (the "Plan") was adopted by the Company's
stockholders and Board of Directors as of December 1993 and provides for the
granting of "incentive stock options," within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory
options. The Plan authorized for issuance up to 650,000 shares of the Company's
Common Stock. Under the Plan, shares of the Company's Common Stock may be
granted to directors, officers, employees and consultants of the Company, except
that incentive stock options may not be granted to non-employee directors or
consultants. The Plan is administered by the Compensation Committee, which has
sole discretion and authority, consistent with the provisions of the Plan, to
determine which eligible participants will receive options, the time when
options will be granted, the terms of options granted and the number of shares
which will be subject to options granted under the Plan. As of November 30,
1996, there were 638,195 options outstanding under the Plan at a weighted
average exercise price of $1.30.
The exercise price of incentive stock options must be not less than the
fair market value of a share of Common Stock on the date the option is granted
(110% with respect to optionees who own at least 10% of the
40
<PAGE> 42
outstanding Common Stock). Nonstatutory options shall have such exercise price
as determined by the Board. The Board of Directors has the authority to
determine the time or times at which options granted under the Plan become
exercisable, provided that options expire no later than ten years from the date
of grant (five years with respect to optionees who own at least 10% of the
outstanding Common Stock). Options are nontransferable, other than upon death by
will and the laws of descent and distribution, and generally may be exercised
only by an employee while employed by the Company or within 90 days after
termination of employment (one year for termination resulting from death or
disability).
1996 Stock Incentive Plan
The Company adopted the 1996 Stock Incentive Plan (the "1996 Plan") in July
1996. The 1996 Plan provides for the granting of "incentive stock options,"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and nonstatutory options. The 1996 Plan provides for
options to purchase shares of the Company's Common Stock and restricted stock
grants covering an aggregate of 390,000 shares of the Company's Common Stock
which may be granted to directors, officers, employees and consultants of the
Company, except that incentive stock options may not be granted to non-employee
directors or consultants. In addition, the 1996 Plan provides each non-employee
director of the Company who is initially elected as a director during the term
of the Director Plan shall be granted an option consisting of 8,000 shares of
Common Stock, which option shall vest and become exercisable at the rate of 25%
immediately and 25% on each anniversary of such director's initial election
during the three-year period following the grant date. In addition, upon
reelection as a director for each year of such non-employee director's term of
office such non-employee director shall receive an additional option covering
2,000 shares of Common Stock, with the same vesting schedule, subject to the
limitations set forth in the 1996 Plan. The existing non-employee directors
shall be granted options under the 1996 Plan as of the date hereof at the price
of the Offering. The purpose of the 1996 Plan is to provide participants with
incentives which will encourage them to acquire a proprietary interest in, and
continue to provide services to, the Company. The 1996 Plan is administered by
the Compensation Committee, which has sole discretion and authority, consistent
with the provisions of the 1996 Plan, to determine which eligible participants
will receive options, the time when options will be granted, the terms of
options granted and the number of shares which will be subject to options
granted under the 1996 Plan. As of November 30, 1996, there were 92,300 options
outstanding under the 1996 Plan at an exercise price of $5.38 per share.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors as of July 1996 and approved by the Company's
stockholders as of July 1996, covering an aggregate of 100,000 shares of Common
Stock. The Purchase Plan, which is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code, will be
implemented by six-month offerings with purchases occurring at six month
intervals commencing on the date of this Prospectus. The Purchase Plan will be
administered by the Board of Directors of the Company. Employees will be
eligible to participate if they are employed by the Company for at least 20
hours per week and if they have been employed by the Company for at least 90
days. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 15% of an employee's
compensation. The price of stock purchased under the Purchase Plan will be 85%
of the lower of the fair market value of the Common Stock at the beginning of
the six-month offering period or on the applicable purchase date. Employees may
end their participation in the offering at any time during the offering period,
and participation ends automatically on termination of employment. The Board may
at any time amend or terminate the Purchase Plan, except that no such amendment
or termination may adversely affect options previously granted under the
Purchase Plan. The Purchase Plan will in all events terminate ten years after
its effective date.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its employees and other agents to the fullest
extent permitted by law. The Company believes that
41
<PAGE> 43
indemnification under its Bylaws covers at least negligence and gross negligence
by indemnified parties, and permits the Company to advance litigation expenses
in the case of stockholder derivative actions or other actions, against an
undertaking by the indemnified party to repay such advances if it is ultimately
determined that the indemnified party is not entitled to indemnification. Prior
to the closing of this Offering, the Company will continue to maintain its $1
million director and officer liability insurance policy and expects to have in
place following this Offering liability insurance coverage for its directors and
officers in the amount of $5 million.
In addition, the Company's Certificate of Incorporation provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty as a director to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Company has entered into separate indemnification agreements with its
directors and officers. These agreements require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities
arising from actions not taken in good faith or in a manner the indemnitee
believed to be opposed to the best interests of the Company) to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified and to obtain directors' insurance if available on
reasonable terms. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. The Company
believes that its Certificate of Incorporation and Bylaw provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
42
<PAGE> 44
CERTAIN TRANSACTIONS
Pursuant to the terms of a Consulting Agreement dated September 1, 1993,
and a License Agreement dated June 1, 1993 the Company has paid fees and
royalties to Andrew Cragg, a stockholder of the Company, totaling $135,500 and
$10,853, respectively, for the period from October 1, 1994 through September 30,
1996.
On February 9, 1995, the Company entered into a Series B Stock Purchase
Agreement with Menlo Ventures VI, L.P. ("Menlo VI"), which is a principal
stockholder of the Company, together with other investors, pursuant to which the
Company issued 465,741 shares of Series B Preferred Stock to Menlo VI for $4.23
per share. H. DuBose Montgomery, a director of the Company, is the general
partner of the general partner of Menlo VI.
On May 17, 1996, the Company entered into a Series C Stock Purchase
Agreement with Menlo VI and Mayfield VII both of which are principal
stockholders of the Company, together with other investors, pursuant to which
the Company issued 224,315 and 155,350 shares of Series C Preferred Stock to
Menlo VI and Mayfield VII, respectively, for $6.46 per share.
Certain holders of shares of Common Stock of the Company, including Common
Stock issued upon conversion of the Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights."
The Company has granted options to certain of its directors and executive
officers. See "Management -- Option Grants Table" and "Principal Stockholders."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could otherwise be obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors on the Board of
Directors.
43
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of November 30, 1996
(assuming conversion of all outstanding shares of convertible preferred stock),
and as adjusted to give effect to the sale by the Company of the shares of
Common Stock offered hereby, by (i) each person (or group of affiliated persons)
who is known by the Company to own beneficially 5% or more of the Company's
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers of the Company
as a group. Unless otherwise indicated, the persons named in the table have sole
voting and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING OFFERING(2)
--------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Menlo Ventures VI, L.P............................. 1,674,209 37.2% 1,674,209 25.7%
Menlo Entrepreneurs Fund VI, L.P.(3)
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
Mayfield VII....................................... 864,441 19.2 864,441 13.3
Mayfield Associates Fund II(4)
2800 Sand Hill Road
Suite 250
Menlo Park, California 94025
The CIT Group/Venture Capital, Inc. ............... 309,725 6.9 309,725 4.8
650 CIT Drive
Livingston, New Jersey 07039-5795
Kingsbury Capital Partners II, L.P. ............... 309,725 6.9 309,725 4.8
3655 Nobel Drive
Suite 490
San Diego, California 92122
H. DuBose Montgomery(5)............................ 1,674,209 37.2 1,674,209 25.7
c/o Menlo Ventures
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
George Wallace(6).................................. 307,666 6.8 307,666 4.7
Andrew Cragg....................................... 297,916 6.6 297,916 4.6
Getz Bros. Co. Ltd. ............................... 253,500 5.6 253,500 3.9
Sumitomo Seimei Aoyama Bldg.
3-1-30, Minami-Aoyama, Minato-Ku
Tokyo 107 Japan
Dick Allen(7)...................................... 44,262 1.0 44,262 *
Wende Hutton(8).................................... -- -- -- --
Thomas Berryman(9)................................. 28,194 * 28,194 *
Robert Greene, Jr.(10)............................. 13,203 * 13,203 *
Glenn Latham(11)................................... 10,157 * 10,157 *
All executive officers and directors as a group (12
persons)(12)..................................... 2,958,003 64.4 2,958,003 44.9
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address for each of the indicated owners is
1062 Calle Negocio #F, San Clemente, California 92673.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
44
<PAGE> 46
(3) Includes (i) 1,649,467 shares owned by Menlo Ventures VI, L.P. and (ii)
24,742 shares owned by Menlo Entrepreneurs Fund VI, L.P.
(4) Includes (i) 821,187 shares owned by Mayfield VII and (ii) 43,254 shares
owned by Mayfield Associates Fund II.
(5) Includes shares described in Note (3) above. Mr. Montgomery is the general
partner of MV Management VI, L.P., the general partner of both Menlo
Ventures VI, L.P. and Menlo Entrepreneurs Fund VI, L.P. and accordingly,
may be deemed to beneficially own such shares. Mr. Montgomery disclaims
beneficial ownership of the shares owned by Menlo Ventures VI, L.P. and
Menlo Entrepreneurs Fund VI, L.P. except to the extent of his pecuniary
interest therein.
(6) Includes 9,750 shares subject to options exercisable within 60 days of
November 30, 1996.
(7) Includes 10,462 shares subject to options exercisable within 60 days of
November 30, 1996. Also includes 7,800 shares owned by The Allen Investment
Partnership, of which Mr. Allen is the managing partner and 26,000 shares
owned by DIMA Ventures, Incorporated. Mr. Allen disclaims beneficial
ownership of the shares owned by The Allen Investment Partnership, except
to the extent of his pecuniary interest therein.
(8) Ms. Hutton is a general partner in Mayfield VIII, but is not a general
partner of either Mayfield VII nor Mayfield Associates Fund II.
(9) Consists of shares subject to options exercisable within 60 days of
November 30, 1996.
(10) Consists of shares subject to options exercisable within 60 days of
November 30, 1996.
(11) Consists of shares subject to options exercisable within 60 days of
November 30, 1996.
(12) Includes directors' and executive officers' shares listed above, including
87,637 shares subject to options exercisable within 60 days of November 30,
1996 and includes the shares described in Notes (3) and (4) above.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of common stock, $0.001 par value ("Common Stock"), and 5,000,000 shares of
preferred stock, $0.001 par value ("Preferred Stock").
COMMON STOCK
As of November 30, 1996, assuming conversion of all outstanding Preferred
Stock, there were 4,505,113 shares of Common Stock outstanding, which was held
of record by 46 stockholders. Following the sale of the shares of Common Stock
offered by the Company hereby, there will be 6,505,113 shares of Common Stock
outstanding.
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive such lawful dividends as may be
declared by the Board of Directors. In the event of liquidation, dissolution or
winding up of the Company, and subject to the rights of the holders of
outstanding shares of Preferred Stock, if any outstanding, the holders of shares
of Common Stock shall be entitled to receive pro rata all of the remaining
assets of the Company available for distribution to its stockholders. There are
no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and shares
of Common Stock to be issued pursuant to this Offering shall be fully paid and
nonassessable.
PREFERRED STOCK
Effective prior to the closing of this Offering, each issued and
outstanding share of Preferred Stock will be converted and no shares of
Preferred Stock will be outstanding. Upon the closing of this Offering, the
Board of Directors will have the authority, without further action by the
stockholders, to issue the authorized shares of Preferred Stock in one or more
series and to fix the rights, preferences and privileges thereof, including
voting rights, terms of redemption, redemption prices, liquidation preferences,
number of shares constituting any
45
<PAGE> 47
series or the designation of such series, without further vote or action by the
stockholders. Although it presently has no intention to do so, the Board of
Directors, without stockholder approval, could issue Preferred Stock with voting
and conversion rights which could adversely affect the voting power of the
holders of Common Stock. This provision may be deemed to have a potential
anti-takeover effect and the issuance of Preferred Stock in accordance with such
provision may delay or prevent a change of control of the Company. See "Risk
Factors -- Anti-Takeover Provisions."
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Investors' Rights Agreement, subject
to the terms and conditions therein, and upon expiration of lock-up agreements
with the Underwriters, persons who are the holders of the aggregate of 4,493,744
outstanding shares of Common Stock, including 3,612,664 shares of Common Stock
issuable upon conversion of all outstanding shares of convertible Preferred
Stock, are entitled to certain rights, including demand registration rights and
piggyback rights, with respect to the registration of such shares.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless either
(i) prior to the date at which the person becomes an interested stockholder, the
board of directors approves such transaction or business combination, (ii) the
stockholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of such transaction, or (iii)
the business combination is approved by the board of directors and by two-thirds
of the outstanding voting stock of the corporation (excluding shares held by the
interested stockholder) at a meeting of stockholders (and not by written
consent). A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to such interested stockholder. For
purposes of Section 203, "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation in Glendale, California.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices. As described
below, no shares will be available for sale shortly after this Offering (other
than shares sold in this Offering) because of certain contractual restrictions
on resale. Sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.
Upon completion of this Offering, the Company will have outstanding
6,505,113 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options granted under the
Company's stock option plans. Of these shares, the 2,000,000 shares sold in this
Offering will be available for immediate sale in the public market without
restriction under the Securities Act of 1933 (the "Securities Act"), unless
purchased by "affiliates" of the Company as the term is defined in Rule 144
under the Securities Act.
The remaining 4,505,113 shares 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 under the Securities Act or if they qualify for an exemption
from registration under
46
<PAGE> 48
Rules 144 or 701 promulgated under the Securities Act, which 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.
Nearly all of the Restricted Shares are also subject to lock-up agreements
under which the holders of such shares have agreed not to sell, directly or
indirectly, any shares owned by them for 180 days after the date of this
Prospectus without the prior written consent of UBS Securities LLC. As a result
of these contractual restrictions, notwithstanding possible earlier eligibility
for sale under the provisions of Rule 701, shares subject to lock-up agreements
will not be saleable until the agreements expire. Upon expiration of the 180-day
lock-up period, 8,450 shares of Common Stock will be eligible for sale pursuant
to Rule 701, and an additional 3,236,507 shares will be eligible for sale under
Rule 144. The remaining approximately 1,260,155 shares held by existing
stockholders will become eligible for public resale at various times over a
period of less than two years following the completion of this Offering, subject
in some cases to vesting provisions and volume limitations. In addition, as of
November 30, 1996, options to purchase an aggregate of 730,495 shares of Common
Stock were outstanding under the Company's option plans, substantially all of
which are subject to the 180-day lock-up described above. Upon expiration of the
lock-up, approximately 300,000 shares subject to such options will be vested.
In general, Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at least
two years (including the holding period of any prior owner except an affiliate)
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of (i) one percent of the numbers of shares of
Common Stock then outstanding (approximately 65,035 shares immediately after
this Offering), or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years (including the holding period of any prior owner except an
affiliate), is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts 90 days after the Company becomes
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, in reliance upon Rule 144, but without compliance with certain
restrictions including the holding period requirements contained in Rule 144.
Shortly after this Offering, the Company intends to file a registration
statement on Form S-8 under the Securities Act covering shares of Common Stock
reserved for issuance under the Company's stock plans. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
unless such shares are subject to vesting restrictions with the Company or the
lock-up agreements described above.
47
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Volpe, Welty & Company are acting as representatives (the "Representatives"),
have agreed to purchase from the Company the following respective number of
shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------ ---------
<S> <C>
UBS Securities LLC..........................................
Volpe, Welty & Company......................................
---------
Total............................................. 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriter's obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering price
set forth on the cover of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $ per
share to certain other dealers. After the public offering of the shares of
Common Stock, the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters to the extent
the option is exercised.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The executive officers, directors, employees and certain other stockholders
of the Company who beneficially own an aggregate of shares of Common Stock
outstanding prior to this Offering have agreed that they will not, without the
prior written consent of UBS Securities LLC, sell or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them for a period of 180 days after the effective date of this Offering. The
Company has agreed that it will not, without the prior written consent of UBS
Securities LLC, offer, sell or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock for a period of 180 days
after the date of this Prospectus, except that the Company may grant additional
options under its stock option plans, or issue shares upon the exercise of
outstanding stock options.
48
<PAGE> 50
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Certain persons and entities associated with UBS Securities LLC and Volpe,
Welty & Company purchased equity securities of the Company in May 1996 and July
1993, respectively.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price was negotiated among the
Company and the Representatives. Among the factors considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market and economic conditions, were certain financial information of the
Company, the history of, and the prospects for, the Company and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present stage of the Company's development, and the above factors
in relation to market values and various measures of other companies engaged in
activities similar to the Company. The initial public offering price set forth
on the cover page of this Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to this
Offering at or above the initial offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "MTIX."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Stradling, Yocca, Carlson & Rauth, Newport Beach,
California. Bruce Feuchter, a shareholder of Stradling, Yocca, Carlson & Rauth,
is the Corporate Secretary of the Company and beneficially owns 10,835 shares of
the Company's Common Stock. Certain legal matters will be passed upon for the
Underwriters by Morrison & Foerster LLP, Palo Alto, California.
EXPERTS
The balance sheets as of December 31, 1994 and 1995, and the statements of
operations, stockholders' equity and cash flows for the period from inception
(June 11, 1993) through December 31, 1993, and for the years ended December 31,
1994 and 1995, included in this Prospectus have been so included in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
In September 1995, the Board of Directors appointed Coopers & Lybrand
L.L.P. as the Company's auditors, replacing Ernst & Young LLP, who were
dismissed.
There were no disagreements with Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure, auditing
scope or procedure or any reportable event. Ernst & Young LLP's reports on the
financial statements for the fiscal years ending March 31, 1994 and 1995,
respectively, contained no adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles.
The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary Technology,"
"Business -- Patents and Proprietary Rights" and other references herein to
intellectual property of the Company have been reviewed and approved by the
Company's patent counsel who are Breimayer Law Office, Minneapolis, Minnesota;
Burns, Doane, Swecker & Mathis, Menlo Park, California; and Crockett & Fish, Los
Angeles, California, as experts on such matters, and are included herein in
reliance upon that review and approval.
49
<PAGE> 51
REPORTS TO SECURITY HOLDERS
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company intends to
furnish its stockholders with annual reports containing audited financial
statements certified by its independent public accountants and quarterly reports
containing unaudited financial information for each of the first three quarters
of each fiscal year.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to 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. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Suite 1400,
500 West Madison Street, Chicago, Illinois 60661. Copies of all or any part of
the Registration Statement may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon the
payment of the fees prescribed by the Commission. Such materials, including
reports, proxy and information statements and other information, may be obtained
electronically by visiting the Commission's Web site on the internet at
http://www.sec.com. Statements contained in this Prospectus as to 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 to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
50
<PAGE> 52
MICRO THERAPEUTICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants...................................................... F-2
Balance Sheets At December 31, 1994 And 1995, And At September 30, 1996 (Unaudited).... F-3
Statements Of Operations For The Period From Inception (June 11, 1993) Through December
31, 1993 And for The Years Ended December 31, 1994 And 1995, And For The Nine Months
Ended September 30, 1995 (Unaudited) And 1996 (Unaudited)............................ F-4
Statements Of Stockholders' Equity For The Period From Inception (June 11, 1993)
Through December 31, 1993 And for The Years Ended December 31, 1994 And 1995, And For
The Nine Months Ended September 30, 1996 (Unaudited)................................. F-5
Statements Of Cash Flows For The Period From Inception (June 11, 1993) Through December
31, 1993 And for The Years Ended December 31, 1994 And 1995, And For The Nine Months
Ended September 30, 1995 (Unaudited) And 1996 (Unaudited)............................ F-6
Notes To Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Micro Therapeutics, Inc.
We have audited the accompanying balance sheets of Micro Therapeutics, Inc.
as of December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity and cash flows for the period from inception (June 11,
1993) through December 31, 1993 and for the years ended December 31, 1994 and
1995. 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 audits 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 Micro Therapeutics, Inc. at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the period from inception (June 11, 1993) through December 31, 1993 and for
the years ended December 31, 1994 and 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
December 2, 1996
F-2
<PAGE> 54
MICRO THERAPEUTICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents...................... $ 457,414 $ 2,417,644 $ 2,347,751
Short-term investments......................... -- -- 3,717,316
Accounts receivable............................ 11,618 76,608 191,643
Inventories.................................... 59,645 165,026 393,190
Prepaid expenses and other current assets...... 21,888 41,708 131,145
----------- ----------- -----------
Total current assets................... 550,565 2,700,986 6,781,045
Property and equipment, net...................... 91,489 345,034 669,491
Patents and licenses, net of accumulated
amortization of $2,067, $3,553 and $13,906 as
of December 31, 1994, 1995 and September 30,
1996, respectively............................. 43,316 152,164 218,844
Other assets..................................... 9,501 22,793 162,411
----------- ----------- -----------
Total assets........................... $ 694,871 $ 3,220,977 $ 7,831,791
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of equipment line of credit.... $ -- $ -- $ 39,163
Accounts payable............................... 148,608 248,891 362,080
Accrued salaries and benefits.................. 25,212 78,401 130,665
Accrued liabilities............................ 5,043 15,644 36,890
----------- ----------- -----------
Total current liabilities.............. 178,863 342,936 568,798
Equipment line of credit......................... -- -- 152,011
----------- ----------- -----------
Total liabilities...................... 178,863 342,936 720,809
----------- ----------- -----------
Commitments and contingencies (Note 12)
Stockholders' equity:
Convertible preferred stock, no par value
($0.001 par value pro forma), 1,126,667,
2,355,758, 3,663,395 and 5,000,000 shares
authorized at December 31, 1994, 1995,
September 30, 1996 and pro forma,
respectively; 1,126,667, 2,355,758 and
3,612,664 shares issued and outstanding as
of December 31, 1994, 1995 and September 30,
1996, respectively, no shares pro forma..... 1,795,066 6,962,415 15,034,497
Common stock, no par value ($0.001 par value
pro forma), 6,500,000 shares authorized,
20,000,000 shares authorized pro forma;
945,747, 883,997 and 890,823 shares issued
and outstanding as of December 31, 1994,
1995 and September 30, 1996, respectively,
4,503,487 shares pro forma.................. 137,500 145,700 634,550 $ 4,503
Additional paid-in capital..................... -- -- -- 15,664,544
Unearned compensation.......................... -- (6,518) (413,285) (413,285)
Accumulated deficit............................ (1,416,558) (4,223,556) (8,144,780) (8,144,780)
----------- ----------- ----------- -----------
Total stockholders' equity............. 516,008 2,878,041 7,110,982 $ 7,110,982
===========
----------- ----------- -----------
Total liabilities and stockholders'
equity............................... $ 694,871 $ 3,220,977 $ 7,831,791
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 55
MICRO THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE NINE
(JUNE 11, 1993) FOR THE YEARS ENDED MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
--------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 26,229 $ 292,302 $ 135,084 $ 968,990
Cost of sales................... 26,978 316,404 161,261 1,115,658
----------- ----------- ----------- -----------
Gross profit (loss)... (749) (24,102) (26,177) (146,668)
Costs and expenses:
General and administrative.... $ 23,782 336,831 597,368 423,527 803,100
Research and development...... 90,421 647,424 1,147,403 733,567 1,201,133
Regulatory/quality
assurance.................. 2,000 121,364 337,968 213,617 388,023
Marketing and sales........... -- 209,986 901,735 505,249 1,500,013
--------- ----------- ----------- ----------- -----------
Total costs and
expenses............ 116,203 1,315,605 2,984,474 1,875,960 3,892,269
--------- ----------- ----------- ----------- -----------
Loss from operations.. (116,203) (1,316,354) (3,008,576) (1,902,137) (4,038,937)
Other income (expense):
Interest income............... 209 17,390 202,378 161,327 134,323
Interest expense.............. -- -- -- -- (9,779)
Other......................... -- -- -- -- (6,031)
--------- ----------- ----------- ----------- -----------
209 17,390 202,378 161,327 118,513
--------- ----------- ----------- ----------- -----------
Loss before provision
for income taxes.... (115,994) (1,298,964) (2,806,198) (1,740,810) (3,920,424)
Provision for income taxes...... 800 800 800 -- 800
--------- ----------- ----------- ----------- -----------
Net loss.............. $(116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
========= =========== =========== =========== ===========
Pro forma net loss.............. $(2,806,998) $(3,921,224)
=========== ===========
Pro forma net loss per share.... $ (0.59) $ (0.83)
=========== ===========
Pro forma weighted average
shares outstanding............ 4,738,000 4,728,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 56
MICRO THERAPEUTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TOTAL
----------------------- ------------------ UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT EQUITY
--------- ----------- ------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 11, 1993
(inception).......................... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock for cash...... -- -- 650,000 1,000 -- -- 1,000
Issuance of common stock for cash...... -- -- 295,747 136,500 -- -- 136,500
Issuance of Series A-1 convertible
preferred stock (net of costs of
$25,624)............................. 541,667 724,376 -- -- -- -- 724,376
Net loss............................... -- -- -- -- -- (116,794) (116,794)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at December 31, 1993.......... 541,667 724,376 945,747 137,500 -- (116,794) 745,082
Issuance of Series A-2 convertible
preferred stock (net of costs of
$9,310).............................. 585,000 1,070,690 -- -- -- -- 1,070,690
Net loss............................... -- -- -- -- -- (1,299,764) (1,299,764)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at December 31, 1994.......... 1,126,667 1,795,066 945,747 137,500 -- (1,416,558) 516,008
Issuance of Series B convertible
preferred stock (net of costs of
$32,651)............................. 1,229,091 5,167,349 -- -- -- -- 5,167,349
Repurchase of common stock............. -- -- (65,000) (100) -- -- (100)
Exercise of stock options.............. -- -- 3,250 1,500 -- -- 1,500
Unearned compensation related to stock
options granted...................... -- -- -- 6,800 (6,800) -- --
Compensation related to stock options
vesting.............................. -- -- -- -- 282 -- 282
Net loss............................... -- -- -- -- -- (2,806,998) (2,806,998)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at December 31, 1995.......... 2,355,758 6,962,415 883,997 145,700 (6,518) (4,223,556) 2,878,041
Issuance of Series C convertible
preferred stock (net of costs of
$49,458) (unaudited)................. 1,256,906 8,072,082 -- -- -- -- 8,072,082
Exercise of stock options
(unaudited).......................... -- -- 6,826 3,150 -- -- 3,150
Unearned compensation related to stock
options granted (unaudited).......... -- -- -- 485,700 (485,700) -- --
Compensation related to stock options
vesting (unaudited).................. -- -- -- -- 78,933 -- 78,933
Net loss (unaudited)................... -- -- -- -- -- (3,921,224) (3,921,224)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at September 30, 1996
(unaudited).......................... 3,612,664 $15,034,497 890,823 $634,550 $(413,285) $(8,144,780) $ 7,110,982
========= =========== ======= ======== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 57
MICRO THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE NINE
FROM INCEPTION FOR THE YEARS ENDED MONTHS ENDED
(JUNE 11, 1993) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation and amortization................. -- 15,749 72,496 42,628 144,156
Compensation related to stock options
vesting..................................... -- -- 282 -- 78,933
Change in operating assets and liabilities:
Accounts receivable......................... -- (11,618) (64,990) (24,336) (115,036)
Inventories................................. -- (59,645) (105,381) (45,475) (228,164)
Prepaid expenses and other assets........... -- (31,388) (33,112) (45,576) (98,933)
Accounts payable............................ -- 148,608 100,283 (1,683) 44,211
Accrued salaries and benefits............... -- 25,212 53,189 21,958 52,265
Accrued liabilities......................... 800 4,243 10,601 10,812 21,246
---------- ----------- ----------- ----------- -----------
Net cash used in operating activities.... (115,994) (1,208,603) (2,773,630) (1,782,482) (4,022,546)
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of short-term investments.............. -- -- (1,955,688) (1,955,688) (3,717,316)
Sale of short-term investments.................. -- -- 1,955,688 1,955,688 --
Additions to property and equipment............. (860) (102,244) (322,850) (155,691) (458,249)
Additions to patents and licenses............... (8,487) (38,963) (112,039) (72,950) (77,044)
---------- ----------- ----------- ----------- -----------
Net cash used in investing activities.... (9,347) (141,207) (434,889) (228,641) (4,252,609)
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Receivable from stockholder..................... (10,000) 10,000 -- -- --
Proceeds from issuance of common stock.......... 137,500 -- -- -- --
Proceeds from issuance of preferred stock....... 750,000 1,080,000 5,200,000 5,200,000 8,121,540
Costs of equity issuances....................... -- (34,935) (32,651) (32,651) (49,458)
Payment of deferred offering costs.............. -- -- -- -- (61,143)
Proceeds from exercise of stock options......... -- -- 1,500 1,500 3,150
Repurchase of common stock...................... -- -- (100) (100) --
Borrowings on equipment line of credit.......... -- -- -- -- 206,343
Repayments on equipment line of credit.......... -- -- -- -- (15,170)
---------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities............................. 877,500 1,055,065 5,168,749 5,168,749 8,205,262
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 752,159 (294,745) 1,960,230 3,157,626 (69,893)
Cash and cash equivalents at beginning of
period.......................................... -- 752,159 457,414 457,414 2,417,644
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period........ $ 752,159 $ 457,414 $ 2,417,644 $ 3,615,040 $ 2,347,751
========== =========== =========== =========== ===========
Supplemental cash flow disclosures:
Cash paid during the period for interest........ $ -- $ -- $ -- $ -- $ 9,779
========== =========== =========== =========== ===========
Cash paid during the period for income taxes.... $ -- $ 1,600 $ 800 $ -- $ 800
========== =========== =========== =========== ===========
Supplemental schedule of noncash activities:
Deferred equity issuance costs.................. $ 25,624 $ -- $ -- $ -- $ --
Deferred offering costs......................... -- -- -- -- 68,978
Unearned compensation related to stock options
granted....................................... -- -- 6,800 -- 485,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 58
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY
Micro Therapeutics, Inc. ("MTI" or the "Company") was incorporated on June
11, 1993 to develop, manufacture and market minimally invasive medical devices
to diagnose and treat vascular diseases. The Company's activities to date have
been primarily research and development and financing. The Company believes that
it has adequate resources to fund operations in the normal course of business
for the next fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amount
of cash and cash equivalents approximates market value.
Short-Term Investments
Short-term investments are administered by an outside firm and consist of
United States government treasury bills with acquired maturities of greater than
three months. The carrying amount of short-term investments is at cost, which
approximates market value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property And Equipment
Property and equipment are carried at cost less accumulated depreciation
and amortization. Maintenance and repairs are expensed as incurred while
renewals or betterments are capitalized. Upon sale or disposition of assets, any
gain or loss is included in the statement of operations.
The cost of property and equipment is generally depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which are generally not greater than five years. Leasehold improvements are
amortized over the lesser of the estimated useful lives of the assets or the
related lease terms.
Patents And Licenses
Costs incurred to obtain patents and licenses are capitalized. All amounts
assigned to these patents and licenses are amortized on a straight-line basis
over an estimated five-year useful life from date of issue or acquisition. The
Company continually evaluates the amortization period and carrying basis of
patents and licenses to determine whether later events and circumstances warrant
a revised estimated useful life or reduction in value.
Research And Development
The Company's research and development costs are expensed as incurred.
Revenue Recognition
Sales and related cost of sales are recognized upon shipment of products.
The Company's products are generally under warranty against defects in material
and workmanship for a period of one year.
F-7
<PAGE> 59
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Estimates
The preparation of financial statements in accordance 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Pro Forma Net Loss Per Share
Pro forma net loss per share has been computed by dividing pro forma net
loss by the pro forma weighted average number of common shares and certain
common equivalent shares, as described below, outstanding during the period.
Weighted average common shares and common equivalent shares include common
shares and common shares issuable upon conversion of all outstanding shares of
the Company's preferred stock. Additionally, pursuant to Securities and Exchange
Commission Staff Accounting Bulletin Topic 4-D, stock options and warrants
granted during the twelve months prior to the date of the initial filing of the
Company's proposed public offering, at prices less than the per share initial
public offering price, have been included in the calculation of common
equivalent shares using the treasury stock method as if they were outstanding as
of the beginning of the period. Historical net loss per share is not presented
as it is not indicative of the ongoing entity.
Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair
value based method of accounting for an employee stock option. Fair value of the
stock option is determined considering factors such as the exercise price, the
expected life of the option, the current price of the underlying stock and its
volatility, expected dividends on the stock, and the risk-free interest rate for
the expected term of the option. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period.
A company may elect to adopt SFAS No. 123 or elect to continue accounting
for its stock option or similar equity awards using the intrinsic method, where
compensation costs are measured at the date of grant based on the excess of the
market value of the underlying stock over the exercise price. If a company
elects not to adopt SFAS No. 123, then it must provide pro forma disclosure of
net income and earnings per share, as if the fair value based method had been
applied.
SFAS No. 123 is effective for transactions entered into for fiscal years
that begin after December 15, 1995. Pro forma disclosures for entities that
elect to continue to measure compensation cost under the intrinsic method must
include the effects of all awards granted in fiscal years that begin after
December 15, 1994. The
F-8
<PAGE> 60
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company currently continues to account for stock-based compensation plans under
the intrinsic method and is evaluating the impact of adopting SFAS No. 123.
Reverse Stock Split
In December 1996, the Board of Directors authorized a 0.65 to 1.0 reverse
stock split of all outstanding common stock, preferred stock and common stock
options and warrants. All share and per share amounts have been adjusted to give
retroactive effect to the reverse stock split for all periods presented.
Unaudited Interim Financial Information
The financial information at September 30, 1996 and for the nine-month
periods ended September 30, 1995 and 1996 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for such periods. Results of the
September 30, 1996 period are not necessarily indicative of the results for the
entire year.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1994 1995 1996
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash........................................... $457,414 $ 244,499 $ 1,657,196
Cash equivalents............................... -- 2,173,145 690,555
-------- ---------- -----------
$457,414 $2,417,644 $ 2,347,751
======== ========== ===========
</TABLE>
Cash equivalents consist of United States government treasury bills and
commercial paper.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and work-in-process................. $ 8,594 $ 57,423 $ 209,955
Finished goods.................................... 51,051 107,603 183,235
------- -------- ---------
$59,645 $165,026 $ 393,190
======= ======== =========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment.......................... $ 50,319 $223,976 $ 431,871
Tooling.......................................... 14,255 11,718 14,493
Furniture and fixtures........................... 25,031 70,241 121,554
Leasehold improvements........................... 10,963 89,832 254,466
Construction-in-progress......................... 2,536 30,189 61,819
-------- -------- ----------
103,104 425,956 884,203
Less, Accumulated depreciation and
amortization......................... (11,615) (80,922) (214,712)
-------- -------- ----------
$ 91,489 $345,034 $ 669,491
======== ======== ==========
</TABLE>
F-9
<PAGE> 61
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. EQUIPMENT LINE OF CREDIT
On December 20, 1995, the Company entered into an equipment line of credit
to finance qualified equipment purchases through December 15, 1996 up to a
maximum amount of $400,000, at an implicit interest rate of 14.23%. Outstanding
amounts are collateralized by the assets financed. The amounts outstanding at
December 15, 1996 will be due in 48 monthly installments to expire on December
20, 2000. The agreement contains a provision to extend these terms of payment
for an additional year. There were no outstanding balances under this equipment
line of credit as of December 31, 1995, and a total of $191,174 was outstanding
at September 30, 1996 (unaudited).
In connection with this equipment line of credit, the Company issued a
warrant to the lessor to purchase up to 7,638 shares of the Company's Series B
preferred stock at a price of $4.23 per share. This warrant is convertible into
a warrant for common stock in the event that the remaining outstanding preferred
stock is converted to common stock. This warrant is exercisable for a period of:
(a) ten years, or (b) five years from the effective date of an initial public
offering, whichever is longer.
7. PREFERRED STOCK
At December 31, 1995, the Company had authorized 2,355,758 shares of
preferred stock with no par value which may be issued in one or more series and
were designated as 541,667 shares of Series A-1, 585,000 shares of Series A-2
and 1,229,091 shares of Series B (collectively, "convertible preferred stock").
Under a stock purchase agreement entered into in December 1993, 541,667 shares
of Series A-1 convertible preferred stock were sold in December 1993 for net
cash proceeds of $724,376 and 585,000 shares of Series A-2 convertible preferred
stock were sold in July 1994 for net cash proceeds of $1,070,690. Under a stock
purchase agreement entered into in February 1995, 1,229,091 shares of Series B
convertible preferred stock were sold in February 1995 for net proceeds of
$5,167,349.
In April 1996, the Company increased the total authorized shares of
preferred stock to 3,663,395 with the increase allocated to a total of 1,236,728
shares of Series B and 1,300,000 shares of Series C (see Note 15).
Shares of convertible preferred stock are convertible at the holder's
option into shares of common stock on a share-for-share basis. The conversion
ratio may be adjusted from time to time in the event of certain subsequent sales
of common stock, grants of stock options, stock splits, stock dividends or other
distributions of common stock. Conversion is automatic in the event of a public
offering of the Company's common stock meeting certain specified criteria.
Dividends are noncumulative, and if declared, are payable at the rate of
$0.09, $0.12 and $0.27 per annum on each share of Series A-1, A-2 and B
convertible preferred stock, respectively. Each share of convertible preferred
stock has voting rights equal to the number of shares of common stock into which
it is then convertible. In the event of liquidation, dissolution or merger of
the Company, each share of Series A-1, A-2 and B preferred stock entitles its
holder to receive an amount equal to $1.38 per Series A-1 share, $1.85 per
Series A-2 share and $4.23 per Series B share of convertible preferred stock
plus declared but unpaid dividends and, thereafter, to receive on a
share-for-share basis with common stock outstanding the remaining assets in an
amount not to exceed in the aggregate $4.15 per Series A-1 share, $5.54 per
Series A-2 share and $6.34 per Series B share of convertible preferred stock. No
dividends have been declared through December 31, 1995.
8. COMMON STOCK
In June 1993, the Company issued 650,000 shares of its common stock to
founding stockholders in exchange for $1,000. In October 1993, the Company
issued 295,747 shares of common stock for $126,500 in cash and a note receivable
of $10,000. The note receivable was paid in cash in 1994.
F-10
<PAGE> 62
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to a September 1993 stockholders' agreement between the Company
and holders of 650,000 shares of its common stock (the "founding stockholders"),
in the event that a founding stockholder's involvement with the Company as an
employee or consultant is terminated before September 30, 1996, the Company may
be obligated to repurchase all or a portion of the stockholder's shares of
common stock for $0.001 per share. The Company's obligation under this agreement
terminates automatically in the event of a public offering of the Company's
common stock meeting certain specified criteria. In March 1995, the Company
terminated a consulting agreement with one of its founding stockholders. In
conjunction with the termination, the Company repurchased 65,000 shares of
common stock from the stockholder. There were no other terminations/repurchases
through September 30, 1996 (unaudited).
9. UNAUDITED PRO FORMA FINANCIAL STATEMENT INFORMATION
Upon the closing of an initial public offering of the Company's common
stock, each outstanding share of the Company's preferred stock will be converted
automatically to common stock as described in Note 7. If an initial public
offering is consummated under terms presently anticipated, all of the
outstanding preferred stock will automatically convert to 3,612,664 shares of
common stock. The pro forma effect of the conversion has been presented as a
separate column in the Company's balance sheet assuming the conversion had
occurred as of September 30, 1996.
10. STOCK OPTION PLAN
The 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan (the "Plan") provides for the direct sale of shares and the
grant of options to purchase shares of the Company's common stock to employees,
officers, consultants and directors. The Plan includes nonqualified stock
options ("NSOs") and incentive stock options ("ISOs"). The option price for the
ISOs and NSOs shall not be less than the fair market value of the shares of
Company's stock on the date of the grant. For ISOs, the exercise price per share
may not be less than 110% of the fair market value of a share of common stock on
the grant date for any individual possessing more than 10% of the total
outstanding stock of the Company. The timing of exercise for individual option
grants is at the discretion of the administrator. Options expire within a period
of not more than ten years from the date of grant. Options expire ninety days
after termination of employment.
F-11
<PAGE> 63
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Plan provides for the issuance of up to 650,000 shares of common stock.
A summary of the option activity under the 1993 Stock Option Plan is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
INCENTIVE NONQUALIFIED TOTAL PER SHARE
--------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Granted............................ 187,200 121,225 308,425 $0.46
Exercised.......................... -- -- -- --
Canceled........................... -- -- -- --
-------- ------- -------- -------------
Balances at December 31, 1994...... 187,200 121,225 308,425 $0.46
Granted............................ 217,100 9,100 226,200 $0.46
Exercised.......................... -- (3,250) (3,250) $0.46
Canceled........................... (48,750) -- (48,750) $0.46
-------- ------- -------- -------------
Balances at December 31, 1995...... 355,550 127,075 482,625 $0.46
Granted (unaudited)................ 158,275 57,850 216,125 $0.46 - $5.38
Exercised (unaudited).............. (6,826) -- (6,826) $0.46
Canceled (unaudited)............... (67,274) -- (67,274) $0.46 - $5.38
-------- ------- -------- -------------
Balances at September 30, 1996
(unaudited)...................... 439,725 184,925 624,650 $0.46 - $5.38
======== ======= ======== =============
Exercisable at September 30, 1996
(unaudited)...................... 120,296 109,068 229,364 $0.46 - $5.38
======== ======= ======== =============
</TABLE>
The difference between the exercise price and the fair market value of the
options at the date of grant of $6,800 at December 31, 1995 is accounted for as
unearned compensation and will be amortized to expense over the related service
period. During the nine months ended September 30, 1996, an additional $485,700
(unaudited) of unearned compensation was recorded. During the year ended
December 31, 1995, amortized compensation expense was $282, and for the nine
months ended September 30, 1996, amortized compensation expense was $78,933
(unaudited).
11. INCOME TAXES
The following table presents the current and deferred income tax provision
for federal and state income taxes:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE YEARS
(JUNE 11, 1993) ENDED
THROUGH DECEMBER 31,
DECEMBER 31, --------------
1993 1994 1995
--------------- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ -- $ --
State............................................... 800 800 800
---- ---- ----
800 800 800
---- ---- ----
Deferred:
Federal............................................. -- -- --
State............................................... -- -- --
---- ---- ----
$800 $800 $800
==== ==== ====
</TABLE>
F-12
<PAGE> 64
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences which give rise to the deferred
tax provision (benefit) consist of:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 11, 1993) FOR THE YEARS ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -----------------------
1993 1994 1995
--------------- -------- ----------
<S> <C> <C> <C>
Capitalized research and development costs..... $ (8,586) $(59,289) $ (85,033)
Capitalized inventory costs.................... -- (6,863) (12,126)
Intangibles.................................... (1,400) 321 572
Property and equipment......................... 74 1,197 (4,109)
Accrued expenses............................... -- (8,578) (10,058)
State taxes.................................... (272) -- --
Tax credit carryforwards....................... (7,054) (80,433) (134,103)
Net operating loss carryforwards............... (37,478) (437,910) (886,806)
Valuation allowance............................ 54,716 591,555 1,131,663
-------- -------- ----------
$ -- $ -- $ --
======== ======== ==========
</TABLE>
The provision (benefit) for income taxes differs from the amount that would
result from applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE YEARS
(JUNE 11, 1993) ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ------------------
1993 1994 1995
--------------- ------ ------
<S> <C> <C> <C>
Statutory regular federal income tax rate........... (34.00)% (34.00)% (34.00)%
Meals and entertainment............................. 0.05 0.09 3.03
State taxes......................................... 0.46 0.04 0.02
Tax credits......................................... (2.86) (2.92) (2.25)
Change in valuation allowance....................... 37.05 36.82 33.22
Other............................................... -- 0.03 0.01
------ ------ ------
Effective tax rate........................ 0.70% 0.06% 0.03%
====== ====== ======
</TABLE>
The components of the deferred tax assets at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Capitalized research and development costs.................. $ 67,875 $ 152,908
Capitalized inventory costs................................. 6,863 18,989
Intangibles................................................. 1,079 507
Property and equipment...................................... (1,271) 2,838
Accrued expenses............................................ 8,578 18,636
State taxes................................................. 272 272
Tax credit carryforwards.................................... 87,487 221,590
Net operating loss carryforwards............................ 475,388 1,362,194
--------- -----------
646,271 1,777,934
Valuation allowance.................................... (646,271) (1,777,934)
--------- -----------
Net deferred tax asset............................ $ -- $ --
========= ===========
</TABLE>
F-13
<PAGE> 65
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management periodically evaluates the recoverability of the deferred tax assets.
At such time as it is determined that it is more likely than not that deferred
tax assets are realizable, the valuation allowance will be reduced.
At December 31, 1995, the Company had net operating loss carryforwards for
federal and state purposes of approximately $3,714,000 and $1,069,000,
respectively. The net operating loss carryforwards begin expiring in 2009 and
1999, respectively. The Company also has research and experimentation credit
carryforwards for federal and state purposes of approximately $158,000 and
$63,000, respectively. The research and experimentation credits begin to expire
in 2009 for federal purposes and carry forward indefinitely for state purposes.
The utilization of net operating loss and research and experimentation
credit carryforwards may be limited under the provisions of Internal Revenue
Code Section 382 and similar state provisions.
12. COMMITMENTS AND CONTINGENCIES
On February 1, 1994, the Company entered into a three-year operating lease
for office, research and manufacturing space. On December 1, 1995, the Company
entered into a one-year operating lease for additional office space. As of
December 31, 1995, future minimum lease payments for the years ending December
31 are as follows:
<TABLE>
<S> <C>
1996.............................................. $128,920
1997.............................................. 3,954
--------
$132,874
========
</TABLE>
Rent expense for the years ended December 31, 1994 and 1995 were $47,448
and $66,828, respectively. There was no rent expense incurred from the period
from inception through December 31, 1993. On December 15, 1995, the Company
entered into an agreement to sublease certain office space. The Company received
$989 of rental income for the year ended December 31, 1995, and is to receive
$22,735 of rental income in the year ended December 31, 1996.
13. RELATED PARTY TRANSACTIONS
License And Royalty Agreements
In June 1993, the Company acquired from a stockholder an exclusive
worldwide license to manufacture, market and sell devices utilizing certain
catheter technology developed by the stockholder/licensor. As consideration for
the license, the Company is obligated to pay the stockholder/licensor royalties
at the rate of 1% of the net revenues from products developed utilizing the
patented technology for a period of twelve years from the first commercial sale
of such products. Commercial sale of the products commenced in November 1994.
Royalty expense under the license agreement totaled $138 and $4,868 for the
years ended December 31, 1994 and 1995, respectively.
Contract Services
Through March 1995, the Company contracted with Novel Biomedical, Inc.
("Novel"), a stockholder of the Company, for design, development and patent
services. Research and development expenses for the period from inception
through December 31, 1993, and for the years ended December 31, 1994 and 1995
include $88,159, $320,954 and $65,745, respectively, of charges from Novel which
approximates cost of these services. As of December 31, 1994, the Company had
approximately $35,000 payable to Novel included in accounts payable.
F-14
<PAGE> 66
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. CONCENTRATIONS OF CREDIT RISK
At December 31, 1994 and 1995, the Company had approximately $382,000 and
$2,395,000, respectively, of cash balances that were in excess of the
federally-insured limit of $100,000 per bank.
The Company's customers are primarily hospitals in the United States and
distributors in certain foreign countries. There were no customers which
accounted for greater than 10% of accounts receivable or net sales for any date
or period presented.
15. SUBSEQUENT EVENTS (UNAUDITED)
Board Of Director Authorizations:
In July 1996, the Board of Directors (i) authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public; (ii) adopted the
1996 Stock Incentive Plan and the 1996 Employee Stock Purchase Plan and reserved
390,000 and 100,000 shares of common stock, respectively, for issuance
thereunder; and (iii) authorized the Company's re-incorporation in the State of
Delaware. In conjunction with this re-incorporation, the Company's common stock
will become $0.001 par value stock with 20,000,000 shares authorized, and the
Company's preferred stock will become $0.001 par value with 5,000,000 shares
authorized.
Common Stock Options
For the nine months ended September 30, 1996, the Company granted 216,125
options to purchase common stock pursuant to the 1993 Stock Option Plan at
exercise prices ranging from $0.46-$5.38 per share, resulting in unearned
compensation of $485,700. In October and November 1996, the Company granted an
additional 22,150 options pursuant to the 1993 Stock Option Plan at an exercise
price of $5.38 per share resulting in no additional unearned compensation.
In October and November 1996, the Company granted 92,300 options to
purchase common stock pursuant to the 1996 Stock Incentive Plan at an exercise
price of $5.38 per share resulting in no additional unearned compensation.
Series C Preferred Stock
In May and June 1996, the Company sold in a private placement 1,256,906
shares of Series C convertible preferred stock at a price of $6.46 per share
raising net cash proceeds of $8,072,082.
Shares of Series C convertible preferred stock are convertible at the
holder's option into shares of common stock on a share-for-share basis and this
conversion is automatic in the event of a public offering of the Company's
common stock meeting certain specified criteria.
Dividends are noncumulative, and if declared, are payable at the rate of
$0.43 per annum on each share outstanding. Each share of Series C convertible
preferred stock has voting rights equal to the number of shares of common stock
into which it is then convertible. In the event of liquidation, dissolution or
merger of the Company, each share is entitled to an amount equal to $6.46 plus
declared but unpaid dividends, and thereafter, to receive on a share-for-share
basis with common stock outstanding the remaining assets in an amount not to
exceed in the aggregate $8.08 per share.
Lease
On May 1, 1996, the Company entered into an agreement to extend the current
operating lease and to lease additional office space for a period of one year.
Additional future payments required under this lease in
F-15
<PAGE> 67
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996 and 1997 will be $36,212 and $3,292, respectively. This lease contains a
provision to extend the lease for three additional one-year terms.
Equipment Line Of Credit
On May 21, 1996, the Company amended the equipment line of credit (Note 6)
to allow for equipment purchases up to a maximum of $900,000. In connection with
this amendment, the Company issued a warrant to the lessor to purchase up to
6,045 shares of the Company's Series C preferred stock at a price of $6.46 per
share. This warrant is convertible into a warrant for common stock in the event
that the remaining outstanding preferred stock is converted to common stock.
This warrant is exercisable for a period of: (a) ten years, or (b) five years
from the effective date of an initial public offering, whichever is longer.
F-16
<PAGE> 68
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by 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 Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the Common Stock to which it relates or an offer to sell or the
solicitation of an offer to buy such securities in any circumstances in which
such an offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that information contained herein is correct as of any
time subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 13
Dividend Policy........................ 13
Capitalization......................... 14
Dilution............................... 15
Selected Financial Data................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 20
Management............................. 37
Certain Transactions................... 43
Principal Stockholders................. 44
Description of Capital Stock........... 45
Shares Eligible for Future Sale........ 46
Underwriting........................... 48
Legal Matters.......................... 49
Experts................................ 49
Reports to Security Holders............ 50
Additional Information................. 50
Index to Financial Statements.......... F-1
</TABLE>
------------------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES
[LOGO]
MICRO THERAPEUTICS, INC.
COMMON STOCK
------------------------
PROSPECTUS
, 1997
------------------------
UBS SECURITIES
VOLPE, WELTY & COMPANY
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
TO BE PAID BY
THE COMPANY
-------------
<S> <C>
SEC registration fee................................... $ 9,060.61
NASD filing fee........................................ 3,490.00
Nasdaq National Market application fee................. 33,762.78
Printing expenses...................................... *
Legal fees and expenses................................ *
Accounting fees and expenses........................... *
Blue sky fees and expenses............................. *
Transfer agent and registrar fees...................... *
Miscellaneous.......................................... *
----------
Total........................................ $ *
==========
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Restated
Certificate of Incorporation of the Company (Exhibit 3.1 hereto) eliminates the
liability of directors to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a directors, except to the extent otherwise
required by the Delaware General Corporation Law.
(b) The Restated Certificate of Incorporation provides that the Company
will indemnify each person who was or is made a party to any proceeding by
reason of the fact that such person is or was a director or officer of the
Company against all expense, liability and loss reasonably incurred or suffered
by such person in connection therewith to the fullest extent authorized by the
Delaware General Corporation Law. The Company's Bylaws (Exhibit 3.2 hereto)
provide for a similar indemnity to directors and officers of the Company to the
fullest extent authorized by the Delaware General Corporation Law.
(c) The Restated Certificate of Incorporation also gives the Company the
ability to enter into indemnification agreements with each of its directors and
officers. The Company has entered into indemnification agreements with each of
its directors and officers (Exhibit 10.1 hereto), which provide for the
indemnification of directors and officers of the Company against any an all
expenses, judgments, fines, penalties and amounts paid in settlement, to the
fullest extent permitted by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Securities Act of 1993 (the
"Securities Act"):
(1) From time to time during the three years preceding the date
hereof, the Registrant issued incentive stock options and nonqualified
stock options to purchase Common Stock pursuant to the Registrant's
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan -- 1993 (the "1993 Plan") and 1996 Stock Incentive Plan (the
"1996 Plan") to officers, directors, employees
II-1
<PAGE> 70
and consultants of the Registrant. During the period referred to above,
options granted pursuant to 1993 Plan were exercised. Exemption from the
registration provisions of the Securities Act is claimed, with respect to
the grant of options referred to above, on the basis that the grant of
options did not involve a "sale" of securities and, therefore, registration
thereof was not required.
(2) In September 1993, the Registrant issued 650,000 shares of Common
Stock in connection with the formation and organization of the Registrant.
The shares were issued to the following persons: (i) George Wallace; (ii)
Andrew Cragg; (iii) Novel Biomedical Inc.; and (iv) JK Holdings, Inc.
(3) In September 1993, the Registrant issued 295,747 shares of Common
Stock at a price of $.46 per share to thirteen individuals in connection
with an initial financing of the Registrant.
(4) In December 1993, the Registrant issued 541,667 shares of Series
A-1 Preferred Stock at a price of $1.38 per share to Menlo Ventures, L.P.
and a related partnership.
(5) In July 1994, the Registrant issued 585,000 shares of Series A-2
Preferred Stock at a price of $1.85 per share to Menlo Ventures and a
related partnership, and 5 other purchasers.
(6) In February 1995, the Registrant issued 1,229,091 shares of Series
B Preferred Stock at a price of $4.23 per share to Menlo Ventures and a
related partnership, Mayfield Partners and 2 other purchasers.
(7) In May and June 1996, the Registrant issued 1,256,906 shares of
Series C Preferred Stock at a price of $6.46 per share to Menlo Ventures
and a related partnership, two related Mayfield partnerships, and twelve
other purchasers.
Except as set forth in item (1) above, exemption from the registration
requirements of the Securities Act for the transactions described above was
claimed under Section 4(2) of the Securities Act, among others, on the basis
that such transactions did not involve any public offering and the purchasers
were sophisticated with access to the kind of information registration would
provide. No underwriting or broker's commissions were paid in connection with
the foregoing transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger between the Company and Micro Therapeutics, Inc., a
California corporation, effective November 6, 1996.
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company, as currently in effect.
3.3 Specimen Certificate of Common Stock.*
3.4 Amended and Restated Certificate of Incorporation (to be filed).*
4.1 Warrant Agreement dated December 20, 1995 between the Company and Comdisco, Inc.
4.2 Warrant Agreement dated May 21, 1996 between the Company and Comdisco, Inc.
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation.*
10.1 Form of Directors' and Officers' Indemnification Agreement.
10.2 License Agreement dated June 1, 1993 between the Company and Andrew Cragg.
10.3 Consulting Agreement dated October 1, 1996 between the Company and Andrew Cragg.
10.4 Real Property Lease dated April 15, 1996 between the Company and Reuben L. Casey.
10.5 Amended and Restated Investors Rights Agreement dated February 9, 1995, among the
Company, the Investors named therein and the Common Holders named therein, as
amended on May 17, 1996 and June 27, 1996.
10.6 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan.
10.7 1996 Stock Incentive Plan.
</TABLE>
II-2
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------------------------
<C> <S>
10.8 Employee Stock Purchase Plan.
10.9 Equipment Leasing Line of Credit dated December 20, 1995 between the Company and
ComDisco Ventures, as amended on May 21, 1996.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation (see
Exhibit 5.1).*
23.2 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 72
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 San Clemente of
California, on the 5th day of December, 1996.
MICRO THERAPEUTICS, INC.
By: /s/ GEORGE WALLACE
------------------------------------
George Wallace
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Micro Therapeutics, Inc., do
hereby constitute and appoint and George Wallace and Thomas Berryman or either
of them, our true and lawful attorneys and agents, to do any and all acts and
things in our name and behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated below,
any and all amendments (including post-effective amendments) to this
Registration Statement, or any related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended; and we do hereby ratify and confirm all that the said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------- -------------------
<C> <S> <C>
/s/ GEORGE WALLACE President, Chief Executive December 5, 1996
- ---------------------------------------- Officer and Director (Principal
George Wallace Executive Officer)
/s/ THOMAS BERRYMAN Vice-President of Finance and December 5, 1996
- ---------------------------------------- Chief Financial Officer
Thomas Berryman (Principal Financial and
Principal Accounting Officer)
/s/ H. DUBOSE MONTGOMERY Chairman and Director December 4, 1996
- ----------------------------------------
H. DuBose Montgomery
/s/ WENDE HUTTON Director December 4, 1996
- ----------------------------------------
Wende Hutton
/s/ DICK ALLEN Director December 4, 1996
- ----------------------------------------
Dick Allen
</TABLE>
II-4
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- --------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement............................................
2.1 Agreement and Plan of Merger between the Company and Micro Therapeutics,
Inc.,
a California corporation, effective November 6, 1996......................
3.1 Certificate of Incorporation of the Company...............................
3.2 Bylaws of the Company, as currently in effect.............................
3.3 Specimen Certificate of Common Stock*.....................................
3.4 Amended and Restated Certificate of Incorporation (to be filed)*..........
4.1 Warrant Agreement dated December 20, 1995 between the Company and
Comdisco, Inc. ...........................................................
4.2 Warrant Agreement dated May 21, 1996 between the Company and Comdisco,
Inc. .....................................................................
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation*..............................................................
10.1 Form of Directors' and Officers' Indemnification Agreement................
10.2 License Agreement dated June 1, 1993 between the Company and Andrew
Cragg.....................................................................
10.3 Consulting Agreement dated October 1, 1996 between the Company and
Andrew Cragg..............................................................
10.4 Real Property Lease dated April 15, 1996 between the Company and Reuben L.
Casey.....................................................................
10.5 Amended and Restated Investors Rights Agreement dated February 9, 1995,
among the Company, the Investors named therein and the Common Holders
named therein, as amended on May 17, 1996 and June 27, 1996...............
10.6 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan.......................................................
10.7 1996 Stock Incentive Plan.................................................
10.8 Employee Stock Purchase Plan..............................................
10.9 Equipment Leasing Line of Credit dated December 20, 1995 between the
Company and ComDisco Ventures, as amended on May 21, 1996.................
21.1 Subsidiaries of the Registrant............................................
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation
(see Exhibit 5.1)*........................................................
23.2 Consent of Coopers & Lybrand L.L.P. ......................................
24.1 Power of Attorney (see page II-4).........................................
27.1 Financial Data Schedule...................................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 1.1
2,000,000 Shares
MICRO THERAPEUTICS, INC.
Common Stock
FORM OF
UNDERWRITING AGREEMENT
January __, 1997
UBS SECURITIES LLC
VOLPE, WELTY & COMPANY
AS REPRESENTATIVES OF THE SEVERAL UNDERWRITERS
C/O UBS SECURITIES LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
Micro Therapeutics, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell 2,000,000 shares (the "Firm Shares") of its authorized but
unissued Common Stock, $0.001 par value per share (the "Common Stock"), to the
several underwriters listed on Schedule A to this Agreement (collectively, the
"Underwriters"). The Company also proposes to grant to the Underwriters an
option to purchase up to 300,000 additional shares (the "Option Shares") of
Common Stock on the terms and for the purposes set forth in Section 3(c). The
Firm Shares and the Option Shares are hereinafter collectively referred to as
the "Shares."
The Company wishes to confirm as follows its agreements with you (the
"Representatives") and the other Underwriters on whose behalf you are acting in
connection with the several purchases by the Underwriters of the Shares.
1. REGISTRATION STATEMENT. A registration statement on Form SB-2 (File No.
333-[ ]) including a prospectus relating to the Shares and each amendment
thereto has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the
Commission. There have been delivered to you three signed copies of such
registration statement and amendments, together with three copies of each
exhibit filed therewith. Copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective
will be filed. promptly by the Company with the .Commission. If such
registration statement has become effective, a final prospectus containing all
Rule 430A Information (as hereinafter defined) will be filed by the Company with
1
<PAGE> 2
the Commission in accordance with Rule 424(b) of the Rules and Regulations on or
before the second business day after the date hereof (or such earlier time as
may be required by the Rules and Regulations).
The term "Registration Statement" as used in this Agreement
shall mean such registration statement (including all exhibits and financial
statements) at the time such registration statement becomes or became effective
and, in the event any post-effective amendment thereto becomes effective prior
to the Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended; provided, however, that such term shall include all
Rule 430A Information deemed to be included in such registration statement at
the time such registration statement becomes effective as provided by Rule 430A
of the Rules and Regulations and shall also mean any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations with respect to the
Shares. The term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary Prospectus included
in the Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares in the form in which it is first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no
filing pursuant to Rule 424(b) of the Rules and Regulations is required, shall
mean the form of final prospectus included in the Registration Statement at the
time such registration statement becomes effective. The term "Rule 430A
Information" means information with respect to the Shares and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
(a) The Company has not received, and has no notice of, any
order of the Commission preventing or suspending the use of any Preliminary
Prospectus, or instituted proceeds for that purpose, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act and the Rules and Regulations. When the Registration
Statement became or becomes, as the case may be, effective (the "Effective
Date") and at all times subsequent thereto up to and at the Closing Date (as
hereinafter defined) , any later date on which Option Shares are to be purchased
(the "Option Closing Date") and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, (i) the Registration Statement and
Prospectus, and any amendments or supplements thereto, will contain all
statements which are required to be stated therein by, and will comply with the
requirements of, the Act and the Rules and Regulations, and (ii) neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The foregoing representations and warranties
in this section 2(a) do not apply to any statements or omissions made in
reliance on and in conformity with the information contained in the section of
the Prospectus entitled "Underwriting" (except for the paragraph thereof) and
the information in the last paragraph on the front cover page of the
2
<PAGE> 3
Prospectus. The Company has not distributed any offering material in connection
with the offering or sale of the Shares other than the Registration Statement,
the Preliminary Prospectus, the Prospectus or any other materials, if any,
permitted by the Act.
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement.
The Company is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company (a
"Material Adverse Effect"). The Company has no subsidiaries. Other than its
interest in Cardio Vascular Dynamics, Inc., the Company does not own, directly
or indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity. Complete and correct
copies of the certificates of incorporation and of the bylaws of the Company and
all amendments thereto have been delivered to the Representatives, and except as
set forth in the exhibits to the Registration Statement no changes therein will
be made subsequent to the date hereof and prior to the Closing Date or, if
later, the Option Closing Date.
(c) The Company has full power and authority (corporate and
otherwise) to enter into this Agreement and to perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of the
Company, enforceable against the Company in accordance with its terms, except as
rights to indemnity and contribution hereunder may be limited by applicable laws
or equitable principles and except as enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or affecting creditors' rights generally or by general equitable principles.
The performance of this Agreement by the Company and the consummation by the
Company of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any indenture, mortgage, deed of trust, loan agreement, bond, debenture,
note agreement or other evidence of indebtedness, or any lease, contract or
other agreement or instrument to which the Company is a party or by which its
properties are bound, or (ii) the certificate of incorporation or bylaws of the
Company (iii) any law, order, rule, regulation, writ, injunction or decree of
any court or governmental agency or body to which the Company is subject. The
Company is not required to obtain or make (as the case may be) any consent,
approval, authorization, order, designation or filing by or with any court or
regulatory, administrative or other governmental agency or body as a requirement
for the consummation by the Company of the transactions herein contemplated,
except such as may be required under the Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act") or under state securities or blue sky
("Blue Sky") laws or under the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD").
(d) There is not pending or, to the Company's knowledge,
threatened, any action, suit, claim, proceeding or investigation against the
Company or any of their respective
3
<PAGE> 4
officers or any of their respective properties, assets or rights before any
court or governmental agency or body or otherwise which might result in a
Material Adverse Effect or have a material adverse effect on the Company's
properties, assets or rights, or prevent consummation of the transactions
contemplated hereby. There are no statutes, rules, regulations, agreements,
contracts, leases or documents that are required to be described in the
Prospectus, or to be filed as exhibits to the Registration Statement by the Act
or by the Rules and Regulations that have not been accurately described in all
material respects in the Prospectus or filed as exhibits to the Registration
Statement.
(e) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of any preemptive right, resale
right, right of first refusal or similar right. The authorized and outstanding
capital stock of the Company conforms in all material respects to the
description thereof contained in the Registration Statement and the Prospectus
(and such description correctly states the substance of the provisions of the
instruments defining the capital stock of the Company). The Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable. Except as set forth in the Prospectus, no
preemptive right, co-sale right, right of first refusal or other similar rights
of security holders exist with respect to any of the Shares or the issue and
sale thereof other than those that have been expressly waived prior to the date
hereof. No holder of securities of the Company has the right to cause the
Company to include such holder's securities in the Registration Statement. No
further approval or authorization of any security holder, the Board of Directors
or any duly appointed committee thereof or others is required for the issuance
and sale or transfer of the Shares, except as may be required under the Act, the
Exchange Act or under state securities or Blue Sky laws. Except as disclosed in
or contemplated by the Prospectus and the financial statements of the Company,
and the related notes thereto, included in the Prospectus, the Company does not
have outstanding any options or warrants to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option and other plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents, in all material
respects, the information required to be shown with respect to such plans,
arrangements, options and rights.
(f) Coopers & Lybrand L.L.P. (the "Accountants"), who have
examined the financial statements, together with the related schedules and
notes, of the Company filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent public
accountants within the meaning of the Act and the Rules and Regulations. The
financial statements of the Company, together with the related schedules and
notes, forming part of the Registration Statement and the Prospectus, fairly
present the financial position and the results of operations of the Company at
the respective dates and for the respective periods to which they apply. All
financial statements, together with the related schedules and notes, filed
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<PAGE> 5
with the Commission as part of the Registration Statement have been prepared in
accordance with generally accepted accounting principles as in effect in the
United States consistently applied throughout the periods involved except as may
be otherwise stated in the Registration Statement. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the financial statements presented therein. No other financial
statements or schedules are required by the Act or the Rules and Regulations to
be included in the Registration Statement.
(g) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has not been
(i) any material adverse change, or any development which, in the Company's
reasonable judgment, is likely to cause a material adverse change, in the
business, properties or assets described or referred to in the Registration
Statement, or the results of operations, condition (financial or otherwise),
business or operations of the Company taken as a whole, (ii) any transaction
which is material to the Company, except transactions in the ordinary course of
business, (iii) any obligation, direct or contingent, which is material to the
Company taken as a whole, incurred by the Company, except obligations incurred
in the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company or (v) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company. The Company
has no material contingent obligation which is not disclosed in the Registration
Statement.
(h) Except as set forth in the Prospectus, (i) the Company has
good and marketable title to all material properties and assets described in the
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, charge, encumbrance, claim, equitable interest, or restriction, (ii)
the agreements to which the Company is a party described in the Prospectus are
valid agreements, enforceable against the Company in accordance with their
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles, and,
to the Company's knowledge, the other contracting party or parties thereto are
not in material breach or default under any of such agreements and (iii) the
Company has valid and enforceable leases for the properties described in the
Prospectus as leased by it, and such leases conform in all material respects to
the description thereof, if any, set forth in the Registration Statement.
(i) The Company now holds and at the Closing Date and any
later Option Closing Date, as the case may be, will hold, all licenses,
certificates, approvals and permits from all state, United States, foreign and
other regulatory authorities, including but not limited to the United States
Food and Drug Administration (the "FDA") and any foreign regulatory authorities
performing functions similar to those performed by the FDA, that are material to
the conduct of the business of the Company (as such business is currently
conducted), except for such licenses, certificates, approvals and permits the
failure of which to hold would not have a Material Adverse Effect, all of which
are valid and in full force and effect (and there is no proceeding pending or,
to the knowledge of the Company, threatened which may cause any such license,
certificate, approval or permit to be withdrawn, canceled, suspended or not
renewed). The
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<PAGE> 6
Company is not in violation of its certificate of incorporation or bylaws, or,
except for defaults or violations which would not have a Material Adverse
Effect, in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument to which it is a party
or by which it or any of its properties are bound, or in violation of any law,
order, rule, regulation, writ, injunction or decree of any court or governmental
agency or body, including, but not limited to, the FDA. All of the descriptions
in the Registration Statement and Prospectus of the legal and governmental
proceedings by or before the FDA or any foreign, state or local government body
exercising comparable authority are true, complete and accurate in all material
respects.
(j) The Company has filed on a timely basis all necessary
federal, state and foreign income, franchise and other tax returns and has paid
all taxes shown thereon as due, and the Company has no knowledge of any tax
deficiency which has been or might be asserted against the Company which might
have a Material Adverse Effect. All material tax liabilities are adequately
provided for within the financial statements of the Company.
(k) The Company maintains insurance of the types and in the
amounts adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering clinical trial liability, product liability and
real and personal property owned or leased against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(l) The Company is not involved in any labor dispute or
disturbance nor, to the knowledge of the Company, is any such dispute or
disturbance threatened.
(m) Except as described in the Prospectus, the Company owns or
possess adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, tradenames, copyrights, manufacturing processes, formulae, trade
secrets, know-how, franchises, and other material intangible property and assets
(collectively, "Intellectual Property") necessary to the conduct of their
businesses as conducted and as proposed to be conducted as described in the
Prospectus. The Company has no knowledge of any facts which would preclude it
from having rights to its patent applications referenced in the Prospectus. The
Company has no knowledge that it lacks or will be unable to obtain any rights or
licenses to use any of the Intellectual Property necessary to conduct the
business now conducted or proposed to be conducted by it as described in the
Prospectus. The Prospectus fairly and accurately describe(s) the Company's
rights with respect to the Intellectual Property. The Company has not received
any notice of infringement or of conflict with rights or claims of others with
respect to any Intellectual Property. The Company is not aware of any patents of
others which are infringed upon by potential products or processes referred to
in the Prospectus in such a manner as to materially and adversely affect the
Company taken as a whole, except as described in the Prospectus.
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<PAGE> 7
(n) The Company is conducting its businesses in compliance
with all of the laws, rules and regulations of the jurisdictions in which it is
conducting business, including, but not limited to, the laws, rules and
regulations administered or promulgated by the FDA.
(o) The Company is not an "investment company," or a
"promoter" or "principal underwriter" for a registered investment company, as
such terms are defined in the Investment Company Act of 1940, as amended.
(p) The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a broker or
finder in connection with the transactions contemplated by this Agreement other
than the underwriting discounts and commissions contemplated hereby.
(q) The Company is (i) in compliance with any and all
applicable United States, state and local environmental laws, rules,
regulations, treaties, statutes and codes promulgated by any and all
governmental authorities relating to the protection of human health and safety,
the environment or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business as currently conducted and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permit
licenses or other approvals would not, individually or in the aggregate, have a
Material Adverse Effect. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or threatened relating to the Environmental Laws
or to the Company's activities involving Hazardous Materials. "Hazardous
Materials" means any material or substance (i) that is prohibited or regulated
by any environmental law, rule, regulation, order, treaty, statute or code
promulgated by any governmental authority, or any amendment or modification
thereto, or (ii) that has been designated or regulated by any governmental
authority as radioactive, toxic, hazardous or otherwise a danger to health,
reproduction or the environment.
(r) The Company has not engaged in the generation, use,
manufacture, transportation of storage of any Hazardous Materials on any of the
Company's properties or former properties, except where such use, manufacture,
transportation or storage is in compliance with Environmental Laws. No Hazardous
Materials have been treated or disposed of on any of the Company's properties or
on properties formerly owned or leased by the Company during the time of such
ownership or lease, except in compliance with Environmental Laws. No spills,
discharges, releases, deposits, emplacements, leaks or disposal of any Hazardous
Materials have occurred on or under or have emanated from any of the Company's
properties or former properties.
(s) The Company has not at any time during the last five years
(i) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law or (ii) made any
payment to any foreign, United States or state governmental officer or official,
or other person charged with similar public of quasi-public duties, other than
payments required or permitted by the laws of the United States.
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<PAGE> 8
(t) The Common Stock is registered pursuant to Section 12(b)
of the Exchange Act. The Shares have been duly authorized for quotation on the
National Association of Securities Dealers, Inc. Automated Quotation System
National Market System ("Nasdaq National Market"). The Company has taken no
action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the Nasdaq National Market is contemplating
terminating such registration or listing.
(u) Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates has taken, and at the Closing Date and at any
later Option Closing Date, neither the Company nor, to its knowledge, any of its
officers, directors or affiliates will have taken, directly or indirectly, any
action which has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of sale or resale of the Shares.
(v) The Company has timely and properly filed with the
Commission all reports and other documents required to have been filed by it
with the Commission pursuant to the Act and the Rules and Regulations. True and
complete copies of all such reports and other documents have been delivered to
you.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Firm Shares to the several Underwriters, and each of the
Underwriters agrees to purchase from the Company the respective aggregate number
of Firm Shares set forth opposite its name on Schedule A, plus such additional
number of Firm Shares which such Underwriter may become obligated to purchase
pursuant to Section 3(b) hereof. The price at which such Firm Shares shall be
sold by the Company and purchased by the several Underwriters shall be $_____
per share. In making this Agreement, each Underwriter is contracting severally
and not jointly; except as provided in paragraphs (b) and (c) of this Section 3,
the agreement of each Underwriter is to purchase only the respective number of
Firm Shares specified on Schedule A.
(b) If for any reason one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 10 hereof) to
purchase and pay for the number of Shares agreed to be purchased by such
Underwriter or Underwriters, the non-defaulting Underwriters shall have the
right within twenty-four (24) hours after such default to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of the Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the nondefaulting
Underwriters fail to make such arrangements with respect to all such Shares and
portion, the number of Shares which each nondefaulting Underwriter is otherwise
obligated to purchase under this Agreement shall be automatically increased on a
pro rata basis (as adjusted by you in such manner as you deem advisable to avoid
fractional shares) to absorb the remaining
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<PAGE> 9
Shares and portion which the defaulting Underwriter or Underwriters agreed to
purchase; provided, however, that the nondefaulting Underwriters shall not be
obligated to purchase the Shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such Shares exceeds
10% of the total number of Shares which all Underwriters agreed to purchase
hereunder. If the total number of Shares which the defaulting Underwriter or
Underwriters agreed to purchase shall not be purchased or absorbed in accordance
with the two preceding sentences, the Company shall have the right, within
twenty-four (24) hours next succeeding the 24-hour period referred to above, to
make arrangements with other underwriters or purchasers reasonably satisfactory
to you for purchase of such Shares and portion on the terms herein set forth. In
any such case, either you or the Company shall have the right to postpone the
Closing Date determined as provided in Section 5 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
said Section 5 in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made. If
the aggregate number of Shares which the defaulting Underwriter or Underwriters
agreed to purchase exceeds 10% of the total number of Shares which all
Underwriters agreed to purchase hereunder, and if neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24-hour periods
stated above for the purchase of all the Shares which the defaulting Underwriter
or Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
to any nondefaulting Underwriter and without any liability on the part of any
nondefaulting Underwriter to the Company. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase all
or any portion of the Option Shares from the Company at the same price per share
as the Underwriters shall pay for the Firm Shares. Said option may be exercised
only to cover over-allotments in the sale of the Firm Shares by the Underwriters
and may be exercised in whole or in part at any time (but not more than once) on
or before the 30th day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
shares of the Option Shares as to which the several Underwriters are exercising
the option. Delivery of certificates for the shares of Option Shares, and
payment therefor, shall be made as provided in Section 5 hereof. Each
Underwriter will purchase such percentage of the Option Shares as is equal to
the percentage of Firm Shares that such Underwriter is purchasing, the exact
number of shares to be adjusted by you in such manner as you deem advisable to
avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of initial public offering of the Shares in the
United States by the Underwriters shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price(s) after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
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(b) You, on behalf of the Underwriters, represent and warrant
that (i) the information set forth in the last paragraph on the front cover page
of the Prospectus and paragraph 3 under the caption "Underwriting" in the
Registration Statement, any Preliminary Prospectus and the Prospectus relating
to the Shares (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and that the statements made therein are correct and do not omit to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were made
not misleading, and (ii) the Underwriters have not distributed and will not
distribute prior to the Closing Date or on any Option Closing Date, as the case
may be, any offering material in connection with the offering and sale of the
shares other than the Preliminary Prospectus, the Prospectus, the Registration
Statement, and other materials permitted by the Act.
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the
Option Shares (if the option granted pursuant to Section 3(c) hereof shall have
been exercised not later than ____ p.m., _____________ time, the date at least
two business days preceding the Closing Date), and payment therefor, shall be
made at the office of _________________________________________________________
___________________________________________________________ at 9:00 a.m., New
York City time, on the fourth business day after the date of this Agreement, or
at such time on such other day, not later than seven full business days after
such fourth business day, as shall be agreed upon in writing by the Company and
you (the "Closing Date").
(b) If the option granted pursuant to Section 3(c) hereof
shall be exercised after 1:00 p.m., New York City time, on the date two business
days preceding the Closing Date, and on or before the 30th day after the date of
this Agreement, delivery of certificates for the Option Shares, and payment
therefor, shall be made at the office of ______________________________________
______________________________________________________________at 9:00 a.m., New
York City time, on the third business day after the exercise of such option.
(c) Payment for the Shares purchased from the Company shall be
made to the Company or its order, by either a same day funds check or Federal
Funds wire transfer. Such payment shall be made upon delivery of certificates
for the Shares to you for the respective accounts of the several Underwriters
against receipt therefor signed by you. Certificates for the Shares to be
delivered to you shall be registered in such name or names and shall be in such
denominations as you may request at least three business days before the Closing
Date, in the case of Firm Shares, and at least two business days prior to the
Option Closing Date, in the case of the Option Shares. Such certificates will be
made available to the Underwriters for inspection, checking and packaging at a
location in New York, New York, designated by the Underwriters not less than one
full business day prior to the Closing Date or, in the case of the Option
Shares, by 3:00 p.m., New York City time, on the business day preceding the
Option Closing Date.
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(d) It is understood that you, individually and not on behalf
of the Underwriters, may (but shall not be obligated to) make payment to the
Company for shares to be purchased by any Underwriter whose check shall not have
been received by you on the Closing Date or any later Option Closing Date. Any
such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed. If the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) , the Company will provide evidence satisfactory
to you that the Prospectus contains such information and has been filed, within
the time period prescribed, with the Commission pursuant to subparagraph (1) or
(4) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission. If for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed. The Company will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information. Promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the reasonable opinion of counsel
to the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the Underwriters.
The Company will promptly prepare and file with the Commission, and promptly
notify you of the filing of, any amendments or supplements to the Registration
Statement or Prospectus which may be necessary to correct any statements or
omissions, if, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event shall have occurred as a result of
which the Prospectus or any other prospectus relating to the Shares as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In case any
Underwriter is required to deliver a prospectus within the nine-month period
referred to in Section 10(a)(3) of the Act in connection with the sale of the
Shares, the Company will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act. The Company will file no
amendment or supplement to the Registration Statement or Prospectus that shall
not previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall
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reasonably object in writing or which is not in compliance with the Act and
Rules and Regulations or the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or the
use of the Prospectus or of the initiation or threat of any proceeding for that
purpose; and it will promptly use its best efforts to prevent the issuance of
any such stop order or to obtain its withdrawal at the earliest possible moment
if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to
qualify the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in effect
for so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation, or to execute a general
consent to service of process in any jurisdiction, or to make any undertaking
with respect to the conduct of its business. In each jurisdiction in which the
Shares shall have been qualified, the Company will make and file such
statements, reports and other documents in each year as are or may be reasonably
required by the laws of such jurisdictions so as to continue such qualifications
in effect for so long a period as you may reasonably request for distribution of
the Shares, or as otherwise may be required by law.
(d) The Company will furnish to you, as soon as available,
copies of the Registration Statement (three of which will be signed and which
will include all exhibits), each Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the Act, all in such quantities as
you may from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and covering a twelve-month period beginning after the effective
date of the Registration Statement, and will advise you in writing when such
statement has been made available.
(f) During a period of five years after the date hereof, the
Company, as soon as practicable after the end of each respective period, will
furnish to its stockholders annual reports (including financial statements
audited by independent certified public accountants) and will furnish to its
stockholders unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will, upon request, furnish to you and
the other several Underwriters hereunder (i) concurrently with making such
reports available to its stockholders, statements of operations of the Company
for each of the first three quarters in the form made available to the Company's
stockholders; (ii) concurrently with the furnishing thereof to its stockholders,
a balance sheet of the Company as of the end of such fiscal year, together with
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<PAGE> 13
statements of operations, of stockholders, equity and of cash flow of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of nationally recognized independent certified public accountants; (iii)
concurrently with the furnishing of such reports to its stockholders, copies of
all reports (financial or other) mailed to stockholders; (iv) as soon as they
are available, copies of all reports and financial statements furnished to or
filed with the Commission, any securities exchange or the Nasdaq National Market
by the Company (except for documents for which confidential treatment is
requested); and (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders or prepared for general release by the Company. During such
five-year period, if the Company shall have any active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company are consolidated with any subsidiaries, and
shall be accompanied by similar financial statements for any significant
subsidiary that is not so consolidated.
(g) Prior to or simultaneously with the execution and delivery
of this Agreement, the Company will obtain agreement from each beneficial owner
of the Company's Common Stock listed on Schedule B to this Agreement providing
that such person will not, for a period of 180 days after the date of the
Prospectus, without the prior written consent of UBS Securities LLC, directly or
indirectly, offer to sell, sell, hypothecate, contract to sell, grant any option
to purchase, or otherwise dispose of, any shares of Common Stock beneficially
owned as of the date such lockup agreement is executed (including, without
limitation, shares of Common Stock which may be deemed to be beneficially owned
in accordance with the Rules and Regulations and shares of Common Stock which
may be issued upon exercise of a stock option or warrant) or any securities
convertible into or exercisable or exchangeable for such Common Stock except,
(a) by operation of law or (b) pursuant to a bona fide gift to any person or
other entity which agrees in writing to be bound by this restriction. Each such
person or entity shall also agree and consent to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of shares of
Common Stock held by such person or entity, except in compliance with the
foregoing restriction. With respect to options granted pursuant to the Company's
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Plan (the
"Plan"), the Company represents and warrants that holders of any rights to
acquire stock under the Plan have agreed to a provision substantially similar to
that set forth in this Section 6(g) and that the Company will not release any
such person from its rights under such provision without the prior written
consent of UBS Securities LLC.
(h) The Company shall not, during the 180 days following the
effective date of the Registration Statement, except with your prior written
consent as Representatives, file a registration statement covering any of its
shares of capital stock, except that one or more registration statements on Form
S-8 may be filed at any time following the effective date of the Registration
Statement.
(i) The Company shall not, during the 180 days following the
effective date of the Registration Statement, except with your prior written
consent as Representatives, issue, sell, offer or agree to sell, grant,
distribute or otherwise dispose of, directly or indirectly, any shares of Common
Stock, or any options, rights or warrants with respect to shares of Common
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<PAGE> 14
Stock, or any securities convertible into or exchangeable for Common Stock,
other than (i) the sale of Shares hereunder, (ii) the grant of options or the
issuance of shares of Common Stock under the Company's stock option plans or
stock purchase plan, as the case may be, existing on the date hereof, and (iii)
the issuance of shares of Common Stock upon exercise of the currently
outstanding options or warrants described in the Registration Statement.
(j) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(k) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(l) The Company will use its best efforts to maintain listing
of its shares of Common Stock on the Nasdaq National Market.
(m) The Company is familiar with the Investment Company Act of
1940, as amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and will in the future conduct its affairs, in such a
manner so as to ensure that the Company was not and will not be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(n) If at any time during the 180-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
reasonable opinion the market price of the Common Stock has been or is likely to
be materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth above
consult with you in good faith regarding the necessity of disseminating a press
release or other public statement responding to or commenting on such rumor,
publication or event and, if the Company in its reasonable judgment determines
that such a press release or other public statement is appropriate, the
substance of any press release or other public statement.
7. EXPENSE.
The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
reproduction of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Memoranda and any Supplemental Blue
Sky Memoranda and any instruments related to any of the foregoing; the issuance
and delivery of the Shares hereunder to the several Underwriters, including
transfer taxes, if any; the cost of all stock certificates representing the
Shares and Transfer Agents' and Registrars, fees; the fees and disbursements of
corporate, patent and regulatory counsel for the
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<PAGE> 15
Company; all fees and other charges of the Company's independent public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary
Prospectuses and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and expenses incident to securing any required
review and the cost of qualifying the Shares under the laws of such
jurisdictions within the United States as you may designate (including filing
fees and attorneys fees and disbursements of Underwriters' Counsel in connection
with such NASD filings and Blue Sky qualifications); listing application fees of
the Nasdaq National Market; and all other expenses directly incurred by the
Company in connection with the performance of its obligations hereunder.
(b) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, the Company
will, in addition to paying the expenses described in clause (a) above,
reimburse the several Underwriters for all out-of-pocket expenses (including
reasonable fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in reviewing the Registration Statement and the Prospectus and in
otherwise investigating, preparing to market or marketing the Shares. The
Company will in no event be liable to any of the several Underwriters for any
loss of anticipated profits from the sale by them of the Shares.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters to purchase and pay for the
Shares, as provided herein, shall be subject to the accuracy, as of the date
hereof and the Closing Date and any later Option Closing Date, as the case may
be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not
later than 9:00 a.m., New York City time, on the date following the date of this
Agreement, or such later time or date as shall be consented to in writing by
you. If the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) and Rule 430A of the Rules and Regulations, the
Prospectus shall have been filed in the manner and within the time period
required by Rule 424(b) and Rule 430A of the Rules and Regulations. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and
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<PAGE> 16
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this subsection.
(c) You shall have received, at no cost to you, on the Closing
Date and on any later Option Closing Date, as the case may be, the opinions of
(i) Stradling, Yocca Carlson & Rauth, corporate counsel to the Company, (ii)
Knobbe, Martens, Olson & Bear; Breimayer Law Office; Burns, Doane, Swecker &
Mathis and Crockett & Fish, all patent counsel to the Company, all dated the
Closing Date or such later Option Closing Date, in the forms attached hereto on
Appendix A, addressed to the Underwriters and with reproduced copies of signed
counterparts thereof for each of the Representatives.
(d) You shall have received from Morrison & Foerster LLP,
Underwriters' Counsel, an opinion or opinions, dated the Closing Date or on any
later Option Closing Date, as the case may be, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all corporate
proceedings undertaken by the Company and other legal matters relating to this
Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such documents as
it may have reasonably requested for the purpose of enabling it to pass upon
such matters.
(e) You shall have received on the Closing Date and on any
later Option Closing Date, as the case may be, a letter from the Accountants
addressed to the Company and the Underwriters, dated the Closing Date or such
later Option Closing Date, as the case may be, confirming that it is, an
independent certified public accountant with respect to the Company within the
meaning of the Act and the Rules and Regulations thereunder and based upon the
procedures described in its letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but carried
out to a date not more than three days prior to the Closing Date or any such
later Option Closing Date, as the case may be, (i) confirming that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later Option Closing Date, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter that are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company which, in your reasonable judgment, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In addition, you shall have received from the Accountants a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that its review of the Company's system of internal
accounting controls, to the extent it deemed necessary in establishing the scope
of its latest examination of the Company's financial statements, did not
disclose any weaknesses in internal controls that it considered to be material
weaknesses. All such letters shall be in a form reasonably satisfactory to the
Representatives and their counsel.
(f) You shall have received on the Closing Date and on any
later Option Closing Date, as the case may be, a certificate of the President
and the Chief Financial Officer of
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<PAGE> 17
the Company, dated the Closing Date or such later date, to the effect that as of
such date (and you shall be satisfied that as of such date):
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of
the Closing Date or any later Option Closing Date, as the case
may be; and the Company has complied with all of the
agreements and satisfied all of the conditions on its part to
be performed or satisfied at or prior to the Closing Date or
any later Option Closing Date, as the case may be;
(ii) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registration Statement or preventing or suspending the
use of the Prospectus has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the
best of their knowledge, threatened under the Act;
(iii) They have carefully reviewed the Registration
Statement and the Prospectus; and, when the Registration
Statement became effective and at all times subsequent thereto
up to the delivery of such certificate, the Registration
Statement and the Prospectus and any amendments or supplements
thereto contained all statements and information required to
be included therein or necessary to make the statements
therein not misleading; and when the Registration Statement
became effective, and at all times subsequent thereto up to
the delivery of such certificate, none of the Registration
Statement, the Prospectus or any amendment or supplement
thereto included any untrue statement of a material fact or
omitted to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus that has not
been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, there has not been (A) any material adverse change
in the properties or assets described or referred to in the
Registration Statement and the Prospectus or in the condition
(financial or otherwise), operations, business or prospects of
the Company, (B) any transaction which is material to the
Company, except transactions entered into in the ordinary
course of business, (C) any obligation, direct or contingent,
incurred by the Company, which is material to the Company
taken as a whole, (D) any change in the capital stock or
outstanding indebtedness of the Company which is material to
the Company taken as a whole or (E) any dividend or
distribution of any kind declared, paid or made on the capital
stock of the Company.
(g) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request as to the accuracy of
the representations and
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<PAGE> 18
warranties of the Company herein, as to the performance by the Company of its
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
(h) The Firm Shares and the Option Shares, if any, shall have
been approved for designation upon notice of issuance on the Nasdaq National
Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) below, the
Company agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other out-of-pocket expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any 462(b) registration statement)
or any post-effective amendment thereto (including any 462(b) registration
statement), or the 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) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission is contained in
the section of the Prospectus entitled "Underwriting" (except for the sixth
paragraph thereof) or the last paragraph of text on the cover page of the
Prospectus and (2) the indemnity agreement contained in this paragraph (a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Shares which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
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<PAGE> 19
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (a) of Section 6 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of any payment
for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its executive officers, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Act, the Exchange Act, or the common
law or otherwise and to reimburse each of them for any legal or other expenses
including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the 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) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that in the cases of clauses (i) and (ii) above,
such statement or omission is contained in the Section of the Prospectus
entitled "Underwriting" (except for the sixth paragraph thereof) or the last
paragraph on the cover page of the Prospectus. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the Provision of paragraphs
(a) and (b) of this Section 9 agrees that, upon the service of a summons or
other initial legal process upon it in any action or suit instituted against it
or upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (a "Notice") of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the
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Notice, but the omission so to notify such indemnifying party or parties of any
such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (the "Notice of Defense") to the indemnified party, to assume (alone or
in conjunction with any other indemnifying party or parties) the entire defense
of such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled, at its or their own expense to
have counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. It is understood that the indemnifying parties shall not,
in respect of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
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. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified p
through (c) of this Section 9 for any legal or other expenses subsequently
incurred by the indemnified party or parties in connection with the defense of
the action, suit, investigation, inquiry or proceeding, except that (A) the
indemnifying party or parties shall bear the legal and other expenses incurred
in connection with the conduct of the defense as referred to in clause (i) of
the proviso to the preceding sentence and (B) the indemnifying party or parties
shall bear such other expenses as it or they have authorized to be incurred by
the indemnified party or parties. If, within a reasonable time after receipt of
the Notice, no Notice of Defense has been given, the indemnifying party or
parties shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding. The indemnifying party or parties shall
not be liable for any settlement of any proceeding effected without its or their
written consent, provided such consent has not been unreasonably withheld.
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(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 9, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 9 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Shares or (ii) if the allocation
provided by clause (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 (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, 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, shall be deemed to
be in the same respective proportions as the total net proceeds from the
offering of the Shares received by the Company and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Shares. Relative fault 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 each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be 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 into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparation to defend or defense against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter. 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 in
this paragraph (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 9).
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(e) The Company will not, without the prior written consent of
each Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such Underwriter
or any person who controls such Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(f) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 9 and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
10. TERMINATION. This Agreement may be terminated by you at any time on or
prior to the Closing Date or on or prior to any later Option Closing Date, as
the case may be, (i) if the Company shall have failed, refused or been unable,
at or prior to the Closing Date, or on or prior to any later Option Closing
Date, as the case may be, to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Company is not fulfilled, or (ii) if trading on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market, by such trading exchanges or by order of the Commission
or any other governmental authority having jurisdiction, or if a banking
moratorium shall have been declared by federal or New York authorities, or (iii)
if the Company shall have sustained a loss by strike, fire, flood, accident or
other calamity of such character as to have a Material Adverse Effect regardless
of whether or not such loss shall have been insured, or (iv) if there shall have
been a material adverse change in the general political or economic conditions
or financial markets in the United States as in the judgment of the
Representatives makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have occurred
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or other national or international calamity, hostilities or crisis
or the declaration by the United States of a national emergency which, in the
judgment of the Representatives, adversely affects the marketability of the
Shares, or (vi) if since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall have occurred any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company or the business affairs, management, or business prospects of the
Company, whether or not arising in the ordinary course of business, or (vii) if
any foreign, federal or state statute, regulation, rule or order of any court or
other governmental authority shall have been enacted, published, decreed or
otherwise
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promulgated which in the judgment of the Representatives materially and
adversely affects or will materially and adversely affect the business or
operations of the Company, or trading in the Common Stock shall have been
suspended, or (viii) there shall have occurred a material adverse decline in the
value of securities generally on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market or (ix) action shall be taken by any
foreign, federal, state or local government or agency in respect of its monetary
or fiscal affairs which, in the judgment of the Representatives, has a material
adverse effect on the securities markets in the United States. If this Agreement
shall be terminated in accordance with this Section 10, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs, and expenses referred to in
Section 7.
If you elect to terminate this Agreement as provided in this Section 10,
the Company shall be notified promptly by you by telephone, telecopy or
telegram, confirmed by letter.
11. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) In addition to their other obligations under Section 9 of
this Agreement, the Company hereby agrees to reimburse on a quarterly basis the
Underwriters for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
(b) In addition to their other obligations under Section 9 of
this Agreement, the Underwriters hereby agree to reimburse on a quarterly basis
the Company for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (b) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the Company shall promptly refund it and (ii) the Company shall
provide to the Underwriter, upon request, reasonable assurances of its ability
to effect any refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of the Company and the several Underwriters and, with respect to the
provisions of
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Section 9 hereof, the several parties (in addition to the Company and the
several Underwriters) indemnified under the provisions of said Section 9, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Shares from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to UBS Securities LLC, 299 Park Avenue, New
York, NY 10171, Attention: Richard Messina; and if to the Company, shall be
mailed, telegraphed or delivered to it at its office, 1062 Calle Negocio #F, San
Clemente, CA 92673, Attention: George Wallace. All notices given by telegraph
shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its respective directors of
officers, and (ii) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
You will act as Representatives of the several Underwriters in all dealings
with the Company under this Agreement, and any action under or in respect of
this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
[INTENTIONALLY LEFT BLANK]
24
<PAGE> 25
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
MICRO THERAPEUTICS, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written
UBS SECURITIES LLC
VOLPE, WELTY & COMPANY
BY: UBS SECURITIES LLC
By:______________________________________
Name:____________________________________
Title:___________________________________
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
25
<PAGE> 26
SCHEDULE A
UNDERWRITERS
Number of
Shares
to be
Underwriters Purchased
------------ ---------
UBS Securities LLC.......................................
Volpe, Welty & Company...................................
Total [ ]
=========
<PAGE> 27
SCHEDULE B
Lock-Up Agreement
<PAGE> 28
APPENDIX A
1. OPINION OF COUNSEL TO THE COMPANY
Stradling, Yocca, Carlson & Rauth shall opine to the effect that:
(A) The Company has been duly organized and is validly existing as a
corporation, and is in good standing under, the laws of the State of Delaware;
(B) The Company has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification;
(C) The authorized capital stock of the Company consists of (i)
20,000,000 shares of Common Stock, $.001 par value, of which there are
outstanding [9,429,692] shares (including the Firm Shares plus the number of
Option Shares issued on the date hereof ) and (ii) 5,000,000 shares of Preferred
Stock, $.001 par value, none of which are outstanding; the authorized shares of
the Company's Common Stock have been duly authorized; the issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued and are fully paid and nonassessable, and have not been issued in
violation of any preemptive right, co-sale right, registration right, right of
first refusal or other similar right known to such counsel;
(D) The Shares to be issued by the Company pursuant to this Agreement
have been duly authorized and will be, upon issuance and delivery against
payment therefor in accordance with the terms hereof, validly issued, fully paid
and nonassessable, and, to the knowledge of such counsel, the shareholders of
the Company do not have any preemptive right, co-sale right, registration right,
right of first refusal or other similar right, which rights have not previously
been waived, in connection with the purchase or sale of any of the Shares;
(E) The Company has full corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the Firm
Shares or the Option Shares, as the case may be, to be issued and sold by it
hereunder;
(F) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and is a valid and binding agreement of the Company, enforceable in
accordance with its terms (standard exceptions permitted);
(G) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the Prospectus has
been issued and no
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<PAGE> 29
proceedings for that purpose have been instituted or are pending or threatened
under the Act; any required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and Regulations has been made in the manner
and within the time period required by such Rule 424(b);
(H) The Registration Statement, all Preliminary Prospectuses, the
Prospectus, and each amendment or supplement thereto (other than the financial
statements, financial data and supporting schedules included therein, as to
which such counsel need express no opinion), comply as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations and to such counsel's knowledge, there are no agreements, contracts,
leases or documents of a character required to be described in, or filed as an
exhibit to, the Registration Statement which are not described or filed as
required by the Act and the applicable Rules and Regulations;
(I) The terms and provisions of the capital stock of the Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the information in the Prospectus under the caption
"Description of Capital Stock", to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is correct, and the
form of certificate evidencing the Common Stock complies with the applicable
provisions of law;
(J) The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations, including the corporation law and
the description of the certificate of incorporation and bylaws are accurate and
fairly and correctly present the information required to be presented by the Act
or the Rules and Regulations in all material respects; and such counsel does not
know of any statutes, rules or regulations required to be described in the
Registration Statement or the Prospectus that are not described or referred to
therein as required;
(K) The statements under the captions "Risk Factors -- Shares Eligible
for Future Sale", "Management -- Executive Compensation," "Certain
Transactions," and "Description of Capital Stock" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or matters
of law, are accurate summaries and fairly and correctly present, in all material
respects, the information called for with respect to such documents and matters;
provided that such counsel shall be entitled to rely on representations of the
Company with respect to certain factual matters contained in such statements,
and provided further that such counsel shall state that nothing has come to the
attention of such counsel which leads them to believe that such representations
are not true and correct in all material respects;
(L) The information required to be set forth in the Registration
Statement in answer to Items 9, 12 and 13 (insofar as it relates to such
counsel) of Form SB-2 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is required
with respect to such Items;
(M) The execution, delivery and performance of this Agreement and the
consummation of the transactions therein contemplated do not and will not (a)
conflict with or
A-2
<PAGE> 30
result in a breach of any of the terms or provisions of or, constitute a default
under, the certificate of incorporation or bylaws of the Company, any agreement
or document filed as an exhibit to the Registration Statement, or any statute,
rule or regulation applicable to the Company (except that no opinion need be
expressed with respect to compliance with federal and state securities laws) or
(b) to the knowledge of such counsel, result in the creation or imposition of
any lien or encumbrance upon any of the assets of the Company pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default or result in the acceleration of any
obligation under, any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement, other evidence of indebtedness, lease, contract or
other agreement or instrument to which the Company is a party or by which its
property is bound or (c) to the knowledge of such counsel, conflict with or
result in a violation or breach of, or constitute a default under, any
applicable license, authorization, approval, permit, judgment, franchise, order,
writ or decree of any court or governmental agency or body;
(N) No authorization, approval, consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the execution and delivery of this Agreement by the
Company and the consummation of the transactions therein contemplated except
such as may have been obtained under the Act and the Rules and Regulations or
such as may be required under state securities or Blue Sky laws or by the bylaws
and rules of the NASD in connection with the purchase and distribution of the
Shares by the Underwriters;
(O) The Company is not in violation of its certificate of
incorporation or bylaws, and to the best of such counsel's knowledge, the
Company is not in breach of or default with respect to any provision of any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument by which it or any of its properties may be bound or
affected, except where such default would not materially adversely affect the
Company and, to the best of such counsel's knowledge, the Company is in
compliance with all laws, rules, regulations, judgments, decrees, orders and
statutes of any court or jurisdiction to which it is subject, except where
noncompliance would not materially adversely affect the Company;
(P) To such counsel's knowledge, there are no pending or threatened
actions, suits, claims, proceedings or investigations that, if successful, would
have a Material Adverse Effect or would limit, revoke, cancel, suspend, or cause
not to be renewed any existing license, certificate, registration, approval or
permit, known to such counsel, from any state, federal, or regulatory authority
that is material to the conduct of the business of the Company as presently
A-3
<PAGE> 31
conducted, or that is of a character otherwise required to be disclosed in the
Registration Statement or the Prospectus under the Act or the applicable Rules
and Regulations;
(Q) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of shares of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration Statement
and Prospectus, all holders of securities of the Company having registration
rights with respect to shares of Common Stock or other securities have, with
respect to the offering contemplated hereby, waived such rights or such rights
have otherwise been waived or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement.
(R) No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Firm Shares or the Option Shares;
[(S) Such counsel has read the description of the Company's business in
the Prospectus and the statements in the Prospectus under the captions "Business
- -- Government Regulation" (the "FDA Portion") and, to the best of such counsel's
knowledge, (i) the statements included in the FDA Portion, insofar as such
statements summarize provisions of applicable FDA statutes and regulations, are
accurate in all material respects and (ii) the FDA statutes and regulations
summarized in the FDA Portion are the FDA statutes and regulations that are
material to the Company's business as described in the Prospectus.]
(T) The Company will not, upon consummation of the transactions
contemplated by this Agreement, be an "investment company," or a "promoter" or
"principal underwriter" for, a "registered investment company," as such terms
are defined in the Investment Company Act of 1940, as amended;
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or completeness
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that, at the time the Registration Statement became effective the Registration
Statement (except as to financial statements, financial and statistical data and
supporting schedules contained therein, as to which such counsel need express no
opinion) contained any 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 at the Closing Date or any later Option Closing Date,
as the case may be, the Registration Statement or the Prospectus (except as
aforesaid) contained any 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, in light of the circumstances under which they were made,
not misleading.
A-4
<PAGE> 32
Counsel rendering the foregoing may rely (i) as to questions
of law not involving the laws of the State of the United States or the General
Corporation Law of the State of Delaware upon opinions of local counsel, and
(ii) as to questions of fact upon representations or certificates of officers of
the Company and of governmental officials, as the case may be, in which case its
opinion is to state that it is so doing and that it has no actual knowledge of
any material misstatement or inaccuracy in such opinions, representations or
certificates, and that they believe that they and the Underwriters are justified
in relying on such opinions or certificates. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you/ as
Representatives of the Underwriters, and to Underwriters' Counsel.
2. OPINION OF PATENT COUNSEL.
Knobbe, Martin, Bear & Olsen shall indicate that they served as special
counsel to the Company with respect to patents and proprietary rights, and shall
opine that:
The statements in the Registration Statement and the
Prospectus under the captions "Risk Factors -- Dependence on Patents
and Proprietary Technology" and "Business -- Patents and Proprietary
Rights", and other references to intellectual property of the Company
contained in the Prospectus, to the best of such counsel's knowledge
and belief, are accurate and complete statements or summaries of the
matters therein set forth. Nothing has come to such counsel's attention
that causes them to believe that the above-described portions of the
Registration Statement and the Prospectus contain any untrue statement
of material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
To the best of such counsel's knowledge and belief, there are
no legal or governmental proceedings pending relating to patent rights,
trade secrets, trademarks service marks or other proprietary
information or materials of the Company. Also, to the best of such
counsel's knowledge and belief, no such proceedings are threatened or
contemplated by governmental authorities or others.
Such counsel does not know of any contracts or other
documents, relating to the Company's patents, trade secrets,
trademarks, service marks or other proprietary information or
materials, of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration
Statement or the Prospectus, that are not filed or described as
required.
To the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets,
trademarks, service marks, or other proprietary information or
materials, of others, and to the best of such counsel's knowledge and
belief, there are no infringements by others of any of the Company's
patents, trade secrets, trademarks, service marks, or other proprietary
information or materials which in such counsel's judgment could affect
materially the use thereof by the Company.
A-5
<PAGE> 33
Such counsel has no knowledge of any facts which would
preclude the Company from having valid license rights or clear title to
the patents referenced in the Prospectus. Such counsel has no knowledge
that the Company lacks or will be unable to obtain any rights or
licenses to use all patents and other material intangible property and
assets necessary to conduct the business now conducted or proposed to
be conducted by the Company as described in the Prospectus, except as
described in the Prospectus. Counsel is unaware of any facts which form
a basis for a finding of unenforceability or invalidity of any of the
Company's patents and other material intangible property and assets.
Subject to any disclosure to the contrary in the Prospectus,
such counsel is not aware of any material fact with respect to the
patent applications of the Company presently on file that (i) would
preclude the issuance of patents with respect to such applications or
(ii) would lead such counsel to conclude that such patents, when
issued, would not be valid and enforceable in accordance with
applicable regulations.
In addition, such counsel shall state that although they have
not verified the accuracy or completeness of the statements contained
in the Prospectus, nothing has come to the attention of such counsel
that caused them to believe that, at the time the Registration
Statement became effective, the Prospectus (i) under the caption "Risk
Factors -- Dependence on Patents and Proprietary Technology", (ii)
under the caption "Business -- Patents and Proprietary Rights", or
(iii) where otherwise referring the intellectual property of the
Company, contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Such counsel may advise you that, in rendering their opinion,
they have relied on certain factual representations of the Company and that they
have not independently verified the accuracy and completeness of such
representations.
Certain patent counsel shall consent to the reference of their firm under
the captions "Legal Matters" and "Experts" in the Prospectus included in the
Registration Statement and to the filing of their opinion as an exhibit to the
Registration Statement.
A-6
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
OF MICRO THERAPEUTICS, INC.
A DELAWARE CORPORATION,
AND
MICRO THERAPEUTICS, INC.
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 6, 1996
(this "Agreement"), is between MICRO THERAPEUTICS, INC., a Delaware corporation
("MTI Delaware"), and MICRO THERAPEUTICS, INC., a California corporation ("MTI
California"), which corporations are sometimes referred to herein as the
"Constituent Corporations".
R E C I T A L S:
A. MTI Delaware is a corporation duly organized and existing
under the laws of the State of Delaware and has an authorized capital of
15,635,992 shares, 10,000,000 of which are designated "Common Stock", $.001 par
value per share, and 5,635,992 of which are designated "Preferred Stock", $.001
par value per share. As of October 14, 1996, 100 shares of Common Stock were
issued and outstanding, all of which were held by MTI California and no shares
of MTI Delaware Preferred Stock were outstanding.
B. MTI California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
15,635,992 shares, 10,000,000 of which are designated "Common Stock", without
par value, and 5,635,992 of which are designated "Preferred Stock", $.001 par
value per share. As of October 14, 1996, 1,370,500 shares of Common Stock were
outstanding, 833,333 shares of Series A-1 Preferred Stock were outstanding,
900,000 shares of Series A-2 Preferred Stock were outstanding, 1,890,909 shares
of Series B Preferred Stock were outstanding, and 1,933,700 shares of Series C
Preferred Stock were outstanding.
C. The Board of Directors of MTI California has determined that,
for the purpose of effecting the reincorporation of MTI California in the State
of Delaware, it is advisable and in the best interests of MTI California and its
shareholders that MTI California merge with and into MTI Delaware, upon the
terms and conditions herein provided.
D. The respective Boards of Directors of MTI Delaware and MTI
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective stockholders and executed by the
undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, MTI Delaware and MTI California hereby agree, subject to the
terms and conditions hereinafter set forth, as follows:
I.
MERGER
1.1 Merger. In accordance with the provisions of this Agreement,
the Delaware General Corporation Law and the California General Corporation Law,
MTI California shall be merged with and into MTI Delaware (the "Merger"), the
separate existence of MTI California shall cease and MTI Delaware shall be, and
is herein sometimes referred to as, the "Surviving Corporation", and the name of
the Surviving Corporation shall be "Micro Therapeutics, Inc."
1.2 Filing and Effectiveness. The Merger shall become effective
when the following actions have been completed:
<PAGE> 2
(a) This Agreement has been adopted and approved by the
stockholders of each Constituent Corporation in accordance with the
requirements of the Delaware General Corporation Law and the California
General Corporation Law;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement and required under Delaware General
Corporation Law and California General Corporation Law have been
satisfied or duly waived by the party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed
counterpart of this Agreement meeting the requirements of the Delaware
General Corporation Law has been filed with the Secretary of State of
the State of Delaware; and
(d) An executed Certificate of Merger or an executed
counterpart of this Agreement meeting the requirements of the
California General Corporation Law has been filed with the Secretary of
State of the State of California.
The date and time when the Merger shall become effective, as
aforesaid, is herein called the "Effective Time of the Merger".
1.3 Effect of the Merger. At the Effective Time of the Merger, the
separate existence and corporate organization of MTI California shall cease and
MTI Delaware, as the Surviving Corporation, shall continue its corporate
existence under the laws of the State of Delaware.
II.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation
of MTI Delaware as in effect immediately before the Effective Time of the Merger
shall continue in full force and effect as the Certificate of Incorporation of
the Surviving Corporation until duly amended or repealed in accordance with the
provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of MTI Delaware as in effect immediately
before the Effective Time of the Merger shall continue in full force and effect
as the Bylaws of the Surviving Corporation until duly amended or repealed in
accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of MTI
California immediately before the Effective Time of the Merger shall be the
directors and officers of the Surviving Corporation until the expiration of
their current terms and until their successors have been duly elected and
qualified, or until their prior resignation, removal or death, subject to the
Certificate of Incorporation and the Bylaws of the Surviving Corporation.
III.
MANNER OF CONVERSION OF STOCK
3.1 MTI California Shares. Upon the Effective Time of the Merger,
each share of MTI California Common Stock, without par value, issued and
outstanding immediately before the Effective Time of the Merger shall, by virtue
of the Merger and without any action by the Constituent Corporations, by the
holder of such shares or by any other person, be converted into and exchanged
for one (1) fully paid and nonassessable share of Common Stock of the Surviving
Corporation. Upon the Effective Time of the Merger, each share of Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock of MTI California, each without par value, issued and
outstanding immediately before the Effective Time of the Merger shall, by virtue
of the Merger and without any action by the Constituent Corporations, by the
holder of
2
<PAGE> 3
such shares or by any other person be converted into and exchanged for one (1)
fully paid and nonassessable share of Series A-1 Preferred Stock, $.001 par
value, Series A-2 Preferred Stock, $.001 par value, Series B Preferred Stock,
$.001 par value, and Series C Preferred Stock, $.001 par value, respectively, of
the Surviving Corporation.
3.2 MTI California Options and Stock Purchase Rights. At the
Effective Time of the Merger, the Surviving Corporation shall assume and
continue the stock option plans and all other employee benefit plans of MTI
California. At the Effective Time of the Merger, each outstanding and
unexercised option to purchase MTI California Common Stock shall become an
option to purchase the Surviving Corporation's Common Stock on the basis of one
(1) share of the Surviving Corporation's Common Stock for each share of MTI
California Common Stock issuable pursuant to any such option, under the same
terms and conditions and exercise price per share.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of stock options, stock purchase rights
and convertible securities equal to the number of shares of MTI California
Common Stock so reserved immediately before the Effective Time of the Merger.
3.3 MTI Delaware Common Stock. Upon the Effective Time of the
Merger, each share of Common Stock, $.001 par value, of MTI Delaware issued and
outstanding immediately before the Effective Time of the Merger shall, by virtue
of the Merger and without any action by MTI Delaware, by the holder of such
shares or by any other person, be canceled and returned to the status of
authorized but unissued shares.
3.4 Exchange of Certificates. After the Effective Time of the
Merger, each holder of an outstanding certificate representing shares of MTI
California Common Stock may, at such stockholder's option, surrender the same
for cancellation to the Surviving Corporation, and each such holder shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation's Common Stock or
Preferred Stock into which the surrendered shares were converted as herein
provided. Until so surrendered, each outstanding certificate theretofore
representing shares of MTI California Common Stock or Preferred Stock shall be
deemed for all purposes to represent the number of shares of the Surviving
Corporation's Common Stock or Preferred Stock into which such shares of MTI
California Common Stock or Preferred Stock were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation of any such outstanding certificate shall, until such certificate
has been surrendered for transfer or conversion or otherwise accounted for to
the Surviving Corporation, have and be entitled to exercise voting and other
rights with respect to and to receive dividends and other distributions upon the
shares of the Surviving Corporation represented by such outstanding certificate
as provided above.
Each certificate representing shares of Common Stock and Preferred
Stock of the Surviving Corporation so issued in the Merger shall bear the same
legends, if any, with respect to restrictions on transferability as the
certificates of MTI California so converted and given in exchange therefor,
unless otherwise determined by the Board of Directors of the Surviving
Corporation in compliance with applicable laws.
If any certificate for shares of MTI Delaware stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, that such transfer otherwise be proper and that the person
requesting such transfer pay any transfer or other taxes payable by reason of
issuance of such new certificate in a name other than that of the registered
holder of the certificate surrendered or establish to the satisfaction of MTI
Delaware that such tax has been paid or is not payable.
3
<PAGE> 4
IV.
TRANSFER OF ASSETS AND LIABILITIES
4.1 Transfer of Assets and Liabilities. On the Effective Date, (i)
the rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all the disabilities, duties
and restrictions of or upon each of the Constituent Corporations; (ii) all
rights, privileges, powers and franchises of each of the Constituent
Corporations, all property, real, personal and mixed, of each of the Constituent
Corporations, all debts due to each of the Constituent Corporations on whatever
account and all things in action or belonging to each of the Constituent
Corporations shall be transferred to and vested in the Surviving Corporation;
(iii) all property, rights, privileges, powers and franchises, as well as all
other interests, shall be as effectively the property of the Surviving
Corporation as they were of the Constituent Corporations before the Effective
Date; and (iv) the title to any real estate vested by deed or otherwise in
either of the Constituent Corporations shall not in any way be impaired by
reason of the Merger. Notwithstanding the foregoing, (i) the liabilities of the
Constituent Corporations and of their stockholders, directors and officers shall
not be affected by the Merger; (ii) all rights of creditors and all liens upon
any property of either of the Constituent Corporations shall be preserved
unimpaired notwithstanding the Merger; and (iii) any claim existing or action or
proceeding pending by or against either of the Constituent Corporations may be
prosecuted to judgment as if the Merger had not taken place; provided, however,
that the claims and rights of the creditors of either or both of the Constituent
Corporations may be modified with the consent of such creditors; and, provided
further, that all debts, liabilities and duties of or upon each of the
Constituent Corporations shall attach to the Surviving Corporation and
accordingly may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.
4.2 Further Assurances. From time to time, as and when required by
MTI Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of MTI California such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other actions
as shall be appropriate or necessary in order to vest or perfect in or conform
of record or otherwise by MTI Delaware the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of MTI California and otherwise to carry out the purposes of this
Agreement, and the officers and directors of MTI Delaware are fully authorized
in the name and on behalf of MTI California or otherwise to take all such
actions and to execute and deliver all such deeds and other instruments.
V.
GENERAL
5.1 Covenants of MTI Delaware. MTI Delaware covenants and agrees
that it will, on or before the Effective Time of the Merger:
(a) Qualify to do business as a foreign corporation in the
State of California and in connection therewith, irrevocably appoint an
agent for service of process as required under the provisions of
Section 2105 of the California General Corporation Law.
(b) File all documents with the California Franchise Tax Board
necessary for the assumption by MTI Delaware of all of the franchise
tax liabilities of MTI California.
(c) Take such other actions as may be required by the
California General Corporation Law.
5.2 Deferral. Consummation of the merger may be deferred by the
Board of Directors of MTI California for a reasonable period of time if the
Board of Directors determines that deferral would be in the best interests of
MTI California and its shareholders.
4
<PAGE> 5
5.3 Amendment. The parties hereto, by mutual consent of their
respective Boards of Directors, may amend, modify or supplement this Agreement
in such manner as may be agreed upon by them in writing at any time before or
after adoption and approval of this Agreement by the stockholders of MTI
Delaware and MTI California, but not later than the Effective Time of the
Merger; provided, however, that no such amendment, modification or supplement
not adopted and approved by the stockholders of MTI Delaware and MTI California
shall adversely affect the rights of such stockholders or change any of the
principal terms of this Agreement.
5.4 Abandonment. At any time before the Effective Time of the
Merger, this Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either MTI California or of MTI
Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of MTI California or by the stockholders of MTI Delaware, or by
both.
In the event of abandonment of this Agreement, as above provided,
this Agreement shall become wholly void and of no effect, and no liability on
the part of either Constituent Corporation or its Board of Directors or its
stockholders shall arise by virtue of such termination except as provided in
Section 5.5 hereof.
5.5 Expenses. If the Merger becomes effective, the Surviving
Corporation shall assume and pay all expenses in connection therewith not
theretofore paid by the respective parties. If for any reason the Merger shall
not become effective, MTI California shall pay all expenses incurred in
connection with all the proceedings taken in respect of this Agreement or
relating thereto.
5.6 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is located at The Prentice-Hall Corporation
System, Inc., 1013 Centre Road, Wilmington, Delaware 19805, and The
Prentice-Hall Corporation System, Inc. is the registered agent of the Surviving
Corporation at such address.
5.7 Agreement. Executed copies of this Agreement will be on file
at the principal place of business of the Surviving Corporation at 1062 Calle
Negocio, #F, San Clemente, California 92673, and, upon request and without cost,
copies thereof will be furnished to any stockholder of either Constituent
Corporation.
5.8 Governing Law. This Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the laws
of the State of Delaware and, so far as applicable, the Merger provisions of the
California General Corporation Law.
5.9 Counterparts. In order to facilitate the filing and recording
of this Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement having first been approved by
resolutions of the Boards of Directors of MTI Delaware and MTI California is
hereby executed on behalf of each of such two corporations and attested by their
respective officers thereunto duly authorized.
MICRO THERAPEUTICS, INC.,
a Delaware corporation
By: /s/ George Wallace
_____________________________________
George Wallace, President
ATTEST:
/s/ Bruce Feuchter
______________________________
Bruce Feuchter, Secretary
MICRO THERAPEUTICS, INC.,
a California corporation
By: /s/ George Wallace
_____________________________________
George Wallace, President
ATTEST:
/s/ Bruce Feuchter
______________________________
Bruce Feuchter, Secretary
6
<PAGE> 1
EXHIBIT 3.1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "MICRO THERAPEUTICS, INC.", FILED IN THIS OFFICE ON THE
THIRTY-FIRST DAY OF JULY, A.D. 1996, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
2649036 8100 AUTHENTICATION: 8085438
960251372 DATE: 08-28-96
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/31/1996
960222918 - 2649036
CERTIFICATE OF INCORPORATION
OF
MICRO THERAPEUTICS, INC.
ARTICLE 1
The name of this corporation is Micro Therapeutics, Inc. (hereinafter
the "Corporation").
ARTICLE 2
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The name of the
Corporation's registered agent at that address is The Prentice-Hall Corporation
System, Inc., County of New Castle.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as amended from time to time.
ARTICLE 4
A. Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized to issue
is Fifteen Million Six Hundred Thirty-Five Thousand Nine Hundred Ninety-Two
(15,635,992) shares. Ten Million (10,000,000) shares shall be Common Stock,
$.001 par value and Five Million Six Hundred Thirty-Five Thousand Nine Hundred
Ninety-Two (5,635,992) shares shall be Preferred Stock, $.001 par value. The
Preferred Stock shall be issued in series. The first such series is Series A-1
Preferred Stock, the second such series is Series A-2 Preferred Stock, the third
such series is Series B Preferred Stock and the fourth such series is Series C
Preferred Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The
rights, preferences, privileges and restrictions granted to and imposed on the
Series A-1 Preferred Stock, which series shall consist of Eight Hundred
Thirty-Three Thousand Three Hundred Thirty-Three (833,333) shares, Series A-2
Preferred Stock, which shall consist of Nine Hundred Thousand (900,000) shares,
Series B Preferred Stock, which shall consist of One Million Nine Hundred Two
Thousand Six Hundred Fifty-Nine (1,902,659) shares and Series C Preferred Stock,
which shall consist of Two Million (2,000,000) shares are as set forth below in
this Article 4, Section B.
1. Dividend Provisions. The holders of shares of Series
A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock shall be
<PAGE> 3
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation) on the Common Stock of this
corporation, at the rate of (i) $.06 per share per annum for Series A-1
Preferred Stock, (ii) $.08 per share per annum for Series A-2 Preferred Stock,
(iii) $.18 per share per annum for Series B Preferred Stock and (iv) $.28 per
share per annum for Series C Preferred Stock, or, if greater (as determined on a
per annum basis and on an as converted basis for Series A-1 Preferred Stock,
Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock), an amount equal to that paid on any other outstanding shares of this
Corporation, payable quarterly when, as and if declared by the Board of
Directors. Such dividends shall not be cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of this Corporation, either voluntary or involuntary, the holders of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this Corporation to the
holders of Common Stock by reason of their ownership thereof, (i) for Series A-1
Preferred Stock, an amount per share equal to the sum of (A) $.90 for each
outstanding share of Series A-1 Preferred Stock (the "Original Issue Price" for
Series A-1 Preferred Stock) and (B) an amount equal to declared but unpaid
dividends on such share; (ii) for Series A-2 Preferred Stock, an amount per
share equal to the sum of (A) $1.20 for each outstanding share of Series A-2
Preferred Stock (the "Original Issue Price" for Series A-2 Preferred Stock) and
(B) an amount equal to declared but unpaid dividends on such share; (iii) for
Series B Preferred Stock, an amount per share equal to the sum of (A) $2.75 for
each outstanding share of Series B Preferred Stock (the "Original Issue Price"
for Series B Preferred Stock) and (B) an amount equal to declared but unpaid
dividends on such share; and (iv) for Series C Preferred Stock, an amount per
share equal to the sum of (A) $4.20 for each outstanding share of Series C
Preferred Stock (the "Original Issue Price" for Series C Preferred Stock) and
(B) an amount equal to declared but unpaid dividends on such share. If, upon the
occurrence of such event, the assets and funds thus distributed among the
holders of Series A-1 Preferred Stock, Series A-2 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 amounts, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of Series A-1 Preferred Stock,
Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock in proportion to the preferential amount each such holder is otherwise
entitled to receive.
(b) Upon the completion of the distribution required by
subsection 2(a), the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of Series
A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock pro rata based on the number of shares
of Common Stock held by each (assuming conversion of all such Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock) until, with respect to the holders of Series A-1 Preferred
Stock, such holders shall have received an aggregate of $2.70 per share
(including amounts paid pursuant to subsection 2(a), with respect to the holders
of Series A-2 Preferred Stock, such holders shall have received an
<PAGE> 4
aggregate of $3.60 per share (including amounts paid pursuant to subsection
2(a), with respect to the holders of Series B Preferred Stock, such holders
shall have received an aggregate of $4.12 per share (including amounts paid
pursuant to subsection 2(a) and with respect to the holders of Series C
Preferred Stock, such holders shall receive an aggregate of $5.25 per share
(including amounts paid pursuant to subsection 2(a); thereafter, if assets
remain in this Corporation, the holders of the Common Stock of this Corporation
shall receive all of the remaining assets of this Corporation pro rata based on
the number of shares of Common Stock held by each.
(c) (i) For purposes of this Section 2, a
liquidation, dissolution or winding up of this Corporation shall be deemed to be
occasioned by, or to include, (A) the acquisition of the Corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the domicile of the
Corporation); or (B) a sale of all or substantially all of the assets of the
Corporation; unless the Corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
Corporation's acquisition or sale or otherwise) hold at least fifty percent
(50%) of the voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration
received by the Corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment
letter or other similar restrictions on free marketability:
(1) If traded on a securities
exchange or through Nasdaq National Market, the value shall be deemed
to be the average of the closing prices of the securities on such
exchange over the thirty (30) day period ending three (3) days prior to
the closing;
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the
closing bid or sale prices (whichever is applicable) over the thirty
(30) day period ending three (3) days prior to the closing; and
(3) If there is no active public
market, the value shall be the fair market value thereof, as mutually
determined by the Corporation and the holders of at least a majority of
the voting power of all then-outstanding shares of Preferred Stock.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of a
stockholder's status as an affiliate or former affiliate) shall be to
make an appropriate discount from the market value determined as above
in (A)(1), (2) or (3) to reflect the approximate fair market value
thereof, as mutually determined by the Corporation and the holders of
at least a majority of the voting power of all then-outstanding shares
of such Preferred Stock.
<PAGE> 5
(iii) In the event the requirements of this
subsection 2(c) are not complied with, this Corporation shall forthwith either:
(A) cause such closing to be postponed until
such time as the requirements of this Section 2 have been complied
with; or
(B) cancel such transaction, in which event
the rights, preferences and privileges of the holders of Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately prior to the
date of the first notice referred to in subsection 2(c)(iv).
(iv) The Corporation shall give each holder of
record of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the stockholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 2, and the Corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the Corporation has given
the first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting power
of all then-outstanding shares of such Preferred Stock.
3. Redemption. Series A-1 Preferred Stock, Series A-2 Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock are not redeemable.
4. Conversion. The holders of Series A-1 Preferred Stock, Series
A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C
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 this
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Issue Price by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Conversion Price per share for shares of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall be the Original Issue Price for such share;
provided, however that the Conversion Price for Series A-1 Preferred Stock,
Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock shall be subject to adjustment as set forth in subsection 4(d).
<PAGE> 6
(b) Automatic Conversion. Except as provided below in
subsection 4(c), each share of Preferred Stock shall automatically be converted
into shares of Common Stock at the Conversion Price at the time in effect for
such share immediately upon the Corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended, the aggregate public offering
price of which was not less than Ten Million Dollars ($10,000,000), and in which
the price per share is at least $5.00 (such amount to be equitably adjusted
whenever there should occur a stock-split, combination, reclassification or
other similar event affecting the Common Stock).
(c) Mechanics of Conversion. Before any holder of Series
A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this Corporation or of any transfer
agent for such series of Preferred Stock, and give written notice to this
Corporation at its principal corporate office of such holder's election to
convert the same, and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A-1 Preferred Stock, Series A-2 Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, or to the nominee or
nominees of such holders, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Series A-1 Preferred Stock, Series
A-2 Preferred Stock, Series B Preferred Stock or Series C Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person or persons
entitled to receive the Common Stock upon conversion of Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock shall not be deemed to have converted such Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Preferred Stock for
Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) (A) Upon each issuance by this
Corporation of any Additional Stock (as defined below) after the effective date
of filing of this Certificate of Incorporation (the "Effective Date"), without
consideration or for a consideration per share less than the Conversion Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such series in effect immediately prior to each
issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price
<PAGE> 7
equal to the quotient obtained by dividing the total computed under clause (x)
below by the total computed under clause (y) below as follows:
(x) an amount equal to the sum of
(1) the aggregate purchase price of the
shares of such series sold pursuant to the agreement pursuant to which
shares of such series are first issued (the "Stock Purchase
Agreement"), plus
(2) the aggregate consideration, if
any, received by the Corporation for all Additional Stock issued on or
after the Effective Date for such series;
(y) an amount equal to the sum of
(1) the aggregate purchase price of the
shares of such series sold pursuant to the Stock Purchase Agreement
divided by the Conversion Price for such shares in effect at the
Effective Date for such series, plus
(2) the number of shares of Additional
Stock issued since the Effective Date for such series.
(B) No adjustment of the Conversion Price for
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock shall be made in an amount less than one cent ($.01)
per share, provided that any adjustments that are not required to be made by
reason of this sentence shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to three (3) years from the date
of the event giving rise to the adjustment being carried forward, or shall be
made at the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward, and upon such adjustment the Conversion Price
for such Preferred Stock shall be rounded up or down to the nearest cent. Except
to the limited extent provided for in subsections (E)(3) and (E)(4), no
adjustment of such Conversion Price pursuant to this subsection 4(d)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as determined in
good faith by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable
<PAGE> 8
for Common Stock or options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following provisions shall apply for
all purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (whether or not then
exercisable) of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subsections
4(d)(i)(C) and (d)(i)(D)), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise price
provided in such options or rights for the Common Stock covered
thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange
(whether or not then convertible or exchangeable) for any such
convertible or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or
such options or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Corporation
upon the conversion or exchange of such securities or the exercise of
any related options or rights (the consideration in each case to be
determined in the manner provided in subsections 4(d)(i)(C) and
(d)(i)(D)).
(3) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration
payable to this Corporation upon exercise of such options or rights or
upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed
to reflect such change, but no further adjustment shall be made for the
actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion or
exchange of such securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Price of the
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall
be recomputed to reflect the issuance of only the number of shares of
Common Stock (and convertible or exchangeable securities that remain in
effect) actually issued upon the exercise of such options or rights,
upon the
<PAGE> 9
conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities.
(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor pursuant
to subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in
either subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E))
by this Corporation after the Effective Date other than
(A) Common Stock issued pursuant to a
transaction described in subsection 4(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to
employees of this Corporation directly or pursuant to a stock option
plan or restricted stock plan approved by the Board of Directors of
this Corporation at any time when the total number of shares of Common
Stock so issuable or issued (and not repurchased at cost by the
Corporation in connection with the termination of employment) does not
exceed One Million Six Hundred Thousand (1,600,000) shares when
aggregated with all shares of Common Stock issued pursuant to such
stock option plan or restricted stock plan prior to the Effective Date;
(C) Common Stock issued upon conversion of
shares of Preferred Stock; or
(D) shares of Common Stock issued or issuable in
a public offering in connection with which all outstanding shares of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock will be converted to
Common Stock.
(iii) In the event the Corporation should at any time or
from time to time after the Effective Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A-1 Preferred Stock, Series A-2 Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents.
<PAGE> 10
(iv) If the number of shares of Common Stock outstanding
at any time after the Effective Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) Other Distributions. In the event this Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for other purposes of this subsection 4(e), the holders of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision ,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2), provision shall be made so that the holders of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall thereafter be entitled to receive upon
conversion of such Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(g) No Impairment. This Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
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 this
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 Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock against impairment.
<PAGE> 11
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of the Series A-1 Preferred Stock, Series
A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
pursuant to this Section 4, this Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. This Corporation
shall, upon the written request at any time of any holder of Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such series of Preferred Stock at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
such Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, at least
20 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series A-1 Preferred Stock, Series A-2 Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, this Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares
<PAGE> 12
of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Certificate of
Incorporation.
(k) Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address appearing
on the books of this Corporation.
5. Voting Rights.
(a) Except as set forth in subsection 5(b), the holder of
each share of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall have the right to one vote
for each share of Common Stock into which such share of Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any stockholders' meeting in accordance with
the bylaws of this Corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
(b) Election of Directors. Except as set forth below, at
each election of directors in which there are shares of Preferred Stock
outstanding, the holders of Series A-1 Preferred Stock and Series A-2 Preferred
Stock, voting together as a separate class, shall be entitled to elect one
member to the Board of Directors and the holders of Series B Preferred Stock,
voting together as a separate class, shall be entitled to elect one member to
the Board of Directors. Except as set forth below, at each election of directors
the holders of Common Stock, voting separately as a class, shall be entitled to
elect one member to the Board of Directors. Any additional directors shall be
elected by the holders of Common Stock and Preferred Stock in accordance with
the provision set forth in subsection (a) above.
Vacancies in the Board of Directors may be filled
only by the vote of a majority of the outstanding shares entitled to vote
thereon represented at a duly held meeting at which a quorum is present, or by
written consent of a majority of the shares entitled to vote thereon. Each
director so elected shall hold office until the next annual meeting of
stockholders and until a successor has been elected and qualified.
6. Protective Provisions. So long as any shares of Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock are outstanding, this Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the outstanding Preferred Stock that is entitled to
vote with respect to the matter:
<PAGE> 13
(a) sell, convey, or otherwise dispose of or
encumber all or substantially all of its property or business or merge
into or consolidate with any other corporation (other than a
wholly-owned subsidiary corporation ) or effect any transaction or
series of related transactions in which more than fifty percent (50%)
of the voting power of the corporation is disposed of;
(b) alter or change the rights, preferences or
privileges of the shares of Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
so as to affect adversely the shares;
(c) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock;
(d) create (by new authorization,
reclassification, recapitalization or otherwise) any class or series of
stock or any other securities convertible into equity securities of
this Corporation having a preference over, or being on a parity with,
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock with respect to voting,
dividends or upon liquidation;
(e) effect a reclassification or
recapitalization of the outstanding capital stock of the Corporation;
(f) amend Article 6 hereof to provide limits on
director liability or indemnification other than to the maximum extent
permitted by law; or
(g) change the size of the Corporation Board of
Directors from five (5) members.
7. Additional Protective Provisions for Holders of
Series C Preferred Stock. So long as any shares of Series C Preferred Stock are
outstanding, this Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of 51% or more of
the outstanding Series C Preferred Stock, sell, convey, or otherwise dispose of
or encumber all or substantially all of its property or business or merge into
or consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Corporation is
disposed of, unless such sale, conveyance, disposition, encumbrance, merger,
consolidation, transaction or series of related transactions results in
aggregate gross proceeds to the Corporation or its stockholders of not less than
fifty million dollars ($50,000,000), in which event no separate approval of the
holders of Series C Preferred Stock is required.
8. Status of Converted Stock. In the event any shares of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock shall be converted pursuant to Section 4 hereof, the
shares so converted shall be cancelled and shall not be issuable by the
Corporation. The Certificate of Incorporation of this Corporation shall be
appropriately amended to effect the corresponding reduction in the Corporation's
authorized capital stock.
<PAGE> 14
9. Repurchase of Shares. In connection with repurchases
by this Corporation of its Common Stock pursuant to its agreements with certain
of the holders thereof, Sections 502 and 503 of the California General
Corporation Law, if applicable, and any similar provisions of the Delaware
General Corporation Law, shall not apply in whole or in part with respect to
such repurchases.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
shall be distributed as provided in subsection 2(b) of Division B of this
Article 4.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common
Stock shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of this Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE 5
Section 1. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors and elections of
directors need not be by written ballot unless otherwise provided in the Bylaws.
The number of directors of the Corporation shall be fixed from time to time by
the Board of Directors either by a resolution or Bylaw adopted by the
affirmative vote of a majority of the entire Board of Directors.
Section 2. Meetings of the 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 provision contained in the Delaware
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 by the Bylaws of the
Corporation.
ARTICLE 6
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of his 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 the law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction from which the director derives an improper personal
benefit. If the General Corporation Law of the State of
<PAGE> 15
Delaware is hereafter amended to authorize corporate action further limiting or
eliminating the personal liability of directors, then the liability of the
directors of the Corporation shall be limited or eliminated to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended from time to time. Any repeal or modification of this Article 6 by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any elimination or limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE 7
The Board of Directors of the Corporation shall have the power to make,
alter, amend, change, add to or repeal the Bylaws of the Corporation, subject to
the provisions of this Certificate of Incorporation.
ARTICLE 8
The name and address of the Incorporator of the Corporation is as
follows:
JoAnn A. Nishiwaki
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
I, THE UNDERSIGNED, being the Incorporator, for the purpose of forming
a corporation under the laws of the State of Delaware, do make, file, and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereunto set my hand this 30th day of July, 1996.
/s/ JoAnn A. Nishiwaki
------------------------------
JoAnn A. Nishiwaki
Incorporator
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
MICRO THERAPEUTICS, INC.,
A DELAWARE CORPORATION
AS ADOPTED ON AUGUST 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I--OFFICES............................................................... 1
Section 1. Registered Office.............................................. 1
Section 2. Other Offices.................................................. 1
Section 3. Books.......................................................... 1
ARTICLE II--MEETINGS OF STOCKHOLDERS............................................. 1
Section 1. Place of Meetings.............................................. 1
Section 2. Annual Meetings................................................ 1
Section 3. Special Meetings............................................... 1
Section 4. Notification of Business to be Transacted at Meeting........... 1
Section 5. Notice; Waiver of Notice....................................... 2
Section 6. Quorum; Adjournment............................................ 2
Section 7. Voting......................................................... 2
Section 8. Stockholder Action by Written Consent Without a Meeting........ 2
Section 9. List of Stockholders Entitled to Vote.......................... 3
Section 10. Stock Ledger................................................... 3
Section 11. Inspectors of Election......................................... 3
Section 12. Organization................................................... 3
Section 13. Order of Business.............................................. 3
ARTICLE III--DIRECTORS........................................................... 4
Section 1. Powers......................................................... 4
Section 2. Number and Election of Directors............................... 4
Section 3. Vacancies...................................................... 4
Section 4. Time and Place of Meetings..................................... 4
Section 5. Annual Meeting................................................. 4
Section 6. Regular Meetings............................................... 4
Section 7. Special Meetings............................................... 4
Section 8. Quorum; Vote Required for Action; Adjournment.................. 5
Section 9. Action by Written Consent...................................... 5
Section 10. Telephone Meetings............................................. 5
Section 11. Committees..................................................... 5
Section 12. Compensation................................................... 6
Section 13. Interested Directors........................................... 6
ARTICLE IV--OFFICERS............................................................. 6
Section 1. Officers....................................................... 6
Section 2. Appointment of Officers........................................ 6
Section 3. Subordinate Officers........................................... 7
Section 4. Removal and Resignation of Officers............................ 7
Section 5. Vacancies in Offices........................................... 7
Section 6. Chairman of the Board.......................................... 7
Section 7. Vice Chairman of the Board..................................... 7
Section 8. Chief Executive Officer........................................ 7
Section 9. President...................................................... 7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 10. Vice President............................................... 8
Section 11. Secretary.................................................... 8
Section 12. Chief Financial Officer...................................... 8
ARTICLE V--STOCK............................................................... 8
Section 1. Form of Certificates......................................... 8
Section 2. Signatures................................................... 9
Section 3. Lost Certificates............................................ 9
Section 4. Transfers.................................................... 9
Section 5. Record Holders............................................... 9
ARTICLE VI--INDEMNIFICATION.................................................... 9
Section 1. Right to Indemnification..................................... 9
Section 2. Right of Indemnitee to Bring Suit............................ 10
Section 3. Non-Exclusivity of Rights.................................... 10
Section 4. Insurance.................................................... 11
Section 5. Indemnification of Employees or Agents of the Corporation.... 11
Section 6. Indemnification Contracts.................................... 11
Section 7. Effect of Amendment.......................................... 11
ARTICLE VII--GENERAL PROVISIONS................................................ 11
Section 1. Dividends.................................................... 11
Section 2. Disbursements................................................ 11
Section 3. Fiscal Year.................................................. 11
Section 4. Corporate Seal............................................... 11
Section 5. Record Date.................................................. 11
Section 6. Voting of Stock Owned by the Corporation..................... 12
Section 7. Construction and Definitions................................. 12
Section 8. Amendments................................................... 12
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
MICRO THERAPEUTICS, INC.,
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
SECTION 3. BOOKS. The books of the Corporation may be kept within or
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as may be fixed from time to time by the Board of Directors,
or at such other place either within or without the State of Delaware as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held at a time and date designated by the Board of Directors for the purpose of
electing directors and transacting such other business as may properly be
brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of a stockholder or
stockholders owning stock of the Corporation possessing ten percent (10%) of the
voting power possessed by all of the then outstanding capital stock of any class
of the Corporation entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder entitled to vote at the meeting.
1
<PAGE> 5
SECTION 5. NOTICE; WAIVER OF NOTICE. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by law, such notice shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation. A written waiver of any such notice signed by the person entitled
thereto, 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 the 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.
SECTION 6. QUORUM; ADJOURNMENT. Except as otherwise required by law, or
provided by the Certificate of Incorporation or these Bylaws, the holders of a
majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of enough votes to leave less than a quorum, if
any action taken is approved by at least a majority of the required quorum to
conduct that meeting. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting of the time and place of the adjourned meeting, until a quorum shall
be present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. 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 entitled to vote at the meeting.
SECTION 7. VOTING. Except as otherwise required by law, or provided by
the Certificate of Incorporation or these Bylaws, any question brought before
any meeting of stockholders at which a quorum is present shall be decided by the
vote of the holders of a majority of the stock represented and entitled to vote
thereat. Unless otherwise provided in the Certificate of Incorporation, each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy, but no proxy
shall be voted on or after three (3) years from its date, unless such proxy
provides for a longer period. Elections of directors need not be by ballot
unless the Chairman of the meeting so directs or unless a stockholder demands
election by ballot at the meeting and before the voting begins.
SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Except as otherwise provided in the Certificate of Incorporation, any action
which may be taken at any annual or special meeting of stockholders, may be
taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares 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 thereon were present and voted. All such consents shall be filed with the
Secretary of the Corporation and shall be maintained in the corporate
2
<PAGE> 6
records. 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.
SECTION 9. 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 of the Corporation who is present.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint one or more persons (who shall
not be candidates for office) as inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not so appointed, or
if an appointed inspector fails to appear or fails or refuses to act at a
meeting, the Chairman of any meeting of stockholders may, and on the request of
any stockholder or his proxy shall, appoint an inspector or inspectors of
election at the meeting. The duties of such inspector(s) shall include:
determining the number of shares outstanding and the voting power of each; the
shares represented at the meeting; the existence of a quorum; the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all stockholders. In the event of any dispute between
or among the inspectors, the determination of the majority of the inspectors
shall be binding.
SECTION 12. ORGANIZATION. At each meeting of stockholders the Chairman
of the Board of Directors, if one shall have been elected, (or in his absence or
if one shall not have been elected, the President) shall act as Chairman of the
meeting. The Secretary (or in his absence or inability to act, the person whom
the Chairman of the meeting shall appoint secretary of the meeting) shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 13. ORDER OF BUSINESS. The order and manner of transacting
business at all meetings of stockholders shall be determined by the Chairman of
the meeting.
3
<PAGE> 7
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise required by law or provided by
the Certificate of Incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. Subject to any limitations
in the Certificate of Incorporation, the authorized number of directors of the
Corporation shall be Four (4) until changed by an amendment to this Bylaw
adopted by the affirmative vote of a majority of the entire Board of Directors.
Directors shall be elected at each annual meeting of stockholders to replace
directors whose terms then expire, and each director elected shall hold office
until his successor is duly elected and qualified, or until his earlier death,
resignation or removal. Any director may resign at any time effective upon
giving written notice to the Board of Directors, unless the notice specifies a
later time for such resignation to become effective. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor prior to such effective time to take
office when such resignation becomes effective. Directors need not be
stockholders.
SECTION 3. VACANCIES. Subject to the limitations in the Certificate of
Incorporation, vacancies in the Board of Directors resulting from death,
resignation, removal or otherwise and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. Each director so selected shall hold office for the
remainder of the full term of office of the former director which such director
replaces and until his successor is duly elected and qualified, or until his
earlier death, resignation or removal. No decrease in the authorized number of
directors constituting the Board of Directors shall shorten the term of any
incumbent directors.
SECTION 4. TIME AND PLACE OF MEETINGS. The Board of Director shall hold
its meetings at such place, either within or without the State of Delaware, and
at such time as may be determined from time to time by the Board of Directors.
SECTION 5. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
place, either within or without the State of Delaware, on such date and at such
time as shall be specified in a notice thereof given as hereinafter provided in
Section 7 of this Article III or in a waiver of notice thereof.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware at such date
and time as the Board of Directors may from time to time determine and, if so
determined by the Board of Directors, notices thereof need not be given.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, the Secretary or by
any director. Notice of the date, time
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and place of special meetings shall be delivered personally or by telephone to
each director or sent by first-class mail or telegram, charges prepaid,
addressed to each director at the director's address as it is shown on the
records of the Corporation. In case 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. In case the notice is delivered personally or by telephone 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. The notice need not specify the purpose of the meeting. A written
waiver of any such notice signed by the person entitled thereto, 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 the 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.
SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. Except as
otherwise required by law, or provided in the Certificate of Incorporation or
these Bylaws, a majority of the directors shall constitute a quorum for the
transaction of business at all meetings of the Board of Directors and the
affirmative vote of not less than a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting, from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum to conduct that meeting.
When a meeting is adjourned to another time or place (whether or not a quorum is
present), notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Board of Directors may transact any business which
might have been transacted at the original meeting.
SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
the Certificate of Incorporation, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 10. TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board of Directors of the
Corporation, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section 10 shall constitute presence
in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution
passed unanimously by the entire Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. In the event of absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the committee member or members present at any meeting
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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 the absent or disqualified member. Any committee, to the
extent allowed by law and as provided in the resolution establishing such
committee, shall have and may exercise all the power and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the Bylaws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Each committee shall keep regular minutes of
its meetings and report to the Board of Directors when required.
SECTION 12. COMPENSATION. The directors may be paid such compensation
for their services as the Board of Directors shall from time to time determine.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its 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 the committee thereof
which authorizes the contract or transaction, or solely because his of their
votes are counted for such purpose if: (i) the material facts as to his or their
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 of Directors
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; or (ii) the material facts as to
his or their 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 (iii) 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 thereof, 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.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be 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, a
Vice Chairman of the Board, a Chief Executive Officer, one or more Vice
Presidents, one or more Assistant Financial Officers and Treasurers, one or more
Assistant Secretaries and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article IV.
SECTION 2. APPOINTMENT OF OFFICERS. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article IV,
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shall be appointed by the Board of Directors, and each shall serve at the
pleasure of the Board, subject to the rights, if any, of an officer under any
contract of employment.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
and may empower the Chief Executive Officer or President to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights
of an officer under any contract, any officer may be removed at any time, with
or without cause, by the Board of Directors or, except in case of an 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 shall be without prejudice to
the rights of the Corporation under any contract to which the officer is a
party.
SECTION 5. VACANCIES IN OFFICES. 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.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer is elected, shall, if present, preside at meetings of the stockholders
and of the Board of Directors. He shall, in addition, perform such other
functions (if any) as may be prescribed by the Bylaws or the Board of Directors.
SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if such an officer is elected, shall, in the absence or disability of the
Chairman of the Board, perform all duties of the Chairman of the Board and when
so acting shall have all the powers of and be subject to all of the restrictions
upon the Chairman of the Board. The Vice Chairman of the Board shall have such
other powers and duties as may be prescribed by the Board of Directors or the
Bylaws.
SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the Corporation. He shall exercise the duties usually vested in the chief
executive officer of a corporation and perform such other powers and duties as
may be assigned to him from time to time by the Board of Directors or prescribed
by the Bylaws. In the absence of the Chairman of the Board and any Vice Chairman
of the Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and of the Board of Directors.
SECTION 9. PRESIDENT. The President of the Corporation shall, subject
to the control of the Board of Directors and the Chief Executive Officer of the
Corporation, if there be such an officer, have general powers and duties of
management usually vested in the office of president of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the Bylaws or the Chief Executive Officer of the Corporation. In the absence
of the
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Chairman of the Board, Vice Chairman of the Board and Chief Executive Officer,
the President shall preside at all meetings of the Board of Directors and
stockholders.
SECTION 10. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a Vice President designated by the Board
of Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, and the President, or the Chairman of the
Board.
SECTION 11. SECRETARY. The Secretary shall keep or cause to be kept, at
the principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of Directors, and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, 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 a summary of the
proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, as determined by resolution 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 issued for the same, 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 by the Bylaws or by
law to be given, and he shall keep or cause to be kept the seal of the
Corporation if one be adopted, in safe custody, and shall have such powers and
perform such other duties as may be prescribed by the Board of Directors or by
the Bylaws.
SECTION 12. 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. The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation. The Chief Financial
Officer shall also have such other powers and perform such other duties as may
be prescribed by the Board of Directors or the Bylaws.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President and (ii) by the Chief Financial Officer or
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
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Secretary of the Corporation, certifying the number of shares owned by such
stockholder in the Corporation.
SECTION 2. SIGNATURES. 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 shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Corporation may issue a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation, alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen or destroyed. The Corporation may, in the discretion of the Board of
Directors and as a condition precedent to the issuance of such new certificate,
require the owner of such lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond (or other security) sufficient to
indemnify it against any claim that may be made against the Corporation
(including any expense or liability) on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws or in any agreement with the
stockholder making the transfer. Transfers of stock shall be made on the books
of the Corporation only by the person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
SECTION 5. RECORD HOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the record
holder of shares to receive dividends, and to vote as such record holder, and to
hold liable for calls and assessments a person registered on its books as the
record holder of shares, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise required by law.
ARTICLE VI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes
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or penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification shall continue
as to an indemnitee who has ceased to be a director or officer and shall inure
to the benefit of the indemnitee's heirs, executors and administrators;
provided, however, that, except as provided in Section 2 of this Article VI with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this Article VI or otherwise (hereinafter an "undertaking").
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section
1 of this Article VI is not paid in full by the Corporation within forty-five
(45) days after a written claim has been received by the Corporation, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or part in any
such suit or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. Neither the failure
of the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such advancement of expenses
under this Article VI or otherwise shall be on the Corporation.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and
to the advancement of expenses conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
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SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VI with respect to the indemnification and
advancement of expenses of directors or officers of the Corporation.
SECTION 6. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determinates, greater than, those provided for in this
Article VI.
SECTION 7. EFFECT OF AMENDMENT. Any amendment, repeal or modification
of any provision of this Article VI by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to limitations contained in the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
the Board of Directors may declare and pay dividends upon the shares of capital
stock of the Corporation, which dividends may be paid either in cash, securities
of the Corporation or other property.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The Corporation shall have a corporate seal
in such form as shall be prescribed by the Board of Directors.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor
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more than sixty (60) days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Stockholders on the record date are entitled to notice and to vote or to receive
the dividend, distribution or allotment of rights or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
Corporation after the record date, except as otherwise provided by agreement or
by applicable law.
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION. The Chairman of
the Board, the Chief Executive Officer, the President and any other officer of
the Corporation authorized by the Board of Directors shall have power, on behalf
of the Corporation, to attend, vote and grant proxies to be used at any meeting
of stockholders of any corporation (except this Corporation) in which the
Corporation may hold stock.
SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Delaware shall govern the construction
of these Bylaws.
SECTION 8. AMENDMENTS. Subject to the General Corporation Law of the
State of Delaware, the Certificate of Incorporation and these Bylaws, the Board
of Directors may by the affirmative vote of a majority of the entire Board of
Directors amend or repeal these Bylaws, or adopt other Bylaws as in their
judgment may be advisable for the regulation of the conduct of the affairs of
the Corporation. Unless otherwise restricted by the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed, and new Bylaws
may be adopted, at any annual meeting of the stockholders (or at any special
meeting thereof duly called for that purpose) by a majority of the combined
voting power of the then outstanding shares of capital stock of all classes and
series of the Corporation entitled to vote generally in the election of
directors, voting as a single class, provided that, in the notice of any such
special meeting, notice of such purpose shall be given.
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EXHIBIT 4.1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series B Preferred Stock of
MICRO THERAPEUTICS, INC.
Dated as of December 20, 1995 (the "Effective Date")
WHEREAS, Micro Therapeutics, Inc., a California corporation (the
"Company") has entered into a Master Lease Agreement dated as of December 20,
1995, Equipment Schedule No. VL-1 dated as of December 20, 1995, and related
Summary Equipment Schedules (collectively, the "Leases") with Comdisco, Inc.,
a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Leases, the right to purchase shares of its Series B
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, 11,750 fully paid and
nonassessable shares of the Company's Series B Preferred Stock ("Preferred
Stock") at a purchase price of $2.75 per share (the "Exercise Price");
[provided, however, in the event of an automatic conversion of all preferred
stock of the Company pursuant to Article III. 4.(b) of the Company's Amended
and Restated Articles of Incorporation, this Warrant Agreement shall
automatically become exercisable for that number of shares of Common Stock that
would have been received if this Warrant Agreement had been exercised in full
and the shares of Preferred Stock received thereupon had been simultaneously
converted into shares of Common Stock immediately prior to such event. The
Exercise Price shall be automatically adjusted to equal the amount obtained by
dividing (i) the aggregate Exercise Price of the shares of Preferred Stock for
which this Warrant Agreement was exercisable immediately prior to such
conversion, by (ii) the number of shares of Common Stock for which this Warrant
Agreement is exercisable immediately after such conversion.] The number and
purchase price of such shares are subject to adjustment as provided in Section
8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant Agreement and
the right to purchase Preferred Stock as granted herein shall commence on the
Effective Date and shall be exercisable for a period of (i) ten (5) years or
(ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer, [provided, however, that in the case of (A) the
acquisition of the Company by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for the purpose of changing the domicile of the Company); or (B) a
sale of all or substantially all of the assets of the Company; unless the
Company's
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shareholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for the Company's acquisition or sale or otherwise)
hold at least fifty percent (50%) of the voting power of the surviving or
acquiring entity ((A) and (B) a "Termination Event") this Warrant Agreement
shall terminate upon the consummation of such Termination Event. In the event
of any Termination Event, the Company shall notify the Warrantholder at least
twenty (20) days prior to the closing thereof. Such notice shall contain such
details of the proposed transaction as are reasonable in the circumstances and
a statement that this Warrant Agreement is expected to expire upon the closing
of such transaction.]
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by the
Warrantholder, in whole or in part, at any time, or from time to time, prior to
the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the acknowledgment of exercise in the form attached hereto as Exhibit
II (the "Acknowledgment of Exercise") indicating the number of shares which
remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i) by
cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined
below. If the Warrantholder elects the Net Issuance method, the Company will
issue Preferred Stock in accordance with the following formula:
X= Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Preferred
Stock shall mean with respect to each share of Preferred Stock:
(a) if the exercise is in connection with an initial public offering
of the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC, then
the fair market value per share shall be the product of (x) the initial "Price
to Public" specified in the final prospectus with respect to the offering and
(y) the number of shares of Common Stock into which each share of Preferred
Stock is convertible at the time of such exercise;
(b) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(i) if traded on a securities exchange, the fair
market value shall be deemed to be the product or (x) the
average of the closing prices over a twenty-one (21) day
period ending three days before the day the current fair
market value of the securities is being determined and (y) the
number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
or
(ii) if actively traded over-the-counter, the fair
market value shall be deemed to be the product of (x) the
average of the closing bid and asked prices quoted on the
NASDAQ system (or similar system) over the twenty-one (21) day
period ending three days before the day the current fair
market value of the securities is being determined and (y) the
number of shares of Common Stock into which each share of
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<PAGE> 3
Preferred Stock is convertible at the time of such exercise;
(c) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x) the
highest price per share which the Company could obtain from a willing buyer
(not a current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith by
its Board of Directors and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such exercise,
unless the Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, and
which does not trigger a Termination Event as set forth in Section 2 hereof, in
which case the fair market value of Common Stock shall be deemed to be the
value received by the holders of the Company's Preferred Stock on a common
equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number
of shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of
this Warrant Agreement, the Company will at all times have authorized and
reserved a sufficient number of shares of its Preferred Stock to provide for
the exercise of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock
required to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then in effect, or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the Company will,
at its expense and as expeditiously as possible, use its best efforts to cause
such shares to be duly registered, listed or approved for listing on such
domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be issued
upon the exercise of the Warrant, but in lieu of such fractional shares the
Company shall make a cash payment therefor upon the basis of the Exercise Price
then in effect.
6. NO RIGHTS AS SHAREHOLDER
This Warrant Agreement does not entitle the Warrantholder to any voting rights
or other rights as a shareholder of the Company prior to the exercise of the
Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
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<PAGE> 4
(a) Merger and Sale of Assets. If at any time there shall be a
capital reorganization of the shares of the Company's stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or a merger or consolidation of the Company with or into
another corporation when the Company is not the surviving corporation, or the
sale of all or substantially all of the Company's properties and assets to any
other person (hereinafter referred to as a "Merger Event"), then, as a part of
such Merger Event, other than a Termination Event as set forth in Section 2
hereof, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the
application of the provisions of this Warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of
any other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities which were
subject to the purchase rights under this Warrant Agreement immediately prior
to such combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution
specifically provided for in the foregoing subsections (a) or (b)) of the
Company's stock, then the Exercise Price shall be adjusted, from and after the
record date of such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction (i) the numerator of which shall be the total number of all
shares of the Company's stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
all shares of the Company's stock outstanding immediately after such dividend
or distribution. The Warrantholder shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of shares of
Preferred Stock (calculated to the nearest whole share) obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of shares of Preferred Stock issuable upon the exercise hereof immediately
prior to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's
total cost of equipment leased pursuant to the Leases exceeds $400,000,
Warrantholder shall have the right to purchase from the Company, at the
Exercise Price (adjusted as set forth herein), an additional number of shares,
which number shall be determined by (i) multiplying the amount by which the
Warrantholder's total equipment cost exceeds $400,000 by 8.078%, and
(ii) dividing the product thereof by the Exercise Price per share referenced
above.
(f) Antidilution Rights. Additional antidilution rights applicable
to the Preferred Stock purchasable hereunder are as set forth in the Company's
Amended and Restated Articles of Incorporation, as amended through the
Effective Date, a true and complete copy of which is attached hereto as Exhibit
______ (the "Charter"). The Company shall promptly provide the Warrantholder
with any restatement, amendment, modification or waiver of the Charter. The
Company shall provide Warrantholder with prior written notice of any issuance
of its stock or other equity security to occur after the Effective Date of this
Warrant, which notice shall include (a) the price at
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<PAGE> 5
which such stock or security is to be sold, (b) the number of shares to be
issued, and (c) such other information as necessary for Warrantholder to
determine if a dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be
any voluntary or involuntary dissolution, liquidation or winding up of the
Company; then, in connection with each such event, the Company shall send to
the Warrantholder: (A) at least twenty (20) days' prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution, subscription rights (specifying the date on
which the holders of Preferred Stock shall be entitled thereto) or for
determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up); and (C) in the case of a
public offering, the Company shall give the Warrantholder at least twenty (20)
days written notice prior to the effective date hereof.
Each such written notice shall set forth, in reasonable detail,
(i) the event requiring the adjustment, (ii) the amount of the adjustment,
(iii) the method by which such adjustment was calculated, (iv) the Exercise
Price, and (v) the number of shares subject to purchase hereunder after giving
effect to such adjustment, and shall be given by first class mail, postage
prepaid, addressed to the Warrantholder, at the address as shown on the books
of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable
upon exercise of the Warrantholder's rights has been duly and validly reserved
and, when issued in accordance with the provisions of this Warrant Agreement,
will be validly issued, fully paid and non-assessable, and will be free of any
taxes, liens, charges or encumbrances of any nature whatsoever; provided,
however, that the Preferred Stock issuable pursuant to this Warrant Agreement
may be subject to restrictions on transfer under state and/or Federal
securities laws. The Company has made available to the Warrantholder true,
correct and complete copies of its Charter and Bylaws, as amended. The issuance
of certificates for shares of Preferred Stock upon exercise of the Warrant
Agreement shall be made without charge to the Warrantholder for any issuance
tax in respect thereof, or other cost incurred by the Company in connection
with such exercise and the related issuance of shares of Preferred Stock. The
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved and the issuance and delivery of any certificate in a
name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of
this Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement
are not inconsistent with the Company's Charter or Bylaws, do not contravene
any law or governmental rule, regulation or order applicable to it, do not and
will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which it is a party or by
which it is bound, and the Leases and this Warrant Agreement constitute legal,
valid and binding agreements of the Company, enforceable in accordance with
their respective terms.
(c) Consents and Approvals. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
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<PAGE> 6
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the filing of notices
pursuant to Regulation D under the 1933 Act and any filing required by
applicable state securities law, which filings will be effective by the time
required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company
consists of (A) 10,000,000 shares of Common Stock, of which
1,360,000 shares are issued and outstanding, and (B) 3,635,992
shares of preferred stock, of which 3,624,242 shares are
issued and outstanding and are convertible into 3,624,242
shares of Common Stock.
(ii) The Company has reserved (A) 995,000 shares
of Common Stock for issuance under its Incentive Stock Options
and Nonqualified Stock Option Plan, under which 191,500
non-qualified options are outstanding at an average price of
$.30 per share, and 439,000 Incentive Options are outstanding
at an average price of $.30 per share. There are no other
options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of the Company's capital stock
or other securities of the Company.
(iii) In accordance with the Company's Articles of
Incorporation, no shareholder of the Company has preemptive
rights to purchase new issuances of the Company's capital
stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in
this Warrant Agreement, and the Amended and Restated Investors' Rights
Agreement dated as of _____________ the Company is not, pursuant to the terms
of any other agreement currently in existence, under any obligation to register
under the 1933 Act any of its presently outstanding securities or any of its
securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon
Section 4(2) thereof, and (ii) the qualification requirements of the applicable
state securities laws.
(h) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the
Company's compliance with the filing requirements of the Securities and
Exchange Commission as set forth in such Rule, as such Rule may be amended from
time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER
This Warrant Agreement has been entered into by the Company in reliance upon
the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the
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<PAGE> 7
sale or distribution of any part thereof, and the Warrantholder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the
Preferred Stock issuable upon exercise of this Warrant is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this Warrant Agreement will be exempt from
the registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred
Stock or Preferred Stock issuable upon exercise of such rights unless and until
(i) it shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion
of counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act
is available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from
the beneficial owner of any of the aforementioned securities to its nominee or
from such nominee to its beneficial owner, and shall terminate as to any
particular share of Preferred Stock when (1) such security shall have been
effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration or (2) such security shall have been sold
without registration in compliance with Rule 144 under the 1933 Act, or (3) a
letter shall have been issued to the Warrantholder at its request by the staff
of the Securities and Exchange Commission or a ruling shall have been issued to
the Warrantholder at its request by such Commission stating that no action
shall be recommended by such staff or taken by such Commission, as the case may
be, if such security is transferred without registration under the 1933 Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Preferred Stock
then outstanding as to which such restrictions have terminated shall be
entitled to receive from the Company, without expense to such holder, one or
more new certificates for the Warrant or for such shares of Preferred Stock not
bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, and has the ability to bear the economic
risks of its investment.
(e) Risk of No Registration. The Warrantholder understands that if
the Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section
15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a
registration statement covering the securities under the 1933 Act is not in
effect when it desires to sell (i) the rights to purchase Preferred Stock
pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon
exercise of the right to purchase, it may be required to hold such securities
for an indefinite period. The Warrantholder also understands that any sale of
its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock
which might be made by it in reliance upon Rule 144 under the 1933 Act may be
made only in accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at
its principal
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<PAGE> 8
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall
be construed and shall be given effect in all respects as if it had been
executed and delivered by the Company on the date hereof. This Warrant
Agreement shall be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all
costs of proceedings incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State
of Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the
Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention:
James Labe, Venture Group, cc: Legal Department, attn: General Counsel,
(and/or, if by facsimile, (708) 518-5466 and (708) 518-5088) and (ii) to the
Company at 1062 CalleNegicio, San Clemente, CA 92673, attention: (and/or if by
facsimile, (714) 361-0120) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the
non-defaulting party may proceed to protect and enforce its rights either by
suit in equity and/or by action at law; including but not limited to an action
for damages as a result of any such default, and/or an action for specific
performance for any default where Warrantholder will not have an adequate
remedy at law and where damages will not be readily ascertainable. The Company
expressly agrees that it shall not oppose an application by the Warrantholder
or any other person entitled to the benefit of this Agreement requiring
specific performance of any or all provisions hereof or enjoining the Company
from continuing to commit any such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of
its Charter or through any other means, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate in order to protect the
rights of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to this
Warrant Agreement shall survive the execution and delivery of this Warrant
Agreement.
(i) Severability. In the event any one or more of the provisions
of this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal
or unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be
amended by a written instrument signed by the Company and by the Warrantholder.
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<PAGE> 9
(k) Additional Documents. The Company, upon execution of this
Warrant Agreement, shall provide the Warrantholder with certified resolutions
with respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be
executed by its officers thereunto duly authorized as of the Effective Date.
Company: MICRO THERAPEUTICS, INC.
By: [SIG]
---------------------------------
Title: C.F.O.
------------------------------
Warrantholder: COMDISCO, INC.
By: [SIG]
---------------------------------
Title:
------------------------------
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<PAGE> 10
EXHIBIT I
NOTICE OF EXERCISE
To: ____________________
(1) The undersigned Warrantholder hereby elects to purchase ________
shares of the Series ___________ Preferred Stock of __________________,
pursuant to the terms of the Warrant Agreement dated the ______ day of
_________________________, 19__ (the "Warrant Agreement") between
_______________________ and the Warrantholder, and tenders herewith
payment of the purchase price for such shares in full, together with
all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series ____ Preferred Stock
of ________________________, the undersigned hereby confirms and
acknowledges the investment representations and warranties made in
Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series ________ of the undersigned or in such other name as is
specified below.
- -------------------------------------------
(Name)
- -------------------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
----------------------------------------
Title:
-------------------------------------
Date:
-------------------------------------
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<PAGE> 11
EXHIBIT II
ACKNOWLEDGEMENT OF EXERCISE
The undersigned ______________________________________, hereby
acknowledges receipt of the "Notice of Exercise" from Comdisco, Inc., to
purchase ____ shares of the Series ____ Preferred Stock of __________________,
pursuant to the terms of the Warrant Agreement, and further acknowledges that
______ shares remain subject to purchase under the terms of the Warrant
Agreement.
Company:
By:
-------------------------------
Title:
----------------------------
Date:
----------------------------
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<PAGE> 12
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this
form and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ---------------------------------------------------------------
(Please Print)
whose address is
-----------------------------------------------
- ---------------------------------------------------------------
Dated
----------------------------------------
Holder's Signature
---------------------------
Holder's Address
---------------------------
Signature Guaranteed:
-------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the
name as it appears on the face of the Warrant Agreement,
without alteration or enlargement or any change whatever.
Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
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<PAGE> 1
EXHIBIT 4.2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY
BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series C Preferred Stock of
MICRO THERAPEUTICS, INC.
Dated as of May 21, 1996 (the "Effective Date")
WHEREAS, Micro Therapeutics, Inc., a California corporation (the
"Company") has entered into a Master Lease Agreement dated as of December 20,
1995, Equipment Schedule No. VL-2 dated as of May 21, 1996, and related Summary
Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a
Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Leases, the right to purchase shares of its Series C
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 9,300 fully paid and nonassessable
shares of the Company's Series C Preferred Stock ("Preferred Stock") at a
purchase price of $4.20 per share (the "Exercise Price"); [provided, however, in
the event of an automatic conversion of all preferred stock of the Company
pursuant to Article III. 4. (b) of the Company's Amended and Restated Articles
of Incorporation, this Warrant Agreement shall automatically become exercisable
for that number of shares of Common Stock that would have been received if this
Warrant Agreement had been exercised in full and the shares of Preferred Stock
received thereupon had been simultaneously converted into shares of Common Stock
immediately prior to such event. The Exercise Price shall be automatically
adjusted to equal the amount obtained by dividing (i) the aggregate Exercise
Price of the shares of Preferred Stock for which this Warrant Agreement was
exercisable immediately prior to such conversion, by (ii) the number of shares
of Common Stock for which this Warrant Agreement is exercisable immediately
after such conversion.] The number and purchase price of such shares are subject
to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer, [provided, however, that in the case of (A) the
acquisition of the Company by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for the purpose of changing the domicile of the Company); or (B) a
sale of all or substantially all of the assets of the Company; unless the
Company's
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shareholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for the Company's acquisition or sale or otherwise)
hold at least fifty percent (50%) of the voting power of the surviving or
acquiring entity ((A) and (B) a "Termination Event") this Warrant Agreement
shall terminate upon the consummation of such Termination Event. In the event
of any Termination Event, the Company shall notify the Warrantholder at least
twenty (20) days prior to the closing thereof. Such notice shall contain such
details of the proposed transaction as are reasonable in the circumstances and
a statement that this Warrant Agreement is expected to expire upon the closing
of such transaction.]
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by the
Warrantholder, in whole or in part, at any time, or from time to time, prior to
the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the acknowledgment of exercise in the form attached hereto as Exhibit
II (the "Acknowledgment of Exercise") indicating the number of shares which
remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i) by
cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined
below. If the Warrantholder elects the Net Issuance method, the Company will
issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued
to the Warrantholder.
Y = the number of shares of Preferred Stock requested to
be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred
Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Preferred
Stock shall mean with respect to each share of Preferred Stock:
(a) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's Registration
Statement relating to such public offering has been declared effective by the
SEC, then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect to the
offering and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
(b) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(i) if traded on a securities exchange, the fair market
value shall be deemed to be the product or (x) the average of the
closing prices over a twenty-one (21) day period ending three days
before the day the current fair market value of the securities is
being determined and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time of such
exercise; or
(ii) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the average of the
closing bid and asked prices quoted on the NASDAQ system (or similar
system) over the twenty-one (21) day period ending three days before
the day the current fair market value of the
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<PAGE> 3
securities is being determined and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the
time of such exercise;
(c) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of Preferred Stock shall be the product
of (x) the highest price per share which the Company could obtain from a
willing buyer (not a current employee or director) for shares of Common Stock
sold by the Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors and (y) the number of shares of Common Stock
into which each share of Preferred Stock is convertible at the time of such
exercise, unless the Company shall become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the surviving party,
and which does not trigger a Termination Event as set forth in Section 2
hereof, in which case the fair market value of Common Stock shall be deemed to
be the value received by the holders of the Company's Preferred Stock on a
common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number
of shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of
this Warrant Agreement, the Company will at all times have authorized and
reserved a sufficient number of shares of its Preferred Stock to provide for
the exercise of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock
required to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then in effect or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the Company will,
at its expense and as expeditiously as possible, use its best efforts to cause
such shares to be duly registered, listed or approved for listing on such
domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be issued
upon the exercise of the Warrant, but in lieu of such fractional shares the
Company shall make a cash payment therefor upon the basis of the Exercise Price
then in effect.
6. NO RIGHTS AS SHAREHOLDER
This Warrant Agreement does not entitle the Warrantholder to any voting rights
or other rights as a shareholder of the Company prior to the exercise of the
Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
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<PAGE> 4
(a) Merger and Sale of Assets. If at any time there shall be a
capital reorganization of the shares of the Company's stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or a merger or consolidation of the Company with or into
another corporation when the Company is not the surviving corporation, or the
sale of all or substantially all of the Company's properties and assets to any
other person (hereinafter referred to as a "Merger Event"), then, as a part of
such Merger Event, other than a Termination Event as set forth in Section 2
hereof, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the
application of the provisions of this Warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall,
by combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of
any other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities which were
subject to the purchase rights under this Warrant Agreement immediately prior
to such combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any
time shall combine or subdivide its Preferred Stock, the Exercise Price shall
be proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a
dividend payable in, or make any other distribution (except any
distribution specifically provided for in the foregoing subsections (a) or
(b)) of the Company's stock, then the Exercise Price shall be adjusted, from
and after the record date of such dividend or distribution, to that price
determined by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction (i) the numerator of which shall be the total
number of all shares of the Company's stock outstanding immediately prior to
such dividend or distribution, and (ii) the denominator of which shall be the
total number of all shares of the Company's stock outstanding immediately after
such dividend or distribution. The Warrantholder shall thereafter be entitled
to purchase, at the Exercise Price resulting from such adjustment, the number
of shares of Preferred Stock (calculated to the nearest whole share) obtained
by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Preferred Stock issuable upon the
exercise hereof immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment
(e) Right to Purchase Additional Stock. If, the Warrantholder's
total cost of equipment leased pursuant to the Leases exceeds $500,000,
Warrantholder shall have the right to purchase from the Company, at the
Exercise Price (adjusted as set forth herein), an additional number of shares,
which number shall be determined by (i) multiplying the amount by which the
Warrantholder's total equipment cost exceeds $500,000 by 7.81%, and (ii)
dividing the product thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights
applicable to the Preferred Stock purchasable hereunder are as set forth in the
Company's Amended and Restated Articles of Incorporation, as amended through
the Effective Date, a true and complete copy of which is attached hereto as
Exhibit _ (the "Charter"). The Company shall promptly provide the
Warrantholder with any restatement, amendment, modification or waiver of the
Charter. The Company shall provide Warrantholder with prior written notice of
any issuance of its stock or other equity security to occur after the Effective
Date of this Warrant, which notice shall include (a) the price at
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<PAGE> 5
which such stock or security is to be sold, (b) the number of shares to be
issued, and (c) such other information as necessary for Warrantholder to
determine if a dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be
any voluntary or involuntary dissolution, liquidation or winding up of the
Company; then, in connection with each such event, the Company shall send to
the Warrantholder: (A) at least twenty (20) days' prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution, subscription rights (specifying the date on
which the holders of Preferred Stock shall be entitled thereto) or for
determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up); and (C) in the case of a
public offering, the Company shall give the Warrantholder at least twenty (20)
days written notice prior to the effective date hereof.
Each such written notice shall set forth, in reasonable detail, (i)
the event requiring the adjustment, (ii) the amount of the adjustment, (iii)
the method by which such adjustment was calculated, (iv) the Exercise Price,
and (v) the number of shares subject to purchase hereunder after giving effect
to such adjustment, and shall be given by first class mail, postage prepaid,
addressed to the Warrantholder, at the address as shown on the books of the
Company.
(h) Timely Notice. Failure to timely provide such notice required
by subsection (g) above shall entitle Warrantholder to retain the benefit of
the applicable notice period notwithstanding anything to the contrary contained
in any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
(a) Reservation of Preferred Stock. The Preferred Stock issuable
upon exercise of the Warrantholder's rights has been duly and validly reserved
and, when issued in accordance with the provisions of this Warrant Agreement,
will be validly issued, fully paid and non-assessable, and will be free of any
taxes, liens, charges or encumbrances of any nature whatsoever; provided,
however, that the Preferred Stock issuable pursuant to this Warrant Agreement
may be subject to restrictions on transfer under state and/or Federal
securities laws. The Company has made available to the Warrantholder true,
correct and complete copies of its Charter and Bylaws, as amended. The
issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable
in respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of
this Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement
are not inconsistent with the Company's Charter or Bylaws, do not contravene
any law or governmental rule, regulation or order applicable to it, do not and
will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which it is a party or by
which it is bound, and the Leases and this Warrant Agreement constitute legal,
valid and binding agreements of the Company, enforceable in accordance with
their respective terms.
(c) Consents and Approvals. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
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<PAGE> 6
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the filing of notices
pursuant to Regulation D under the 1933 Act and any filing required by
applicable state securities law, which filings will be effective by the time
required thereby.
(d) Issued Securities. All issued and outstanding shares of
Common Stock, Preferred Stock or any other securities of the Company have been
duly authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A)
10,000,000 shares of Common Stock, of which 1,366,250 shares are
issued and outstanding, and (B) 5,635,992 shares of preferred stock,
of which 5,057,632 shares are issued and outstanding and are
convertible into 5,057,632 shares of Common Stock.
(ii) The Company has reserved (A) 995,000 shares of Common
Stock for issuance under its Incentive Stock Options and Nonqualified
Stock Option Plan, under which 224,500 non-qualified options are
outstanding at an average price of $.34 per share, and 613,500
Incentive Options are outstanding at an average price of $.31 per
share. There are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire
any authorized but unissued shares of the Company's capital stock or
other securities of the Company.
(iii) In accordance with the Company's Articles of
Incorporation, no shareholder of the Company has preemptive rights to
purchase new issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth
in this Warrant Agreement, and the Amended and Restated Investors' Rights
Agreement dated as of May 17, 1996 the Company is not, pursuant to the terms of
any other agreement currently in existence, under any obligation to register
under the 1933 Act any of its presently outstanding securities or any of its
securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the
Warrantholder's representations in Section 10 hereof, the issuance of the
Preferred Stock upon exercise of this Warrant will constitute a transaction
exempt from (i) the registration requirements of Section 5 of the 1933 Act, in
reliance upon Section 4(2) thereof, and (ii) the qualification requirements of
the applicable state securities laws.
(h) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER
This Warrant Agreement has been entered into by the Company in reliance upon
the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or
the Preferred Stock issuable upon exercise of the Warrantholder's rights
contained herein will be acquired for investment and not with a view to the
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<PAGE> 7
sale or distribution of any part thereof, and the Warrantholder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the
Preferred Stock issuable upon exercise of this Warrant is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this Warrant Agreement will be exempt from
the registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred
Stock or Preferred Stock issuable upon exercise of such rights unless and until
(i) it shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion
of counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act
is available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from
the beneficial owner of any of the aforementioned securities to its nominee or
from such nominee to its beneficial owner, and shall terminate as to any
particular share of Preferred Stock when (1) such security shall have been
effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration or (2) such security shall have been sold
without registration in compliance with Rule 144 under the 1933 Act, or (3) a
letter shall have been issued to the Warrantholder at its request by the staff
of the Securities and Exchange Commission or a ruling shall have been issued to
the Warrantholder at its request by such Commission stating that no action
shall be recommended by such staff or taken by such Commission, as the case may
be, if such security is transferred without registration under the 1933 Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Preferred Stock
then outstanding as to which such restrictions have terminated shall be
entitled to receive from the Company, without expense to such holder, one or
more new certificates for the Warrant or for such shares of Preferred Stock not
bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, and has the ability to bear the economic
risks of its investment
(e) Risk of No Registration. The Warrantholder understands that
if the Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section
15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a
registration statement covering the securities under the 1933 Act is not in
effect when it desires to sell (i) the rights to purchase Preferred Stock
pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon
exercise of the right to purchase, it may be required to hold such securities
for an indefinite period. The Warrantholder also understands that any sale of
its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock
which might be made by it in reliance upon Rule 144 under the 1933 Act may be
made only in accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited
investor" within the meaning of the Securities and Exchange Rule 501 of
Regulation D, as presently in effect.
11. TRANSFERS. Subject to the terms and conditions contained in Section
10 hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at
its principal
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<PAGE> 8
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement
shall be construed and shall be given effect in all respects as if it had been
executed and delivered by the Company on the date hereof. This Warrant
Agreement shall be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all
costs of proceedings incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by
and construed for all purposes under and in accordance with the laws of the
State of Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
Venture Group, cc: Legal Department, attn: General Counsel, (and/or, if by
facsimile, (847) 518-5466 and (847) 518-5088) and (ii) to the Company at 1062-F
Calle Negocio, San Clemente, CA 92673, attention: Tom Berryman (and/or if by
facsimile, (714) 361-0120) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the
non-defaulting party may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including but not limited to an
action for damages as a result of any such default, and/or an action for
specific performance for any default where Warrantholder will not have an
adequate remedy at law and where damages will not be readily ascertainable.
The Company expressly agrees that it shall not oppose an application by the
Warrantholder or any other person entitled to the benefit of this Agreement
requiring specific performance of any or all provisions hereof or enjoining the
Company from continuing to commit any such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment
of its Charter or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to this
Warrant Agreement shall survive the execution and delivery of this Warrant
Agreement.
(i) Severability. In the event any one or more of the provisions
of this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal
or unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be
amended by a written instrument signed by the Company and by the Warrantholder.
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<PAGE> 9
(k) Additional Documents. The Company, upon execution of this
Warrant Agreement, shall provide the Warrantholder with certified resolutions
with respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents
as the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be
executed by its officers thereunto duly authorized as of the Effective Date.
Company: MICRO THERAPEUTICS, INC.
By:_________________________________
Title: C.F.O.
______________________________
Warrantholder: COMDISCO, INC.
By:_________________________________
Title: C.F.O.
______________________________
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<PAGE> 10
EXHIBIT I
NOTICE OF EXERCISE
To:______________________________
(1) The undersigned Warrantholder hereby elects to purchase _____ shares
of the Series __________ Preferred Stock of ______________ pursuant
to the terms of the Warrant Agreement dated the ________ day of
______________________________, 19__ (the "Warrant Agreement")
between ________________________________ and the Warrantholder, and
tenders herewith payment of the purchase price for such shares in
full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series ___________ Preferred
Stock of the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series Preferred Stock in the name of the undersigned or in such other
name as is specified below.
____________________________________
(Name)
____________________________________
(Address)
Warrantholder: COMDISCO, INC.
By:_________________________________
Title:______________________________
Date:_______________________________
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<PAGE> 11
EXHIBIT II
ACKNOWLEDGEMENT OF EXERCISE
The undersigned ___________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ___ shares
of the Series ___ Preferred Stock of ___________________ , pursuant to the
terms of the Warrant Agreement, and FURTHER acknowledges that _____ shares
remain subject to purchase under the terms of the Warrant Agreement.
COMPANY:
By:_________________________________
Title:______________________________
DATE:_______________________________
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<PAGE> 12
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this
form and supply required information. Do not use this form to
purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
_____________________________________________________________________
(Please Print)
whose address is_____________________________________________________
_____________________________________________________________________
Dated______________________________________
Holder's Signature_________________________
Holder's Address___________________________
___________________________________________
Signature Guaranteed:________________________________________________
NOTE: The signature to this Transfer Notice must
correspond with the name as it appears on the
face of the Warrant Agreement, without
alteration or enlargement or any change
whatever. Officers of corporations and those
acting in a fiduciary or other representative
capacity should file proper evidence of
authority to assign the foregoing warrant
agreement.
- 12 -
<PAGE> 1
Exhibit 10.1
MICRO THERAPEUTICS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of the
___th day of _____, 1996, by and between Micro Therapeutics, Inc., a Delaware
corporation (the "COMPANY") and the Indemnitee identified on the signature page
hereto (the "INDEMNITEE").
R E C I T A L S
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its 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.
B. 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.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company and
(ii) wishes to provide for the indemnification and advancing of expenses to each
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
and hold harmless Indemnitee (including its partners, employees and agents) 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, or is threatened to be made a party to or
witness or other participant in, 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
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(hereinafter a "CLAIM") by reason of (or arising in part out of) any event or
occurrence related to the fact that Indemnitee is or was a director, officer,
employee, controlling person, 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, controlling person, 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 including, without limitation, any and all losses, claims, damages,
expenses and liabilities, joint or several (including any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit proceeding or any claim asserted) under the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or other federal or state
statutory law or regulation, at common law or otherwise, which relate directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto
(hereinafter an "INDEMNIFICATION EVENT") against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any such 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) of such Claim and any federal,
state, local or foreign taxes imposed on Indemnitee as a result of the actual or
deemed receipt of any payments under this Agreement (collectively, hereinafter
"EXPENSES"), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no
later than five days after written demand by the Indemnitee therefor is
presented to the Company.
(b) CONTRIBUTION. If the indemnification provided for in
Section 1(a) above for any reason is held by a court of competent jurisdiction
to be unavailable to an Indemnitee in respect of any losses, claims, damages,
expenses or liabilities referred to therein, then the Company, in lieu of
indemnifying Indemnitee thereunder, shall contribute to the amount paid or
payable by Indemnitee as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Indemnitee, or (ii) if the allocation
provided by clause (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 (i) above but also the relative fault of the Company and the
Indemnitee in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and the Indemnitee
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Indemnitee, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Indemnitee
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
Indemnitee and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it would not be just
and equitable if contribution pursuant to this Section 1(b) were determined by
pro rata or per capita allocation or by
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<PAGE> 3
any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. In connection
with the registration of the Company's securities, in no event shall an
Indemnitee be required to contribute any amount under this Section 1(b) in
excess of the lesser of (i) that proportion of the total of such losses, claims,
damages or liabilities indemnified against equal to the proportion of the total
securities sold under such registration statement which is being sold by such
Indemnitee or (ii) the proceeds received by Indemnitee from its sale of
securities under such registration statement. No person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.
(c) SURVIVAL REGARDLESS OF INVESTIGATION. The indemnification
and contribution provided for in this Section 1 will remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnitee or
any officer, director, employee, agent or controlling person of the Indemnitee.
(d) CHANGE IN CONTROL. The Company agrees that if there is a
Change in Control of the Company (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) then, with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments 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, Independent Legal
Counsel (as defined in Section 10(d) hereof) shall be selected by the 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
permitted to be indemnified under applicable law. The Company agrees to abide by
such opinion and to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify 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.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 9 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 the defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than five days after written demand by Indemnitee therefor to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified 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
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<PAGE> 4
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 applicable
law. In connection with any determination as to whether 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 2(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 Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim, with counsel approved by the
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by the Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) the Indemnitee shall have the
right to employ Indemnitee's counsel in any such Claim at the Indemnitee's
expense and (ii) if (A) the employment of counsel by the Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there is 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 the Indemnitee's counsel shall be at the expense of the Company. The Company
shall have the right to conduct such defense as it sees fit in its sole
discretion, including the right to settle any claim against Indemnitee without
the consent of such Indemnitee.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify 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
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<PAGE> 5
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 8(a) hereof.
(b) NONEXCLUSIVITY. The indemnification 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 agreement, any
vote of stockholders or disinterested directors, the Delaware General
Corporation Law or otherwise. The indemnification provided under this Agreement
shall continue as to Indemnitee for any action Indemnitee took or did not take
while serving in an indemnified capacity even though the Indemnitee may have
ceased to serve in such capacity.
4. 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 such Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for any 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.
6. MUTUAL ACKNOWLEDGEMENT. 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 rights under public policy to indemnify the Indemnitee.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, control persons, 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 accorded 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, control person, or
fiduciary.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of the
this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee
for Indemnitee's acts, omissions or transactions from which the Indemnitee may
not be relieved of liability under applicable law;
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings to establish or enforce a right to indemnify
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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 Indemnifiable 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 the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(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 Securities
Exchange Act of 1934, as amended or any similar successor statute.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify is directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent, control person, or fiduciary of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee, control person, agent or fiduciary or another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, each 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.
(b) For purposes of this Agreement, 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, office, 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.
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(c) For purposes of this Agreement a "Change in Control" shall
be deemed to have occurred if (i) any "person" (as such term in used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company 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, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% 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 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
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(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 right of Indemnitee under this Agreement,
or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.
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 and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/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 with respect to Claims relating to
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<PAGE> 8
Indemnifiable Events regardless of whether Indemnitee continues to serve as a
director, officer, employee, agent, controlling person, or fiduciary of the
Company or of any other enterprise at the Company's request.
13. ATTORNEYS' FEES. 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, any Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. 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, the Indemnitee shall be entitled to be paid all
Expenses incurred by Indemnitee in defense of such action (including costs and
expenses incurred with respect to Indemnitee counterclaims and cross-claims made
in such action), and shall be entitled to the advancement of Expenses with
respect to such action, unless, as a part of such action, a court having
jurisdiction over such action determines that each of Indemnitee's material
defenses to such action was made in bad faith or was frivolous.
14. NOTICE. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposited with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if deliverable by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
Indemnitee's address as set forth beneath the Indemnitee's signature to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
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 Superior
Court of the State of California in and for Orange 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 limitations, 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 shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware as applied to contracts between
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Delaware residents, entered into and to be performed entirely within the State
of Delaware without regard to the conflict of laws principles thereof.
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 suite 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 all parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed 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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY
MICRO THERAPEUTICS, INC.
a Delaware corporation
By:_________________________________________
George Wallace, President/CEO
Address: 1062 Calle Negocio #F
San Clemente, CA 92673
INDEMNITEE
____________________________________________
Thomas Berryman
Address:____________________________________
____________________________________
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<PAGE> 1
EXHIBIT 10.2
License Agreement
THIS AGREEMENT ("the Agreement") effective June 1, 1993 for VALVED TIP
ANGIOGRAPHIC & INFUSION CATHETERS by and between MICRO THERAPEUTICS, INC.
("MTI"), a California Corporation, located at 32 Santa Catrina, Rancho Santa
Margarita. California 92688; and Andrew Cragg, M.D. ("CRAGG"), an individual,
located at 6101 Code Ave., Edina, Minnesota 55436.
1. Definitions
a. "Field of Interest" and "Field" shall mean products
and methods related to the concept embodied in the Products (as defined herein).
of a valved tip to allow injection or infusion of fluids in the body.
b. "First Commercial Sale" with respect to a particular
Product shall mean the first arms length sale to a third party of such Product
in the United States or other country under the approval of appropriate federal
and state governmental agencies for distribution and sale of said Product.
c. "Net Sales Price" of a Product means an amount equal
to the gross sales price of the Product sold, less credits and allowances for
defective and returned Products, trade discounts, duties, taxes applicable to
sales or use, and transportation charges paid or allowed.
d. "Products" shall mean valved tip angiographic and
infusion catheters that incorporate U.S. Patent #5,085,635.
2. License
CRAGG hereby grants to MTI, under all of CRAGG'S patents, copyrights,
trade secrets, knowhow, and other intellectual property rights now and hereafter
existing, an exclusive, worldwide, perpetual, irrevocable license, with rights
to sublicense, to make, have made, use and sell or otherwise dispose of
products. Including U.S. patent #5,085,635 titled "VALVED-TIP ANGIOGRAPHIC
CATHETER" and dated Feb. 4, 1992.
3. Confidentiality
a. As used in this Section 2, the term "Confidential
Information" shall mean any written or oral information disclosed by one party
to the other pursuant to this Agreement.
b. Each of the parties shall use at least the same
degree of care which he uses to prevent the disclosure of his own confidential
information of like importance to prevent the disclosure of Confidential
Information disclosed to him by the other party under
<PAGE> 2
License Agreement Page 2
Andrew Cragg M.D.
this Agreement. Each party warrants to the other that such degree of care is
reasonably calculated to prevent the disclosure of Confidential Information.
Notwithstanding the above, MTI may disclose CRAGG'S Confidential Information to
third parties for the purposes of development, manufacture, operation and
maintenance of Products and other devices incorporating the Licensed
Technology, providing, however, that MTI shall require such third parties to
keep confidential any of CRAGG'S Confidential Information.
Notwithstanding the above, neither party shall have liability to the
other with regards to any Confidential Information of the other which:
(i) was in the public domain at the time it was disclosed
or hereafter enters the public domain through no fault of the receiving party;
(ii) was known to the receiving party at the time of
disclosure;
(iii) was independently developed by the receiving party
without any use of the Confidential Information; or
(iv) becomes known to the receiving party from a source
other than the disclosing party without breach of the Agreement or like
Agreement.
4. Joint Development
a. The parties hereto agree to use their best business efforts to
develop the Products. The parties acknowledge and agree that the purpose of
the joint development effort is to develop and market the Products which may be
sold by MTI. CRAGG shall be principally responsible for the clinical and
design input directed toward the development of the Products in accordance with
the requirements mutually agreed upon by the parties, and MTI shall be
principally responsible for the development of prototypes and final marketable
Products based in part upon the designs developed by CRAGG. Notwithstanding
the generality of the foregoing statement, each party shall provide all
reasonable advice, guidance, and assistance to the other party, as requested by
the other party, to help ensure the success of the development effort. MTI's
responsibility shall include development, prototyping, FDA approval,
manufacture, and marketing of the Products. Failure to accomplish or achieve
any of the goals set forth above shall not constitute a breach of this
Agreement so long as the failing party has used its/his best business Efforts
in connection therewith.
b. MTI shall reimburse CRAGG'S reasonable documented
out-of-pocket expenses incurred with prior approval of MTI.
5. Consulting Service
Until September 30, 1996 CRAGG shall provide such reasonable consulting
services as MTI shall request with respect to the Products. Subject to terms
and conditions of a Consulting agreement dated June 1, 1993.
<PAGE> 3
License Agreement Page 3
Andrew Cragg M.D.
6. Assignment
CRAGG hereby assigns to MTI his entire right, title and interest in
and to all patents. Copyrights, trade secrets, know-how, and other
intellectual property rights which relate to the Field and which exist now or
at any time prior to the expiration of the term of the Consulting Agreement.
7. Royalties and Other Considerations
a. MTI agrees to pay to CRAGG a one percent (1.0%) royalty on
the Net Sales Price of the Products sold by MTI. Such royalties shall be
payable based on sales of the Product for a period of twelve (12) years from
the date of First Commercial Sale of such product type to an Unrelated Third
Party. Thereafter MTI shall have no further royalty obligations under this
Agreement.
b. Royalties due shall be paid within thirty (30) days after the
close of each calendar quarter, beginning with the first full quarter following
First Commercial Sale. Each royalty payment shall be accompanied by a
statement setting forth, how the amount then being paid was determined.
c. CRAGG shall have the right, no more than once per year and at
his expense, to retain an independent accounting firm to audit, in confidence,
the relevant books and records of MTI to determine MTI's compliance with its
royalty obligations hereunder. If such audit reveals an understatement of
twenty percent (20%) or more of the royalties due CRAGG hereunder, MTI shall
bear the expense of such audit.
8. Intellectual Property Rights
a. All discoveries, improvements and other inventions which
relate to the Field and are either conceived or first reduced to practice (as
that term is used before the U.S. Patent and Trademark Office) by either party
during the term of this Agreement, shall be the sole and exclusive property of
MTI.
b. CRAGG agrees to execute any and all assignment documents which
are required to implement the intent of this paragraph. MTI shall retain any
and all rights to file any applications for patents, copyrights, mask work
rights, or other statutory intellectual property rights on such inventions.
Title to all such applications, patents, mask work rights, copyrights or other
statutory intellectual property rights shall vest in MTI.
c. MTI shall bear the expenses of obtaining and maintaining all
patents and other intellectual property rights developed pursuant to this
Agreement so long as MTI has agreed, in its reasonable discretion, that such
patent or other intellectual property right should be pursued.
9. Term and Termination
a. Unless earlier terminated pursuant to this Section, this
Agreement shall remain in full force and effect for a term of twelve (12)
years.
<PAGE> 4
License Agreement Page 4
Andrew Cragg M.D.
b. Either party may terminate this Agreement on notice
to the other party if the other party materially breaches any material
obligation or representation under this Agreement and does not cure such breach
and provide notice thereof to the other party within sixty (60) days after
written notice to the other party setting forth, in reasonable detail, the
nature of the alleged breach. MTI's bankruptcy, insolvency, assignment for the
benefit of creditors shall be deemed to be a breach of a material obligation
under this Agreement.
c. Upon termination or expiration of this Agreement, the
rights and obligations of the parties pursuant to the following sections shall
survive: Sections 3, 6, 7, and 8.
10. Miscellaneous
a. Entire Agreement This Agreement embodies the entire
understanding of the parties as it relates to the subject matter hereof, and
this Agreement supersedes any prior Agreement or understanding between the
parties with respect to such subject matter.
b. Waiver Should either party fail to enforce any
provision of this Agreement, or fail to exercise, or waive, any right with
respect thereto, such failure or waiver shall not be construed as constituting
a waiver or a continuing waiver of its rights to enforce such provision or
right or any other provision or right.
c. Survivability This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
d. Governing Law This Agreement and any matter in
connection with the performance hereof shall be construed, interpreted, applied
and governed in all respects in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the parties have caused the Agreement to be
executed where applicable in their respective corporate names and by their duly
authorized representatives on the date first above written.
MICRO THERAPEUTICS, INC. ANDREW CRAGG M.D.
By:_____________________________ By:____________________________
George Wallace - President Andrew Cragg
Date:___________________________ Date:__________________________
<PAGE> 1
EXHIBIT 10.3
MICRO THERAPEUTICS, INC.
CONSULTING AGREEMENT
This Agreement (the "Agreement") effective October 1, 1996, is made by
and between Micro Therapeutics, Inc. having a principal place of business at
1062-F Calle Negocio, San Clemente, CA 92673 (the "Company") and Andrew Cragg,
M.D. having an address of 6101 Code Ave., Edina, MN 55436 (the "Consultant").
1. Services. Consultant shall provide to the Company the
services set forth in Paragraphs 1 and 2 of Exhibit A in accordance with the
terms and conditions contained in this Agreement. Consultant is free to
consult with others in the consulting fields set forth in Exhibit A, unless
exclusivity is specifically identified. Products or product concepts developed
by Consultant hereunder are the property of MTI.
2. Term. Unless terminated in accordance with the provisions of
Paragraph 7 hereof, the services provided by Consultant to the Company shall be
performed during the period set forth in Paragraph 3 of Exhibit A or up to
completion of the project as described in Paragraphs 1 and 2 of Exhibit A.
Consultant shall coordinate all efforts and report progress regularly to the
individual set forth in Paragraph 4 of Exhibit A.
3. Payment for Service Rendered. For providing the consulting
services as defined therein, the Company shall pay Consultant the consideration
described in Paragraph 5 of Exhibit A. The Company shall reimburse Consultant
for all reasonable expenses provided the Company has approved the expenses in
advance and in writing.
4. Nature of Relationship. Consultant is an independent
contractor. Consultant will not act as an agent nor shall he be deemed an
employee of the Company for the purposes of any employee benefit program,
income tax withholding, FICA taxes, unemployment benefits, insurance coverage,
or otherwise. Consultant shall not enter into any agreement or incur any
obligations on the Company's behalf, or commit the Company in any manner
without the Company's prior written consent.
5. Confidentiality.
(a) Consultant agrees that he shall not use (except for the
Company's benefit) or divulge to anyone either during the term of this
Agreement or thereafter any of the Proprietary information of any kind
whatsoever acquired by Consultant. Consultant further agrees that upon the
completion or termination of this Agreement, he will turn over to the Company
any notebooks, data, information or other material acquired or compiled by
Consultant in carrying out the terms of the Agreement. However, Consultant may
keep one copy of such material for archival purposes.
<PAGE> 2
(b) Consultant represents that his performance of the terms
of the Agreement does not and will not conflict with the terms of any agreement
to keep in confidence confidential information and trade secrets of others.
Consultant will not disclose to the Company, or induce the Company to use, any
confidential information or trade secrets belonging to any third party.
6. Inventions, Patents and Technology. Consultant shall promptly
and fully disclose to the Company any and all inventions, improvements,
discoveries, developments, original works of authorship, trade secrets or other
intellectual property conceived, developed or reduced to practice by the
Consultant or Company during the term of this Agreement. All such information
is collectively referred to herein as "Proprietary Information".
Consultant agrees to treat all of the Proprietary Information
as the proprietary property of the Company. Consultant hereby assigns to the
Company and its successors and assigns, without further consideration, his
entire right, title and interest in and to the Proprietary Information whether
or not patentable or copyrightable. Consultant further agrees to execute all
applications for patents and/or copyrights, domestic or foreign, assignments and
other papers necessary to secure and enforce any and all rights relating to the
Proprietary Information.
7. Termination. Consultant or Company may terminate this
Agreement at their respective convenience upon written notice to the other
party. Such termination shall be effective in the manner and upon the date
specified in said notice and shall be without prejudice to any claims which one
party may have against the other. In the event of such termination, the Company
shall be obligated to pay Consultant for services actually performed by
Consultant up to the effective date of termination. Termination shall not
relieve Consultant of his continuing obligations under this agreement,
particularly the requirements of Paragraphs 5 and 6.
8. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of California. The parties consent to
personal jurisdiction of the federal and state courts within California and
service of process being effected by registered mail sent to the address set
forth at the end of this Agreement.
(b) This Agreement may not be and shall not be deemed or
construed to have been modified, amended, rescinded, canceled or waived in whole
or in part, except by written instruments signed by the parties thereto. No
failure on the part of either party to exercise, and no delay in exercising, any
right or remedy thereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right or remedy thereunder preclude any other
or further exercise thereof or the exercise of any other right or remedy granted
thereby or by any related document or by law.
<PAGE> 3
(c) This Agreement, including the exhibit attached hereto and
made a part hereof, constitutes and expresses the entire agreement and
understanding between the parties. All previous discussions, promises,
representations and understandings between the parties relative to this
Agreement, if any, have been merged into this document. The provisions of
Paragraphs 5 and 6 shall survive the termination of this Agreement. The terms
and provisions of this Agreement shall be binding on and inure to the benefit of
the parties, their heirs, legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
Micro Therapeutics, Inc. Consultant
BY: /s/ George Wallace /s/ Andrew Cragg, M.D.
------------------------------ ---------------------------
George Wallace Andrew Cragg, M.D.
President and CEO
12/3/96 11/26/96
------------------------------ ---------------------------
Date Date
<PAGE> 4
EXHIBIT A
NAME OF CONSULTANT: ANDREW CRAGG, M.D.
1. Description of Exclusive Consulting Field and Services to be Performed
shall include:
a) Product development, pre-clinical/clinical testing
and marketing of less invasive, percutaneous
catheters used to dissolve, disrupt or remove blood
clots from the human body.
b) Product development, pre-clinical/clinical testing
and marketing of less invasive, percutaneous
catheters used to treat cerebral aneurysm.
1. Description of Non-exclusive Consulting Field shall include:
a) Product development, pre-clinical/clinical testing
and marketing of less invasive, percutaneous
catheters used to diagnose and treat disorders of the
circulatory system.
1. Term of Agreement:
Through September 30, 1998
2. The Consultant shall report to:
George Wallace, President and CEO, Micro Therapeutics, Inc.
2. Consideration for services:
Per Board of Directors approval on August 6, 1996, Consultant will be
paid $7,000.00 per month for twelve months.
A royalty of one percent (1%) of net sales will be paid on any product
that bears the name of the Consultant. A royalty of one and one-half
percent (1.5%) of net sales will be paid on products where the
Consultant is the inventor of a product where an issued U.S. Patent
exists and is the primary basis of the product. This royalty will be
paid for a period of ten (10) years starting from the product's first
commercial sale.
A royalty of not more than one and one-half percent (1.5%) will be
paid on any product hereunder.
<PAGE> 1
EXHIBIT 10.4
STANDARD INDUSTRIAL LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, April 15, 1996, is
made by and between Reuben L. Casey (herein called "Lessor") and Micro
Therapeutics, Inc. (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Orange, State of California
commonly known as 1062 Calle Negocio, units D, E & F, San Clemente, Ca. and
described as approximately 18,000 sq. ft. of office, lab., warehouse and
storage area located at above addresses. Said real property including the land
and all improvements therein, is herein called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for One Year commencing on
May 1, 1996 and ending on April 30, 1997 unless sooner terminated pursuant to
any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date. Lessee may, at Lessee's
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $13,476.00*, in advance, on the first day of each month of the term hereof.
Lessee shall pay Lessor upon the execution hereof $ as rent for
*Incl. $276.00 for trash disposal and water usage. This amount subject to change
depending on rates as charged by utility co's. Rent for any period during the
term hereof which is for less than one month shall be a pro rata portion of the
monthly installment. Rent shall be payable in lawful money of the United States
to Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$10,000.00 (existing) as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount hereinabove
stated and Lessee's failure to do so shall be a material breach of this Lease.
If the monthly rent shall, from time to time, increase during the term of this
Lease, Lessee shall thereupon deposit with Lessor additional security deposit
so that the amount of security deposit held by Lessor shall at all times bear
the same proportion to current rent as the original security deposit bears to
the original monthly rent set forth in paragraph 4 hereof. Lessor shall not be
required to keep said deposit separate from its general accounts. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much
thereof as has not theretofore been applied by Lessor, shall be returned,
without payment of interest or other increment for its use, to Lessee (or, at
Lessor's option, to the last assignee, if any, of Lessee's interest hereunder)
at the expiration of the term hereof, and after Lessee has vacated the
Premises. No trust relationship is created herein between Lessor and Lessee
with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for Research,
Development and Manufacturing of medical devices and related products or any
other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term commencement date. In the event it is
determined that this warranty has been violated, then it shall be the
obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event Lessee
does not give to Lessor written notice of the violation of this warranty within
six months from the date that the Lease term commences, the correction of same
shall be the obligation of the Lessee at Lessee's sole cost. The warranty
contained in this paragraph 6.2(a) shall be of no force or effect if, prior to
the date of this Lease, Lessee was the owner or occupant of the Premises, and,
in such event, Lessee shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall
be more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris
on Lease commencement date (unless Lessee is already in possession) and Lessor
further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Lessor will maintain "original" heating and A/C
units, landscaping and parking areas. Subject to the provisions of Paragraphs 6,
7.2 and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage. Lessor, at Lessor's expense, shall keep in good
order, condition and repair the foundations, exterior walls and the exterior
roof of the Premises. Lessor shall not, however, be obligated to paint such
exterior, nor shall Lessor be required to maintain the interior surface of
exterior walls, windows, doors or plate glass. Lessor shall have no obligation
to make repairs under this Paragraph 7.1 until a reasonable time after receipt
of written notice of the need for such repairs. Lessee expressly waives the
benefits of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee, at
Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
<PAGE> 2
ventilating, electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surface of exterior walls,
ceilings, windows, doors, plate glass, and skylights, located within the
Premises.
(b) If Lessee fails to perform Lessee's obligations under this Paragraph
7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option
enter upon the Premises after 10 days' prior written notice to Lessee (except in
the case of emergency, in which case no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Lessee shall repair
any damage to the Premises occasioned by the installation or removal of its
trade fixtures, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the premises in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.3
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.3(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph
7.2(c).
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE -- LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and all other areas appurtenant thereto. Such insurance shall be in
an amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE -- LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies or insurance covering loss or damage to
the Premises, but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) Lessee shall pay to Lessor, during the term hereof, in addition to
the rent, the amount of any increase in premiums for the insurance required
under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base
Period, as hereinafter defined, whether such premium increase shall be the
result of the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, or general rate increases. In the event
that the Premises have been occupied previously, the words "Base Period" shall
mean the last twelve months of the prior occupancy. In the event that the
Premises have never been previously occupied, the premiums during the "Base
Period" shall be deemed to be the lowest premiums reasonably obtainable for said
insurance assuming the most nominal use of the Premises. Provided, however, in
lieu of the Base Period, the parties may insert a dollar amount at the end of
this sentence which figure shall be considered as the insurance premium for the
Base Period: $___________. In no event, however, shall Lessee be responsible for
any portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under paragraph 8.2.
(b) Lessee shall pay any such premium increases to Lessor within 30 days
after receipt by Lessee of a copy of the premium statement or other satisfactory
evidence of the amount due. If the insurance policies maintained hereunder cover
other improvements in addition to the Premises, Lessor shall also deliver to
Lessee a statement of the amount of such increase attributable to the Premises
and showing in reasonable detail, the manner in which such amount was computed.
If the term of this Lease shall not expire concurrently with the expiration of
the period covered by such insurance. Lessee's liability for premium increases
shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall not
be responsible for paying any increase in the property insurance premium caused
by the acts or omissions of any other tenant of the building of which the
Premises are a part.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide" Lessee shall deliver
to Lessor copies of policies of liability insurance required under Paragraph 8.1
or certificates evidencing the existence and amounts of such insurance. No such
policy shall be cancellable or subject to reduction of coverage or other
modification except after thirty (30) days' prior written notice to Lessor.
Lessee shall, at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals or "binders" thereof or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee upon demand. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in Paragraph 8.3.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
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9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction to
the Premises to the extent that the cost of repair is less than 50% of the fair
market value of the Premises immediately prior to such damage or destruction.
"Premises Building Partial Damage" shall herein mean damage or destruction to
the building of which the Premises are a part to the extent that the cost of
repair is less than 50% of the fair market value of such building as a whole
immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is 50% or more of the fair
market value of the Premises immediately prior to such damage or destruction.
"Premises Building Total Destruction" shall herein mean damage or destruction to
the building of which the Premises are a part to the extent that the cost of
repair is 50% or more of the fair market value of such building as a whole
immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of paragraphs
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. Subject to the provisions of Paragraphs
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense). Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage. In the event Lessor elects to give such
notice of Lessor's intention to cancel and terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's intention to repair such damage at
Lessee's expense, without reimbursement from Lessor, in which event this Lease
shall continue in full force and effect, and Lessee shall proceed to make such
repairs as soon as reasonably possible. If Lessee does not give such notice
within such 10-day period this Lease shall be cancelled and terminated as of
the date of the occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease there
is damage, whether or not an Insured Loss, (including destruction required by
any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this Lease
there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 19____ 19____. Such payment shall be made by Lessee within thirty (30)
days after receipt of Lessor's written statement setting forth the amount of
such increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial lease year shall be prorated
on an annual basis.
10.2 ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1 hereof, Lessee
shall pay to Lessor upon demand therefor the entirety of any increase in real
property tax if assessed solely by reason of additional improvements placed upon
the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed or a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, provided that said assignee assumes, in full,
the obligations of Lessee under this Lease. Any such assignment shall not, in
any way, affect or limit the liability of Lessee under the terms of this Lease
even if after such assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof. Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action
shall not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
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13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice thereof from Lessor to Lessee;
provided, however, that if the nature of Lessee's default is such that more
than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors: (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
such seizure is not discharged within 30 days. Provided, however, in the event
that any provision of this paragraph 13.1(d) is contrary to any applicable law,
such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could be
reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate than allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to Lessee
in writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and
thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor
from exercising any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of rent, then rent shall automatically
become due and payable quarterly in advance, rather than monthly,
notwithstanding paragraph 4 or any other provision of this Lease to the
contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease. Lessee shall pay
to Lessor, if Lessor shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Lessor, for real property tax and
insurance expenses on the Premises which are payable by Lessee under the terms
of this Lease. Such fund shall be established to insure payment when due,
before delinquency, of any or all such real property taxes and insurance
premiums. If the amounts paid to Lessor by Lessee under the provisions of this
paragraph are insufficient to discharge the obligations of Lessee to pay such
real property taxes and insurance premiums as the same become due, Lessee shall
pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such
obligations. All moneys paid to Lessor under this paragraph may be intermingled
with other moneys of Lessor and shall not bear interest. In the event of a
default in the obligations of Lessee to perform under this Lease, then any
balance remaining from funds paid to Lessor under the provisions of this
paragraph may, at the option of Lessor, be applied to the payment of any
monetary default of Lessee in lieu of being applied to the payment of real
property tax and insurance premiums.
14. CONDEMNATION. If the premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount
in excess of such severance damages required to complete such repair.
15. INTENTIONALLY OMITTED
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any, and
(ii) acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder, or specifying such defaults if any
are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
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<PAGE> 5
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and
shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in
Paragraph 15, in the event of any transfer of such title or interest. Lessor
herein named (and in case of any subsequent transfers then the grantor) shall
be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law from the date due. Payment of such interest shall
not excuse or cure any default by Lessee under this Lease, provided, however,
that interest shall not be payable on late charges incurred by Lessee nor on
any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest
at the time of the modification. Except as otherwise stated in this Lease,
Lessee hereby acknowledges that neither the real estate broker listed in
Paragraph 15 hereof nor any cooperating broker on this transaction nor the
Lessor or any employees or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or
use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable
laws and regulations in effect during the term of this Lease except as
otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice
to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, but all options and rights
of first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of Paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure
to execute such documents within 10 days after written demand shall constitute
a material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making
such alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the
prior permission of Lessor to place ordinary and usual for rent or sublet
signs thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party, such consent
shall not be unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder. Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of
first refusal to lease other property of Lessor or the right of first offer to
lease other property of Lessor; (3) the right or option to purchase the
Premises, or the right of first refusal to purchase the Premises, or the right
of first offer to purchase the Premises or the right or option to purchase
other property of Lessor, or the right of first refusal to purchase other
property of Lessor or the right of first offer to purchase other property of
Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any
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<PAGE> 6
Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein
granted to Lessee are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each such default, or paragraph
13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make
from time to time for the management, safety, care, and cleanliness of the
building and grounds, the parking of vehicles and the preservation of good
order therein as well as for the convenience of other occupants and tenants of
the building. The violations of any such rules and regulations shall be deemed
a material breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation, trust
or partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
_______ through _______ which constitutes a part of this Lease.
47. Lessee will maintain all air supply equipment and special equipment and
fixtures for "Clean rooms" and lab areas.
48. Lessor extends to Lessee options to renew this Lease for three additional
one year periods at the following rates and conditions:
First additional year: ... same terms and conditions.
Second and Third additional years: "Cost-of-Living" increase. (The
percentage of increase of the COMPOSITE CONSUMER PRICE INCREASE FOR ALL
URBAN CONSUMERS of the L.A., L.B., Anaheim area as published by the U.S.
Dept. of Statistics.) This amount shall not exceed 4% per annum.
49. On June first least shall be extended to include additional storage area
(no address) of appr. 800 sq. ft., rent shall be increased $400 for this area.
No additional security deposit necessary.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL
AND TAX CONSEQUENCES OF THIS LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
Executed at
-------------------------- ------------------------------------
on 4/15/96 By Reuben L. Casa
------------------------------------ ----------------------------------
Address By
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"LESSOR" (Corporate seal)
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Executed at San Clemente, CA
-------------------------- ---------------------------------
on 4/30/96 By Micro Therapeutics, Inc.
----------------------------------- ---------------------------------
Address By Theresa Bergman, CFO
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"LESSEE" (Corporate seal)
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EXHIBIT 10.5
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of the
9th day of February 1995, by and among Micro Therapeutics, Inc., a California
corporation (the "Company"), persons holding at least a majority of the
Registrable Securities under the Investors' Rights Agreement (the "Existing
Rights Agreement") dated as of December 21, 1993 (as "Registrable Securities"
is defined under the Existing Rights Agreement), the Purchasers under the
Series B Preferred Stock Purchase Agreement (the "Series B Agreement") of even
date herewith and the holders of Common Stock listed on Schedule A who are
parties hereto (the "Common Holders"). Holders of Registrable Securities under
the Existing Rights Agreement and the Series B Purchasers are referred to
collectively herein as the "Investors."
RECITALS
WHEREAS, the Company wishes to raise additional capital by issuing
Series B Preferred Stock with the rights, privileges and preferences set forth
in the Amended and Restated Articles of Incorporation attached to the Series B
Agreement;
WHEREAS, pursuant to Section 3.7 of the Existing Rights Agreement, the
Existing Rights Agreement may be amended by written consent of the holders of a
majority in interest of the then outstanding Registrable Securities and the
Company; and
WHEREAS, the Company wishes to amend the Existing Rights Agreement in
order to give the Series B Purchasers registration rights that are parallel to
and pooled with those of the currently outstanding Registrable Securities,
NOW, THEREFORE, the parties hereby agree that the Existing Rights
Agreement is amended and restated in its entirety as follows:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of
1933, as amended.
(b) The term "Form S-3" means such form under the
Act as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "Holder" means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 hereof.
<PAGE> 2
(d) The term "1934 Act" means the Securities
Exchange Act of 1934, as amended.
(e) The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
(f) The term "Registrable Securities" means (i)
the Common Stock issuable or issued upon conversion of the Series A-1 Preferred
Stock, Series A-2 Preferred Stock and Series B Preferred Stock, and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security that is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of
the shares referenced in (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his, her or
its rights under this Section 1 are not assigned.
(g) The term "Registrable Common Stock" means (i)
the shares of Common Stock held by the Common Holders as of the date hereof,
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security that is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i) above.
(h) The number of shares of "Registrable
Securities then outstanding" shall be determined by the number of shares of
Common Stock outstanding which are, and the number of shares of Common Stock
issuable pursuant to then exercisable or convertible securities which are,
Registrable Securities.
(i) The term "SEC" shall mean the Securities and
Exchange Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time
after (i) January 1, 1997, and before the effective date of the first
registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or a SEC Rule 145 transaction), a written request from the Holders
of a majority of the Registrable Securities then outstanding that the Company
file a registration statement under the Act covering the registration of at
least a majority of the Registrable Securities then outstanding, or (ii) the
effective date of the first registration statement for a public offering of
securities of the Company (other than a registration statement relating to
either the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or a SEC Rule 145 transaction), a
written request from Holders of Registrable Securities covering the
registration of Registrable Securities with an anticipated gross offering price
of at least $10,000,000, then the Company shall:
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(i) within ten (10) days of the receipt
thereof, give written notice of such request to all Holders; and
(ii) effect as soon as practicable, and
in any event within ninety (90) days of the receipt of such request, the
registration under the Act of all Registrable Securities that the Holders
request to be registered within twenty (20) days of the mailing of such notice
by the Company in accordance with Section 3.5., subject to the limitations of
subsection 1.2(b).
(b) If the Holders initiating the registration
request hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to subsection
1.2(a) and the Company shall include such information in the written notice
referred to in subsection 1.2(a). The underwriter will be selected by a
majority in interest of the Initiating Holders and shall be reasonably
acceptable to the Company. In such event, the right of any Holder to include
his, her or its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in subsection 1.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting. For purposes of the preceding sentence concerning apportionment,
for any Initiating Holder that is a holder of Registrable Securities that is a
partnership or corporation, the partners, retired partners and shareholders of
such Initiating Holder (and, in the case of a partnership, any affiliated
partnerships), or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing persons
shall be deemed to be a single "Initiating Holder," and any proportionate
reduction with respect to such "Initiating Holder" shall be based upon the
aggregate amount of shares carrying registration fights owned by all entities
and individuals included in such "Initiating Holder," as defined in this
sentence.
(c) Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than 60 days after receipt of the request of the Initiating
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<PAGE> 4
Holders; provided, however, that the Company may not utilize this right more
than twice in any twelve-month period.
(d) In addition, the Company shall not be
obligated to effect, or to take any action to effect, any registration pursuant
to this Section 1.2:
(i) After the Company has effected one
registration pursuant to this Section 1.2 that has been declared or ordered
effective, provided that such registration was declared or ordered effective
subsequent to the closing of the first public offering of the Company's Common
Stock (other than an offering relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction);
(ii) During the period starting with the
date seventy-five (75) days prior to the Company's good faith estimate of the
date of filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a registration subject to Section 1. 3 hereof, provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or
(iii) If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section 1.11 below.
1.3 Company Registration.
(a) If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders and, in any
case, subject to Section 1.3(b) hereof, including a registration in connection
with the initial public offering of the Company's Common Stock) any of its
capital stock under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which
are also being registered), the Company shall, at such time, promptly give each
Holder and Common Holder written notice of such registration. Upon the written
request of each Holder and Common Holder given within twenty (20) days after
mailing of such notice by the Company in accordance with Section 3.5, the
Company shall, subject to the provisions of Section 1.3(b), cause to be
registered under the Act all of the Registrable Securities and Registrable
Common Stock that each such Holder and Common Holder has requested to be
registered.
(b) In connection with any offering under this
Section 1.3 involving an underwriting of shares of the Company's capital stock,
the Company shall not be required to include any of the Holders' or Common
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
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<PAGE> 5
by it (or by other persons entitled to select the underwriters), and then only
in such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities and Registrable Common Stock,
requested by shareholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities and Registrable Common Stock, which
the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders;
provided, however, that no Registrable Securities shall be excluded from such
offering until all Registrable Common Stock has first been excluded) but in no
event shall the amount of securities of the selling Holders included in the
offering be reduced below twenty-five percent (25%) of the total amount of
securities included in such offering, unless such offering is the initial public
offering of the Company's securities in which case the selling shareholders may
be excluded entirely if the underwriters make the determination described above
and no other shareholders securities are included. Any reduction in Registrable
Common Stock pursuant to the preceding sentence shall be made among the Common
Holders pro rata in proportion to the number of shares requested by each such
Common Holder to be included in such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder that is a
holder of Registrable Securities or Registrable Common Stock that is a
partnership or corporation, the partners, retired partners and shareholders of
such holder (and, in the case of a partnership, any affiliated partnerships), or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling shareholder," and any pro-rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling shareholder," as defined in this sentence.
1.4 Obligations of the Company. Whenever required under
this Section 1 to effect the registration of any Registrable Securities or
Registrable Common Stock, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for a period of up to
one hundred twenty (120) days or until the distribution contemplated in the
Registration Statement has been completed, provided, however, that (i) such
120-day period shall be extended for a period of time equal to the period the
Holder refrains from selling any securities included in such registration at
the request of an underwriter of Common Stock (or other securities) of the
Company; and (ii) in the case of any registration of Registrable Securities on
Form S-3 which are intended to be offered on a continuous or delayed basis,
such 120-day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any successor rule under the Act, permits an offering on a
continuous or delayed
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basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Act or (II) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (I)
and (II) above to be contained in periodic reports filed pursuant to Section 13
or 15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders and the Common
Holders, as the case may be, such numbers of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the Act, and
such other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities and Registrable Common Stock owned by
them.
(d) Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders or the Common Holders, as the case may be; provided
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder and Common Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
and each Common Holder of Registrable Common Stock covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities and
Registrable Common Stock registered pursuant hereto to be listed on each
securities exchange on which similar securities issued by the Company are then
listed.
(h) Provide a transfer agent and registrar for
all Registrable Securities and Registrable Common Stock registered pursuant
hereto and a CUSIP number for all such
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<PAGE> 7
Registrable Securities and Registrable Common Stock, in each case not later
than the effective date of such registration.
1.5 Furnish Information.
(a) It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities or Registrable Common Stock of any
selling Holder or Common Holder that such Holder or Common Holder shall furnish
to the Company such information regarding himself, herself or itself, the
Registrable Securities or Registrable Common Stock held by him, her or it, and
the intended method of disposition of such securities as shall be required to
effect the registration of such Holder's or Common Holder's Registrable
Securities or Registrable Common Stock, as the case may be.
(b) The Company shall have no obligation with
respect to any registration requested pursuant to Section 1.2 or Section 1.11
if, due to the operation of subsection 1.5(a), the number of shares or the
anticipated aggregate offering price of the Registrable Securities to be
included in the registration does not equal or exceed the number of shares or
the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.11(b)(2), whichever is applicable.
1.6 Expenses of Demand Registration. All expenses other
than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless (i) the registration is withdrawn following any deferral of the
registration by the Company pursuant to Section 1.2(c); (ii) the registration
is withdrawn due to a material adverse change in the Company's business or
financial condition; or (iii) the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2.
1.7 Expenses of Company Registration. The Company shall
bear and pay all expenses incurred in connection with any registration, filing
or qualification of Registrable Securities and Registrable Common Stock with
respect to the registrations pursuant to Section 1.3 for each Holder and Common
Holder (which right may be assigned as provided in Section 1.12), including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees relating or apportionable thereto and the fees and
disbursements of one counsel for the selling Holders and Common Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities and Registrable Common Stock.
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<PAGE> 8
1.8 Delay of Registration. No Holder or Common Holder
shall have any right to obtain or seek an injunction restraining or otherwise
delaying any such registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable
Securities or Registrable Common Stock are included in a registration statement
under this Section 1:
(a) To the extent permitted by law, the Company
will indemnify and hold harmless each Holder and Common Holder, any underwriter
(as defined in the Act) for such Holder or Common Holder and each person, if
any, who controls such Holder, Common Holder or underwriter within the meaning
of the Act or the 1934 Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the 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 (iii) any violation or alleged violation
by the Company of the Act, the 1934 Act, any state securities law or any rule
or regulation promulgated under the Act, the 1934 Act or any state securities
law; and the Company will pay to each such Holder, Common Holder, underwriter
or controlling person any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 1.9(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, Common Holder, underwriter or controlling
person.
(b) To the extent permitted by law, each selling
Holder and Common Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement,
each person, if any, who controls the Company within the meaning of the Act,
any underwriter, any other Holder or Common Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder or Common Holder, against any losses, claims, damages or
liabilities (joint or several) to which any of the foregoing persons may become
subject under the Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder or Common Holder
expressly for use in connection with such registration; and each such Holder
and Common Holder will pay any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.9(b) in
connection with
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<PAGE> 9
investigating or defending any such loss, claim, damage, liability or action;
provided, however that the indemnity agreement contained in this subsection
1.9(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder or Common Holder, which consent shall not be unreasonably
withheld; and provided, that, in no event shall any indemnity under this
subsection 1.9(b) exceed the gross proceeds from the offering received by such
Holder or Common Holder.
(c) Promptly after receipt by an indemnified
party under this Section 1.9 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
1.9, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, 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 such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this
Section 1.9 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
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<PAGE> 10
(f) The obligations of the Company, Holders and
Common Holders under this Section 1.9 shall survive the completion of any
offering of Registrable Securities or Registrable Common Stock in a
registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With
a view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available,
as those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first registration statement filed by
the Company for the offering of its securities to the general public is
declared effective;
(c) file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act; and
(d) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
in availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.11 Form S-3 Registration. In case the Company shall
receive a written request or requests from Holders of Registrable Securities
that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such
registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any
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<PAGE> 11
other Holder or Holders joining in such request as are specified in a written
request given within 15 days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this section
1.11: (1) if Form S-3 is not available for such offering by the Holders; (2) if
the Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$1,000,000; (3) if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than
sixty (60) days after receipt of the request of the Holder or Holders under
this Section 1.11; provided, however, that the Company shall not utilize this
right more than twice in any twelve (12) month period; (4) if the Company has,
within the twelve (12) month period preceding the date of such request, already
effected two (2) registrations on Form S-3 for the Holders pursuant to this
Section 1.11; or (5) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall
file a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. All expenses incurred in connection
with a registration requested pursuant to Section 1.11, including (without
limitation) all registration, filing, qualification, printer's and accounting
fees and the reasonable fees and disbursements of counsel for the selling
Holder or Holders and counsel for the Company, but excluding any underwriters'
discounts or commissions associated with Registrable Securities, shall be paid
by the Company. Registrations effected pursuant to this Section 1.11 shall not
be counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.12 Assignment of Registration Rights. The rights to
cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities who, after such assignment or
transfer, holds the lesser of (i) 200,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations or (ii) all of the Registrable
Securities previously owned by the transferring Holder, provided: (a) the
Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned,
(b) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement, including without limitation the
provisions of Section 1.14 below; and (c) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act. For the
purposes of determining the number of shares of Registrable Securities held by
a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable
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<PAGE> 12
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership and its affiliated partnerships; provided that all
assignees and transferees who would not qualify individually for assignment of
registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this
Section 1. The rights of the Common Holders to include the Registrable Common
Stock in a registration pursuant to Section 1.3 hereof shall not be assigned by
any Common Holder to any assignee or transferee other than to an assignee or
transferee who acquires all (but not less than all) of the Registrable Common
Stock held by such Common Holder on the date hereof
1.13 Limitations on Subsequent Registration Rights. From
and after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company that would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of his, her or its securities will not reduce the
amount of the Registrable Securities of the Holders that is included, (b) to
include such securities in any registration filed under Section 1.3 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his, her or its securities will not reduce the amount of the
Registrable Securities and Registrable Common Stock of the Holders and Common
Holders that is included, or (c) to make a demand registration that could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.2(a) or within one
hundred eighty (180) days of the effective date of any registration effected
pursuant to Section 1.2.
1.14 "Market Stand-Off" Agreement. Each Investor and each
Common Holder hereby agrees that, during the period of duration specified by
the Company and an underwriter of Common Stock or other securities of the
Company, following the effective date of a registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any securities of the Company held by it at
any time during such period except Common Stock included in such registration;
provided, however, that:
(a) all officers and directors of the Company and
all other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements;
(b) the Company uses reasonable efforts to obtain
from persons who hold in excess of one percent (1%) of the Company's
outstanding capital stock, a lock-up agreement similar to that set forth in
this Section 1.14; and
(c) such market stand-off time period shall not
exceed one hundred eighty (180) days.
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In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities
and Registrable Common Stock (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in
this Section 1.14 shall not apply to a registration relating solely to
employee benefit plans on Form S-1 or Form S-8 or similar forms that may be
promulgated in the future, or a registration relating solely to an SEC Rule 145
transaction on Form S-4 or similar forms that may be promulgated in the future.
1.15 Limitations on Disposition. Each Common Holder
agrees not to make any disposition of all or any portion of the Registrable
Common Stock unless and until the transferee has agreed in writing for the
benefit of the Company to be bound by Section 1.14 hereof, provided and to the
extent such section is then applicable.
1.16 Termination of Registration Rights. The right of any
Holder or Common Holder to request registration or inclusion in any registration
pursuant to Section 1.3 shall terminate on the closing of the first
Company-initiated registered public offering of Common Stock of the Company if
all shares of Registrable Securities and Registrable Common Stock beneficially
owned or subject to Rule 144 aggregation by such Holder or Common Holder may
immediately be sold under Rule 144 (without regard to Rule 144(k)) during any
90-day period, or on such date after the closing of the first Company-initiated
registered public offering of Common Stock of the Company as all shares of
Registrable Securities and Registrable Common Stock beneficially owned or
subject to Rule 144 aggregation by such Holder or Common Holder may immediately
be sold under Rule 144 (without regard to Rule 144(k)) during any 90-day period;
provided however, that the provisions of this Section 1.16 shall not apply to
any Holder or Common Holder who owns more than two percent (2%) of the Company's
outstanding stock until such time as such Holder or Common Holder owns less than
two percent (2%) of the outstanding stock of the Company.
2. Covenants of the Company. The Company covenants and agrees as
follows:
2.1 Delivery of Financial Statements. The Company shall
deliver to each Investor, so long as such Investor holds at least 200,000
shares of Registrable Securities (as adjusted for stock splits, recombinations
or reclassifications):
(a) as soon as practicable, but in any event
within one hundred twenty (120) days after the end of each fiscal year of the
Company, an income statement for such fiscal year, a balance sheet of the
Company and statement of shareholder's equity as of the end of such year, and a
statement of cash flows for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public
accountants of nationally recognized standing selected by the Company;
(b) within thirty (30) days of the end of each
month, an unaudited income statement and a statement of cash flows and balance
sheet for and as of the end of such
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<PAGE> 14
month (including year to date totals for such statements), in reasonable
detail, comparing results to the annual plan and to the prior year comparable
period;
(c) as soon as practicable, but by the end of
each fiscal year, a budget and business plan for the next fiscal year, prepared
on a monthly basis, including balance sheets, income statements and statements
of cash flows for such months and, as soon as prepared, any other budgets or
revised budgets prepared by the Company;
(d) with respect to the financial statements
called for in subsection (b) of this Section 2.1, an instrument executed by
the Chief Financial Officer or President of the Company and certifying that
such financials were prepared in accordance with GAAP consistently applied with
prior practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
(e) such other information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Investor or any assignee of the Investor may from time to time reasonably
request; provided, however, that the Company shall not be obligated under this
subsection (e) or any other subsection of Section 2.1 to provide information
which it deems in good faith to be a trade secret or similar confidential
information unless the Investor agrees in writing to hold such information in
confidence.
2.2 Inspection. The Company shall permit each Investor,
at such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Investor, provided, however, that the Company shall not be
obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information unless the Investor agrees in writing to hold such information in
confidence.
2.3 Assignment of Information and Inspection Rights.
Notwithstanding anything to the contrary in Sections 2.1 or 2.2, the right to
receive financial information granted in Section 2.1 and the inspection rights
granted in Section 2.2 shall not be assigned to a competitor of the Company.
Nothing in this Section 2.3 shall be construed to restrict the right of any
Holder to sell shares of Registrable Securities to any purchaser, irrespective
of whether such purchaser is a competitor of the Company.
2.4 Transactions with Affiliates. The Company shall not,
without the approval of a disinterested majority of the Company's Board of
Directors, engage in any loans, leases, contracts or other transactions with
any director, officer, key employee or greater than ten percent (10%)
shareholder of the Company, or any member of any such person's immediate
family, including the parents, spouse, children and other relatives of any such
person, on terms less favorable than the Company would obtain in a transaction
with an unrelated party, as determined in good faith by the Board of Directors.
-14-
<PAGE> 15
2.5 Proprietary Information and Inventions Agreements and
Market Stand-Off. The Company will cause each person now or hereafter employed
by it or any subsidiary with access to confidential information to enter into a
proprietary information and inventions agreement substantially in the form
approved by the Board of Directors. The Company will use its best efforts to
cause all holders of its Common Stock who are not parties hereto to be bound by
a market stand-off provision in substantially the form set forth in Section 1.14
hereof.
2.6 Insurance.
(a) Except as otherwise decided in accordance
with policies adopted by the Company's Board of Directors, the Company will use
its best efforts to maintain in full force and effect at all times from
financially sound and reputable insurers, (i) insurance on its assets and those
of its subsidiaries that are of an insurable character against loss or damage
by fire, explosion and other risks customarily insured against by companies in
the Company's line of business, and (ii) insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated.
(b) The Company covenants that so long as a
representative of Menlo Ventures VI, L.P., Mayfield VII or Mayfield Associates
II serves on the Company's Board of Directors, it will use its best efforts to
maintain directors' and officers' liability insurance in the minimum amount of
$1,000,000, provided that such insurance is available at commercially
reasonable rates.
2.7 Qualified Small Business Stock. The Company
covenants that so long as the Series A-1 Preferred Stock, Series A-2 Preferred
Stock or Series B Preferred Stock, or the Common Stock into which it is
converted, is held by an Investor (or a transferee in whose hands the Series A-1
Preferred Stock, Series A-2 Preferred Stock or Series B Preferred Stock, or
the Common Stock into which it is converted, is eligible to qualify as
Qualified Small Business Stock as defined in Section 1202(c) of the Internal
Revenue Code of 1986, as amended), it will use its reasonable efforts to cause
the Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B
Preferred Stock, or the Common Stock into which it is converted, to qualify as
Qualified Business Stock; provided, however, that "reasonable efforts" as used
in this Section 2.7 shall not be construed to require the Company to operate
its business in a manner that would adversely affect the Company's business as
it is contemplated in the Business Plan.
2.8 Indemnification. The Company covenants that so long
as a representative of Mayfield VII, Mayfield Associates II or Menlo Ventures
VI, L.P. serves on the Company's Board of Directors its Restated Articles will
provide for the indemnification of the Company's officers and directors to the
fullest extent permitted by law.
2.9 Termination of Covenants. The covenants set forth in
this Section 2 shall terminate as to Investors and be of no further force or
effect (i) when the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering of its securities to the general public is consummated or
when the Company is subject to the requirements of Sections 12(g) or 15(d) of
the 1934 Act, whichever event shall first occur or (ii) as to any Investor, or
transferee or assignee of such Investor, who
-15-
<PAGE> 16
holds less than 200,000 shares of Series A-1 Preferred Stock, Series A-2
Preferred Stock or Series B Preferred Stock (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other recapitalizations).
The covenants of the Company set forth in this Section 2 are expressly for the
benefit of the Investors and their permitted successors and assigns and are not
intended to confer on any Common Holder or their successors or assigns any
rights or remedies.
2.10 Right of First Offer. Subject to the terms and
conditions specified in this Section 2.10, the Company hereby grants to each
Major Investor (as hereinafter defined) a right of first offer with respect to
future sales by the Company of its Shares (as hereinafter defined). For
purposes of this Section 2.10, a Major Investor shall mean any Investor who
holds 200,000 shares of Registrable Securities. For purposes of this Section
2.10, Investor includes any general partners and affiliates of an Investor.
An Investor shall be entitled to apportion the right of first offer hereby
granted it among itself and its partners and affiliates in such proportions as
it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by
nationally recognized overnight courier ("Notice") to the Major Investors
stating (i) its bona fide intention to offer such Shares, (ii) the number of
such Shares to be offered, and (iii) the price and terms, if any, upon which it
proposes to offer such Shares.
(b) Within twenty (20) calendar days after giving
of the Notice, the Major Investor may elect to purchase or obtain, at the price
and on the terms specified in the Notice, up to that portion of such Shares
which equals the proportion that the number of shares of Common Stock issued
and held, or issuable upon conversion of the Series A-1 Preferred Stock,
Series A-2 Preferred Stock and Series B Preferred Stock then held by such Major
Investor bears to the total number of shares of Common Stock of the Company
then outstanding (assuming full conversion and exercise of all outstanding
convertible and exercisable securities, options or warrants) issued and held,
or issuable upon conversion of the Series A-1 Preferred Stock, Series A-2
Preferred Stock and Series B Preferred Stock then held by all the Major
Investors. The Company shall promptly, in writing, inform each Major Investor
that purchases all the shares available to it ("Fully-Exercising Investor") of
any other Major investor's failure to do likewise. During the ten-day period
commencing after such information is given, each Fully-Exercising Investor
shall be entitled to obtain that portion of the Shares for which Major
Investors were entitled to subscribe but which were not subscribed for by the
Major Investors which is equal to the proportion that the number of shares of
Common Stock issued and held, or issuable upon conversion of Series A-1
Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock then
held by such Fully-Exercising Investor bears to the total number of shares of
Common Stock issued and held, or issuable upon conversion of the Series A-1
Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock then
held by all Fully-Exercising Investors who wish to purchase some of the
unsubscribed shares.
-16-
<PAGE> 17
(c) If all Shares referred to in the Notice which
Investors are entitled to obtain pursuant to subsection 2.10(b) are not
elected to be obtained as provided in subsection 2.10(b) hereof, the Company
may, during the 60-day period following the expiration of the period provided
in subsection 2.10(b) hereof, offer the remaining unsubscribed portion of such
Shares to any person or persons at a price not less than, and upon terms no
more favorable to the offeree than those specified in the Notice. If the
Company does not enter into an agreement for the sale of the Shares within such
period, or if such agreement is not consummated within sixty (60) days of the
execution thereof, the right provided hereunder shall be deemed to be revived
and such Shares shall not be offered unless first reoffered to the Major
Investors in accordance herewith.
(d) The right of first offer in this Section 2.10
shall not be applicable (i) to the issuance or sale of 1,000,000 shares of
Common Stock (or options therefor) to employees for the primary purpose of
soliciting or retaining their employment, (ii) to or after consummation of a
bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act pursuant to a registration statement on Form S-1,
(iii) to the issuance of securities pursuant to the conversion or exercise of
convertible or exercisable securities, (iv) to the issuance of securities in
connection with a bona fide business acquisition of or by the Company, whether
by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, or (v) to the issuance of stock, warrants or other securities or
rights to persons or entities with which the Company has business relationships
provided such issuances are for other than primarily equity financing purposes.
(e) The right of first offer set forth in this
Section 2.10 may not be assigned or transferred, except that (i) such right
is assignable by each Holder to any wholly owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Act, controlling,
controlled by or under common control with, any such Holder, and (ii) such
right is assignable between and among any of the Holders.
2.11 Right of Repurchase. The Company covenants that to
the extent it has the right to repurchase shares of its Common Stock held by
employees, consultants and directors or former employees, consultants and
directors at the price such persons paid for such Common Stock, and the Company
fails to exercise such right, it will assign such right to George Wallace,
Andrew Cragg, Novel Biomedical, Inc., JK Holdings, Inc. and the Investors on a
pro rata basis according to the number of shares of Common Stock held by each
such person on an as converted basis. The Company covenants further that it
will either exercise such right or make such assignment no later than ten (10)
days before its right to repurchase such shares terminates.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
-17-
<PAGE> 18
3.2 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California.
3.3 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery, delivery by nationally
recognized overnight courier or five days after deposit in the U.S. mail, by
registered or certified mail postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
3.6 Expenses. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 Amendments and Waivers. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding, and, in the case of
any provision herein the amendment of which would have an adverse effect on the
Common Holders, with the written consent of holders of a majority of the
Registrable Common Stock. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities, and
the Company.
3.8 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 Aggregation of Stock. All shares of Registrable
Securities and Registrable Common Stock held or acquired by affiliated entities
or persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
3.10 Entire Agreement, Amendment, Waiver. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Investors' Rights
Agreement as of the date first above written.
MICRO THERAPEUTICS, INC.
By: /s/ GEORGE WALLACE
------------------------------------
George Wallace, President
INVESTORS:
ABS EMPLOYEES' VENTURE FUND LIMITED
PARTNERSHIP
By:
------------------------------------
Title:
------------------------------------
Address: 135 East Baltimore Street
Baltimore, MD 21202
DIMA VENTURES, INC.
By:
------------------------------------
Title:
------------------------------------
Address: 4199 Campus Drive, #830
Irvine, CA 92715
GETZ BROS. CO., LTD.
By:
------------------------------------
Title:
------------------------------------
Address: 150 Post Street
Suite 500
San Francisco, CA 94108
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Investors' Rights
Agreement as of the date first above written.
MICRO THERAPEUTICS, INC.
By:
-------------------------------
George Wallace, President
INVESTORS:
ABS EMPLOYEES' VENTURE FUND LIMITED
PARTNERSHIP
BY: Alex. Brown Investments
Incorporated, its General Partner
-------------------------------
By: /s/ MAYO A. SHATTUCK
-------------------------------
Title: Mayo A. Shattuck III, President
Address: 135 East Baltimore Street
Baltimore, MD 21202
DIMA VENTURES, INC.
By:
-------------------------------
Title:
-------------------------------
Address: 4199 Campus Drive, #830
Irvine, CA 92715
GETZ BROS. CO., LTD.
By:
-------------------------------
Title:
-------------------------------
Address: 150 Post Street
Suite 500
San Francisco, CA 94108
-19-
<PAGE> 21
-------------------------------
Claude Jaquilard
Address: Residence Pre Olivier
Route De La Branvaude
1290 Chavannes-Des-Bois
Switzerland
MAYFIELD VII
By: /s/
-------------------------------
Title: General Partner
-------------------------------
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II
By: /s/
-------------------------------
Title: General Partner
-------------------------------
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By:
-------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
-20-
<PAGE> 22
-------------------------------
Claude Jaquilard
Address: Residence Pre Olivier
Route De La Branvaude
1290 Chavannes-Des-Bois
Switzerland
MAYFIELD VII
By:
-------------------------------
Title:
-------------------------------
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II
By:
-------------------------------
Title:
-------------------------------
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: /s/
-------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
-20-
<PAGE> 23
MENLO ENTREPRENEURS FUND VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: /s/
-------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
VWMTI INVESTORS
By:
-------------------------------
Title:
-------------------------------
Address: 1 Maritime Plaza, 11th Floor
San Francisco, CA 94111
-------------------------------
James D. Woodward
Address: 9817 Koupela Drive
Raleigh, NC 27614
-21-
<PAGE> 24
COMMON HOLDERS:
/s/ GEORGE WALLACE
-------------------------------
George Wallace
Address:
-------------------------------
-------------------------------
-------------------------------
Andrew Cragg
Address:
-------------------------------
-------------------------------
NOVEL BIOMEDICAL, INC.
By:
-------------------------------
Title:
-------------------------------
Address:
-------------------------------
-------------------------------
JK HOLDINGS, INC.
By:
-------------------------------
Title:
-------------------------------
Address:
-------------------------------
-------------------------------
-22-
<PAGE> 25
COMMON HOLDERS:
-------------------------------
George Wallace
Address:
-------------------------------
-------------------------------
/s/ ANDREW CRAGG
-------------------------------
Andrew Cragg
Address:
-------------------------------
-------------------------------
NOVEL BIOMEDICAL, INC.
By:
-------------------------------
Title:
-------------------------------
Address:
-------------------------------
-------------------------------
JK HOLDINGS, INC.
By:
-------------------------------
Title:
-------------------------------
Address:
-------------------------------
-------------------------------
-22-
<PAGE> 26
COMMON HOLDERS:
-------------------------------
George Wallace
Address:
-------------------------------
-------------------------------
-------------------------------
Andrew Cragg
Address:
-------------------------------
-------------------------------
NOVEL BIOMEDICAL, INC.
By: /s/
-------------------------------
Title: President
-------------------------------
Address: 13845 Industrial Pk. Blvd.
-------------------------------
Plymouth, MN 55441
-------------------------------
JK HOLDINGS, INC.
By: /s/
-------------------------------
Title: President
-------------------------------
Address: 5112 Russell Ave. S.
-------------------------------
Mpls. MN 55410
-------------------------------
-22-
<PAGE> 27
/s/ VAUGHN WHALEN
-------------------------------
Vaughn Whalen
Address: 3745 Ocana Ave.
-------------------------------
Long Beach, CA 90808
-------------------------------
-------------------------------
Tony Smith, M.D.
Address:
-------------------------------
-------------------------------
-------------------------------
Bruce Feuchter
Address:
-------------------------------
-------------------------------
-------------------------------
Jacques Deuss
Address:
-------------------------------
-------------------------------
-------------------------------
Chuck Benson
Address:
-------------------------------
-------------------------------
-------------------------------
Sidney Brawer
Address:
-------------------------------
-------------------------------
-23-
<PAGE> 28
-------------------------------
Vaughn Whalen
Address:
-------------------------------
-------------------------------
/s/ TONY SMITH
-------------------------------
Tony Smith, M.D.
Address: 3120 Medford Road
-------------------------------
Durham, NC 27705
-------------------------------
-------------------------------
Bruce Feuchter
Address:
-------------------------------
-------------------------------
-------------------------------
Jacques Deuss
Address:
-------------------------------
-------------------------------
-------------------------------
Chuck Benson
Address:
-------------------------------
-------------------------------
-------------------------------
Sidney Brawer
Address:
-------------------------------
-------------------------------
-23-
<PAGE> 29
-------------------------------
Vaughn Whalen
Address:
-------------------------------
-------------------------------
-------------------------------
Tony Smith, M.D.
Address:
-------------------------------
-------------------------------
-------------------------------
Bruce Feuchter
Address:
-------------------------------
-------------------------------
-------------------------------
Jacques Deuss
Address:
-------------------------------
-------------------------------
/s/ CHUCK BENSON
-------------------------------
Chuck Benson
Address: 720 Lakemead Way
-------------------------------
Redwood City, CA 94052
-------------------------------
-------------------------------
Sidney Brawer
Address:
-------------------------------
-------------------------------
-23-
<PAGE> 30
-------------------------------
Vaughn Whalen
Address:
-------------------------------
-------------------------------
-------------------------------
Tony Smith, M.D.
Address:
-------------------------------
-------------------------------
-------------------------------
Bruce Feuchter
Address:
-------------------------------
-------------------------------
-------------------------------
Jacques Deuss
Address:
-------------------------------
-------------------------------
-------------------------------
Chuck Benson
Address:
-------------------------------
-------------------------------
/s/ SIDNEY BRAWER
-------------------------------
Sidney Brawer
Address: 11808 Sunshine Terrace
-------------------------------
Studio City, CA 91604
-------------------------------
-23-
<PAGE> 31
-------------------------------
Rodney Miller
Address:
-------------------------------
-------------------------------
/s/ Flavio Castaneda
-------------------------------
Flavio Castaneda
Address: 4949 Grandview Dr.
-------------------------------
Peoria, IL 61614
-------------------------------
-------------------------------
Will Thehu
Address:
-------------------------------
-------------------------------
-------------------------------
Bill Starling Family Trust
By:
-------------------------------
Title:
-------------------------------
Address:
-------------------------------
-------------------------------
-24-
<PAGE> 32
-------------------------------
Rodney Miller
Address:
-------------------------------
-------------------------------
-------------------------------
Flavio Castenada
Address:
-------------------------------
-------------------------------
-------------------------------
Will Thehu
Address:
-------------------------------
-------------------------------
-------------------------------
Bill Starling Family Trust
By: /s/ WILLIAM N. STARLING JR.
-------------------------------
Title: Trustee
-------------------------------
Address: 345 Golden Hills Dr.
-------------------------------
Portola Valley, CA 94028
-------------------------------
-24-
<PAGE> 33
INVESTORS
ALEX BROWN INVESTMENTS
INCORPORATED
By: /s/ MAYO A. SHATTUCK III
----------------------------------
Mayo A. Shattuck III, President
Address: 375 West Padonia Road
Timonium, MD 21093
-25-
<PAGE> 34
SCHEDULE A
COMMON HOLDERS:
George Wallace
Andrew Cragg
Novel Biomedical, Inc.
JK Holdings, Inc.
Vaughn Whalen
Tony Smith, M.D.
Bruce Feuchter
Jacques Deuss
Chuck Benson
Sidney Brawer
Rodney Miller
Flavio Castaneda
Will Thehu
William N. Starling, Jr., Trustee,
and Dana Gregory Starling, Trustee of the Starling Family Trust,
U/D/T August 15, 1990
<PAGE> 35
FIRST AMENDMENT TO
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
---------------------------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT is made as of the 17th day of May 1996, by and among Micro
Therapeutics, Inc., a California corporation (the "Company"), persons holding
at least a majority of the Registrable Securities (the "Investors") under the
Amended and Restated Investors' Rights Agreement (the "Rights Agreement") dated
as of February 9, 1995 (as "Registrable Securities" is defined under the Rights
Agreement), the Investors (the "Series C Investors) under the Series C
Preferred Stock Purchase Agreement (the "Series C Agreement") of even date
herewith and the holders of a majority of the Common Stock listed on the
signature pages hereto (the "Common Holders").
NOW, THEREFORE, the parties hereto agree that the Rights Agreement is
amended as expressly provided herein and except as expressly amended continues
in full force and effect as otherwise existing.
1. Definitions. Certain definitions contained in Section 1.1 of
the Rights Agreement are amended to read in full as follows:
(c) The term "Holder" means any person owning or
having the right to acquire Registrable Securities or
Registrable Common Stock or any assignee thereof in accordance
with Section 1.12 hereof.
(f) The term "Registrable Securities" means (i)
the Common Stock issuable or issued upon conversion of the
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock, and (ii) any
Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security
that is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of the shares
referenced in (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in
which his, her or its rights under this Section 1 are not
assigned.
2. Qualified Small Business Stock. Section 2.7 of the Rights
Agreement shall be amended to add Series C Preferred Stock to the stock that
shall be covered by the provisions therein.
3. The parties to the Rights Agreement shall include the Series C
Investors.
4. Except as expressly provided herein the Rights Agreement
continues in full force and effect.
<PAGE> 36
[Signature pages of FIRST AMENDMENT TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
MICRO THERAPEUTICS, INC.
By: /s/ GEORGE WALLACE
------------------------------------
George Wallace, President
Address: 1062 Calle Negocio #F
San Clemente, California 92673
INVESTORS:
MAYFIELD VII
By: Mayfield VII Management Partners,
a California Limited Partnership,
its General Partner
By:
------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II,
a California Limited Partnership
By:
------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By:
------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
2
<PAGE> 37
[Signature pages of FIRST AMENDMENT TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
MICRO THERAPEUTICS, INC.
By:
------------------------------------
George Wallace, President
Address: 1062 Calle Negocio #F
San Clemente, California 92673
INVESTORS:
MAYFIELD VII
By: Mayfield VII Management Partners,
a California Limited Partnership,
its General Partner
By: [SIGNATURE]
------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II,
a California Limited Partnership
By: [SIGNATURE]
------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By:
------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
2
<PAGE> 38
[Signature pages of FIRST AMENDMENT TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
MICRO THERAPEUTICS, INC.
By:
------------------------------------
George Wallace, President
Address: 1062 Calle Negocio #F
San Clemente, California 92673
INVESTORS:
MAYFIELD VII
By: Mayfield VII Management Partners,
a California Limited Partnership,
its General Partner
By:
------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II,
a California Limited Partnership
By:
------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: [SIGNATURE]
------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
2
<PAGE> 39
MENLO ENTREPRENEURS FUND VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: [SIGNATURE]
------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
COMMON HOLDERS:
/s/ GEORGE WALLACE
----------------------------------------
George Wallace
Address: 1062 Calle Negocio #F
San Clemente, California 92673
----------------------------------------
Andrew Cragg
Address: 6101 Code Avenue
Edina, Minnesota 55436
SERIES C INVESTORS:
MAYFIELD VII
By:
------------------------------------
Title:
---------------------------------
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
3
<PAGE> 40
MENLO ENTREPRENEURS FUND VI, L.P.
By its General Partner:
MV Management VI, L.P.
By:
------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
COMMON HOLDERS:
----------------------------------------
George Wallace
Address: 1062 Calle Negocio #F
San Clemente, California 92673
----------------------------------------
Andrew Cragg
Address: 6101 Code Avenue
Edina, Minnesota 55436
SERIES C INVESTORS:
MAYFIELD VII
By: Mayfield VII Management Partners,
a California Limited Partnership,
its General Partner
By: [SIGNATURE]
-------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
3
<PAGE> 41
MAYFIELD ASSOCIATES FUND II,
a California Limited Partnership
By: [SIGNATURE]
------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By:
------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
MENLO ENTREPRENEURS FUND VI, L.P.
By its General Partner:
MV Management VI, L.P.
By:
------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
4
<PAGE> 42
MAYFIELD ASSOCIATES FUND II
By:
------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: [SIGNATURE]
------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
MENLO ENTREPRENEURS FUND VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: [SIGNATURE]
------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
4
<PAGE> 43
KINGSBURY CAPITAL PARTNERS II, L.P.
By: KINGSBURY ASSOCIATES, L.P.
General Partner
By: /s/ TIMOTHY P. WOLLAEGER
-------------------------------
Timothy P. Wollaeger
General Partner
Address: 3655 Nobel Drive, Suite 490
San Diego, CA 92122
THE ALLEN INVESTMENT PARTNERSHIP
By: /s/ DICK ALLEN
------------------------------------
Title: MANAGING PARTNER
---------------------------------
Address: 4199 Campus Drive, Suite 830
Irvine, CA 92715
GETZ BROS. CO., LTD.
By:
------------------------------------
Ray Simkins
Title:
---------------------------------
Address: Sumitomo Seimei Aoyama Bldg.
3-1-30, Minami-Aoyama, Minato-Ku
Tokyo 107 Japan
GLYNN VENTURES III L.P.
By:
------------------------------------
John Glynn
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
5
<PAGE> 44
KINGSBURY CAPITAL PARTNERS II, L.P.
By: KINGSBURY ASSOCIATES, L.P.
General Partner
By:
-------------------------------
Timothy P. Wollaeger
General Partner
Address: 3655 Nobel Drive, Suite 490
San Diego, CA 92122
THE ALLEN INVESTMENT PARTNERSHIP
By:
------------------------------------
Title:
---------------------------------
Address: 4199 Campus Drive, Suite 830
Irvine, CA 92715
GETZ BROS. CO., LTD.
By: /s/ PAUL BOND
------------------------------------
For Ray Simkins
Title: VICE PRESIDENT
---------------------------------
Address: Sumitomo Seimei Aoyama Bldg.
3-1-30, Minami-Aoyama, Minato-Ku
Tokyo 107 Japan
GLYNN VENTURES III L.P.
By:
------------------------------------
John Glynn
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
5
<PAGE> 45
KINGSBURY CAPITAL PARTNERS II, L.P.
By: KINGSBURY ASSOCIATES, L.P.
General Partner
By:
-------------------------------
Timothy P. Wollaeger
General Partner
Address: 3655 Nobel Drive, Suite 490
San Diego, CA 92122
THE ALLEN INVESTMENT PARTNERSHIP
By:
------------------------------------
Title:
---------------------------------
Address: 4199 Campus Drive, Suite 830
Irvine, CA 92715
GETZ BROS. CO., LTD.
By:
------------------------------------
Ray Simkins
Title:
---------------------------------
Address: Sumitomo Seimei Aoyama Bldg.
3-1-30, Minami-Aoyama, Minato-Ku
Tokyo 107 Japan
GLYNN VENTURES III L.P.
By: /s/ JOHN GLYNN
------------------------------------
John Glynn
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
5
<PAGE> 46
COMDISCO, INC.
By: /s/ JAMES P. LABE
------------------------------------
JAMES P. LABE, PRESIDENT
VENTURE LEASE DIVISION
Title:
---------------------------------
Address: 6111 N. River Road
Rosemont, IL 60018
----------------------------------------
Samuel E. Navarro
----------------------------------------
Kevin Kotler
----------------------------------------
David H. MacCallum
----------------------------------------
Lori A. Gonye
----------------------------------------
Michael Cohen
----------------------------------------
Lisa Fritz
----------------------------------------
H. Gill Sawhney
6
<PAGE> 47
COMDISCO, INC.
By:
------------------------------------
Kevin J. McQuillan
Title:
---------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
/s/ SAMUEL E. NAVARRO
----------------------------------------
Samuel E. Navarro
----------------------------------------
Kevin Kotler
----------------------------------------
David H. MacCallum
----------------------------------------
Lori A. Gonye
----------------------------------------
Michael Cohen
----------------------------------------
Lisa Fritz
----------------------------------------
H. Gill Sawhney
6
<PAGE> 48
COMDISCO, INC.
By:
------------------------------------
Kevin J. McQuillan
Title:
---------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
----------------------------------------
Samuel E. Navarro
/s/ KEVIN KOTLER
----------------------------------------
Kevin Kotler
----------------------------------------
David H. MacCallum
----------------------------------------
Lori A. Gonye
----------------------------------------
Michael Cohen
----------------------------------------
Lisa Fritz
----------------------------------------
H. Gill Sawhney
6
<PAGE> 49
COMDISCO, INC.
By:
------------------------------------
Kevin J. McQuillan
Title:
---------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
----------------------------------------
Samuel E. Navarro
----------------------------------------
Kevin Kotler
/s/ DAVID H. MacCALLUM
----------------------------------------
David H. MacCallum
----------------------------------------
Lori A. Gonye
----------------------------------------
Michael Cohen
----------------------------------------
Lisa Fritz
----------------------------------------
H. Gill Sawhney
6
<PAGE> 50
COMDISCO, INC.
By:
------------------------------------
Kevin J. McQuillan
Title:
---------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
----------------------------------------
Samuel E. Navarro
----------------------------------------
Kevin Kotler
----------------------------------------
David H. MacCallum
/s/ LORI A. GONYE
----------------------------------------
Lori A. Gonye
----------------------------------------
Michael Cohen
----------------------------------------
Lisa Fritz
----------------------------------------
H. Gill Sawhney
6
<PAGE> 51
COMDISCO, INC.
By:
------------------------------------
Kevin J. McQuillan
Title:
---------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
----------------------------------------
Samuel E. Navarro
----------------------------------------
Kevin Kotler
----------------------------------------
David H. MacCallum
----------------------------------------
Lori A. Gonye
/s/ MICHAEL COHEN
----------------------------------------
Michael Cohen
----------------------------------------
Lisa Fritz
----------------------------------------
H. Gill Sawhney
6
<PAGE> 52
COMDISCO, INC.
By:
------------------------------------
Kevin J. McQuillan
Title:
---------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
----------------------------------------
Samuel E. Navarro
----------------------------------------
Kevin Kotler
----------------------------------------
David H. MacCallum
----------------------------------------
Lori A. Gonye
----------------------------------------
Michael Cohen
/s/ LISA FRITZ
----------------------------------------
Lisa Fritz
----------------------------------------
H. Gill Sawhney
6
<PAGE> 53
COMDISCO, INC.
By:
------------------------------------
Kevin J. McQuillan
Title:
---------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
----------------------------------------
Samuel E. Navarro
----------------------------------------
Kevin Kotler
----------------------------------------
David H. MacCallum
----------------------------------------
Lori A. Gonye
----------------------------------------
Michael Cohen
----------------------------------------
Lisa Fritz
/s/ H. GILL SAWHNEY
----------------------------------------
H. Gill Sawhney
6
<PAGE> 54
SECOND AMENDMENT TO
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT is made as of the 27th day of June 1996, by and among Micro
Therapeutics, Inc., a California corporation (the "Company"), persons holding at
least a majority of the Registrable Securities (the "Investors") under the First
Amendment to Amended and Restated Investors' Rights Agreement (the "Rights
Agreement") dated as of May 17, 1996 (as "Registrable Securities" is defined
under the Rights Agreement), the Investors (the "Series C Investors") under the
First Amendment to Series C Preferred Stock Purchase Agreement (the "Series C
Agreement"), of even date herewith and the holders of a majority of the Common
Stock listed on the signature pages hereto (the "Common Holders").
NOW, THEREFORE, the parties hereto agree that the Rights Agreement is
amended as expressly provided herein and except as expressly amended continues
in full force and effect as otherwise existing.
1. The parties to the Rights Agreement shall include The CIT
Group/Venture Capital, Inc. and R. Simkins 1995 Trust, and each such party
agrees to be bound by the terms and conditions of the Rights Agreement.
2. Except as expressly provided herein the Rights Agreement
continues in full force and effect.
<PAGE> 55
[Signature pages of SECOND AMENDMENT TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
MICRO THERAPEUTICS, INC.
By: /s/ George Wallace
----------------------------------------------
George Wallace, President
Address: 1062 Calle Negocio #F
San Clemente, California 92673
INVESTORS:
MAYFIELD VII
By: Mayfield VII Management Partners, a
California Limited Partnership, its General
Partner
By: /s/ [SIGNATURE]
----------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II, a California
Limited Partnership
By: /s/ [SIGNATURE]
----------------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: /s/ [SIGNATURE]
----------------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
2
<PAGE> 56
MENLO ENTREPRENEURS FUND VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: /s/ [SIGNATURE]
----------------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
COMMON HOLDERS:
/s/ George Wallace
-------------------------------------------------
George Wallace
Address: 1062 Calle Negocio #F
San Clemente, California 92673
/s/ Andrew Cragg
-------------------------------------------------
Andrew Cragg
Address: 6101 Code Avenue
Edina, Minnesota 55436
SERIES C INVESTORS:
MAYFIELD VII
By: Mayfield VII Management Partners, a
California Limited Partnership, its General
Partner
By: /s/ [SIGNATURE]
----------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
3
<PAGE> 57
MAYFIELD ASSOCIATES FUND II, a California
Limited Partnership
By: /s/ [SIGNATURE]
--------------------------------------------------
Title: Authorized Signatory
Address: 2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: /s/ [SIGNATURE]
--------------------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
MENLO ENTREPRENEURS FUND VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: /s/ [SIGNATURE]
--------------------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
4
<PAGE> 58
KINGSBURY CAPITAL PARTNERS L.P. II
By: KINGSBURY ASSOCIATES, L.P.
General Partner
By:
-----------------------------------------
Timothy P. Wollaeger
General Partner
Address: 3655 Nobel Drive, Suite 490
San Diego, CA 92122
THE ALLEN INVESTMENT PARTNERSHIP
By: /s/ Dick Allen
--------------------------------------------------
Title: /s/ Managing Partner
-----------------------------------------------
Address: 4199 Campus Drive, Suite 830
Irvine, CA 92715
GETZ BROS. CO., LTD.
By: /s/ Paul Bond
--------------------------------------------------
Paul Bond
Title: Vice President
-----------------------------------------------
Address: Sumitomo Seimei Aoyama Bldg.
3-1-30, Minami-Aoyama, Minato-Ku
Tokyo 107 Japan
GLYNN VENTURES III L.P.
By:
--------------------------------------------------
John Glynn
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
5
<PAGE> 59
COMDISCO, INC.
By:
--------------------------------------------------
Kevin J. McQuillan
Title:
-----------------------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
THE CIT GROUP/VENTURE CAPITAL, INC.
By: /s/ Bruce R. Schackman
--------------------------------------------------
Bruce R. Schackman
Title: Vice President
Address: 650 CIT Drive
Livingston, New Jersey 07039
R. SIMKINS 1995 TRUST
By:
--------------------------------------------------
Ray Simkins
Title: Trustee
-----------------------------------------------------
Samuel E. Navarro
-----------------------------------------------------
Kevin Kotler
-----------------------------------------------------
David H. MacCallum
-----------------------------------------------------
Lori A. Gonye
-----------------------------------------------------
Michael Cohen
-----------------------------------------------------
Lisa Fritz
-----------------------------------------------------
Gill H. Sawhney
6
<PAGE> 1
EXHIBIT 10.6
MICRO THERAPEUTICS, INC.
1993 INCENTIVE STOCK OPTION, NONQUALIFIED STOCK
OPTION AND RESTRICTED STOCK PURCHASE PLAN
(As Amended Effective May 27, 1994)
This 1993 INCENTIVE STOCK OPTION, NONQUALIFIED STOCK OPTION AND
RESTRICTED STOCK PURCHASE PLAN (the "Plan") is hereby established by MICRO
THERAPEUTICS, INC. (the "Company") approved by the Company's Board of Directors
this 30th day of September, 1993 and effective as of September 30, 1993 (the
"Effective Date").
ARTICLE I
PURPOSE OF THE PLAN
1.1 PURPOSE. The purposes of the Plan are (a) to insure the
retention of the services of existing executive personnel, key employees and
non-employee directors of the Company or its affiliates; (b) to attract and
retain competent new executive personnel and key employees; (c) to provide
incentive to all such personnel, employees and non-employee directors to devote
their utmost effort and skill to the advancement and betterment of the Company,
by permitting them to participate in the ownership of the Company and thereby in
the success and increased value of the Company; and (d) to allow consultants,
business associates and others with important business relationships with the
Company the opportunity to participate in the ownership of the Company and
thereby have an interest in the success and increased value of the Company.
ARTICLE II
DEFINITIONS
2.1 ANNUAL MEETING. "Annual Meeting" means the Company's Annual
Meeting of Shareholders held in September, or any postponement or adjournment
thereof.
2.2 BOARD. "Board" means the Board of Directors of the Company.
2.3 CODE. "Code" means the Internal Revenue Code of 1986, as
amended.
2.4 COMMITTEE. "Committee" means the Compensation/Stock Option
Committee appointed by the Board as set forth in Article X.
2.5 COMPANY. "Company" means Micro Therapeutics, Inc., and its
majority-owned subsidiaries and wholly-owned subsidiaries of its majority-owned
subsidiaries, as well as any parent corporation of Micro Therapeutics, Inc.
2.6 COMPANY STOCK. "Company Stock" means shares of the common
stock of the Company.
<PAGE> 2
2.7 DISABILITY. "Disability" means the condition, as determined by
the Board or Committee, of a Participant who is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to last for a continuous period of not
less than twelve months. The Board or Committee's determination of Disability or
the absence thereof shall be conclusive and binding on all interested parties.
2.8 EXERCISE PRICE. "Exercise Price" means the price per share of
Company Stock at which an Option may be exercised.
2.9 FAIR MARKET VALUE. "Fair Market Value" means the value of one
share of Company Stock, determined as follows:
(a) If the Company Stock is not listed or admitted to trading on a
stock exchange, the last sale price of the Company Stock in the over-the-counter
market on the date of valuation, or,
(b) If the Company Stock is then listed or admitted to trading on
any stock exchange, the closing sale price on the date of valuation on the
principal stock exchange on which the Company Stock is then listed or admitted
to trading, or,
(c) If the Company Stock is not traded publicly and no market
price is available, the Fair Market Value shall be determined by the Board of
Directors from time to time as provided for in Section 409 of the California
Corporations Code.
If no closing sale price is quoted on such day, or if no sale takes
place on such day on such principal exchange, as the case may be, then the
closing sale price on the over-the-counter market or the closing sale price of
the Company Stock on such exchange on the next preceding day on which a sale
occurred or closing sale price was reported, as the case may be, shall be the
Fair Market Value. During such times as there is not a market price available,
the Fair Market Value shall be determined by the Board or the Committee in good
faith, which determination shall be conclusive and binding on all interested
parties.
2.10 INCENTIVE OPTION. "Incentive Option" means the shares of stock
subject to the incentive options having the terms and conditions set forth in
Article VI below.
2.11 NONQUALIFIED OPTION. "Nonqualified Option" means the shares of
stock subject to the Nonqualified Options having the terms and conditions set
forth in Article VII below.
2.12 OFFEREE. "Offeree" means a Participant who has received a
right to purchase or receive Restricted Shares under the Plan.
2.13 OPTION. "Option" means either an Incentive Option or a
Nonqualified Option.
2.14 OPTION AGREEMENT. "Option Agreement" means the written
agreement entered into between the Company and the Optionee with respect to
which an Option or Options are granted under the Plan.
2.15 OPTIONEE. "Optionee" means a Participant who has received an
Option.
2
<PAGE> 3
2.16 PARTICIPANT. "Participant" means an individual who is either
an employee (within the meaning of Code Section 3401 and the regulations
thereunder) of the Company, a consultant of the Company or a key vendor of the
Company.
2.17 PLAN. "Plan" means the Micro Therapeutic 1993 Incentive Stock
Option, Nonqualified Stock Option and Restricted Stock Purchase Plan.
2.18 PURCHASE PRICE. "Purchase Price" means the Exercise Price
times the number of whole shares of Company Stock with respect to which an
Option is exercised.
2.19 RESTRICTED SHARES. "Restricted Shares" means the shares of
stock subject to the terms and conditions set forth in Article VIII below.
ARTICLE III
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the
Company or its parent or of any subsidiary corporation (including directors if
they are also employees of the Company or a subsidiary), as may be determined by
the Board or the Committee, who qualify for incentive stock options under the
applicable provisions of the Internal Revenue Code, will be eligible for
selection to receive Incentive Options under the Plan. An employee who has been
granted an Incentive Option may, if otherwise eligible, be granted an additional
Incentive Option or Options or receive Nonqualified Options or Restricted Shares
if the Board or Committee shall so determine.
3.2 NONQUALIFIED OPTIONS AND RESTRICTED SHARES. Officers and other
key employees of the Company or of any subsidiary corporation, any member of the
Board of Directors of the Company provided that he or she is employed by the
Company, or consultants, business associates or others with important business
relationships with the Company, will be eligible to receive Nonqualified Options
or purchase Restricted Shares under the Plan. An individual who has been granted
a Nonqualified Option or who has received Restricted Shares may, if otherwise
eligible, be granted an Incentive Option (if otherwise eligible) or an
additional Nonqualified Option or Options or receive additional Restricted
Shares if the Board or Committee shall so determine.
ARTICLE IV
COMPANY STOCK
4.1 GRANT OF COMPANY STOCK. The shares of stock issuable under the
Plan shall be shares of Company Stock that have been authorized but unissued by
the Company. The total number of shares of the Company Stock which may be issued
under the Plan shall not exceed, in the aggregate, 1,000,000 shares. The
limitations established by the preceding sentence shall be subject to adjustment
as provided in Article XI below. In the event that any outstanding Incentive
Option or Nonqualified Option granted under the Plan can no longer under any
circumstances be exercised, for any reason, the shares of Company Stock
allocable to the unexercised portion of such Incentive Option or Nonqualified
Option, may again be subject to grant or issuance under the Plan.
3
<PAGE> 4
ARTICLE V
OPTION GRANT AND PURCHASE PRICE
5.1 INCENTIVE OPTIONS. The Exercise Price of the shares of Company
Stock covered by each Incentive Option granted under the Plan shall not be less
than the Fair Market Value of such shares on the date the Incentive Option is
granted; provided, however, that the exercise price shall not be less than 110%
of the Fair Market Value if the person to whom such shares are granted owns 10%
or more of the total outstanding stock of the Company.
5.2 NONQUALIFIED OPTIONS. The Exercise Price of the shares of
Company Stock covered by each Nonqualified Option granted under the Plan shall
not be less than the Fair Market Value of such shares on the date the
Nonqualified Option is granted; provided, however, that the exercise price shall
not be less than 110% of the Fair Market Value if the person to whom such shares
are granted owns 10% or more of the total outstanding stock of the Company.
5.3 RESTRICTED SHARES. The minimum purchase price for Restricted
Shares to be issued under the Plan shall be 85% of the Fair Market Value of the
shares either on the date the right to purchase is granted, or at the time the
purchase is consummated; provided, however, the purchase price for Restricted
Shares to be issued under the Plan shall be not less than the Fair Market Value
of the shares either on the date the right to purchase is granted, or at the
time the purchase is consummated, in the case of any person who owns 10% or more
of the total outstanding stock of the Company. Without limiting the generality
of the foregoing, the Administrator may determine to issue the Restricted Shares
as a bonus in consideration for services rendered with the payment of no
additional consideration. In the event the purchase price for Restricted Shares
is less than the Fair Market Value of such shares on the date of issuance, the
difference between the Fair Market Value and the purchase price shall be income
to the recipient and as a condition to the issuance, the recipient shall be
required to pay to the Company any applicable tax withholdings.
ARTICLE VI
INCENTIVE OPTIONS
6.1 TERMS SPECIFIC TO INCENTIVE OPTIONS. Each Incentive Option
granted pursuant to this Plan shall be evidenced by a written Incentive Option
Agreement which shall specify that the options subject thereto are Incentive
Options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended. The granting of an Incentive Option shall take place only when a
written Incentive Option Agreement shall have been duly executed and delivered
by or on behalf of the Company to the Optionee to whom such Incentive Option
shall be granted. Neither anything contained in the Plan nor in any resolution
adopted or to be adopted by the Administrator shall constitute the granting of
any Incentive Option. The Incentive Option Agreement shall be in such form as
the Administrator shall, from time to time, recommend, but shall comply with and
be subject to the following terms and conditions set forth in this Article.
6.2 MEDIUM AND TIME OF PAYMENT. The Exercise Price upon the
exercise of the Incentive Option shall be payable (a) in United States dollars
payable in cash, certified check, or bank draft; (b) subject to any legal
restrictions on the acquisition or purchase of its shares by the Company, by the
delivery of shares of Company Stock which shall be deemed to have a value to the
Company equal to the aggregate Fair Market Value of such shares determined at
the date of such
4
<PAGE> 5
exercise; (c) by the issuance of a promissory note in a form acceptable to the
Administrator, (d) by cancellation of indebtedness of the Company to Optionee,
(e) by waiver of compensation due or accrued to Optionee for services rendered,
(f) provided that a public market for the Company's stock exists, through a
"same day sale" commitment from the Optionee and a broker-dealer that is a
member of the National Association of Securities Dealers (an "NASD" Dealer)
whereby the Optionee irrevocably elects to exercise his Option and to sell a
portion of the Shares so purchased to pay for the exercise price and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company, (g) provided that a public market for
the Company's stock exists, through a "margin" commitment from the Optionee and
a NASD Dealer whereby the Optionee irrevocably elects to exercise this Option
and to pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the exercise price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company, or (h) any combination of
(a), (b), (c), (d), (e), (f), or (g) above.
6.3 GRANT OF INCENTIVE OPTION. Any Incentive Option shall be
granted within ten years from the date of the adoption of this Plan or the date
this Plan is approved by the shareholders of the Company, whichever is earlier.
6.4 NUMBER OF SHARES. The Incentive Option Agreement shall state
the total number of shares to which it pertains.
6.5 INCENTIVE OPTION PRICE. The Incentive Option price shall be
not less than the Fair Market Value of the shares of Company Stock on the date
of the granting of the option.
6.6 VESTING OF OPTION. The right to exercise an Option shall vest
in installments, and an Option shall be exercisable from time to time in whole
or in part as to any vested installment. The Optionee's right to exercise an
Option shall vest at the rate of no less than 20% per year over five years from
the date the option is granted.
6.7 TERM OF INCENTIVE OPTION. Each Incentive Option granted under
the Plan shall expire within a period of not more than ten years from the date
the Incentive Option is granted; provided, however, that the Incentive Option
shall expire within a period of not more than five years if granted to a person
who is the beneficial owner of 10% or more of the outstanding stock of the
Company.
6.8 DATE OF EXERCISE. The Administrator may, in its discretion,
provide that an Incentive Option may be exercised immediately or that it may not
be exercised in whole or in part for any specified period or periods of time or
subject to the completion of specified projects or fulfillment of specified
duties or responsibilities, or fulfillment of specified financial or other
objectives. Except as may be so provided, any Incentive Option may be exercised
in whole at any time or in part from time to time during its term. The vesting
schedule of an issued option may not be altered. Under no circumstances will
vesting of incentive stock options under the Plan be accelerated.
6.9 TERMINATION OF EMPLOYMENT. In the event that an Optionee who
is an employee of the Company shall cease to be employed by the Company or a
parent or any subsidiary corporation of the Company or a corporation or a parent
or subsidiary corporation of a corporation issuing and assuming an Incentive
Option in a transaction to which Section 425(a) of the Internal Revenue Code
5
<PAGE> 6
of 1986, as amended, applies, for any reason, including, without limitation, as
a result of his death or Disability, (a) all Incentive Options granted to any
such Optionee pursuant to this Plan which are not exercisable at the date of
such cessation shall terminate immediately and become void and of no effect, and
(b) all Incentive Options granted to any such Optionee pursuant to this Plan
which are exercisable at the date of such cessation may be exercised at least
six months from the date of such cessation if termination was caused by death or
disability or at least thirty days from the date of such cessation if
termination was caused by other than death or disability with the exact date of
expiration within such period to be determined by the Administrator at the time
of grant, but in any event no later than the date of expiration of the Incentive
Option period, and if not so exercised within such time shall become void and of
no effect at the end of such time; provided, however, that if any such option is
in fact exercised at any time after three months following the date of such
cessation, then for tax purposes such Option shall be a Nonqualified Option and
not an Incentive Option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
6.10 RIGHTS AS A SHAREHOLDER. An Optionee or a transferee of an
Incentive Option shall have no rights as a shareholder with respect to any
shares of Company Stock covered by his or her Incentive Option until the date of
the issuance of a share certificate to him or her for such shares. No adjustment
shall be made for dividends or distributions or other rights for which the
record date is prior to the date such share certificate is issued.
6.11 NONASSIGNABILITY OF RIGHTS. No Incentive Option shall be
assignable or transferable by the person receiving same except by will or the
laws of descent and distribution. During the life of such person, the Incentive
Option shall be exercisable only by him.
6.12 LIMITATION. Notwithstanding any other provisions of the Plan,
the aggregate Fair Market Value of the shares of Company Stock with respect to
which incentive stock options are exercisable for the first time by the Optionee
during any calendar year (under all such plans of the Company and its parent and
subsidiary corporations) shall not exceed $100,000.
6.13 OTHER PROVISIONS. Any Incentive Option Agreement may contain
such other terms, provisions and conditions as may be determined by the
Administrator, which are not inconsistent with the provisions of Section 422 of
the Internal Revenue Code of 1986, as amended, including the option of the
Company to repurchase any shares issued upon the exercise of an option upon
termination of employment. Incentive Options granted to different persons, or to
the same person at different times, may be subject to terms, conditions and
restrictions which differ from each other.
6.14 WITHHOLDING TAXES. In the event the Company determines that it
is required to withhold state or federal income tax or FICA tax as a result of
the exercise of any Option, it may require the Optionee to make arrangements
satisfactory to the Company to enable it to satisfy such withholding
requirements as a condition to the exercise of the Option, including the
cancellation of a portion of the Option.
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ARTICLE VII
NONQUALIFIED OPTIONS
7.1 TERMS SPECIFIC TO NONQUALIFIED OPTIONS. Each Nonqualified
Option granted pursuant to this Plan shall be evidenced by a written
Nonqualified Option Agreement which shall specify that the Options subject
thereto are Nonqualified Options. The granting of a Nonqualified Option shall
take place only when this written Nonqualified Option Agreement shall have been
duly executed and delivered by or on behalf of the Company to the Optionee to
whom such Nonqualified Option shall be granted. Neither anything contained in
the Plan nor in any resolution adopted or to be adopted by the Administrator
shall constitute the granting of any Nonqualified Option. The Nonqualified
Option Agreement shall be in such form as the Administrator shall, from time to
time, recommend, but shall comply with and be subject to the terms and
conditions of this Article.
7.2 MEDIUM AND TIME OF PAYMENT. The Nonqualified Option price
shall be payable in any manner permissible for Incentive Options set forth in
Section 6.2 above.
7.3 NUMBER OF SHARES. The Nonqualified Option Agreement shall
state the total number of shares to which it pertains.
7.4 EXERCISE PRICE. Each Nonqualified Option shall state the
Exercise Price, which price shall be 100% of the Fair Market Value on the date
of grant of the Option; provided, however, that the exercise price shall not be
less than 110% of the Fair Market Value if the person to whom such shares are
granted owns 10% or more of the total outstanding stock of the Company.
7.5 TERM OF NONQUALIFIED OPTION. Each Nonqualified Option granted
under the Plan shall expire within a period of not more than ten years from the
date the Nonqualified Option is granted.
7.6 VESTING OF OPTION. The right to exercise this Option shall
vest in installments, and this Option shall be exercisable from time to time in
whole or in part as to any vested installment. The Optionee's right to exercise
this Option shall vest at the rate of no less than 20% per year over five years
from the date the option is granted.
7.7 DATE OF EXERCISE. The Administrator may, in its discretion,
provide that a Nonqualified Option may be exercised immediately or that it may
not be exercised in whole or in part for any specified period or periods of time
or subject to the completion of specified projects or fulfillment of specified
duties or responsibilities or the fulfillment of specified financial or other
objectives. Except as may be so provided, any Nonqualified Option may be
exercised in whole at any time or in part from time to time during its term. The
vesting schedule of an issued option may not be altered. Under no circumstances
will vesting of nonqualified stock options under the Plan be accelerated.
7.8 TERMINATION OF EMPLOYMENT. In the event that an Optionee who
is an employee of the Company shall cease to be employed by the Company or any
of its subsidiaries for any reason including without limitation as a result of
his or her death or Disability, (a) all Nonqualified Options granted to any such
Optionee pursuant to this Plan which are not exercisable at the date of such
cessation shall terminate immediately and become void and of no effect, and (b)
all Nonqualified Options granted to any such Optionee pursuant to this Plan
which are exercisable at the date of such
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<PAGE> 8
cessation may be exercised at any time from three to six months of the date of
such cessation, with the exact date of expiration within such period to be
determined by the Administrator at the time of grant, but in any event no later
than the date of expiration of the Nonqualified Option period, and if not so
exercised within such time shall become void and of no effect at the end of such
time.
ARTICLE VIII
RESTRICTED SHARES
8.1 TERMS SPECIFIC TO RESTRICTED SHARES. After the Administrator
shall have determined to offer to an Offeree the right to purchase or receive
Restricted Shares under the Plan, it shall cause to be delivered to the Offeree
a written Restricted Stock Agreement which shall constitute the Company's offer
to sell or issue Restricted Shares and shall contain the terms and conditions of
purchase, including, without limitation, the number of shares which the Offeree
shall be entitled to purchase, the purchase price per share, or if there shall
be no purchase price, a statement to such effect, any other terms, conditions or
restrictions relating thereto, and the number of days or period the Offeree
shall have to accept such offer. The execution and delivery of the Restricted
Stock Agreement by the Offeree to the Company within said number of days or
period shall constitute acceptance of the offer and said Restricted Share
Agreement shall, thereupon, become a binding obligation of the Company and the
Offeree. Each Restricted Stock Agreement shall be in such form as the
Administrator shall, from time to time, recommend, but shall comply with and be
subject to the terms and conditions of this Article.
8.2 METHOD OF PAYMENT. The purchase price of the Restricted
Shares, if any, shall be paid to the Company, (a) in cash; (b) by check or bank
draft; (c) by a promissory note in a form acceptable to the Administrator; (d)
by cancellation of indebtedness of the Company to the purchaser; (e) by waiver
of compensation due or accrued to the purchaser for services rendered; (f)
provided that a public market for the Company's common stock exists, through a
"same day sale" commitment from the purchaser and a broker-dealer that is a
member of the National Association of Securities Dealers (an "NASD" Dealer)
whereby the purchaser irrevocably elects to purchase the Shares and sell a
portion of the Shares so purchased which are vested and not subject to any
repurchase rights of the Company to pay for the purchase price and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
purchase price directly to the Company; (g) provided that a public market for
the Company's stock exists through a "margin" commitment from the purchaser and
an NASD Dealer whereby the purchaser irrevocably agrees to purchase the Shares
and to pledge the Shares so purchased which are vested and not subject to any
repurchase rights of the Company to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the purchase price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the purchase price directly to the Company; or (h) any combination of
(a), (b), (c), (d), (e), (f), or (h) above, as the Administrator shall in its
discretion determine. The terms, manner and timing of such payment and the form
and content of any promissory note, shall be included or made a part of the
Restricted Share Agreement. If payment, in whole or in part, is made by a
promissory note, the shares so purchased with such note shall be held in pledge
with the Company to secure payment of the note. The pledge shall be in such form
and shall contain such terms as the Administrator may deem appropriate.
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8.3 NUMBER OF SHARES. The Restricted Stock Agreement shall state
the total number of shares which the Offeree shall be entitled to purchase and
whether or not the Offeree may purchase less than all of the shares offered.
8.4 TERM OF OFFER. The Restricted Stock Agreement shall specify
the number of days or other period the Offeree shall have to accept the offer,
not to exceed ninety days from the date of such offer. If not accepted by the
Offeree within such number of days or other period, the offer shall
automatically terminate upon expiration thereof, and the offer shall thereupon
be null and void and without further effect, except that the Administrator may
extend such number of days or other period available for acceptance, not to
exceed an additional ninety days. Acceptance of the offer shall occur when the
Offeree has executed and redelivered to the Company one or more counterparts of
the Restricted Stock Agreement in the form delivered to him by the Company and,
to be effective, such acceptance must be without condition or reservation of any
kind whatsoever.
8.5 ESCROW OF DIVIDENDS. If payment for shares is made by a
promissory note, all cash dividends paid with respect to the shares so purchased
shall be held in escrow by the Company for the account of the purchaser without
interest until such time as the shares are fully paid. Upon full payment of the
promissory note, all of such escrowed dividends shall be paid to the purchaser
without interest.
8.6 SCHEDULE OF VESTING.
(A) VESTING OF RESTRICTED SHARES. The right of the Company to
repurchase Restricted Shares shall terminate in installments, and such right to
repurchase the Restricted Shares shall be exercisable from time to time in whole
or in part as to any Restricted Shares in which the repurchase right has yet to
lapse. The Company's right to exercise this repurchase right shall lapse at the
rate of no less than 20% per year over five years from the date the Restricted
Shares are offered.
(B) ADDITIONAL VESTING IN THE EVENT OF DEATH OR DISABILITY. If,
during the term of his employment with the Company, Purchaser shall die or
become physically or mentally disabled such that he is unable to fulfill the
duties of his position with the Company (as certified by a competent, licensed
physician or psychiatrist reasonably satisfactory to the Company), the
Termination Date shall be deemed to have occurred one year beyond the actual
date of death or disability and Purchaser's Shares shall be deemed to be vested
to the extent of one year beyond the actual date of such death or disability.
(C) CONSIDERATION FOR REPURCHASE OF RESTRICTED SHARES. The Company
shall pay Offeree as consideration for the Shares to be acquired upon exercise
of its right to repurchase the Restricted Shares the original purchase price
paid by Offeree.
ARTICLE IX
SPECIAL RULES APPLICABLE TO
NONQUALIFIED OPTIONS AND RESTRICTED SHARES
9.1 RIGHTS AS A SHAREHOLDER. A Nonqualified Optionee or an Offeree
of Restricted Shares shall have no rights as a shareholder with respect to any
shares of Company Stock covered
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<PAGE> 10
by his or her Nonqualified Option or Restricted Share Agreement until the date
of the issuance of a share certificate to such Optionee or Offeree for such
shares. No adjustment shall be made for dividends or distributions or other
rights for which the record date is prior to the date such share certificate is
issued.
9.2 NONASSIGNABILITY OF RIGHTS. No Nonqualified Option or
Restricted Share Agreement shall be assignable or transferable by the person
receiving same except by will or the laws of descent and distribution. During
the life of such person, the Nonqualified Option or offer to purchase Restricted
Shares shall be exercisable only by him or her.
9.3 OTHER PROVISIONS. Any Nonqualified Option Agreement and any
Restricted Stock Agreement may contain such other terms, provisions and
conditions as may be determined by the Administrator, and, without limiting the
generality of the foregoing, the Board of Directors or the Committee, as the
case may be, shall have discretion to offer to a person a choice between having
Nonqualified Options granted or having Restricted Shares offered to him, or to
grant both Nonqualified Options and issue Restricted Shares or to condition a
grant of Nonqualified Options upon a purchase of shares under a Restricted Stock
Agreement under the Plan. Nonqualified Options granted or offers to purchase
Restricted Shares made to different persons, or to the same person at different
times, may be subject to terms, conditions and restrictions which differ from
each other.
9.4 WITHHOLDING TAXES. In the event the Company determines that it
is required to withhold state or federal income tax or FICA tax as a result of
the exercise of any Option or any purchase of Restricted Shares, it may require
the Optionee or Offeree to make arrangements satisfactory to the Company to
enable it to satisfy such withholding requirements as a condition to the
exercise of the Option or the Restricted Stock Agreement, including the
cancellation of a portion of the Option or Restricted Shares.
ARTICLE X
PLAN ADMINISTRATION
10.1 PLAN ADMINISTRATION.
(a) Authority to control and manage the operation and
administration of the Plan shall be vested in the Committee of two or more
persons appointed by the Board, all of whom are disinterested persons, which
Committee shall include all the directors who are not employees of the Company
or a parent or subsidiary corporation. Subject to further action by the Board,
the Committee shall initially be comprised of the non-employee members of the
Board, each of whom shall be ineligible to participate in the Plan.
(b) The Committee shall have all powers necessary to supervise the
administration of the Plan and control its operations. The Committee may from
time to time, in its discretion, determine which persons shall be granted
Incentive Options, Nonqualified Options or receive Restricted Shares under the
Plan, the terms thereof, and the number of shares for which an Incentive Option
or options or Nonqualified Option or options shall be granted or the number of
Restricted Shares to be received.
(c) In addition to any powers and authority conferred on the
Committee elsewhere in the Plan or by law, the Committee shall have the
following powers and authority:
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(i) To designate agents to carry out responsibilities
relating to the Plan;
(ii) To administer, interpret, construe and apply this
Plan and to answer all questions which may arise or which may be raised
under this Plan by a Participant, his beneficiary or any other person
whatsoever;
(iii) To establish rules and procedures from time to time
for the conduct of its business and for the administration and
effectuation of its responsibilities under the Plan; and
(iv) To perform or cause to be performed such further acts
as it may deem to be necessary, appropriate, or convenient for the
operation of the Plan.
(d) Any action taken in good faith by the Board or the Committee
in the exercise of authority conferred upon it by this Plan shall be conclusive
and binding upon a Participant and his beneficiaries. All discretionary powers
conferred upon the Board and the Committee shall be absolute.
10.2 LIMITATION ON LIABILITY. No Employee of the Company or member
of the Board of Directors for the Company shall be subject to any liability with
respect to his duties under the Plan unless the person acts fraudulently or in
bad faith. To the extent permitted by law, the Company shall indemnify each
member of the Board of Directors, and any other Employee of the Company with
duties under the Plan who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed proceeding, whether civil,
criminal, administrative, or investigative, by reason of the person's conduct in
the performance of his duties under the Plan.
ARTICLE XI
CHANGES IN CAPITAL STRUCTURE
11.1 CHANGES IN CAPITAL STRUCTURE. In the event that the
outstanding shares of Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of merger, consolidation or
reorganization in which the Company is the surviving corporation or of a
recapitalization, stock split, combination of shares, reclassification,
reincorporation, stock dividend (in excess of 2%), or other change in the
corporate structure of the Company, appropriate adjustments shall be made by the
Board of Directors in the aggregate number and kind of shares subject to this
Plan, and the number and kind of shares and the price per share subject to
outstanding Incentive Options, Nonqualified Options and Restricted Stock
Agreements in order to preserve, but not to increase, the benefits to persons
then holding Incentive Options, Nonqualified Options and/or Restricted Stock
Agreements. Under no circumstances will vesting of incentive stock options,
nonqualified stock options and/or rights of purchase under the Plan be
accelerated in connection with any changes in capital structure of the Company.
11.2 MERGER OF COMPANY. In the event that the Company at any time
proposes to sell substantially all of its assets, merge into, consolidate with
or to enter into any other reorganization (including the sale of substantially
all of its assets) in which the Company is not the surviving corporation, the
Plan and all unexercised Incentive Options or Nonqualified Options granted
hereunder and all offers to purchase Restricted Shares shall terminate, unless
provision is made in
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writing in connection with such transaction for (i) the continuance of the Plan
and for the assumption of Incentive Options and Nonqualified Options theretofore
granted, and all outstanding offers to purchase Restricted Shares, or the
substitution for such Incentive Options, Nonqualified Options and offers to
purchase Restricted Shares of new options covering, and new offers to purchase,
shares of a successor corporation, with appropriate adjustments as to number and
kind of shares and prices, in which event the Plan and the Incentive Options,
Nonqualified Options and offers to purchase Restricted Shares theretofore
granted or the new Incentive Options, Nonqualified Options and new offers to
purchase Restricted Shares substituted therefor, shall continue in the manner
and under the terms so provided or (ii) the substitution for the Plan and all
outstanding Incentive Options and Nonqualified Options of a program or plan to
provide rights to the holders of such options to receive on exercise of such
rights, the type and amount of consideration they would have received had they
exercised all options prior to such transaction and less the aggregate exercise
price of such options (which rights shall vest and be generally subject to the
terms of such options in the case of unvested options). Under no circumstances
will vesting of incentive stock options, nonqualified stock options and/or
rights of purchase under the Plan be accelerated in connection with any merger,
consolidation or reorganization, whether or not the Company is the surviving
corporation, or in connection with a recapitalization, stock split, combination
of shares, reclassification, reincorporation, stock dividend or other change in
the corporate structure of the Company.
ARTICLE XII
MISCELLANEOUS MATTERS
12.1 AMENDMENT AND TERMINATION. Since future conditions affecting
the Company cannot be anticipated or foreseen, the Company reserves the right to
amend, modify, or terminate the Plan at any time which shall not substantially
affect or impair the rights of any person under any Incentive Option or
Nonqualified Option theretofore granted to him or under any Restricted Stock
Agreement without his consent. Without limiting the generality of the foregoing,
to the extent permitted by applicable law, the Board of Directors of the Company
may alter or amend the Plan to comply with requirements under the Internal
Revenue Code relating to Restricted Stock options, Incentive Options, qualified
options or other options which give the Optionee more favorable tax treatment
than that applicable to options granted under this Plan as of the date of its
adoption. Upon any such alteration or amendment, to the extent permitted by
applicable law, any outstanding option granted hereunder shall be subject to the
more favorable tax treatment afforded to an Optionee pursuant to such terms and
conditions as the Administrator may determine. In addition, no amendment may be
made without prior approval of the shareholders of the Company if such amendment
would:
(a) Increase the number of shares of Company Stock that may be
issued under the Plan;
(b) Decrease the price at which Options may be granted;
(c) Amend this Section to defeat its purpose; or
(d) Amend the Plan more often than once in any six month period.
12.2 SHAREHOLDER APPROVAL. Continuance of the Plan and the
effectiveness of any option granted hereunder shall be subject to approval by
the affirmative vote or written consent of the
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holders of a majority of the outstanding shares of stock of the Company present
or represented and entitled to vote thereon, within twelve months before or
after the date the Plan is adopted by the Board.
12.3 BENEFITS NOT ALIENABLE. Other than as provided above, benefits
under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any attempt at assignment, transfer, pledge or other disposition
shall be without effect.
12.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Optionee or Offeree to be
consideration for, or an inducement to, or a condition of, the employment of any
Optionee or Offeree. Nothing contained in the Plan shall be deemed to give the
right to any Optionee or Offeree to be retained as an employee of the Company or
to interfere with the right of the Company to discharge any Optionee or Offeree
at any time.
12.5 APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Company Stock pursuant to Incentive Options, Nonqualified
Options and Restricted Stock Agreements, except as otherwise provided herein,
will be used for general corporate purposes.
12.6 NO OBLIGATION TO EXERCISE OPTION OR RIGHT OF PURCHASE. The
granting of an Incentive Option, Nonqualified Option or the offer to purchase
Restricted Shares shall impose no obligation upon the Optionee to exercise such
an Incentive Option, Nonqualified Option or the Offeree to accept such offer to
purchase Restricted Shares.
12.7 GOVERNING LAW. To the extent not preempted by Federal law, all
legal questions pertaining to the Plan shall be determined in accordance with
the laws of the State of California.
12.8 FINANCIAL INFORMATION TO EMPLOYEES. Optionees will receive
annual financial statements of the Company within one hundred twenty days of the
end of the Company's fiscal year.
12.9 SPECIAL INFORMATION TO EMPLOYEES. The Company has entered into
certain agreements with principal shareholders of the Company affecting voting
of shares of Common Stock and Preferred Stock of the Company in which such
shareholders have agreed to vote their shares for certain members of the Board
of Directors and, in addition, such shareholders have other rights to purchase
stock of the Company or which may restrict the ability of the Company to take
certain actions. Such agreements include a Series A-1 and Series A-2 Preferred
Stock Purchase Agreement dated December 8, 1993, as amended July 7, 1994, a
Voting Agreement dated December 21, 1993, as amended on July 7, 1994, a Co-Sale
Agreement dated December 21, 1993, an Investors Rights Agreement dated December
21, 1993 and a Stock Restriction Agreement dated September 30, 1993, by and
between the Company, on the one hand, and the founding shareholders of the
Company, on the other, all of which are available for Optionees review during
normal business hours at the principal executive offices of the Company.
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EXHIBIT 10.7
MICRO THERAPEUTICS, INC.
1996 STOCK INCENTIVE PLAN
This 1996 STOCK INCENTIVE PLAN (the "Plan") is hereby established by
Micro Therapeutics, Inc., a Delaware corporation (the "Company") and adopted by
its Board of Directors as of the 1st day of August, 1996 (the "Effective Date").
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the
Company's ability to attract and retain the services of qualified employees,
officers and directors (including non-employee officers and directors), and
consultants and other service providers upon whose judgment, initiative and
efforts the successful conduct and development of the Company's business largely
depends, and (b) to provide additional incentives to such persons or entities to
devote their utmost effort and skill to the advancement and betterment of the
Company, by providing them an opportunity to participate in the ownership of the
Company and thereby have an interest in the success and increased value of the
Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the
Board delegates responsibility for any matter to the Committee, the term
Administrator shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of more than fifty percent (50%) of the outstanding
securities of the Company; (ii) a merger or consolidation in which the Company
is not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated; (iii) the
sale, transfer or other disposition of all or substantially all of the assets of
the Company; (iv) a complete liquidation or dissolution of the Company; or (v)
any reverse merger in which the Company is the surviving entity but in which
securities possessing more than fifty percent (50%) of the total combined voting
power of the
<PAGE> 2
Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
merger.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more
members of the Board appointed to administer the Plan, as set forth in Section
7.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock, $.001
par value of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8 DISABILITY. "Disability" means permanent and total disability
as defined in Section 22(e)(3) of the Code. The Administrator's determination of
a Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 EFFECTIVE DATE. "Effective Date" means the date on which the
Plan is adopted by the Board, as set forth on the first page hereof.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per
share of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date
means the value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading
on a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the closing sale price on the date of valuation
on such Nasdaq market system or principal stock exchange on which the Common
Stock is then listed or admitted to trading, or, if no closing sale price is
quoted on such day, then the Fair Market Value shall be the closing sale price
of the Common Stock on such Nasdaq market system or such exchange on the next
preceding day on which a closing sale price is quoted.
(b) If the Common Stock is not then listed or admitted to
trading on a Nasdaq market system or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market on the date of
valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of evaluation, which determination
shall be conclusive and binding on all interested parties.
2.12 INCENTIVE OPTION. "Incentive Option" means any Option
designated and qualified as an "incentive stock option" as defined in Section
422 of the Code.
2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement"
means an Option Agreement with respect to an Incentive Option.
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2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a
member of the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option
that is not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Shareholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option
Agreement" means an Option Agreement with respect to a Nonqualified Option.
2.17 OFFEREE. "Offeree" means a Participant to whom a Right to
Purchase has been offered or who has acquired Restricted Stock under the Plan.
2.18 OPTION. "Option" means any option to purchase Common Stock
granted pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written
agreement entered into between the Company and the Optionee with respect to an
Option granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.21 PARTICIPANT. "Participant" means an individual or entity who
holds an Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 PURCHASE PRICE. "Purchase Price" means the purchase price per
share of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 RESTRICTED STOCK. "Restricted Stock" means shares of Common
Stock issued pursuant to Article 6 hereof, subject to any restrictions and
conditions as are established pursuant to such Article 6.
2.24 RIGHT TO PURCHASE. "Right to Purchase" means a right to
purchase Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 SERVICE PROVIDER. "Service Provider" means a consultant or
other person or entity who provides services to the Company or an Affiliated
Company and who the Administrator authorizes to become a Participant in the
Plan.
2.26 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means
the written agreement entered into between the Company and the Offeree with
respect to a Right to Purchase offered under the Plan.
2.27 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
3
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ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the
Company or of an Affiliated Company (including members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and
other key employees of the Company or of an Affiliated Company, members of the
Board (whether or not employed by the Company or an Affiliated Company), and
Service Providers are eligible to receive Nonqualified Options or Rights to
Purchase under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be
granted Rights to Purchase or Options in any one calendar year pursuant to which
the aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 100,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of 600,000 shares of
Common Stock may be issued under the Plan, subject to adjustment as to the
number and kind of shares pursuant to Section 4.2 hereof. For purposes of this
limitation, in the event that (a) all or any portion of any Option or Right to
Purchase granted or offered under the Plan can no longer under any circumstances
be exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or
Stock Purchase Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or such Right to Purchase, or the shares so
reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the
outstanding shares of Common Stock are hereafter increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend, or other change in the
capital structure of the Company, then appropriate adjustments shall be made by
the Administrator to the aggregate number and kind of shares subject to this
Plan, and the number and kind of shares and the price per share subject to
outstanding Option Agreements, Rights to Purchase and Stock Purchase Agreements
in order to preserve, as nearly as practical, but not to increase, the benefits
to Participants.
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ARTICLE 5.
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan
shall be evidenced by an Option Agreement which shall specify the number of
shares subject thereto, the Exercise Price per share, and whether the Option is
an Incentive Option or Nonqualified Option. As soon as is practical following
the grant of an Option, an Option Agreement shall be duly executed and delivered
by or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock
covered by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Incentive Option is granted is a 10% Shareholder on the date
of grant, the Exercise Price shall not be less than 110% of Fair Market Value on
the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall
be made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and termination of
each Option shall be as fixed by the Administrator, but no Option may be
exercisable more than ten (10) years after the date it is granted. An Incentive
Option granted to a person who is a 10% Shareholder on the date of grant shall
not be exercisable more than five (5) years after the date it is granted.
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5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and be
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable
or transferable except by will or the laws of descent and distribution, and
during the life of the Optionee shall be exercisable only by such Optionee;
provided, however, that, in the discretion of the Administrator, any Option may
be assigned or transferred in any manner which an "incentive stock option" is
permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of
an Option shall have no rights or privileges as a shareholder with respect to
any shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
5.9 NON-EMPLOYEE DIRECTORS. Each non-employee director of the
Company shall automatically be granted a Nonqualified Option to purchase 12,308
shares of Common Stock (subject to vesting as provided below) upon his or her
commencement of service on the Board of Directors and every year thereafter
shall automatically be granted a Nonqualified Option to purchase 3,077 shares of
the Common Stock (provided, that on such date he or she is a non-employee of the
Company); provided, however, that no such director shall be issued options to
acquire shares of Common Stock, which when added to any shares of Common Stock
owned by such director or subject to an option of such director exercisable
within sixty (60) days would equal or exceed one percent 1% of the total
outstanding Common Stock of the Company plus shares of Common Stock of the
Company subject to stock options held by any person and exercisable within sixty
(60) days. The option price of such Options, in the case of the initial grant,
shall be at the Fair Market Value of the Common Stock on the date of
commencement of such director's service on the Board of Directors and,
thereafter, shall be at the Fair Market Value of the Common Stock on the date of
grant. All such options shall become exercisable twenty-five percent (25%)
immediately and the remaining seventy-five percent (75%) shall become
exercisable an additional twenty-five percent (25%) on each anniversary of the
date of the initial grant; provided, however, that upon termination of a
non-employee director's service on the Board of Directors, for any reason, all
unvested options held by such non-employee director shall terminate immediately
and all vested options held by such non-employee director shall be exercisable
for a period of twelve (12) months subsequent to such termination. The term of
such Options shall be ten years.
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ARTICLE 6.
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no
rights with respect to the Restricted Stock subject to a Right to Purchase
unless the Offeree shall have accepted the Right to Purchase within ten (10)
days (or such longer or shorter period as the Administrator may specify)
following the grant of the Right to Purchase by making payment of the full
Purchase Price to the Company in the manner set forth in Section 6.3 hereof and
by executing and delivering to the Company a Stock Purchase Agreement. Each
Stock Purchase Agreement shall be in such form, and shall set forth the Purchase
Price and such other terms, conditions and restrictions of the Restricted Stock,
not inconsistent with the provisions of this Plan, as the Administrator shall,
from time to time, deem desirable. Each Stock Purchase Agreement may be
different from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions,
payment of the Purchase Price upon acceptance of a Right to Purchase Restricted
Stock may be made, in the discretion of the Administrator, by: (a) cash; (b)
check; (c) the surrender of shares of Common Stock owned by the Offeree that
have been held by the Offeree for at least six (6) months, which surrendered
shares shall be valued at Fair Market Value as of the date of such exercise; (d)
the Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a shareholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company in accordance
with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement or by the Administrator.
In the event of termination of a Participant's employment, service as a director
of the Company or Service Provider status for any reason whatsoever (including
death or disability), the Stock Purchase Agreement may provide, in the
discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator, to repurchase (i) at the
original Purchase Price, any shares of Restricted Stock which have not vested as
of the date of termination, and (ii) at Fair Market Value, any shares of
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Restricted Stock which have vested as of such date, on such terms as may be
provided in the Stock Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement
shall specify the date or dates, the performance goals or objectives which must
be achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made
by promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be
assignable or transferable except by will or the laws of descent and
distribution or as otherwise provided by the Administrator.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation
and administration of the Plan shall be vested in the Board, which may delegate
such responsibilities in whole or in part to a committee consisting of two (2)
or more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers
or authority conferred upon the Administrator elsewhere in the Plan or by law,
the Administrator shall have full power and authority: (a) to determine the
persons to whom, and the time or times at which, Incentive Options or
Nonqualified Options shall be granted and Rights to Purchase shall be offered,
the number of shares to be represented by each Option and Right to Purchase and
the consideration to be received by the Company upon the exercise thereof; (b)
to interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or release or waive any
repurchase rights of the Company with respect to Restricted Stock; (h) to extend
the exercise date of any Option or acceptance date of any Right to Purchase; (i)
to provide for rights of first refusal and/or repurchase rights; (j) to amend
outstanding Option Agreements and Stock Purchase Agreements to provide for,
among other things, any change or modification which the Administrator could
have provided for upon the grant of an Option or Right to Purchase or in
furtherance of the powers provided for herein; and (k) to make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the Plan. Any
action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
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7.3 LIMITATION ON LIABILITY. No employee of the Company or member
of the Board or Committee shall be subject to any liability with respect to
duties under the Plan unless the person acts fraudulently or in bad faith. To
the extent permitted by law, the Company shall indemnify each member of the
Board or Committee, and any employee of the Company with duties under the Plan,
who was or is a party, or is threatened to be made a party, to any threatened,
pending or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
ARTICLE 8.
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In order to preserve a Participant's rights
in the event of a Change in Control of the Company, (i) the time period relating
to the exercise or realization of all outstanding Options, Rights to Purchase
and Restricted Stock shall automatically accelerate immediately prior to the
consummation of such Change in Control and (ii) with respect to Options and
Rights to Purchase, the Administrator in its discretion may, at any time an
Option or Right to Purchase is granted, or at any time thereafter, take one or
more of the following actions: (A) provide for the purchase of each Option or
Right to Purchase for an amount of cash or other property that could have been
received upon the exercise of the Option or Right to Purchase had the Option
been currently exercisable, (B) adjust the terms of the Options and Rights to
Purchase in a manner determined by the Administrator to reflect the Change in
Control, (C) cause the Options and Rights to Purchase to be assumed, or new
rights substituted therefor, by another entity, through the continuance of the
Plan and the assumption of outstanding Options and Rights to Purchase, or the
substitution for such Options and Rights to Purchase of new options and new
rights to purchase of comparable value covering shares of a successor
corporation, with appropriate adjustments as to the number and kind of shares
and Exercise Prices, in which event the Plan and such Options and Rights to
Purchase, or the new options and rights to purchase substituted therefor, shall
continue in the manner and under the terms so provided or (D) make such other
provision as the Committee may consider equitable. If the Administrator does not
take any of the forgoing actions, all Options and Rights to Purchase shall
terminate upon the consummation of the Change in Control and the Administrator
shall cause written notice of the proposed transaction to be given to all
Participants not less than fifteen (15) days prior to the anticipated effective
date of the proposed transaction.
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend,
suspend or terminate the Plan in such respects as the Board may deem advisable.
No such alteration, amendment, suspension or termination shall be made which
shall substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionee more favorable
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tax treatment than that applicable to Options granted under this Plan as of the
date of its adoption. Upon any such alteration or amendment, any outstanding
Option granted hereunder may, if the Administrator so determines and if
permitted by applicable law, be subject to the more favorable tax treatment
afforded to an Optionee pursuant to such terms and conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10.
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised or Restricted Stock issued under the Plan. To
the extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in part, up to an amount determined on the
basis of the highest marginal tax rate applicable to such Participant, by (a)
directing the Company to apply shares of Common Stock to which the Participant
is entitled as a result of the exercise of an Option or as a result of the
purchase of or lapse of restrictions on Restricted Stock or (b) delivering to
the Company shares of Common Stock owned by the Participant. The shares of
Common Stock so applied or delivered in satisfaction of the Participant's tax
withholding obligation shall be valued at their Fair Market Value as of the date
of measurement of the amount of income subject to withholding.
ARTICLE 11.
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above,
benefits under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Participant to be
consideration for, or an inducement to, or a condition of, the employment of any
Participant. Nothing contained in the Plan shall be deemed to give the right to
any Participant to be retained as an employee of the Company or any Affiliated
Company or to interfere with the right of the Company or any Affiliated Company
to discharge any Participant at any time.
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11.3 APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
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Exhibit 10.8
MICRO THERAPEUTICS, INC.
EMPLOYEE STOCK PURCHASE PLAN
This EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is hereby established by
MICRO THERAPEUTICS, INC., a Delaware corporation (the "Company") effective as of
the Effective Date, as defined below.
ARTICLE I
PURPOSE OF THE PLAN
1.1 PURPOSE. The Company has determined that it is in its best
interest to provide incentives to attract and retain employees and to increase
employee morale by providing a program through which employees of the Company,
and of such of the Company's subsidiaries as the Company's Board of Directors
(the "Board of Directors") may from time to time designate (each a "Designated
Subsidiary", and collectively, "Designated Subsidiaries"), may acquire a
proprietary interest in the Company through the purchase of shares of the common
stock of the Company ("Company Stock"). The Plan is hereby established by the
Company to permit employees to subscribe for and purchase directly from the
Company shares of the Company Stock at a discount from the market price, and to
pay the purchase price in installments by payroll deductions. The Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code").
The provisions of the Plan are to be construed in a matter consistent with the
requirements of Section 423 of the Code. The Plan is not intended to be an
employee benefit plan under the Employee Retirement Income Security Act of 1974,
and therefore is not required to comply with that Act.
ARTICLE II
DEFINITIONS
2.1 COMPENSATION. "Compensation" means the amount indicated on the
Form W-2, including any elective deferrals with respect to a plan of the Company
qualified under either Section 125 or Section 401(a) of the Code, issued to an
employee by the Company.
2.2 EMPLOYEE. "Employee" means each person currently employed by
the Company or any of its Designated Subsidiaries, any portion of whose income
is subject to withholding of income tax or for whom Social Security retirement
contributions are made by the Company or any Designated Subsidiary.
2.3 EFFECTIVE DATE. "Effective Date" means the effective date of
the Company's first Registration Statement filed with the Securities and
Exchange Commission registering Company Stock.
2.4 5% OWNER. "5% Owner" means an Employee who, immediately after
the grant of any rights under the Plan, would own Company Stock or hold
outstanding options to purchase Company Stock possessing 5% or more of the total
combined voting power of all classes of stock
<PAGE> 2
of the Company. For purposes of this Section, the ownership attribution rules of
Code Section 425(d) shall apply.
2.5 GRANT DATE. "Grant Date" means the first day of each Offering
Period (July 1 and January 1) under the Plan. However, for the first Offering
Period, the Grant Date shall be the Effective Date.
2.6 PARTICIPANT. "Participant" means an Employee who has satisfied
the eligibility requirements of Section 3.1 and has become a participant in the
Plan in accordance with Section 3.2.
2.7 PLAN YEAR. "Plan Year" means the twelve consecutive month
period ending on the last day of December.
2.8 OFFERING PERIOD. "Offering Period" means the six-month periods
from July 1 through December 31 and January 1 through June 30 of each Plan Year.
However, the first Offering Period shall commence on the Effective Date and end
December 31, 1996 regardless of whether such initial Offering Period is more or
less than six months.
2.9 PURCHASE DATE. "Purchase Date" means the last day of each
Offering Period (December 31 or June 30).
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Each Employee of the Company, or any Designated
Subsidiary, who, on the Grant Date, is customarily engaged on a
regularly-scheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year and who has been employed for at least ninety
(90) days (or, for the initial Offering Period only, such Employees who are
employed on the Effective Date) in the rendition of personal services to the
Company, or any Designated Subsidiary, may become a Participant in the Plan on
the Grant Date coincident with or next following his satisfaction of such
requirements of employment with the Company or any Designated Subsidiary.
3.2 PARTICIPATION. An Employee who has satisfied the eligibility
requirements of Section 3.1 may become a Participant in the Plan upon his
completion and delivery to the Human Resources Department of the Company of a
stock purchase agreement provided by the Company (the "Stock Purchase
Agreement") authorizing payroll deductions. Payroll deductions for a Participant
shall commence on the Grant Date coincident with or next following the filing of
the Participant's Stock Purchase Agreement and shall remain in effect until
revoked by the Participant by the filing of a notice of withdrawal from the Plan
under Article VIII or by the filing of a new Stock Purchase Agreement providing
for a change in the Participant's payroll deduction rate under Section 5.2.
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3.3 SPECIAL RULES. Under no circumstances shall:
(a) A 5% Owner be granted a right to purchase Company
Stock under the Plan;
(b) A Participant be entitled to purchase Company Stock
under the Plan which, when aggregated with all other employee stock purchase
plans of the Company, exceed an amount equal to the Aggregate Maximum.
"Aggregate Maximum" means an amount equal to $25,000 worth of Company Stock
(determined using the fair market value of such Company Stock at each applicable
Grant Date) during each calendar year; or
(c) The number of shares of Company Stock purchasable by
a Participant on any Purchase Date exceed 2,500 shares, subject to periodic
adjustments under Section 10.4.
ARTICLE IV
OFFERING PERIODS
4.1 OFFERING PERIODS. The initial grant of the right to purchase
Company Stock under the Plan shall occur on the Effective Date and terminate on
December 31, 1996. Thereafter, the Plan shall provide for Offering Periods
commencing on each Grant Date and terminating on the next following Purchase
Date.
ARTICLE V
PAYROLL DEDUCTIONS
5.1 PARTICIPANT ELECTION. Upon completion of the Stock Purchase
Agreement, each Participant shall designate the amount of payroll deductions to
be made from his or her paycheck to purchase Company Stock under the Plan. The
amount of payroll deductions shall be designated in whole percentages of
Compensation, not to exceed 20%. The amount so designated upon the Stock
Purchase Agreement shall be effective as of the next Grant Date and shall
continue until terminated or altered in accordance with Section 5.2 below.
5.2 CHANGES IN ELECTION. A Participant may terminate participation
in the Plan at any time prior to the close of an Offering Period as provided in
Article VIII. A Participant may decrease or increase the rate of payroll
deductions at any time during any Offering Period by completing and delivering
to the Human Resources Department of the Company a new Stock Purchase Agreement
setting forth the desired change. A Participant may also terminate payroll
deductions and have accumulated deductions for the Offering Period applied to
the purchase of Company Stock as of the next Purchase Date by completing and
delivering to the Human Resources Department a new Stock Purchase Agreement
setting forth the desired change. Any change under this Section shall become
effective on the next payroll period (to the extent practical under the
Company's payroll practices) following the delivery of the new Stock Purchase
Agreement.
5.3 PARTICIPANT ACCOUNTS. The Company shall establish and maintain
a separate account ("Account") for each Participant. The amount of each
Participant's payroll deductions shall be credited to his Account. No interest
will be paid or allowed on amounts credited to a Participant's Account. All
payroll deductions received by the Company under the Plan are general corporate
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assets of the Company and may be used by the Company for any corporate purpose.
The Company is not obligated to segregate such payroll deductions.
ARTICLE VI
GRANT OF PURCHASE RIGHTS
6.1 RIGHT TO PURCHASE SHARES. On each Grant Date, each Participant
shall be granted a right to purchase at the price determined under Section 6.2
that number of shares and partial shares of Company Stock that can be purchased
or issued by the Company based upon that price with the amounts held in his
Account, subject to the limits set forth in Section 3.3. In the event that there
are amounts held in a Participant's Account that are not used to purchase
Company Stock, such amounts shall remain in the Participant's Account and shall
be eligible to purchase Company Stock in any subsequent Offering Period.
6.2 PURCHASE PRICE. The purchase price for any Offering Period
shall be the lesser of:
(a) 85% of the Fair Market Value of Company Stock on the
Grant Date; or
(b) 85% of the Fair Market Value of Company Stock on the
Purchase Date.
6.3 FAIR MARKET VALUE. "Fair Market Value" means for the initial
Grant Date (which is the Effective Date), the price per share at which the
Common Stock is to be sold to the public in the initial public offering of the
Common Stock. For any subsequent date thereafter, "Fair Market Value" shall mean
the value of one share of Company Stock, determined as follows:
(a) If the Company Stock is then listed or admitted to
trading on the Nasdaq National Market System or a stock exchange which reports
closing sale prices, the Fair Market Value shall be the closing sale price on
the date of valuation on the Nasdaq National Market System or principal stock
exchange on which the Company Stock is then listed or admitted to trading, or,
if no closing sale price is quoted or no sale takes place on such day, then the
Fair Market Value shall be the closing sale price of the Company Stock on the
Nasdaq National Market System or such exchange on the next preceding day on
which a sale occurred.
(b) If the Company Stock is not then listed or admitted
to trading on the Nasdaq National Market System or a stock exchange which
reports closing sale prices, the Fair Market Value shall be the average of the
closing bid and asked prices of the Company Stock in the over-the-counter market
on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date
of valuation, then the Fair Market Value shall be determined by the
Administrator in good faith using any reasonable method of valuation, which
determination shall be conclusive and binding on all interested parties.
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ARTICLE VII
PURCHASE OF STOCK
7.1 PURCHASE OF COMPANY STOCK. Absent an election by the
Participant to terminate and have his or her Account returned, on each Purchase
Date, the Plan shall purchase on behalf of each Participant the maximum number
of whole shares of Company Stock at the purchase price determined under Section
6.2 above as can be purchased with the amounts held in each Participant's
Account. In the event that there are amounts held in a Participant's Account
that are not used to purchase Company Stock, all such amounts shall be held in
the Participant's Account and carried forward to the next Offering Period.
7.2 DELIVERY OF COMPANY STOCK.
(a) Company Stock acquired under the Plan may either be
issued directly to Participants or may be issued to a contract administrator
("Administrator") engaged by the Company to administer the Plan under Article
IX. If the Company Stock is issued in the name of the Administrator, all Company
Stock so issued ("Plan Held Stock") shall be held in the name of the
Administrator for the benefit of the Plan. The Administrator shall maintain
accounts for the benefit of the Participants which shall reflect each
Participant's interest in the Plan Held Stock. Such accounts shall reflect the
number of whole and partial shares of Company Stock that are being held by the
Administrator for the benefit of each Participant.
(b) Any Participant may elect to have the Company Stock
purchased under the Plan from his or her Account be issued directly to the
Participant. Any election under this paragraph shall be on the forms provided by
the Company and shall be issued in accordance with paragraph (c) below.
(c) In the event that Company Stock under the Plan is
issued directly to a Participant, the Company will deliver to each Participant a
stock certificate or certificates issued in his name for the number of shares of
Company Stock purchased as soon as practicable after the Purchase Date. Where
Company Stock is issued under this paragraph, only full shares of stock will be
issued to a Participant. The time of issuance and delivery of shares may be
postponed for such period as may be necessary to comply with the registration
requirements under the Securities Act of 1933, as amended, the listing
requirements of any securities exchange on which the Company Stock may then be
listed, or the requirements under other laws or regulations applicable to the
issuance or sale of such shares.
ARTICLE VIII
WITHDRAWAL
8.1 IN SERVICE WITHDRAWALS. At any time prior to the Purchase Date
of an Offering Period, any Participant may withdraw the amounts held in his
Account by executing and delivering to the Human Resources Department for the
Company written notice of withdrawal on the form provided by the Company. In
such a case, the entire balance of the Participant's Account shall be paid to
the Participant, without interest, as soon as is practicable. Upon such
notification, the Participant shall cease to participate in the Plan for the
remainder of the Offering Period in which the notice is given. Any Employee who
has withdrawn under this Section shall be excluded from
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participation in the Plan for the remainder of the Offering Period, but may then
be reinstated as a participant for a subsequent Offering Period by executing and
delivering a new Stock Purchase Agreement to the Human Resources Department of
the Company.
8.2 TERMINATION OF EMPLOYMENT.
(a) In the event that a Participant's employment with the
Company terminates for any reason, the Participant shall cease to participate in
the Plan on the date of termination. As soon as is practical following the date
of termination, the entire balance of the Participant's Account shall be paid to
the Participant or his beneficiary, without interest.
(b) A Participant may file a written designation of a
beneficiary who is to receive any shares of Company Stock purchased under the
Plan or any cash from the Participant's Account in the event of his or her death
subsequent to a Purchase Date, but prior to delivery 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 his death prior to a Purchase Date under paragraph (a) above.
(c) Any beneficiary designation under paragraph (b) above
may be changed by the Participant at any time by written notice. In the event of
the death of a Participant, the Committee may rely upon the most recent
beneficiary designation it has on file as being the appropriate beneficiary. In
the event of the death of a Participant where no valid beneficiary designation
exists or the beneficiary has predeceased the Participant, the Committee shall
deliver any cash or shares of Company Stock 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 Committee, the Committee, in its sole
discretion, may deliver such shares of Company Stock or cash to the spouse or
any one or more dependents or relatives of the Participant, or if no spouse,
dependent or relative is known to the Committee, then to such other person as
the Committee may designate.
ARTICLE IX
PLAN ADMINISTRATION
9.1 PLAN ADMINISTRATION.
(a) Authority to control and manage the operation and
administration of the Plan shall be vested in the Board of Directors (the
"Board") for the Company, or a committee ("Committee") thereof. The Board or
Committee shall have all powers necessary to supervise the administration of the
Plan and control its operations.
(b) In addition to any powers and authority conferred on
the Board or Committee elsewhere in the Plan or by law, the Board or the
Committee shall have the following powers and authority:
(i) To designate agents to carry out
responsibilities relating to the Plan;
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(ii) To administer, interpret, construe and apply
this Plan and to answer all questions which may arise or which may be raised
under this Plan by a Participant, his beneficiary or any other person
whatsoever;
(iii) To establish rules and procedures from time
to time for the conduct of its business and for the administration and
effectuation of its responsibilities under the Plan; and
(iv) To perform or cause to be performed such
further acts as it may deem to be necessary, appropriate, or convenient for the
operation of the Plan.
(c) Any action taken in good faith by the Board or
Committee in the exercise of authority conferred upon it by this Plan shall be
conclusive and binding upon a Participant and his beneficiaries. All
discretionary powers conferred upon the Board shall be absolute.
9.2 LIMITATION ON LIABILITY. No Employee of the Company nor member
of the Board or Committee shall be subject to any liability with respect to his
duties under the Plan unless the person acts fraudulently or in bad faith. To
the extent permitted by law, the Company shall indemnify each member of the
Board or Committee, and any other Employee of the Company with duties under the
Plan who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed proceeding, whether civil, criminal,
administrative, or investigative, by reason of the person's conduct in the
performance of his duties under the Plan.
ARTICLE X
COMPANY STOCK
10.1 LIMITATIONS ON PURCHASE OF SHARES. The maximum number of
shares of Company Stock that shall be made available for sale under the Plan
shall be 153,846 shares, subject to adjustment under Section 10.4 below. The
shares of Company Stock to be sold to Participants under the Plan will be issued
by the Company. If the total number of shares of Company Stock that would
otherwise be issuable pursuant to rights granted pursuant to Section 6.1 of the
Plan at the Purchase Date exceeds the number of shares then available under the
Plan, the Company shall make a pro rata allocation of the shares remaining
available in as uniform and equitable manner as is practicable. In such event,
the Company shall give written notice of such reduction of the number of shares
to each participant affected thereby and any unused payroll deductions shall be
returned to such participant if necessary.
10.2 VOTING COMPANY STOCK. The Participant will have no interest or
voting right in shares to be purchased under Section 6.1 of the Plan until such
shares have been purchased.
10.3 REGISTRATION OF COMPANY STOCK. Shares to be delivered to a
Participant under the Plan will be registered in the name of the Participant
unless designated otherwise by the Participant.
10.4 CHANGES IN CAPITALIZATION OF THE COMPANY. Subject to any
required action by the stockholders of the Company, the number of shares of
Company Stock covered by each right under the Plan which has not yet been
exercised and the number of shares of Company Stock which have been authorized
for issuance under the Plan but have not yet been placed under rights or which
have
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been returned to the Plan upon the cancellation of a right, as well as the
Purchase Price per share of Company Stock covered by each right 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 Company Stock resulting
from a stock split, stock dividend, spin-off, reorganization, recapitalization,
merger, consolidation, exchange of shares or the like. Such adjustment shall be
made by the Board of Directors for the Company, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue 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 Company Stock subject to any right granted hereunder.
10.5 MERGER OF COMPANY. In the event that the Company at any time
proposes to merge into, consolidate with or enter into any other reorganization
pursuant to which the Company is not the surviving entity (including the sale of
substantially all of its assets or a "reverse" merger in which the Company is
the surviving entity), the Plan shall terminate, unless provision is made in
writing in connection with such transaction for the continuance of the Plan and
for the assumption of rights theretofore granted, or the substitution for such
rights of new rights covering the shares of a successor corporation, with
appropriate adjustments as to number and kind of shares and prices, in which
event the Plan and the rights theretofore granted or the new rights substituted
therefor, shall continue in the manner and under the terms so provided. If such
provision is not made in such transaction for the continuance of the Plan and
the assumption of rights theretofore granted or the substitution for such rights
of new rights covering the shares of a successor corporation, then the Board of
Directors or its committee shall cause written notice of the proposed
transaction to be given to the persons holding rights not less than 10 days
prior to the anticipated effective date of the proposed transaction, and,
concurrent with the effective date of the proposed transaction, such rights
shall be exercised automatically in accordance with Section 7.1 as if such
effective date were a Purchase Date of the applicable Offering Period unless a
Participant withdraws from the Plan as provided in Section 8.1.
ARTICLE XI
MISCELLANEOUS MATTERS
11.1 AMENDMENT AND TERMINATION. The Plan shall terminate ten (10)
years after the Effective Date. Since future conditions affecting the Company
cannot be anticipated or foreseen, the Company reserves the right to amend,
modify, or terminate the Plan at any time. Upon termination of the Plan, all
benefits shall become payable immediately. Notwithstanding the foregoing, no
such amendment or termination shall affect rights previously granted, nor may an
amendment make any change in any right previously granted which adversely
affects the rights of any Participant. In addition, no amendment may be made
without prior approval of the stockholders of the Company if such amendment
would:
(a) Increase the number of shares of Company Stock that
may be issued under the Plan;
(b) Materially modify the requirements as to eligibility
for participation in the Plan; or
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(c) Materially increase the benefits which accrue to
Participants under the Plan.
11.2 STOCKHOLDER APPROVAL. Continuance of the Plan and the
effectiveness of any right granted hereunder shall be subject to approval by the
stockholders of the Company, within twelve months before or after the date the
Plan is adopted by the Board.
11.3 BENEFITS NOT ALIENABLE. Benefits under the Plan may not be
assigned or alienated, whether voluntarily or involuntarily. Any 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 in
accordance with Article VIII.
11.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Employee or to be
consideration for, or an inducement to, or a condition of, the employment of any
Employee. Nothing contained in the Plan shall be deemed to give the right to any
Employee to be retained in the employ of the Company or to interfere with the
right of the Company to discharge any Employee at any time.
11.5 GOVERNING LAW. To the extent not preempted by Federal law, all
legal questions pertaining to the Plan shall be determined in accordance with
the laws of the State of Delaware.
11.6 NON-BUSINESS DAYS. When any act under the Plan is required to
be performed on a day that falls on a Saturday, Sunday or legal holiday, that
act shall be performed on the next succeeding day which is not a Saturday,
Sunday or legal holiday. Notwithstanding the above, Fair Market Value shall be
determined in accordance with Section 6.3.
11.7 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision
of the Plan, the Committee shall administer the Plan in such a way to ensure
that the Plan at all times complies with any requirements of Federal Securities
Laws. For example, affiliates may be required to make irrevocable elections in
accordance with the rules set forth under Section 16b-3 of the Securities
Exchange Act of 1934.
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EXHIBIT 10.9
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated December 20, 1995 by and
between COMDISCO, INC. ("Lessor") and MICRO THERAPEUTICS, INC. ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each summary
Equipment Schedule. In the event of a conflict, the terms of the applicable
Schedule prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will
be bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at
the address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in
tort) caused by the Equipment except for any loss or damage caused by the
willful misconduct or negligent acts of Lessor. In no event is Lessor
responsible for special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights
of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and
file in Lessee's name precautionary Uniform Commercial Code financing
statements showing the interest of the Owner, Lessor, and any Assignee or
Secured Party in the Equipment and to insert serial numbers in Summary
Equipment Schedules as appropriate. Lessee will, at its expense, keep the
Equipment free and clear from any liens or encumbrances of any kind (except any
caused by Lessor) and will indemnify and hold the Owner, Lessor, any Assignee
and Secured Party harmless from and against any loss caused by Lessee's failure
to do so, except where such is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and
(ii) all additional costs (including any administrative fees, additional taxes
and insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to
a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other
transfer by Lessor will not relieve Lessor of its obligations to Lessee and
will not materially change Lessee's duties or materially increase the burdens
or risks imposed on Lessee. The Lessee consents to and will acknowledge such
assignments in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights,
but will not be obligated to perform any of the obligations of Lessor. The
Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and the
Secured Party continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any defense or
claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of
the Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is
absolute and unconditional and is not subject to any abatement, reduction,
set-off, defense, counterclaim, interruption, deferment or recoupment for any
reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Summary Equipment Schedule against Lessor, Lessee or
the Equipment by any governmental authority (except only Federal, state, local
and franchise taxes on the capital or the net income of Lessor). Lessor will
file all personal property tax returns for the Equipment and pay all such
property taxes due. Lessee will reimburse Lessor for property taxes within
thirty (30) days of receipt of an invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment,
or another party acceptable to Lessor, and will provide Lessor with a complete
copy of that contract. If Lessee has the Equipment maintained by a party other
than the manufacturer or self maintains, Lessee agrees to pay any costs
necessary for the manufacturer to bring the Equipment to then current release,
revision and engineering change levels, and to re-certify the Equipment as
eligible for manufacturer's maintenance at the expiration of the lease term,
provided re-certification is available and is required by Lessor. The lease
term will continue upon the same terms and conditions until recertification has
been obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each Schedule
executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of
property or the conduct of its business requires such qualification, except for
where such lack of qualification would not have a material adverse effect on
the Company's business; and has full corporate power and authority to hold
property under the Master Lease and each Schedule and to enter into and perform
its obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease
and each Schedule are not inconsistent with the Lessee's Articles of
Incorporation or Bylaws, do not contravene any law or governmental rule,
regulation or order applicable to it, do not and will not contravene any
provision of, or constitute a default under, and indenture, mortgage, contract
or other instrument to which it is a party or by which it is bound, and the
Master Lease and each Schedule constitute legal, valid and binding agreements
of the Lessee, enforceable in accordance with their terms, subject to the
effect of applicable bankruptcy and other similar laws affecting the rights of
creditors generally and rules of law concerning equitable remedies.
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(c) There are no actions, suits, proceedings or patent claims pending or,
to the knowledge of the Lessee, threatened against or affecting the Lessee in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Lessee to perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee
is a party are in full force and effect in all material respects, and are
valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear
and tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will
supply any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on
equipment owned by it. Any amounts received by Lessor under that insurance will
be credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any
representation, warranty or condition contained in such policies and will be
primary without right of contribution from any Insurances effected by Lessor.
Upon the execution of any Schedule, the Lessee will furnish appropriate
evidence of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) business days after written notice;
or
(b) Lessee's failure to perform any other term or condition of the Schedule
or the material inaccuracy of any representation or warranty made by the Lessee
in the Schedule or in any document or certificate furnished to the Lessor
hereunder if that failure or inaccuracy continues for ten (10) business days
after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure
by Lessee to pay its debts when due, the insolvency of Lessee, the filing by
Lessee or the filing against Lessee of any petition under any bankruptcy or
insolvency law or for the appointment of a trustee or other officer with
similar powers, the adjudication of Lessee as insolvent, the liquidation of
Lessee, or the taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its Assignee
or Secured Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and recover
the present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess
the Equipment without being liable to Lessee for damages due to the
repossession, except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below, EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN, Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, lease or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term less the
Default Costs; or
(b) if leased, the present value (discounted at 3 percent (3%) over the
U.S. Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of
<PAGE> 3
Directors meeting within thirty (30) days following the date of such meeting
held during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month
(and in any event within thirty (30) days), Lessee will provide to Lessor the
same information which Lessee provides to its Board of Directors, but which
will include not less than a monthly income statement, balance sheet and
statement of cash flows prepared in accordance with generally accepted
accounting principles, consistently applied (the "Financial Statements"). As
soon as practicable at the end of each fiscal year, Lessee will provide to
Lessor audited Financial Statements setting forth in comparative form the
corresponding figures for the fiscal year (and in any event within ninety (90)
days), and accompanied by an audit report and opinion of the independent
certified public accountants selected by Lessee. Lessee will promptly furnish
to Lessor any additional information (including, but not limited to, tax
returns, income statements, balance sheets and names of principal creditors) as
Lessor reasonably believes necessary to evaluate Lessee's continuing ability to
meet financial obligations. After the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment
of any material indebtedness; (iii) there is a material adverse change in
Lessee's credit standing; or (iv) Lessor determines (in reasonable good faith)
that Lessee will be unable to perform its obligations under this Master Lease
or any Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which
the acquiring entity has a Moody's Bond Rating of BA3 or better or a
commercially acceptable equivalent measure of creditworthiness as reasonably
determined by Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE
AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate
or be construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit
of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution,
delivery, expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by
the other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (2) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "The Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease
or any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants
a security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be
marked "Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products
which will at all times remain the property of the owner of the Licensed
Products. A license from the owner may be required and it is Lessee's
responsibility to obtain any required license before the use of the Licensed
Products. Lessee agrees to treat the Licensed Products as confidential
information of the owner, to observe all copyright restrictions, and not to
reproduce or sell the Licensed Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master
Lease, provide Lessor with a secretary's certificate of incumbency and
authority. Upon the execution of each Schedule with a purchase price in excess
of $1,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel
in a form acceptable to Lessor regarding the representations and warranties in
Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgage Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Master Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE -- means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE -- means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS -- means the irreparable loss or destruction of Equipment.
CASUALTY VALUE -- means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE -- is defined in each Schedule.
DEFAULT COSTS -- means reasonable attorney's fees and remarketing costs
resulting from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE -- means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT -- means the property described on a Summary Equipment Schedule and
any replacement for that property required or permitted by this Master Lease or
a Schedule.
EVENT OF DEFAULT -- means the events described in Subsection 13.1.
FAIR MARKET VALUE -- means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM -- means the period of time beginning on the first day of the
first full Rent Interval following the Commencement Date for all items of
Equipment and continuing for the number of Rent Intervals indicated on a
Schedule.
INTERIM RENT -- means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full
Rent Interval included in the Initial Term.
LATE CHARGE -- means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is
located.
LICENSED PRODUCTS -- means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT -- means replacement Equipment which is lien free and of the
same model, type, configuration and manufacture as Equipment.
-3-
<PAGE> 4
MERGER -- means any consolidation or merger of the Lessee with or into any
other corporation or entity, any sale or conveyance of all or substantially all
of the assets or stock of the Lessee by or to any other person or entity in
which Lessee is not the surviving entity.
NOTICE PERIOD -- means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
OWNER -- means the owner of Equipment.
RENT -- means the rent Lessee will pay for each item of Equipment expressed in
a Summary Equipment Schedule either as a specific amount or an amount equal to
the amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL -- means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE -- means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY -- means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE -- means a certificate provided by Lessor
summarizing all of the Equipment for which Lessor has received Lessee approved
vendor invoices, purchase documents and/or evidence of delivery during a
calendar quarter which will incorporate all of the terms and conditions of the
related Schedule and this Master Lease and will constitute a separate lease for
the equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
MICRO THERAPEUTICS, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ [SIGNATURE] By: /s/ [SIGNATURE]
-------------------------------- -------------------------------
Title: C.F.O. Title: illegible
---------------------------- ----------------------------
-4-
<PAGE> 5
ADDENDUM TO THAT MASTER LEASE AGREEMENT
DATED AS OF DECEMBER 20, 1995
BETWEEN MICRO THERAPEUTICS, INC., AS LESSEE
AND COMDISCO, INC. AS LESSOR
The undersigned hereby agree that the terms and conditions of the
above-referenced Master Lease Agreement are hereby modified and amended as
follows:
1. Section 14.1, "Board Attendance"
Delete this section in its entirety.
2. Section 14.2, "Financial Statements"
Replace the word "month" with "quarter" everywhere it appears in
this section.
Replace the word "monthly" with "quarterly" everywhere it appears
in this section.
3. Section 14.4, "Merger and Sale Provisions"
In line 2, after the words "(60) days" add "or such lesser time if
less time is available"
MICRO THERAPEUTICS, INC. COMDISCO, INC.
as LESSEE as LESSOR
By: /s/ [SIGNATURE] By: /s/ [SIGNATURE]
------------------------------ ----------------------------
Title: C.F.O. Title:
--------------------------- -------------------------
Date: 1/2/96 Date: 1/5/96
---------------------------- --------------------------
<PAGE> 6
EQUIPMENT SCHEDULE VL-1
DATED AS OF DECEMBER 20, 1995
TO MASTER LEASE AGREEMENT
DATED AS OF DECEMBER 20, 1995 (THE "MASTER LEASE")
LESSEE: MICRO THERAPEUTICS, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
Mr. Thomas J. Berryman 6111 North River Road
Chief Financial Officer Rosemont, Illinois 60018
(714) 361-0616 Attn.: Venture Group
(714) 361-0120 fax
Address for Notices:
1062 Calle Negocio
San Clemente, CA 92673
Attn.:
Central Billing Location: Rent Interval: Monthly
1062 Calle Negocio
San Clemente, CA 92673
Attn.:
Lessee Reference No.:
-------------------
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
Same as above (Number of Rent Intervals)
Lease Rate Factor: 2.47%
Attn.:
EQUIPMENT (as defined below): Advance: $9,880.00
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period December 20, 1995 through December 15,
1996 ("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $400,000
("Commitment Amount"); excluding custom use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling,
"stand-alone" software, application software bundled into computer hardware,
hand held items, molds and fungible items.
<PAGE> 7
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease
to Lessee, either by one of the first three categories listed below or by
providing Lessee with Equipment from the fourth category, in a value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii) or (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgement at the time Lessor acquires the Equipment that Lessee has
either received or approved the relevant purchase documentation between vendor
and Lessor for that Equipment.
Lessor will finance only the acquisition of individual items of
Equipment with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which
is specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory to
Lessor for all Equipment submitted) no later than January 20, 1995*.
Lessor will not perform a Sale-Leaseback Transaction for any request
or accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale-leaseback
Equipment will be placed on lease subject to: (1) Lessor prior
approval of the Equipment; and (2) if approved, at Lessor's actual
net appraised Equipment value pursuant to the schedule below:
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
------------------------------ -----------------------------------
Between 10/22/95 and 01/20/95 100%
Between 08/22/95 and 10/21/95 80%
Between 05/23/95 and 08/21/95 70%
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new
or used Equipment from its inventory at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar quarter into
a Summary Equipment Schedule in the form attached to this Schedule as Exhibit
1, and the Initial Term will begin the first day of the calendar quarter
thereafter. Each Summary Equipment Schedule will contain the Equipment
location, description, serial number(s) and cost and will incorporate the
terms and conditions of the Master Lease and this Schedule and will constitute
a separate lease.
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event,
the rent to be paid during said extended period shall be mutually agreed upon
and if the parties cannot mutually agree, then the Summary Equipment Schedule
shall continue
<PAGE> 8
in full force and effect pursuant to the existing terms and conditions until
terminated in accordance with its terms. The Summary Equipment Schedule will
continue in effect following said extended period until terminated by either
party upon not less than ninety (90) days prior written notice, which notice
shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed fifteen percent (15%) of Lessor's original
Equipment cost and upon terms and conditions to be mutually agreed upon by the
parties following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the Initial Term or extended term. Title to the
Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to
agree on the purchase price or the terms and conditions with respect to said
purchase, then the Summary Equipment Schedule with respect to this Equipment
shall remain in full force and effect. Notwithstanding the exercise by Lessee
of this option and payment of the purchase price, until all obligations under
the applicable Summary Equipment Schedule have been fulfilled, it is agreed
and understood that Lessor shall retain a purchase money security interest in
the Equipment listed therein and the Summary Equipment Schedule shall
constitute a Security Agreement under the Uniform Commercial Code of the state
in which the Equipment is located.
5. ADDITIONAL FINANCING
So long as no Event of Default shall have occurred and is continuing, and
subject to final review by Lessor, Lessor agrees to provide to Lessee an
additional $250,000 of Equipment upon terms to be negotiated.
6. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified on page
1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations and
warranties set forth in Section 8) except as modified herein by this Schedule.
This Schedule may not be amended or rescinded except by a writing signed by
both parties.
MICRO THERAPEUTICS, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ [SIGNATURE] By: /s/ [SIGNATURE]
-------------------------------- -------------------------------
Title: C.F.O. Title:
----------------------------- ----------------------------
Date: 1/2/96 Date: 1/5/96
------------------------------ ----------------------------
<PAGE> 9
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Registrant
NONE
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
of our report dated December 2, 1996 on our audits of the financial statements
of Micro Therapeutics, Inc. We also consent to the references to our firm under
the captions "Selected Financial Data" and "Experts".
COOPERS & LYBRAND L.L.P.
Newport Beach, California
December 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MICRO THERAPEUTICS, INC. FOR THE YEAR ENDED DECEMBER
31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996, RESPECTIVELY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 2,418 2,348
<SECURITIES> 0 3,717
<RECEIVABLES> 77 192
<ALLOWANCES> 0 0
<INVENTORY> 165 393
<CURRENT-ASSETS> 2,701 6,781
<PP&E> 426 884
<DEPRECIATION> 81 215
<TOTAL-ASSETS> 3,221 7,832
<CURRENT-LIABILITIES> 343 569
<BONDS> 0 152
0 0
6,962 15,034
<COMMON> 146 635
<OTHER-SE> (4,230) (8,558)
<TOTAL-LIABILITY-AND-EQUITY> 3,221 7,832
<SALES> 292 969
<TOTAL-REVENUES> 292 969
<CGS> 316 1,116
<TOTAL-COSTS> 316 1,116
<OTHER-EXPENSES> 2,984 3,892
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 10
<INCOME-PRETAX> (2,806) (3,920)
<INCOME-TAX> 1 1
<INCOME-CONTINUING> (2,807) (3,921)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,807) (3,921)
<EPS-PRIMARY> (.59)<F1> (.83)<F1>
<EPS-DILUTED> 0 0
<FN>
<F1>EPS DATA IS ON A PRO-FORMA BASIS, GIVING EFFECT TO THE SUBJECT OFFERING.
</FN>
</TABLE>
