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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 12, 1998
MICRO THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 000-06253 33-0569235
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No)
1062 Calle Negocio, #F, San Clemente, California 92673
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 361-0616
Not Applicable
(Former name or former address, if changed since last report)
Page 1 of 3
Exhibit Index on Page 3
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ITEM 5. OTHER EVENTS
On August 12, 1998, Micro Therapeutics, Inc. (the "Company") entered
into a 5% Convertible Subordinated Note Agreement (the "Note Agreement")
pursuant to which the Company issued such convertible subordinated promissory
note in the aggregate principal amount of $5,000,000 due July 31, 2002 to Abbott
Laboratories, an Illinois corporation ("Abbott"). The Note Agreement provides
for an additional $5,000,000 convertible subordinated promissory note to be
issued at the Company's sole discretion.
Concurrently therewith, the Company entered into a Distribution
Agreement with Abbott, which provides for U.S. and Canadian distribution of the
Company's existing and future peripheral vascular blood clot therapy line. The
Distribution Agreement has a ten-year term.
ITEM 7. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1 Convertible Subordinated Note Agreement dated August 12, 1998 between the Company and Abbott
10.2 5% Convertible Note dated August 19, 1998 between the Company and Abbott
10.3 Distribution Agreement dated August 12, 1998 between the Company and Abbott
10.4 Credit Agreement dated August 12, 1998 between the Company and Abbott
10.5 Security Agreement dated August 12, 1998 between the Company and Abbott
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICRO THERAPEUTICS, INC.
Date: September 1, 1998 By: /s/ HAROLD A. HURWITZ
------------------------------------
Harold A. Hurwitz, Chief Financial
Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
10.1 * Convertible Subordinated Note Agreement dated August 12, 1998 between the Company 4
and Abbott
10.2 5% Convertible Note dated August 19, 1998 between the Company and Abbott 45
10.3 * Distribution Agreement dated August 12, 1998 between the Company and Abbott 48
10.4 * Credit Agreement dated August 12, 1998 between the Company and Abbott 82
10.5 Security Agreement dated August 12, 1998 between the Company and Abbott 107
</TABLE>
* Portions of this Exhibit are omitted and were filed separately with the
Secretary of the Commission pursuant to the Company's application requesting
confidential treatment under Rule 406 of the Securities Act of 1933.
<PAGE> 1
EXHIBIT 10.1
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED (DESIGNATED BY AN
ASTERISK ([*])) AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT DATED AUGUST 28, 1998
CONVERTIBLE SUBORDINATED NOTE AGREEMENT
BY AND BETWEEN
ABBOTT LABORATORIES
AND
MICRO THERAPEUTICS, INC.
DATED AS OF AUGUST 12, 1998
$5,000,000
5% CONVERTIBLE SUBORDINATED NOTE, DUE AUGUST 19, 2003
CONVERTIBLE SUBORDINATED NOTE AGREEMENT
THIS CONVERTIBLE SUBORDINATED NOTE AGREEMENT (this "Agreement"),
entered into as of the 12th day of August 1998, by and between ABBOTT
LABORATORIES, an Illinois corporation ("Abbott"), and MICRO
THERAPEUTICS, INC., a Delaware corporation (the "Company").
RECITALS
A. Abbott desires to purchase from the Company, and the Company desires
to sell to Abbott, a certain 5% Convertible Subordinated Note, due
August 19, 2003, in the aggregate principal amount of Five Million
Dollars ($5,000,000) (the "Note") convertible into shares of the common
stock, par value $0.001 per share, of the Company (the "Common Stock"),
in the form attached hereto as Exhibit A, all as more fully described
below, on the terms and conditions set forth herein.
B. The Company and Abbott desire to enter into an Exclusive
Distribution Agreement (the "Distribution Agreement") in the form
attached hereto as Exhibit B.
C. The Company and Abbott desire to enter into a Credit Agreement (the
"Credit Agreement") in the form attached hereto as Exhibit C, which
provides that Abbott, as lender, shall loan to the Company, at the
Company's sole option, as borrower, an amount not to exceed an
aggregate of Five Million Dollars ($5,000,000).
D. The Company desires to grant Abbott a security interest in the
intellectual property relating to the Company's peripheral blood clot
infusion products pursuant to the Security Agreement in the form
attached hereto as Exhibit D.
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E. The Company and Abbott desire to make certain representations,
warranties, covenants and agreements in connection with the purchase
and sale of the Note and desire to prescribe certain conditions
precedent to such purchase and sale.
F. The Company and Abbott desire to make certain representations,
warranties, covenants and agreements in connection with entering into
this Agreement and the Credit Agreement and desire to prescribe certain
conditions precedent to such agreements.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and of the mutual
provisions, agreements and covenants contained herein, the Company and
Abbott hereby agree as follows:
1. DESCRIPTION OF NOTE AND COMMITMENT.
1.1 DESCRIPTION OF NOTE. The Company has authorized the
purchase and sale of Five Million Dollars ($5,000,000)
aggregate principal amount of the Note to be dated the Closing
Date of issue, to bear interest from such date at the rate of
five percent (5%) per annum, payable quarterly in arrears on
January 31, April 30, July 31 and October 31, each year
(commencing October 31, 1998) and at maturity and to bear
interest on overdue principal and premium, if any, and (to the
extent legally enforceable) on any overdue installment of
interest at the rate of ten percent (10%) per annum after the
date due, whether at maturity or by declaration, acceleration
or otherwise, until paid, to be expressed to mature on August
19, 2003, and to be substantially in the form attached hereto
as Exhibit A. The Note is not subject to redemption or
prepayment. The Note is convertible into Common Stock on the
terms and conditions set forth in Section 11 hereof.
1.2 COMMITMENT, CLOSING DATE. Subject to the terms and
conditions hereof and on the basis of the representations,
warranties, covenants and agreements set forth herein, the
Company agrees to sell to Abbott, and Abbott agrees to
purchase from the Company, the Note in the respective
aggregate principal amount as set forth in Exhibit A at a
purchase price of one hundred percent (100%) of the principal
amount thereof on the Closing Date (as defined herein).
The closing of the purchase and sale of the Note will be made at the
offices of Stradling Yocca Carlson & Rauth, 660 Newport Center Drive,
Suite 1600, Newport Beach, California 92660, against payment therefor
of the purchase price by wire transfer in immediately available funds
at 1:00 p.m. Pacific time, August 19, 1998, or such later date as shall
mutually be agreed upon by the Company and Abbott (the "Closing Date").
The Note delivered to Abbott on the Closing Date will be delivered
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to Abbott in the form of a single Note in the form attached hereto as
Exhibit A for the full amount of Abbott's purchase.
2. INTERPRETATION OF AGREEMENT; DEFINITIONS.
2.1 DEFINITIONS. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the
following meanings and the following definitions shall be
equally applicable to both the singular and plural forms of
any of the terms herein defined:
"Affiliate" shall mean any Person (other than a Subsidiary)
(i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under
common control with, the Company, (ii) which beneficially owns
or holds five percent (5%) or more of any class of the Voting
Stock of the Company or (iii) five percent (5%) or more of the
Voting Stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of the equity interest)
of which is beneficially owned or held by the Company or a
Subsidiary. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction
of the management and policies of a Person, whether through
the ownership of Voting Stock, by contract or otherwise.
"Agreement" shall mean this Note Agreement.
"Board of Directors" shall mean either the board of directors
of the Company or any duly authorized committee thereof.
"Board Resolution" shall mean a copy of a resolution certified
by the Secretary or an Assistant Secretary of the Company to
have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification.
"Business Day" shall mean any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banks
located in San Francisco, California or Chicago, Illinois are
authorized or required by law to be closed. "Closing Date"
shall have the meaning specified in Section 1.2 hereof.
"Commission" shall mean the Securities and Exchange
Commission, or successor regulatory entity.
"Common Stock" shall mean the Common Stock, par value $0.001
per share, of the Company.
"Company" shall mean Micro Therapeutics, Inc., a Delaware
corporation, and any Person who in accordance with the terms
of this Agreement succeeds
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to all, or substantially all, of the assets or business of
Micro Therapeutics, Inc.
"Credit Facility Note" shall mean the 5% Convertible Credit
Facility Note issued pursuant to the Credit Facility as
defined in Section 6.1 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor statute of similar
import, together with the regulations thereunder, in each case
as in effect from time to time. References to sections of
ERISA shall be construed to also refer to any successor
sections.
"Event of Default" shall have the meaning set forth in Section
9 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"GAAP" shall mean generally accepted accounting principles at
the time in the United States.
"Holder" shall mean the registered holder of the Note,
initially Abbott.
"Interest Payment Date" shall mean the Stated Maturity of an
installment of interest on the Note.
"Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the
owner of the property, whether such interest is based on the
common law, statute or contract, and including but not limited
to the security interest lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes. The term
"Lien" shall include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including,
with respect to stock, stockholder agreements, voting trust
agreements, buy-back agreements and all similar arrangements)
affecting property. For the purposes of this Agreement, the
Company or a Subsidiary shall be deemed to be the owner of any
property which it has acquired or holds subject to a
conditional sale agreement, capitalized lease or other
arrangement pursuant to which title to the property has been
retained by or vested in some other Person for security
purposes and such retention or vesting shall constitute a
Lien.
"Nasdaq" and "Nasdaq National Market" shall have the meanings
specified in Section 11.4(h) hereof.
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"Person" shall mean an individual, partnership, corporation,
limited liability company, trust or unincorporated
organization, and a government or agency or political
subdivision thereof.
"Preferred Stock" shall mean stock of the Company or a
Subsidiary of any class or series ranking prior to any other
class or series of stock of the Company or the Subsidiary with
respect to the payment of dividends or the distribution of
assets upon the liquidation, dissolution or winding up of the
Company or the Subsidiary.
"Purchased Shares" shall have the meaning specified in Section
11.4(f) hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Stated Maturity," when used with respect to the Note or any
installment of interest hereon, shall mean the date specified
in the Note as the fixed date on which the principal of the
Note or any installment of interest is due and payable.
"Subsidiary" shall mean a corporation, partnership or other
entity at least a majority of whose Voting Stock is owned
directly or indirectly by the Company.
"Voting Stock" shall mean securities of any class or classes,
the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).
2.2 ACCOUNTING PRINCIPLES. Where the character or amount of
any asset or liability or item of income or expense is
required to be determined or any consolidation or other
accounting computation is required to be made for the purposes
of this Agreement, the same shall be done in accordance with
GAAP, to the extent applicable, except where such principles
are inconsistent with the requirements of this Agreement.
2.3 DIRECTLY OR INDIRECTLY. Where any provision in this
Agreement refers to action to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be
applicable whether the action in question is taken directly or
indirectly by such Person.
2.4 LEGAL HOLIDAYS. In any case where any Interest Payment
Date or Stated Maturity of the Note or the last date on which
Abbott has the right to convert the Note shall not be a
Business Day, then (notwithstanding any other provision of
this Agreement or of the Note) payment of interest or
principal or conversion of the Note, as the case may be, need
not be made on such date, but may be made on the next
succeeding Business Day with the
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same force and effect as if made on the Interest Payment Date,
or at the Stated Maturity, or on such last day for conversion.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ITS SUBSIDIARIES.
Except as otherwise set forth in the Disclosure Schedule attached
hereto as Exhibit E (the "Disclosure Schedule") or in any document
expressly referenced in the Disclosure Schedule, the Company and its
Subsidiaries represent and warrant to Abbott as of the date hereof as
follows:
3.1 SUBSIDIARIES OF THE COMPANY. The Disclosure Schedule
states the name of each of the Subsidiaries of the Company,
its jurisdiction of incorporation and the percentage of its
Voting Stock owned by the Company and/or its Subsidiaries. The
Company and each of its Subsidiaries has good and marketable
title to all of the shares it purports to own of the stock of
each Subsidiary, free and clear in each case of any Lien.
3.2 CORPORATE ORGANIZATION AND AUTHORITY. The Company, and
each of its Subsidiaries: (a) is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation; (b) has all requisite power and
authority and all necessary licenses and permits to own and
operate its properties and to carry on its business as now
conducted and as presently proposed to be conducted; and (c)
is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of
the business transacted by it or the nature of the property
owned or leased by it makes such licensing or qualification
necessary.
3.3 CAPITAL STRUCTURE. The authorized capital stock of the
Company consists of Twenty Million (20,000,000) shares of
Common Stock, par value $0.001 per share, and Five Million
(5,000,000) shares of Preferred Stock, par value $0.001 per
share. As of June 30, 1998, Six Million Six Hundred
Eighty-Four Thousand Four Hundred Sixty-Seven (6,684,467)
shares of the Common Stock were issued and outstanding and no
shares of the Preferred Stock were issued and outstanding.
All of the outstanding Common Stock was issued in compliance with
applicable federal and state securities laws and regulations. All of
the outstanding shares of the Common Stock are, and any shares of
Common Stock issuable upon conversion of the Note and the Credit
Facility Note will be, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute,
the Company's Certificate of Incorporation or Bylaws, or any agreement
to which the Company is a party or is bound.
3.4 EQUITY INVESTMENTS. The Company does not own any equity
stock or interest, directly or indirectly, in any corporation,
partnership, joint venture, firm or other entity. The Company
has no Subsidiaries except those set forth in the Disclosure
Schedule.
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3.5 AUTHORITY. The Company has all requisite corporate power
and authority to enter into this Agreement, the Credit
Agreement and the Security Agreement and to issue the Note,
and will have all requisite corporate power and authority to
issue the Credit Facility Note and, subject to satisfaction of
the conditions set forth herein and therein, to consummate the
transactions contemplated hereby and thereby. The execution
and delivery of this Agreement, the Credit Agreement, the
Security Agreement and the Note and the consummation of the
transactions contemplated hereby and thereby have been, and
the execution and delivery of the Credit Facility Note and the
consummation of the transactions contemplated thereby will be,
duly authorized by all necessary corporate action on the part
of the Company. This Agreement, the Credit Agreement, the
Security Agreement and the Note have been, and the Credit
Facility Note will be, duly executed and delivered by the
Company, and constitute the valid and binding obligation of
the Company, enforceable in accordance with their respective
terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the
rights of creditors and the effect or availability of rules of
law governing specific performance, injunctive relief or other
equitable remedies. Provided the conditions set forth in
Section 8 hereof are satisfied, the execution and delivery of
this Agreement, the Credit Agreement, the Security Agreement,
the Note and the Credit Facility Note do not or will not, and
the consummation of the transactions contemplated hereby or
thereby will not, conflict with, or result in any violation of
or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or
acceleration of any obligation under (a) any provision of the
Certificate of Incorporation or Bylaws of the Company, or (b)
any material agreement or instrument, permit, franchise,
license, judgment or order, applicable to the Company or its
respective properties or assets.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or
commission or other governmental authority (a "Governmental Entity") or
other Person or entity, is required by, or with respect to, the Company
in connection with the execution and delivery of this Agreement, the
Credit Agreement or the Security Agreement or the consummation by the
Company of the transactions contemplated hereby or thereby, except for
such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal
and state securities laws and the laws of any foreign country.
3.6 FINANCIAL STATEMENTS. The Company has furnished to Abbott
its audited consolidated statement of operations, statement of
stockholders' equity and statement of cash flows for the
fiscal year ended December 31, 1997 and the Company's audited
consolidated balance sheet at December 31, 1997; and the
unaudited consolidated statement of operations and statement
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of cash flows for the six (6) months ended June 30, 1998 and
the unaudited consolidated balance sheet at June 30, 1998. The
Company will furnish to Abbott as soon as available its
audited consolidated financial statements for the fiscal year
ended December 31, 1998. The balance sheet at June 30, 1998 is
hereinafter referred to as the "Company Balance Sheet," and
all such financial statements are hereinafter referred to
collectively as the "Company Financial Statements." The
Company Financial Statements have been and will be prepared in
accordance with GAAP applied on a consistent basis, except for
any change due to the adoption of an accounting principle
established by the FASB, AICPA, SEC or any other accounting
standard setting board, during the periods involved, and
fairly present and will present the consolidated financial
position of the Company and the results of its operations as
of the date and for the periods indicated thereon. At the date
of the Company Balance Sheet (the "Company Balance Sheet
Date"), neither the Company nor its consolidated Subsidiaries
had any liabilities or obligations, secured or unsecured
(whether accrued, absolute, contingent or otherwise) not
reflected on the Company Balance Sheet or the accompanying
notes thereto.
3.7 SECURITIES AND EXCHANGE COMMISSION DOCUMENTS. The Company
has furnished to Abbott a true and complete copy of the
Company's Form 10-KSB for the year ended December 31, 1997 and
Form 10-QSB for each of the quarters ended March 31, 1998 and
June 30, 1998 (the "Company SEC Documents"). As of their
respective filing dates, the Company SEC Documents comply in
all material respects with the requirements of the Exchange
Act or the Securities Act, and none of the Company SEC
Documents contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not
misleading, except to the extent corrected by a subsequently
filed Company SEC Document.
3.8 BUSINESS CHANGES. Since June 30, 1998, except as otherwise
contemplated by this Agreement or as disclosed in writing to
Abbott, the Company has conducted its business only in the
ordinary and usual course and, without limiting the generality
of the foregoing:
(a) There have been no changes in the condition
(financial or otherwise), business, net worth,
assets, properties, employees, operations,
obligations or liabilities of the Company which, in
the aggregate, have had or may be reasonably expected
to have a materially adverse effect on the condition,
business, net worth, assets, prospects, properties or
operations of the Company.
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(b) The Company has not issued, or authorized for
issuance, or entered into any commitment to issue,
any equity security, bond, note or other security of
the Company.
(c) The Company has not incurred debt for borrowed
money, nor incurred any obligation or liability
except in the ordinary and usual course of business
and in any event not in excess of Fifty Thousand
Dollars ($50,000) for any single occurrence.
(d) The Company has not paid any obligation or
liability, or discharged, settled or satisfied any
claim, lien or encumbrance, except for current
liabilities in the ordinary and usual course of
business and in any event not in excess of Fifty
Thousand Dollars ($50,000) for any single occurrence.
(e) The Company has not declared or made any
dividend, payment or other distribution on or with
respect to any share of capital stock of the Company.
(f) The Company has not purchased, redeemed or
otherwise acquired or committed itself to acquire,
directly or indirectly, any share or shares of
capital stock of the Company.
(g) The Company has not mortgaged, pledged, or
otherwise encumbered any of its assets or properties,
other than inventory sold in the normal course of
business or accounts receivable.
(h) The Company has not disposed of, or agreed to
dispose of, by sale, lease, license or otherwise, any
asset or property, tangible or intangible, except, in
the case of such other assets and property, in the
ordinary and usual course of business, and in each
case for a consideration believed to be at least
equal to the fair value of such asset or property and
in any event not in excess of Fifty Thousand Dollars
($50,000) for any single item or One Hundred Thousand
Dollars ($100,000) in the aggregate other than
inventory sold or returned in the normal course of
business.
(i) The Company has not purchased or agreed to
purchase or otherwise acquire any securities of any
corporation, partnership, joint venture, firm or
other entity; the Company has not made any
expenditure or commitment for the purchase,
acquisition, construction or improvement of a capital
asset, except in the ordinary and usual course of
business and in any event not in excess of Fifty
Thousand Dollars ($50,000) for any single item or One
Hundred Thousand Dollars ($100,000) in the aggregate.
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(j) The Company has not entered into any transaction
or contract, or made any commitment to do the same,
except in the ordinary and usual course of business.
(k) The Company has not sold, assigned, transferred
or conveyed, or committed itself to sell, assign,
transfer or convey, any Proprietary Rights (as
defined in Section 3.15 hereof).
(l) The Company has not adopted or amended any bonus,
incentive, profit-sharing, stock option, stock
purchase, pension, retirement, deferred-compensation,
severance, life insurance, medical or other benefit
plan, agreement, trust, fund or arrangement for the
benefit of employees of any kind whatsoever, nor
entered into or amended any agreement relating to
employment, services as an independent contractor or
consultant, or severance or termination pay, nor
agreed to do any of the foregoing.
(m) The Company has not effected or agreed to effect
any change in its directors, officers or key
employees.
(n) The Company has not effected or committed itself
to effect any amendment or modification in its
Certificate of Incorporation or Bylaws, except as
contemplated by this Agreement.
(o) The Company has not modified its accounting
principles in any material respect, except for those
changes required by the adoption of an accounting
principle promulgated by the FASB, the AICPA, the
Securities and Exchange Commission, or any other
accounting standards setting bodies.
3.9 INDEBTEDNESS. The Disclosure Schedule correctly describes
all debt of the Company and its Subsidiaries in excess of Two
Hundred Fifty Thousand Dollars ($250,000) outstanding of the
Closing Date.
3.10 LITIGATION. There is no claim, dispute, action,
proceeding, notice, order, suit, appeal or investigation, at
law or in equity, pending against the Company, or involving
any of its assets or properties, before any court, agency,
authority, arbitration panel or other tribunal (other than
those, if any, with respect to which service of process or
similar notice has not yet been made on the Company), and none
have been threatened. The Company is aware of no facts which,
if known to stockholders, customers, governmental authorities
or other Persons, would result in any such claim, dispute,
action, proceeding, suit or appeal or investigation which
would have a material adverse effect on the condition
(financial or otherwise), business, net worth, assets,
prospects, properties or operations of the Company. The
Company is not subject to any order, writ, injunction or
decree of any court, agency,
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authority, arbitration panel or other tribunal, nor is it in
default with respect to any notice, order, writ, injunction or
decree.
3.11 COMPLIANCE WITH LAW. All material licenses, franchises,
permits, clearances, consents, certificates and other
evidences of authority of the Company which are necessary to
the conduct of the Company's business ("Permits") are in full
force and effect and the Company is not in violation of any
Permit in any material respect. Except for possible
exceptions, the curing or non-curing of which would not have a
material adverse effect on the condition (financial or
otherwise), business, net worth, assets, prospects, properties
or operations of the Company, the business of the Company has
been conducted in accordance with all applicable laws,
regulations, orders and other requirements of governmental
authorities.
3.12 TITLE TO PROPERTIES. The Company and each of its
Subsidiaries has good and marketable title in fee simple (or
its equivalent under applicable law) to all material parcels
of real property and has good title to all the other material
items of property it purports to own, except as sold or
otherwise disposed of in the ordinary course of business.
3.13 LICENSES, ETC. The Company and each of its Subsidiaries
owns or possesses all the material trade names, service marks,
licenses, governmental approvals, and rights with respect to
the foregoing necessary for the present conduct of its
business, without any known conflict with the rights of
others.
3.14 NO DEFAULT.
(a) Each of the Company's material agreements or
contracts is a legal, binding and enforceable
obligation by or against the Company, subject to the
effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar federal
or state laws affecting the rights of creditors and
the effect or availability of rules of law governing
specific performance, injunctive relief or other
equitable remedies (regardless of whether any such
remedy is considered in a proceeding at law or in
equity). To the Company's knowledge, no party with
whom the Company has an agreement or contract is in
default thereunder or has breached any term or
provision thereof which is material to the conduct of
the Company's business.
(b) The Company has performed, or is now performing,
the obligations of, and the Company is not in
material default (or would by the lapse of time
and/or the giving of notice be in material default)
in respect of, any contract, agreement or commitment
binding upon it or its assets or properties and
material to the conduct of its business. No third
party has raised any claim, dispute or controversy
with
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respect to any of the contracts of the Company,
whether fully performed or currently being performed,
nor has the Company received written notice or
warning of alleged nonperformance, delay in delivery
or other noncompliance by the Company with respect to
its obligations under any of those contracts, nor are
there any facts which exist indicating that any of
those contracts may be totally or partially
terminated or suspended by the other parties thereto.
3.15 PROPRIETARY RIGHTS.
(a) The Company has provided Abbott with a complete
list in writing of all patents and applications for
patents, trademarks, trade names, service marks, and
copyrights, and applications therefor, owned or used
by the Company or in which it has any rights or
licenses, except for software used by the Company and
generally available on the commercial market. The
Company has provided Abbott with a complete and
accurate list of all agreements of the Company with
each officer, employee or consultant of the Company
providing the Company with title and ownership to
patents, patent applications, trade secrets and
inventions developed or used by the Company in its
business. All of such agreements so described are
valid, enforceable and legally binding, subject to
the effect of applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the
rights of creditors or availability of rules of law
governing specific performance, injunctive relief or
other equitable remedies (regardless of whether any
such remedy is considered in a proceeding at law or
in equity).
(b) The Company owns or possesses licenses or other
rights to use all patents, patent applications,
trademarks, trademark applications, trade secrets,
service marks, trade names, copyrights, inventions,
drawings, designs, customer lists, proprietary
know-how or information, or other rights with respect
thereto (collectively referred to as "Proprietary
Rights"), used in the business of the Company, and
the same are sufficient to conduct the Company's
business as it has been and is now being conducted.
(c) The operations of the Company do not conflict
with or infringe, and no one has asserted to the
Company that such operations conflict with or
infringe, on any Proprietary Rights, owned, possessed
or used by any third party. There are no claims,
disputes, actions, proceedings, suits or appeals
pending against the Company with respect to any
Proprietary Rights (other than those, if any, with
respect to which service of process or similar notice
may not yet have been made on the Company), and, none
has been threatened against the Company. To the
knowledge of the Company, there are no facts or
alleged facts which would reasonably serve as a basis
for any
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claim that the Company does not have the right to
use, free of any rights or claims of others, all
Proprietary Rights in the development, manufacture,
use, sale or other disposition of any or all products
or services presently being used, furnished or sold
in the conduct of the business of the Company as it
has been and is now being conducted.
(d) To the Company's knowledge, no employee of the
Company is in violation of any term of any employment
contract, proprietary information and inventions
agreement, non-competition agreement, or any other
contract or agreement relating to the relationship of
any such employee with the Company or any previous
employer.
3.16 TAXES. All tax returns required to be filed by the
Company or its Subsidiaries in any jurisdiction have, in fact,
been filed, and all taxes, assessments, fees and other
governmental charges upon the Company or its Subsidiaries or
upon any of their respective properties, income or franchises,
which are shown to be due and payable in such returns have
been paid. For all taxable years ending on or before
December 31, 1997, the federal income tax liability of the
Company and its Subsidiaries has been satisfied. The Company
does not know of any proposed additional tax assessment
against it for which adequate reserves have not been made on
its balance sheet, and no material controversy in respect of
additional federal or state income taxes due since said date
is pending or, to the knowledge of the Company, threatened.
The reserves for taxes on the books of the Company and each of
its Subsidiaries are adequate in all material respects for all
open years, and for its current fiscal period.
3.17 USE OF PROCEEDS. The net proceeds from the sale of the
Note will be used to make an infusion of capital into the
Company and for other corporate purposes.
3.18 PRIVATE OFFERING. Neither the Company, directly or
indirectly, nor any agent on its behalf has offered or will
offer the Note or any similar security or has solicited or
will solicit an offer to acquire the Note or any similar
security from or has otherwise approached or negotiated or
will approach or negotiate in respect of the Note or any
similar security with any Person other than Abbott. Neither
the Company, directly or indirectly, nor any agent on its
behalf has offered or will offer the Note or any similar
security or has solicited or will solicit an offer to acquire
the Note or any similar security from any Person so as to
require registration of the Note under section 5 of the
Securities Act.
3.19 EMPLOYEE PLANS AND RELATIONS.
(a) Except as provided in the Company SEC Documents,
the Company does not have any: (i)employee benefit
plans, multi-employer plans and employee benefit
plans (as defined in section
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<PAGE> 14
3(2) or section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended); (ii)bonus,
deferred compensation, incentive, restricted stock,
stock purchase, stock option, stock appreciation
right, phantom stock, debenture, supplemental
pension, profit-sharing, royalty pool, commission or
similar plan or arrangement; (iii)employment,
consulting or termination agreement; or (iv)other
plan, program, agreement, procedure, policy,
commitment, understanding or other arrangement
relating to employee benefits, executive
compensation, fringe benefits, severance pay, terms
of employment or services as a director, officer,
employee or independent contractor.
(b) The Company has not been and is not a party to,
or subject to, or affected by, any collective
bargaining agreement or other labor contract. The
Company has complied in all respects with all laws,
rules and regulations relating to employment, equal
employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective
bargaining, the payment of social security and
similar taxes, occupational safety and health and
plant closing.
3.20 ENVIRONMENTAL MATTERS. The Company is, and at all times
during the period prior to the date hereof the Company has
been, in compliance with all applicable local, state and
federal statutes, orders, rules, ordinances and regulations
relating to pollution or protection of the environment,
including, without limitation, laws relating to zoning and
land use and to emissions, discharges, releases or threatened
releases of pollutants, contaminants, hazardous or toxic
materials or wastes into or on land, ambient air, surface
water, ground water, personal property or structures
(including the protection, cleanup, removal, remediation or
damage thereof), or otherwise related to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport, discharge or handling of pollutants, contaminants
or hazardous or toxic substances, materials or wastes.
3.21 BROKERS OR FINDERS. The Company has not dealt with any
broker or finder in connection with the transactions
contemplated by this Agreement. The Company has not incurred,
and shall not incur, directly or indirectly, any liability for
any brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any
transaction contemplated hereby.
3.22 FULL DISCLOSURE. Neither the Company Financial Statements
referred to in Section 3.6 hereof nor this Agreement, or any
other written statement furnished by the Company to Abbott in
connection with the negotiation of the sale of the Note,
contains any untrue statement of a material fact or omits a
material fact necessary to make the statements contained
herein or therein not misleading. There is no fact peculiar to
the Company or the Subsidiaries which the Company has not
disclosed to Abbott in writing which materially
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<PAGE> 15
adversely affects nor, so far as the Company can now foresee,
will materially adversely affect, the properties, business,
profits or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole.
4. REPRESENTATIONS AND WARRANTIES OF ABBOTT. Except as contemplated by
this Agreement, Abbott represents and warrants to the Company as of the
date hereof as follows:
4.1 CORPORATE ORGANIZATION. Abbott is a corporation duly
incorporated, validly existing and in good standing under the
laws of Illinois. Abbott is duly qualified to do business and
is in good standing in its state of incorporation and in each
other jurisdiction in which it owns or leases property or
conducts business, except where the failure to be so qualified
would not have a material adverse effect on the business of
Abbott. Abbott has all requisite power and authority to own,
lease and operate its properties and to carry on its business
as now being conducted, and possesses all licenses,
franchises, rights and privileges material to the conduct of
its business.
4.2 AUTHORITY. Abbott has all requisite corporate power and
authority to enter into this Agreement and the related
agreements contemplated herein, and, subject to satisfaction
of the conditions set forth herein, to consummate the
transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of Abbott. This Agreement has
been duly executed and delivered by Abbott and constitutes the
valid and binding obligation of Abbott enforceable in
accordance with its terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization or other similar
federal or state laws affecting the rights of creditors and
the effect or availability of rules of law governing specific
performance, injunctive relief or other equitable remedies.
Provided the conditions set forth in Section 8 are satisfied,
the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of or default (with
or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration
of any obligation under (a) any provision of the Certificate
of Incorporation or Bylaws of Abbott, or (b) any material
agreement or instrument, permit, license, judgment, order,
statute, law, ordinance, rule or regulation applicable to
Abbott or its properties or assets, other than any such
conflicts, violations, defaults, terminations, cancellations
or accelerations which individually or in the aggregate would
not have a material adverse effect on Abbott.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority is required by
or with respect to Abbott in
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<PAGE> 16
connection with the execution and delivery of this Agreement by Abbott
or the consummation by Abbott of the transactions contemplated hereby
or thereby.
4.3 RESTRICTED NOTE. Abbott represents and agrees, and in
entering into this Agreement the Company understands, that
(A)Abbott is acquiring the Note for Abbott's own account, and
for the purpose of investment and not with a view to the
distribution thereof, and that Abbott has no present intention
of selling, negotiating or otherwise disposing of the Note; it
being understood, however, that the disposition of Abbott's
property shall at all times be and remain within its control,
and (B)the Note has not been registered under section 5 of the
Securities Act and that Abbott will only re-offer or resell
the Note purchased by Abbott under this Agreement pursuant to
an effective registration statement under the Securities Act
or in accordance with an available exemption from the
requirements of section 5 of the Securities Act.
4.4 NO CONFLICT. The execution and delivery of this Agreement
by Abbott and the performance of Abbott's obligations
hereunder, (A)are not in violation or breach of, and will not
conflict with or constitute a default under, any of the terms
of the Certificate of Incorporation or Bylaws of Abbott or any
of its Subsidiaries, or any material contract, agreement or
commitment binding upon Abbott or any of its assets or
properties; (B)will not result in the creation or imposition
of any lien, encumbrance, equity or restriction in favor of
any third party upon any of the assets or properties of
Abbott; and (C)will not conflict with or violate any
applicable law, rule, regulation, judgment, order or decree of
any government, governmental instrumentality or court having
jurisdiction over Abbott or any of its assets or properties.
4.5 BROKERS OR FINDERS. Abbott has not dealt with any broker
or finder in connection with the transactions contemplated by
this Agreement. Abbott has not incurred, and shall not incur,
directly or indirectly, any liability for any brokerage or
finders' fees or agents commissions or any similar charges in
connection with this Agreement or any transaction contemplated
hereby.
5. COVENANTS OF THE COMPANY. From and after the Closing Date and
continuing so long as any amount remains unpaid on the Note, the
Company and its Subsidiaries covenant and agree with Abbott that:
5.1 CORPORATE EXISTENCE. The Company shall do or cause to be
done all things necessary to preserve and keep in full force
and effect the existence, rights and franchises of the Company
and its Subsidiaries.
5.2 CONDUCT OF BUSINESS IN NORMAL COURSE. The Company and its
Subsidiaries shall carry on the business and their activities
diligently and in the ordinary course and shall not make or
institute any unusual or novel methods of purchase, sale,
lease, management, accounting or operation that
19
<PAGE> 17
will vary materially from the methods used by the Company as
of June30, 1998. The Company and its Subsidiaries shall
maintain the business and their activities in a normal and
customary manner consistent with prior practice.
5.3 MAINTENANCE. The Company will maintain, preserve and keep,
and will cause each of its Subsidiaries to maintain, preserve
and keep, its material properties which are used or useful in
the conduct of its business (whether owned in fee or a
leasehold interest) in good repair and working order and from
time to time will make all necessary repairs, replacements,
renewals and additions so that at all times the efficiency
thereof shall be maintained in all material respects.
5.4 PRESERVATION OF BUSINESS AND RELATIONSHIPS. Neither the
Company nor any of its Subsidiaries will engage in any
business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in
by the Company and its Subsidiaries would be substantially
changed from the general nature of the business engaged in by
the Company and its Subsidiaries on the date of this
Agreement.
5.5 MERGER; ACQUISITIONS. Except with contemporaneous notice
to Abbott, the Company shall not (a) consolidate with or merge
into any other Person, (b) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business
or any Person or division thereof, or (c) otherwise acquire or
agree to acquire any assets which are material to the Company
except in the ordinary course of business consistent with
prior practice.
5.6 SALE OR LEASE OF ASSETS; DISPOSITIONS. Except with
contemporaneous notice to Abbott, the Company shall not sell,
lease, transfer or otherwise dispose of any of its assets
(other than the sale of inventory in the ordinary course of
business), except in the ordinary course of business
consistent with prior practice.
5.7 INDEBTEDNESS. Except with contemporaneous notice to
Abbott, the Company shall not incur any indebtedness for
borrowed money other than customary Senior Indebtedness (as
defined herein) or guarantee any such indebtedness or issue or
sell any debt securities of the Company or guarantee any debt
securities of others except in connection with the purchase of
inventory pursuant to the existing bank line of credit.
5.8 INSURANCE. The Company shall at all times during the term
of this Agreement maintain product liability insurance
covering the products with minimum annual limits of Two
Million Dollars ($2,000,000) per occurrence and Two Million
Dollars ($2,000,000) in the aggregate. The Company shall
maintain such insurance for a minimum of five (5) years after
termination of
20
<PAGE> 18
this Agreement. Within thirty (30) days of the Closing Date,
the Company shall deliver to Abbott a certificate of insurance
evidencing such insurance and stating that the policy will not
be canceled or modified without at least thirty (30) days
prior written notice to Abbott.
5.9 TAXES, CLAIMS FOR LABOR AND MATERIALS, COMPLIANCE WITH
LAWS. The Company will promptly pay and discharge, and will
cause each of its Subsidiaries promptly to pay and discharge,
all lawful taxes, assessments and governmental charges or
levies imposed upon the Company or such Subsidiary,
respectively, or upon or in respect of all or any part of the
property or business of the Company or such Subsidiary, all
trade accounts payable in accordance with usual and customary
business terms, and all claims for work, labor or materials,
which if unpaid might become a Lien upon any property of the
Company or such Subsidiary; provided, however, that the
Company or such Subsidiary shall not be required to pay any
such tax, assessment, charge, levy, account payable or claim
if (a) the validity, applicability or amount thereof is being
contested in good faith by appropriate actions or proceedings
which will prevent the forfeiture or sale of any property of
the Company or such Subsidiary or any material interference
with the use thereof by the Company or such Subsidiary, and
(b) the Company or such Subsidiary shall set aside, in
accordance with GAAP, on its books, reserves deemed by it to
be adequate with respect thereto. The Company will promptly
comply and will cause each of its Subsidiaries to comply with
all laws, ordinances or governmental rules and regulations to
which it is subject including, without limitation, the
Occupational Safety and Health Act of 1970, as amended, ERISA
and all laws, ordinances, governmental rules and regulations
relating to environmental protection in all applicable
jurisdictions, the violation of which could materially and
adversely affect the properties, business, profits or
condition of the Company and its Subsidiaries, taken as a
whole.
5.10 NOTICE OF CLAIMS AND LITIGATION. The Company will give
prompt notice to Abbott of any claim or action at law or in
equity, or before any governmental, administrative or
regulatory body or arbitration panel instituted against the
Company or its Subsidiaries, or disputes that have a high
probability of resulting in a suit of significance against the
Company or its Subsidiaries involving a claim against the
Company or its Subsidiaries, for damages in excess of Two
Hundred Fifty Thousand Dollars ($250,000) or which, if
concluded adversely to the Company or its Subsidiaries, would
materially and adversely affect the business or assets of the
Company or its Subsidiaries.
5.11 DISPOSAL OF SHARES OF A SUBSIDIARY. Neither the Company
nor its Subsidiaries will sell, pledge or otherwise dispose of
any shares of the stock (including as "stock" for the purposes
of this Section 5.11 any options or warrants to purchase stock
or other Securities exchangeable for or convertible
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<PAGE> 19
into stock) of a Subsidiary, nor will any Subsidiary issue,
sell, pledge, encumber or otherwise dispose of any shares of
its own stock, if the effect of the transaction would be to
reduce the proportionate interest of the Company and its other
Subsidiaries in the outstanding stock of a Subsidiary whose
shares are the subject of the transaction, nor will its
Subsidiary issue, sell, pledge, encumber or dispose of any
shares of its own Preferred Stock.
5.12 TRANSACTIONS WITH AFFILIATES. Except for transactions and
arrangements with employee Affiliates, the Company will not,
and will not permit its Subsidiaries to, enter into or be a
party to any material transaction or arrangement with any
Affiliate (including, without limitation, the purchase from,
sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except pursuant to the
reasonable requirements of the Company's or its Subsidiaries'
business and upon fair and reasonable terms no less favorable
to the Company or its Subsidiaries than would be obtained in a
comparable arm's-length transaction with a Person other than
an Affiliate. To the best knowledge of the Company, the
Company has properly disclosed all affiliate transactions in
the Company's filings with the Securities and Exchange
Commission.
5.13 REPORTS AND ACCESS TO INFORMATION. Not more than once
during any twelve (12) month period, the Company shall afford
to Abbott and shall cause its independent accountants to
afford to Abbott, and its accountants, counsel and other
representatives, reasonable access during normal business
hours to the Company's properties, books, contracts,
commitments and records and to the independent accountants
reasonable access to the audit work papers and other records
of the Company's accountants. The Company shall furnish
promptly to Abbott (a) a copy of each report, schedule and
other document filed or received by the Company during such
period pursuant to the requirements of federal and state
securities laws and (b) all other material information
concerning the business, properties and personnel of the
Company and any other materials as Abbott may reasonably
request. Abbott will not use such information for purposes
other than this Agreement and will otherwise hold all
confidential material contained in such information in
confidence (and Abbott will cause its consultants and advisors
to also hold such information in confidence).
5.14 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission
which may permit the sale of the restricted Common Stock to
the public without registration, as long as a public market
exists for the Common Stock, the Company agrees to use its
best efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144
under the Securities Act;
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<PAGE> 20
(b) File with the Commission in a timely manner all
reports and other documents required of the Company
under the Securities Act and the Exchange Act;
(c) So long as a Holder owns any restricted Common
Stock, furnish to the Holder forthwith upon request a
written statement by the Company as to its compliance
with the reporting requirements of Rule 144, and of
the Securities Act and the Exchange Act, a copy of
the most recent annual or quarterly report of the
Company, and such other reports and documents of the
Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may
reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to
sell any such securities without registration.
6. CREDIT AGREEMENT.
6.1 CREDIT AGREEMENT. Concurrently herewith, the Company and
Abbott shall enter into the Credit Agreement in the form
attached hereto as Exhibit C. Pursuant to the Credit
Agreement, at the Company's sole discretion, the Company may
require Abbott, as lender, to loan to the Company, as
borrower, an amount not to exceed an aggregate of Five Million
Dollars ($5,000,000) (the "Credit Facility").
6.2 TERMINATION OF THE CREDIT AGREEMENT. The Company's option
to require Abbott to loan money pursuant to the Credit
Agreement shall terminate upon the earlier of (a)July 31,
1999, (b)the termination of the Distribution Agreement
pursuant to its terms (except for termination of the
Distribution Agreement by Abbott without cause) or otherwise
resulting from a material breach or default by the Company of
any covenant, condition or other provision thereof, or
(c)notice from Abbott following an Event of Default.
6.3 DEFAULT AND CROSS DEFAULTS. If an Event of Default occurs, the
Company shall not borrow pursuant to the Credit Facility during the
time of the Event of Default, and Abbott shall have the right to
terminate the Credit Facility upon written notice to the Company. If
Abbott does not exercise its right to terminate the Credit Facility
during the Event of Default, thirty (30) days after such Event of
Default is cured or remedied, the Company may borrow pursuant to the
Credit Facility unless the Credit Facility has terminated in accordance
with Section 6.2 hereof.
7. ADDITIONAL AGREEMENTS. Notwithstanding the covenants and agreements
of the Company set forth in Section 5 hereof, the Company and Abbott
further agree that no such covenants and agreements shall prevent any
sale, disposition, spin-off, spin-out, license or any other transfer of
the Company's or any Subsidiary's assets
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<PAGE> 21
and technology outside the Field (as such term is defined in the
Distribution Agreement).
8. CONDITIONS PRECEDENT.
8.1 CONDITIONS TO OBLIGATIONS OF ABBOTT. The obligations of
Abbott to consummate this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following
conditions, unless waived by Abbott:
(a) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company and its
Subsidiaries set forth in this Agreement shall be
true and correct in all material respects as of the
date of this Agreement and as if made at and as of
the Closing Date, except as otherwise contemplated by
this Agreement, and Abbott shall have received a
certificate or certificates signed by the Chief
Executive Officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS. The Company shall
have performed all obligations required to be
performed by it under this Agreement prior to the
Closing Date, and Abbott shall have received a
certificate signed by the Chief Executive Officer of
the Company to such effect.
(c) NO MATERIAL ADVERSE CHANGE. There shall have been
no changes in the condition (financial or otherwise),
business, prospects, employees, operations,
obligations or liabilities of the Company which, in
the aggregate, have had or may be reasonably expected
to have a materially adverse effect on the financial
condition, business, or operations of the Company on
a consolidated basis.
(d) DISTRIBUTION AGREEMENT. The Company and Abbott
shall have entered into a Distribution Agreement in
the form attached hereto as Exhibit B.
(e) CREDIT AGREEMENT. The Company and Abbott shall
have entered into a Credit Agreement in the form
attached hereto as Exhibit C.
(f) SECURITY AGREEMENT. The Company and Abbott shall
have entered into a Security Agreement in the form
attached hereto as Exhibit D.
(g) NOTE. The Company shall have tendered to Abbott
the Note.
8.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the transactions contemplated
hereby are subject to
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<PAGE> 22
the satisfaction on or prior to the Closing Date of the
following conditions, unless waived by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Abbott set forth in
this Agreement shall be true and correct in all
material respects as of the date of this Agreement
and as if made at and as of the Closing Date, except
as otherwise contemplated by this Agreement.
(b) PERFORMANCE OF OBLIGATIONS OF ABBOTT. Abbott
shall have performed in all material respects all
obligations required to be performed by it under this
Agreement prior to the Closing Date.
(c) DISTRIBUTION AGREEMENT. The Company and Abbott
shall have entered into a Distribution Agreement in
the form attached hereto as Exhibit B.
(d) CREDIT AGREEMENT. The Company and Abbott shall
have entered into a Credit Agreement in the form
attached hereto as Exhibit C.
(e) PAYMENT. Abbott shall have tendered to the
Company Five Million Dollars ($5,000,000) in exchange
for the Note.
9. EVENTS OF DEFAULT. If any of the events specified in this Section 9
shall occur (herein individually referred to as an "Event of Default"),
the Holder of the then outstanding Note issued pursuant to this
Agreement may, so long as such condition exists, declare the entire
principal and unpaid accrued interest hereon immediately due and
payable, by notice in writing to the Company:
9.1 PAYMENTS. Default in the payment of the principal and
unpaid accrued interest of the Note when due and payable if
such default is not cured by the Company within ten (10) days
after the Holder has given the Company written notice of such
default.
9.2 BANKRUPTCY. The institution by the Company of proceedings
to be adjudicated as bankrupt or insolvent, or the consent by
it to institution of bankruptcy or insolvency proceedings
against it or the filing by it of a petition or answer or
consent seeking reorganization or release under the federal
Bankruptcy Code, or any other applicable federal or state law,
or the consent by it to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or
other similar official of the Company, or of any substantial
part of its property, or the making by it of an assignment for
the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action.
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9.3 COMMENCEMENT OF AN ACTION. If, within sixty (60) days
after the commencement of an action against the Company (and
service of process in connection therewith on the Company)
seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present
or future statute, law or regulation, such action shall not
have been resolved in favor of the Company or all orders or
proceedings thereunder affecting the operations or the
business of the Company stayed, or if the stay of any such
order or proceeding shall thereafter be set aside, or if,
within sixty (60) days after the appointment without the
consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company, such
appointment shall not have been vacated.
9.4 DEFAULT OF SENIOR INDEBTEDNESS. Any declared default of
the Company under any Senior Indebtedness (as defined in
Section 10 hereof) that gives the holder thereof the right to
accelerate such Senior Indebtedness, and such Senior
Indebtedness is in fact accelerated by the holder.
9.5 COVENANTS AND AGREEMENTS. The Company shall default in the
performance of any of its material covenants and agreements
set forth in any provision of this Agreement and the
continuance of such default for thirty (30) days after the
Holder has given the Company written notice of such default.
9.6 DEFAULT UNDER OTHER AGREEMENTS. The Company breaches or
defaults on any material covenant, condition or other
provision of the Distribution Agreement and such breach or
default continues after the applicable grace period, if any,
specified therein but in no event more than thirty (30) days
after the Holder has given the Company written notice of such
breach or default.
9.7 CHANGE OF CONTROL OF THE COMPANY. Any change in control of
the Company which includes any consolidation of the Company
with, or merger of the Company into, any other Person, any
merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common
Stock), any acquisition of at least a majority of the Voting
Stock of the Company or any sale or transfer of all or
substantially all of the business or assets of the Company (a
"Change of Control"), or Abbott's receipt of written notice
from the Company that a Change of Control will occur as
described in Section 11.10 hereof.
9.8 OTHER REMEDIES. If any Event of Default shall occur and be
continuing, Abbott shall have, in addition to the remedies set
forth in Section 9 hereof, all other remedies otherwise
available at law and equity. In addition, if an Event of
Default shall occur and be continuing, Abbott may
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terminate its obligations under the Credit Facility as
described in Section 6.2 hereof, and declare the entire
principal and unpaid interest due under the Credit Facility
Note, if any, immediately due and payable in accordance with
the terms of the Credit Agreement.
10. SUBORDINATION. The indebtedness evidenced by the Note is
hereby expressly subordinated except as otherwise provided in
the Security Agreement attached hereto as Exhibit D, to the
extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of all the Company's
Senior Indebtedness (as defined herein).
10.1 SENIOR INDEBTEDNESS. As used in the Note, the term
"Senior Indebtedness" shall mean the principal of and unpaid
accrued interest on: (a) all indebtedness of the Company to
banks, insurance companies or other financial institutions
regularly engaged in the business of lending money, which is
for money borrowed by the Company (whether or not secured),
and (b) any such indebtedness or any debentures, notes or
other evidence of indebtedness issued in exchange for such
Senior Indebtedness, or any indebtedness arising from the
satisfaction of such Senior Indebtedness by a guarantor.
10.2 DEFAULT ON SENIOR INDEBTEDNESS. If there should occur any
receivership, insolvency, assignment for the benefit of
creditors, bankruptcy, reorganization or arrangements with
creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshalling of
the assets and liabilities of the Company, or if the Note
shall be declared due and payable upon the occurrence of an
Event of Default with respect to any Senior Indebtedness, then
(a) no amount shall be paid by the Company in respect of the
principal of or interest on the Note at the time outstanding,
unless and until the principal of and interest on the Senior
Indebtedness then outstanding shall be paid in full, and (b)
no claim or proof of claim shall be filed with the Company by
or on behalf of the Holder of the Note that shall assert any
right to receive any payments in respect of the principal of
and interest on the Note, except subject to the payment in
full of the principal of and interest on all of the Senior
Indebtedness then outstanding. If there occurs an Event of
Default that has been declared in writing with respect to any
Senior Indebtedness, or in the instrument under which any
Senior Indebtedness is outstanding, permitting the holder of
such Senior Indebtedness to accelerate the maturity thereof,
then, unless and until such Event of Default shall have been
cured or waived or shall have ceased to exist, or all Senior
Indebtedness shall have been paid in full, no payment shall be
made in respect of the principal of or interest on the Note,
unless within three (3) months after the happening of such
Event of Default, the maturity of such Senior Indebtedness
shall not have been accelerated.
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10.3 EFFECT OF SUBORDINATION. Subject to the rights, if any,
of the holders of Senior Indebtedness under this Section 10 to
receive cash, securities or other properties otherwise payable
or deliverable to the Holder of the Note, nothing contained in
this Section 10 shall impair, as between the Company and the
Holder, the obligation of the Company, subject to the terms
and conditions hereof, to pay to the Holder the principal
hereof and interest hereon as and when the same become due and
payable, or shall prevent the Holder of the Note, upon default
hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.
10.4 SUBROGATION. Subject to the payment in full of all Senior
Indebtedness and until the Note shall be paid in full, the
Holder shall be subrogated to the rights of the holders of
Senior Indebtedness (to the extent of payments or
distributions previously made to such holders of Senior
Indebtedness pursuant to the provisions of Section 10.2
hereof) to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness. No such
payments or distributions applicable to the Senior
Indebtedness shall, as between the Company and its creditors,
other than the holders of Senior Indebtedness and the Holder,
be deemed to be a payment by the Company to or on account of
the Note; and for the purposes of such subrogation, no
payments or distributions to the holders of Senior
Indebtedness to which the Holder would be entitled except for
the provisions of this Section 10 shall, as between the
Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the
Company to or on account of the Senior Indebtedness.
10.5 UNDERTAKING. By its acceptance of the Note, the Holder
agrees to execute and deliver such documents as may be
reasonably requested from time to time by the Company or the
lender of any Senior Indebtedness in order to implement the
foregoing provisions of this Section 10.
11. CONVERSION OF NOTE.
11.1 CONVERSION PRIVILEGE AND CONVERSION PRICE. Subject to and
upon compliance with the provisions of this Section 11, at the
option of Abbott at any time and at Abbott's sole discretion
without regard to the price of the Common Stock and the
Conversion Price (as defined herein), Note may be converted at
the principal amount thereof, into fully paid and
nonassessable shares of Common Stock at the Conversion Price,
in effect at the time of conversion. Such conversion right
shall expire at the close of business on August 19, 2003. The
price at which shares of Common Stock shall be delivered upon
conversion (the "Conversion Price") shall be initially [*] per
share of Common Stock. The Conversion Price shall be adjusted
in certain instances as provided in this Section 11.
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11.2 EXERCISE OF CONVERSION PRIVILEGE. In order to exercise
the conversion privilege, Abbott shall surrender the Note duly
endorsed or assigned to the Company or in blank, at any office
or agency of the Company maintained for that purpose,
accompanied by written notice of conversion in the form
provided on the Note (or such other notice as is acceptable to
the Company) at such office or agency that Abbott elects to
convert such Note. Upon conversion the Company shall pay
interest accrued but unpaid on the Note surrendered for
conversion through the date of such conversion.
The Note shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of the whole portion of
the principal amount thereof for conversion in accordance with the
foregoing provisions, and at such time the rights of Abbott under the
Note shall cease, and the Person or Persons entitled to receive the
Common Stock issuable upon conversion shall be treated for all purposes
as the record holder or holders of such Common Stock at such time. As
promptly as practicable on or after the conversion date, the Company
shall issue and shall deliver at such office or agency a certificate or
certificates for the number of duly authorized, validly issued, fully
paid and nonassessable shares of Common Stock issuable upon conversion,
together with payment in lieu of any fraction of a share, as provided
in Section 11.3 hereof.
11.3 FRACTIONS OF SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Note. Instead of any
fractional share of Common Stock which would otherwise be
issuable upon the conversion of the Note, the Company shall
pay a cash adjustment in respect of such fraction of a share
of Common Stock in an amount equal to the remaining amount
which is not converted by reason of this Section 11.3.
11.4 ADJUSTMENT OF CONVERSION PRICE.
(a) In case the Company shall pay or make a dividend
or other distribution on any class of capital stock
of the Company in Common Stock, the Conversion Price
in effect at the opening of business on the day
following the date fixed for the determination of
stockholders entitled to receive such dividend or
other distribution shall be reduced by multiplying
such Conversion Price by a fraction the numerator of
which shall be the number of shares of Common Stock
outstanding at the close of business on the date
fixed for such determination and the denominator
shall be the sum of such number of shares and the
total number of shares constituting such dividend or
other distribution, such reduction to become
effective immediately after the opening of business
on the day following the date fixed for such
determination. For the purposes of this Section
11.4(a), the number of shares of Common Stock at any
time outstanding shall not include shares held in the
treasury of the Company but shall include shares
issuable in respect of scrip certificates issued in
lieu of fractions of shares of
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Common Stock. The Company will not pay any dividend
or make any distribution on shares of Common Stock
held in the treasury of the Company.
(b) In case the Company shall issue rights, options
or warrants to all holders of its Common Stock (not
being available on an equivalent basis to Abbott upon
conversion) entitling them to subscribe for or
purchase shares of Common Stock at a price per share
less than the current market price per share of the
Common Stock (determined as provided in Section
11.4(h) hereof) on the date fixed for the
determination of stockholders entitled to receive
such rights, options or warrants (other than pursuant
to a dividend reinvestment plan), the Conversion
Price in effect at the opening of business on the day
following the date fixed for such determination shall
be reduced to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price
by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding at the
close of business on the date fixed for such
determination plus the number of shares of Common
Stock which the aggregate consideration received by
the Company for the total number of additional shares
of Common Stock so offered for subscription or
purchase would purchase at such Conversion Price in
effect immediately prior to the date fixed for such
determination and the denominator of which shall be
the number of shares of Common Stock outstanding at
the close of business on the date fixed for such
determination plus the number of shares of Common
Stock so offered for subscription or purchase, such
reduction to become effective immediately after the
opening of business on the day following the date
fixed for such determination. For purposes of
calculating the Conversion Price in this Section
11.4(b), the number of shares of Common Stock
outstanding immediately prior to the date fixed for
such determination of rights, options or warrants
shall be calculated as if all shares had been fully
converted into shares of Common Stock. Also, for the
purposes of this Section 11.4(b), the number of
shares of Common Stock at any time outstanding shall
not include shares held in the treasury of the
Company but shall include shares issuable in respect
of scrip certificates issued in lieu of fractions of
shares of Common Stock. The Company will not issue
any rights, options or warrants in respect of shares
of Common Stock held in the treasury of the Company.
(c) In case outstanding shares of Common Stock shall
be subdivided into a greater number of shares of
Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon
which such subdivision becomes effective shall be
proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be
combined into a smaller
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number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day
following the day upon which such combination becomes
effective shall be proportionately increased, such
reduction or increase, as the case may be, to become
effective immediately after the opening of business
on the day following the day upon which such
subdivision or combination becomes effective.
(d) In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common
Stock evidences of its indebtedness or assets
(including securities, but excluding any rights,
options or warrants referred to in Section 11.4(b)
hereof, any dividend or distribution paid exclusively
in cash and any dividend or distribution referred to
in Section 11.4), the Conversion Price shall be
adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in
effect immediately prior to the close of business on
the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction
the numerator of which shall be the current market
price per share (determined as provided in Section
11.4(h)) of the Common Stock on the date fixed for
such determination less the then fair market value
(as determined by an independent majority of the
Board of Directors, whose determination shall be
conclusive and described in a board resolution) of
the portion of the assets or evidences of
indebtedness so distributed applicable to one share
of Common Stock and the denominator shall be such
current market price per share of the Common Stock,
such adjustment to become effective immediately prior
to the opening of business on the day following the
date fixed for the determination of stockholders
entitled to receive such distribution. In any case in
which this Section 11.4(d) is applicable, Section
11.4(b) hereof shall not be applicable.
(e) In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common
Stock cash (excluding any cash that is distributed
upon a merger or consolidation to which Section 11.10
hereof applies or as part of a distribution referred
to in paragraph (d) of this Section 11.4) in an
aggregate amount that, combined together with (i) the
aggregate amount of any other distributions to all
holders of its Common Stock made exclusively in cash
within the twelve (12) months preceding the date of
payment of such distribution and in respect of which
no adjustment pursuant to this paragraph (e) has been
made and (ii) the aggregate of any cash plus the fair
market value (as determined by an independent
majority of the Board of Directors, whose
determination shall be conclusive and described in a
Board Resolution) of consideration payable in respect
of any tender offer by the Company or any of its
Subsidiaries
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for all or any portion of the Common Stock concluded
within the twelve (12) months preceding the date of
payment of such distribution and in respect of which
no adjustment pursuant to paragraph (f) of this
Section 11.4 has been made, exceeds ten percent (10%)
of the product of the current market price per share
of the Common Stock on the date for the determination
of holders of shares of Common Stock entitled to
receive such distribution multiplied by the number of
shares of Common Stock outstanding on such date,
then, and in each such case, immediately after the
close of business on such date for determination, the
Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the
close of business on the date fixed for determination
of the stockholders entitled to receive such
distribution by a fraction (A) the numerator of which
shall be equal to the current market price per share
of the Common Stock (determined as provided in
paragraph (h) of this Section 11.4) on the date fixed
for such determination less an amount equal to the
quotient of (x) the excess of such combined amount
over such ten percent (10%) and (y) the number of
shares of Common Stock outstanding on such date for
determination and (B) the denominator of which shall
be equal to the current market price per share of the
Common Stock (determined as provided in paragraph (h)
of this Section 11.4) on such date for determination.
(f) In case a tender offer made by the Company or any
Subsidiary for all or any portion of the Common Stock
shall expire and such tender offer (as amended upon
the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any
maximum specified in the terms of the tender offer)
of Purchased Shares (as defined herein)) of an
aggregate consideration having a fair market value
(as determined by an independent majority of the
Board of Directors, whose determination shall be
conclusive and described in a board resolution) that
combined together with (i) the aggregate of the cash
plus the fair market value (as determined by an
independent majority of the Board of Directors, whose
determination shall be conclusive and described in a
board resolution), as of the expiration of such
tender offer, of consideration payable in respect of
any other tender offer, by the Company or any
Subsidiary for all or any portion of the Common Stock
expiring within the twelve (12) months preceding the
expiration of such tender offer and in respect of
which no adjustment pursuant to this paragraph (f)
has been made and (ii) the aggregate amount of any
distributions to all holders of the Common Stock made
exclusively in cash within twelve (12) months
preceding the expiration of such tender offer and in
respect of which no adjustment pursuant to paragraph
(e) of this Section 11.4 has been made, exceeds ten
percent (10%) of the product of the current market
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<PAGE> 30
price per share of the Common Stock (determined as
provided in paragraph (h) of this Section 11.4) as of
the last time (the "Expiration Time") tenders could
have been made pursuant to such tender offer (as it
may be amended) multiplied by the number of shares of
Common Stock outstanding (including any tendered
shares) on the Expiration Time, then, and in each
such case, immediately prior to the opening of
business on the day after the date of the Expiration
Time, the Conversion Price shall be adjusted so that
the same shall equal the price determined by
multiplying the Conversion Price in effect
immediately prior to the close of business on the
date of the Expiration Time by a fraction (A) the
numerator of which shall be equal to (1) the product
of (a) the current market price per share of the
Common Stock (determined as provided in paragraph (h)
of this Section 11.4) on the date of the Expiration
Time and (b) the number of shares of Common Stock
outstanding (including any tendered shares) on the
Expiration Time, less (2) the amount of cash plus the
fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based
on the acceptance (up to any maximum specified in the
terms of the tender offer) of Purchased Shares, and
(B) the denominator of which shall be equal to the
product of (1) the current market price per share of
the Common Stock (determined as provided in paragraph
(h) of this Section 11.4) as of the Expiration Time
and (2) the number of shares of Common Stock
outstanding (including any tendered shares) as of the
Expiration Time less the number of all shares validly
tendered and not withdrawn as of the Expiration Time
(the shares deemed so accepted up to any such
maximum, being referred to as the "Purchased
Shares").
(g) The reclassification of Common Stock into
securities including securities other than Common
Stock (other than any reclassification upon a
consolidation or merger to which Section 11.10 hereof
applies) shall be deemed to involve (i) a
distribution of such securities other than Common
Stock to all holders of Common Stock (and the
effective date of such reclassification shall be
deemed to be "the date fixed for the determination of
stockholders entitled to receive such distribution"
and the "date fixed for such determination" within
the meaning of paragraph (d) of this Section 11.4),
and (ii) a subdivision or combination, as the case
may be, of the number of shares of Common Stock
outstanding immediately prior to such
reclassification into the number of shares of Common
Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be
deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such
combination becomes effective," as the case may be,
and "the day
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upon which such subdivision or combination becomes
effective" within the meaning of paragraph (c) of
this Section 11.4).
(h) For the purpose of any computation under
paragraphs (d), (e) and (f) of this Section 11.4, the
current market price per share of Common Stock on any
date shall be deemed to be the average of the daily
Closing Prices for the five (5) consecutive trading
days selected by the Company commencing not more than
twenty (20) trading days before, and ending not later
than, the earlier of the day in question and the day
before the "ex" date with respect to the issuance or
distribution requiring such computation. The "Closing
Price" for each trading day shall be the reported
last sale price regular way or, in case no such
reported sale takes place on such day, the average of
the reported closing bid and asked prices regular
way, in either case on the principal national
securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or
admitted to trading on any national securities
exchange, on the National Association of Securities
Dealers Automated Quotations system ("Nasdaq")
National Market System ("Nasdaq National Market") or,
if not listed or admitted to trading on Nasdaq
National Market, on Nasdaq, or, if the Common Stock
is not listed or admitted to trading on any national
securities exchange or Nasdaq National Market or
quoted on Nasdaq, the average of the closing bid and
asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that
purpose, or, if the Common Stock does not have any
closing bid and asked prices in the over-the-counter
market during the relevant period of time, the fair
market value per share as determined by an
independent majority of the Board of Directors as of
the most recent available month-end determined
pursuant to GAAP. For purposes of this paragraph, the
term "'ex' date," when used with respect to any
issuance or distribution, shall mean the first date
on which the Common Stock trades regular way on such
exchange or in such market without the right to
receive such issuance or distribution.
(i) No adjustment in the Conversion Price shall be
required unless such adjustment (plus any adjustments
not previously made by reason of this paragraph (i))
would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that
any adjustments which by reason of this paragraph (i)
are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
All calculations under this paragraph (i) shall be
made to the nearest cent.
(j) The Company may make such reductions in the
Conversion Price, in addition to those required by
paragraphs (a), (b), (c), (d), (e)
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and (f) of this Section 11.4, as it considers to be
advisable in order to avoid or diminish any income
tax to any holders of shares of Common Stock
resulting from any dividend or distribution of stock
or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such
for federal income tax purposes or for any other
reasons. An independent majority of the Board of
Directors shall have the power to resolve any
ambiguity or correct any error in this Section 11.4
and its actions in so doing shall be final and
conclusive.
11.5 NOTICE OF ADJUSTMENTS OF CONVERSION PRICE. Whenever
the Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion
Price in accordance with Section 11.4 hereof and
shall prepare a certificate signed by the Chief
Financial Officer of the Company setting forth the
adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based,
and such certificate shall forthwith be filed at the
offices of the Company.
(b) a notice stating that the Conversion Price has
been adjusted and setting forth the adjusted
Conversion Price shall forthwith be required, and as
soon as practicable after it is required, such notice
shall be mailed by the Company to the Holder in
accordance with the terms of Section 14.2 herein.
11.6 NOTICE OF CERTAIN CORPORATE ACTION. In case:
(a) the Company shall declare a dividend (or any
other distribution) on its Common Stock payable
otherwise than in cash out of its earned surplus; or
(b) the Company shall authorize the granting to the
holders of its Common Stock of rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any other rights; or
(c) of any reclassification of the Common Stock of
the Company (other than a subdivision or combination
of its outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which the
Company is a party and for which approval of any
stockholders of the Company is required, or of the
sale or transfer of all or substantially all of the
assets of the Company; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
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then the Company shall cause to be filed at the offices of the Company,
and shall cause to be mailed to the Holder at its last addresses as it
shall appear in the Note Register, at least twenty (20) days (or ten
(10) days in any case specified in clause (a) or (b) of this Section
11.6) prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, or (y) the date
on which such reclassification, consolidation, merger, share exchange,
sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon
such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up. Neither the failure
to give such notice nor any defect therein shall affect the legality or
validity of the proceedings described in clauses (a) through (d) of
this Section 11.6.
11.7 COMPANY TO RESERVE COMMON STOCK. The Company shall at all
times reserve and keep available out of its authorized but
unissued Common Stock, for the purpose of effecting the
conversion of the Note or the Credit Facility Note, the full
number of shares of Common Stock then issuable upon the
conversion of the Note or the Credit Facility Note.
11.8 TAXES ON CONVERSIONS. The Company will pay any and all
taxes that may be payable in respect of the issuance or
delivery of shares of Common Stock on conversion of the Note
pursuant hereto or the Credit Facility Note pursuant to the
Credit Agreement. The Company shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common
Stock in a name other than that of Abbott and no such issuance
or delivery shall be made unless and until the Person
requesting such issuance has paid to the Company the amount of
any such tax, or has established to the satisfaction of the
Company that such tax has been paid.
11.9 COVENANT AS TO COMMON STOCK. The Company covenants that
all shares of Common Stock which may be issued upon conversion
of the Note or the Credit Facility Note will upon issuance be
fully paid and nonassessable and, except as provided in
Section 11.8 hereof, the Company will pay all taxes, liens and
charges with respect to the issue thereof.
11.10 PROVISIONS IN CASE OF CONSOLIDATION, MERGER OR SALE OF
ASSETS. In case of any Change of Control of the Company, the
Company will notify Abbott at least thirty (30) days prior to
the closing of the transaction that will effect the Change of
Control, and Abbott may convert the Note in accordance with
Section 11 hereof prior to the transaction or declare an Event
of Default
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and accelerate the Note and terminate this Agreement in
accordance with Section 11 hereof.
11.11 TRANSFER AND EXCHANGE OF NOTE. The Note may be freely
transferred or assigned by Abbott without the consent of the
Company. Such transfer and assignment shall be made in
accordance with applicable federal and state securities laws.
At any time and from time to time, upon not less than ten (10)
days notice to that effect given by Abbott and, upon surrender
of the Note at the Company's office by Abbott, the Company
will deliver in exchange therefor, without expense to Abbott,
except as set forth below, one Note for the same aggregate
principal amount as the then unpaid principal amount of the
Note so surrendered, provided such Note shall be in the amount
of the full principal amount of the Note and there shall be no
right to divide the Note, dated as of the date to which
interest has been paid on the Note so surrendered or, if such
surrender is prior to the payment of any interest thereon,
then dated as of the date of issue, registered in the name of
such Person as may be designated by Abbott, and otherwise of
the same form and tenor as the Note so surrendered for
exchange. The Company may require the payment of a sum
sufficient to cover any stamp tax or governmental charge
imposed upon such exchange or transfer.
11.12 LOSS, THEFT, MUTILATION OR DESTRUCTION OF NOTE. Upon
receipt of evidence satisfactory to the Company of the loss,
theft, mutilation or destruction of the Note, the Company will
make and deliver without expense to Abbott thereof, a new
Note, of like tenor, in lieu of such lost, stolen, mutilated
or destroyed Note.
11.13 EXPENSES, STAMP TAX INDEMNITY. The Company agrees to pay
duplicating and printing costs and charges for shipping the
Note, adequately insured to Abbott's home office or at such
other place as Abbott may designate, and all reasonable
expenses of Abbott (including, without limitation, the
reasonable fees and expenses of any financial advisor to
Abbott) relating to any proposed or actual amendment, waivers
or consents pursuant to the provisions hereof, including,
without limitation, any proposed or actual amendments,
waivers, or consents resulting from any work-out,
re-negotiations or restructuring relating to the performance
by the Company of its obligations under this Agreement and the
Note. The Company also agrees that it will pay and hold Abbott
harmless against any and all liabilities with respect to stamp
and other taxes, if any, which may be payable or which may be
determined to be payable in connection with the execution and
delivery of this Agreement or the Note, whether or not the
Note is then outstanding. The Company agrees to protect and
indemnify Abbott against any liability for any and all
brokerage fees and commissions payable or claimed to be
payable to any Person (other than any Person engaged by a
Purchaser) in connection with the transactions contemplated by
this Agreement.
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11.14 CANCELLATION OF CONVERTED NOTE. The Note delivered for
conversion shall be canceled by or at the direction of the
Company.
12. RIGHT OF FIRST OFFER.
12.1 THE RIGHT OF FIRST OFFER. Subject to the terms and
conditions specified in this Section 12, the Company covenants
not to sell or issue any New Securities (as defined herein)
without complying with the provisions of this Section 12.
12.2 GRANT. If the Company proposes to sell or issue any New
Securities to any Person, the Company hereby grants to Abbott
a right of first offer to purchase a pro rata share of New
Securities that the Company may, from time to time, propose to
sell and issue. For purposes of this Section 12, Abbott's pro
rata share of New Securities is the ratio of the number of
shares of Common Stock owned by Abbott (assuming full
conversion of the Note and the Credit Facility Note if issued
and outstanding) immediately prior to the issuance of New
Securities to the total number of shares of Common Stock
outstanding immediately prior to the issuance of New
Securities (assuming full conversion of all convertible
securities).
12.3 DEFINITION OF NEW SECURITIES. "New Securities" shall mean
any capital stock (including Common Stock) of the Company
whether now authorized or not, and rights, options or warrants
to purchase capital stock of the Company, and securities of
any type whatsoever that are, or may become, convertible into
capital stock of the Company; provided, however, that the term
"New Securities" does not include (a) shares of Common Stock
issued upon conversion of the Note or the Credit Facility
Note, (b)shares of Common Stock (or options therefor) issued
or sold to employees, directors, consultants or advisors of
the Company for the primary purpose of soliciting or retaining
their services, provided each such person executes an
agreement, in substantially the form as approved by the Board
of Directors, (c) securities issued pursuant to the
acquisition of another Person or business segment of any such
Person by the Company by merger, purchase of substantially all
the assets or other reorganization whereby the Company will
own more than fifty percent (50%) of the voting power of such
business entity or business segment, (d)any borrowings, direct
or indirect, from financial institutions or other Persons by
the Company, whether or not presently authorized, including
any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity
features including warrants, options or other rights to
purchase capital stock and are not convertible into capital
stock of the Company, (e)securities issued to vendors or
customers or to other persons in similar commercial situations
with the Company if such issuance is approved by the Board of
Directors, (f)securities issued in connection with any stock
split, stock dividend or recapitalization of the Company in
which all holders of Common Stock are
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entitled to receive their proportionate share of such
issuance, and (g)any right, option or warrant to acquire any
security convertible into the securities exempted from the
definition of New Securities pursuant to clauses (a) through
(f) above.
12.4 EXERCISE OF RIGHT OF FIRST OFFER. If the Company proposes
to issue New Securities, the Company shall give written notice
to Abbott stating (a) its bona fide intention to offer or
issue New Securities, (b) the number of such New Securities to
be offered, (c) the price and general terms upon which it
proposes to offer such New Securities, and (d) the identity of
the Persons or classes of Persons to whom such New Securities
are proposed to be issued. Within twenty (20) calendar days
after receipt of such notice, Abbott may elect to purchase or
obtain, at the price and on the terms specified in the notice,
up to its pro rata share of such New Securities, as such pro
rata share is calculated pursuant to Section 12.2 hereof, in
the event the Company proposes to issue such New Securities to
Persons, by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased. Abbott
shall retain its right of first offer pursuant to Section 12
hereof until (i) this Agreement terminates or (ii) upon a
Change of Control described in Section 11.10 hereof and shall
not be affected in any way by any previous refusals to
exercise its right of first offer and to purchase any New
Securities.
12.5 TERMINATION OF RIGHT OF FIRST OFFER. If Abbott does not
fully exercise its right to purchase or obtain all such New
Securities that Abbott has the right to purchase or obtain
pursuant to Section 12.4 hereof, the Company may, during the
one hundred twenty (120) day period following the expiration
of the period provided in Section 12.4 hereof, offer the
remaining unsubscribed New Securities to the Persons or
classes of Person specified in the notice sent to Abbott
pursuant to Section 12.4 hereof, at a price not less than
that, and upon terms no more favorable to the offeree than
those, specified in such notice. If the Company does not enter
into an agreement for the sale of the New Securities within
such period, or if such agreement is not consummated within
one hundred twenty (120) days of the execution thereof, the
right provided hereunder shall be deemed to be revived and
such New Securities shall not be offered unless first
reoffered to Abbott in accordance herewith.
13. INDEMNIFICATION.
13.1 INDEMNIFICATION BY THE COMPANY.
(a) The Company agrees to defend and indemnify
Abbott, its Subsidiaries and their respective
Affiliates, directors, officers, employees and
shareholders, and their respective successors and
assigns (collectively, the "Abbott Indemnitees"),
against and hold
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<PAGE> 37
each of them harmless from any and all losses,
liabilities, taxes, claims, suits, proceedings,
demands, judgments, damages, expenses and costs,
including, without limitation, reasonable counsel
fees, costs and expenses incurred in the
investigation, defense or settlement of any claims
covered by this indemnity (in this Section 13
collectively, the "Indemnifiable Damages") which any
such indemnified person may suffer or incur by reason
of (i) the inaccuracy or breach of any of the
representations, warranties and covenants of the
Company contained in this Agreement or any documents,
certificate or agreement delivered pursuant hereto;
or (ii) any claim by any Person under any provision
of any federal or state securities law relating to
any transaction, event, act or omission of or by the
Company occurring before or after the Closing Date;
provided, however, that the total indemnity shall not
exceed the consideration received by the Company.
Nothing herein shall limit in any way Abbott's
remedies in the event of breach by the Company of any
of its covenants or agreements hereunder which are
not also a representation or warranty or for willful
fraud or intentionally deceptive material
misrepresentation or omission by the Company in
connection herewith or with the transactions
contemplated hereby.
(b) Without limiting the generality of the foregoing,
with respect to the measurement of Indemnifiable
Damages, Abbott (including its Subsidiaries and their
respective Affiliates, directors, officers, employees
and shareholders) and the Company and the Affiliates
of any of them, shall have the right to be put in the
same financial position as they would have been in
had each of the representations, warranties and
covenants of the Company been true and accurate or
the same said parties had not breached any such
covenants or had any of the events, claims or
liabilities referred to in Section 13.1(a) not
occurred or been made or incurred. (c) Any indemnitee
under this Agreement may not seek recovery under the
indemnities set forth herein unless and until the
Indemnifiable Damages of such party are greater than
Twenty-Five Thousand Dollars ($25,000) measured on an
aggregate basis for all indemnitees, at which point
such indemnity shall apply to all Indemnifiable
Damages.
13.2 INDEMNIFICATION BY ABBOTT. After the Closing Date, Abbott
shall, as to those representations, warranties, covenants and
agreements which are herein made or agreed to by Abbott,
indemnify and hold harmless the Company's officers and
directors and in respect of:
(a) any damage, deficiency, losses or costs incurred
by the Company resulting from any material
misrepresentation or breach of
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<PAGE> 38
warranty or any non-fulfillment of any covenant or
agreement on the part of Abbott under this Agreement;
(b) any claim by any person under any provision of
any federal or state securities laws relating to any
event, act or omission of or by Abbott in connection
with any tender offer by Abbott; and
(c) any claim, action, suit, proceeding, demand,
judgment, assessment, cost and expense, including
reasonable counsel fees, incident to the foregoing;
provided that the total indemnity shall not exceed
[*] .
Abbott shall reimburse the Company for any liabilities, damages,
deficiencies, claims, actions, suits, proceedings, demands, judgments,
assessments, costs and expenses to which this Section 13.2 relates only
if a claim for indemnification is made by the Company within the period
ending at [*] .
13.3 INDEMNIFICATION PROCEDURE. A party seeking
indemnification (the "Indemnitee") shall use its commercially
reasonable best efforts to minimize any liabilities, damages,
deficiencies, claims, judgments, assessments, costs and
expenses in respect of which indemnity may be sought under
this Agreement. The Indemnitee shall give prompt written
notice to the party from whom indemnification is sought (the
"Indemnitor") of the assertion of a claim for indemnification;
provided, however, that the Indemnitee's failure to notify the
Indemnitor shall not excuse the Indemnitor's obligation to
indemnify the Indemnitee except to the extent that such
failure prejudices the Indemnitor's defense of any such claim.
No such notice of assertion of a claim shall satisfy the
requirements of this Section 13 unless it describes in
reasonable detail and in good faith the facts and
circumstances upon which the asserted claim for
indemnification is based. If any action or proceeding shall be
brought in connection with any liability or claim to be
indemnified hereunder, the Indemnitee shall provide the
Indemnitor twenty (20) calendar days to decide whether to
defend such liability or claim. During such period, the
Indemnitee shall take all necessary steps to protect the
interests of itself and the Indemnitor, including the filing
of any necessary responsive pleadings, the seeking of
emergency relief or other action necessary to maintain the
status quo, subject to reimbursement from the Indemnitor of
its expenses in doing so. The Indemnitor shall (with, if
necessary, reservation of rights) defend such action or
proceeding at its expense, using counsel selected by the
insurance company insuring against any such claim and
undertaking to defend such claim, or by other counsel selected
by it and approved by the Indemnitee, which approval shall not
be unreasonably withheld or delayed. The Indemnitor shall keep
the Indemnitee fully apprised at all times of the status of
the defense and shall consult with the Indemnitee prior to the
settlement of any indemnified matter. Indemnitee agrees to use
reasonable efforts to cooperate with Indemnitor in connection
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<PAGE> 39
with its defense of indemnifiable claims. In the event the
Indemnitee has a claim or claims against any third party
growing out of or connected with the indemnified matter, then
upon receipt of indemnification, the Indemnitee shall fully
assign to the Indemnitor the entire claim or claims to the
extent of the indemnification actually paid by the Indemnitor
and the Indemnitor shall thereupon be subrogated with respect
to such claim or claims of the Indemnitee.
14. MISCELLANEOUS.
14.1 POWERS AND RIGHTS NOT WAIVED; REMEDIES CUMULATIVE. No
delay or failure on the part of Abbott in the exercise of any
power or right shall operate as a waiver thereof; nor shall
any single or partial exercise of the same preclude any other
or further exercise thereof, or the exercise of any other
power or right, and the rights and remedies of Abbott are
cumulative to, and are not exclusive of, any rights or
remedies Abbott would otherwise have.
14.2 NOTICE. Except as otherwise expressly provided herein,
any notice, consent or document required or permitted
hereunder shall be given in writing and it or any certificates
or other documents delivered hereunder shall be deemed
effectively given or delivered (as the case may be) upon
personal delivery (professional courier permissible) or when
mailed by receipted United States certified mail delivery, or
five (5) business days after deposit in the United States
mail. Such certificates, documents or notice may be personally
delivered to an authorized representative of the Company or
Abbott (as the case may be) at any address where such
authorized representative is present and otherwise shall be
sent to the following address:
If to the Company: Micro Therapeutics, Inc.
1062 Calle Negocio #F
San Clemente, CA 92673
Attention: George Wallace
Telecopy No.: (949) 361-0210
With a copy to: Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attention: Bruce Feuchter
Telecopy No.: (949) 725-4100
If to Abbott: Abbott Laboratories
D-960, AP30
200 Abbott Park Road
Abbott Park, IL 60064-3500
Attention: President, Hospital Products Division
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<PAGE> 40
Telecopy No.: (847) 937-0805
With a copy to: Abbott Laboratories
Legal Division
D-322, AP6D
100 Abbott Park Road
Abbott Park, IL 60064-3500
Attn: Divisional Vice President,
Domestic Legal Operations
Telecopy No.: (847) 938-1206
14.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Company and its
successors and assigns and shall be binding upon and inure to
the benefit of Abbott and its successors and assigns;
provided, however, that neither the Company nor Abbott shall
assign this Agreement or any of its rights, duties or
obligations hereunder without the prior written consent of the
other party which consent shall not be unreasonably withheld,
and provided further, Abbott may assign its rights hereunder
after July 31, 1999 without the Company's prior written
consent.
14.4 SURVIVAL OF COVENANTS AND REPRESENTATIONS. All covenants,
representations and warranties made by the Company herein and
in any certificates delivered pursuant hereto, whether or not
in connection with the Closing Date, shall survive the closing
and the delivery of this Agreement and the Note.
14.5 SEVERABILITY. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision
shall not affect the validity or enforceability of any
remaining portion, which remaining portion shall remain in
force and effect as if this Agreement had been executed with
the invalid or unenforceable portion thereof eliminated and it
is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this
Agreement without including therein any such part, parts or
portion which may, for any reason, be hereafter declared
invalid or unenforceable.
14.6 WAIVER OF CONDITIONS. If on the Closing Date, either
party hereto fails to fulfill each of the conditions specified
in Section 8 hereof, the other party may thereupon elect to be
relieved of all further obligations under this Agreement.
Without limiting the foregoing, if the conditions specified in
Section 8 have not been fulfilled, the other party may waive
compliance by such party with any such condition to such
extent as such party may in its sole discretion determine.
Nothing in this Section 14.6 shall operate to relieve either
party of any obligations hereunder or to waive any of the
other party's rights against such party.
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<PAGE> 41
14.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
14.8 GOVERNING LAW. This Agreement and the Note issued and
sold hereunder shall be governed by and construed in
accordance with Delaware law, without regard to the conflict
of laws provisions thereof.
14.9 CAPTIONS. The descriptive headings of the various
sections or parts of this Agreement are for convenience only
and shall not affect the meaning or construction of any of the
provisions hereof.
14.10 DISPUTE RESOLUTION. Disputes shall be resolved as
provided in Exhibit F hereto.
IN WITNESS WHEREOF, the Company and Abbott by their duly authorized
officers, have each caused this Agreement to be executed as of the date
first written above.
ABBOTT:
ABBOTT LABORATORIES
By: /s/ Richard A. Gonzalez
-------------------------------
Title: President HPD
COMPANY:
MICRO THERAPEUTICS, INC.
By: /s/ William F. Gearhart
-------------------------------
Title: Executive Vice President
44
<PAGE> 1
EXHIBIT 10.2
5% CONVERTIBLE SUBORDINATED NOTE
MICRO THERAPEUTICS, INC.
5% Convertible Subordinated Note, due August 19, 2003
No. CSN-2 San Clemente, California
$5,000,000 August 19, 1998
Micro Therapeutics, Inc., a corporation duly organized and
existing under the laws of the State of Delaware (the "Company"), for value
received, hereby promises to pay to Abbott Laboratories, an Illinois corporation
("Abbott"), or its registered assigns (the "Holder"), the principal sum of Five
Million Dollars ($5,000,000) on August 19, 2003 (the "Maturity"), and to pay
interest (i) on the unpaid principal balance thereof from the date of this Note
at the rate of five percent (5%) per annum, payable quarterly in arrears on
January 31, April 30, July 31 and October 31 of each year (each, an "Interest
Payment Date") (commencing October 31, 1998) until such unpaid balance shall
become due and payable (whether at Maturity, or by declaration, acceleration or
otherwise) and (ii) on each overdue payment of principal or any overdue payment
of interest, at a rate per annum equal to ten percent (10%).
The interest and principal payments payable with respect to
this Note, on any Interest Payment Date, at Maturity or by declaration,
acceleration or otherwise, pursuant to the Note Agreement (as defined herein),
shall be paid to Abbott in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts. Such interest and principal payments shall be made to Abbott in
accordance with the provisions of the Note Agreement.
This Note is the sole issue of a 5% Convertible Subordinated
Note due August 19, 2003 of the Company issued in an aggregate principal amount
of Five Million Dollars ($5,000,000) pursuant to the Convertible Subordinated
Note Agreement, dated August 12, 1998, by and between the Company and Abbott
(the "Note Agreement"). The Holder of this Note is entitled to the benefits of
the Note Agreement, and may enforce the Note Agreement and exercise the remedies
provided for thereby or otherwise available in respect thereof.
This Note may be transferred or assigned by Abbott as provided
in the Note Agreement. As provided in the Note Agreement, upon surrender of this
Note for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed by Abbott or Abbott's attorney duly
authorized in writing, a new Note for a like aggregate principal amount and
otherwise of similar tenor, will be issued to, and registered in the name
45
<PAGE> 2
of, the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the Holder
and owner hereof for the purpose of receiving payments and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In the case of an Event of Default (as defined in the Note
Agreement), the principal of this Note in certain circumstances shall become due
and payable and in other circumstances may be declared and become due and
payable in the manner and with the effect provided in the Note Agreement.
This Note is subject to conversion into Common Stock pursuant
to the terms and conditions of the Note Agreement and conversion shall be
evidenced by a Notice of Conversion as attached hereto. This Note is not subject
to prepayment or redemption by the Company prior to its expressed Maturity.
The indebtedness evidenced by this Note is, to the extent
provided in the Note Agreement, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness (as defined in the Note
Agreement), and this Note is issued subject to the provisions of the Note
Agreement with respect thereto. Each Holder of this Note, by accepting the same,
agrees to and shall be bound by such provisions.
No reference herein to the Note Agreement and no provision of
this Note or of the Note Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Note at the times, place and rate, and in
the coin or currency, herein prescribed or to convert this Note as provided in
the Note Agreement.
All terms used in this Note which are defined in the Note
Agreement shall have the meanings assigned to them in the Note Agreement.
This Note and the Note Agreement are governed by and construed
in accordance with the law of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated: August 19, 1998
MICRO THERAPEUTICS, INC.
By: /s/ Hal Hurwitz
-------------------------------
Its: Chief Financial Officer
ATTEST:
By: /s/ Bruce Feuchter
-------------------------------
Its: Secretary
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<PAGE> 3
NOTICE OF CONVERSION
The undersigned Holder of this Note hereby irrevocably
exercises the option to convert the principal amount of this Note, into shares
of Common Stock in accordance with the terms of the Note Agreement, and directs
that the shares issuable and deliverable upon such conversion, together with any
check in payment for fractional shares and any Note representing any unconverted
principal amount hereof, be issued and delivered to the undersigned unless a
different name has been indicated below. If shares or the Note are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. Any amount required to be paid by
the undersigned on account of interest accompanies this Note.
- -----------------------------------------------------
Social Security or other
Taxpayer Identification Number
Dated:
------------------
-----------------------------------------------------
Signature
If shares or the Note are to be
registered in the name of a Person
other than the Holder, please print
such Person's name and address:
- --------------------------------------------
Name
- --------------------------------------------
Street Address
- --------------------------------------------
City, State and Zip Code
47
<PAGE> 1
EXHIBIT 10.3
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED
(DESIGNATED BY AN ASTERISK ([*]) ) AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT
DATED AUGUST 28, 1998
EXCLUSIVE DISTRIBUTION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of August 12,
1998 (the "Effective Date"), by and between ABBOTT LABORATORIES, an Illinois
corporation, on behalf of itself and its Affiliates (as defined below)
(collectively, "Abbott"), having a place of business at 100 Abbott Road, Abbott
Park, Illinois 60064, and MICRO THERAPEUTICS, INC., a Delaware corporation
("MTI"), having a place of business at 1062-F Calle Negocio, San Clemente,
California 92673.
RECITALS
A. MTI is engaged in the business of developing and manufacturing the
Products (as defined below), and Abbott is in the business of
developing, manufacturing and distributing pharmaceuticals, medical
devices and other health care products.
B. The parties desire that Abbott act as an exclusive independent
distributor of the Products within the Territory (as defined below)
under the terms and conditions of this Agreement.
C. The parties also desire that Abbott invest in MTI, the details of
which investment are fully described and governed by that certain
Convertible Subordinated Note Agreement ("Note Agreement"), Credit
Agreement ("Credit Agreement") and Security Agreement ("Security
Agreement") between the parties bearing even date herewith.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth below, the parties agree as follows:
Definitions.
1.1 "Affiliate" means any company or entity that controls, is
controlled by or is under common control with, a party to this
Agreement. As used herein, "control" means the direct or indirect
ownership of fifty percent (50%) or more of the authorized issued
voting shares in such entity or such other relationship as in fact
legally results in effective control over the management, business and
affairs of such entity.
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<PAGE> 2
1.2 "ASP" or "Average Selling Price" means the Net Sales of
any given Product divided by the total number of units of that Product
shipped (excluding non-revenue units, such as samples) and invoiced by
Abbott or its Affiliates to Customers.
1.3 "Business Day" means any day Monday through Friday
excluding Abbott observed holidays.
1.4 "Change of Control Event" means any sale of all or
substantially all of a party's assets or stock or a change in ownership
or control (as defined in Section 1.1) of a party, whether by merger or
acquisition or otherwise.
1.5 "Confidential Information" means proprietary, non-public
information owned or controlled by one party to this Agreement to which
the other party has access hereunder, including but is not limited to,
trade secrets, discoveries, ideas, concepts, know-how, techniques,
designs, specifications, drawings, diagrams, data, business activities
and operations, customer lists, reports, studies and other technical
and business information.
1.6 "Cost" means the transfer price paid by Abbott to MTI for
each Product purchased under this Agreement, as described in
Section 6.1
1.7 "Customer" means any end-user who purchases Products from
Abbott for use in the Territory.
1.8 "Effective Date" means the date first set forth above.
1.9 "FDA" means the United States Food and Drug Administration
and any successor agency thereto.
1.10 "Field" means devices and methods of use directed toward
diagnosis, treatment or prevention of blood clot disorders in the
peripheral vasculature, including related peripheral blood clot therapy
access products.
1.11 "First Commercial Sale" means the first sale by Abbott of
any Product to a Customer after the Effective Date. "First Commercial
Sale" shall not include any sales to Abbott Affiliates or to any third
party in connection with any clinical trials or regulatory or safety
testing.
1.12 "LES" means MTI's Liquid Embolic System (Embolyx(TM))
that includes an embolic agent and delivery system.
1.13 "Margin" means Net Sales minus the Cost of the Product
sold.
1.14 "MTI's Successor" means a third party who assumes control
of MTI's management, business and affairs following an MTI Change of
Control Event.
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<PAGE> 3
1.15 "Net Sales" means the gross amounts recorded by Abbott on
the accrual method minus reasonable reserves for bad debt consistent
with generally accepted accounting principles consistently applied by
Abbott for sales of, and in connection with Abbott's purchase,
transportation and importation of, the Products, less any discounts,
rebates and credit for damaged, outdated, returned, withdrawn and
recalled goods, less any allowances for partial-revenue or non-revenue
units (e.g., samples), less any trade discounts earned or granted, less
any cash discounts, management fees or rebates paid to Customers
(including but not limited to Group Purchasing Organizations ("GPOs"),
Integrated Health Care Systems ("IHSs"), and government agencies) and
less all freight charges, insurance and other costs of shipping and
handling, taxes, duties and the like, all to the extent that any of the
foregoing may be recorded or incurred by Abbott in connection with the
sale of Products under this Agreement. For sales outside of the United
States, the aforementioned shall be converted to United States dollars
each calendar quarter, using Abbott's standard practices to determine
Net Sales.
1.16 "Products" means all of the current MTI products
referenced in the attached Exhibit 1 as well as MTI's devices or
technology developed or otherwise acquired by MTI after the Effective
Date that have any application in the Field, including but not limited
to any improvements, enhancements or line extensions thereto. The
parties shall amend Exhibit 1 from time to time to reflect any and all
Product improvements, enhancements and line extensions and additions of
new Products and, as applicable, shall amend Sections 6.1 and 6.2
accordingly.
1.17 "Product Lines" means the following five (5) categories
of Products as of the Effective Date: thrombolytic brushes, infusion
catheters, infusion guidewires, peripheral micro catheters, and
accessory kits. Product Lines shall also include other Product
categories that may be developed during the Term.
1.18 "QSR" or "Quality System Regulations" means all
applicable standards relating to manufacturing practices for medical
devices promulgated by the FDA in the form of laws, regulations or
guidance documents (including but not limited to advisory opinions,
compliance policy guides and guidelines), and which guidance documents
MTI knows or reasonably should have known to be applicable, current,
feasible and valuable in ensuring device quality within the device
manufacturing industry for such products in effect on the Effective
Date or at any time thereafter during the Term.
1.19 "Specifications" means MTI's most current specifications
for the manufacture of each of the Products.
1.20 "Standard Manufacturing Cost" means with respect to any
Product, MTI's fully allocated cost of manufacturing such Product (in
accordance with QSR and the Specifications), as determined in
accordance with Generally Accepted Accounting Principles ("GAAP"),
consistently applied, including all direct and
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<PAGE> 4
indirect costs related to the manufacture of such Product, including
without limitation, costs for labor, materials (including, without
limitation, components of such Product), quality control, regulatory
compliance, manufacturing administrative expenses, subcontractors,
fixed and variable manufacturing overhead costs and business unit,
division or company costs reasonably allocable to the manufacture,
packaging and labeling of such Product, in each case, respectively.
1.21 "Term" means the Initial Term (as defined in Section
14.1) plus any extensions pursuant to Section 14.1 and/or Section 15.5,
unless earlier terminated pursuant to Sections 14.2, 14.3 or 14.4.
1.22 "Territory" means the fifty (50) United States and
territories of the United States (including but not limited to, Puerto
Rico) as well as Canada. The Territory may be expanded from time to
time by mutual agreement of the parties to include additional countries
not currently committed by MTI to alternative distributors for the
Products.
2. Appointment and Status of Abbott
2.1 Appointment. MTI hereby appoints Abbott as the exclusive
distributor of the Products to Customers in the Territory. During the
Term, MTI shall not itself or through its Affiliates (i) make sales of
any Products within the Territory (except for clinical trials or
regulatory approval or compliance purposes), (ii)appoint or authorize
any other distributor or sales representative to make sales of any
Products within the Territory or (iii) sell any Products to any entity
that it knows or has reason to know will sell such Products in the
Territory without Abbott's prior written permission. Abbott may, in its
discretion, distribute, market and sell the Products in the Territory
through any Affiliate of Abbott Laboratories or use other
subdistributors and agents of its own choosing in distributing,
marketing and selling any Products in the Territory. Abbott shall have
the right during the Term to represent to the public that it is an
authorized exclusive independent distributor of the Products within the
Territory.
2.2 Independent Contractor. Abbott is and at all times shall
be an independent contractor of MTI in all matters relating to this
Agreement. Each party and its employees are not agents or partners of
the other party for any purposes and, except as otherwise expressly
agreed in writing by the other party, have no power or authority to
bind or commit the other party in any way.
3. Abbott's Duties. Abbott shall use reasonable commercial efforts to
introduce, promote the sale of, solicit and obtain orders for Products
from Customers in accordance with the terms of this Agreement.
Additionally, Abbott shall be responsible for all order entry,
distribution, billing, collection of sales revenue, Customer service
support (excluding technical Product support), and processing of
returns for the Products in the Territory. In particular, Abbott shall
assume the following responsibilities:
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<PAGE> 5
3.1 Sales. Abbott shall assume responsibility for all sales
and marketing activities for the Products in the Territory through its
Abbott Critical Care Systems commercial organization or another
commercial organization at Abbott's sole discretion. Except as
otherwise expressly stated herein, Abbott shall be responsible for its
own sales and marketing costs, including but not limited to training
and maintenance of its sales organization, formation of clinical
symposia, promotion at appropriate trade shows, publication of
promotional materials/reprints, and publication of appropriate journal
advertisements.
3.2 Contracting. As of the Effective Date, except as otherwise
mutually agreed during the Transition Period referenced in Section 4.2,
Abbott shall assume full responsibility for negotiating and entering
into all Customer contracts, including but not limited to, all
hospital, GPO and IHS sales contracts for the Products in the
Territory. Abbott shall be solely responsible for establishing sales
prices for Products for all Customers in the Territory. MTI shall
provide Abbott with MTI's current customer lists as well as current and
proposed customer contracts for the Products. In accordance with
procedures to be mutually agreed upon and to be implemented as soon as
practicable after the Effective Date, MTI shall assign to Abbott and
Abbott shall administer all of MTI's pre-existing sales contracts with
customers for the Products in the Territory during the Term.
3.3 Forecast. The initial sales forecast ("Forecast") covering
Net Sales for the first five (5) full calendar years of the Term is set
forth in the attached Exhibit 2. This Forecast shall be revised by
mutual agreement of the parties to account for adverse
market/competitive conditions and/or Product safety and efficacy
issues. Abbott and MTI shall prepare and agree upon a new Forecast
prior to September 30 of each calendar year during the Term. Each
Forecast shall encompass the following five (5) full calendar years,
with projections gaited on a monthly basis for the first calendar year
and annually thereafter. Such Forecasts shall include a sales Forecast
by Product Line, anticipated quantity and quarterly estimated delivery
dates. With respect to Product Line extensions, the parties shall make
Forecast adjustments as mutually agreed upon, commensurate with the
expanded total available market opportunity associated with the
expanded Product offerings. If the parties are unable to reach
agreement on Forecasts for any year during the Initial Term after the
initial Forecast period set forth in Exhibit 2, then Abbott shall
continue to distribute the Products in the Territory for the remainder
of the Initial Term, paying to MTI a commission on Net Sales (pursuant
to Section 6.2) based on the weighted average commission (i.e., the
percentage equal to total commissions divided by total Net Sales) paid
during the final calendar year for which a Forecast was mutually agreed
by the parties. If the Initial Term is extended pursuant to
Sections 14.1.1 or 14.1.2 and the parties are subsequently unable to
reach agreement for a Forecast for any calendar year beyond the Initial
Term, MTI may terminate this Agreement pursuant to Section 14.4.3.
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3.4 No Minimum Purchase Requirements. Subject to the
provisions of Section 14.3, nothing herein shall be construed to
obligate Abbott to purchase any minimum quantity of any of the
Products.
3.5 Compliance with Laws. Subject to Section 4 below, Abbott
shall, at all times during the Term, maintain any necessary legal
permits and licenses required by any governmental unit or agency to
distribute the Products hereunder and shall comply with all applicable
national, state, regional and local laws and regulations, in performing
its duties hereunder and in any of its dealings with respect to the
Products as an independent distributor, except where the failure to
obtain such permits or licenses or failure to comply will not have a
material adverse effect on Abbott's ability to distribute the Products.
4. MTI's Duties. MTI shall use reasonable commercial efforts to
maintain adequate manufacturing capacity and sufficient supply of the
Products during the Term. Should MTI fail to maintain adequate
manufacturing capacity and/or sufficient supply of the Products, MTI
and Abbott shall in good faith use their best efforts to develop
jointly a plan to ensure continued Product supply, which plan may
include, at Abbott's reasonable discretion, Abbott's exercise of its
standby right to manufacture the Products under Section 4.12 and
appropriate mutually agreed upon Forecast adjustments pursuant to
Section 3.3. MTI shall use commercially reasonable efforts to develop
appropriate Product Line extensions in order to assure maintenance of
market-competitive Products in the Field. MTI shall give due
consideration to recommendations from Abbott in this regard. MTI shall
also assume the following responsibilities:
4.1 Responsibility for Regulatory and Safety Testing
Requirements and for Obtaining Required Approvals and
Registrations.
4.1.1 Regulatory and Safety Testing Requirements. MTI shall be
considered to be the finished device manufacturer for the Products and shall be
responsible for compliance with all regulatory and safety testing requirements
for the Products in the Territory. MTI shall provide Abbott with the data and
results from clinical trials with respect to each of the Products.
4.1.2 Regulatory Approvals and Registrations. MTI shall
establish and maintain all regulatory approvals required to manufacture and
permit sale of the Products in the Territory, including, at a minimum all
necessary, FDA approvals and the equivalent Canadian approvals for each Product.
4.1.3 Quality System Compliance. MTI shall be solely
responsible for compliance with all Quality System Regulations affecting the
Products, including, at a minimum, International Standards Organization ("ISO")
certification and compliance with FDA Quality System Regulations. During the
Term, MTI shall manage the complaint files associated with the Products in the
Territory and provide copies of those complaint files to Abbott upon Abbott's
request. In accordance with a timetable to be mutually agreed upon by
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<PAGE> 7
the parties, Abbott shall have the right to review MTI's manufacturing
operations in order to ensure compliance with Quality System Regulations. Abbott
may, in its discretion, make QSR recommendations to MTI and MTI shall use
reasonable efforts to implement any QSR recommendations made by Abbott.
4.4.4 Post-Marketing Regulatory Reporting. MTI shall be
responsible for reporting any reportable events, including but not limited to
patient deaths or injuries, associated with the Products to the FDA and other
appropriate authorities; provided, however, that to the extent required by
applicable law Abbott may also report such events to the applicable authorities.
Abbott shall notify MTI of any such event within two (2) Business Days after
Abbott learns of such an event. Each party shall provide the other party with
any assistance reasonably requested by the other party in connection with such
activities, including without limitation access to the Product files. MTI shall
update Abbott periodically (in accordance with a timetable to be mutually agreed
upon by the parties) on any reportable events involving the Products in the
Territory for which MTI has filed reports with the FDA or other regulatory
authorities in the Territory.
4.1.5 Post-Marketing Clinical Trials. MTI shall fund, conduct
and complete post-approval clinical trials in order to establish
clinical/commercial user preference status for the Products, in accordance with
the Post-Market Clinical Development Program attached hereto as Exhibit 3. Upon
mutual agreement of the parties regarding appropriate timetables, these clinical
trials shall be conducted by MTI, with assistance from Abbott if so requested by
MTI.
4.1.6 Reimbursement. MTI shall use its best efforts to assist
Customers in obtaining reimbursement from governmental agencies, third-party
payors, or other parties from whom reimbursement may be sought in connection
with sales of the Products to Customers.
4.2 Transition Period. MTI shall transition full commercial
responsibilities for marketing and sale of the Products to Abbott during a six
(6) month transitional period ("Transition Period") beginning with the date of
First Commercial Sale of any Product by Abbott, after which Transition Period
MTI's commercial responsibility for the Products shall be limited to providing
general support upon Abbott's request.
4.3 Literature. Upon Abbott's request, MTI shall furnish Abbott,
without charge (except as otherwise agreed in writing), with reasonable
quantities of technical, advertising and selling information and literature in
English concerning the Products which Abbott may incorporate or include with its
own marketing materials and information relating to the Products. Abbott shall
have the right to develop and distribute its own marketing materials, brochures
and other information regarding the Products in connection with its sales and
marketing activities under this Agreement, subject to the prior approval of MTI,
which approval shall not be unreasonably withheld.
4.4 Marketing Support. To assist in selling and marketing the Products
in the Territory, each party shall, as applicable:
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4.4.1 provide the other party with any information reasonably
requested by the other party for the purpose of complying with regulatory and
other legal requirements relating to the Products;
4.4.2 provide the other party with information on marketing
and promotional plans for the Products as well as copies of marketing,
advertising, sales and promotional literature concerning the Products, if any;
and
4.4.3 provide the other party with certificates of free sale,
trademark authorizations and any other documents relating to the Products which
the other party may reasonably request to satisfy the requirements of the laws
of the various jurisdictions within the Territory and of any competent
authority.
4.5 Sales and Training. MTI shall provide reasonable initial training
of Abbott's personnel in the use of the Products, upon Abbott's request. Abbott
shall pay the cost of any travel and lodging for its personnel attending any
such training, and MTI shall pay the cost of the trainers and materials.
4.6 Trade Shows. For trade shows and congresses pertinent to the Field
in the Territory, MTI shall assist Abbott, subject to mutual written agreement
of the parties, with the promotion of the Products. Such assistance may include
sharing of costs, provision of personnel and materials as well as joint
exhibits.
4.7 Product Changes. MTI shall provide Abbott with at least ninety (90)
days prior written notice of any change in the Specifications or the processes,
materials, equipment, inspection, testing, manufacturing location and the like
of which it has knowledge that may have any effect on the Products or their
uses. MTI shall give due consideration to any comments or suggestions Abbott may
make with respect to such changes.
4.8 Insurance. MTI shall at all times during the Term maintain product
liability insurance covering the Products with minimum annual limits of Two
Million Dollars ($2,000,000) per occurrence and Two Million Dollars ($2,000,000)
in the aggregate. MTI shall maintain such insurance for a minimum of five (5)
years after termination of this Agreement. Within thirty (30) days of the
Effective Date, MTI shall deliver to Abbott a certificate of insurance
evidencing such insurance and stating that the policy will not be canceled or
modified without at least thirty (30) days prior written notice to Abbott.
4.9 Intellectual Property Rights. MTI shall use reasonable commercial
efforts to file, prosecute, protect and maintain its intellectual property
rights (including patents, know-how and MTI Trademarks, as defined below)
relevant to the Products in the Territory at its own expense. If MTI becomes
aware of any actual or potential third party infringement of such intellectual
property rights or any third party claim that MTI's manufacture and sale of the
Products to Abbott hereunder or Abbott's sale of Products to Customers infringes
any third party intellectual property rights, MTI shall promptly notify Abbott.
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4.10 Samples. During the Term, MTI shall provide Abbott with a
reasonable amount of samples of each of the Products, at no charge, as requested
by Abbott (not to exceed [*] ( [*] ) of total unit sales by Product Line on an
annual basis) for sales presentations and medical meeting demonstrations or
presentations and for testing purposes.
4.11 Right of First Discussion. During the Term, MTI shall provide to
Abbott an exclusive right of first discussion if MTI elects to consider and/or
pursue discussions with third parties on potential commercial collaborations in
the Territory for potential peripheral vascular applications of MTI's LES
(Embolyx(TM)) embolization product currently under development. If MTI considers
and/or desires to pursue potential third party sales, marketing and/or
distribution collaborations for peripheral applications of LES in the Territory,
MTI shall negotiate first and in good faith with Abbott for a period of not less
than [*] ( [*] ) days for distribution rights for such products. If the parties
do not execute an agreement for distribution of such products within such [*]
( [*] ) day period (or such longer period as may be mutually agreed upon by the
parties), MTI shall have no further obligations to Abbott in this regard. MTI
shall give serious consideration to any reasonable commercial terms proposed by
Abbott in writing with regard to peripheral LES applications. If the parties are
unable to agree on the terms of such written offer, then for a period of [*]
( [*] ) [*] following the above-referenced discussion period, MTI shall not
accept a third party offer for commercialization of peripheral LES applications
that, in MTI's sole opinion, is less favorable to MTI than Abbott's last written
offer, considering all relevant factors, including without limitation, any
equity components as well as milestones, commissions and/or royalties.
4.12 Standby Right to Manufacture. If MTI is unable or unwilling for
any reason (other than where determined as due to Abbott's breach of this
Agreement or due to bona fide dispute that the parties have submitted for
resolution pursuant to the provisions of Section 15.4) to supply any Products as
and when ordered by Abbott in accordance with this Agreement, then, after the
expiration of a reasonable period of time (not to exceed [*] ( [*] ) [*] ),
during which MTI may remedy the cause of its inability to supply the Products,
Abbott, shall have the right, but not the obligation, to manufacture or have
manufactured the Products under MTI's patents and other intellectual property
rights during the period that MTI is unable to supply. To the extent necessary
to implement Abbott's standby manufacturing rights under this Section 4.12, MTI
hereby grants Abbott a non-exclusive, royalty-free license under MTI patents and
other intellectual property rights to make, have made, use, import, sell and
offer for sale the Products in the Territory. During such period, MTI shall
provide Abbott with manufacturing know-how and reasonable assistance to enable
Abbott (and, as applicable, Abbott's third party manufacturer) to manufacture
the Products. At such time as MTI can demonstrate to Abbott's reasonable
satisfaction that MTI is capable of resuming the manufacture and supply of
Products, Abbott's license hereunder shall cease and Abbott shall resume
purchasing Products from MTI and Abbott shall return to MTI all MTI equipment
and technology utilized by Abbott for the manufacture of Products.
5. Trademarks and Labeling.
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5.1 Trademark License. During the Term, MTI hereby grants to Abbott an
exclusive, royalty-free license to use the current and future trademarks, trade
names and logos used by MTI at any time during the Term to identify the Products
(the "MTI Trademarks") solely in the course of Abbott's advertisement,
promotion, distribution and sale of the Products in the Territory. Abbott's use
of the MTI Trademarks shall be in accordance with MTI's policies that are
provided to Abbott in writing from time to time. Abbott shall display the MTI
Trademarks on the Products distributed under this Agreement. Use of the MTI
Trademarks on the Products shall not give Abbott any proprietary rights in the
MTI Trademarks except for the license rights granted in this Section 5.1.
5.2 Ownership. Abbott acknowledges that, subject only to the license
granted herein to Abbott, MTI owns and retains all proprietary rights in all MTI
Trademarks.
5.3 No Continuing Rights. Upon termination of this Agreement, Abbott
shall cease all further display, advertising and use of all MTI Trademarks
except in connection with the sale of Products in inventory as provided in
Section 14.5.2 below.
5.4 Trademarks Used In Labeling. In addition to the MTI Trademarks, the
Products may bear trademarks selected by Abbott ("Abbott Trademarks") in a
manner mutually agreed upon by the parties. Notwithstanding anything to the
contrary set forth herein, MTI shall not use the Abbott Trademarks on any
Product sold outside the Territory without the prior written consent of Abbott.
Upon termination of this Agreement, MTI shall cease all use of the Abbott
Trademarks.
5.5 Lot Numbers and List Numbers in Labeling. As soon as commercially
feasible after the Effective Date, MTI shall make the following Product labeling
changes: (a) each saleable unit of the Products shall have an Abbott list number
printed on the label (including the case labeling) and (b) each saleable unit of
the Products shall have identification numbers using the Abbott lot numbering
convention and expiration dating formats (in compliance with [*] , which Abbott
shall supply to MTI) on the label (including the case labeling). Abbott shall
supply MTI with Product list numbers, lot number suffix and lot number blocks as
soon as commercially feasible after the Effective Date.
6. Financial Terms.
6.1 Cost. The Cost to Abbott for each Product purchased by Abbott from
MTI under this Agreement shall be an amount equal to MTI's Standard
Manufacturing Cost for the Product sold, not to exceed a maximum percentage of
the appropriate aggregate Average Selling Price for the appropriate time period,
calculated according to the following schedule:
MAXIMUM COST (as a % of Average Selling Price)
<TABLE>
<CAPTION>
MTI PRODUCT LINE EFF. DATE TO 12/31/98 1999 2000-2007
<S> <C> <C> <C>
Infusion Catheters [*] [*] [*]
Infusion Guidewires [*] [*] [*]
Peripheral Micro Catheters [*] [*] [*]
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Mechanical Thrombolytic Devices [*] [*] [*]
Accessory Kits [*] [*] [*]
</TABLE>
The Cost paid by Abbott to MTI for any given Product shall be not less
than a minimum of [*] ( [*] ) of the appropriate Average Selling Price for that
Product. The parties shall review MTI's Standard Manufacturing Cost for the
Product sold for each Product and Product Line on or before September 30 of each
year during the Term and establish the Standard Manufacturing Cost for the
Product sold (and accordingly, the Cost for each Product) for the following
calendar year at such time.
6.2 Commissions. Net Sales and Average Selling Prices for each Product
Line (infusion catheters, infusion guidewires, peripheral micro catheters,
mechanical thrombolytic devices, accessory kits) shall be updated and calculated
by Abbott and reviewed by the parties on a quarterly basis. Within forty-five
(45) days following the end of each calendar quarter during the Term, Abbott
shall pay MTI a commission, calculated by individual Product Line on a calendar
quarterly basis, as follows: _________ (i) for sales up to and including
Forecast, MTI shall receive [*] ( [*] ) of the Net Sales of the Products by
Abbott, calculated by individual Product Line ; _________ (ii) for sales over
Forecast up to [*] ( [*] ) of Forecast, MTI shall receive [*] ( [*] ) of Net
Sales over Forecast and up to [*] ( [*] ) of Forecast, calculated by individual
Product Line; _________ (iii) for sales over [*] ( [*] ) of Forecast, MTI shall
receive [*] ( [*] ) of Net Sales over [*] ( [*] ) of Forecast, calculated by
individual Product Line. _________ For example, if Abbott's Net Sales of
thrombolytic brushes in calendar year 1999 (for which the Forecast is [*] ) are
[*] , the commission payable for this Product Line shall be as follows:
<TABLE>
<CAPTION>
Net Sales Portion Commission Percentage Commission Payable
<S> <C> <C>
Up to Forecast
(up to $2,742,000) [*] [*]
100-120% Over Forecast
($2,742,001-$3,290,400) [*] [*]
Over 120% of Forecast
($3,290,401-$3,500,000) [*] [*]
TOTAL [*]
</TABLE>
6.3 Marketing/Distribution Fee. Within fifteen (15) days of Abbott's
First Commercial Sale of any Product within the Territory, Abbott shall pay MTI
a one time marketing/distribution fee of One Million Dollars ($1,000,000) in
consideration of the Product marketing/distribution rights granted to Abbott
hereunder. Abbott shall promptly notify MTI of its First Commercial Sale.
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7. Order Placement
7.1 Purchase Orders and Acknowledgments
7.1.1 Purchase Orders. All purchases of the Products by Abbott
from MTI shall be made by written purchase order specifying Product type,
quantity, price, requested delivery schedule, delivery location, and shipping
instructions. All purchases of the Products by Abbott from MTI during the Term
shall be subject to the terms and conditions of this Agreement. Any additional
or different terms and conditions in a purchase order or confirmation form which
conflict with this Agreement shall be of no force and effect unless the parties
specifically agree in writing to such conflicting terms and conditions.
7.1.2 Acceptance of Orders. All orders and modifications to
orders are subject to acceptance by MTI; provided, however, that MTI shall
accept all purchase orders by Abbott for the Products as long as such orders are
consistent with the current Forecasts (as described in Section 3.3 above). MTI
shall use commercially reasonable efforts to fill all other orders by Abbott for
the Products hereunder. If MTI believes that it will not be able to satisfy
Abbott's orders for the Products, MTI shall promptly notify Abbott, specifying
the reasons for the delay and its expected duration.
7.2 Title and Delivery of Products
7.2.1 All Products shall be delivered FOB, MTI's United States
manufacturing facility, to the carrier designated by Abbott. If no such
designation is made by Abbott, MTI shall select the most cost-effective carrier,
given the time constraints known to MTI. MTI's title and the risk of loss to the
Products shall pass to Abbott upon delivery of the Products to the carrier.
7.2.2 Abbott shall pay all taxes (including, without
limitation, sales, value-added and similar taxes) payable with respect to the
sale and purchase of Products under this Agreement, except for taxes based on
MTI's income.
7.2.3 All Products shall be suitably packed for shipment and
marked by MTI for shipment to Abbott's United States facilities designated in
the purchase order. Abbott shall not export the Product outside the Territory,
and shall pay all freight, insurance and other shipping expenses, as well as any
special packing expense.
7.2.4 MTI may make partial shipments against Abbott's purchase
orders upon mutual agreement of the parties.
7.2.5 Any delivery of Products by MTI to Abbott which fail to
meet the Specifications shall be promptly returned to MTI at MTI's expense.
7.3 Order Changes
7.3.1 Abbott may reschedule each order once, provided no such
rescheduling shall exceed forty-five (45) days from the originally scheduled
ship date. MTI shall work with Abbott in good faith on a case by case basis to
resolve any issues related to market changes and potential impact on orders
placed with MTI.
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7.3.2 Abbott may cancel all or any portion of an order or
change the scope of an order at any time prior to fifteen (15) days before the
scheduled ship date. Thereafter, Abbott may do so only with MTI's written
approval.
7.4 Recalls. The parties shall give prompt notice of any contemplated
recall of any Products to the other party (including notice by MTI to Abbott of
any such recall outside the Territory). The parties shall give each other full
cooperation throughout the recall process whether such recall is voluntary or
otherwise, and shall comply in full with applicable laws, regulations and
governmental agency directives with respect to such recall. Any recall expenses
incurred by Abbott resulting from MTI QSR deficiencies, Product quality defects,
Product performance defects or government actions will be fully reimbursed to
Abbott from MTI.
8. Payment and Records
8.1 Payment Terms. Abbott shall pay to MTI within forty-five (45) days
of the receipt of invoice an estimated amount mutually agreed by the parties for
the Cost specified in Section 6.1 above for each Product delivered during that
month. Additionally, Abbott shall pay to MTI within forty-five (45) days of the
end of each calendar quarter an actual amount for the commission on Product
sales during such quarter as specified in Section 6.2. All payments shall be
made in United States dollars. In accordance with Section 4.10, Abbott may
distribute as clinical samples up to [*] ([*] ) of the total number of Products
provided to Abbott under this Agreement without payment of commissions. Such
samples will be included in any reconciliation as Net Sales at the price (if
any) for such samples at zero dollars if the sample was distributed by Abbott
free of charge, and the Cost for such samples shall be reimbursed by MTI to
Abbott pursuant to Section 8.2.
8.2 Quarterly Reconciliation. At the end of each calendar quarter,
Abbott shall reconcile the estimated payments made to MTI under Section 8.1
above with the actual Cost for the Products purchased during such calendar
quarter and shall provide a report to MTI of such reconciliation within thirty
(30) days after the end of such quarter. Specifically, reconciliations shall be
made
(i) to account for unanticipated changes to Product ASPs, if
such ASP changes served to affect Abbott's Costs paid pursuant to Sections 6.1
and 8.1, and
(ii) to account for non-revenue (e.g., sample) units
distributed by Abbott but previously paid for by Abbott at a Cost equal to MTI's
Standard Manufacturing Cost sold pursuant to Section 6.1.
If the reconciliation reveals that Abbott owes MTI additional amounts,
Abbott shall remit payment of such amount with its report. If the reconciliation
reveals that Abbott has overpaid in its estimated payment, MTI shall reimburse
Abbott within ten (10) days of receipt of the report.
8.3 Sales Records. No more frequently than once in any twelve (12)
month period during the Term, upon MTI's request and at MTI's expense, Abbott
shall allow an independent auditor mutually agreed upon by the parties to
examine Abbott's books and records relating to the distribution and sale of the
Products for the purpose of verifying the
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payments made by Abbott pursuant to Section 8. If, as a result of such
examination, an underpayment or overpayment is found, the applicable party will
rectify the underpayment or overpayment within thirty (30) days; provided that
if such examination shows an underpayment by Abbott of more than ten percent
(10%), then Abbott shall pay the cost of such audit. The audit shall take place
during Abbott's normal business hours, at a location to be designated by Abbott,
and may not disrupt the operation of Abbott's business. The audit shall be
completed within five (5) Business Days and shall cover a period not more than
two (2) years back from the date of the audit. Scheduling of the audit shall be
subject to mutual agreement of the parties.
8.4 Cost Records. No more frequently than once in any twelve (12)
month period during the term of this Agreement, upon Abbott's request and at
Abbott's expense, MTI shall allow an independent auditor mutually agreed upon by
the parties to examine MTI's books and records relating to the Standard
Manufacturing Cost for the purpose of verifying the Cost paid by Abbott pursuant
to Section 6.1. If, as a result of such examination, an underpayment or
overpayment is found, the applicable party will rectify the underpayment or
overpayment within thirty (30) days; provided that if such examination shows an
overpayment by Abbott of more than ten percent (10%), then MTI shall pay the
cost of such audit. The audit shall take place during MTI's normal business
hours, at a location to be designated by MTI, and may not disrupt the operation
of MTI's business. The audit shall be completed within five (5) Business Days
and shall cover a period not more than two (2) years back from the date of the
audit. Scheduling of the audit shall be subject to mutual agreement of the
parties.
9. Returns
Abbott may return for a refund any Product that does not meet MTI's
warranty as set forth in Section 11.2. MTI shall issue a return material
authorization ("RMA") number for such defective Product upon Abbott's request.
At MTI's expense, Abbott shall return any such defective Product to MTI with
documentation referencing the applicable RMA number. MTI shall submit such
refund and reimbursement of the return shipment cost to Abbott within forty-five
(45) days of receiving the defective Product.
9.2 Each Product delivered under this Agreement shall have, upon
Abbott's receipt of such Product, at least seventy-five percent (75%) of the
applicable original Product shelf-life remaining, except as otherwise agreed in
writing by Abbott. At MTI's expense, Abbott may return for a refund or
replacement, at Abbott's option, any Product that does not meet this
requirement. MTI shall submit such refund and reimbursement for shipping costs
or replacement Product to Abbott within forty-five (45) days of receiving the
returned Product.
10. Confidential Information
10.1 Identification of Confidential Information. Confidential
Information provided by the disclosing party (or any of its Affiliates) and
entitled to protection under this Agreement shall be identified as such by
appropriate markings on any documents exchanged. If the disclosing party
provides information other than in written form, such information shall be
considered Confidential Information only if the information by its nature would
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reasonably be considered of a confidential nature or if the receiving party, due
to the context in which the information was disclosed, should have reasonably
known it to be confidential, and the disclosing party gives written notice
within ten (10) days of disclosure that such information is to remain
confidential or the disclosing party had previously confirmed in writing that
such information was confidential.
10.2 Protection of Confidential Information. Each party acknowledges
that the other party claims its Confidential Information as a special, valuable
and unique asset. During the Term and for three years (3) years thereafter, for
itself and on behalf of its Affiliates, officers, directors, agents, and
employees, each party agrees to the following:
10.2.1 Receiving party shall not disclose the Confidential
Information to any third party or disclose to an employee unless such third
party or employee has a need to know the Confidential Information in order to
enable the disclosing party to exercise its rights or perform its obligations
under this Agreement. Receiving party shall use the Confidential Information
only for the purposes of exercising its rights or fulfilling its obligations
under this Agreement and shall not otherwise use it for its own benefit. In no
event shall the receiving party use less than the same degree of care to protect
the Confidential Information as it would employ with respect to its own
information of like importance which it does not desire to have published or
disseminated;
10.2.2 If the receiving party faces legal action or is subject
to legal proceedings requiring disclosure of Confidential Information, then,
prior to disclosing any such Confidential Information, the receiving party shall
promptly notify the disclosing party and, upon the disclosing party's request,
shall cooperate with the disclosing party in responding to and/or contesting
such request.
10.3 Return of Confidential Information. All information furnished
under this Agreement shall remain the property of the disclosing party and shall
be returned to it or destroyed or purged promptly at its request upon
termination of this Agreement; provided, however, that Abbott may retain
Confidential Information of MTI as reasonably necessary for Abbott to be able to
complete the sale of Products on order or in inventory at the time of
termination and to support Products already sold by Abbott under this Agreement.
All documents, memoranda, notes and other tangible embodiments whatsoever
prepared by the receiving party based on or which includes Confidential
Information shall be destroyed to the extent necessary to remove all such
Confidential Information upon the disclosing party's request, except that one
copy of such information that may be retained in the legal files of the
receiving party. Upon the request of the disclosing party, all destruction under
this Section 10.3 shall be certified in writing to the disclosing party by an
authorized representative of the receiving party.
10.4 Residual Information. Either party shall be free to use for
any purpose (including, but not limited to, use in the development, manufacture,
marketing and maintenance of its own products and services) the Residuals
resulting from access to or work with Confidential Information of the other
party, provided that the party maintains the confidentiality of the Confidential
Information as provided herein. The term "Residuals"
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shall mean information in non-tangible form that may be inadvertently retained
by persons who have had rightful access to the Confidential Information,
including the ideas, concepts, know-how or techniques contained therein.
Notwithstanding the provisions of this Section 10.4, during the Term, neither
party may avoid its obligations toward a particular item of the Confidential
Information merely by having a person commit such item to memory so as to reduce
it to a non-tangible form. Further, this Section 10.4 does not provide to either
party a license to use any patented, trademarked or copyrighted material of the
other party.
10.5 Limitations. The confidentiality obligations in this Section
10 shall not apply to disclosed information which the receiving party can prove
receiving party knows at the time of disclosure, free of any obligation to keep
it confidential, as evidenced by written records; is or becomes generally
publicly known through no fault of the receiving party; receiving party
independently developed without the use of any Confidential Information, as
evidenced by written records; or receiving party rightfully obtains from a third
party who has the right to transfer or disclose it.
10.6 Public Announcements. Notwithstanding anything to the contrary
contained in this Agreement, neither party may initiate any public announcement
concerning the subject matter of this Agreement or the Convertible Subordinated
Note Agreement without the prior written approval of the other party; provided,
however, that this Section 10.6 shall not be construed to limit Abbott's ability
to market the Products as it deems necessary or appropriate.
11. Representations and Warranties
11.1 Reciprocal Representations and Warranties. Each party represents
and warrants to the other party as follows:
(i) It is a corporation duly organized and validly existing
under the laws of its state or other jurisdiction of incorporation or formation;
(ii) It has the power and authority to execute and deliver
this Agreement, and to perform its obligations hereunder;
(iii) The execution, delivery and performance by it of this
Agreement and its compliance with the terms and provisions hereof does not and
will not conflict with or result in a breach of any of the terms and provisions
of or constitute a default under (a) any loan agreement, guaranty, financing
agreement, agreement affecting a product or other agreement or instrument
binding or affecting it or its property, including but not limited to any
agreements resulting in a Change of Control Event; (b) the provisions of its
charter documents or by-laws; or (c) any order, writ, injunction or decree of
any court or governmental authority entered against it or by which any of its
property is bound;
(iv) No authorization, consent or approval of any governmental
authority or third party is required for the execution, delivery or performance
by it of this Agreement, and the execution, delivery or performance of this
Agreement will not violate any law, rule or regulation applicable to such party;
and
(v) This Agreement has been duly authorized, executed and
delivered and constitutes its legal, valid and binding obligation enforceable
against it in accordance with its terms and subject, as to enforcement, to
bankruptcy, insolvency,
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<PAGE> 17
reorganization and other laws of general applicability relating to or affecting
creditors' rights and to the availability of particular remedies under general
equity principles.
11.2 MTI Product Warranties. MTI warrants that the Products
manufactured by MTI and delivered to Abbott hereunder shall (i) from the date of
shipment until the end of the specified shelf-life (as specified in Section 9.2)
conform to the Specifications and all applicable laws and regulations relating
to the manufacture of the Product, including, but not limited to FDA and
Canadian Quality System Regulations, (ii) be transferred free and clear of any
security interest, liens, and encumbrances, and (iii) not infringe any third
party patents, trademarks, copyrights, or other third party proprietary rights.
11.3 Year 2000 Warranties. The parties make the following warranties
with respect to Year 2000 compliance:
(i) MTI warrants that all software used by it in the
manufacture of Products and in its business relationship with Abbott will, on
and following January 1, 2000, have no lesser functionality with respect to
records containing dates before or after January 1, 2000 than previously with
respect to dates prior to January 2, 2000.
(ii) Abbott warrants that all software used by it in its
business relationship with MTI will, on and following January 1, 2000, have no
lesser functionality with respect to records containing dates before or after
January 1, 2000 than previously with respect to dates prior to January 1, 2000.
12 Indemnification
12.1 Indemnification. Subject to Section 12.3 below, MTI shall at
its own expense, defend Abbott (including its Affiliates, directors, officers,
employees and shareholders) against an "Indemnified Claim," as defined in
Section 12.2 below, and hold Abbott (including its Affiliates, directors,
officers, employees and shareholders) harmless and indemnify Abbott (including
its Affiliates, directors, officers, employees and shareholders) from any loss,
expense, liability and/or settlement (including attorneys' fees) resulting from
an Indemnified Claim.
12.2 Indemnified Claim. For purposes of this Agreement, an
"Indemnified Claim" shall mean: (i) any claim asserting that Abbott's or any
Customers' sale, purchase, possession, manufacturing in accordance with
Section 4.12, or use of the Products or any part thereof infringes any third
party patent, trade secret, trademark, copyright or other proprietary right;
(ii) any claim arising from or related to a failure of MTI to comply with its
representations and warranties under this Agreement; and (iii) any claim
asserting that the Products caused injury or death to a person or damage to
property; except to the extent such Indemnified Claims arise from Abbott's
negligence, willful misconduct or breach of this Agreement in which event Abbott
shall indemnify MTI (including its Affiliates, directors, officers, employees
and shareholders) from such claims.
12.3 Limitations. Each party's obligation to indemnify the other
party is contingent upon the party seeking indemnification (i) promptly
notifying the indemnifying party of such claim and (ii) cooperating with the
indemnifying party in the defense thereof, of which the indemnifying party shall
have control at the indemnifying party's expense.
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<PAGE> 18
Notwithstanding the above, the party seeking indemnification shall have the
right but not the obligation, at its own expense, to participate in any such
defense.
12.4 Infringements. If a claim of patent or other proprietary right
infringement is made by a third party with respect to a Product, then MTI, at
its option, shall (i) obtain for Abbott the right to continue to market and
distribute the Product at MTI's own expense, (ii) replace the Product with a
functionally-equivalent non-infringing Product, or (iii) modify the Product so
that it becomes non-infringing, so long as the functionality of the Product is
not adversely affected. If MTI is unable to accomplish any of the foregoing
within one hundred eighty (180) days of the initial claim of infringement, MTI
shall grant Abbott a full refund of Costs paid by Abbott to MTI for all affected
Products and accept return of them, and the parties shall remove all such
affected Products from the Forecast for the remainder of the Term.
13. Limitation of Liability. EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS UNDER
SECTION 12, NEITHER PARTY SHALL, BY REASON OF THE TERMINATION OF THIS AGREEMENT
OR OTHERWISE, BE LIABLE TO THE OTHER PARTY FOR ANY CONSEQUENTIAL, SPECIAL,
INCIDENTAL, OR OTHER DAMAGES (INCLUDING WITHOUT LIMITATION LOSS OF PROFIT)
WHETHER OR NOT ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
14. Term and Termination
14.1 Initial Term and Renewal. The Initial Term shall commence as
of the Effective Date and shall continue for the remainder of calendar year 1998
and for ten (10) full calendar years thereafter, unless terminated earlier
pursuant to this Section 14 and subject to the provisions of Section 14.5. The
Initial Term may be extended pursuant to this Section 14.1 and/or Section 15.5.
14.1.1 Extension by Mutual Agreement. During the Term, the
parties may negotiate and mutually agree to extend the Term, whether for renewal
periods or for a fixed period.
14.1.2 Extension by Abbott. Abbott may extend the Term for a
five (5) year extension for each five (5) full calendar year period in which
Abbott attains [*] ( [*] ) of the Aggregate Sales Forecast (which shall mean the
sum of all individual Product Line Forecasts in any given calendar year) in at
least three (3) of the five (5) calendar years of the period. The five (5) full
calendar year periods to which this provision is applicable shall include the
first full five (5) calendar years of the Initial Term (i.e., 1999-2003), the
second full five (5) calendar years of the Initial Term (i.e., 2004-2008), and,
as applicable, any additional five (5) full calendar year extensions if Abbott
extends the Term pursuant to this Section 14.1.2 (i.e., 2009-2013, etc.). Abbott
may exercise this extension upon written notice to MTI, which notice shall be
given no later than ninety (90) days after the end of each applicable five (5)
calendar year period.
14.2 Termination by Abbott. Abbott may terminate this Agreement at any
time upon one hundred and eighty (180) days written notice to MTI.
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<PAGE> 19
14.3 Termination by MTI. MTI may terminate this Agreement upon twelve
(12) months written notice to Abbott if Abbott fails to attain [*] ( [*] ) of
the Aggregate Sales Forecast in at least three (3) of the first five (5) full
calendar years of the Initial Term (as per Exhibit 2); provided, however, that
within ninety (90) days of the conclusion of any of the first five (5) calendar
years of the Agreement in which Abbott has not attained [*] ( [*] ) of the
Aggregate Sales Forecast, Abbott may, at its option, purchase additional Product
from MTI at the appropriate Cost and pay MTI the appropriate commission on such
purchases necessary to compensate for the shortfall between [*] ( [*] ) of the
Aggregate Sales Forecast and actual Net Sales of Products in such year. If
Abbott exercises such option for any calendar year, Abbott shall be deemed to
have attained [*] ( [*] ) of the Aggregate Sales Forecast for such year.
14.4 Termination Based on Change of Control Event. MTI or MTI's
Successor may terminate this Agreement for a Change of Control Event affecting
MTI upon ninety (90) days prior written notice to Abbott. Termination subsequent
to a Change of Control Event shall occur by one of the following two mechanisms:
14.4.1 Abbott Buyout of Product Lines. For a period of ninety
(90) days following Abbott's receipt of notice from MTI of a Change in Control
Event, the parties shall discuss Abbott's potential buyout of the Product Lines.
Upon mutual agreement of Abbott and MTI's Successor, Abbott shall purchase all
of the pertinent manufacturing assets (tooling, assembly and packaging
equipment, manufacturing know-how and specifications) for the Products and all
intellectual property rights (patents, additional commercial know-how and the
MTI Trademarks) for the Products in the Field and in the Territory from MTI's
Successor for a price of [*] ( [*] ) [*] for the most recent full calendar year
prior to the Change of Control Event.
14.4.2 MTI's Successor Buyout of Agreement. In the event that
Abbott and MTI's Successor do not agree to proceed with the Abbott buyout of
Product Lines pursuant to Section 14.4.1 within ninety (90) days, MTI 's
Successor may terminate this Agreement, and Abbott shall thereby relinquish all
distribution rights under this Agreement, upon one hundred and eighty (180) days
prior written notice, conditioned upon payment of a "Termination Fee" to Abbott.
The Termination Fee shall be calculated and payable over a five (5) year period
as follows:
<TABLE>
<CAPTION>
Amount Payable as a % of Abbott's Net Sales in
Year After 12 Months Preceding Effective Date of
Effective Date of Termination Termination
- ----------------------------- ----------------------------------------------
<S> <C>
Year 1 [*]
Year 2 [*]
Year 3 [*]
Year 4 [*]
Year 5 [*]
</TABLE>
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<PAGE> 20
Such amounts shall be payable by MTI's Successor to Abbott once annually on the
anniversary of the effective date of termination for a period of five (5) years
following termination of this Agreement.
Following an MTI Change of Control Event, if MTI's Successor
fails to notify Abbott of its intention to terminate this Agreement within
ninety (90) days of such MTI Change of Control Event, the Agreement shall remain
in effect, provided that if MTI ceases to exist as a corporate entity, MTI's
Successor has taken assignment of and assumed all rights and obligations of MTI
under the terms and conditions of the Agreement for the remainder of the Term.
14.4.3 Termination by MTI for Impasse Over Forecasts.
Additionally, if the Initial Term is extended pursuant to Sections 14.1.1 or
14.1.2 and the parties are unable to reach agreement for a Forecast for any
calendar year beyond the Initial Term, then MTI may terminate this Agreement,
and Abbott shall thereby relinquish all distribution rights under this
Agreement, upon one hundred and eighty (180) days written notice of an
unresolvable impasse from MTI to Abbott, conditioned upon payment of a
Termination Fee calculated as set forth in Section 14.4.2. Such amounts shall be
payable by MTI to Abbott once annually on the anniversary of the effective date
of termination for a period of five (5) years following termination of this
Agreement.
14.4.4 Termination For Cause. Either party may terminate this
Agreement by giving the other party ninety (90) days written notice of such
termination if the other party materially breaches or defaults in any of the
material terms or conditions of this Agreement, the Note Agreement, the Credit
Agreement or the Security Agreement and fails to cure such breach or default
within ninety (90) days of receiving notice thereof.
14.5 The Effect of Termination
14.5.1 Delivery of Previously Ordered Products. Upon any
termination of this Agreement by MTI, Abbott shall be entitled to have delivered
the Products ordered prior to termination.
14.5.2 Disposition of Inventory. Upon any termination of this
Agreement, Abbott may, at its option, either sell all or any part of its
remaining inventory of the Products to Customers or sell to MTI all or any part
of Abbott's remaining inventory of the Products (excluding discontinued and
demonstration units). MTI shall repurchase all of the Products that Abbott
decides to sell to MTI. Abbott must exercise the right to resell to MTI within
sixty (60) days after termination of this Agreement. The price for such
inventory shall be the Cost paid by Abbott to MTI for such Products, plus
Abbott's shipping and handling costs.
14.5.3 Survival. Sections 2.2, 4.8, 6.1, 6.2, 7.4, 8.1-8.4,
9.1, 9.2, 10.1-10.6, 11.2, 12.1-12.4, 13, 14.4, 14.5, 15.1 and 15.4-15.11 shall
survive any termination of this Agreement.
15. General Provisions
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<PAGE> 21
15.1 No Waiver. The failure of either party to enforce at any time or
for any period any of the provisions of this Agreement shall not be construed to
be waiver of those provisions or of the right of that party thereafter to
enforce each and every provision hereof.
15.2 Assignment. Except as otherwise provided herein, this Agreement
shall not be assignable by either party without the prior written consent of the
other party. Any attempted assignment not otherwise permitted herein shall be
void. The provisions hereof shall be binding upon and inure to the benefit of
the parties, their successors and permitted assigns.
15.3 Notices. Any notice, report or statement to either party required
or permitted under this Agreement shall be in writing and shall be sent by
certified mail, return receipt requested, postage prepaid, or by facsimile
transmission with confirmation sent by certified mail as above, or by courier,
such as Federal Express, DHL or the like, with confirmation of receipt by
signature requested, directed to the other party at its mailing address set
forth below, or to such other mailing address as the party may from time to time
designate by prior written notice in accordance herewith. Any such notice,
report or statement sent in accordance with this Section 15.3 shall be deemed
duly given upon receipt.
15.4 Governing Law and Dispute Resolution. This Agreement (and any
other documents referred to herein) shall be construed in accordance with the
laws of the State of California without reference to choice of law principles,
as to all matters, including, but not limited to, matters of validity,
construction, effect or performance. Any disputes between the parties relating
to this Agreement that cannot be resolved amicably shall be resolved by binding
Alternative Dispute Resolution in accordance with the attached Exhibit 4.
15.5 Force Majeure. The parties shall not be liable for any delay or
failure of obligations under this Agreement, in whole or in part, for any causes
beyond the reasonable control of the parties, including, but not limited to,
acts of God, war, riot, civil disturbances, strikes, lockouts or other labor
disputes, accident of transportation or other force majeure. If MTI is unable to
supply to Abbott any of the Products for any period of time, then MTI shall
immediately notify Abbott of such inability, stating the reasons therefor and
the estimated time of the delay and the Forecasts shall be adjusted accordingly
by mutual written agreement. In such event, and upon Abbott's request, the Term
shall be extended for a period equal to the period of time in which MTI is
unable to supply Products to Abbott.
15.6 Titles of Sections. The titles of the various sections of this
Agreement are used for convenience of reference only and are not intended to and
shall not in any way enlarge or diminish the rights or obligations of the
parties or affect the meaning or construction of this document.
15.7 Investigation; Joint Preparation. Each party acknowledges that it
has had adequate opportunity to make whatever investigation or inquiry it deems
necessary or desirable in connection with the subject matter of this Agreement
prior to the execution hereof. Each party further acknowledges that it has read
and understands each provision of this Agreement. This Agreement has been
prepared jointly by the parties and shall not be strictly construed against
either party, it being agreed that each party has had an opportunity
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<PAGE> 22
to consult with counsel of its own choosing regarding the term and conditions of
this Agreement.
15.8 Binding Effect. This Agreement shall be binding upon and inure to
the benefits of the parties hereto and, and their respective successor and
permitted assigns.
15.9 Integration/Modification/Entire Agreement. This Agreement,
together with the attached Exhibits and the Note Agreement, sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof, and supersedes, integrates and merges all prior discussions,
correspondence, negotiations, understandings or agreements. This Agreement may
not be altered, amended, modified or otherwise changed in any way except by a
written instrument, which specifically identifies the intended alteration,
amendment, modification or other change, clearly expresses the intention to so
change this Agreement, and is signed by an authorized representative of each of
the parties.
15.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which when executed shall be deemed an original, and all
of which together shall constitute one and the same instrument.
15.11 Severability. If any provision, or portion thereof, of this
Agreement shall be held to be invalid, illegal, void or otherwise unenforceable,
such provision, or portion thereof, shall be amended to achieve as nearly as
possible the same economic effect as the original provision to the fullest
extent permitted by applicable law, and the validity, legality and
enforceability of the remainder of the Agreement will remain in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the Effective Date.
MICRO THERAPEUTICS, INC. ABBOTT LABORATORIES
By: /s/ William F. Gearhart By: /s/ Richard A. Gonzalez
------------------------------ -------------------------------
Title: Executive Vice President Title: President HPD
--------------------------- -----------------------------
Date: 8/12/98 Date: 8/12/98
---------------------------- ------------------------------
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<PAGE> 23
EXHIBIT 1
LIST OF PRODUCTS FROM
PRODUCT CATALOGUE (DOMESTIC PRICE LIST)
VALVED INFUSION CATHETERS
CURRENT EXP. 18 MONTHS (36 MONTH EXPIRATION PENDING, SEPTEMBER 1998)
CRAGG-MCNAMARA(R) VALVED INFUSION CATHETERS
<TABLE>
<CAPTION>
Model # Diameter (F) Usable Length (Cm) Infusion Length (Cm) Max.
Guidewire
(In.)
<S> <C> <C> <C> <C>
201-0236 4 40 5 .035
201-0237 4 40 10 .035
201-0238 4 40 20 .035
201-0230 4 65 5 .035
201-0232 4 65 10 .035
201-0234 4 65 20 .035
201-0231 4 100 5 .035
201-0233 4 100 10 .035
201-0235 4 100 20 .035
201-0239 4 135 5 .035
201-0240 4 135 10 .035
201-0241 4 135 20 .035
201-0216 5 40 5 .038
201-0217 5 40 10 .038
201-0218 5 40 20 .038
201-0210 5 65 5 .038
201-0212 5 65 10 .038
201-0214 5 65 20 .038
201-0211 5 100 5 .038
201-0213 5 100 10 .038
201-0215 5 100 20 .038
201-0227 5 100 30 .038
201-0228 5 100 40 .038
201-0229 5 100 50 .038
201-0219 5 135 5 .038
201-0220 5 135 10 .038
201-0221 5 135 20 .038
201-0222 5 135 30 .038
201-0223 5 135 40 .038
201-0224 5 135 50 .038
</TABLE>
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<PAGE> 24
FOCUSED(TM) VALVED INFUSION CATHETERS
CURRENT EXP. 18 MONTHS (36 MONTH EXPIRATION PENDING, SEPTEMBER 1998)
<TABLE>
<CAPTION>
Model # Diameter (F) Usable Length (Cm) Infusion Length (Cm) Max.
Guidewire
(In.)
<S> <C> <C> <C> <C>
201-0225 5 65 1 .038
201-0226 5 100 1 .038
</TABLE>
PERIPHERAL MICRO CATHETERS
CURRENT EXP. 12 MONTHS (36 MONTH EXPIRATION PENDING, SEPTEMBER 1998)
MICROMEWI(TM) SIDEHOLE INFUSION CATHETERS
<TABLE>
<CAPTION>
Model # Diameter (F) Usable Length (Cm) Infusion Length (Cm) Max.
Guidewire
(In.)
<S> <C> <C> <C> <C>
201-0120 2.9 150 5 .018
201-0121 2.9 150 10 .018
201-0122 2.9 40 5 .018
201-0124 2.9 180 5 .018
201-0125 2.9 180 10 .018
</TABLE>
MICRO PATENCY(TM) ENDHOLE INFUSION CATHETERS
EXP. 5 YEARS
<TABLE>
<CAPTION>
Model # Diameter (F) Usable Length (Cm) Infusion Length (Cm) Max.
Guidewire
(In.)
<S> <C> <C> <C> <C>
201-5020 2.9 40 Endhole .018
201-5021 2.9 100 Endhold .018
201-5022 2.9 150 Endhole .018
</TABLE>
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<PAGE> 25
SIDEHOLE INFUSION CATHETERS
CURRENT EXP. 18 MONTHS (36 MONTH EXPIRATION PENDING, SEPTEMBER 1998)
MEWI-5(TM) SIDEHOLE INFUSION CATHETERS
<TABLE>
<CAPTION>
Model # Diameter (F) Usable Length (Cm) Infusion Length (Cm) Max.
Guidewire
(In.)
<S> <C> <C> <C> <C>
201-0150 5 40 5 .035
201-0151 5 40 10 .035
201-0152 5 40 15 .035
201-0153 5 65 5 .035
201-0154 5 65 10 .035
201-0155 5 65 15 .035
201-0156 5 100 5 .035
201-0157 5 100 10 .035
201-0158 5 100 15 .035
201-0160 5 40 5 .038
201-0161 5 40 10 .038
201-0162 5 40 15 .038
201-0163 5 65 5 .038
201-0164 5 65 10 .038
201-0165 5 65 15 .038
201-0166 5 100 5 .038
201-0167 5 100 10 .038
201-0168 5 100 15 .038
</TABLE>
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<PAGE> 26
MECHANICAL THROMBOLYSIS
CRAGG THROMBOLYTIC BRUSH(TM)
EXP. 18 MONTHS
<TABLE>
<CAPTION>
Model # Catheter Diameter (F) Usable Length (Cm) Infusion Length (Cm) Brush
Diameter
(mm)
<S> <C> <C> <C> <C>
202-0101 6 65 Endhole 6
</TABLE>
Contents:
A System contains one Brush Catheter and one Brush Motor Drive Unit
CASTANEDA OVER-THE-WIRE BRUSH(TM)
EXP. 18 MONTHS
<TABLE>
<CAPTION>
Catheter
Model # Diameter (F) Usable Length Infusion Length Brush Diameter
(Cm) (Cm) (mm)
<S> <C> <C> <C> <C>
202-0107 6 65 Endhole & Sidehole 6
Max Guidewire: .035
</TABLE>
Contents:
A System contains one Brush Catheter and one Brush Motor Drive Unit
ACCESSORIES
INTRODUCER SHEATHS
EXP. 5 YEARS
<TABLE>
<CAPTION>
Model # Size (F) Sheath Length (Cm)
<S> <C> <C>
203-6001-P10 6 5.5
203-6002-P10 5 40
</TABLE>
Contents Per Pack (all models)
1-Hemostasis value with hi-flow sideport and removable 3-way stopcock
1-radiopaque sheath
1-vessel dilator
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<PAGE> 27
PULSE-SPRAY ACCESSORY PACK
EXP. 2001
Model #
203-9000-P5 Contents Per Pack (all models):
1-dual check valve
1-1cc luer lock syringe
1-20cc luer lock syringe
INFUSION WIRES
EXP. 18 MONTHS
PROSTREAM SIDEHOLE INFUSION WIRES
<TABLE>
<CAPTION>
Model # Diameter (In.) Usable Length (Cm) Infusion Length (Cm) Max.
Guidewire
(In.)
<S> <C> <C> <C> <C>
201-0410 .035 145 3 N/A
201-0411 .035 145 6 N/A
201-0412 .035 145 9 N/A
201-0413 .035 145 12 N/A
201-0414 .035 175 3 N/A
201-0415 .035 175 6 N/A
201-0416 .035 175 9 N/A
201-0417 .035 175 12 N/A
201-0610 .035 145 Endhole N/A
201-0611 .038 145 Endhole N/A
</TABLE>
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<PAGE> 28
EXHIBIT 2
NET SALES FORECAST
FIVE (5) YEAR ANNUAL NET SALES FORECAST
(NET SALES IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C> <C>
NET SALES - THROMBOLYTIC BRUSHES# [*] [*] [*] [*] [*] [*]
NET SALES - INFUSION CATHETERS# [*] [*] [*] [*] [*] [*]
NET SALES - INFUSION GUIDEWIRES# [*] [*] [*] [*] [*] [*]
NET SALES - PERIPHERAL MICRO CATHS# [*] [*] [*] [*] [*] [*]
NET SALES - ACCESSORIES# [*] [*] [*] [*] [*] [*]
TOTAL [*] [*] [*] [*] [*] [*]
</TABLE>
# OR EQUIVALENT PRODUCTS
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<PAGE> 29
EXHIBIT 2 (CONT)
TWELVE (12) MONTH MONTHLY NET SALES FORECAST
(NET SALES IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
OCT ' 98 NOV-99 DEC-98 JAN-99 FEB-99 MAR-99 APR-99 MAY-99 JUN-99 JUL-99 AUG-99 SEP-99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES - THROMBOLYTIC BRUSHES
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
NET SALES - INFUSION CATHETERS
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
NET SALES - INFUSION GUIDEWIRES
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
NET SALES - PERIPHERAL MICRO CATHS
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
NET SALES - ACCESSORIES
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
[*] [*]
</TABLE>
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<PAGE> 30
EXHIBIT 3
POST-MARKET CLINICAL DEVELOPMENT PROGRAM
Pursuant to Section 4.1.5, the following represents the Clinical Development
program:
I. [*]
II. [*]
III. [*]
IV. [*]
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<PAGE> 31
EXHIBIT 4
ADR (ALTERNATIVE DISPUTE RESOLUTION)
The parties recognize that a bona fide dispute as to certain matters may arise
from time to time during the term of this Agreement which relates to either
party's rights and/or obligations. To have such a dispute resolved by this
Alternative Dispute Resolution ("ADR") provision, a party first must send
written notice of the dispute to the other party for attempted resolution by
good faith negotiations between their respective presidents (or their
equivalents) of the affected subsidiaries, divisions, or business units within
twenty-eight (28) days after such notice is received (all references to "days"
in this ADR provision are to calendar days).
If the matter has not been resolved within twenty-eight (28) days of the notice
of dispute, or if the parties fail to meet within such twenty-eight (28) days,
either party may initiate an ADR proceeding as provided herein. The parties
shall have the right to be represented by counsel in such a proceeding.
1. To begin an ADR proceeding, a party shall provide written notice to the
other party of the issues to be resolved by ADR. Within fourteen (14)
days after its receipt of such notice, the other party may, by written
notice to the party initiating the ADR, add additional issues to be
resolved within the same ADR.
2. Within twenty-one (21) days following receipt of the original ADR
notice, the parties shall select a mutually acceptable neutral to
preside in the resolution of any disputes in this ADR proceeding. If
the parties are unable to agree on a mutually acceptable neutral within
such period, either party may request the President of the CPR
Institute for Dispute Resolution ("CPR"), 366 Madison Avenue, 14th
Floor, New York, New York 10017, to select a neutral pursuant to the
following procedures:
(a) The CPR shall submit to the parties a
list of not less than five (5) candidates within
fourteen (14) days after receipt of the request,
along with a Curriculum Vitae for each candidate. No
candidate shall be an employee, director, or
shareholder of either party or any of their
subsidiaries or affiliates.
(b) Such list shall include a statement of
disclosure by each candidate of any circumstances
likely to affect his or her impartiality.
(c) Each party shall number the candidates
in order of preference (with the number one (1)
signifying the greatest preference) and shall deliver
the list to the CPR within seven (7) days following
receipt of the list of candidates. If a party
believes a
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<PAGE> 32
conflict of interest exists regarding any of the
candidates, that party shall provide a written
explanation of the conflict to the CPR along with its
list showing its order of preference for the
candidates. Any party failing to return a list of
preferences on time shall be deemed to have no order
of preference.
(d) If the parties collectively have identified fewer
than three (3) candidates deemed to have conflicts,
the CPR immediately shall designate as the neutral
the candidate for whom the parties collectively have
indicated the greatest preference. If a tie should
result between two candidates, the CPR may designate
either candidate. If the parties collectively have
identified three (3) or more candidates deemed to
have conflicts, the CPR shall review the explanations
regarding conflicts and, in its sole discretion, may
either (i) immediately designate as the neutral the
candidate for whom the parties collectively have
indicated the greatest preference, or (ii) issue a
new list of not less than five (5) candidates, in
which case the procedures set forth in subparagraphs
2(a) - 2(d) shall be repeated.
3. No earlier than twenty-eight (28) days or later than fifty-six (56)
days after selection, the neutral shall hold a hearing to resolve each
of the issues identified by the parties. The ADR proceeding shall take
place at a location in the State of California agreed upon by the
parties. If the parties cannot agree, the neutral shall designate a
location in the State of California other than the principal place of
business of either party or any of their subsidiaries or affiliates.
4. At least seven (7) days prior to the hearing, each party shall submit
the following to the other party and the neutral:
(a) a copy of all exhibits on which such
party intends to rely in any oral or written
presentation to the neutral;
(b) a list of any witnesses such party
intends to call at the hearing, and a short summary
of the anticipated testimony of each witness;
(c) a proposed ruling on each issue to be
resolved, together with a request for a specific
damage award or other remedy for each issue. The
proposed rulings and remedies shall not contain any
recitation of the facts or any legal arguments and
shall not exceed one (1) page per issue.
(d) a brief in support of such party's
proposed rulings and remedies, provided that the
brief shall not exceed twenty (20) pages. This page
limitation shall apply regardless of the number of
issues raised in the ADR proceeding.
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Except as expressly set forth in subparagraphs 4(a) - 4(d), no discovery shall
be required or permitted by any means, including depositions, interrogatories,
requests for admissions, or production of documents.
5. The hearing shall be conducted on two (2) consecutive days and shall be
governed by the following rules:
(a) Each party shall be entitled to five (5)
hours of hearing time to present its case. The
neutral shall determine whether each party has had
the five (5) hours to which it is entitled.
(b) Each party shall be entitled, but not
required, to make an opening statement, to present
regular and rebuttal testimony, documents or other
evidence, to cross-examine witnesses, and to make a
closing argument. Cross-examination of witnesses
shall occur immediately after their direct testimony,
and cross-examination time shall be charged against
the party conducting the cross-examination.
(c) The party initiating the ADR shall begin
the hearing and, if it chooses to make an opening
statement, shall address not only issues it raised
but also any issues raised by the responding party.
The responding party, if it chooses to make an
opening statement, also shall address all issues
raised in the ADR. Thereafter, the presentation of
regular and rebuttal testimony and documents, other
evidence, and closing arguments shall proceed in the
same sequence.
(d) Except when testifying, witnesses shall
be excluded from the hearing until closing arguments.
(e) Settlement negotiations, including any
statements made therein, shall not be admissible
under any circumstances. Affidavits prepared for
purposes of the ADR hearing also shall not be
admissible. As to all other matters, the neutral
shall have sole discretion regarding the
admissibility of any evidence.
6. Within seven (7) days following completion of the hearing, each party
may submit to the other party and the neutral a post-hearing brief in
support of its proposed rulings and remedies, provided that such brief
shall not contain or discuss any new evidence and shall not exceed ten
(10) pages. This page limitation shall apply regardless of the number
of issues raised in the ADR proceeding.
7. The neutral shall rule on each disputed issue within fourteen (14) days
following completion of the hearing. Such ruling shall adopt in its
entirety the proposed ruling
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and remedy of one of the parties on each disputed issue but may adopt
one party's proposed rulings and remedies on some issues and the other
party's proposed rulings and remedies on other issues. The neutral
shall not issue any written opinion or otherwise explain the basis of
the ruling.
8. The neutral shall be paid a reasonable fee plus expenses. These fees
and expenses, along with the reasonable legal fees and expenses of the
prevailing party (including all expert witness fees and expenses), the
fees and expenses of a court reporter, and any expenses for a hearing
room, shall be paid as follows:
(a) If the neutral rules in favor of one
party on all disputed issues in the ADR, the losing
party shall pay 100% of such fees and expenses.
(b) If the neutral rules in favor of one
party on some issues and the other party on other
issues, the neutral shall issue with the rulings a
written determination as to how such fees and
expenses shall be allocated between the parties. The
neutral shall allocate fees and expenses in a way
that bears a reasonable relationship to the outcome
of the ADR, with the party prevailing on more issues,
or on issues of greater value or gravity, recovering
a relatively larger share of its legal fees and
expenses.
9. The rulings of the neutral and the allocation of fees and expenses
shall be binding, non-reviewable, and non-appealable, and may be
entered as a final judgment in any court having jurisdiction.
10. Except as provided in paragraph 9 or as required by law, the existence
of the dispute, any settlement negotiations, the ADR hearing, any
submissions (including exhibits, testimony, proposed rulings, and
briefs), and the rulings shall be deemed Confidential Information. The
neutral shall have the authority to impose sanctions for unauthorized
disclosure of Confidential Information.
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<PAGE> 1
EXHIBIT 10.4
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED (DESIGNATED BY AN
ASTERISK ([*]) ) AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT DATED AUGUST 28, 1998
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), is entered into as of
August 12, 1998, by and between ABBOTT LABORATORIES, an Illinois
corporation ("Abbott"), as lender, and MICRO THERAPEUTICS, INC., a
Delaware corporation (the "Company"), as borrower.
W I T N E S S E T H:
WHEREAS, Abbott has purchased from the Company, and the Company has
sold to Abbott, a certain 5% Convertible Subordinated Note, due August
19, 2003, in the principal aggregate amount of Five Million Dollars
($5,000,000) (the "Note") pursuant to the terms and conditions of that
certain Convertible Subordinated Note Agreement, dated as of August 12,
1998, by and between Abbott and the Company (the "Note Agreement"); and
WHEREAS, pursuant to Section 6 of the Note Agreement, the Company and
Abbott agreed to enter into this Credit Agreement, which provides that
Abbott, as lender, shall loan to the Company, as borrower at the
Company's request, an amount not to exceed an aggregate of Five Million
Dollars ($5,000,000).
NOW, THEREFORE, in consideration of the premises and of the mutual
provisions, agreements and covenants contained herein, the Company and
Abbott hereby agree as follows:
1. DEFINITIONS. In addition to any terms defined elsewhere in this
Agreement, the following terms have the meanings indicated for purposes
of this Agreement (such definitions being equally applicable to the
singular and plural forms of the defined term):
"Acceleration" means that the Loan (i)shall not have been paid at the
Maturity Date, or (ii)shall have become due and payable prior to its
stated maturity pursuant to Section 7.2 hereof.
"Disbursement Date" means any date on or prior to July 31, 1999 on
which a disbursement of the Loan is made. Each Disbursement Date shall
be on the date designated in a written notice from the Company to
Abbott; provided, however, that
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(a) Abbott shall not be required to make any disbursement if the
conditions hereto and the Note Agreement are not satisfied, and
(b) Abbott shall in no event be required to make any disbursement after
July 31, 1999.
"Maturity" means any date on which the Loan or any portion thereof
becomes due and payable, whether as stated or by virtue of mandatory
prepayment, by acceleration or otherwise.
"Maturity Date" means the fifth year anniversary of the first
Disbursement Date.
"Obligations" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing to Abbott by the Company, of
any kind or nature, present or future, whether or not evidenced by any
note, guaranty or other instrument, arising under this Agreement.
Each accounting term not defined herein and each accounting term partly
defined herein to the extent not defined shall have the meaning given
to it under generally accepted accounting principles.
2. LOAN.
2.1 PROCEDURE FOR LOAN. Subject to all of the terms and
conditions of this Agreement and the Note Agreement, Abbott
agrees to make periodic loans (the "Loan") prior to July 31,
1999 to the Company in the amount of up to Five Million
Dollars ($5,000,000) to be governed by the terms and
conditions of, and repaid in accordance with, this Agreement
and the Note Agreement. The Company shall provide Abbott with
fifteen (15) business days (as defined in the Note Agreement)
written notice of a requested disbursement. Disbursement
amounts shall be in multiples of One Million Dollars
($1,000,000). Subject to the satisfaction of the terms and
conditions set forth in this Agreement and the Note Agreement,
Abbott shall disburse up to Five Million Dollars ($5,000,000)
to the Company at the Company's request. Amounts repaid may
not be reborrowed.
2.2 INTEREST.
(a) INTEREST. The Loan shall bear interest from the
date of disbursement on the unpaid principal amount
thereof until the earlier of an Event of Default or
the date upon which such amount shall become due and
payable (whether upon Maturity, by Acceleration or
otherwise) at a rate per annum equal to five percent
(5%).
(b) ACCRUAL AND COMPUTATION OF INTEREST. Interest
shall accrue daily and shall be computed on the basis
of a year of 360 days for the actual number of days
elapsed.
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<PAGE> 3
2.3 MAXIMUM INTEREST RATE. Nothing in this Agreement shall
require the Company to pay interest at a rate exceeding the
maximum amount permitted by applicable law to be charged by
Abbott.
2.4 REPAYMENT.
(a) INTEREST PAYMENTS. On the last day of each
quarter payable in arrears on January 31, April 30,
July 31 and October 31, commencing with the quarter
of the first Disbursement Date until the Maturity
Date, and on the Maturity Date, the Company shall pay
Abbott all interest then accrued.
(b) LOAN PAYMENT. The Company shall repay the entire
outstanding principal amount of the Loan in full on
the Maturity Date.
(c) OPTIONAL PREPAYMENT. The Company may at any time
prepay the entire outstanding principal amount of the
Loan or any portion thereof without penalty.
2.5 POST-MATURITY INTEREST. After the earlier of an Event of
Default or Maturity (whether by Acceleration or otherwise) of
the Loan, the Loan shall bear interest, payable on demand, at
a rate per annum equal to ten percent (10%), subject to
Section 2.3 hereof.
2.6 CREDIT FACILITY NOTE. The Loan made by Abbott pursuant
hereto shall be evidenced by a credit facility note (the
"Credit Facility Note") of the Company in the form of Annex A
hereto, payable to the order of Abbott on the Maturity Date in
the principal amount of up to Five Million Dollars
($5,000,000) in accordance with Section 2.1 hereof. The
Company hereby authorizes Abbott to indicate upon a schedule
attached to the Credit Facility Note all disbursements made by
Abbott pursuant to this Agreement and all payments of
principal and interest thereon. Absent manifest error, such
notations shall be presumptive as to the aggregate unpaid
principal amount of the Loan, and interest due thereon, but
the failure by Abbott to make such notations or the inaccuracy
or incompleteness of any such notations shall not affect the
obligations of the Company hereunder or under the Credit
Facility Note.
2.7 PAYMENTS BY THE COMPANY. All payments (including
prepayments) to be made by the Company shall be made without
set-off or counterclaim and shall be made to Abbott by wire
transfer in United States dollars and in immediately available
funds to the following Abbott account: [*] for credit to
Abbott Laboratories Account [*] (or to such other account as
may be designated by written notice to the Company), no later
than 12:00 noon, Pacific time, of the business day on which
payment is due. Any payment
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<PAGE> 4
which is received in Abbott's account later than 12:00 noon,
Pacific time, shall be deemed to have been received on the
immediately succeeding business day. Whenever any payment
hereunder shall be stated to be due on a day other than a
business day, such payment shall be made on the next
succeeding business day, and such extension of time shall in
such case be included in the computation of interest.
3. CONVERSION OF CREDIT FACILITY NOTE.
3.1 CONVERSION PRIVILEGE AND CONVERSION PRICE.
(a) Subject to and upon compliance with the
provisions of this Section 3, at the option of the
Company at any time and at the Company's sole
discretion without regard to the price of the Common
Stock (except as set forth in Section 3.1(b)) and the
Conversion Price (as defined herein), the Credit
Facility Note or any portion of the principal amount
thereof which is One Million Dollars ($1,000,000) or
an integral multiple of One Million Dollars
($1,000,000) (a "$1,000,000 Integral Multiple") may
be converted at the principal amount thereof, or of
such portion thereof, into fully paid and
nonassessable shares of Common Stock at the
Conversion Price, in effect at the time of
conversion. Such conversion right shall expire at the
close of business on the Maturity Date. The price at
which shares of Common Stock shall be delivered upon
conversion (the "Conversion Price") shall be
initially [*] of Common Stock, unless the Conversion
Price shall be adjusted in certain instances as
provided in this Section 3.
(b) The Company shall not have the option to convert
the Credit Facility Note into shares of Common Stock
(i) to the extent that such shares of Common Stock,
together with the shares of Common Stock then
beneficially owned by Abbott, would exceed 19% of the
then outstanding shares of Common Stock of the
Company (giving effect to such issuance upon
conversion to Abbott) or (ii) if the Fair Market
Value of the Common Stock as of the date that written
notice of conversion is provided to Abbott shall be
less than [*] .
"Fair Market Value" of the Common Stock as of any date of determination
means the arithmetic mean of the reported last sale price of the Common
Stock regular way on each of the 20 trading days preceding such date of
determination or, if no such sale takes place on any of such days, the
average of the reported closing bid and asked prices regular way, in
each case on the principal national securities exchange on which the
security is listed or admitted to trading, or, if the security is not
listed or admitted to trading on any national securities exchange, the
closing sales prices, or, if there are no closing sales prices on any
such days, the average of the closing bid and asked prices, in the
Nasdaq Stock Market or other over-the-counter market as
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<PAGE> 5
reported by the National Association of Securities Dealers Automated
Quotation System, or, if not so reported, the fair market value of the
security as estimated by a nationally recognized investment banking
firm selected by Abbott and acceptable to the Company in the exercise
of its reasonable discretion, which estimate shall be prepared at the
expense of the Company.
3.2 EXERCISE OF CONVERSION PRIVILEGE. Upon receipt of written
notice of conversion (pursuant to Section 8.1 hereof) in the
form provided on the Credit Facility Note, Abbott shall
immediately surrender the Credit Facility Note or any
$1,000,000 Integral Multiple thereof duly endorsed or assigned
to the Company or in blank, at any office or agency of the
Company maintained for that purpose. No payment or adjustment
shall be made upon any conversion on account of any interest
accrued on the Credit Facility Note surrendered for conversion
or on account of any dividends on the Common Stock issued upon
conversion.
The Credit Facility Note shall be deemed to have been converted
immediately prior to the close of business on the day of mailing of the
written notice of conversion (pursuant to Section 8.1 hereof) by the
Company, and at such time the rights of Abbott shall cease, and the
Person or Persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or
holders of such Common Stock at such time. As promptly as practicable
on or after the conversion date, the Company shall issue and shall
deliver at such office or agency a certificate or certificates for the
number of duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock issuable upon conversion, together with payment
in lieu of any fraction of a share, as provided in Section 3.3 hereof.
In the case of any Credit Facility Note which is converted in part
only, upon such conversion, the Company shall execute and deliver to
Abbott, at the expense of the Company, a new Credit Facility Note or
Credit Facility Notes of authorized denominations in the aggregate
principal amount equal to the unconverted portion of the principal
amount of the Credit Facility Note.
3.3 FRACTIONS OF SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Credit Facility Note or
$1,000,000 Integral Multiple thereof. Instead of any
fractional share of Common Stock which would otherwise be
issuable upon the conversion of the Credit Facility Note or
the $1,000,000 Integral Multiple thereof, the Company shall
pay a cash adjustment in respect of such fraction of a share
of Common Stock in an amount equal to the remaining amount
which is not converted by reason of this Section 3.3.
3.4 ADJUSTMENT OF CONVERSION PRICE.
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(a) In case the Company shall pay or make a dividend
or other distribution on any class of capital stock
of the Company in Common Stock, the Conversion Price
in effect at the opening of business on the day
following the date fixed for the determination of
stockholders entitled to receive such dividend or
other distribution shall be reduced by multiplying
such Conversion Price by a fraction the numerator of
which shall be the number of shares of Common Stock
outstanding at the close of business on the date
fixed for such determination and the denominator
shall be the sum of such number of shares and the
total number of shares constituting such dividend or
other distribution, such reduction to become
effective immediately after the opening of business
on the day following the date fixed for such
determination. For the purposes of this Section
3.4(a), the number of shares of Common Stock at any
time outstanding shall not include shares held in the
treasury of the Company but shall include shares
issuable in respect of scrip certificates issued in
lieu of fractions of shares of Common Stock. The
Company will not pay any dividend or make any
distribution on shares of Common Stock held in the
treasury of the Company.
(b) In case the Company shall issue rights, options
or warrants to all holders of its Common Stock (not
being available on an equivalent basis to Abbott upon
conversion) entitling them to subscribe for or
purchase shares of Common Stock at a price per share
less than the current market price per share of the
Common Stock (determined as provided in Section
3.4(h) hereof) on the date fixed for the
determination of stockholders entitled to receive
such rights, options or warrants (other than pursuant
to a dividend reinvestment plan), the Conversion
Price in effect at the opening of business on the day
following the date fixed for such determination shall
be reduced to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price
by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding at the
close of business on the date fixed for such
determination plus the number of shares of Common
Stock which the aggregate consideration received by
the Company for the total number of additional shares
of Common Stock so offered for subscription or
purchase would purchase at such Conversion Price in
effect immediately prior to the date fixed for such
determination and the denominator of which shall be
the number of shares of Common Stock outstanding at
the close of business on the date fixed for such
determination plus the number of shares of Common
Stock so offered for subscription or purchase, such
reduction to become effective immediately after the
opening of business on the day following the date
fixed for such determination. For purposes of
calculating the Conversion Price in this Section
3.4(b), the number of shares of Common Stock
outstanding
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<PAGE> 7
immediately prior to the date fixed for such
determination of rights, options or warrants shall be
calculated as if all shares had been fully converted
into shares of Common Stock. Also, for the purposes
of this Section 3.4(b), the number of shares of
Common Stock at any time outstanding shall not
include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of
Common Stock. The Company will not issue any rights,
options or warrants in respect of shares of Common
Stock held in the treasury of the Company.
(c) In case outstanding shares of Common Stock shall
be subdivided into a greater number of shares of
Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon
which such subdivision becomes effective shall be
proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be
combined into a smaller number of shares of Common
Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which
such combination becomes effective shall be
proportionately increased, such reduction or
increase, as the case may be, to become effective
immediately after the opening of business on the day
following the day upon which such subdivision or
combination becomes effective.
(d) In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common
Stock evidences of its indebtedness or assets
(including securities, but excluding any rights,
options or warrants referred to in Section 3.4(b)
hereof, any dividend or distribution paid exclusively
in cash and any dividend or distribution referred to
in Section 3.4), the Conversion Price shall be
adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in
effect immediately prior to the close of business on
the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction
the numerator of which shall be the current market
price per share (determined as provided in Section
3.4(h)) of the Common Stock on the date fixed for
such determination less the then fair market value
(as determined by an independent majority of the
Board of Directors, whose determination shall be
conclusive and described in a board resolution) of
the portion of the assets or evidences of
indebtedness so distributed applicable to one share
of Common Stock and the denominator shall be such
current market price per share of the Common Stock,
such adjustment to become effective immediately prior
to the opening of business on the day following the
date fixed for the determination of stockholders
entitled to receive such
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distribution. In any case in which this Section
3.4(d) is applicable, Section 3.4(b) hereof shall not
be applicable.
(e) In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common
Stock cash (excluding any cash that is distributed
upon a merger or consolidation to which Section 3.10
hereof applies or as part of a distribution referred
to in paragraph (d) of this Section 3.4) in an
aggregate amount that, combined together with (i) the
aggregate amount of any other distributions to all
holders of its Common Stock made exclusively in cash
within the twelve (12) months preceding the date of
payment of such distribution and in respect of which
no adjustment pursuant to this paragraph (e) has been
made and (ii) the aggregate of any cash plus the fair
market value (as determined by an independent
majority of the Board of Directors, whose
determination shall be conclusive and described in a
Board Resolution) of consideration payable in respect
of any tender offer by the Company or any of its
Subsidiaries for all or any portion of the Common
Stock concluded within the twelve (12) months
preceding the date of payment of such distribution
and in respect of which no adjustment pursuant to
paragraph (f) of this Section 3.4 has been made,
exceeds ten percent (10%) of the product of the
current market price per share of the Common Stock on
the date for the determination of holders of shares
of Common Stock entitled to receive such distribution
multiplied by the number of shares of Common Stock
outstanding on such date, then, and in each such
case, immediately after the close of business on such
date for determination, the Conversion Price shall be
reduced so that the same shall equal the price
determined by multiplying the Conversion Price in
effect immediately prior to the close of business on
the date fixed for determination of the stockholders
entitled to receive such distribution by a fraction
(A) the numerator of which shall be equal to the
current market price per share of the Common Stock
(determined as provided in paragraph (h) of this
Section 3.4) on the date fixed for such determination
less an amount equal to the quotient of (x) the
excess of such combined amount over such ten percent
(10%) and (y) the number of shares of Common Stock
outstanding on such date for determination and (B)
the denominator of which shall be equal to the
current market price per share of the Common Stock
(determined as provided in paragraph (h) of this
Section 3.4) on such date for determination.
(f) In case a tender offer made by the Company or any
Subsidiary for all or any portion of the Common Stock
shall expire and such tender offer (as amended upon
the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any
maximum specified in the terms of the tender offer)
of Purchased
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Shares (as defined herein)) of an aggregate
consideration having a fair market value (as
determined by an independent majority of the Board of
Directors, whose determination shall be conclusive
and described in a board resolution) that combined
together with (i) the aggregate of the cash plus the
fair market value (as determined by an independent
majority of the Board of Directors, whose
determination shall be conclusive and described in a
board resolution), as of the expiration of such
tender offer, of consideration payable in respect of
any other tender offer, by the Company or any
Subsidiary for all or any portion of the Common Stock
expiring within the twelve (12) months preceding the
expiration of such tender offer and in respect of
which no adjustment pursuant to this paragraph (f)
has been made and (ii) the aggregate amount of any
distributions to all holders of the Common Stock made
exclusively in cash within twelve (12) months
preceding the expiration of such tender offer and in
respect of which no adjustment pursuant to paragraph
(e) of this Section 3.4 has been made, exceeds ten
percent (10%) of the product of the current market
price per share of the Common Stock (determined as
provided in paragraph (h) of this Section 3.4) as of
the last time (the "Expiration Time") tenders could
have been made pursuant to such tender offer (as it
may be amended) multiplied by the number of shares of
Common Stock outstanding (including any tendered
shares) on the Expiration Time, then, and in each
such case, immediately prior to the opening of
business on the day after the date of the Expiration
Time, the Conversion Price shall be adjusted so that
the same shall equal the price determined by
multiplying the Conversion Price in effect
immediately prior to the close of business on the
date of the Expiration Time by a fraction (A) the
numerator of which shall be equal to (1) the product
of (a) the current market price per share of the
Common Stock (determined as provided in paragraph (h)
of this Section 3.4) on the date of the Expiration
Time and (b) the number of shares of Common Stock
outstanding (including any tendered shares) on the
Expiration Time, less (2) the amount of cash plus the
fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based
on the acceptance (up to any maximum specified in the
terms of the tender offer) of Purchased Shares, and
(B) the denominator of which shall be equal to the
product of (1) the current market price per share of
the Common Stock (determined as provided in paragraph
(h) of this Section 3.4) as of the Expiration Time
and (2) the number of shares of Common Stock
outstanding (including any tendered shares) as of the
Expiration Time less the number of all shares validly
tendered and not withdrawn as of the Expiration Time
(the shares deemed so accepted up to any such
maximum, being referred to as the "Purchased
Shares").
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(g) The reclassification of Common Stock into
securities including securities other than Common
Stock (other than any reclassification upon a
consolidation or merger to which Section 3.10 hereof
applies) shall be deemed to involve (i) a
distribution of such securities other than Common
Stock to all holders of Common Stock (and the
effective date of such reclassification shall be
deemed to be "the date fixed for the determination of
stockholders entitled to receive such distribution"
and the "date fixed for such determination" within
the meaning of paragraph (d) of this Section 3.4),
and (ii) a subdivision or combination, as the case
may be, of the number of shares of Common Stock
outstanding immediately prior to such
reclassification into the number of shares of Common
Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be
deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such
combination becomes effective," as the case may be,
and "the day upon which such subdivision or
combination becomes effective" within the meaning of
paragraph (c) of this Section 3.4).
(h) For the purpose of any computation under
paragraphs (d), (e) and (f) of this Section 3.4, the
current market price per share of Common Stock on any
date shall be deemed to be the average of the daily
Closing Prices for the five (5) consecutive trading
days selected by the Company commencing not more than
twenty (20) trading days before, and ending not later
than, the earlier of the day in question and the day
before the "ex" date with respect to the issuance or
distribution requiring such computation. The "Closing
Price" for each trading day shall be the reported
last sale price regular way or, in case no such
reported sale takes place on such day, the average of
the reported closing bid and asked prices regular
way, in either case on the principal national
securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or
admitted to trading on any national securities
exchange, on the National Association of Securities
Dealers Automated Quotations system ("Nasdaq")
National Market System ("Nasdaq National Market") or,
if not listed or admitted to trading on Nasdaq
National Market, on Nasdaq, or, if the Common Stock
is not listed or admitted to trading on any national
securities exchange or Nasdaq National Market or
quoted on Nasdaq, the average of the closing bid and
asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that
purpose, or, if the Common Stock does not have any
closing bid and asked prices in the over-the-counter
market during the relevant period of time, the fair
market value per share as determined by an
independent majority of the Board of Directors as of
the most recent available month-end determined
pursuant to GAAP. For
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purposes of this paragraph, the term "'ex' date,"
when used with respect to any issuance or
distribution, shall mean the first date on which the
Common Stock trades regular way on such exchange or
in such market without the right to receive such
issuance or distribution.
(i) No adjustment in the Conversion Price shall be
required unless such adjustment (plus any adjustments
not previously made by reason of this paragraph (i))
would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that
any adjustments which by reason of this paragraph (i)
are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
All calculations under this paragraph (i) shall be
made to the nearest cent.
(j) The Company may make such reductions in the
Conversion Price, in addition to those required by
paragraphs (a), (b), (c), (d), (e) and (f) of this
Section 3.4, as it considers to be advisable in order
to avoid or diminish any income tax to any holders of
shares of Common Stock resulting from any dividend or
distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock or from
any event treated as such for federal income tax
purposes or for any other reasons. An independent
majority of the Board of Directors shall have the
power to resolve any ambiguity or correct any error
in this Section 3.4 and its actions in so doing shall
be final and conclusive.
3.5 NOTICE OF ADJUSTMENTS OF CONVERSION PRICE. Whenever the
Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion
Price in accordance with Section 3.4 hereof and shall
prepare a certificate signed by the Chief Financial
Officer of the Company setting forth the adjusted
Conversion Price and showing in reasonable detail the
facts upon which such adjustment is based, and such
certificate shall forthwith be filed at the offices
of the Company.
(b) a notice stating that the Conversion Price has
been adjusted and setting forth the adjusted
Conversion Price shall forthwith be required, and as
soon as practicable after it is required, such notice
shall be mailed by the Company to the Holder in
accordance with the terms of Section 8.1 herein.
3.6 NOTICE OF CERTAIN CORPORATE ACTION. In case:
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(a) the Company shall declare a dividend (or any
other distribution) on its Common Stock payable
otherwise than in cash out of its earned surplus; or
(b) the Company shall authorize the granting to the
holders of its Common Stock of rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any other rights; or
(c) of any reclassification of the Common Stock of
the Company (other than a subdivision or combination
of its outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which the
Company is a party and for which approval of any
stockholders of the Company is required, or of the
sale or transfer of all or substantially all of the
assets of the Company; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; then the
Company shall cause to be filed at the offices of the
Company, and shall cause to be mailed to the Holder
at its last addresses as it shall appear in the Note
Register, at least twenty (20) days (or ten (10) days
in any case specified in clause (a) or (b) of this
Section 3.6) prior to the applicable record or
effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution,
rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be
determined, or (y) the date on which such
reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and the
date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or
other property deliverable upon such
reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or
winding up. Neither the failure to give such notice
nor any defect therein shall affect the legality or
validity of the proceedings described in clauses (a)
through (d) of this Section 3.6.
3.7 COMPANY TO RESERVE COMMON STOCK. The Company shall at all
times reserve and keep available out of its authorized but
unissued Common Stock, for the purpose of effecting the
conversion of the Credit Facility Note, the full number of
shares of Common Stock issuable upon the conversion of the
entire Credit Facility Note.
3.8 TAXES ON CONVERSIONS. The Company will pay any and all
taxes that may be payable in respect of the issuance or
delivery of shares of Common
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<PAGE> 13
Stock on conversion of the Credit Facility Note pursuant
hereto. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved
in the issuance and delivery of shares of Common Stock in a
name other than that of Abbott and no such issuance or
delivery shall be made unless and until the Person requesting
such issuance has paid to the Company the amount of any such
tax, or has established to the satisfaction of the Company
that such tax has been paid.
3.9 COVENANT AS TO COMMON STOCK. The Company covenants that
all shares of Common Stock which may be issued upon conversion
of the Credit Facility Note will upon issuance be fully paid
and nonassessable and, except as provided in Section 3.8
hereof, the Company will pay all taxes, liens and charges with
respect to the issue thereof.
3.10 PROVISIONS IN CASE OF CONSOLIDATION, MERGER OR SALE OF
ASSETS. In case of any Change of Control of the Company, the
Company will notify Abbott at least thirty (30) days prior to
the closing of the transaction that will effect the Change of
Control, and the Company shall notify Abbott whether the
Company elects to convert the Credit Facility Note in
accordance with Section 3 hereof prior to the transaction or
pay the Credit Facility Note and terminate this Agreement in
accordance with Section 2 hereof.
3.11 TRANSFER AND EXCHANGE OF CREDIT FACILITY NOTE. The Credit
Facility Note may be freely transferred or assigned by Abbott
without the consent of the Company. Such transfer and
assignment shall be made in accordance with applicable federal
and state securities laws. At any time and from time to time,
upon not less than ten (10) days notice to that effect given
by Abbott and, upon surrender of the Credit Facility Note at
the Company's office by Abbott, the Company will deliver in
exchange therefor, without expense to Abbott, except as set
forth below, one Credit Facility Note for the same aggregate
principal amount as the then unpaid principal amount of the
Credit Facility Note so surrendered, provided such Credit
Facility Note shall be in the amount of the full principal
amount of the Credit Facility Note and there shall be no right
to divide the Credit Facility Note, dated as of the date to
which interest has been paid on the Credit Facility Note so
surrendered or, if such surrender is prior to the payment of
any interest thereon, then dated as of the date of issue,
registered in the name of such Person as may be designated by
Abbott, and otherwise of the same form and tenor as the Credit
Facility Note so surrendered for exchange. The Company may
require the payment of a sum sufficient to cover any stamp tax
or governmental charge imposed upon such exchange or transfer.
3.12 LOSS, THEFT, MUTILATION OR DESTRUCTION OF CREDIT FACILITY
NOTE. Upon receipt of evidence satisfactory to the Company of
the loss, theft, mutilation or destruction of the Credit
Facility Note, the Company will make and deliver without
expense to Abbott thereof, a new Credit Facility Note, of
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<PAGE> 14
like tenor, in lieu of such lost, stolen, mutilated or
destroyed Credit Facility Note.
3.13 EXPENSES, STAMP TAX INDEMNITY. The Company agrees to pay
duplicating and printing costs and charges for shipping the
Credit Facility Note, adequately insured to Abbott's home
office or at such other place as Abbott may designate, and all
reasonable expenses of Abbott (including, without limitation,
the reasonable fees and expenses of any financial advisor to
Abbott) relating to any proposed or actual amendment, waivers
or consents pursuant to the provisions hereof, including,
without limitation, any proposed or actual amendments,
waivers, or consents resulting from any work-out,
re-negotiations or restructuring relating to the performance
by the Company of its obligations under this Agreement and the
Credit Facility Note. The Company also agrees that it will pay
and hold Abbott harmless against any and all liabilities with
respect to stamp and other taxes, if any, which may be payable
or which may be determined to be payable in connection with
the execution and delivery of this Agreement or the Credit
Facility Note, whether or not the Credit Facility Note is then
outstanding. The Company agrees to protect and indemnify
Abbott against any liability for any and all brokerage fees
and commissions payable or claimed to be payable to any Person
(other than any Person engaged by a Purchaser) in connection
with the transactions contemplated by this Agreement.
3.14 CANCELLATION OF CONVERTED CREDIT FACILITY NOTE. The
Credit Facility Note or $1,000,000 Integral Multiple portions
thereof delivered for conversion shall be canceled by or at
the direction of the Company.
4. CONDITIONS PRECEDENT.
4.1 DISBURSEMENTS. The obligation of Abbott to make any
disbursement of the Loan shall be subject to the prior or
contemporaneous satisfaction of each of the following
conditions:
(a) AUTHORIZATIONS. Abbott shall have received such
instruments or documents as Abbott may reasonably
request relating to the existence and good standing
of the Company or the authority for execution,
delivery and performance of this Agreement, dated and
in full force and effect on the Disbursement Date.
(b) NO EXISTING DEFAULT. No Event of Default (as
defined in Section 7.1) or event which, upon the
lapse of time or the giving of notice or both, would
constitute an Event of Default by the Company (an
"Incipient Default") shall exist on the Disbursement
Date.
(c) REPRESENTATIONS AND WARRANTIES CORRECT. Each of
the representations and warranties made by the
Company in the Note
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<PAGE> 15
Agreement and as incorporated by reference herein
shall be true and correct in all material respects on
the Disbursement Date with the same effect as though
made on and as of such date; and the Company shall
have performed and complied with all agreements,
covenants and conditions required by this Agreement
and the Note Agreement to be performed and complied
with by the Company on or prior to the Disbursement
Date.
(d) OTHER AGREEMENTS. The Distribution Agreement and
the Note Agreement shall be in full force and effect,
and the Company shall not be in breach or default of
any material covenant, condition or other provision
thereof beyond the applicable grace period, if any,
specified therein.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company and its
subsidiaries represent and warrant to Abbott as of the date hereof that
the representations and warranties as made by the Company in Section 3
of the Note Agreement are true and correct in all material respects
with the same effect as though made on and as of the Disbursement Date,
subject to delivery of an updated Disclosure Schedule. The
representations and warranties as made by the Company in Section 3 of
the Note Agreement are incorporated by reference in their entirety
herein.
6. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company has performed
and complied with all of the covenants and agreements of the Company in
Section 5 and Section 8 of the Note Agreement and further covenants and
agrees to perform and comply with such provisions. The covenants and
agreements of the Company in Section 5 and Section 8 of the Note
Agreement are incorporated by reference in their entirety herein.
7. EVENTS OF DEFAULT.
7.1 EVENTS OF DEFAULT. The following shall constitute "Events
of Default": (a) an Event of Default as defined in Section 9
of the Note Agreement (which is hereby incorporated by
reference in its entirety herein); (b) an Event of Default as
defined under the Security Agreement dated as of August 12,
1998 between Abbott and the Company (which is hereby
incorporated by reference in its entirety herein); (c) default
by the Company in the payment of any amount under this
Agreement or the Note; or (d) any representation or warranties
by the Company set forth in this Agreement, the Note Agreement
or the Security Agreement shall not be true and correct in all
material respects as and when made.
7.2 TERMINATION OF COMMITMENT AND ACCELERATION. If any Event
of Default described in Section 7.1 hereof shall occur, Abbott
shall have no obligation to make disbursements hereunder and
may declare all Obligations
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<PAGE> 16
to be due and payable, whereupon all Obligations shall
immediately become due and payable, all as so declared by
Abbott and without presentment, demand, protest or other
notice of any kind. Any such declaration made pursuant to this
Section 7.2 may be rescinded by Abbott.
7.3 OTHER REMEDIES. If any Event of Default shall occur and be
continuing, Abbott shall have, in addition to the remedies set
forth in Section 7.2 hereof, all other remedies otherwise
available at law.
8. MISCELLANEOUS.
8.1 NOTICES. Except as otherwise expressly provided herein,
any notice, consent or document required or permitted
hereunder shall be given in writing and it or any certificates
or other documents delivered hereunder shall be deemed
effectively given or delivered (as the case may be) upon
personal delivery (professional courier permissible) or when
mailed by receipted United States certified mail delivery, or
five (5) business days after deposit in the United States
mail. Such certificates, documents or notice may be personally
delivered to an authorized representative of the Company or
Abbott (as the case may be) at any address where such
authorized representative is present and otherwise shall be
sent to the following address:
If to the Company: Micro Therapeutics, Inc.
1062 Calle Negocio #F
San Clemente, CA 92673
Attention: George Wallace
Telecopy No.: (949) 361-0210
With a copy to: Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Attention: Bruce Feuchter
Telecopy No.: (949) 725-4100
If to Abbott: Abbott Laboratories
D-960, AP30
200 Abbott Park Road
Abbott Park, IL 60064-3500
Attention: President, Hospital Products Division
Telecopy No.: (847) 937-0805
With a copy to: Abbott Laboratories
Legal Division
D-322, AP6D
100 Abbott Park Road
Abbott Park, IL 60064-3500
Attn: Divisional Vice President,
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Domestic Legal Operations
Telecopy No.: (847) 938-1206
8.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Company and its
successors and assigns and shall be binding upon and inure to
the benefit of Abbott and its successors and assigns;
provided, however, that neither the Company nor Abbott shall
assign this Agreement or any of its rights, duties or
obligations hereunder without the prior written consent of the
other party which consent shall not be unreasonably withheld,
and provided further, Abbott may assign its rights hereunder
after July 31, 1999 without the Company's prior written
consent.
8.3 SURVIVAL OF COVENANTS AND REPRESENTATIONS. All covenants,
representations and warranties made by the Company herein and
in any certificates delivered pursuant hereto, whether or not
in connection with the Disbursement Date, shall survive the
closing and the delivery of this Agreement and the Credit
Facility Note.
8.4 SEVERABILITY. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision
shall not affect the validity or enforceability of any
remaining portion, which remaining portion shall remain in
force and effect as if this Agreement had been executed with
the invalid or unenforceable portion thereof eliminated and it
is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this
Agreement without including therein any such part, parts or
portion which may, for any reason, be hereafter declared
invalid or unenforceable.
8.5 WAIVER OF CONDITIONS. If on any Disbursement Date, either
party hereto fails to fulfill each of the conditions specified
in Section 4 hereof, the other party may thereupon elect to be
relieved of all further obligations under this Agreement.
Without limiting the foregoing, if the conditions specified in
Section 4 hereof have not been fulfilled, the other party may
waive compliance by such party with any such condition to such
extent as such party may in its sole discretion determine.
Nothing in this Section 8.5 shall operate to relieve either
party of any obligations hereunder or to waive any of the
other party's rights against such party.
8.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
8.7 GOVERNING LAW. This Agreement and the Credit Facility Note
issued and sold hereunder shall be governed by and construed
in accordance with Delaware law, without regard to the
conflict of laws provisions thereof.
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8.8 CAPTIONS. The descriptive headings of the various sections
or parts of this Agreement are for convenience only and shall
not affect the meaning or construction of any of the
provisions hereof.
8.9 DISPUTE RESOLUTION. Disputes shall be resolved as provided
in Annex 2 attached hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
ABBOTT LABORATORIES
By: /s/ Richard A. Gonzalez
-------------------------------
Its: President HPD
-------------------------------
MICRO THERAPEUTICS, INC.
By: /s/ William F. Gearhart
-------------------------------
Its: Executive Vice President
-------------------------------
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ANNEX 1
FORM OF CREDIT FACILITY NOTE
MICRO THERAPEUTICS, INC.
5% Convertible Credit Facility Note, due on August 19, 2003.
San Clemente, California
[Up to $5,000,000]
[Date]
Micro Therapeutics, Inc., a corporation duly organized and existing
under the laws of the State of Delaware (the "Company"), for value
received, hereby promises to pay to Abbott Laboratories, an Illinois
corporation ("Abbott"), or its registered assigns (the "Holder"), the
principal sum of [Up to Five Million Dollars ($5,000,000)] on August
19, 2003 (the "Maturity"), and to pay interest (i) on the unpaid
principal balance thereof from the date of this Credit Facility Note at
the rate of five percent (5%) per annum, payable quarterly in arrears
on January 31, April 30, July 31 and October 31 of each year (each, an
"Interest Payment Date") (commencing on the first Interest Payment Date
following the date hereof) until such unpaid balance shall become due
and payable (whether at Maturity, or by declaration, acceleration or
otherwise) and (ii) on each overdue payment of principal or any overdue
payment of interest, at a rate per annum equal to ten percent (10%).
The interest and principal payments payable with respect to this Credit
Facility Note, on any Interest Payment Date, at Maturity or by
declaration, acceleration or otherwise, pursuant to the Credit
Agreement (as defined herein), shall be paid to Abbott in such coin or
currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. Such interest and
principal payments shall be made to Abbott in accordance with the
provisions of the Credit Agreement.
This Credit Facility Note is the sole issue of a 5% Convertible Credit
Facility Note, due on the fifth anniversary of the date hereof, the
Company issued in an aggregate principal amount of [Up to Five Million
Dollars ($5,000,000)] pursuant to the Credit Agreement, dated August
12, 1998 by and between the Company and Abbott (the "Credit
Agreement"). The Holder of this Credit Facility Note is entitled to the
benefits of the Credit Agreement, and may enforce the Credit Agreement
and exercise the remedies provided for thereby or otherwise available
in respect thereof.
This Credit Facility Note may be transferred or assigned as provided in
the Credit Agreement, upon surrender of this Credit Facility Note for
registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed by Abbott or Abbott's attorney
duly authorized in writing, a new Credit Facility Note for a like
aggregate principal amount and otherwise of similar tenor, will be
issued to, and registered in the name of, the transferee or
transferees. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this
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Credit Facility Note is registered as the Holder and owner hereof for
the purpose of receiving payments and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
In the case of an Event of Default (as defined in the Credit
Agreement), the principal of this Credit Facility Note in certain
circumstances shall become due and payable and in other circumstances
may be declared and become due and payable in the manner and with the
effect provided in the Credit Agreement. This Credit Facility Note is
subject to conversion into Common Stock pursuant to the terms and
conditions of the Credit Agreement and conversion shall be evidenced by
a Notice of Conversion as attached hereto.
The indebtedness evidenced by this Credit Facility Note is, to the
extent provided in the Credit Agreement, subordinate and subject in
right of payment to the prior payment in full of all Senior
Indebtedness (as defined in the Credit Agreement), and this Credit
Facility Note is issued subject to the provisions of the Credit
Agreement with respect thereto. Each Holder of this Credit Facility
Note, by accepting the same, agrees to and shall be bound by such
provisions.
No reference herein to the Note Agreement or Credit Agreement and no
provision of this Credit Facility Note, the Note Agreement or the
Credit Agreement shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Credit Facility Note at the
times, place and rate, and in the coin or currency, herein prescribed
or to convert this Credit Facility Note as provided in the Credit
Agreement.
All terms used in this Credit Facility Note which are defined in the
Credit Agreement shall have the meanings assigned to them in the Credit
Agreement. This Credit Facility Note, the Note Agreement and the Credit
Agreement are governed by and construed in accordance with the law of
the State of Delaware. IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed under its corporate seal.
Dated:
-------------------
MICRO THERAPEUTICS, INC.
By:
Its:
ATTEST:
By:
------------------------------
Its:
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NOTICE OF CONVERSION
Micro Therapeutics, Inc. hereby irrevocably exercises the option to
convert this Credit Facility Note, or portion hereof below designated
(which is One Million Dollars ($1,000,000) or an integral multiple
thereof), into shares of Common Stock in accordance with the terms of
the Credit Agreement, and represents that the shares issuable and
deliverable upon such conversion, together with any check in payment
for fractional shares and any Credit Facility Note representing any
unconverted principal amount hereof, will be issued and delivered to
the current Holder of the Credit Facility Note.
Principal amount to be converted (if less than all): $__________
MICRO THERAPEUTICS, INC.
By:
------------------------------------
Its:
------------------------------------
ANNEX 2
DISPUTE RESOLUTION
The parties recognize that a bona fide dispute as to certain matters may arise
from time to time during the term of this Agreement which relates to either
party's rights and/or obligations. To have such a dispute resolved by this
Alternative Dispute Resolution ("ADR") provision, a party first must send
written notice of the dispute to the other party for attempted resolution by
good faith negotiations between their respective presidents (or their
equivalents) of the affected subsidiaries, divisions, or business units within
twenty-eight (28) days after such notice is received (all references to "days"
in this ADR provision are to calendar days).
If the matter has not been resolved within twenty-eight (28) days of the notice
of dispute, or if the parties fail to meet within such twenty-eight (28) days,
either party may initiate an ADR proceeding as provided herein. The parties
shall have the right to be represented by counsel in such a proceeding.
1. To begin an ADR proceeding, a party shall provide written notice to the
other party of the issues to be resolved by ADR. Within fourteen (14)
days after its receipt of such notice, the other party may, by written
notice to the party initiating the ADR, add additional issues to be
resolved within the same ADR.
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2. Within twenty-one (21) days following receipt of the original ADR
notice, the parties shall select a mutually acceptable neutral to
preside in the resolution of any disputes in this ADR proceeding. If
the parties are unable to agree on a mutually acceptable neutral within
such period, either party may request the President of the CPR
Institute for Dispute Resolution ("CPR"), 366 Madison Avenue, 14th
Floor, New York, New York 10017, to select a neutral pursuant to the
following procedures:
(a) The CPR shall submit to the parties a
list of not less than five (5) candidates within
fourteen (14) days after receipt of the request,
along with a Curriculum Vitae for each candidate. No
candidate shall be an employee, director, or
shareholder of either party or any of their
subsidiaries or affiliates.
(b) Such list shall include a statement of
disclosure by each candidate of any circumstances
likely to affect his or her impartiality.
(c) Each party shall number the candidates
in order of preference (with the number one (1)
signifying the greatest preference) and shall deliver
the list to the CPR within seven (7) days following
receipt of the list of candidates. If a party
believes a conflict of interest exists regarding any
of the candidates, that party shall provide a written
explanation of the conflict to the CPR along with its
list showing its order of preference for the
candidates. Any party failing to return a list of
preferences on time shall be deemed to have no order
of preference.
(d) If the parties collectively have
identified fewer than three (3) candidates deemed to
have conflicts, the CPR immediately shall designate
as the neutral the candidate for whom the parties
collectively have indicated the greatest preference.
If a tie should result between two candidates, the
CPR may designate either candidate. If the parties
collectively have identified three (3) or more
candidates deemed to have conflicts, the CPR shall
review the explanations regarding conflicts and, in
its sole discretion, may either (i) immediately
designate as the neutral the candidate for whom the
parties collectively have indicated the greatest
preference, or (ii) issue a new list of not less than
five (5) candidates, in which case the procedures set
forth in subparagraphs 2(a) - 2(d) shall be repeated.
3. No earlier than twenty-eight (28) days or later than fifty-six (56)
days after selection, the neutral shall hold a hearing to resolve each
of the issues identified by the parties. The ADR proceeding shall take
place at a location in the State of California agreed upon by the
parties. If the parties cannot agree, the neutral shall designate a
location
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in the State of California other than the principal place of business
of either party or any of their subsidiaries or affiliates.
4. At least seven (7) days prior to the hearing, each party shall submit
the following to the other party and the neutral:
(a) a copy of all exhibits on which such
party intends to rely in any oral or written
presentation to the neutral;
(b) a list of any witnesses such party
intends to call at the hearing, and a short summary
of the anticipated testimony of each witness;
(c) a proposed ruling on each issue to be
resolved, together with a request for a specific
damage award or other remedy for each issue. The
proposed rulings and remedies shall not contain any
recitation of the facts or any legal arguments and
shall not exceed one (1) page per issue.
(d) a brief in support of such party's
proposed rulings and remedies, provided that the
brief shall not exceed twenty (20) pages. This page
limitation shall apply regardless of the number of
issues raised in the ADR proceeding.
Except as expressly set forth in subparagraphs 4(a) - 4(d), no
discovery shall be required or permitted by any means, including
depositions, interrogatories, requests for admissions, or production of
documents.
5. The hearing shall be conducted on two (2) consecutive days and shall be
governed by the following rules:
(a) Each party shall be entitled to five (5)
hours of hearing time to present its case. The
neutral shall determine whether each party has had
the five (5) hours to which it is entitled.
(b) Each party shall be entitled, but not
required, to make an opening statement, to present
regular and rebuttal testimony, documents or other
evidence, to cross-examine witnesses, and to make a
closing argument. Cross-examination of witnesses
shall occur immediately after their direct testimony,
and cross-examination time shall be charged against
the party conducting the cross-examination.
(c) The party initiating the ADR shall begin
the hearing and, if it chooses to make an opening
statement, shall address not only issues it raised
but also any issues raised by the responding
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party. The responding party, if it chooses to make an
opening statement, also shall address all issues
raised in the ADR. Thereafter, the presentation of
regular and rebuttal testimony and documents, other
evidence, and closing arguments shall proceed in the
same sequence.
(d) Except when testifying, witnesses shall
be excluded from the hearing until closing arguments.
(e) Settlement negotiations, including any
statements made therein, shall not be admissible
under any circumstances. Affidavits prepared for
purposes of the ADR hearing also shall not be
admissible. As to all other matters, the neutral
shall have sole discretion regarding the
admissibility of any evidence.
6. Within seven (7) days following completion of the hearing, each party
may submit to the other party and the neutral a post-hearing brief in
support of its proposed rulings and remedies, provided that such brief
shall not contain or discuss any new evidence and shall not exceed ten
(10) pages. This page limitation shall apply regardless of the number
of issues raised in the ADR proceeding.
7. The neutral shall rule on each disputed issue within fourteen (14) days
following completion of the hearing. Such ruling shall adopt in its
entirety the proposed ruling and remedy of one of the parties on each
disputed issue but may adopt one party's proposed rulings and remedies
on some issues and the other party's proposed rulings and remedies on
other issues. The neutral shall not issue any written opinion or
otherwise explain the basis of the ruling.
8. The neutral shall be paid a reasonable fee plus expenses. These fees
and expenses, along with the reasonable legal fees and expenses of the
prevailing party (including all expert witness fees and expenses), the
fees and expenses of a court reporter, and any expenses for a hearing
room, shall be paid as follows:
(a) If the neutral rules in favor of one
party on all disputed issues in the ADR, the losing
party shall pay 100% of such fees and expenses.
(b) If the neutral rules in favor of one
party on some issues and the other party on other
issues, the neutral shall issue with the rulings a
written determination as to how such fees and
expenses shall be allocated between the parties. The
neutral shall allocate fees and expenses in a way
that bears a reasonable relationship to the outcome
of the ADR, with the party prevailing on more issues,
or on issues of greater value or gravity, recovering
a relatively larger share of its legal fees and
expenses.
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9. The rulings of the neutral and the allocation of fees and expenses
shall be binding, non-reviewable, and non-appealable, and may be
entered as a final judgment in any court having jurisdiction.
10. Except as provided in paragraph 9 or as required by law, the existence
of the dispute, any settlement negotiations, the ADR hearing, any
submissions (including exhibits, testimony, proposed rulings, and
briefs), and the rulings shall be deemed Confidential Information. The
neutral shall have the authority to impose sanctions for unauthorized
disclosure of Confidential Information.
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EXHIBIT 10.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") dated as of August 12, 1998,
is made and entered into by and between Micro Therapeutics Inc. , a
corporation organized and existing under the laws of the State of
Delaware, having its principal place of business at 1062-F Calle
Negocio, San Clemente, California 92673, (the "Debtor"), and Abbott
Laboratories, an Illinois corporation, having its principal place of
business at 100 Abbott Park Road, Abbott Park, Illinois 60064-3500 (the
"Secured Party"), with reference to the following:
RECITALS
A. Debtor is executing and delivering to Secured Party a promissory
note of even date herewith in the principal amount of Five Million U.S.
Dollars ($5,000,000) payable to the order of Secured Party (the "Note")
in connection with that certain Convertible Subordinated Note Agreement
by and between Debtor and Secured Party, dated as of August 12, 1998
(the "Note Agreement").
B. Debtor is executing with the Secured Party a Credit Agreement on the
date hereof (the "Credit Agreement") providing Debtor with the right to
borrow from Secured Party up to Five Million U.S. Dollars ($5,000,000)
on or before July 31, 1999 by delivery of a promissory note thereunder
(the "Credit Facility Note").
C. In order to secure the payment and performance of the obligations of
Debtor to the Secured Party under the Note and the Credit Facility
Note, Secured Party requires that Debtor grant to Secured Party a
security interest in the Collateral as provided for herein.
NOW, THEREFORE, in consideration of the foregoing recitals, the
following mutual agreements and promises, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. SECURITY INTEREST.
(a) Creation of Security Interest. Debtor hereby grants to
Secured Party a security interest in all of Debtor's right,
title and interest in and to the Collateral, as defined in
Subsection 1(b) below, in order to secure the payment and
performance of the obligations of Debtor to Secured Party
described in Subsection 1(d) below.
(b) COLLATERAL. As used herein, the term "Collateral"
shall mean:
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(i) all Debtor's right, title and interest in and to
the current and future trademarks owned by Debtor in
connection with Debtor's peripheral blood clot
infusion products in the Territory (as defined in the
Distribution Agreement) (the "Trademarks"), which are
set forth on Exhibit A hereto; and
(ii) all Debtor's right, title and interest in and to
the current and future patents owned by Debtor in
connection with Debtor's peripheral blood clot
infusion products in the Territory (the "Patents"),
which are set forth on Exhibit B hereto; and
(iii) all Debtor's right, title and interest in and
to the other current and future intellectual property
rights owned by Debtor in connection with Debtor's
peripheral blood clot infusion products in the
Territory (the "Other Assets"), which are set forth
on Exhibit C hereto.
(c) ASSIGNMENT. Debtor shall execute a Notice of Recordation
of Assignment Document with the United States Patent and
Trademark Office for each Trademark and Patent registered with
the United States Patent and Trademark Office, thereby
assigning all right, title and interest in such Patents and
Trademarks to the Secured Party for the purpose of obtaining
for the Secured Party the complete and timely satisfaction of
a security interest in the Patents and the Trademarks. Debtor
shall perfect the filing of a UCC-1 document for each of the
Collateral for the purpose of obtaining for the Secured Party
the complete and timely satisfaction of a security interest in
the Collateral.
(d) OBLIGATIONS SECURED. The security interest granted to
Secured Party by Debtor pursuant to this Section 1 shall
secure payment and performance of Debtor's obligations under
(i)the Note, (ii) the Note Agreement, (iii) the Credit
Facility Note, (iv) the Credit Agreement and (iv) any
amendment, modification, renewal or extension of the Note or
the Note Agreement (the "Secured Obligations").
2. REPRESENTATIONS AND WARRANTIES OF DEBTOR. Debtor hereby represents
and warrants to Secured Party that:
(a) Debtor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to carry
on its business as now conducted. Debtor is duly qualified to
transact business and is in good standing in each jurisdiction
in which the failure so to qualify would have a material
adverse effect on its business, financial condition or
properties.
(b) All corporate action on the part of Debtor necessary for
the execution and delivery of this Agreement has been duly
authorized by Debtor's Board
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of Directors. This Agreement constitutes valid and legally
binding obligations of Debtor, enforceable in accordance with
its terms, except as enforcement thereof may be limited by
bankruptcy laws, laws affecting creditors' rights and court
decisions limiting the availability of specific performance
and other equitable remedies. Debtor has full corporate power
and corporate authority to execute and deliver this Agreement
and to carry out the transactions contemplated hereby.
(c) Debtor has not changed its name, address or organization
within the last four (4) months.
(d) The Collateral is subject to no other lien or security
interest.
3. COVENANTS.
(a) Until payment of all obligations due under the Note,
Debtor agrees that, unless the Secured Party shall have
otherwise consented in writing:
(i) Debtor shall execute and take such action as may
reasonably be requested from time to time by Secured
Party, including the execution and delivery of
financing statements and certificates of title, and
the filing of financing statements, as may be
necessary to perfect and maintain the first priority
security interest granted to Secured Party hereby.
(ii) Debtor shall keep appropriate records and, upon
written request of the Secured Party, will give
Secured Party any information it may reasonably
require with respect to the condition and status of
the Collateral.
(iii) Debtor shall update Exhibits (A) (B) and (C) on
a quarterly basis and shall notify Secured Party in
writing of additions to the Collateral during the
period as there remains outstanding principal or
interest on the Note or the Credit Facility Note.
(iv) Debtor shall notify Secured Party within ten
(10) days of any change in (A)Debtor's corporate
name, (B)Debtor's business or legal structure, or
(C)Debtor's place of business or chief executive
office if the Debtor has more than one place of
business, or (D)location of Collateral.
(b) Until payment of all obligations due under the Note or
conversion of the Note, the Secured Party covenants to
subordinate this Security Agreement to Senior Indebtedness (so
long as the Senior Indebtedness is secured by a perfected
security interest in the Collateral) as defined in the Note
Agreement at the request of the Company.
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<PAGE> 4
4. EVENTS OF DEFAULT. The occurrence of the following shall constitute
an "Event of Default":
(a) PAYMENTS. Default in the payment of the principal and
unpaid accrued interest of the Note when due and payable if
such default is not cured by the Company within ten (10) days
after the Holder has given the Company written notice of such
default.
(b) BANKRUPTCY. The institution by the Company of proceedings
to be adjudicated as bankrupt or insolvent, or the consent by
it to institution of bankruptcy or insolvency proceedings
against it or the filing by it of a petition or answer or
consent seeking reorganization or release under the federal
Bankruptcy Code, or any other applicable federal or state law,
or the consent by it to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or
other similar official of the Company, or of any substantial
part of its property, or the making by it of an assignment for
the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action.
(c) COMMENCEMENT OF AN ACTION. If, within sixty (60) days
after the commencement of an action against the Company (and
service of process in connection therewith on the Company)
seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present
or future statute, law or regulation, such action shall not
have been resolved in favor of the Company or all orders or
proceedings thereunder affecting the operations or the
business of the Company stayed, or if the stay of any such
order or proceeding shall thereafter be set aside, or if,
within sixty (60) days after the appointment without the
consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company, such
appointment shall not have been vacated.
(d) DEFAULT OF SENIOR INDEBTEDNESS. Any declared default of
the Company under any Senior Indebtedness (as defined in the
Note Agreement) that gives the holder thereof the right to
accelerate such Senior Indebtedness, and such Senior
Indebtedness is in fact accelerated by the holder.
(e) COVENANTS AND AGREEMENTS. The Company shall default in the
performance of any of its material covenants and agreements
set forth in any provision of the Note Agreement and the
continuance of such default for thirty (30) days after the
Holder (as defined in the Note Agreement) has given the
Company written notice of such default.
(f) DEFAULT UNDER OTHER AGREEMENTS. The Company breaches or
defaults on any material covenant, condition or other
provision of the
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Distribution Agreements and such breach or default continues
after the applicable grace period, if any, specified therein
but in no event more than thirty (30) days after the Holder
has given the Company written notice of such breach or
default.
(g) CHANGE OF CONTROL OF THE COMPANY. Any change in control of
the Company which includes any consolidation of the Company
with, or merger of the Company into, any other Person, any
merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common
Stock), any acquisition of at least a majority of the Voting
Stock (as defined in the Note Agreement) of the Company or any
sale or transfer of all or substantially all of the business
or assets of the Company (a "Change of Control"), or Abbott's
receipt of written notice from the Company that a Change of
Control will occur.
5. SECURED PARTY'S RIGHTS AND REMEDIES.
(a) Upon the occurrence of an Event of Default as hereinabove
set forth, the Secured Party may exercise all rights or
remedies that the Secured Party may have as a secured party
under the Uniform Commercial Code as adopted in the State of
California.
(b) Upon the occurrence of an Event of Default as hereinabove
set forth, the Secured Party may, at its option, (i) retain
for its own commercial use all or any portion of the
Collateral upon terms that are commercially reasonable;
provided that upon such retention the Note and the Credit
Facility Note shall be credited as fully paid, and/or (ii)
sell, lease or otherwise dispose of all or any part of the
Collateral upon any terms which are commercially reasonable.
Secured Party shall give fifteen (15) days prior written
notice to Debtor of the time and place of any public sale of
the Collateral, or of the time after which a private sale or
other disposition of the Collateral is to be made.
(c) All proceeds from the sale or other disposition of the
Collateral, and all other amounts received by Secured Party
pursuant to the terms of this Agreement, unless otherwise
expressly required by law or regulation, shall be applied as
follows:
(1) First, to the payment of all expenses reasonably
incurred by Secured Party in connection with any sale
or disposition of the Collateral, including, but not
limited to, the expenses of taking, advertising,
processing, preparing and storing the Collateral to
be sold, and all court costs and all reasonable legal
fees of Secured Party in connection therewith;
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(2) Second, to the payment of all obligations of
Debtor to Secured Party arising under the Note which
have come due and are unpaid; and
(3) Third, the balance, if any, to Debtor.
(d) No delay or omission by Secured Party in exercising any
right or remedy hereunder or with respect to any obligation of
Debtor to Secured Party secured hereunder shall operate as a
waiver thereof or of any other right or remedy available to
Secured Party, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise
of any other right or remedy. Secured Party, in its sole
discretion, on at least three (3) days prior written notice to
Debtor, may (but shall have no obligation to) remedy any Event
of Default by Debtor hereunder or with respect to any
obligation of Debtor to the Secured Party or any other person,
firm, corporation or other entity in any reasonable manner
without waiving the Event of Default remedied and without
waiving any other prior or subsequent Event of Default by
Debtor, and shall be reimbursed for its necessary and
reasonable out-of-pocket expenses in so remedying any of such
Event of Default. All rights and remedies of Secured Party
hereunder are cumulative.
6. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Company and its
successors and assigns and shall be binding upon and inure to
the benefit of Abbott and its successors and assigns;
provided, however, that neither the Company nor Abbott shall
assign this Agreement or any of its rights, duties or
obligations hereunder without the prior written consent of the
other party which consent shall not be unreasonably withheld,
and provided further, Abbott may assign its rights hereunder
after July31, 1999 without the Company's prior written
consent.
(b) GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California.
(c) TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are for convenience of reference only and are
not to be considered in construing or interpreting this
Agreement.
(d) NOTICE. Except as otherwise expressly provided herein, any
notice, consent or document required or permitted hereunder
shall be given in writing and it or any certificates or other
documents delivered hereunder shall be deemed effectively
given or delivered (as the case may be) upon personal delivery
(professional courier permissible) or when mailed by receipted
United States certified mail delivery, or five (5) business
days after deposit in the United States mail. Such
certificates, documents or notice may be
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personally delivered to an authorized representative of the
Company or Abbott (as the case may be) at any address where
such authorized representative is present and otherwise shall
be sent to the following address:
If to the Company: Micro Therapeutics, Inc.
1062 Calle Negocio #F
San Clemente, CA 92673
Attention: George Wallace
Telecopy No.: (949) 361-0210
With a copy to: Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attention: Bruce Feuchter
Telecopy No.: (949) 725-4100
If to Abbott: Abbott Laboratories
D-960, AP30
200 Abbott Park Road
Abbott Park, IL 60064-3500
Attention: President, Hospital Products Division
Telecopy No.: (847) 937-0805
With a copy to: Abbott Laboratories
Legal Division
D-322, AP6D
100 Abbott Park Road
Abbott Park, IL 60064-3500
Attn: Divisional Vice President,
Domestic Legal Operations
Telecopy No.: (847) 938-1206
Any party hereto may from time to time, by ten (10) days' advance written notice
to the other parties, designate a different address, which shall be substituted
for the one specified above for such party. If any notice or other document is
sent by certified or registered mail, return receipt requested, postage prepaid,
properly addressed as aforementioned, the same shall be deemed served or
delivered seventy-two (72) hours after mailing thereof. If any notice is sent by
facsimile machine ("fax") to a party, he will be deemed to have been delivered
on the date the fax thereof is actually received, provided the original thereof
is sent by mail in the manner set forth above, within twenty-four (24) hours
after the fax is sent.
(e) AMENDMENTS, WAIVERS AND CONSENTS. Any term of this
Agreement to the contrary notwithstanding, changes in or
additions to this Agreement may be made, and compliance with
any covenant or provision or breach of any representation or
warranty herein or therein set forth may be omitted or waived,
if the Debtor shall obtain consent thereto in writing from the
Secured
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<PAGE> 8
Party. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and
for the specific purpose for which given.
(f) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and any number of counterparts signed in
the aggregate by Debtor and the Secured Party shall constitute
a single original instrument.
(g) ENTIRE AGREEMENT. This Agreement, the Note, the Note
Agreement, the Credit Agreement, the Credit Facility Note and
the Distribution Agreement constitute the entire understanding
between the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and
preliminary agreements with respect thereto.
(h) WAIVER. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be or be construed as a
further or continuing waiver of any such term, provision or
condition or as a waiver of any other term, provision or
condition of this Agreement.
(i) FURTHER ASSURANCES. Each party hereto agrees to execute
and deliver such other documents and instruments as the other
party may reasonably request to better evidence or effectuate
the rights and obligations of the parties hereto and the
transactions contemplated hereunder, provided that no party
shall, as a result thereof, be required to assume any further
obligation or relinquish any of its rights hereunder.
(j) SEVERABILITY. The invalidity or unenforceability of any
provision hereto shall in no way affect the validity or
enforceability of any other provision.
(k) NUMBER AND GENDER. Whenever the singular or plural number
is used herein, and when the context so requires, the same
shall include the plural or singular, as the case may be; and,
the masculine, feminine and neuter gender shall each include
the other.
(l) DISPUTES RESOLUTION. Disputes shall be resolved as
provided in Exhibit D attached hereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Debtor"
MICRO THERAPEUTICS, INC.,
a Delaware corporation
By: /s/ William F. Gearhart
----------------------------------
Its: Executive Vice President
----------------------------------
"Secured Party"
ABBOTT LABORATORIES,
an Illinois corporation
By: /s/ Richard A. Gonzalez
----------------------------------
Its: President HPD
----------------------------------
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<PAGE> 10
EXHIBIT A
INTELLECTUAL PROPERTY
TRADEMARKS
REGISTERED TRADEMARKS
<TABLE>
<CAPTION>
NAME TRADEMARK(TM) REGISTERED(R)
<S> <C> <C>
1. ProStream TM Reg. No. 2,035,778
2. MicroMewi TM Reg. No. 2,137,320
</TABLE>
TRADEMARKS - NOT YET REGISTERED
<TABLE>
<CAPTION>
NAME TRADEMARK(TM) REGISTERED(R)
<S> <C> <C>
1. Cragg Thrombolytic Brush
2. Mewi-5 Appl. No. 75/431312
3. Castaneda Over-The-Wire Brush
4. Focused Infusion Catheters
</TABLE>
EXHIBIT B
INTELLECTUAL PROPERTY
PATENTS
1. Valved-Tip Angiographic Catheter 5,085,535
2. Infusion Device with Preformed Shape (Coiled Wire) 5,554,114
3. Longitudinally Extendable Infusion Device 5,624,396
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<PAGE> 11
4. U.S. patent application number 08/541,147, filed 10/11/95, response to 1st
Office Action filed 7/10/97 Infusion Guidewire Having Fixed Cord and Flexible
Radiopague Marker (Straight Wire)
5. U.S. patent application number 08/900,024, filed 7/24/97, awaiting office
action; PCT filed CIP to Infusion Guidewire Having Fixed Core and Flexible
Radiopague Marker
6. U.S. patent application number 08/746,302, filed 11/8/96, issue fee paid
4/15/98 Infusion Device for Distributing Infusate Along an Elongated Infusion
Segment
7. U.S. patent application number 09/079,487, filed 5/15/97, awaiting 1st office
action; Canada and EPO filed and in process Power Lysis of Thrombus in Blood
Vessels
8. Thrombectomy Method and Apparatus 5,370,653
9. Miniaturized Brush with Hollow Lumen Brush Body 5,681,335
EXHIBIT C
OTHER ASSETS
NO OTHER CURRENT ASSETS
EXHIBIT D
DISPUTE RESOLUTION
The parties recognize that a bona fide dispute as to certain matters may arise
from time to time during the term of this Agreement which relates to either
party's rights and/or obligations. To have such a dispute resolved by this
Alternative Dispute Resolution ("ADR") provision, a party first must send
written notice of the dispute to the other party for attempted resolution by
good faith negotiations between their respective presidents (or their
equivalents) of the affected subsidiaries, divisions, or business units within
twenty-eight (28) days after such notice is received (all references to "days"
in this ADR provision are to calendar days).
If the matter has not been resolved within twenty-eight (28) days of the notice
of dispute, or if the parties fail to meet within such twenty-eight (28) days,
either party may initiate an ADR proceeding as provided herein. The parties
shall have the right to be represented by counsel in such a proceeding.
1. To begin an ADR proceeding, a party shall provide written notice to the
other party of the issues to be resolved by ADR. Within fourteen (14)
days after its receipt of such notice, the other party may, by written
notice to the party initiating the ADR, add additional issues to be
resolved within the same ADR.
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<PAGE> 12
2. Within twenty-one (21) days following receipt of the original ADR
notice, the parties shall select a mutually acceptable neutral to
preside in the resolution of any disputes in this ADR proceeding. If
the parties are unable to agree on a mutually acceptable neutral within
such period, either party may request the President of the CPR
Institute for Dispute Resolution ("CPR"), 366 Madison Avenue, 14th
Floor, New York, New York 10017, to select a neutral pursuant to the
following procedures:
(a) The CPR shall submit to the parties a
list of not less than five (5) candidates within
fourteen (14) days after receipt of the request,
along with a Curriculum Vitae for each candidate. No
candidate shall be an employee, director, or
shareholder of either party or any of their
subsidiaries or affiliates.
(b) Such list shall include a statement of
disclosure by each candidate of any circumstances
likely to affect his or her impartiality.
(c) Each party shall number the candidates
in order of preference (with the number one (1)
signifying the greatest preference) and shall deliver
the list to the CPR within seven (7) days following
receipt of the list of candidates. If a party
believes a conflict of interest exists regarding any
of the candidates, that party shall provide a written
explanation of the conflict to the CPR along with its
list showing its order of preference for the
candidates. Any party failing to return a list of
preferences on time shall be deemed to have no order
of preference.
(d) If the parties collectively have
identified fewer than three (3) candidates deemed to
have conflicts, the CPR immediately shall designate
as the neutral the candidate for whom the parties
collectively have indicated the greatest preference.
If a tie should result between two candidates, the
CPR may designate either candidate. If the parties
collectively have identified three (3) or more
candidates deemed to have conflicts, the CPR shall
review the explanations regarding conflicts and, in
its sole discretion, may either (i) immediately
designate as the neutral the candidate for whom the
parties collectively have indicated the greatest
preference, or (ii) issue a new list of not less than
five (5) candidates, in which case the procedures set
forth in subparagraphs 2(a) - 2(d) shall be repeated.
3. No earlier than twenty-eight (28) days or later than fifty-six (56)
days after selection, the neutral shall hold a hearing to resolve each
of the issues identified by the parties. The ADR proceeding shall take
place at a location in the State of California agreed upon by the
parties. If the parties cannot agree, the neutral shall designate a
location
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<PAGE> 13
in the State of California other than the principal place of business
of either party or any of their subsidiaries or affiliates.
4. At least seven (7) days prior to the hearing, each party shall submit
the following to the other party and the neutral:
(a) a copy of all exhibits on which such
party intends to rely in any oral or written
presentation to the neutral;
(b) a list of any witnesses such party
intends to call at the hearing, and a short summary
of the anticipated testimony of each witness;
(c) a proposed ruling on each issue to be
resolved, together with a request for a specific
damage award or other remedy for each issue. The
proposed rulings and remedies shall not contain any
recitation of the facts or any legal arguments and
shall not exceed one (1) page per issue.
(d) a brief in support of such party's
proposed rulings and remedies, provided that the
brief shall not exceed twenty (20) pages. This page
limitation shall apply regardless of the number of
issues raised in the ADR proceeding.
Except as expressly set forth in subparagraphs 4(a) - 4(d), no
discovery shall be required or permitted by any means, including
depositions, interrogatories, requests for admissions, or production of
documents.
5. The hearing shall be conducted on two (2) consecutive days and shall be
governed by the following rules:
(a) Each party shall be entitled to five (5)
hours of hearing time to present its case. The
neutral shall determine whether each party has had
the five (5) hours to which it is entitled.
(b) Each party shall be entitled, but not
required, to make an opening statement, to present
regular and rebuttal testimony, documents or other
evidence, to cross-examine witnesses, and to make a
closing argument. Cross-examination of witnesses
shall occur immediately after their direct testimony,
and cross-examination time shall be charged against
the party conducting the cross-examination.
(c) The party initiating the ADR shall begin
the hearing and, if it chooses to make an opening
statement, shall address not only issues it raised
but also any issues raised by the responding
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party. The responding party, if it chooses to make an
opening statement, also shall address all issues
raised in the ADR. Thereafter, the presentation of
regular and rebuttal testimony and documents, other
evidence, and closing arguments shall proceed in the
same sequence.
(d) Except when testifying, witnesses shall
be excluded from the hearing until closing arguments.
(e) Settlement negotiations, including any
statements made therein, shall not be admissible
under any circumstances. Affidavits prepared for
purposes of the ADR hearing also shall not be
admissible. As to all other matters, the neutral
shall have sole discretion regarding the
admissibility of any evidence.
6. Within seven (7) days following completion of the hearing, each party
may submit to the other party and the neutral a post-hearing brief in
support of its proposed rulings and remedies, provided that such brief
shall not contain or discuss any new evidence and shall not exceed ten
(10) pages. This page limitation shall apply regardless of the number
of issues raised in the ADR proceeding.
7. The neutral shall rule on each disputed issue within fourteen (14) days
following completion of the hearing. Such ruling shall adopt in its
entirety the proposed ruling and remedy of one of the parties on each
disputed issue but may adopt one party's proposed rulings and remedies
on some issues and the other party's proposed rulings and remedies on
other issues. The neutral shall not issue any written opinion or
otherwise explain the basis of the ruling.
8. The neutral shall be paid a reasonable fee plus expenses. These fees
and expenses, along with the reasonable legal fees and expenses of the
prevailing party (including all expert witness fees and expenses), the
fees and expenses of a court reporter, and any expenses for a hearing
room, shall be paid as follows:
(a) If the neutral rules in favor of one
party on all disputed issues in the ADR, the losing
party shall pay 100% of such fees and expenses.
(b) If the neutral rules in favor of one
party on some issues and the other party on other
issues, the neutral shall issue with the rulings a
written determination as to how such fees and
expenses shall be allocated between the parties. The
neutral shall allocate fees and expenses in a way
that bears a reasonable relationship to the outcome
of the ADR, with the party prevailing on more issues,
or on issues of greater value or gravity, recovering
a relatively larger share of its legal fees and
expenses.
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9. The rulings of the neutral and the allocation of fees and expenses
shall be binding, non-reviewable, and non-appealable, and may be
entered as a final judgment in any court having jurisdiction.
10. Except as provided in paragraph 9 or as required by law, the existence
of the dispute, any settlement negotiations, the ADR hearing, any
submissions (including exhibits, testimony, proposed rulings, and
briefs), and the rulings shall be deemed Confidential Information. The
neutral shall have the authority to impose sanctions for unauthorized
disclosure of Confidential Information.
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