<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NORIAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 3842 77-0147561
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
10260 BUBB ROAD
CUPERTINO, CALIFORNIA 95014-4166
(408) 252-6800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRENT R. CONSTANTZ
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF SCIENTIST
NORIAN CORPORATION
10260 BUBB ROAD
CUPERTINO, CALIFORNIA 95014-4166
(408) 252-6800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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STEVEN E. BOCHNER, ESQ. MICHAEL W. HALL, ESQ.
NEVAN C. ELAM, ESQ. ROBERT V. W. ZIPP, ESQ.
CARMEN C. CHANG, ESQ. LAUREL H. FINCH, ESQ.
WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP,
PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION
650 PAGE MILL ROAD 2800 SAND HILL ROAD
PALO ALTO, CALIFORNIA 94304 MENLO PARK, CALIFORNIA 94025
(415) 493-9300 (415) 854-4488
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, no par value...... 3,450,000 shares $14.00 $48,300,000 $16,655.18
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(1) Includes 450,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
NORIAN CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF PART I ITEMS OF FORM S-1
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ITEM NUMBER AND HEADING IN FORM S-1
REGISTRATION STATEMENT LOCATION OF CAPTION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Forepart of Registration Statement; Outside
Front Cover Page; Additional Information
2. Inside Front and Outside Back Cover
Pages of Prospectus........................ Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges......... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside and Inside Front Cover Pages;
Underwriting; Outside Back Cover Page
9. Description of Securities to be
Registered................................. Prospectus Summary; Dividend Policy;
Capitalization; Description of Capital
Stock; Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the
Registrant................................. Outside and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Shareholders; Description of
Capital Stock; Shares Eligible for Future
Sale; Financial Statements; Outside and
Inside Back Cover Pages
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
Subject to Completion
May 9, 1996
3,000,000 SHARES
LOGO
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by Norian
Corporation ("Norian" or the "Company"). Prior to this offering, there has been
no public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $12.00 and $14.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. Application has been made for
quotation of the Common Stock on the Nasdaq National Market under the symbol
NORI.
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE PROCEEDS
TO TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNTS AND
COMMISSIONS(1)
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<S> <C> <C> <C>
Per Share................................ $ $ $
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Total(3)................................. $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses of the offering estimated at $900,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about June ,
1996.
ALEX. BROWN & SONS ROBERTSON, STEPHENS & COMPANY
INCORPORATED
THE DATE OF THIS PROSPECTUS IS JUNE , 1996.
<PAGE> 4
INSIDE FRONT COVER
Photo One
Computer-enhanced cutaway depiction of tibial plateau fracture in cadaver bone.
A compression fracture of the upper tibia forces a fragment of the knee joint
surface downward, crushing the porous cancellous bone beneath it.
Photo Two
Computer-enhanced cutaway depiction of reduced tibial plateau fracture in
cadaver bone.
Surgical intervention restores the bone fragments to their proper positions, but
leaves a void in the cancellous bone beneath the joint surface.
Photo Three
Computer-enhanced cutaway depiction of the insertion of Norian SRS into a
cancellous bone void secured with three orthopaedic screws in cadaver bone.
Norian SRS may be used to fill this void in the crushed cancellous bone.
Orthopaedic screws are used, as in this example, if the fracture has broken the
hard cortical bone on the side of the tibia.
Photo Four
Computer-enhanced cutaway depiction of tibial plateau fracture in cadaver bone
treated with Norian SRS and orthopaedic screws.
The Company believes that the use of Norian SRS may provide direct structural
support to the fracture site, improve the fixation of screws and other
orthopaedic hardware and reduce the amount of orthopaedic hardware required for
an optimal outcome.
Photo Five
Computed-enhanced cutaway depiction of healed tibial plateau fracture in
cadaver bone with majority of Norian SRS replaced by natural bone.
The Company believes that Norian SRS will help to maintain proper alignment of
the joint surface throughout the healing process, resulting in improved
long-term functionality of the knee. Over time, Norian SRS appears to be
replaced with natural bone.
Photo Six
Cancellous man
Computer-generated depiction of human skeleton with regions of cancellous bone
highlighted.
Norian SRS is an injectable, moldable and biocompatible cancellous bone fixation
and replacement material. Cancellous bone comprises approximately 20% of the
human skeleton and is found principally in the spine and at the ends of long
bones near joints.
Norian SRS is an investigational device and has not been approved by the FDA
for marketing in the United States. Norian SRS cannot be sold commercially in
the United States unless and until such FDA approval is obtained, and FDA
approvals may not be received for several years, if at all.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
Norian(R), the Norian logo, CrystalCoat(R), SRS(R) and Norian SRS(R) are
trademarks of the Company. Trademarks of others are also referred to in this
Prospectus.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified by the more detailed information and
financial statements and notes thereto appearing elsewhere in this Prospectus.
Norian develops, manufactures and markets Norian Skeletal Repair System
("Norian SRS"), a proprietary bone fixation and replacement material designed
for use in regions of structurally compromised cancellous bone such as the
wrist, hip, knee and spine. Norian SRS is inserted into bone defects as a paste,
either through minimally invasive injection or in an open surgical procedure.
The material sets within 10 minutes of application and continues to cure over 12
hours to achieve its ultimate strength. The Company believes that Norian SRS
provides direct structural support to compromised cancellous bone and can
withstand compressive mechanical force soon after a procedure and over time.
Additionally, Norian SRS may reduce the need for orthopaedic hardware in
weakened cancellous bone. Norian SRS cures into a crystalline structure similar
to the mineral phase of natural bone and appears to be replaced by natural bone
over time.
Fractures in cancellous bone tend to be complex, highly variable and
difficult to repair with currently available treatment methods. These problems
are compounded when cancellous bone is weakened by osteoporosis. The Company
believes that Norian SRS overcomes the shortcomings of currently available
treatment methods for cancellous bone fractures. The Company believes that one
of the principal benefits of Norian SRS is to provide direct structural support
to fractures, thereby reducing the risk of loss of anatomical positioning during
the healing process and improving post-operative function and long-term outcome
for the patient. In addition, Norian SRS may decrease the overall treatment cost
by reducing the extent of rehabilitation required following fracture fixation
and immobilization.
The orthopaedic trauma market is the second largest segment of the
orthopaedic industry, representing approximately 19% of the industry's $2.2
billion estimated 1995 sales in the United States. This market includes over six
million fractures in the United States every year. The Company's strategy is to
establish Norian SRS as the leading cancellous bone fixation and replacement
product to be used independently or in conjunction with conventional fixation
devices. Key elements of the Company's strategy include seeking regulatory
approvals in the United States and in other selected countries and demonstrating
clinical utility and cost-effectiveness by conducting clinical trials of the use
of Norian SRS in selected applications. Following receipt of regulatory
approvals, the Company intends to focus on providing extensive physician
education and training, seeking reimbursement from third-party payors and
establishing a direct sales force in the United States and a direct sales force
or a network of distributors in foreign markets.
The Company intends to seek regulatory approval of Norian SRS as a
cancellous bone cement. Under an Investigational Device Exemption ("IDE")
approved by the United States Food and Drug Administration ("FDA"), the Company
is conducting a randomized, multi-center clinical trial of the use of Norian SRS
in the treatment of wrist fractures in up to 324 patients. This study is
designed to demonstrate the safety and efficacy of Norian SRS in its ability to
maintain the anatomical alignment of cancellous bone fragments and to improve
functional outcomes such as grip strength and range of motion. The Company
expects to use the data from this trial to support a pre-market approval ("PMA")
application to market Norian SRS in the United States and to demonstrate its
cost-effectiveness to third-party payors for purposes of reimbursement. As of
April 30, 1996, 196 patients had been enrolled in the study. The Company is also
seeking to obtain the right to affix to Norian SRS the "CE" mark, an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives. The CE mark will allow the
Company to market the product in all of the member countries of the European
Union ("EU"). In addition, the Company has test-marketed Norian SRS in the
Netherlands since 1994, where the product is approved for commercial sale.
In April 1996, the Company and Mochida Pharmaceutical Co., Ltd. ("Mochida")
entered into a collaborative agreement for the exclusive marketing and
distribution of Norian SRS in Japan for use in certain applications (the
"Mochida Transaction"). The agreement provides for payments by Mochida to Norian
of up to a total of $15.0 million, consisting of a $7.0 million equity
investment completed in April 1996 and $8.0 million in non-refundable payments
based on achievement of time-related, clinical and regulatory milestones, of
which $2.0 million was received upon execution of the contract. Mochida will be
responsible for performing clinical development in accordance with the Company's
protocols and obtaining government approval for Norian SRS in Japan. The Company
will be responsible for manufacturing and supplying the product to Mochida. The
agreement has an initial term ending on the earlier of 10 years from the date of
regulatory approval to commence commercial sales of Norian SRS in Japan or 15
years from the date of the agreement.
3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby...................... 3,000,000 shares
Common Stock to be outstanding after the 12,368,641 shares(1)
offering.......................................
Use of proceeds.................................. To fund expansion of manufacturing, marketing and
sales activities, clinical trials of Norian SRS,
research and development activities and general
corporate purposes.
Proposed Nasdaq National Market symbol........... NORI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- -------------------
1993 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue............................. $ 444 $ 210 $ 150 $ 38 $ 38
Operating expenses:
Research and development................... 2,564 3,104 4,556 974 1,850
Contract revenue costs..................... 224 36 -- -- --
General and administrative................. 1,255 1,491 2,165 571 681
Net loss..................................... $(3,277) $(4,158) $(5,858) $(1,465) $(2,284)
Pro forma net loss per share(2).............. $ (0.71) $ (0.26)
Pro forma weighted average shares used to
compute pro forma net loss per share(2).... 8,197 8,811
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
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BALANCE SHEET DATA:
Cash, cash equivalents and securities
available-for-sale...................................... $15,342 $ 22,342 $ 57,712
Total assets.............................................. 18,146 25,146 60,516
Deficit accumulated during development stage.............. (24,234) (24,234) (24,234)
Total shareholders' equity................................ 16,671 23,671 59,041
</TABLE>
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(1) Excludes (i) 576,624 shares of Common Stock issuable upon exercise of
options outstanding under the Company's stock option plans and (ii) 423,540
shares of Common Stock issuable upon exercise of outstanding warrants. See
"Management -- Executive Compensation," "Certain Transactions," "Description
of Capital Stock" and Notes 8 and 13 of Notes to Consolidated Financial
Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for information
concerning calculation of pro forma net loss per share.
(3) Pro forma to give effect to the receipt by the Company of a $7.0 million
equity investment in connection with the Mochida Transaction.
(4) Adjusted to give effect to the estimated net proceeds of this offering based
upon an assumed initial public offering price of $13.00 per share. See "Use
of Proceeds."
------------------
Except as otherwise specified, all information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option. See "Underwriting."
Except as set forth in the financial statements and as otherwise noted, all
information in this Prospectus has been adjusted to give effect to (i) the
conversion of all of the outstanding shares of Preferred Stock into Common Stock
and (ii) a one-for-eight reverse split of the outstanding shares of Common Stock
and Preferred Stock, each of which will occur prior to or upon the completion of
this offering. See "Capitalization" and "Description of Capital Stock."
4
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. The Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth below and
elsewhere in this Prospectus.
Lack of Regulatory Approvals. The Company's product, Norian SRS, has not
been approved for sale in the United States. To market Norian SRS in the United
States, the Company must obtain approval from the FDA. In the United States, the
Company intends to file a PMA application seeking labeling for usage of Norian
SRS as a cancellous bone cement in regions of cancellous bone throughout the
body. There can be no assurance that the FDA will act favorably or quickly on
the Company's planned PMA application, and significant difficulties and costs
may be encountered by the Company in its efforts to obtain such approval that
would delay or preclude the Company from selling its products in the United
States. Furthermore, there can be no assurance that the FDA will not request
additional data, require the Company to conduct further clinical and
non-clinical studies, or require supplements to the Company's PMA application,
causing the Company to incur substantial cost and delay. In addition, if PMA
approval is obtained, there can be no assurance that such approval will not
significantly restrict the anatomic sites or types of procedures for which
Norian SRS can be used. Failure to obtain PMA approval or restrictions on the
anatomic sites and types of procedures for which Norian SRS may be used would
substantially limit the Company's ability to market Norian SRS in the United
States, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
To market Norian SRS in Europe and certain other foreign countries, the
Company and its distributors and agents must obtain regulatory approvals and
otherwise comply with extensive regulations regarding safety and quality. These
regulations, including the time required for regulatory review, vary from
country to country. Prior to mid-1998, medical device companies selling products
in the EU must comply with the applicable regulations of the various countries
in effect on December 31, 1994. The EU has promulgated rules which require that
medical products receive the right to affix the CE mark by mid-1998. Failure to
receive the right to affix the CE mark will prohibit the Company from selling
Norian SRS in the member countries of the EU after mid-1998. The Company, with
its Japanese partner, Mochida, intends to file applications for Japanese
regulatory approval from the Ministry of Health and Welfare ("MHW") and plans to
commence clinical trials to support regulatory and reimbursement approval in
Japan. There can be no assurance that the Company will obtain regulatory
approvals in such countries, that any regulatory approval would not include
restrictions on the anatomic sites and types of procedures for which Norian SRS
can be used, or that it will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals. Delays in the receipt
of approvals to market the Company's products, failure to receive these
approvals, or future loss of previously received approvals would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Extensive Government Regulation" and
"Business -- Government Regulation."
Dependence Upon Norian SRS. The Company is dependent upon the success of
Norian SRS, its sole product, which will require further development and
regulatory and reimbursement approvals before it can be marketed in the United
States or in other nations. The Company has never sold Norian SRS in the United
States, and there can be no assurance that the Company's development efforts
will be successful or that Norian SRS or any other product developed by the
Company will be safe or effective, approved by regulatory authorities, capable
of being manufactured in commercial quantities at acceptable costs, or
successfully marketed. The Company expects that Norian SRS, if commercialized,
will account for substantially all of the Company's revenues for the foreseeable
future. Furthermore, because Norian SRS currently represents the Company's sole
5
<PAGE> 8
product focus, if Norian SRS is not successfully commercialized, the Company's
business, financial condition and results of operations would be materially and
adversely affected.
New Technology; Uncertainty of Market Acceptance. Norian SRS is based on
new technology which has not been previously used to treat bone fractures and
must compete with more established orthopaedic treatments currently accepted as
the standards of care. Market acceptance of Norian SRS will largely depend on
the Company's ability to demonstrate the relative safety, clinical efficacy,
cost-effectiveness and ease of use of its products. The use of Norian SRS will
depend on physician awareness, concerted sales efforts by the Company and its
distributors and the availability and extent of third-party reimbursement. The
Company believes that recommendations and endorsements by physicians will be
essential for market acceptance of Norian SRS, and there can be no assurance
that any such recommendations or endorsements will be obtained. Physicians will
not use Norian SRS unless they determine, based on clinical data and other
factors, that the use of Norian SRS is an attractive alternative or complement
to other means of repairing damaged cancellous bone. Such determinations will
depend, in part, on the ability of Norian SRS to aid in the proper alignment of
bone during healing, and to reduce the time to ambulation and the length of
hospital stays associated with certain cancellous bone fractures. Acceptance
among physicians will also depend upon the Company's ability to train, and the
rate of training of, orthopaedic surgeons in the use of Norian SRS and the
willingness of such physicians to learn these new techniques. There can be no
assurance that Norian SRS will be accepted in the market in preference to other
competing therapies or to therapies that may subsequently be developed. Lack of
market acceptance by physicians would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Physician Education and Training" and "-- Product Marketing."
Limited Clinical Trials. To date, the Company has conducted significant
clinical trials only for use of Norian SRS in treatment of certain wrist (distal
radius) fractures, from which the Company has only limited follow-up data. The
Company intends to initiate clinical studies for the use of Norian SRS in the
treatment of certain hip (intertrochanteric) and knee (tibial plateau) fractures
and for spinal reconstruction. Accordingly, there can be no assurance that
Norian SRS will prove safe and efficacious for use in any application, or that
the Company will obtain regulatory approval to market Norian SRS, that Norian
SRS will achieve market acceptance, or that adequate third-party reimbursement
will be available, for any application. Failure to demonstrate safety and
efficacy, obtain regulatory approval for commercial sales, achieve market
acceptance or gain third-party reimbursement for use of Norian SRS could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Clinical Applications," " -- Physician
Education and Training," " -- Government Regulation" and " -- Third-Party
Reimbursement."
Uncertainty Related to Third-Party Reimbursement. The Company's products
will generally be purchased by hospitals or practicing physicians, which then
bill various third-party payors, such as governmental programs, managed care
organizations, such as health maintenance organizations, and other private
health insurers. Successful sales of Norian SRS in the United States and other
markets will depend on the availability of adequate reimbursement from
third-party payors. There is significant uncertainty concerning third-party
reimbursement for the use of any medical device incorporating new technology.
Even if the Company receives approval of a PMA application for Norian SRS for
orthopaedic uses, third-party payors may nevertheless deny reimbursement or
reimburse at a low price if they conclude, on the basis of clinical, economic
and other data, that its use is not cost-effective, or if the product is used
for an unapproved indication. Furthermore, third-party payors are increasingly
challenging the need to perform medical procedures, as well as limiting
reimbursement coverage for medical devices, and in many instances are pressuring
medical suppliers to lower their prices. There can be no assurance that use of
Norian SRS will be considered cost-effective by third-party payors, that
reimbursement will be available or, if available, that payors' reimbursement
policies will not adversely affect the Company's ability to sell its products on
a profitable basis. The market for the Company's products could also be
adversely affected by recent federal legislation that reduces reimbursements
under the cost pass-through system for the Medicare
6
<PAGE> 9
program. In addition, an increasing emphasis on managed care in the United
States has increased, and will continue to increase, the pressure on medical
device pricing. While the Company cannot predict whether any such legislative or
regulatory proposals will be adopted or the effect such proposals or managed
care efforts may have on its business, the announcement of such proposals could
have a material adverse effect on the Company's ability to raise capital, and
the adoption of such proposals would have a material adverse effect on the
Company's business, financial condition and results of operations. Failure by
hospitals and other users of the Company's products to obtain reimbursement from
third-party payors and/or changes in governmental and private third-party
payors' policies toward reimbursement for procedures employing the Company's
products would also have a material adverse effect on the Company's business,
financial condition and results of operations.
Member countries of the EU operate various combinations of
centrally-financed health care systems and private health insurance systems. The
relative importance of such government and private systems varies from country
to country. Medical devices are most commonly sold to hospitals or health care
facilities at a price set by negotiation between the buyer and the seller. The
choice of devices is subject to constraints imposed by the availability of funds
within the purchasing institution. A contract to purchase products may result
from an individual initiative or as a result of a public invitation and a
competitive bidding process. In either case, the purchaser pays the supplier and
payment terms can vary widely throughout the EU.
In Japan, at the end of the regulatory approval process, the MHW makes a
determination of the unit reimbursement price of the product. The MHW can set
the reimbursement level for Norian SRS at its discretion, and there can be no
assurance that the Company and its partner, Mochida, will be able to obtain
regulatory approval in Japan or if such approval is granted that the Company
will obtain a favorable per unit reimbursement price. See
"Business -- Third-Party Reimbursement."
History of Losses; Lack of Product Revenues; Uncertainty of Future
Results. The Company is a development stage enterprise and has incurred net
losses since its inception. At March 31, 1996, the Company's accumulated deficit
was approximately $24.2 million. Net losses for the years ended December 31,
1994 and 1995 and for the three months ended March 31, 1996 were approximately
$4.2 million, $5.9 million and $2.3 million, respectively. The Company expects
to incur substantial operating losses at least until it begins significant
marketing activities, which remain subject to FDA approval in the United States
and the approval of international regulatory agencies. Further, the Company's
expenses are expected to increase relative to prior years as the Company
prepares for expanded multi-center clinical trials, manufacturing and
international marketing of Norian SRS, while expanding its research and
development activities. Even if the Company receives approval for use of Norian
SRS in the United States and abroad, there can be no assurance that the Company
will ever generate substantial revenues or achieve profitability. The Company's
results of operations will depend upon numerous factors, including the need for
and timing of regulatory approval, market acceptance by physicians of Norian
SRS, third-party reimbursement policies and the Company's ability to manufacture
Norian SRS efficiently and competitively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Physician Education and Training" and "-- Product Marketing."
Dependence on Patents and Proprietary Rights. The Company holds 13 United
States patents, two of which cover the current formulation of Norian SRS and
five of which cover other formulations of calcium phosphate cements that may be
used in future products or to prevent third parties from developing similar
technology. In addition, the Company has four patents on CrystalCoat and two
patents on Healos, both of which are biomaterials developed by the Company and
licensed exclusively to third parties for certain applications. The Company also
holds patents relating to Norian SRS in 13 European nations and in Canada.
Additionally, the Company has seven United States and several foreign
applications pending. There can be no assurance that pending patent applications
will be allowed or that any of the Company's patents will provide protection for
the Company's products. The Company expects to continue to file additional
patent applications to
7
<PAGE> 10
protect its proprietary technologies. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. There can be no assurance that the measures taken by the Company to
protect its proprietary technology will prevent misappropriation of such
technology, and such protections may not preclude competitors from developing
products similar to the Company's products. In addition, effective patent,
copyright, trademark and trade secret protection may be unavailable or limited
in certain foreign countries. The failure of the Company to protect its
proprietary information would have a material adverse effect on the Company's
business, financial condition and results of operations.
While the Company believes that its products and trademarks do not infringe
upon the proprietary rights of third parties, there can be no assurance that the
Company will not receive future communications from third parties asserting that
the Company's products infringe, or may infringe, the proprietary rights of such
third parties. The Company is aware of one Japanese patent and several Japanese
patent applications filed by a Japanese corporation which claim ratio
compositions comprising two of the components of Norian SRS. The formulation of
Norian SRS currently in clinical and commercial use by the Company in countries
other than Japan may have a ratio of these two components that falls within the
range claimed by such patent and patent applications. In addition, the Company
is aware that another Japanese corporation has filed a patent application in
Japan, and several counterpart applications in countries outside the United
States, that include a composition of matter claim covering one of the
components of Norian SRS. If a patent including this claim were to issue, Norian
SRS, in its current formulation, may be deemed to infringe such patent. There
can be no assurance that the Japanese entities or other entities will not bring
a claim of patent infringement against the Company or that the Company's product
will not be determined to be infringing. Any such claims, including meritless
claims, could result in costly, time-consuming litigation and diversion of
technical and management personnel. In the event any third party were to make a
valid claim and a license were not made available on commercially reasonable
terms, or if the Company were unable to develop non-infringing alternative
technology, the Company's business, financial condition and results of
operations would be materially and adversely affected.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not in
the future become subject to patent infringement claims and litigation or
interference proceedings declared by the United States Patent and Trademark
Office ("USPTO") to determine the priority of inventions. The defense and
prosecution of intellectual property suits, USPTO interference proceedings and
related legal and administrative proceedings are both costly and time consuming.
Litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, or to determine the
enforceability, scope and validity of the proprietary rights of others.
Any litigation or interference proceedings will result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms, if
at all. Adverse determinations in a judicial or administrative proceeding or
failure to obtain necessary licenses could prevent the Company from
manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. The agreements generally
provide that all inventions conceived of by the individual in the course of
rendering services to the Company, shall be the exclusive property of the
Company.
8
<PAGE> 11
However, certain of the Company's agreements with consultants, who typically are
employed on a full-time basis by academic institutions or hospitals, do not
contain assignment of invention provisions. There can be no assurance that
proprietary information or confidentiality agreements with employees,
consultants and others will not be breached, that the Company would have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known to, or independently developed by, competitors. See
"Business -- Patents and Proprietary Information."
Extensive Government Regulation. The Company's products and its
manufacturing activities for Norian SRS are subject to extensive regulation by
the FDA and, in some instances, by foreign and state governments. Pursuant to
the Federal Food, Drug, and Cosmetic Act, as amended, and the regulations
promulgated thereunder (the "FDC Act"), the FDA regulates the clinical testing,
manufacture, labeling, sale, distribution and promotion of medical devices.
Before a new device can be introduced into the market, the manufacturer must
obtain market clearance through either the 510(k) premarket notification process
under Section 510(k) of the FDC Act or the lengthier PMA application process
under Section 515 of the FDC Act. Noncompliance with applicable requirements,
including good manufacturing practices ("GMP"), can result in, among other
things, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of marketing
approvals and criminal prosecution. The FDA also has the authority to request
repair, replacement or refund of the cost of any device manufactured or
distributed by the Company.
The Company believes that an FDA-approved PMA application will be required
to market Norian SRS in the United States. The Company is currently conducting
clinical studies of Norian SRS pursuant to an FDA-approved IDE to collect data
necessary to support a PMA application. Although the Company plans to pursue
approval for use of Norian SRS as a cancellous bone cement at any anatomic site
where cancellous bone exists, only wrist fractures are currently being studied
in the United States under the Company's FDA-approved IDE. The Company plans to
provide clinical data of the safety and effectiveness of Norian SRS as a
cancellous bone cement for anatomic sites other than the wrist with data from
clinical trials being conducted in the United States and abroad. The FDA often
analyzes data from foreign clinical studies more critically, and there can be no
assurance that the Company's foreign clinical data will be accepted as part of
the Company's PMA application.
On two occasions, the Company has expanded the number of sites at which it
is conducting its clinical studies in the United States due to slow enrollment
of patients at existing sites. There can be no assurance that the Company will
be successful in enrolling sufficient numbers of patients to complete its
clinical studies. Moreover, there can be no assurance that data from any
completed domestic or foreign clinical studies will demonstrate the safety and
effectiveness of Norian SRS or that such data will otherwise be adequate to
support approval of a PMA application. In addition, if PMA approval is obtained,
there can be no assurance that such approval will not significantly restrict the
anatomic sites and types of procedures for which Norian SRS can be used. Failure
to obtain approval of a PMA application or restrictions on the anatomic sites
and types of procedures for which Norian SRS can be used would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Any products manufactured or distributed by the Company pursuant to FDA
approvals will be subject to extensive regulation by the FDA, and the FDA's
enforcement policy strictly prohibits the promotion of products for any uses
other than those for which approval was obtained. New governmental regulations
may be established that could prevent or delay regulatory approval of the
Company's products. Furthermore, if approval of a PMA application is obtained,
modifications to the approved product may require a PMA supplement or may
require the submission of a new PMA application. There can be no assurance that
approval of any necessary PMA supplements or new PMA applications could be
obtained in a timely manner, if at all. In addition, the Company's manufacturing
facilities are subject to periodic inspections by state and federal agencies,
including the FDA and the California State Department of Health Services
("CDHS"). Delays in obtaining any necessary
9
<PAGE> 12
approvals, failure to obtain approvals, or the loss of previously obtained
approvals would have a material adverse effect on the Company's business,
financial condition and results of operations.
The introduction of the Company's products in foreign markets will also
subject the Company to foreign regulatory clearances which may impose additional
substantial costs and burdens. International sales of medical devices are
subject to the regulatory requirements of each country. The regulatory review
process varies from country to country. Many countries also impose product
standards, packaging and labeling requirements and import restrictions on
devices. In addition, each country has its own tariff regulations, duties and
tax requirements. The approval by the foreign government authorities is
unpredictable and uncertain, and no assurance can be given that the necessary
approvals or clearances will be granted on a timely basis or at all. Delays in
receipt of, or failure to receive, such approvals or clearances, or the loss of
any previously received approvals or clearances, could have a material adverse
effect on the business, financial condition and results of operations of the
Company.
The EU has promulgated rules which require that medical products receive
the right to affix the CE mark by mid-1998. Prior to mid-1998, medical device
companies selling products in the EU must comply with the applicable regulations
of the various countries in effect on December 31, 1994. Failure to receive the
right to affix the CE mark will prohibit the Company from selling its products
in member countries of the EU. Unexpected delays or problems could occur, and
there can be no assurance that the Company will be successful in meeting
certification requirements. See "Business -- Government Regulation."
Limited Manufacturing Experience. The Company has limited experience in
manufacturing Norian SRS and currently manufactures the product in limited
quantities for United States clinical trials, international clinical trials and
limited international test-marketing. While the Company believes that it has the
manufacturing capacity necessary to support the limited quantities of Norian SRS
currently being produced, it will need additional resources to commence
full-scale production of Norian SRS for commercial sales. The Company does not
have experience in manufacturing its products in commercial quantities.
Manufacturers often encounter difficulties in scaling up production of new
products, including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel. Furthermore,
the Company is dependent upon its Cupertino, California facility as the only
site for the manufacture of Norian SRS. Difficulties encountered by Norian in
its manufacturing scale-up would have a material adverse effect on its business,
financial condition and results of operations, and there can be no assurance
that such difficulties will not occur. See "Business -- Manufacturing."
Intense Competition; Uncertainty of Technological Change. The market for
musculoskeletal disease and injury treatments is characterized by extensive
research efforts and rapid technological change. The Company faces intense
competition in that market from other medical device and pharmaceutical
companies. Many of these competitors have substantially greater financial,
manufacturing, marketing and technical resources than the Company. Furthermore,
the medical device industry has experienced consolidation and competitors could
acquire companies or technologies that could limit the Company's ability to
compete. There can be no assurance that the Company's current and future
competitors will not develop or market technologies and products that are more
effective or commercially attractive than the Company's current or future
products, thereby rendering the Company's technologies and products obsolete, or
that such competitors will not succeed in obtaining regulatory approval and
introducing or commercializing any such products prior to the Company. See
"Business -- Competition."
Dependence Upon International Operations and Sales. All of the Company's
product sales to date are from controlled test-marketing in the Netherlands, and
the Company anticipates that substantially all of its revenues will be derived
from international sales until such time, if ever, that its products are
approved for sale in the United States. Part of the Company's strategy will be
to rely on third-party distributors and corporate partners for sales and
marketing of Norian SRS in international markets. Sales through distributors and
corporate partners are subject to several risks,
10
<PAGE> 13
including the risk of financial instability of distributors and corporate
partners and the risk that such parties will not effectively promote the
Company's products. In Japan, the Company will be relying on Mochida for its
sales and marketing, regulatory compliance and reimbursement functions and may
rely on similar corporate partners in other nations for these functions. Because
Norian SRS is based on a new technology for the treatment of orthopaedic trauma,
suitable distributors and corporate partners with relevant expertise may be
difficult to engage. The inability to engage suitable distributors or corporate
partners on acceptable terms or the loss or termination of any distribution or
corporate partner relationships could have a material adverse effect on the
Company's international sales efforts. In addition, distributor agreements could
require the Company to repurchase unsold inventory from former distributors to
comply with local laws applicable to distribution relationships, provisions of
distribution agreements or negotiated settlements entered into with such
distributors.
A number of risks are inherent in international operations and
transactions. International sales and operations may be limited or disrupted by
the imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs, difficulties in staffing
and managing international operations, fluctuations in international currency
exchange rates, difficulties in obtaining export licenses, constraints on its
ability to maintain or increase prices and competition. Any of the foregoing
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that Norian SRS
or any future product will be successfully commercialized in any international
market. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Physician Education and Training" and
"-- Product Marketing."
Limited Sales and Marketing Experience. The Company has limited experience
in marketing and selling its products and does not have experience in marketing
and selling its products in commercial quantities. Establishing a marketing and
sales capability sufficient to support sales in commercial quantities will
require significant resources, and there can be no assurance that the Company
will be able to recruit and retain qualified marketing personnel or contract
sales representatives or that future sales efforts of the Company will be
successful. The Company's sales and marketing strategy will depend on the
success of physician education and training programs. There can be no assurance
that the Company will be successful in establishing such programs or that these
programs will be an effective sales channel for the Company's products. If the
physician training and education programs do not result in the adoption of
Norian SRS by a significant percentage of orthopaedic trauma surgeons, the
Company's business, financial condition and results of operations would be
materially and adversely impacted. Furthermore, there is no established sales
organization for marketing the Company's products in the United States, and
there can be no assurance that the Company will be successful in establishing
such a sales organization. The failure to establish and maintain an effective
distribution channel for the Company's products, or to retain qualified sales
personnel to support commercial sales of the Company's products, would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Physician Education and Training" and
"-- Product Marketing."
Management of Growth. Upon receipt of domestic and foreign regulatory
approvals, the Company may experience a period of rapid growth and an expansion
in the number of its employees, the scope and complexity of its operating and
financial systems, and its geographic area of operations. Such growth would
result in new and increased responsibilities for management and place a
significant strain upon the Company's management, operating and financial
systems and resources. The Company also believes that it must develop greater
marketing, sales and client support capabilities in order to secure new customer
contracts at a rate necessary to sustain desired growth and effectively serve
the evolving needs of the Company's present and future customers. The failure of
the Company to address these needs in a satisfactory fashion would inhibit the
Company's ability to exploit market opportunities and would have a material
adverse effect on its business, financial condition and results of operations.
See "Business -- Employees" and "Management."
11
<PAGE> 14
Risk of Inadequate Funding. The Company plans to continue to spend
substantial funds for clinical trials in support of regulatory and
reimbursements approvals, expansion of sales and marketing activities, research
and development and establishment of commercial scale manufacturing
capabilities. The Company may be required to spend greater-than-anticipated
funds if unforeseen difficulties arise in the course of clinical trials of
Norian SRS, in connection with obtaining necessary regulatory and reimbursement
approvals in the United States or internationally or in other aspects of the
Company's business. Although the Company believes that the proceeds from this
offering, together with the Company's current cash balances and cash generated
from the future sale of products, will be sufficient to meet the Company's
currently estimated operating and capital requirements at least through the end
of 1997, there can be no assurance that the Company will not require additional
financing during this period. The Company's future liquidity and capital
requirements will depend upon numerous factors, including the progress of the
Company's clinical trials, actions relating to regulatory and reimbursement
matters, the costs and timing of expansion of marketing, sales, manufacturing
and product development activities, the extent to which the Company's products
gain market acceptance, the acquisition and defense of intellectual property
rights and competitive developments. Any additional required financing may not
be available on satisfactory terms, if at all. Future equity financings may
result in dilution to the holders of the Common Stock, and future debt financing
may result in certain financial and operational restrictions. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Dependence on Key Personnel and Advisors. The Company relies on its key
personnel and scientific advisors to assist the Company in formulating and
implementing its product research, development and commercialization strategies.
In addition, all of such advisors are employed by other companies and
institutions and may have commitments to, or consulting or advisory contracts
with, other entities that limit their availability to the Company. The Company's
future success will depend, in part, upon its ability to attract and retain
highly qualified personnel. The Company is headquartered in the San Francisco
Bay Area, which is characterized by intense competition for personnel with the
specialized skills necessary to enable the Company to compete in the medical
device industry. The Company competes for such personnel with other companies,
academic institutions, government entities and other organizations. There can be
no assurance that the Company will be successful in hiring or retaining
qualified personnel. Loss of, or the inability to hire, key personnel or
advisors could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management."
Product Liability; Availability of Insurance. Use of the Company's
products entails the risk of product liability claims. Although the Company
maintains product liability insurance, there can be no assurance that the
coverage limits of the Company's insurance policies will be adequate or that
insurance will continue to be available on commercially reasonable terms or at
all. To date, the Company has not experienced any product liability claims. In
addition, whether or not successful, any litigation brought against the Company
could divert management's attention and time and result in significant
expenditures, which could have a material adverse effect on the Company's
business, financial condition and results of operations. A successful claim
brought against the Company in excess of its insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company currently has no earthquake
insurance coverage. There can be no assurance that such insurance, or other
liability insurance, will be available in the future on favorable terms or at
all. See "Business -- Product Liability and Insurance."
No Prior Public Trading Market. Prior to this offering, there has been no
public market for the Common Stock, and there can be no assurance that an active
trading market will develop or, if one does develop, that it will be maintained.
The initial public offering price, which will be established by negotiations
between the Company and the Underwriters, may not be indicative of prices that
will prevail in the trading market. See "Underwriting."
12
<PAGE> 15
Possible Volatility of Stock Price. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Common Stock. In addition, the
market price of the shares of Common Stock is likely to be highly volatile.
Factors such as fluctuations in the Company's operating results, announcements
of technological innovations or new products by the Company or its competitors,
FDA and international regulatory actions, actions with respect to reimbursement
matters, developments with respect to patents or proprietary rights, public
concern as to the safety of products developed by the Company or others, changes
in health care policy in the United States and internationally, changes in stock
market analyst recommendations regarding the Company, other medical device
companies or the medical device industry generally and general market conditions
may have a significant effect on the market price of the Common Stock.
Possible Anti-Takeover Effects. Certain provisions of the Company's
Articles of Incorporation and Bylaws, each as amended, may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Company's Common Stock. Certain of these provisions
allow the Company to issue Preferred Stock without any vote or further action by
the shareholders, provide for a classified board of directors and eliminate
cumulative voting in the election of directors. These provisions may make it
more difficult for shareholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of the Company.
In addition, the Company has granted to Howmedica, Inc., a division of
Pfizer Pharmaceuticals, Inc. and a shareholder of the Company ("Howmedica"), a
non-exclusive right of first negotiation with respect to transactions involving
the sale of the Company, whether through merger, stock exchange or sale of all,
or substantially all, of its assets. If the Company's Board of Directors decides
to begin discussions with any third party regarding a sale of the Company, the
Company is required to notify Howmedica in writing and to negotiate with
Howmedica for a period of 60 days. The Company is not prohibited from
negotiating concurrently with other parties regarding similar transactions
during this 60-day period. If the Company and Howmedica fail to reach a written
agreement in principle during the 60-day period, or if Howmedica consents to the
early termination of such 60-day period, the Company will be free to complete
the sale of the Company to any third party without further obligation to
Howmedica. This right of first negotiation expires on the earliest to occur of:
(i) the termination of the license agreement between the Company and Howmedica,
pursuant to which Howmedica was granted an exclusive license to manufacture,
market and sell CrystalCoat (the "CrystalCoat License"); (ii) the occurrence of
an event that would cause the CrystalCoat License to become non-exclusive; or
(iii) the completion of a sale of the Company, whether by merger, share exchange
or sale of all, or substantially all, of the Company's assets. This right of
first negotiation may make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, the Company in a negotiated
transaction, and may also impair the Company's ability to respond to a hostile
takeover attempt. See "Management" and "Description of Capital Stock."
Effect of Shares Eligible for Future Sale. Sales of Common Stock
(including shares issued upon the exercise of outstanding options) in the public
market after this offering could materially and adversely affect the market
price of the Common Stock. Such sales also might make it more difficult for the
Company to sell equity securities or equity-related securities in the future at
a time and price that the Company deems appropriate. Upon the completion of this
offering, the Company will have 12,368,641 shares of Common Stock outstanding,
of which the 3,000,000 shares offered hereby will be freely tradable (unless
held by affiliates of the Company) and the remaining 9,368,641 shares will be
restricted securities within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). The 3,000,000 shares offered hereby, as well as
an additional 28,989 shares, will be available for immediate sale in the public
market. Beginning 90 days after the date of this Prospectus, an additional
69,603 shares of Common Stock (excluding 46,810 shares subject to
13
<PAGE> 16
outstanding vested options which, if exercised, would be included) will be
available for sale in the public market, subject to compliance with Rules 144
and 701. Beginning 120 days and 180 days after the date of this Prospectus, an
additional 50,694 and 5,286,002 shares of Common Stock (excluding approximately
146,146 shares subject to outstanding vested options which, if exercised, would
be included) will be available for sale in the public market subject to
compliance with Rule 144. The remaining approximately 3,933,353 shares held by
existing shareholders will become eligible for public resale at various times
over a period of less than two years following the completion of this offering,
subject in some cases to compliance with Rule 144. The holders of 9,434,527 of
the shares of Common Stock outstanding immediately following the completion of
this offering (including 423,540 shares subject to outstanding, exercisable
warrants) will be entitled to registration rights with respect to such shares.
The number of shares sold in the public market could increase if registration
rights are exercised. See "Shares Eligible for Future Sale."
Dilution. The initial public offering price is substantially higher than
the net tangible book value per share of Common Stock. Investors purchasing
shares of Common Stock in this offering will therefore incur immediate and
substantial net tangible book value dilution. See "Dilution."
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<PAGE> 17
THE COMPANY
Norian Corporation was incorporated in California on March 17, 1987. Unless
the context otherwise requires, references in this Prospectus to "Norian" and
the "Company" refer to Norian Corporation, a California corporation. The
Company's principal executive offices are located at 10260 Bubb Road, Cupertino,
California 95014-4166. Its telephone number is (408) 252-6800.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$13.00 per share are estimated to be $35,370,000 ($40,810,500 if the
over-allotment option is exercised in full), after deducting the underwriting
discount and the estimated expenses of the offering.
The Company expects to use approximately $13.0 million of the net proceeds
of this offering to fund the expansion of manufacturing, marketing and sales
activities, approximately $4.2 million to fund clinical trials of Norian SRS in
the United States and abroad, and approximately $1.5 million to fund future
research and development activities. The balance of the net proceeds,
approximately $16.7 million, will be used for general corporate purposes.
Although the Company may use a portion of the net proceeds for the licensing or
acquisition of new products or technologies from others, the Company currently
has no such specific plans or commitments. Expenditures may vary significantly
depending upon numerous factors, including the progress of the Company's
clinical trials, actions relating to regulatory and reimbursement matters, the
costs and timing of expansion of marketing, sales, manufacturing and product
development activities, the extent to which the Company's products gain market
acceptance and competition. Pending such uses, the Company intends to invest the
net proceeds of this offering in short-term, interest bearing, investment grade
securities.
DIVIDEND POLICY
Norian has never declared nor paid dividends on its capital stock. The
Company currently intends to retain any future earnings for funding growth and,
therefore, does not intend to pay any cash dividends in the foreseeable future.
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<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 (i) on an actual basis; (ii) on a pro forma basis after giving
effect to a $7.0 million equity investment in connection with the Mochida
Transaction and the conversion of all of the outstanding shares of Preferred
Stock into Common Stock upon completion of this offering; and (iii) as adjusted
to give effect to the receipt by the Company of the net proceeds from the sale
of 3,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $13.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Shareholders' equity(1):
Convertible preferred stock: 9,000,000 shares authorized,
8,331,439 issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma and as
adjusted.................................................... $40,622 $ -- $ --
------- ------- -------
Preferred stock: no shares authorized, issued or outstanding,
actual and pro forma; 5,000,000 shares authorized, none
issued or outstanding, as adjusted.......................... -- -- --
Common stock: 10,400,000 shares authorized,
actual; 75,000,000 shares authorized, pro forma and as
adjusted; 671,564 shares issued and outstanding, actual;
9,353,003 shares issued and outstanding, pro forma; and
12,353,003 shares issued and outstanding, as adjusted(2).... 1,257 48,879 84,249
Deferred compensation......................................... (933) (933) (933)
Unrealized loss on securities available-for-sale, net......... (41) (41) (41)
Deficit accumulated during development stage.................. (24,234) (24,234) (24,234)
------- ------- -------
Total shareholders' equity.................................. 16,671 23,671 59,041
------- ------- -------
Total capitalization...................................... $16,671 $23,671 $59,041
======= ======= =======
</TABLE>
- ---------------
(1) The Company does not have any long-term or short-term debt. See Notes 5 and
13 of Notes to Consolidated Financial Statements.
(2) Excludes (i) 453,137 shares of Common Stock issuable upon exercise of
options outstanding at March 31, 1996, (ii) 139,125 shares of Common Stock
issuable upon exercise of options granted after March 31, 1996 and (iii)
423,540 shares of Common Stock issuable upon exercise of warrants
outstanding at March 31, 1996. See "Management -- Executive Compensation,"
"Certain Transactions," "Description of Capital Stock" and Notes 8 and 13 of
Notes to Consolidated Financial Statements.
16
<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
March 31, 1996, was $23,671,000 or approximately $2.53 per share. Pro forma net
tangible book value per share represents the amount of the Company's
shareholders' equity, less intangible assets, divided by 9,353,003 shares of
Common Stock outstanding after giving effect to the Mochida Transaction and the
conversion of all of the outstanding shares of Preferred Stock into Common
Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the offering made hereby and the pro forma net tangible book value per
share of Common Stock immediately after completion of this offering. After
giving effect to the sale of the 3,000,000 shares of Common Stock in this
offering at an assumed initial public offering price of $13.00 per share, and
after deducting underwriting discounts and commission and estimated offering
expenses payable by the Company, the Company's pro forma net tangible book value
at March 31, 1996, would have been $59,041,000, or $4.78 per share. This
represents an immediate increase in pro forma net tangible book value of $2.25
per share to existing shareholders and an immediate dilution in pro forma net
tangible book value of $8.22 per share to new investors purchasing Common Stock
in this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share................................... $13.00
Pro forma net tangible book value per share at March 31, 1996........... $2.53
Increase per share attributable to new investors........................ 2.25
-------
Pro forma net tangible book value per share after the offering............ 4.78
-------
Pro forma net tangible book value dilution per share to new investors..... $ 8.22
=======
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1996,
the difference between the existing shareholders and the purchasers of shares in
the offering (at an assumed price of $13.00 per share) with respect to the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders..................... 9,353,003 75.7% $49,033,034 55.7% $ 5.24
New investors............................. 3,000,000 24.3 39,000,000 44.3 $ 13.00
--------- --- ----------- ---
Total............................ 12,353,003 100.0% $88,033,034 100.0%
========= === =========== ===
</TABLE>
The foregoing computations assume no exercise of stock options or warrants
outstanding at March 31, 1996. At March 31, 1996, there were outstanding stock
options to purchase 453,137 shares of Common Stock and options to purchase an
additional 139,125 shares of Common Stock were granted after March 31, 1996. In
addition, at March 31, 1996, 423,540 shares of Common Stock were issuable upon
exercise of outstanding warrants. To the extent these stock options and warrants
are exercised, there will be further dilution to purchasers in this offering.
See "Management -- Executive Compensation," "Certain Transactions" and
"Description of Capital Stock."
17
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of and for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 are derived from the audited
financial statements of the Company. The financial data set forth below for the
three months ended March 31, 1995 and 1996 are derived from unaudited financial
statements of the Company. The financial statements of the Company as of
December 31, 1994 and 1995 and for each of the years in the three-year period
ended December 31, 1995, together with the notes thereto and the related report
of KPMG Peat Marwick LLP, independent auditors, are included elsewhere in this
Prospectus. The selected consolidated financial data set forth below as of and
for the three months ended March 31, 1995 and 1996, and for the period from
March 17, 1987 (inception) to March 31, 1996 were derived from unaudited
consolidated financial statements, which are included elsewhere in this
Prospectus, and include, in the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the Company's financial position at that date and results of
operations for those periods. The results for the three months ended March 31,
1996 are not necessarily indicative of the results for any future period. The
selected consolidated financial data set forth below is qualified in its
entirety by, and should be read in conjunction with, the Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 17, THREE MONTHS ENDED
1987
(INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
THROUGH MARCH 31, ----------------------------------------------- -------------------
1996 1991 1992 1993 1994 1995 1995 1996
----------------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue.................... $ 2,354 $ 594 $ 578 $ 444 $ 210 $ 150 $ 38 $ 38
Operating expenses:
Research and development.......... 19,703 2,130 2,289 2,564 3,104 4,556 974 1,850
Contract revenue costs............ 466 4 202 224 36 -- -- --
General and administrative........ 8,378 654 695 1,255 1,491 2,165 571 681
-------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................ (26,193) (2,194) (2,608) (3,599) (4,421) (6,571) (1,507) (2,493)
Interest income, net................ 1,997 29 151 329 279 720 45 217
Other income (expense), net......... (10) -- -- (4) (8) 2 1 (6)
-------- ------- ------- ------- ------- ------- ------- -------
Loss before income taxes............ (24,206) (2,165) (2,457) (3,274) (4,150) (5,849) (1,461) (2,282)
Income tax expense.................. 28 -- -- 3 8 9 4 2
-------- ------- ------- ------- ------- ------- ------- -------
Net loss............................ $ (24,234) $(2,165) $(2,457) $(3,277) $(4,158) $(5,858) $(1,465) $(2,284)
======== ======= ======= ======= ======= ======= ======= =======
Pro forma net loss per share (1).... $ (0.71) $ (0.26)
Pro forma weighted average shares
used in computing pro forma net
loss per share (1)................ 8,197 8,811
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
------------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(2)
------- -------- -------- -------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities
available-for-sale....................... $ 1,387 $ 12,647 $ 9,497 $ 4,796 $ 17,157 $ 15,342 $ 22,342
Total assets............................... 1,788 12,909 9,821 6,949 19,798 18,146 25,146
Deficit accumulated during development
stage.................................... (6,200) (8,657) (11,934) (16,092) (21,950) (24,234) (24,234)
Total shareholders' equity................. 1,251 12,558 9,321 5,182 18,759 16,671 23,671
</TABLE>
- ---------------
(1) See Note 1 to the Consolidated Financial Statements for information
concerning calculation of pro forma net loss per share.
(2) Pro forma to give effect to the receipt by the Company of a $7.0 million
equity investment in connection with the Mochida Transaction and the
conversion of all of the outstanding shares of Preferred Stock into Common
Stock.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its incorporation on March 17, 1987, the Company has been engaged in
the design, development, preclinical and clinical testing and, more recently,
the manufacturing and test-marketing of Norian SRS. Norian SRS is an injectable,
moldable and biocompatible cancellous bone fixation and replacement material
designed to overcome the shortcomings of currently available fracture treatment
methods by providing direct structural support to regions of compromised
cancellous bone. The Company has received regulatory approval for commercial
sale of Norian SRS in the Netherlands, where it has test-marketed the product.
The Company is currently seeking to obtain the right to affix the CE mark to
Norian SRS to permit the Company to market the product in the member countries
of the EU. Commercial sales and use of the product in the member countries of
the EU will be partially dependent on country-specific reimbursement approvals
and compliance with certain other country-specific regulations. In February
1995, the Company commenced a randomized, multi-center clinical trial of the use
of Norian SRS in the treatment of wrist fractures in up to 324 patients. Norian
expects to submit an IDE supplement for a randomized, multi-center hip fracture
trial which will involve the use of Norian SRS in conjunction with orthopaedic
hardware. Following commencement of this study, the Company anticipates
performing clinical trials on fractures of the tibia, just below the knee, and
spinal reconstructions, in addition to considering other potential clinical
trials. Currently, the Company plans to conduct a substantial portion of these
trials in Europe.
The Company anticipates that its operating losses will continue for at
least the next two years as it spends substantial resources in funding clinical
trials in support of regulatory approvals, and continues to expand research and
development, marketing and sales, manufacturing and administrative functions. To
date, the Company has received a majority of its revenues from research and
development payments, royalties and contract revenue. Since the Company's
inception, product sales have been minimal and revenues generated from the
Company's test-marketing are treated as cost recovery instead of revenue in the
Company's financial statements.
The Company anticipates that its results of operations will fluctuate on a
quarterly basis for the foreseeable future due to several factors, including
actions relating to regulatory and reimbursement matters, progress of clinical
trials, the extent to which the Company's products gain market acceptance,
introduction of alternative means for treatment of bone fractures, defects and
certain other skeletal deficiencies, and competitive developments.
RESULTS OF OPERATIONS
Three months ended March 31, 1996 and 1995
Research and development costs were $1.9 million for the three months ended
March 31, 1996, compared to $974,000 for the comparable period in 1995,
representing an increase of $876,000. This increase is primarily attributable to
costs associated with the rate of clinical trial enrollment, product development
and preclinical and clinical activities. The Company believes that research and
development costs will increase in future periods as clinical trials of Norian
SRS expand and as the Company develops additional products.
General and administrative expenses were $681,000 for the three months
ended March 31, 1996, compared to $571,000 for the three months ended March 31,
1995, representing an increase of $110,000. The increase in expenses is
associated with additions to personnel in both the United States and Europe,
compensation relating to stock option grants and increased business development
costs. The Company anticipates that general and administrative expenses will
increase as the Company expands clinical trials and begins commercialization in
Europe.
19
<PAGE> 22
Net interest and other income was $211,000 for the three months ended March
31, 1996, compared to $46,000 for the three months ended March 31, 1995,
representing an increase of $165,000. This increase is attributable to the
Company's investment of the proceeds received in an equity financing completed
in 1995.
Years Ended December 31, 1995, 1994 and 1993
Contract revenue was $150,000 for the year ended December 31, 1995,
compared to $210,000 for the year ended December 31, 1994, and $444,000 for the
year ended December 31, 1993, representing decreases of $60,000 from 1994 to
1995 and $234,000 from 1993 to 1994. The successive decreases are primarily
attributable to the expiration in 1994 of a research and development contract.
Research and development costs were $4.6 million for the year ended
December 31, 1995, compared to $3.1 million for the year ended December 31,
1994, and $2.6 million for the year ended December 31, 1993, representing
increases of $1.5 million from 1994 to 1995 and $540,000 from 1993 to 1994. The
increased spending in 1995 is primarily attributable to costs associated with
the initiation of clinical trials. The increases for both years are also
attributable to product development, preclinical activities, relocation and
expansion of facilities and the addition of personnel to support increased
clinical activities.
General and administrative expenses were $2.2 million for the year ended
December 31, 1995, compared to $1.5 million for the year ended December 31,
1994, and $1.3 million for the year ended December 31, 1993, representing
increases of $674,000 from 1994 to 1995 and $236,000 from 1993 to 1994. The
increased costs are associated with personnel increases and additional facility
costs.
Net interest and other income was $722,000 for the year ended December 31,
1995, compared to $271,000 for the year ended December 31, 1994, and $325,000
for the year ended December 31, 1993, representing an increase of $451,000 for
the period from 1994 to 1995 and a decrease of $54,000 for the period from 1993
to 1994. The increase from 1994 to 1995 is attributable to the investment of the
proceeds from the equity financing completed in 1995, and the decrease from 1993
to 1994 is attributable to a reduction of cash available for investment during
that period.
INCOME TAXES
The Company has not generated any net income to date and therefore has not
paid any federal income taxes since its inception. The income tax expense
recognized by the Company is primarily attributable to the operations of Norian
B.V., a wholly-owned Dutch subsidiary. Under a service contract with the
Company, Norian B.V. has generated income before taxes of $15,000, $18,000 and
$6,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. Realization of
deferred tax assets is dependent on future earnings, if any, the timing and
amount of which are uncertain. Accordingly, valuation allowances, in amounts
equal to the net deferred assets as of December 31, 1995, 1994 and 1993, have
been established in each period to reflect these uncertainties.
At December 31, 1995, the Company had federal and state net operating loss
carryforwards of approximately $13.2 million and $6.9 million, respectively, and
federal and state research credit carryforwards of approximately $450,000 and
$230,000, respectively. The federal net operating loss and research credit
carryforwards expire from 2004 through 2010, if not utilized. The state net
operating loss and research credit carryforwards expire from 1996 through 2000,
if not utilized. The Company has experienced "changes in ownership" as defined
in Section 382 of the Internal Revenue Code as amended. As a result, Federal net
operating loss and credit carryforwards are subject to an annual limitation.
Future changes in ownership of the Company may further reduce the Company's
ability to utilize net operating loss and credit carryforwards. The annual
limitation may result in the expiration of net operating loss and research
credit carryforwards before full utilization.
20
<PAGE> 23
SUBSEQUENT EVENTS
In April 1996, the Company entered into an exclusive clinical development
and marketing agreement for Japan with Mochida. The agreement provides for
payments by Mochida to Norian for up to a total of $15.0 million, consisting of
a $7.0 million equity investment completed in April 1996, and $8.0 million in
non-refundable payments based on achievement of time-related, clinical and
regulatory milestones, of which $2.0 million was received upon execution of the
contract. Mochida will work in collaboration with the Company to conduct
clinical trials and obtain regulatory reimbursement approvals from the MHW in
Japan. Mochida will also be responsible for training and educating surgeons in
Japan in the use of Norian SRS under guidelines and standards prescribed by the
Company. The Company will be responsible for manufacturing and supplying the
product to Mochida. See "Business -- Physician Education and Training" and
"-- Product Marketing."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the private sale
of equity securities and, to a lesser extent, through the licensing of
technology, leasing of capital equipment and research and development contracts.
From inception through March 31, 1996, the Company raised $40.8 million from
private equity financings and stock option exercises. In April 1996, the Company
raised an additional $7.0 million from a private equity financing associated
with the Mochida Transaction. The agreement has an initial term ending on the
earlier of 10 years from the date of regulatory approval to commence commercial
sales of Norian SRS in Japan or 15 years from the date of the agreement.
In the period from inception to March 31, 1996, the Company used a total of
$21.9 million to fund its operations. During the three months ended March 31,
1996 and 1995, and the years ended December 31, 1995 and 1994, the Company used
cash to fund operations of $1.8 million, $2.5 million, $6.3 million and $3.1
million, respectively. The changes in cash used in operations were the result of
costs associated with increased research and development activities,
international marketing activities and increased general and administrative
expenses necessary to support increased operations. The Company's expenditures
for equipment and leasehold improvements for the period from inception to March
31, 1996 were approximately $3.0 million.
The Company anticipates that its operating losses will continue for at
least the next two years as a result of funding clinical trials in support of
regulatory approvals, and the expansion of research and development, marketing
and sales, and general and administrative activities. To support these expanded
activities, the Company anticipates expanding its facilities both in the United
States and Europe through 1997. In addition, the Company may use a portion of
the net proceeds to acquire or license technology, products or businesses
related to the Company's current business, although no such acquisitions or
licenses are currently being negotiated or planned and no portion of the net
proceeds has been allocated to specific acquisitions. Although the Company
believes that the proceeds from this offering together with current cash
balances and revenue from the future sales of product will be sufficient to meet
the Company's currently projected operating and capital requirements at least
through 1997, there can be no assurance that the Company will not require
earlier additional financing. Moreover, there can be no assurance that
additional financing, if required, will be available on satisfactory terms, or
at all. In any event, in the future, the Company may attempt to raise additional
funds through bank facilities, debt or equity offerings or other sources of
capital. The Company's future liquidity and capital requirements will depend on
numerous factors including progress of the Company's clinical trials, actions
relating to regulatory and reimbursement matters, costs and timing of expansion
of marketing, sales, manufacturing and product development activities, the
extent to which the Company's products gain market acceptance and competitive
developments.
21
<PAGE> 24
BUSINESS
THE COMPANY
Norian develops, manufactures and markets Norian SRS, a proprietary bone
fixation and replacement material designed for use in regions of structurally
compromised cancellous bone such as the wrist, hip, knee and spine. Norian SRS
is inserted into bone defects as a paste, either through minimally invasive
injection or in an open surgical procedure. The material sets within 10 minutes
of application and continues to cure over 12 hours to achieve its ultimate
strength. The Company believes that Norian SRS provides direct structural
support to compromised cancellous bone and can withstand compressive mechanical
force soon after a procedure and over time. Additionally, Norian SRS may reduce
the need for orthopaedic hardware in weakened cancellous bone. Norian SRS cures
into a crystalline structure similar to the mineral phase of natural bone and
appears to be replaced by natural bone over time.
Fractures in cancellous bone tend to be complex, highly variable and
difficult to repair with currently available treatment methods. These problems
are compounded when cancellous bone is weakened by osteoporosis. The Company
believes that Norian SRS overcomes the shortcomings of currently available
treatment methods for cancellous bone fractures. The Company believes one of the
principal benefits of Norian SRS is to provide direct structural support to
fractures, thereby reducing the risk of loss of anatomical positioning during
the healing processes and improving post-operative function and long-term
outcome for the patient. In addition, Norian SRS may decrease the overall
treatment cost by reducing the extent of rehabilitation required following
fracture fixation and immobilization.
The Company intends to seek regulatory approval of Norian SRS as a
cancellous bone cement. Under an IDE approved by the FDA, the Company is
conducting a randomized, multi-center clinical trial of the use of Norian SRS in
the treatment of wrist fractures in up to 324 patients. This study is designed
to demonstrate the safety and efficacy of Norian SRS in its ability to maintain
the anatomical alignment of cancellous bone fragments and to improve functional
outcomes such as grip strength and range of motion. The Company expects to use
the data from this trial to support a PMA application to market Norian SRS in
the United States and to demonstrate its cost-effectiveness to third-party
payors for purposes of reimbursement. As of April 30, 1996, 196 patients had
been enrolled in the study. The Company is also seeking to obtain the right to
affix to Norian SRS the CE mark, which will allow the Company to market the
product in most European nations. In addition, the Company has test-marketed
Norian SRS in the Netherlands since 1994, where the product is approved for
commercial sale.
OVERVIEW
Background
The human skeleton is composed of two types of bone tissue: cortical and
cancellous bone. Cortical bone, which makes up approximately 80% of the human
skeleton, is dense, generally tubular in shape and is primarily subject to
significant bending and twisting forces. Cortical bone is found primarily in the
mid-sections of the long bones such as the tibia in the lower leg and the radius
in the forearm. Cancellous bone, which constitutes approximately 20% of the
human skeleton, is less dense than cortical bone, is primarily subject to
compressive forces and is situated principally in the spine and at the ends of
long bones near joints, including areas such as the wrist, knee and hip.
In order to repair microscopic stress fractures resulting from the
repetitive forces acting on the skeleton and to adapt to changes in routine
mechanical loading on the skeleton, all bone tissue is subject to perpetual
remodeling, which is a complex process involving a coupled process of bone
removal and replacement. At the beginning of a remodeling cycle, osteoclasts
erode away bone in targeted areas. In the next phase of the cycle, osteoblasts
fill in the osteoclast-created cavities with
22
<PAGE> 25
collagen which then mineralizes over several months to become mature bone.
Osteoporosis is a bone disorder found primarily in people over the age of 65
which results from an imbalance in the remodeling process. Osteoporosis is
characterized by a decrease in bone mass and deterioration of bone structure,
which may lead to fractures as a result of bone fragility, particularly in
cancellous bone.
Cancellous Bone Repair
The orthopaedic trauma market is the second largest segment of the United
States orthopaedic industry, representing approximately 19% of the $2.2 billion
estimated 1995 sales in the United States. This market includes over six million
fractures in the United States every year. The majority of these occur in the
cortical portion of long bones, for which current treatment methods are
generally effective, even in patients with osteoporosis. However, fractures in
regions of cancellous bone tend to be highly variable and difficult to repair
with currently available treatment methods. The objectives of treatment are to
restore the fractured bone to its anatomic position and to regain mobility in
the shortest possible time, with the least expense. The first step in achieving
these objectives is to realign the fractured bone by manipulation, or
"reduction." Depending on the complexity of the fracture, reduction may be
achieved by manual manipulation, traction or through a surgical procedure. Once
reduction has been achieved, the fractured bone must be immobilized through
fixation to maintain proper alignment and to allow proper healing. Current
fixation techniques include casting, external fixators and internal fixation
with orthopaedic hardware. Maintaining reduction with hardware is often
difficult because hardware tends to dislodge from porous cancellous bone. In
addition, reduction of crushed cancellous bone often leaves significant voids.
Current void filling materials, such as bone grafts and synthetic bone graft
material, provide a scaffolding for new bone growth, but do not provide
sufficient structural support for immobilization of the fracture site. When
immobilization of the fracture fragments is not maintained, reduction is lost
and the bone heals out of alignment resulting in "malunion." With current
treatment methods, cancellous bone fractures often heal in some degree of
malunion creating varying levels of compromised patient function. Fractures in
osteoporotic bone are even more susceptible to loss of reduction and healing in
malunion. Additionally, if a fracture involving a joint heals in malunion, there
is increased potential for additional complications, such as arthritis.
There are also significant costs related to the extent of rehabilitation
necessary for orthopaedic trauma patients. The time required for rehabilitation
can vary greatly and is generally related to the duration of immobilization.
Long periods of immobilization may be required for proper fracture healing and
are generally followed by extensive rehabilitation which is often a significant
portion of the cost associated with fracture treatment. While an accelerated
rehabilitation schedule may decrease the length of immobilization and overall
treatment costs, it may also lead to an increased risk of loss of reduction
resulting in malunion. Therefore, a need exists for a treatment that provides
direct structural support to compromised cancellous bone, permitting an earlier
return to functionality and improving long-term patient outcomes.
THE NORIAN SRS SOLUTION
Norian SRS is an injectable, moldable and biocompatible cancellous bone
fixation and replacement material designed to overcome the shortcomings of
currently available fracture treatment methods. By providing structural support
directly to the fracture site, the Company believes that the use of Norian SRS
will decrease the risk of a loss of reduction and contribute to improved
long-term patient outcomes.
Norian SRS is supplied as a kit containing a sterile calcium and phosphate
source powder and a liquid solution that are mixed together to form a paste.
Norian SRS has a five minute working time during which it can be inserted into
compromised cancellous bone during an open surgical procedure or by percutaneous
injection. Norian SRS is radiopaque, permitting the surgeon to confirm its
proper placement by monitoring the procedure using an x-ray fluoroscope.
Approxi-
23
<PAGE> 26
mately 10 minutes after insertion, Norian SRS sets into a hard, ceramic-like
material without damaging surrounding tissue. Within 12 hours, Norian SRS cures,
assumes a crystallographic structure that mimics the mineral phase of bone, and
attains its ultimate physical strength, which can support greater compressive
loads than natural cancellous bone. During the setting and curing process, the
volume of Norian SRS remains unchanged, thus maintaining integral contact with
the surrounding host bone. As a result of its chemical and crystallographic
similarity to host bone, Norian SRS appears to be gradually replaced by natural
bone through the remodeling process.
The key benefits of Norian SRS are:
- Provides Structural Support. The Company believes that Norian SRS
provides direct structural support to compromised cancellous bone and can
withstand compressive mechanical force soon after a procedure. As a
result, treatment with Norian SRS may facilitate load bearing earlier in
the healing process and provide structural support over time. In certain
cases, orthopaedic hardware may be combined with Norian SRS to optimally
stabilize the damaged area.
- Improves Patient Outcomes. The Company believes that Norian SRS improves
the maintenance of reduction during the healing process and facilitates
the rapid return to mobility, thereby improving the long-term
functionality of the patient. Rapid return to mobility is particularly
important for the elderly, because extensive periods of immobility may
lead to additional complications, such as pneumonia and circulatory
problems.
- Remodels into Natural Bone. Norian SRS mimics the mineral phase of bone,
and animal studies indicate that Norian SRS is gradually replaced by
natural bone over time. Radiographic evidence from humans treated with
Norian SRS is consistent with the remodeling process observed in the
animal studies. Moreover, Norian SRS is non-toxic, does not appear to
cause inflammation in surrounding tissue, does not generate heat and has
passed the applicable medical device safety and toxicity tests.
- Simplifies Fracture Fixation. Norian SRS is a moldable paste that may be
injected or manually inserted into a fracture void, assuming the shape of
the void while hardening without shrinkage. In certain unstable
fractures, Norian SRS can be injected percutaneously, reducing the need
for invasive open surgical procedures to implant, and subsequently
remove, orthopaedic hardware.
NORIAN'S STRATEGY
Norian's strategy is to establish Norian SRS as the leading cancellous bone
fixation and replacement product to be used independently or in conjunction with
conventional fixation devices. The principal elements of the Company's strategy
are:
- Seek Regulatory Approvals in Targeted Markets. The Company seeks to
obtain required regulatory approvals initially in countries with large
potential markets that have favorable regulatory environments. Currently,
the Company is seeking to obtain the right to affix the CE mark on Norian
SRS to market the product in Europe. In the United States, the Company
intends to file a PMA application seeking labeling for usage of Norian
SRS in areas of cancellous bone throughout the body. There can be no
assurance that the FDA will approve the Company's product or that it will
grant labeling for all uses requested by the Company. The Company plans
to conduct clinical trials of the use of Norian SRS for various
applications and to support an application to the FDA for label
expansion, if necessary. The Company, with its Japanese partner, Mochida,
intends to file applications for Japanese regulatory approval from the
MHW and plans to conduct clinical trials to support reimbursement
approval in Japan.
- Demonstrate Clinical Utility. The Company intends to use data collected
from clinical trials to demonstrate to physicians and health care payors
the anticipated clinical advantages of
24
<PAGE> 27
Norian SRS compared to current treatment methods. The Company believes
that Norian SRS may decrease time to patient mobility and increase short-
and long-term functionality resulting in improved patient outcomes.
- Establish Physician Education and Training. Physician education is an
accepted method of introducing new surgical methods and products for
orthopaedic procedures. Accordingly, Norian believes that ongoing
physician education and training will be a critical element in the
adoption of Norian SRS as the preferred treatment for damaged cancellous
bone. The Company intends to conduct training sessions led by highly
respected orthopaedic trauma surgeons in targeted markets. Additionally,
the Company plans to provide supplemental physician education through
peer-reviewed publications regarding the Company's clinical trials.
- Implement Focused Product Distribution. Norian SRS will be marketed
primarily to orthopaedic surgeons. If and when FDA approval is received,
the Company plans to market Norian SRS in the United States through a
direct network of product specialists. Upon required regulatory approval
in Europe, the Company plans to market Norian SRS through a combination
of a direct European sales force and, in certain countries, through
distributors. In Japan, upon required regulatory approval, the Company
plans to market Norian SRS through its collaboration with Mochida.
- Seek Reimbursement by Third-Party Payors. The Company intends to use
data collected in its clinical studies to demonstrate the
cost-effectiveness of Norian SRS and to establish third-party
reimbursement. In Europe and the United States, the Company will focus
its efforts on obtaining reimbursement from a broad range of third-party
payors, including private entities such as insurance carriers and
governmental entities. In Japan, the Company will seek reimbursement
approval from the MHW in collaboration with Mochida.
- Access New Market Opportunities. The Company believes that several
additional applications for both human and animal bone may be candidates
for Norian SRS. The Company intends to explore other applications for its
technology in which improved patient outcomes and reduced medical costs
can be demonstrated. The Company may pursue these other applications
independently or in collaboration with third parties.
CLINICAL APPLICATIONS
Initially, the Company is focusing on the development of four clinical
applications for the use of Norian SRS: the wrist, the hip, the knee and the
spine. In the United States, the Company intends to file a PMA application
seeking labeling for usage of Norian SRS in regions of cancellous bone
throughout the body. However, there can be no assurance that the FDA will
approve the product or that any approval will not restrict the anatomic sites
and types of procedures for which Norian SRS may be used. The Company intends to
use data from clinical trials to support regulatory filings, reimbursement
approvals and marketing efforts in the United States.
Wrist Fractures
In 1994, there were approximately 700,000 fractures of the wrist, or distal
radius, in the United States. Stable wrist fractures are those that maintain
anatomic alignment after reduction. These fractures are generally treated by
closed reduction, placed in a cast for six weeks and are usually followed by
rehabilitative physical therapy. However, a significant number of these
fractures become unstable following reduction and casting, frequently resulting
in a loss of reduction which necessitates further clinical intervention.
Unstable wrist fractures are those that cannot maintain reduction and require
pinning with casting, external fixator frames, or an open surgical procedure to
implant hardware. Furthermore, unstable fractures generally require extended
periods of immobilization, resulting in the need for long-term rehabilitation to
regain function.
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The Company believes that the use of Norian SRS will provide direct
structural support at the fracture site for unstable wrist fractures. Norian SRS
may be inserted into bone voids to counter the compressive forces across the
wrist and to maintain anatomic alignment of the bone fragments. This may result
in a lower incidence of malunion and improved functional outcome for the
patient. Moreover, the Company believes that because the application of Norian
SRS maintains reduction, patients may begin rehabilitative therapy earlier in
the healing process.
The Company began a randomized, multi-center distal radius fracture trial
involving up to 324 patients under an FDA-approved IDE in February 1995. The
primary clinical endpoints of this study will be measured by radiographic
analysis of the fracture site and functional outcomes such as grip strength and
range of motion. As of April 30, 1996, the Company had enrolled 196 patients in
this trial.
Hip Fractures
The fracture of the intertrochanteric region of the upper femur is one of
the most devastating injuries that can affect the elderly. There are
approximately 150,000 intertrochanteric fractures each year in the United
States, occurring primarily in osteoporotic patients over the age of 70.
Intertrochanteric fractures are commonly treated with specialized orthopaedic
hardware known as sliding hip screws. Although surgery may be initially
successful, many patients develop impaired functional outcomes when osteoporotic
bone collapses along the fracture site or when the hardware loses fixation.
Between 14% and 36% of all intertrochanteric fracture patients die of
complications within the first year following the fracture.
By placing Norian SRS into the voids left by crushed cancellous bone and
into the areas surrounding the hardware, the Company believes that the material
will improve hardware fixation and enhance structural support. The Company
believes that this will allow the patient to achieve mobility, maintain proper
positioning of the hip during healing and begin earlier rehabilitation.
Post-operative ambulation and the ability to commence rehabilitation early in
the healing process are critical to the survival of an individual suffering a
hip fracture.
In 1995, the Company began feasibility studies in two sites in Europe of
the use of Norian SRS in the treatment of hip fractures in 45 patients, 12 of
whom suffered from intertrochanteric fractures. Based on preliminary information
obtained from these studies, the Company believes that Norian SRS may be used in
the treatment of intertrochanteric fractures. The Company intends to conduct
clinical trials to demonstrate a significant reduction in time to mobility for
patients with intertrochanteric fractures treated with Norian SRS as compared to
those treated solely with current treatment methods.
Tibial Plateau Fractures
Each year in the United States there are approximately 55,000 tibial
plateau fractures, which are fractures of the bone just below the knee. Tibial
plateau fractures are particularly challenging to the orthopaedic surgeon
because of their variety and complexity. These fractures depress portions of the
joint surfaces crushing underlying areas of cancellous bone which the surgeon
must then elevate. The process of elevating tibial plateau fractures results in
a void in the area below the joint surface. The current method of treatment
generally involves filling these voids with bone grafts or bone substitutes. As
a result of the inability of bone grafts and bone substitutes to provide
immediate and direct structural support, orthopaedic hardware is required to
maintain proper alignment. In addition, the patient is usually immobilized for
up to 12 weeks because even minor compressive loads can destroy anatomic
alignment of the joint surface resulting in pain and some loss of function for
the patient. Additionally, there is an increased risk that the patient will
develop arthritis of the knee and may eventually require a total knee
replacement.
Norian SRS may be used to fill the voids remaining after the surgical
elevation of the tibial plateau surface. The Company believes that Norian SRS
may provide sufficient structural support for
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the tibial plateau surface, thereby limiting the need for extended
immobilization and facilitating an expedited recovery as well as a more
functional joint. Additionally, depending upon the fracture pattern, the use of
Norian SRS may reduce the need for internal fixation hardware, thereby limiting
the need for multiple invasive surgical procedures.
The Company has obtained all of its clinical experience regarding the use
of Norian SRS in tibial plateau fractures from 25 test-market cases in the
Netherlands. The Company intends to conduct a multi-center clinical trial to
evaluate the use of Norian SRS in the treatment of tibial plateau fractures. The
Company has drafted protocols for these clinical trials which are currently
under review by clinical investigators.
Spinal Reconstructions
The Company believes that there is a potentially broad range of uses for
Norian SRS in disorders of the spine as a result of the prominence of cancellous
bone in spinal vertebrae. In a limited number of test-market cases in the
Netherlands, Norian SRS has been used in spinal reconstructions to improve the
fixation of cancellous bone screws in the spine to achieve optimal structural
support. The Company is currently exploring other potential applications, such
as the use of Norian SRS in spinal surgery on osteoporotic patients. Generally,
surgeons avoid invasive spinal procedures on elderly osteoporotic patients
because of the possibility of severe complications and uncertain outcomes. Based
on cadaver studies, the Company believes that Norian SRS may increase the
feasibility of such procedures and result in more predictable outcomes by
securing conventional orthopaedic hardware in osteoporotic bone in the spine or
by providing a minimally invasive procedure through injection of Norian SRS to
restore the anatomy of crushed vertebral bodies. The Company is currently
identifying potential clinical trials to verify the benefits of Norian SRS in
spinal applications. The Company plans to use data from these clinical trials to
illustrate the viability of successful spinal surgery on osteoporotic patients
with the use of Norian SRS.
Other Potential Applications
Several additional potential applications of Norian SRS are currently being
evaluated by the Company, some of which have been or continue to be the subject
of limited clinical studies, pre-clinical studies and limited test-marketing
experiences. Norian SRS has been used in the treatment of femoral neck hip
fractures in 29 patients. The Company believes that Norian SRS can eliminate the
need for complicated procedures in the repair of femoral neck fractures as well
as improve the success rate of femoral neck fractures repaired by orthopaedic
hardware when Norian SRS is used to augment such hardware. Norian SRS has been
used in the treatment of five patients with fractures of the calcaneus, the heel
of the foot. Repair of the calcaneus requires decompression of the fractured
bone which often results in a void that the Company believes could be filled
with Norian SRS to reestablish compressive load capacity. Avascular necrosis is
a disorder that occurs when cancellous bone is deprived of its blood supply and
usually results in localized bone death. The Company believes that Norian SRS
could be used to fill a region of avascular necrosis-afflicted bone to reinforce
surrounding viable bone. The Company also believes that there are applications
for Norian SRS in total joint replacements, including filling all gaps between
the replacement and host bone with Norian SRS to reduce the possibility of
slippage and pain. The Company also believes that Norian SRS may be used in the
repair of the anterior cruciate ligament in the knee by replacing the
conventional method of tendon grafting to reconstruct the ligament.
Additionally, the Company is evaluating other potential uses of Norian SRS in
areas of cancellous bone such as in fractures of the shoulder, ankle, hand and
foot.
Norian SRS may also have important uses in a variety of non-orthopaedic
bone filling and stabilization procedures for oral and maxillofacial surgery,
neurosurgery, craniofacial surgery, certain dental applications and certain
veterinary applications. The Company has discussed potential business
relationships with collaborators in these fields. However, no definitive
agreements have
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been reached and there can be no assurance that the Company will enter into any
of these markets or that it will be successful in penetrating any such markets.
PHYSICIAN EDUCATION AND TRAINING
Physician education and training is an accepted method of introducing new
surgical methods and products for orthopaedic procedures. The Company believes
that physician acceptance is a critical element in the successful introduction
of Norian SRS into the marketplace and therefore plans to establish an extensive
education and training program for physicians. These programs will address
product attributes and the appropriate clinical applications developed by the
Company and will be conducted initially by both domestic and international
clinical investigators. The Company will focus these initial training efforts on
highly respected opinion leaders in the orthopaedic community and on orthopaedic
surgeons with high volume practices or residency programs. Other objectives of
these programs may include the penetration of new geographical markets or the
introduction of new clinical applications. Mochida will manage similar training
and education programs for surgeons in Japan.
PRODUCT MARKETING
Following the initial surgeon training, the Company also intends to provide
technical support to orthopaedic surgeons in operative procedures. To provide
this logistical support and reinforcement at the time of surgery, the Company
intends to hire product specialists who will be located in major markets and
will manage the distribution of Norian SRS in their regions. In certain European
regions where the Company determines a direct product specialist is appropriate
and most effective, it will implement the same strategy. These experienced
orthopaedic trauma representatives will complete the Norian training program to
qualify to assist at the clinician education programs and conduct in-service
training for relevant hospital personnel. Outside the United States, in regions
in which the Company relies on a third-party distributor or corporate partner,
the Company expects to ensure maintenance of an equivalent standard of
education, training and support services.
In April 1996, the Company and Mochida entered into a collaborative
agreement for the exclusive marketing and distribution of Norian SRS in Japan
for use in certain applications. The agreement provides for payments by Mochida
to Norian of up to a total of $15.0 million, consisting of a $7.0 million equity
investment completed in April 1996, and $8.0 million in non-refundable payments
based on achievement of time-related, clinical and regulatory milestones, of
which $2.0 million was received upon execution of the contract. Mochida will be
responsible for performing clinical development in accordance with the Company's
protocols and obtaining government approval for Norian SRS in Japan. The Company
will be responsible for manufacturing and supplying the product to Mochida. The
agreement has an initial term ending on the earlier of 10 years from the date of
regulatory approval to commence commercial sales of Norian SRS in Japan or 15
years from the date of the agreement.
RESEARCH AND DEVELOPMENT
The Company maintains facilities for chemical and analytical research
staffed by leading researchers in the field of calcium phosphate material
development. The Company supports a staff of scientists who evaluate product
applications, conduct biomechanical and animal research, develop surgical
techniques and design and manage clinical trials. The Company's current research
and development efforts are primarily focused on identifying and developing new
clinical applications using an internal system to evaluate, research and
prioritize specific Norian SRS application ideas to ensure that any potential
application is consistent with the Company's strategy. The Company is currently
refining the Norian SRS packaging, mixing and delivery system initially for
European commercialization following receipt of the right to affix the CE mark
and any other regulatory approvals. As of April 30, 1996, the Company had 24
employees engaged in research and development activities. For the three months
ended March 31, 1996, and for the years ended
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December 31, 1995, 1994 and 1993, the Company has expended approximately $1.9
million, $4.6 million, $3.1 million and $2.6 million on research and
development, respectively.
SCIENTIFIC ADVISORY BOARD
Norian's Scientific Advisory Board ("SAB") is composed of leaders in
orthopaedic and basic science. SAB members advise the Company's management on
product application development and future research plans. SAB members also work
with management to design, conduct and evaluate specific research protocols. SAB
members provide additional review of the Company's clinical trial results and
regulatory submissions. The SAB convenes at least once a year. Certain SAB
members also consult with the Company on a more frequent basis.
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------- ---------------------------------------------------------
<S> <C>
Thomas W. Bauer, M.D., Ph.D. Staff Pathologist and Member, Departments of Pathology
and Orthopaedic Surgery, Cleveland Clinic Foundation,
Cleveland, Ohio
David C. Baylink, M.D. Professor of Orthopaedic and Oral Surgery and
Biochemistry, Loma Linda University; Chief of Mineral
Metabolism, Jerry L. Pettis Memorial Veterans Hospital,
Loma Linda, California
Dennis R. Carter, Ph.D. Professor of Mechanical Engineering and Chairman,
Biomechanical Engineering Division, Stanford University;
Associate Director, Rehabilitation Research and
Development Center, Veterans Affairs Medical Center, Palo
Alto, California
Thomas A. Einhorn, M.D. Attending Orthopaedic Surgeon; Professor of Orthopaedics
and Director of Orthopaedic Research, Mount Sinai School
of Medicine, New York, New York
Steven A. Goldstein, Ph.D. Professor of Surgery and Director of Orthopaedic
Research, University of Michigan; Professor of Mechanical
Engineering and Applied Mechanics, Appointment as
Professor of Bioengineering and Research Scientist,
Institute of Gerontology; Assistant Dean for Research and
Graduate Studies, University of Michigan Medical School
John Ross, Ph.D. Professor of Chemistry, Stanford University; Member,
National Academy of Sciences
</TABLE>
In addition to the SAB, the Company also utilizes the consulting services
of four practicing orthopaedic surgeons who act as medical directors in their
respective areas of clinical expertise which coincide with the Company's first
four clinical applications.
MANUFACTURING
The Company manufactures Norian SRS at its facility in Cupertino,
California for clinical trials and for test-marketing in the Netherlands in
accordance with FDA GMP regulations for medical devices. The Company intends to
obtain ISO 9000 series quality certification in order to fulfill the quality
system requirements for the CE mark. Accordingly, all manufacturing processes
are defined by change-controlled documentation consisting of written
specifications and procedures. These encompass the entire manufacturing process,
from procurement of parts and raw materials from vendors through maintenance of
post-distribution product tracking, complaint handling and reporting. Formal
review and approval by research and development, quality assurance,
manufacturing, and other functional groups, as appropriate, is required for the
initial release of controlled documentation and for changes to released
documentation.
The Company's manufacturing facilities are subject to GMP inspections by
CDHS. Norian was inspected by the CDHS in 1995 and was issued a California state
license as a result of that inspection. There can be no assurance that future
inspections of the Company's facilities will not reveal violations of applicable
manufacturing standards. Any such violation could result in the suspension of
the Company's manufacturing operations which would materially and adversely
affect
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the Company's business, financial condition and results of operations. Norian is
also subject to certain federal, state and local regulations regarding safety,
environmental protection and hazardous materials controls.
To date, the Company has limited manufacturing experience, which has
consisted of producing single lots of Norian SRS for clinical trials and
test-marketing in the Netherlands. The Company holds an 801(e) foreign export
approval from the FDA to provide for the shipping of Norian SRS to the
Netherlands. Currently, the Company does not have the experience nor the
equipment necessary to manufacture its products in commercial volumes. No
assurance can be given that the Company will be successful in developing such
manufacturing capability, and even if such manufacturing capability is
developed, no assurance can be given that it will be successfully implemented by
the Company.
PATENTS AND PROPRIETARY INFORMATION
The Company holds 13 United States patents, two of which cover the current
formulation of Norian SRS, and five of which cover other formulations of calcium
phosphate cements that may be used in future products or to prevent third
parties from developing similar technology. In addition, the Company has four
patents on CrystalCoat and two patents on Healos, both of which are biomaterials
developed by the Company and licensed exclusively to third parties for certain
applications. The Company has also obtained patents on Norian SRS in 13 European
countries and in Canada. Additionally, the Company has seven United States and
several foreign applications pending. There can be no assurance that pending
patent applications will be allowed or that any of the Company's patents will
provide protection for the Company's products. The Company expects to continue
to file additional patent applications to protect its proprietary technologies.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. There can be no
assurance that the measures taken by the Company to protect its proprietary
technology will prevent misappropriation of such technology, and such
protections may not preclude competitors from developing products similar to the
Company's products. In addition, effective patent, copyright, trademark and
trade secret protection may be unavailable or limited in certain foreign
countries. The failure of the Company to protect its proprietary information
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company expects to continue to file patent applications where it
believes it is appropriate to protect its proprietary technologies. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. There can be no assurance
that the steps taken by the Company to protect its proprietary technology will
prevent misappropriation of such technology, and such protections may not
preclude competitors from developing products with functionality or features
similar to the Company's products. In addition, effective patent, copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries. The failure of the Company to protect its proprietary
information would have a material adverse effect on the Company's business,
financial condition and results of operations.
While the Company believes that its products and trademarks do not infringe
upon the proprietary rights of third parties, there can be no assurance that the
Company will not receive future communications from third parties asserting that
the Company's products infringe, or may infringe, the proprietary rights of such
third parties. In Japan, the Company is aware of a patent and several patent
applications filed by a Japanese corporation which claim ratio compositions
comprising two of the components of Norian SRS. Although the claimed composition
does not contain the other components of Norian SRS, the specific formulation of
Norian SRS currently in clinical and commercial use by the Company in countries
other than Japan may have a ratio of those two components that fall within the
range claimed by such patent and patent applications. In addition,
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<PAGE> 33
the Company is aware that a Japanese corporation has filed a patent application
in Japan, and several counterpart applications in countries outside the United
States, that include a composition of matter claim covering one of the
components of Norian SRS. If a patent including this claim were to issue, Norian
SRS, in its current formulation, may be deemed to infringe such patent. The
Company believes that this composition of matter claim may be found to be overly
broad or anticipated by prior art and that, as a result, a patent including this
claim may not issue, or if a patent issues, such claim may not be enforceable.
There can be no assurance that the Japanese entity or another entity will not
bring a claim of patent infringement against the Company or that the Company's
product will not be determined to be infringing. Any such claims, including
meritless claims, could result in costly, time-consuming litigation and
diversion of technical and management personnel. In the event any third party
were to make a valid claim and a license were not made available on commercially
reasonable terms, or if the Company were unable to develop non-infringing
alternative technology, the Company's business, financial condition and results
of operations could be materially adversely affected.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not in
the future become subject to patent infringement claims and litigation or
interference proceedings declared by the USPTO to determine the priority of
inventions. The defense and prosecution of intellectual property suits, USPTO
interference proceedings and related legal and administrative proceedings are
both costly and time consuming. Litigation may be necessary to enforce patents
issued to the Company, to protect trade secrets or know-how owned by the Company
or to determine the enforceability, scope and validity of the proprietary rights
of others.
Any litigation or interference proceedings will result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms, if
at all. Adverse determinations in a judicial or administrative proceeding or
failure to obtain necessary licenses could prevent the Company from
manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. The agreements generally
provide that all inventions conceived of by the individual in the course of
rendering services to the Company, shall be the exclusive property of the
Company; however, certain of the Company's agreements with consultants, who
typically are employed on a full-time basis by academic institutions or
hospitals, do not contain assignment of invention provisions. There can be no
assurance that proprietary information or confidentiality agreements with
employees, consultants and others will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known to, or independently developed by, competitors.
GOVERNMENT REGULATION
United States
The medical devices to be marketed and manufactured by the Company are
subject to extensive regulation by the FDA. Pursuant to the FDA Act and the
regulations promulgated thereunder, the FDA regulates the clinical testing,
manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines,
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<PAGE> 34
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure of the government to grant premarket clearance
or premarket approval for devices, withdrawal of marketing approvals and
criminal prosecution. The FDA also has the authority to request repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.
In the United States, medical devices are classified into one of three
classes (Class I, II or III), on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and effectiveness. Under FDA
regulations, Class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to GMPs) and Class II devices are
subject to general and special controls (for example, performance standards,
post-market surveillance, patient registries and FDA guidelines). Generally,
Class III devices are those which must receive premarket approval by the FDA to
ensure their safety and effectiveness (for example, life-sustaining, life-
supporting and implantable devices, or new devices which have not been found
substantially equivalent to legally marketed devices).
Before a new device can be introduced into the market, the manufacturer
must generally obtain marketing clearance through either a 510(k) notification
or a PMA application. A 510(k) clearance will be granted if the submitted
information establishes that the proposed device is "substantially equivalent"
to a legally marketed Class I or II medical device, or to a Class III medical
device for which the FDA has not called for a PMA. The FDA may determine that a
proposed device is not substantially equivalent to a legally marketed device, or
that additional information or data are needed before a substantial equivalence
determination can be made. A request for additional data may require that
clinical studies of the device's safety and efficacy be performed.
Commercial distribution of a device for which a 510(k) notification is
required can begin only after the FDA issues an order finding the device to be
"substantially equivalent" to a predicate device. The FDA has recently been
requiring a more rigorous demonstration of substantial equivalence than it has
in the past. It generally takes from four to twelve months from the date of
submission to obtain a 510(k) clearance, but may take longer.
A "not substantially equivalent" determination, or a request for additional
information, could delay the market introduction of new products that fall into
this category and could have a material adverse effect on the Company's
business, financial condition and results of operations. For any of the
Company's products that are cleared through the 510(k) process, modifications or
enhancements that could significantly affect the safety or efficacy of the
device that constitute a major change to the intended use of the device will
require new 510(k) submissions.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed Class I or Class II device, or if it is a Class
III device for which FDA has called for PMA applications. A PMA application must
be supported by valid scientific evidence which typically includes extensive
data, including human clinical trial data, to demonstrate the safety and
effectiveness of the device. The PMA application must also contain the results
of all relevant bench tests, laboratory and animal studies, a complete
description of the device and its components, and a detailed description of the
methods, facilities and controls used to manufacture the device. In addition,
the submission must include the proposed labeling, advertising literature and
training methods.
Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is sufficiently complete
to permit a substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review of
the PMA application. An FDA review of a PMA application generally takes one to
two years from the date the PMA application is accepted for filing, but may take
significantly longer. The review time is often significantly extended by the FDA
asking for more information or clarification of information already provided in
the submission. During the review period, an advisory committee, typically a
panel of clinicians, will likely be convened to review and evaluate the
application and
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provide recommendations to the FDA as to whether the device should be approved.
The FDA is not bound by the recommendations of the advisory panel. Toward the
end of the PMA review process, the FDA generally will conduct an inspection of
the manufacturer's facilities to ensure that the facilities are in compliance
with applicable GMP requirements.
If the FDA's evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA will either issue an approval letter or an
"approvable letter," which usually contains a number of conditions which must be
met in order to secure final approval of the PMA. When and if those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
application approval letter, authorizing commercial marketing of the device for
certain indications. If the FDA's evaluation of the PMA application or
manufacturing facilities are not favorable, the FDA will deny approval of the
PMA application or issue a "not approvable letter." The FDA may also determine
that additional clinical trials are necessary, in which case PMA approval may be
delayed for several years while additional clinical trials are conducted and
submitted in an amendment to the PMA application. The PMA process can be
expensive, uncertain and lengthy and a number of devices for which FDA approval
has been sought by other companies have never been approved for marketing.
Modifications to a device that is the subject of an approved PMA
application, its labeling, or manufacturing process may require approval by the
FDA of PMA supplements or new PMAs. Supplements to a PMA application often
require the submission of the same type of information required for an initial
PMA, except that the supplement is generally limited to that information needed
to support the proposed change from the product covered by the original PMA
application. There can be no assurance that the Company will be able to obtain
necessary regulatory approvals on a timely basis, or at all, and delays in
receipt of or failure to receive such approvals, the loss of previously received
approvals, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operation.
If human clinical trials of a device are required in connection with either
a 510(k) notification or a PMA application, and the device presents a
"significant risk," the sponsor of the trial (usually the manufacturer or the
distributor of the device) is required to file an IDE application prior to
commencing human clinical trials. The IDE application must be supported by data,
typically including the results of animal and laboratory testing. If the IDE
application is reviewed and approved by the FDA and one or more appropriate
Institutional Review Boards ("IRBs"), human clinical trials may begin at a
specific number of investigational sites with a specific number of patients, as
approved by the FDA. If the device presents a "nonsignificant risk" to the
patient, a sponsor may begin the clinical trial after obtaining approval for the
study by one or more appropriate IRBs, but not the FDA. Sponsors of clinical
trials are permitted to sell those devices distributed in the course of the
study provided such compensation does not exceed recovery of the costs of
manufacture, research, development and handling. An IDE supplement must be
submitted to and approved by the FDA before a sponsor or an investigator may
make a change to the investigational plan that may affect its scientific
soundness or the rights, safety or welfare of human subjects.
The Company believes that an FDA-approved PMA application will be required
to market Norian SRS in the United States. The Company is currently conducting
clinical studies of Norian SRS pursuant to an FDA-approved IDE to collect data
necessary to support a PMA application. Although the Company plans to pursue
approval for use of Norian SRS as cancellous bone cement at any anatomic site
where cancellous bone exists, only wrist fractures are currently being studied
in the United States under the Company's FDA-approved IDE. The Company plans to
provide clinical data of the safety and effectiveness of Norian SRS as a
cancellous bone cement for anatomic sites other than the wrist with data from
clinical trials being conducted in the United States and abroad. The FDA
analyzes data from foreign clinical studies more critically, and there can be no
assurance that the Company's foreign clinical data will be accepted as part of
the Company's PMA application.
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On two occasions the Company has expanded the number of sites at which it
is conducting its clinical studies in the United States due to slow enrollment
of patients at existing sites. There can be no assurance that the Company will
be successful in enrolling sufficient numbers of patients to complete its
clinical studies. Moreover, there can be no assurance that data from any
completed domestic or foreign clinical studies will demonstrate the safety and
effectiveness of Norian SRS or that such data will otherwise be adequate to
support approval of a PMA application. In addition, if approval of a PMA
application is obtained, there can be no assurance that such approval will not
significantly restrict the anatomic sites and types of procedures for which
Norian SRS can be used. Failure to obtain approval of a PMA application or
restrictions on the anatomic sites and types of procedures for which Norian SRS
can be used would have a material adverse effect on the Company's business,
financial condition and results of operations.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to extensive regulation by the FDA,
including recordkeeping requirements and reporting of adverse experiences with
the use of the device. Device manufacturers are required to register their
establishments and list their devices with the FDA and certain state agencies,
and are subject to periodic inspections by the FDA and certain state agencies,
including the CDHS. The FDC Act requires devices to be manufactured in
accordance with GMP regulations which impose certain procedural and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities. The FDA has proposed changes to the GMP
regulations including design documentation requirements which, if finalized,
would likely increase the cost of complying with GMP requirements.
Labeling and promotion activities are subject to scrutiny by the FDA and,
in certain instances, by the Federal Trade Commission. The FDA actively enforces
regulations prohibiting marketing of products for unapproved uses. The Company
and its products are also subject to a variety of state laws and regulations in
those states or localities where its products are or will be marketed. Any
applicable state or local regulations may hinder the Company's ability to market
its products in those states or localities. Manufacturers are also subject to
numerous federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous substances. There can
be no assurance that the Company will not be required to incur significant costs
to comply with such laws and regulations now or in the future or that such laws
or regulations will not have a material adverse effect upon the Company's
ability to do business.
The Company's products are subject to extensive regulation by the FDA and
other foreign and domestic regulatory authorities. Changes in existing
requirements or adoption of new requirements or policies could adversely affect
the ability of the Company to comply with regulatory requirements. Failure to
comply with regulatory requirements could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will not be required to incur significant costs to
comply with laws and regulations in the future or that laws or regulations will
not have a material adverse effect upon the Company's business, financial
condition and results of operations.
International
Exports of products that have market clearance from FDA do not require FDA
export approval. However, some foreign countries require manufacturers to
provide an FDA certificate for products for export ("CPE") which requires the
device manufacturer to certify to the FDA that the product has been granted
premarket clearance in the United States and that the manufacturing facilities
appeared to be in compliance with the GMPs at the time of the last GMP
inspection. The FDA will refuse to issue a CPE if significant outstanding GMP
violations exist.
The introduction of the Company's products in foreign markets will also
subject the Company to foreign regulatory clearances which may impose additional
substantial costs and burdens. Interna-
34
<PAGE> 37
tional sales of medical devices are subject to the regulatory requirements of
each country. The regulatory review process varies from country to country. Many
countries also impose product standards, packaging and labeling requirements and
import restrictions on devices. In addition, each country has its own tariff
regulations, duties and tax requirements. The approval by the FDA and foreign
government authorities is unpredictable and uncertain, and no assurance can be
given that the necessary approvals or clearances will be granted on a timely
basis or at all. Delays in receipt of, or failure to receive, such approvals or
clearances, or the loss of any previously received approvals or clearances could
have a material adverse effect on the business, financial condition and results
of operations of the Company.
The Company is in the process of implementing policies and procedures which
are intended to allow the Company to receive ISO 9000 series certification of
its processes. ISO 9000 series certification is one of the quality systems
satisfying the CE mark certification requirements. Failure to receive the right
to affix the CE mark will prohibit the Company from selling its products in
member countries of the EU after mid-1998. There can be no assurance that the
Company will be successful in meeting certification requirements.
THIRD-PARTY REIMBURSEMENT
The majority of Medicare expenditures in 1993 were attributable to
inpatient hospital care. Medicare inpatient reimbursement was changed from a
cost-based retrospective system to a prospective reimbursement system in 1983.
Rates are set in advance, fixed for a specific fiscal period, constitute full
institutional payment for the designated service and generally do not vary with
hospital treatment costs. When the cost of providing service differs from the
payment rate, the hospital makes a profit or experiences a shortfall. In the
United States, health care providers, such as hospitals and physicians that
purchase medical devices for treatment of their patients, generally rely on
third-party payors to reimburse all or part of the costs and fees associated
with the procedures performed with these devices. Private insurance plans are
central to new product acceptance.
Successful sales of Norian SRS in the United States and other markets will
depend on the availability of adequate reimbursement from third-party payors.
There is significant uncertainty concerning third-party reimbursement for the
use of any medical device incorporating new technology. Even if the Company
receives approval of a PMA application for Norian SRS for orthopaedic uses,
third-party payors may nevertheless deny reimbursement or reimburse at a low
price if they conclude that using it is not cost-effective, not medically
necessary, or is used for an unapproved indication. Furthermore, third-party
payors are increasingly challenging the need to perform medical procedures, or
limiting reimbursement for those that are performed. There can be no assurance
that use of Norian SRS will be considered cost-effective or medically necessary
by third-party payors, that reimbursement will be available or, if available,
that payors' reimbursement policies will not adversely affect the Company's
ability to sell its products on a profitable basis. The market for the Company's
products could also be adversely affected by recent federal legislation that
reduces reimbursement under the cost pass-through system for the Medicare
program. In addition, an increasing emphasis on managed care in the United
States has and will continue to increase the pressure on medical device pricing.
The Company cannot predict whether legislative or regulatory proposals will be
adopted or the effect such proposals or managed care efforts may have on its
business. The announcement of such proposals or efforts could have a material
adverse effect on the Company's ability to raise capital, and the adoption of
such proposals or efforts could have a material adverse effect on the Company's
business, financial condition and results of operations. Failure by hospitals
and other users of the Company's products to obtain reimbursement from
third-party payors and/or changes in governmental and private third-party
payors' policies toward reimbursement for procedures employing the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations.
Member countries of the EU operate various combinations of
centrally-financed health care systems and private health insurance systems. The
relative importance of government and private
35
<PAGE> 38
systems varies from country to country. The choice of devices is subject to
constraints imposed by the availability of funds within the purchasing
institution. Medical devices are most commonly sold to hospitals or health care
facilities at a price set by negotiation between the buyer and the seller. A
contract to purchase products may result from an individual initiative or as a
result of a public invitation and a competitive bidding process. In either case,
the purchaser pays the supplier. Payment terms can vary widely throughout the
EU.
In Japan, at the end of the regulatory process, the MHW makes a
determination of the per unit sales price of the product. The MHW can set the
reimbursement level for Norian SRS at its discretion and there can be no
assurance that the Company will be able to obtain regulatory approval in Japan
or if such approval is granted that the Company will obtain a favorable per unit
sales price.
Through the patient informed consent process, the Company receives full
access to the United States clinical trial patient's hospital discharge
financial record and other medical financial information. By comparing the cost
outcomes of treated patients, and control patients, the Company expects to
substantiate the claim that Norian SRS provides overall reduction in costs which
outweighs the incremental added cost of the product.
COMPETITION
The Company competes with a number of manufacturers of bone fixation and
replacement devices. Products that are competitive with Norian SRS include
casts, splints, external fixators, internal fixators, bone grafts, bone graft
substitutes and bone cement. Most of the Company's competitors have
significantly greater financial, technical, research, marketing, sales,
distribution and other resources than the Company. There can be no assurance
that the Company's competitors will not succeed in developing or marketing
technologies and products that are more effective or commercially attractive
than any which are being developed by the Company or which would render the
Company's products obsolete or noncompetitive. Such developments could have a
material adverse effect on the Company's business, financial condition and
results of operations. Any product developed by the Company that receives
regulatory approval will have to compete for market acceptance and market share.
The Company believes that the primary competitive factors in the market for bone
fixation and replacement devices include clinical need and efficacy, relative
cost for the episode of care and ease of use. Another important factor in such
competition may be the timing of market introduction of competitive products.
Accordingly, the relative speed with which the Company can develop products,
complete clinical testing and regulatory approval processes and supply
commercial quantities of the product to the market is expected to be an
important competitive factor.
PRODUCT LIABILITY AND INSURANCE
The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. Although the
Company maintains product liability insurance with coverage limits of $1.0
million per occurrence and an annual aggregate maximum of $1.0 million, and
general commercial liability insurance with an additional $3.0 million umbrella
coverage per occurrence and an annual aggregate maximum of $3.0 million, there
can be no assurance that product liability claims will not exceed such insurance
coverage limits, which could have a material adverse effect on the Company, or
that such insurance will continue to be available on commercially reasonable
terms, if at all.
EMPLOYEES
As of April 30, 1996, the Company had 52 full-time employees, of which 24
persons were engaged in research and development activities, nine persons in
manufacturing and facilities, four persons in quality assurance and regulatory
affairs, seven persons in sales and marketing and eight
36
<PAGE> 39
persons in general and administrative functions. No employees are covered by
collective bargaining agreements, and the Company believes it maintains good
relations with its employees.
FACILITIES AND OPERATIONS
The Company leases a 20,100-square foot facility in Cupertino, California.
The facility is leased through December 1999, with an option to renew for an
additional five-year term. The Cupertino facility contains research,
development, manufacturing, marketing and administrative space. In addition, the
Company leases approximately 950 square feet of office space in Naarden,
Netherlands under a lease expiring February 2000, and 900 square feet of office
space in Bedale, United Kingdom under a lease that terminates at the Company's
option, on three months' notice. The Company is currently negotiating the lease
of additional office space in Cupertino, California to accommodate expanded
marketing and administrative functions, although no definitive agreement has
been reached.
37
<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
March 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Brent R. Constantz, Ph.D.................. 37 President and Chief Executive Officer,
Chief Scientist and Director
Claude O. Pering.......................... 50 Executive Vice President, Operations
Marc E. Faerber........................... 41 Vice President, Finance and Chief
Financial Officer
F. Lee Fagot.............................. 49 Vice President, Marketing and Business
Development
Albert M. Jackson......................... 63 Vice President, Quality Assurance and
Regulatory Affairs
John Little, Ph.D......................... 50 Vice President, Europe
Robert D. Poser, D.V.M.................... 42 Vice President, Research and Development
Susanne T. Smith, R.N., M.S............... 46 Vice President, Clinical Affairs
Costa G. Sevastopoulos, Ph.D.(1)(2)....... 53 Chairman of the Board
Jon N. Gilbert(1)......................... 33 Director
Peter Barton Hutt, Esq.(1)................ 62 Director
Harry B. Skinner, M.D., Ph.D.(2).......... 54 Director
Hansjorg Wyss(2).......................... 60 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Dr. Constantz founded the Company in 1987 and has been a member of the
Board of Directors since that time. Dr. Constantz served as the Chairman of the
Company from its inception until September 1993. He was elected President and
Chief Executive Officer of the Company in March 1994. Following the completion
of certain performance milestones, the Board of Directors intends to re-elect
Dr. Constantz to the position of Chairman of the Company. Dr. Constantz
conducted post-doctoral research on isotope geochemistry at the United States
Geological Survey and studied protein-crystal interactions in biomineralization
as a Fulbright Scholar at the Weizmann Institute of Science in Israel. Dr.
Constantz holds a B.A. in Aquatic Biology/Geological Sciences from the
University of California, Santa Barbara, and an M.S. and a Ph.D. in Earth
Sciences from the University of California, Santa Cruz.
Mr. Pering joined the Company in February 1996 as Executive Vice President,
Operations. From 1990 to 1996, he was Vice President and Chief Operating Officer
of Ace Medical Company, a manufacturer and marketer of orthopaedic trauma
devices. He holds a B.S. in Chemistry, Biology and Psychology from Drury
College.
Mr. Faerber joined the Company in April 1994 as Vice President, Finance and
Chief Financial Officer. From 1990 to 1994, he was International and Corporate
Controller at Collagen Corporation, a medical device company. He holds a B.S. in
Business Administration from Providence College, Rhode Island and is a Certified
Public Accountant.
Mr. Fagot joined the Company in January 1995 as Vice President, Marketing
and Business Development. From 1986 to 1995, Mr. Fagot held several marketing
and general management positions with domestic and international divisions of
Johnson & Johnson. Mr. Fagot received a B.B.A. in Business Management from North
Texas State University.
38
<PAGE> 41
Mr. Jackson joined the Company in December 1992 as Vice President, Quality
Assurance and Regulatory Affairs. Mr. Jackson was Vice President, Quality
Assurance and Regulatory Affairs for Oximetrix, Inc. ("Oximetrix"), a medical
device company, from 1975 to 1985, when Oximetrix was acquired by Abbott
Laboratories, Inc. ("Abbott"), a medical device and pharmaceutical company. He
remained with Abbott until 1992. Mr. Jackson has over 26 years of professional
experience in the medical device field.
Dr. Little joined the Company in February 1996 as Vice President, Europe.
From 1994 to 1995 Dr. Little was Vice President, Sales and Marketing of the CMW
division of DePuy International, Ltd., a subsidiary of Boehringer Mannheim, a
pharmaceutical and health care products company. Dr. Little received a B.Sc. in
Zoology from the University of London, an M.Tech. in Applied Immunology from
Brunel University, London, and a Ph.D. in Biochemistry from the University of
the Witwatersrand in Johannesburg, South Africa.
Dr. Poser joined the Company in January 1993 as the Director of Orthopaedic
Research, and was promoted to Vice President of Research and Development in
January 1996. Dr. Poser was Head of Experimental Surgery at the Harrington
Arthritis Research Center in Phoenix, Arizona from 1989 to 1993. Dr. Poser
received a B.S. in Biology from East Carolina University and a D.V.M. from the
University of Georgia.
Ms. Smith joined the Company in March 1993 as Director of Clinical
Research, and was promoted to Vice President, Clinical Affairs in January 1996.
From 1992 to 1993, Ms. Smith was Manager of Clinical Research at Triton
Diagnostics, Inc., an in vitro cancer diagnostic company, and, from 1990 to
1992, she was Director of Clinical Research at Target Therapeutics, Inc., a
neurovascular microcatheter and guidewire company. She holds a B.S. in Nursing
from Marymount College of Virginia and an M.S. in Administration from George
Mason University.
Dr. Sevastopoulos has been a director of the Company since April 1988 and
was elected Chairman of the Board in March 1994. He was a general partner of
Delphi BioVentures L.P. from 1988 to 1994. Dr. Sevastopoulos is currently
self-employed as a private investor and consultant and is also the Chairman of
the Board of Metra Biosystems, Inc. He received a B.S. in Physics from the
University of Athens, Greece, an M.S. in Electrical Engineering from the
California Institute of Technology, an M.B.A. from INSEAD, France, and a Ph.D.
in Molecular Biology from the University of California at Berkeley.
Mr. Gilbert has served as a director of the Company since April 1995. He is
a general partner of Frazier & Company L.P., a private equity firm specializing
in health care, which he joined at its inception in 1991. Mr. Gilbert, a
Certified Public Accountant, holds a B.A. in Accounting from the University of
Washington and an M.B.A. from Dartmouth College.
Mr. Hutt has served as a director of the Company since May 1994. Mr. Hutt
was Chief Counsel for the FDA from 1971 to 1975 and was responsible for FDA
policy relating to the Medical Device Amendments of 1976. Since leaving the FDA
in 1975, Mr. Hutt has been a partner with the Washington, D.C. law firm of
Covington & Burling, where he specializes in FDA law. Mr. Hutt is a member of
the Institute of Medicine of the National Academy of Sciences, and an advisory
board member of the Center for the Study of Drug Development at Tufts
University. Mr. Hutt teaches a course on food and drug law at Harvard Law School
during the winter term. He also serves as a director of Cell Genesys, Inc.,
Emisphere Technologies, Inc., IDEC Pharmaceuticals Corporation, Interneuron
Pharmaceuticals, Inc. and Vivus, Inc. He holds a B.A. in Political Science and
Economics from Yale University, an LL.B. from Harvard University, and an LL.M.
from New York University under a fellowship from the Food and Drug Law
Institute.
Dr. Skinner has served as a director of the Company since April 1988. He
has been the Chairman of the Department of Orthopaedic Surgery at the College of
Medicine at the University of California, Irvine since 1994. He was a professor
at the University of California, San Francisco from 1983 to 1994. He is a fellow
of the American College of Surgeons and of the American Academy of
39
<PAGE> 42
Orthopaedic Surgeons. He has served as the User Vice-Chairman of the F4
Committee of the American Society of Testing Materials dealing with medical
devices. In addition, he was the Chairperson of the Medical Device Committee of
the American College of Surgeons. He holds a B.S. in Ceramic Engineering from
Alfred University, an M.D. from Medical University of South Carolina, and a
Ph.D. in Material Science and Engineering from the University of California at
Berkeley.
Mr. Wyss has been a director of the Company since September 1995. Mr. Wyss
is a trustee and board member of the Association for the Study of Internal
Fixation ("AO"), and has been Chairman and Chief Executive Officer of SYNTHES
(USA), a leading orthopaedic trauma company, since 1977. Mr. Wyss also serves as
a director of BE Aerospace, Inc. and Applied Extrusion Technology, Inc. Mr. Wyss
holds a B.A. and an M.S. degree in Civil and Structural Engineering from the
Swiss Federal Institute of Technology in Zurich, Switzerland, and an M.B.A. from
Harvard University.
Currently all directors hold office until the next annual meeting of
shareholders and until their successors have been duly elected and qualified.
The Board of Directors has approved an amendment to the Company's Articles of
Incorporation which provides that upon the effective date of offering, as long
as the Company is a "Listed Company" as defined in Section 301.5 of the
California Corporations Code of 1968, as amended, the Board of Directors will be
divided into two classes. Each class of directors will consist of three
directors, who will serve staggered two-year terms. The Board of Directors has a
Compensation Committee, which establishes compensation policies and is
responsible for determining the cash and equity compensation for executive
officers, and an Audit Committee, which is responsible for reviewing the scope
of the work performed by the Company's independent auditors. Officers are
elected by and serve at the discretion of the Board of Directors. There are no
family relationships among the directors or officers of the Company.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the year ended
December 31, 1995, with respect to the compensation of the Company's Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Company whose salary and bonus for such fiscal year were in
excess of $100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
---------------------- SECURITIES
SALARY UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION ($) BONUS ($) OPTIONS(#) COMPENSATION ($)
- ----------------------------------- -------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
Brent R. Constantz, Ph.D........... $160,000 $30,000 37,500 $ 6,192(1)
President, Chief Executive
Officer and Chief Scientist
Marc E. Faerber.................... 110,000 10,000 12,500 --
Vice President, Finance and
Chief Financial Officer
F. Lee Fagot....................... 115,000 -- 31,250 50,000(2)
Vice President, Marketing and
Business Development
Albert J. Jackson.................. 117,000 5,000 6,250 --
Vice President, Quality Assurance
and Regulatory Affairs
Robert D. Poser, D.V.M............. 114,128 2,500 8,750 --
Vice President, Research
and Development
</TABLE>
- ---------------
(1) Reflects an automobile allowance paid to Dr. Constantz.
(2) Reflects relocation expenses paid to Mr. Fagot.
40
<PAGE> 43
The following table sets forth certain information for the year ended
December 31, 1995, with respect to grants of stock options to Named Executive
Officers. The Company has not granted any stock appreciation rights to Named
Executive Officers.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
-------------------------------------------------- REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION -----------------
NAME (#)(1) YEAR 1995 ($/SH)(2) DATE 5% ($) 10% ($)
- ------------------------------ ---------- ---------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Brent R. Constantz,
Ph.D.(4).................... 37,500 28.0% $2.00 9/26/00 $20,721 $45,788
Marc E. Faerber(5)............ 12,500 9.3 2.00 9/26/00 6,907 15,263
F. Lee Fagot.................. 31,250 23.4 2.00 1/31/00 17,268 38,157
Albert M. Jackson(6).......... 6,250 4.7 2.00 9/26/00 3,454 7,631
Robert D. Poser, D.V.M.(7).... 3,750 2.8 2.00 1/31/00 2,072 4,579
5,000 3.7 2.00 12/04/00 2,763 6,105
</TABLE>
- ---------------
(1) These options were granted under the Company's 1988 Stock Option Plan and
vest at the rate of 1/48th per month beginning on the grant date.
(2) The exercise price equals the fair market value of the Common Stock on the
date of grant and is to be paid in cash. The Company may also finance the
option exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance that the actual stock price appreciation over the five-year
option term will be at the assumed 5% or 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
executive officers.
(4) On January 30, 1996, the Company granted Dr. Constantz an option to purchase
37,500 shares of Common Stock at an exercise price of $2.00 per share.
(5) On January 30, 1996, the Company granted Mr. Faerber an option to purchase
6,250 shares of Common Stock at an exercise price of $2.00 per share, and on
May 2, 1996, the Company granted Mr. Faerber an option to purchase 10,000
shares of Common Stock at an exercise price of $9.60 per share.
(6) On January 30, 1996, the Company granted Mr. Jackson an option to purchase
6,250 shares of Common Stock at an exercise price of $2.00 per share, and on
May 2, 1996, the Company granted Mr. Jackson an option to purchase 10,000
shares of Common Stock at an exercise price of $9.60 per share.
(7) On January 30, 1996, the Company granted Dr. Poser an option to purchase
2,500 shares of Common Stock at an exercise price of $2.00 per share, and on
May 2, 1996, the Company granted Dr. Poser an option to purchase 10,000
shares of Common Stock at an exercise price of $9.60 per share.
The following table sets forth information for the Named Executive Officers
regarding the value of unexercised options held as of December 31, 1995. No
options were exercised by the Named Executive Officers during the fiscal year
ended December 31, 1995.
41
<PAGE> 44
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1995(#) DECEMBER 31, 1995(1)($)
(EXERCISABLE/ (EXERCISABLE/
NAME UNEXERCISABLE) UNEXERCISABLE)
- --------------------------------------- --------------------------- ---------------------------
<S> <C> <C>
Brent R. Constantz, Ph.D............... 20,312/ 4,688 $ 21,124/$4,876
2,344/35,156 --/ --
Marc E. Faerber........................ 7,812/10,938 6,250/ 8,750
781/11,719 --/ --
F. Lee Fagot(2)........................ --/31,250 --/ --
Albert M. Jackson(3)................... 7,708/ 2,292 8,016/ 2,384
1,302/ 1,198 1,042/ 958
391/ 5,859 --/ --
Robert D. Poser, D.V.M................. 9,115/ 3,385 9,480/ 3,520
1,797/ 1,953 1,438/ 1,562
859/ 2,891 --/ --
--/ 5,000 --/ --
</TABLE>
- ---------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 1995 ($2.00 per share
as determined by the Board of Directors) and the exercise price of the
option.
(2) Includes options to purchase 8,463 shares, which Mr. Fagot exercised on
March 11, 1996.
(3) Includes options to purchase 9,973 shares, which Mr. Jackson exercised on
March 5, 1996.
DIRECTOR COMPENSATION
From October 1993 to December 1995, Dr. Skinner received $700 per month for
his service as a director, and, effective January 1996, this monthly stipend was
increased to $1,500 per month. In January 1996, the Company also began paying
Dr. Sevastopoulos $1,500 per month for his service as the Chairman of the Board
of Directors. From time to time, certain directors who are not employees of the
Company have received grants of nonstatutory stock options to purchase shares of
Common Stock under the 1988 Incentive Stock Option Plan. On January 30, 1996,
Drs. Sevastopoulos and Skinner each received 6,250 shares of Common Stock for
their service as Chairman of the Board of Directors and as a director,
respectively. During 1995 and through March 31, 1996, Mr. Hutt received options
to purchase 12,500 shares of Common Stock for his services as a director. Each
of the options granted to Drs. Sevastopoulos and Skinner and Mr. Hutt has an
exercise price of $2.00 per share. On April 28, 1996, Drs. Sevastopoulos and
Skinner and Messrs. Gilbert, Hutt and Wyss each received options to purchase
10,000 shares of Common Stock, all at an exercise price of $9.60 per share, for
their service as directors. Under the 1996 Director Option Plan, non-employee
directors who first join the Board after this offering will receive options to
purchase 10,000 shares of Common Stock, and all non-employee directors will
receive annual grants of options to purchase 2,000 shares of Common Stock. See
"Stock Plans -- 1988 Stock Option Plan" and "-- 1996 Director Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During the year ended December 31, 1995, Drs. Constantz and Sevastopoulos
and Peter Gleason served as the Compensation Committee of the Company's Board of
Directors. Dr. Constantz, who served as President, Chief Executive Officer and
Chief Scientist during 1995, resigned as a member of the Compensation Committee
in April 1996. Mr. Gleason resigned from the Board of Directors and the
Compensation Committee in April 1996. The current members of the Compensation
Committee are Drs. Sevastopoulos and Skinner and Mr. Wyss. Dr. Sevastopoulos
42
<PAGE> 45
served as Norian's President and Chief Executive Officer from November 1988 to
May 1989. See "Management" and "Certain Transactions."
STOCK PLANS
1988 Stock Option Plan. As of March 31, 1996, 279,654 shares of Common
Stock had been acquired on the exercise of options granted under the Company's
1988 Stock Option Plan (the "1988 Plan"), 453,137 shares of Common Stock were
subject to outstanding options, and 142,194 shares were available under the 1988
Plan for issuance on the exercise of options granted in the future. Since March
31, 1996, options to purchase an additional 139,125 shares of Common Stock have
been granted under the 1988 Plan, and 15,638 shares of Common Stock have been
issued on the exercise of options outstanding at March 31, 1996. Options granted
under the 1988 Plan before the effective date of the 1996 Plan will remain
outstanding in accordance with their terms, but no further grants will be made
under the 1988 Plan after the effective date of this offering.
1996 Stock Plan. The Company's 1996 Stock Plan (the "1996 Plan") was
adopted by the Board of Directors in April 1996, and will be submitted for
approval by the Company's shareholders in May 1996. The 1996 Plan will serve as
the successor equity incentive program to the Company's 1988 Plan upon
completion of this offering. The Company has reserved 1,000,000 shares of Common
Stock for issuance under the 1996 Plan, plus an automatic increase on each
anniversary of the effective date of the 1996 Plan equal to the lesser of
500,000 shares, two percent of the outstanding shares on such date, or an amount
determined by the Board.
The 1996 Plan provides for the grant of stock options and stock purchase
rights to employees (including directors who are employees) and consultants of
the Company or any parent or subsidiary of the Company. Incentive stock options
(as defined under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code")) may be granted only to employees. No person will be eligible to
receive an option under the 1996 Plan covering more than 100,000 shares in any
fiscal year of the Company, other than new employees of the Company, who will be
eligible to receive options covering up to a maximum of 400,000 shares in the
calendar year in which they begin employment with the Company. The 1996 Plan
will be administered by the Compensation Committee which will have the
discretion to determine the terms of options and stock purchase rights
(including the exercise price and the vesting schedule), subject to certain
statutory limitations and other limitations in the 1996 Plan.
In the event of a merger or sale of all or substantially all of the assets
of the Company, outstanding options and stock purchase rights under the 1996
Plan may be assumed or substituted for by the successor corporation (if any). In
the event such successor corporation refuses to assume or substitute such
options or stock purchase rights, the vesting of such awards will accelerate in
full immediately prior to such transaction.
The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will
terminate by its terms in June 2006, unless sooner terminated by the Board.
1996 Director Option Plan. The Company's 1996 Director Option Plan (the
"Director Plan") was adopted by the Board in April 1996, and will be submitted
for approval by the shareholders in May 1996. The Director Plan will become
effective upon completion of this offering. A total of 200,000 shares have been
reserved for issuance under the Director Plan, plus an annual increase to be
added on each anniversary of the effective date of the Director Plan equal to
0.5% of the outstanding shares as of such date, or a lesser amount determined by
the Board.
Only non-employee directors are eligible to participate in the Director
Plan. Each non-employee director who first becomes a director after this
offering will automatically be granted a nonstatutory option to purchase 10,000
shares of Common Stock. In addition, each non-employee director (including such
directors who first were elected before this offering) will be granted an
automatic option to purchase 2,000 shares on June 30 of each year, commencing in
1997; provided that he is then a non-employee director; and provided, further,
that such director has served on the
43
<PAGE> 46
Board during the preceding six months. The per share exercise price of options
granted under the Director Plan will be equal to the fair market value of the
Common Stock on the date of grant. The initial option grant to non-employee
directors will vest at a rate of 1/48th per month over four years following the
date of grant, so long as the non-employee director continues to serve as a
director on such dates. Each subsequent option grant will vest at a rate of
1/12th per month over the next year following the date of grant, so long as the
non-employee director continues to serve as a director on such date.
In the event of a merger or sale of all or substantially all of the assets
of the Company, options granted under the Director Plan may be assumed or
substituted for by the successor corporation (if any). If assumed or
substituted, an option will continue to vest as provided under the Director Plan
for so long as the non-employee director continues to serve as a director of the
successor corporation. If the director is terminated as a director of the
successor corporation, other than upon a voluntary termination or termination
for cause (as defined in the Director Plan), such option will become fully
exercisable as of the date of such termination. If the successor corporation
does not assume or substitute the option, the option will become exercisable in
full immediately prior to such transaction.
The Board may amend or terminate the Director Plan at any time, provided,
however, that the provisions regarding the grant of options under the Director
Plan may be amended only once in any six-month period, other than to comport
with changes in the Code or the Employee Retirement Income Security Act of 1974,
as amended. If not terminated earlier, the Director Plan will terminate by its
terms in June 2006.
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board in April 1996, and
will be submitted for approval by the shareholders in May 1996. A total of
300,000 shares of Common Stock has been authorized for issuance under the
Purchase Plan, plus an annual increase to be added on each anniversary date of
the effective date of the Purchase Plan equal to the lesser of 150,000 shares,
one percent of the outstanding shares on such date, or an amount determined by
the Board. As of the date of this Prospectus, no shares have been issued under
the Purchase Plan. The Purchase Plan, which is intended to qualify under Section
423 of the Code, will be administered by the Board or by a committee appointed
by the Board.
Any employee who is employed by the Company or any designated subsidiary of
the Company for at least 20 hours per week and for at least five months in any
calendar year will be eligible to participate in the Purchase Plan. Under the
Purchase Plan, the Company will withhold a specified percentage (not to exceed
15%) of the compensation paid to each participant, and the amount withheld will
be used to purchase Common Stock from the Company on the last day of each
purchase period. The price at which Common Stock will be purchased under the
Purchase Plan will be equal to 85% of the fair market value of the Common Stock
on the first day of the applicable offering period, or the last day of the
applicable purchase period, whichever is lower. The length of each offering
period and each purchase period will be determined by the Board or the
Compensation Committee, but no offering period will exceed 27 months in
duration. Unless the Board or the Compensation Committee determines otherwise,
offering periods will be divided into consecutive purchase periods of
approximately six months. The first offering period and the first purchase
period will begin on the effective date of this Prospectus. New offering periods
will begin approximately every six months thereafter.
Employees may end their participation in an offering period at any time,
and participation ends automatically on termination of employment with the
Company. The maximum number of shares that a participant may purchase during any
purchase period will be equal to $12,500 divided by the fair market value of the
shares on the first day of the applicable offering period. In addition, no
participant may purchase shares under the Purchase Plan to the extent that such
participant would own five percent or more of the total combined voting power or
value of all classes of the capital stock of the Company or any subsidiary, or
to the extent that such participant's right to purchase the
44
<PAGE> 47
stock under all employee stock purchase plans of the Company accrues at a rate
that exceeds $25,000 worth of stock during any calendar year. In the event of a
merger or sale of all or substantially all of the Company's assets, purchase
periods then in progress will be shortened and will end on a new exercise date,
at which time all options will automatically be exercised. The Board may amend
or terminate the Purchase Plan at any time. The Purchase Plan will terminate by
its terms in June 2006.
SECTION 401(K) PLAN
In April 1994, the Company adopted the Norian Corporation Retirement
Savings Plan (the "401(k) Plan"), covering the Company's full-time employees
located in the United States. Pursuant to the 401(k) Plan, employees may elect
to reduce their current compensation by up to the statutorily prescribed annual
limit ($9,500 in 1996) and to have the amount of such reduction contributed to
the 401(k) Plan. The 401(k) Plan permits, but does not require, additional
matching contributions to the 401(k) Plan by the Company on behalf of all
participants in the 401(k) Plan. The Company has not made any contributions to
the 401(k) Plan. The 401(k) Plan is intended to qualify under Section 401(k) of
the Code, such that contributions to the 401(k) Plan by employees or by the
Company, and the investment earnings thereon, are not taxable to employees until
withdrawn from the 401(k) Plan, and such that contributions by the Company, if
any, will be deductible by the Company.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation eliminate the personal liability of
its directors for monetary damages arising from a breach of their fiduciary
duties in certain circumstances to the fullest extent permitted by law and
authorize the Company to indemnify its directors and officers to the fullest
extent permitted by law. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Bylaws of the Company provide for the indemnification of the Company's
officers and directors against certain liabilities and expenses relating to
lawsuits and other proceedings in which they may become involved. Sections
204(a)(10) and (11) and Section 317 of the California Corporations Code also
provide for indemnification of a corporation's directors and officers under
certain circumstances.
The Company currently carries indemnity insurance pursuant to which its
directors and officers are insured under certain circumstances against certain
liabilities or losses, including liabilities under the Securities Act. The
Company has entered into indemnity agreements with certain directors and
executive officers. These agreements, among other things, indemnify the
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement payments incurred by such person in any
action, including any action by or in the right of the Company, in connection
with the good faith performance of his or her duties as a director or officer.
The indemnification agreements also provide for the advance payment by the
Company of defense expenses incurred by the director or officer; however, the
affected director or officer must undertake to repay such amounts advanced if it
is ultimately determined that such director or officer is not entitled to be
indemnified.
At present, there is no pending litigation involving a director or officer
of the Company in which indemnification is required or permitted, and the
Company is not aware of any threatened litigation or proceeding that may result
in a claim for such indemnification.
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<PAGE> 48
CERTAIN TRANSACTIONS
In April, June and September 1995, the Company issued and sold an aggregate
of 3,529,516 shares of Series D Preferred Stock at a purchase price of $5.60 per
share. Upon consummation of this offering, these shares will convert into
3,529,516 shares of Common Stock. In connection with this transaction, warrants
to purchase an aggregate of 357,386 shares of Series D Preferred Stock at an
exercise price of $6.44 per share were issued to Frazier Securities, L.P., the
placement agent for the transaction. The purchasers of the Series D Preferred
Stock and the holders of such warrants include, among others, the following
directors, entities affiliated with directors and holders of more than five
percent of the Common Stock of the Company.
<TABLE>
<CAPTION>
WARRANTS TO
AGGREGATE PURCHASE
SHARES OF SERIES D PURCHASE SERIES D
NAME PREFERRED STOCK PRICE PREFERRED STOCK
- -------------------------------------------- ------------------ ---------- ---------------
<S> <C> <C> <C>
DIRECTORS
Jon N. Gilbert(1)......................... 535,714 $3,000,000 357,386
Hansjorg Wyss(2).......................... 714,285 4,000,000
ENTITIES AFFILIATED WITH DIRECTORS
Frazier Healthcare Investments, L.P.(1)... 535,714 3,000,000 357,386
The Amy Wyss 1995 Irrevocable Trust(2).... 714,285 4,000,000
OTHER 5% SHAREHOLDERS
J.P. Morgan Investment Corporation........ 142,771 799,518
Technology Venture Investors IV........... 107,279 600,763
Norwest Equity Partners, IV............... 68,937 386,050
</TABLE>
- ---------------
(1) Jon N. Gilbert, a director of the Company, is a member of Frazier
Management, L.L.C., which is affiliated with Frazier Securities, L.P. and
Frazier Healthcare Investments, L.P. Mr. Gilbert may be deemed to have an
indirect material interest in the shares held by Frazier Healthcare
Investments L.P. and Frazier Securities L.P. However, Mr. Gilbert does not
believe he has a material interest in the transactions.
(2) Consists of 714,285 shares sold to The Amy Wyss 1995 Irrevocable Trust. Amy
Wyss is the adult daughter of Hansjorg Wyss, a director of the Company. Mr.
Wyss disclaims any material interest in the transaction.
Contingent upon the completion of this offering and shareholder approval of
an amendment to the Company's Bylaws that will authorize the Board of Directors
independently to make loans or guarantee the obligations of any officer of the
Company, on March 12, 1996, the Board of Directors approved a loan of up to
$500,000 to Brent R. Constantz, President, Chief Executive Officer and Chief
Scientist of the Company, to be secured by shares of Common Stock held by Dr.
Constantz. The loan is intended to be used to finance the purchase of a primary
residence. The terms and conditions of the loan will be determined upon funding
of the loan.
Peter Barton Hutt, a director of the Company, is a partner in the law firm
of Covington & Burling, which provides international regulatory counsel to the
Company. The Company paid fees to Covington & Burling of approximately $7,000 in
the aggregate over the three years ended December 31, 1995.
Dr. Sevastopoulos and Dr. Skinner each have a consulting agreement with the
Company. See "Management -- Director Compensation."
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<PAGE> 49
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of March 31, 1996,
and as adjusted to reflect the sale of Common Stock offered hereby, for (i) each
person who is known by the Company to own beneficially more than five percent of
the Common Stock, (ii) each of the Company's directors, (iii) each Named
Executive Officer and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
---------------------
SHARES PERCENT PERCENT
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Frazier Healthcare Investments, L.P.(2).................... 893,100 9.54% 7.23%
Frazier & Company L.P.
Two Union Square
601 Union Street, Suite 2110
Seattle, WA 98101
Jon N. Gilbert(3).......................................... 893,308 9.54 7.23
Frazier & Company L.P.
Two Union Square
601 Union Street, Suite 2110
Seattle, WA 98101
Technology Venture Investors(4)............................ 752,814 8.36 6.27
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
The Amy Wyss 1995 Irrevocable Trust(5)..................... 714,285 7.93 5.95
SYNTHES (USA)
1690 Russell Road
P.O. Box 1766
Paoli, PA 19301
J.P. Morgan Investment Corporation......................... 680,271 7.56 5.67
60 Wall Street
New York, NY 10260
Norwest Equity Partners, IV................................ 483,758 5.37 4.00
A Minnesota Limited Partnership
c/o George J. Still, Jr.
3000 Sand Hill Road
Building 3, Suite 105
Menlo Park, CA 94025-7112
Costa G. Sevastopoulos, Ph.D.(6)........................... 442,098 4.91 3.70
Brent R. Constantz, Ph.D.(7)............................... 282,291 3.12 2.35
Harry B. Skinner, M.D., Ph.D.(8)........................... 63,229 * *
Robert D. Poser, D.V.M.(9)................................. 14,505 * *
Marc E. Faerber(10)........................................ 12,369 * *
Peter Barton Hutt, Esq.(11)................................ 12,317 * *
Albert J. Jackson(12)...................................... 11,875 * *
F. Lee Fagot(13)........................................... 10,416 * *
Hansjorg Wyss(14).......................................... 208 * *
All directors and executive officers as a group (13
persons)(15)............................................. 1,753,003 18.57 14.09
</TABLE>
- ---------------
* Less than one percent
(1) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options or warrants exercisable within 60 days of March 31, 1996 are
deemed outstanding for computing the percentage of the person or entity
holding such options but are not deemed outstanding for computing the
percentage of any other person.
47
<PAGE> 50
(2) Consists of 535,714 shares held by Frazier Healthcare Investments, L.P. and
warrants to purchase 357,386 shares held by Frazier Securities, L.P.
(3) Consists of 535,714 shares held by Frazier Healthcare Investments, L.P.,
warrants to purchase 357,386 shares held by Frazier Securities, L.P. and
208 shares issuable under stock options held by Mr. Gilbert exercisable
within 60 days of March 31, 1996. Mr. Gilbert is a member of Frazier
Management, L.L.C., which is affiliated with Frazier Securities, L.P. and
Frazier Healthcare Investments L.P. Therefore, Mr. Gilbert may be deemed to
be a beneficial owner of the shares held by Frazier Healthcare Investments,
L.P. and the warrants held by Frazier Securities, L.P. Nonetheless, Mr.
Gilbert disclaims beneficial ownership of the shares held by Frazier
Healthcare Investments, L.P., and the warrants held by Frazier Securities,
L.P., except to the extent of his pecuniary interest. Voting and investment
power is shared among all of the above-mentioned entities.
(4) Includes 78,125 shares held by Technology Venture Investors IV, L.P., 7,686
shares held by TVI Management-3, L.P., 400,439 shares held by Technology
Venture Investors-3, L.P., and 266,564 shares held by Technology Venture
Investors IV, L.P., as nominee for Technology Venture Investors-4, L.P.,
TVI Partners-4, L.P., and TVI Affiliates-4, L.P.
(5) Amy Wyss is the adult daughter of Hansjorg Wyss, a director of the Company,
and Mr. Wyss disclaims beneficial ownership of shares held by the trust.
(6) Includes 729 shares issuable under stock options held by Dr. Sevastopoulos
exercisable within 60 days of March 31, 1996. Also includes 348,923 shares
held by Delphi Ventures, L.P., 1,237 shares held by Delphi BioInvestments,
L.P., 485 shares held by Delphi BioInvestments II, L.P., and 87,390 shares
held by Delphi Ventures II, L.P. Because Dr. Sevastopoulos is a limited
partner of Delphi Management Partners and Delphi Management Partners II,
which are general partners of these limited partnerships, he may be deemed
to be a beneficial owner of such shares. Dr. Sevastopoulos disclaims
beneficial ownership of such shares, except to the extent of his interest
in such shares arising from his interest in Delphi Management Partners and
Delphi Management Partners II.
(7) Includes 32,291 shares issuable under stock options held by Dr. Constantz
exercisable within 60 days of March 31, 1996.
(8) Includes 729 shares issuable under stock options held by Dr. Skinner
exercisable within 60 days of March 31, 1996.
(9) Consists of 14,505 shares issuable under stock options held by Dr. Poser
exercisable within 60 days of March 31, 1996.
(10) Consists of 12,369 shares issuable under stock options held by Mr. Faerber
exercisable within 60 days of March 31, 1996.
(11) Consists of 12,317 shares issuable under stock options held by Mr. Hutt
exercisable within 60 days of March 31, 1996.
(12) Includes 1,771 shares issuable under stock options held by Mr. Jackson
exercisable within 60 days of March 31, 1996.
(13) Includes 1,953 shares issuable under stock options held by Mr. Fagot
exercisable within 60 days of March 31, 1996.
(14) Consists of 208 shares issuable under stock options held by Mr. Wyss
exercisable within 60 days of March 31, 1996.
(15) Includes 78,278 shares issuable under stock options held by such directors
and executive officers exercisable within 60 days of March 31, 1996, and
warrants to purchase 357,386 shares held by Frazier Securities, L.P., which
may be deemed beneficially owned by Mr. Gilbert.
48
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 75,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock, after giving
effect to the restatement of the Company's Articles of Incorporation and the
completion of this offering. The following summaries of certain provisions of
the Common Stock and Preferred Stock do not purport to be complete, are subject
to, and qualified in their entirety by, the provisions of the Company's Seventh
Amended and Restated Articles of Incorporation, which is included as an exhibit
to the Registration Statement of which this Prospectus forms a part, and by
applicable law.
COMMON STOCK
As of March 31, 1996, there were 9,003,003 shares of Common Stock
outstanding assuming the conversion of all of the outstanding shares of
Preferred Stock into Common Stock, which were held of record by 199
shareholders. The holders of Common Stock are entitled to one vote per share on
all matters to be voted upon by the shareholders. Subject to preferences that
may be applicable to any outstanding Preferred Stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy." In the event of a liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. The Common
Stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon the closing of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
shareholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the shareholders. The Company
has no present plans to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
The holders of 9,434,527 shares of Common Stock or their transferees
(including 423,540 shares subject to outstanding and exercisable warrants) are
entitled to certain rights with respect to the registration of such shares under
the Securities Act. Subject to certain limitations, the holders of at least 25%
of the Common Stock issued on the conversion of the Company's Series D Preferred
Stock or at least 40% of the Common Stock issued on the conversion of all
Preferred Stock and on the exercise of all warrants, may require, on two
occasions beginning six months after the date of this Prospectus, that the
Company use its best efforts to register the resale of shares of Common Stock.
If the Company registers any of its Common Stock either for its own account or
for the account of other security holders, the holders of securities with
registration rights are entitled to include their shares of Common Stock in the
registration, subject to the underwriters' right to limit the number of shares
included in the offering. In addition, certain shareholders may also require the
Company to register the resale of all or a portion of their shares on Form S-3
when the Company becomes eligible to use such form; provided that, among other
limitations, the proposed aggregate selling price (net of any underwriters'
discounts or commissions) is at least $1.0 million; and provided further, that
approximately 357,386 shares underlying outstanding warrants with registra-
49
<PAGE> 52
tion rights are not subject to such limitations. All registration expenses must
be borne by the Company and all selling expenses relating to the sale of the
securities with registration rights must be borne by the holders of the
securities being registered.
CERTAIN CHANGE OF CONTROL PROVISIONS
The Company's Seventh Amended and Restated Articles of Incorporation will
provide that, upon the completion of this offering, the Board of Directors will
be divided into two classes, with each class serving a staggered two-year term.
The classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
the Company and may maintain the incumbency of the Board of Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the directors. The Seventh Amended and Restated Articles
of Incorporation and Bylaws do not provide for cumulative voting in the election
of directors. The authorization of undesignated Preferred Stock makes it
possible for the Board of Directors to issue Preferred Stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of the Company. These and other provisions may have the effect of
deferring hostile takeovers or delaying changes in control or management of the
Company.
In addition, the Company has granted to Howmedica a non-exclusive right of
first negotiation with respect to transactions involving the sale of the
Company, whether through merger, stock exchange or sale of all, or substantially
all, of its assets. If the Company's Board of Directors decides to begin
discussions with any third party regarding a sale of the Company, the Company is
required to notify Howmedica in writing and to negotiate with Howmedica for a
period of 60 days. The Company is not prohibited from negotiating concurrently
with other parties regarding similar transactions during this 60-day period. If
the Company and Howmedica fail to reach a written agreement in principle during
the 60-day period, or if Howmedica consents to the early termination of such
60-day period, the Company will be free to complete the sale of the Company to
any third party without further obligation to Howmedica. This right of first
negotiation expires on the earliest to occur of: (i) the termination of the
CrystalCoat License; (ii) the occurrence of an event that would cause the
CrystalCoat License to become non-exclusive; or (iii) the completion of a sale
of the Company, whether by merger, share exchange or sale of all, or
substantially all, of the Company's assets. This right of first negotiation may
make it more difficult for a third party to acquire, or discourage a third party
from attempting to acquire, the Company in a negotiated transaction, and may
also impair the Company's ability to respond to a hostile takeover attempt.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is the American Stock
Transfer and Trust Company. Its telephone number is (212) 936-5100.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time and the
ability of the Company to raise equity capital in the future.
Upon the completion of this offering, the Company will have 12,368,641
shares of Common Stock outstanding. Of these shares, the 3,000,000 shares sold
in this offering will be freely tradable without restriction under the
Securities Act. The remaining 9,368,641 shares of the Common Stock will be
restricted securities within the meaning of the Securities Act. Shareholders of
the Company, holding in the aggregate 9,210,311 shares of Common Stock, have
entered into lock-up agreements under which they have agreed not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of, or agree
to dispose of, directly or indirectly, any shares of Common Stock,
50
<PAGE> 53
options or warrants to acquire shares of Common Stock or securities exchangeable
for or convertible into Common Stock owned by them for a period of either 120
days or 180 days after the date of this Prospectus, without the prior written
consent of the Representatives of the Underwriters or, in certain cases, the
Company. The Company has entered into a similar agreement, except that the
Company may grant options and issue stock under its current stock purchase plans
and pursuant to other currently outstanding options.
As of March 31, 1996, 453,137 shares were subject to outstanding options,
342,623 of which would be subject to lock-up agreements if issued. After the
completion of this offering, the Company intends to file a Registration
Statement on Form S-8 covering shares issuable under the Company's 1988 Stock
Plan (including shares subject to then outstanding options), the 1996 Stock
Plan, the Director Plan and the Purchase Plan, thus permitting the resale of
such shares in the public market without restriction under the Securities Act
after expiration of the applicable agreements.
On the date of this Prospectus, the 3,000,000 shares offered hereby, as
well as an additional 28,989 shares, will be available for sale in the public
market. Beginning 90 days after the date of this Prospectus, an additional
69,603 shares of Common Stock (excluding approximately 46,810 shares subject to
outstanding vested options which, if exercised, would be included) will be
available for sale in the public market subject to the requirements of Rules 144
or 701. Upon expiration of the lock-up agreements, beginning 120 days and 180
days after the date of this Prospectus, an additional 50,694 and 5,286,002
shares of Common Stock, respectively (excluding approximately 146,146 shares
subject to outstanding vested options which, if exercised, would be included),
will become eligible for immediate public resale subject to compliance with Rule
144. The remaining approximately 3,933,353 shares held by existing shareholders
will become eligible for public resale at various times over a period of less
than two years following the completion of this offering, subject to compliance
with Rule 144. The holders of 9,434,527 shares of Common Stock outstanding
immediately following the completion of this offering (including 423,540 shares
subject to outstanding, exercisable warrants) will be entitled to registration
rights with respect to such shares upon the release of lock-up agreements. The
number of shares sold in the public market could increase if such rights are
exercised. See "Description of Capital Stock -- Registration Rights."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 123,700 shares
immediately after this offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701, persons who
purchase shares upon exercise of options granted prior to the effective date of
this offering are entitled to sell such shares 90 days after the effective date
of this offering in reliance on Rule 144, without having to comply with the
holding period requirements of Rule 144 and, in the case of nonaffiliates,
without having to comply with the public information, volume limitation or
notice provisions of Rule 144.
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule changes
will be enacted. If enacted, such modification will have a material effect on
the time when shares of the Common Stock become eligible for resale.
51
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Robertson, Stephens & Company LLC, have
severally agreed to purchase from the Company the following respective number of
shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated..................................................
Robertson, Stephens & Company LLC................................................
---------
Total............................................................................ 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of Common Stock offered hereby, if any of
such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 3,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 3,000,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Shareholders of the Company, holding in the aggregate 8,767,842 shares of
Common Stock, have agreed not to offer, sell or otherwise dispose of any of such
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives of the
Underwriters. The Company has entered into a similar agreement, except that it
may issue, and grant options to purchase, shares of Common Stock under its
current stock option and purchase plans and pursuant to other currently
outstanding options and warrants. See "Shares Eligible for Future Sale."
In 1992, the Company engaged Alex. Brown & Sons Incorporated, one of the
Representatives of the Underwriters, as agent for the private placement of
2,601,037 shares of Series D Preferred Stock. Alex. Brown & Sons Incorporated
was granted a warrant to purchase 66,154 shares of Common Stock
52
<PAGE> 55
at an exercise price of $9.20 per share as consideration for this service. This
warrant expires in August 1997.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock has been determined by negotiation between the Company and the
Representatives of the Underwriters. Among the factors considered in such
negotiations were prevailing market conditions, estimates of the business
potential of the Company, the present state of the Company's development, the
results of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies which the Company
and the Representatives of the Underwriters believed to be comparable to the
Company, and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California ("WSGR"). Certain legal matters will be passed upon for the
Underwriters by Venture Law Group, A Professional Corporation, Menlo Park,
California. As of the date of this Prospectus, certain members of WSGR, and
investment partnerships of which such persons are partners beneficially own an
aggregate of 15,402 shares of the Company's Common Stock. Steven E. Bochner,
Assistant Secretary of the Company, is a member of WSGR.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995, and for each of the years in the three-year period ended December
31, 1995, have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
as to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected by anyone without charge at the
principal office of the Securities and Exchange Commission in Washington, D.C.,
and copies of all or any part of the Registration Statement may be obtained from
the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain fees.
The Company intends to furnish to its shareholders annual reports
containing audited financial statements examined by independent auditors and
quarterly reports containing interim unaudited financial information for the
first three quarters of each fiscal year.
53
<PAGE> 56
NORIAN CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Shareholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Norian Corporation:
We have audited the accompanying consolidated balance sheets of Norian
Corporation and subsidiaries (a development stage enterprise) as of December 31,
1994 and 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Norian
Corporation and subsidiaries (a development stage enterprise) as of December 31,
1994 and 1995, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
San Francisco, California
February 2, 1996, except as to Note 13
to the consolidated financial statements
which is as of May 7, 1996
F-2
<PAGE> 58
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- -------- MARCH 31, PRO FORMA
1996 MARCH 31,
----------- 1996 (NOTE 1)
(UNAUDITED) -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 4,796 $ 6,355 $ 4,433 $ 11,433
Securities available-for-sale (Note 2)....... -- 10,802 10,909 10,909
Other current assets......................... 317 363 498 498
-------- -------- -------- --------
Total current assets.................. 5,113 17,520 15,840 22,840
Property and equipment, net (Note 3)........... 1,799 2,250 2,276 2,276
Lease deposits and other assets................ 37 28 30 30
-------- -------- -------- --------
$ 6,949 $ 19,798 $ 18,146 $ 25,146
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 1,612 $ 400 $ 734 $ 734
Accrued expenses (Note 4).................... 155 639 741 741
-------- -------- -------- --------
Total current liabilities............. 1,767 1,039 1,475 1,475
-------- -------- -------- --------
Commitments and contingencies
(Notes 5, 9 and 13)
Shareholders' equity:
Convertible preferred stock, no par value;
9,000,000 shares authorized (no shares pro
forma); 4,801,923 shares issued and
outstanding as of December 31, 1994;
8,331,439 shares issued and outstanding as
of December 31, 1995 and March 31, 1996
(-0-shares pro forma); aggregate
liquidation value of $41,817 as of March
31, 1996 (Note 6).......................... 21,145 40,622 40,622 --
Common stock, no par value; 10,400,000 shares
authorized (75,000,000 shares pro forma);
598,587, 613,644, and 671,564 shares issued
and outstanding as of December 31, 1994 and
1995, and March 31, 1996, respectively
(9,353,003 shares pro forma)............... 129 143 1,257 48,879
Deferred compensation (Note 8)............... -- -- (933) (933)
Unrealized loss on securities
available-for-sale, net.................... -- (56) (41) (41)
Deficit accumulated during the development
stage...................................... (16,092) (21,950) (24,234) (24,234)
-------- -------- -------- --------
Total shareholders' equity............ 5,182 18,759 16,671 23,671
-------- -------- -------- --------
$ 6,949 $ 19,798 $ 18,146 $ 25,146
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- ----------------------
1993 1994 1995 1995 1996
------- ------- --------- --------- ---------
PERIOD FROM
MARCH 17, 1987
(INCEPTION)
THROUGH
MARCH 31, 1996
--------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Contract revenue (Note 9)..... $ 2,354 $ 444 $ 210 $ 150 $ 38 $ 38
Operating expenses:
Research and development.... 19,703 2,564 3,104 4,556 974 1,850
Contract revenue costs...... 466 224 36 -- -- --
General and
administrative............ 8,378 1,255 1,491 2,165 571 681
-------- -------- -------- --------- -------- ---------
Total operating expenses...... 28,547 4,043 4,631 6,721 1,545 2,531
-------- -------- -------- --------- -------- ---------
Loss from operations.......... (26,193) (3,599) (4,421) (6,571) (1,507) (2,493)
Other income (expense):
Interest income............. 2,258 344 282 720 45 217
Interest expense............ (261) (15) (3) -- -- --
Other income (expense),
net....................... (10) (4) (8) 2 1 (6)
-------- -------- -------- --------- -------- ---------
Loss before income taxes...... (24,206) (3,274) (4,150) (5,849) (1,461) (2,282)
Income tax expense (Note 10).. 28 3 8 9 4 2
-------- -------- -------- --------- -------- ---------
Net loss...................... $(24,234) $(3,277) $(4,158) $(5,858) $(1,465) $(2,284)
======== ======== ======== ========= ======== =========
Pro forma information
(unaudited) (Note 1):
Pro forma net loss per
share..................... $(0.71) $(0.26)
Pro forma weighted average
shares used to compute pro
forma net loss per
share..................... 8,197,105 8,811,258
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 60
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
UNREALIZED DEFICIT
CONVERTIBLE LOSS ON ACCUMULATED
PREFERRED STOCK COMMON STOCK DEFERRED SECURITIES DURING THE TOTAL
-------------------- -------------------- COMPEN- AVAILABLE- DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SATION FOR-SALE, NET STAGE EQUITY
---------- ------- ---------- ------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of March 17, 1987
(inception)................. -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock... -- -- 481,045 39 -- -- -- 39
Sales and conversion of
notes payable to Series A
preferred stock, net of
offering costs of $26.... 612,865 1,445 -- -- -- -- -- 1,445
Sale of Series B preferred
stock, net of offering
costs of $38............. 1,254,688 3,977 -- -- -- -- -- 3,977
Sale of Series C preferred
stock, net of offering
costs of $19............. 333,333 1,981 -- -- -- -- -- 1,981
Sale and conversion of
notes payable to Series D
preferred stock, net of
offering costs of $820... 2,601,037 13,745 -- -- -- -- -- 13,745
Founder capital
contribution............. -- -- (62,500) -- -- -- -- --
Issuance of common stock
under stock option
plan..................... -- -- 71,562 30 -- -- -- 30
Repurchase of shares....... -- -- (26,635) (2 ) -- -- -- (2)
Net loss from inception to
December 31, 1992........ -- -- -- -- -- -- (8,657) (8,657)
---------- ------ ---------- ------- ------ ---- ------- -------
Balances as of December 31,
1992....................... 4,801,923 21,148 463,472 67 -- -- (8,657) 12,558
Additional offering costs
related to 1992 sale of
Series D preferred
stock.................... -- (3 ) -- -- -- -- -- (3)
Issuance of common stock
under stock option plan.... -- -- 99,763 43 -- -- -- 43
Net loss................... -- -- -- -- -- -- (3,277) (3,277)
---------- ------ ---------- ------- ------ ---- ------- -------
Balances as of December 31,
1993....................... 4,801,923 21,145 563,235 110 -- -- (11,934) 9,321
Issuance of common stock
under stock option
plan..................... -- -- 35,352 19 -- -- -- 19
Net loss................... -- -- -- -- -- -- (4,158) (4,158)
---------- ------ ---------- ------- ------ ---- ------- -------
Balances as of December 31,
1994....................... 4,801,923 21,145 598,587 129 -- -- (16,092) 5,182
Sale of Series D
convertible preferred
stock, net of offering
costs of $289............ 3,529,516 19,477 -- -- -- -- -- 19,477
Issuance of common stock
under stock option
plan..................... -- -- 15,057 14 -- -- -- 14
Unrealized loss on
securities
available-for-sale,
net...................... -- -- -- -- -- (56) -- (56)
Net loss................... -- -- -- -- -- -- (5,858) (5,858)
---------- ------ ---------- ------- ------ ---- ------- -------
Balances as of December 31,
1995....................... 8,331,439 40,622 613,644 143 -- (56) (21,950) 18,759
Issuance of common stock
under stock option plan
(unaudited).............. -- -- 57,920 73 -- -- -- 73
Deferred compensation
related to granting of
stock options
(unaudited).............. -- -- -- 1,041 (1,041) -- -- --
Amortization of deferred
compensation
(unaudited).............. -- -- -- -- 108 -- -- 108
Unrealized gain on
securities available-
for-sale, net
(unaudited).............. -- -- -- -- -- 15 -- 15
Net loss (unaudited)....... -- -- -- -- -- -- (2,284) (2,284)
---------- ------ ---------- ------- ------ ---- ------- -------
Balances as of March 31, 1996
(unaudited)................ 8,331,439 $40,622 671,564 $1,257 $ (933) $ (41) $ (24,234) $16,671
========== ====== ========== ======= ====== ==== ======= =======
Pro forma balances as of
March 31, 1996 (unaudited)
(Note 1)................... -- $ -- 9,353,003 $48,879 $ (933) $ (41) $ (24,234) $23,671
========== ====== ========== ======= ====== ==== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 61
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
PERIOD FROM
MARCH 17, 1987
(INCEPTION)
THROUGH
MARCH 31,
1996
--------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $(24,234) $ (3,277) $ (4,158) $ (5,858) $(1,465) $(2,284)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 1,310 126 115 354 98 112
Compensation expense attributable to stock
option grants................................ 108 -- -- -- -- 108
Changes in operating assets and liabilities:
Other current assets......................... (528) 15 (317) (37) 66 (137)
Accounts payable and accrued expenses........ 1,475 256 1,323 (728) (1,239) 436
Deferred revenue............................. -- (7) (17) -- -- --
------- ------- ------- -------- ------- -------
Net cash used in operating activities...... (21,869) (2,887) (3,054) (6,269) (2,540) (1,765)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments......................... (21,095) -- -- (17,277) -- (3,818)
Proceeds from maturities of investments.......... 10,145 -- -- 6,419 -- 3,726
Purchases of property and equipment.............. (3,002) (201) (1,627) (805) (148) (138)
------- ------- ------- -------- ------- -------
Net cash used in investing activities...... (13,952) (201) (1,627) (11,663) (148) (230)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of convertible preferred
stock, net of offering costs................... 39,565 (3) -- 19,477 -- --
Payments of convertible notes payable............ (19) -- -- -- -- --
Payment of capital lease obligations............. (559) (102) (39) -- -- --
Proceeds from sales of common stock, net of
repurchases.................................... 191 43 19 14 2 73
Proceeds from convertible notes payable.......... 1,076 -- -- -- -- --
------- ------- ------- -------- ------- -------
Net cash provided by (used in) financing
activities............................... 40,254 (62) (20) 19,491 2 73
------- ------- ------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... 4,433 (3,150) (4,701) 1,559 (2,686) (1,922)
Cash and cash equivalents at the beginning of
year/period...................................... -- 12,647 9,497 4,796 4,796 6,355
------- ------- ------- -------- ------- -------
Cash and cash equivalents at end of year/period.... $ 4,433 $ 9,497 $ 4,796 $ 6,355 $ 2,110 $ 4,433
======= ======= ======= ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................... $ 261 $ 15 $ 3 $ -- $ -- $ --
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of equipment under capital leases.... 559 -- -- -- -- --
Conversion of notes payable into convertible
preferred stock................................ 1,057 -- -- -- -- --
Technology rights exchanged for common stock..... 25 -- -- -- -- --
Unrealized loss on securities available-for-sale,
net............................................ (41) -- -- (56) -- (41)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 62
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Norian Corporation (the "Company" or "Norian") was incorporated on March
17, 1987 (inception) to engage in the development, manufacture and marketing of
Norian Skeletal Repair System ("Norian SRS"), a proprietary bone replacement
material designed for use in structurally compromised cancellous bone, which
occurs near joints at the end of long bones and the spine. The Company is in the
development stage and is engaged in research and development activities. The
Company is conducting clinical studies in the United States and Europe. In March
1996, the Company opened its Bedale, England office, the Company's European
headquarters.
Basis of Presentation
The accompanying consolidated financial statements include the financial
statements of Norian and its subsidiaries, Norian B.V., a company incorporated
under the laws of the Netherlands, and Norian Limited, a company incorporated
under the laws of the United Kingdom. All intercompany balances and transactions
have been eliminated in consolidation.
Interim Financial Information
The consolidated financial statements and related notes for the three
months ended March 31, 1995 and 1996, are unaudited, but include all adjustments
(consisting solely of normal recurring adjustments), which are, in the opinion
of management, necessary for a fair presentation. The results of operations for
the three months ended March 31, 1995 and 1996 are not necessarily indicative of
operating results to be expected for any future period.
Property and Equipment
Purchased property and equipment are stated at cost less accumulated
depreciation which is provided using the straight-line method over the estimated
useful lives of the respective assets, generally three to five years. Assets
recorded under capital leases and leasehold improvements are amortized using the
straight-line method over the lesser of the lease term or the estimated useful
lives of the related assets.
Deferred Compensation
The Company records deferred compensation for the difference between the
exercise price and the deemed fair market value for financial reporting purposes
of stock options granted. The compensation expense related to such grants is
amortized over the vesting period of the related stock options.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109
prescribes an asset and liability method of accounting for income taxes that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
consolidated financial statements or tax returns.
F-7
<PAGE> 63
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred assets and liabilities of a change in tax rates is recognized
in the period that includes the enactment date.
Deferred tax assets are recognized for deductible temporary differences,
with a valuation allowance established against the resulting assets to the
extent it is more likely than not that the related tax benefit will not be
realized.
Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash equivalents are
comprised of money market mutual funds at December 31, 1994 and 1995 and at
March 31, 1996.
Investments
The Company accounts for its investments under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Under the provisions of SFAS
No. 115, the Company has classified its investments as "available-for-sale."
Such investments are recorded at fair value and unrealized gains and losses,
which are considered to be temporary, are recorded as a separate component of
equity until realized. Interest income is recorded using an effective interest
rate, with associated premium or discount amortized to "investment income." The
cost of securities sold is based upon the specific identification method. The
Company classifies all investments in its available-for-sale portfolio as
current assets.
As of December 31, 1994, the Company had no investments. As of December 31,
1995 and March 31, 1996, securities available-for-sale consisted of corporate
bonds.
Revenue Recognition
Norian has entered into development and license agreements to apply the
Company's coating technology to a customer's orthopaedic products. Revenue on
development contracts has been recognized based upon costs incurred and
achievement of specified milestones. Costs of performance under development
contracts are included in contract revenue costs in the accompanying
consolidated statements of operations. Deferred revenue represents payments
received in advance of revenue recognized on the aforementioned contracts.
Advance royalties received, which may be offset only against future
royalties, if any, are recognized as revenue.
Foreign Currency Translation
The functional currency of Norian B.V. and Norian Limited is the U.S.
dollar. Assets and liabilities of Norian B.V. and Norian Limited are translated
at current exchange rates, and the related revenues and expenses are translated
at average exchange rates in effect during the period. The resulting translation
adjustment is recorded in other (income) expense in the accompanying
consolidated statements of operations.
F-8
<PAGE> 64
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Pro Forma Financial Information
Pro forma financial information gives effect to the following transactions
as if they occurred on March 31, 1996:
- The conversion of 8,331,439 shares of Series A, B, C, and D convertible
preferred stock outstanding as of March 31, 1996 into 8,331,439 shares of
common stock upon the closing of the Company's initial public offering
("IPO").
- The receipt of $7,000,000 of cash proceeds from an equity investment made
by an investor in April 1996 (the "Mochida Transaction") in exchange for
350,000 shares of the Company's Series D Preferred Stock to be converted
into 350,000 shares of Common Stock upon the closing of the Company's IPO
(Note 13).
Pro Forma Net Loss Per Share
The Company's historical capital structure is not indicative of its
prospective structure due to the anticipated conversion of all shares of
convertible preferred stock into common stock concurrent with the closing of the
Company's anticipated public offering. Accordingly, historical net loss per
share amounts are not considered meaningful and have not been presented herein.
Pro forma net loss per share is computed using the weighted average number
of shares of common stock outstanding. Common equivalent shares from stock
options and warrants are excluded from the computation as their effect is
antidilutive, except that, pursuant to the Securities and Exchange Commission
("SEC") Staff Accounting Bulletin No. 83, common stock issued for consideration
below the assumed IPO price and stock options granted and warrants issued with
exercise prices below the IPO price during the 12-month period preceding the
date of the initial filing of the registration statement, even when
antidilutive, have been included in the calculation of common equivalent shares,
using the treasury stock method based on the assumed IPO price, as if they were
outstanding for all periods presented. Furthermore, common equivalent shares
from convertible preferred stock that will be converted upon the completion of
the Company's IPO are included using the "as if converted" method. Also, the
Mochida Transaction was assumed to have occurred on March 31, 1996 and
accordingly had a minimal effect on pro forma net loss per share for the three
months ended March 31, 1996.
(2) SECURITIES AVAILABLE-FOR-SALE
The Company owned no investments during 1993 and 1994. There were no sales
of investments during 1995 and the three-months ended March 31, 1996.
F-9
<PAGE> 65
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
The following is a summary of the securities available-for-sale, all of
which are invested in corporate bonds (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Maturing within one year...................... $ 9,039 $ 16 $(75) $ 8,980
Maturing within one to two years.............. 1,819 4 (1) 1,822
------- --- ---- -------
Total as of December 31, 1995................. $10,858 $ 20 $(76) $10,802
======= === ==== =======
Maturing within one year...................... $ 9,926 $ 19 $(54) $ 9,891
Maturing within one to two years.............. 1,024 -- (6) 1,018
------- --- ---- -------
Total as of March 31, 1996.................... $10,950 $ 19 $(60) $10,909
======= === ==== =======
</TABLE>
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
Machinery and equipment...................................... $1,118 $1,591 $ 1,664
Furniture and fixtures....................................... 208 382 415
Leasehold improvements....................................... 1,185 1,340 1,371
------ ------ ------
2,511 3,313 3,451
Less accumulated depreciation and amortization............... 712 1,063 1,175
------ ------ ------
Property and equipment, net.................................. $1,799 $2,250 $ 2,276
====== ====== ======
</TABLE>
(4) ACCRUED EXPENSES
A summary of accrued expenses follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1994 1995 1996
---- ---- ---------
<S> <C> <C> <C>
Accrued compensation............................................. $147 $290 $ 248
Accrued preclinical costs........................................ -- 95 117
Accrued clinical trial costs..................................... 8 246 372
Other............................................................ -- 8 4
---- ---- ----
Total accrued expenses........................................... $155 $639 $ 741
==== ==== ====
</TABLE>
F-10
<PAGE> 66
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
(5) LEASE COMMITMENTS
The Company leases its facilities under operating leases that expire within
two to four years. Future minimum lease payments relating to these noncancelable
leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
---------------- OPERATING
LEASES
--------------
(IN THOUSANDS)
<S> <C>
1996...................................................................... $253
1997...................................................................... 241
1998...................................................................... 243
1999...................................................................... 247
------
Total minimum lease payments................................................. $984
=============
</TABLE>
Rent expense for the years ended December 31, 1993, 1994, and 1995, was
approximately $118,000, $129,000, and $265,000, respectively, and $63,000 and
$68,000 for the three months ended March 31, 1995 and 1996, respectively.
(6) CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 9,000,000 shares of no par value
convertible preferred stock. As of March 31, 1996, 26,562 shares remained
undesignated. A summary of preferred stock follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Series A: 625,000 shares designated; 612,865 shares issued
and outstanding as of December 31, 1994 and 1995 and
March 31, 1996; aggregate liquidation value of $1,471,000
as of March 31, 1996..................................... $ 1,445 $ 1,445 $ 1,445
Series B: 1,254,688 shares designated; 1,254,688 shares
issued and outstanding as of December 31, 1994 and 1995
and March 31, 1996; aggregate liquidation value of
$4,015,000 as of March 31, 1996.......................... 3,977 3,977 3,977
Series C: 343,750 shares designated; 333,333 shares issued
and outstanding as of December 31, 1994 and 1995 and
March 31, 1996; aggregate liquidation value of $2,000,000
as of March 31, 1996..................................... 1,981 1,981 1,981
Series D: 6,750,000 shares designated; 2,601,037 issued and
outstanding as of December 31, 1994; 6,130,553 shares
issued and outstanding as of December 31, 1995 and March
31, 1996; aggregate liquidation value of $34,331,000 as
of March 31, 1996........................................ 13,742 33,219 33,219
------ ------ ------
$ 21,145 $ 40,622 $40,622
====== ====== ======
</TABLE>
During 1995, the Company sold 3,529,516 shares of Series D convertible
preferred stock at $5.60 per share and issued warrants to purchase an additional
357,386 shares of Series D convertible preferred stock at an exercise price of
$6.44 per share.
F-11
<PAGE> 67
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
The rights, preferences, and privileges of convertible preferred stock
shareholders are as follows:
- Series A, B, C, and D convertible preferred stock shareholders are
entitled to noncumulative annual dividends, if declared by the Board of
Directors, of $0.24, $0.32, $0.60, and $0.56 per share, respectively,
payable in preference to common stock dividends. If dividends are
declared or paid on the common stock in any year, Series D convertible
preferred stock shareholders would be entitled to preferential,
cumulative dividend rights prior to and in preference to any dividends
paid on the common stock.
- Series D convertible preferred stock shareholders have a liquidation
preference of $5.60 per share plus all declared and unpaid dividends over
the other holders of convertible preferred stock and common stock.
Thereafter, the shareholders of Series A, B, and C convertible preferred
stock have a liquidation preference of $2.40, $3.20, and $6.00 per share,
respectively, plus all declared and unpaid dividends. Thereafter, the
shareholders of Series A, B, C, and D convertible preferred stock and
common stock participate equally in the proceeds from liquidation.
A merger, consolidation, or sale of all or substantially all of the
Company's assets will be considered a liquidation of the Company if the
per share consideration received by the shareholders of convertible
preferred stock is less than $12.00 or in which existing shareholders
retain 50% or less of the voting equity of the surviving or successor
corporation.
- Each share of Series A, B, C, and D convertible preferred stock is
convertible at any time at the option of the holder into one share of
common stock. Conversion of the convertible preferred stock is automatic
at the time of an IPO of not less than $10,000,000 at an effective
offering price of not less than $12.00 per share. Series A, B, C, and D
convertible preferred stock are protected by certain antidilution
provisions. Each share of convertible preferred stock votes equally with
shares of common stock on an "as if converted" basis. (See Note 13.)
- Convertible preferred stock shareholders have the right of first refusal
with respect to certain future issuances of convertible preferred stock
or common stock and have certain demand and other registration rights.
Convertible Preferred Stock Warrants
In conjunction with the 1995 Series D convertible preferred stock offering,
the Company issued warrants for the purchase of 357,386 shares of the Company's
Series D convertible preferred stock at an exercise price of $6.44 per share
with certain demand and other registration rights. The warrants expire at
various intervals: a warrant for 200,100 shares expires in April 2002; a warrant
for 30,268 shares expires in June 2002; and a warrant for 127,018 shares expires
in September 2002. To the extent that the preferred warrants have not been
exercised, such warrants will automatically become exercisable to acquire an
equivalent number of shares of common stock upon closing of an IPO.
(7) COMMON STOCK
At inception, the founder of the Company was issued 312,500 shares of
common stock valued at $25,000 for technology rights to various synthetic bone
technologies assigned to the Company. Subsequently, 62,500 of these shares were
assigned to the Company.
F-12
<PAGE> 68
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
Common Stock Warrant
In conjunction with the 1992 Series D convertible preferred stock offering,
the Company issued a warrant for the purchase of 66,154 shares of the Company's
common stock at an exercise price of $9.20 per share with certain demand and
other registration rights. The warrant expires in August 1997 and is subject to
certain antidilution provisions.
(8) STOCK OPTION PLANS
1988 Stock Option Plan (the "1988 Plan")
The Company has reserved 875,000 shares of common stock for issuance under
its 1988 Plan which provides for stock options to be granted to employees
(including consultants, officers, and directors) at exercise prices not less
than 100% and 85% of the fair market value for incentive and nonqualified stock
options, respectively, as determined by the Board of Directors (the "Board"), at
the grant date. All options have a term not greater than 10 years from the date
of grant. The Board shall determine the time, or times during the term, when the
options may be exercised and the number of shares for which an option can be
granted. Options generally vest ratably over a four-year period.
The following table summarizes option activity for the years ended December
31, 1993, 1994 and 1995, and for the three months ended March 31, 1996:
<TABLE>
<CAPTION>
TOTAL STOCK
OPTIONS PRICE PER SHARE
----------- ---------------
<S> <C> <C>
Balance as of December 31, 1992................................. 268,721 $0.40 -- 0.96
Granted............................................... 78,063 0.96 -- 1.20
Exercised............................................. (99,763) 0.40 -- 0.96
Canceled.............................................. (29,237) 0.40 -- 0.96
----------- ---------------
Balance as of December 31, 1993................................. 217,784 0.40 -- 1.20
Granted............................................... 88,375 1.20 -- 2.00
Exercised............................................. (35,352) 0.40 -- 1.20
Canceled.............................................. (80,094) 0.40 -- 1.20
----------- ---------------
Balance as of December 31, 1994................................. 190,713 0.40 -- 2.00
Granted............................................... 164,000 2.00
Exercised............................................. (15,057) 0.40 -- 2.00
Canceled.............................................. (474) 0.96 -- 2.00
----------- ---------------
Balance as of December 31, 1995................................. 339,182 0.40 -- 2.00
Granted............................................... 172,625 2.00 -- 2.80
Exercised............................................. (57,920) 0.64 -- 2.00
Canceled.............................................. (750) 2.00
----------- ---------------
Balance as of March 31, 1996.................................... 453,137 0.40 -- 2.80
===========
</TABLE>
F-13
<PAGE> 69
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
Options for 129,836 shares are exercisable as of December 31, 1995 (102,537
shares as of March 31, 1996). Options for 314,069 shares are available for grant
as of December 31, 1995 (142,194 shares as of March 31, 1996).
Deferred compensation of $1,041,000 was recorded in the first quarter of
1996 representing the difference between the exercise price and the deemed fair
market value for financial reporting purposes related to certain stock option
grants. Compensation expense related to these option grants is being amortized
over the related vesting period. As of March 31, 1996, $108,000 was amortized.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 applies to all
transactions in which an entity acquires goods or services by issuing equity
instruments such as common stock, except for employee stock ownership plans.
SFAS No. 123 establishes a new method of accounting for stock-based compensation
arrangements with employees which is fair value based. SFAS No. 123 encourages
(but does not require) employers to adopt the new method in place of the
provisions of Accounting Principles Board Opinion No. 25 ("APB No. 25"),
Accounting for Stock Issued to Employees. Companies may continue to apply the
accounting provisions of APB No. 25 in determining net income; however, they
must apply the disclosure requirements of SFAS No. 123. If the Company were to
adopt the fair value-based method of SFAS No. 123, a higher compensation cost
would result for stock option plans. The Company plans to continue to use its
current accounting practice under APB No. 25.
(9) DEVELOPMENT AND LICENSE AGREEMENTS
The Company has various development agreements with a convertible preferred
stock shareholder (the "Preferred Shareholder") for the application of existing
coating technology to certain orthopaedic products.
During 1992, the Company entered into two service agreements, totaling
$238,000, with the Preferred Shareholder. The Company recognized $238,000
relating to these agreements as contract revenue during the period from March
17, 1987 through March 31, 1996.
In 1992, the Company entered into two development agreements totaling
$650,000 with the Preferred Shareholder. During 1994, the development agreement
was canceled by the Preferred Shareholder under the terms of the agreement and
no further payments will be received. Amounts received under the development
agreements are contractually considered advance royalties, which the customer is
entitled to offset against future royalty obligations under a related license
agreement. The Company recognized $231,000, $60,000, and $-0- related to these
agreements as contract revenue during the years ended December 31, 1993, 1994,
and 1995, respectively, and $450,000 during the period from March 17, 1987
through March 31, 1996.
In 1992, the Company entered into a license agreement with the Preferred
Shareholder that provides annual nonrefundable advance royalty payments to the
Company of $150,000 until regulatory approval is received for a product
developed under this agreement or until termination by either party in
accordance with the provisions of the agreement. Under the agreement, the
Company granted the Preferred Shareholder exclusive rights to certain patents
and related technology for development of orthopaedic products. The customer is
entitled to offset advance royalty payments only against future royalty
obligations under the license agreement. The Company recognized
F-14
<PAGE> 70
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
revenue of $162,000, $150,000, and $150,000 under the license agreement during
the years ended December 31, 1993, 1994 and 1995, respectively. The Company
recognized revenue of $38,000 and $38,000 under the license agreement during the
three months ended March 31, 1995 and 1996, respectively, and $2,354,000 during
the period from March 17, 1987 through March 31, 1996.
During 1992, the Company completed a development agreement with the
Preferred Shareholder. Under this agreement, the Company recognized revenue and
received payments in the amount of $1,000,000 for the period from March 17, 1987
(inception) to March 31, 1996. Such amounts are considered advance royalties and
may be offset only against future royalty obligations under a related licensing
agreement.
(10) INCOME TAXES
The income tax expense recognized by the Company is primarily attributable
to the operations of Norian B.V. Under a service contract with the Company,
Norian B.V. has generated income before taxes of $6,000, $18,000 and $15,000 for
the years ended December 31, 1993, 1994, and 1995, respectively.
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% of pretax losses as a result of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax benefit............................. $(1,114) $(1,414) $(1,994)
Meals and entertainment expenses, and officers' life
insurance not deductible for income taxes................. 2 4 11
State tax expense, net of federal income tax benefit........ 1 1 1
Foreign taxes............................................... 2 7 8
Losses and credits for which no benefit has been
recognized................................................ 1,112 1,410 1,983
------- ------- -------
Income tax expense.......................................... $ 3 $ 8 $ 9
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets is presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Deferred research and development expenditures......................... $2,888 $2,999
Research credit carryover.............................................. 404 602
Net operating loss carryover........................................... 3,597 4,835
Other.................................................................. -- 88
------ ------
Deferred tax assets.................................................... 6,889 8,524
Less valuation allowance............................................... 6,889 8,524
------ ------
Net deferred tax assets................................................ $ -- $ --
====== ======
</TABLE>
F-15
<PAGE> 71
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
The net change in the total valuation allowance for the years ended
December 31, 1993, 1994, and 1995 was an increase of $1,301,000, $1,688,000, and
$1,635,000, respectively.
As of December 31, 1995, the Company has a net operating loss carryover for
federal and state income tax purposes of approximately $13,200,000 and
$6,900,000, respectively, and federal and state research credit carryforwards of
approximately $450,000 and $230,000, respectively. The federal net operating
losses and research credit carryforwards expire from 2004 to 2010. The state net
operating losses and research credit carryforwards expire from 1996 to 2000. The
difference between the federal and state loss carryforwards result primarily
from a 50% limitation on state loss carryforwards. The difference between the
total net operating loss carryover as of December 31, 1995, and the accumulated
deficit relates primarily to research and development expenditures that have
been capitalized for income tax reporting purposes.
The Company has had "changes in ownership" as described in the Internal
Revenue Code, Section 382. As a result, federal net operating loss and credit
carryforwards are subject to an annual limitation. Future "changes in
ownership," as defined, of the Company may further reduce the Company's ability
to utilize net operating loss and credit carryforwards.
(11) SECTION 401(K) PLAN
In April 1994, the Company adopted the Norian Corporation Retirement
Savings Plan (the "401(k) Plan") covering the Company's full-time employees
located in the United States. Pursuant to the 401(k) Plan, employees may elect
to reduce their current compensation by up to the statutorily prescribed annual
limit ($9,500 in 1996) and to have the amount of such reduction contributed to
the 401(k) Plan. The 401(k) Plan permits, but does not require, additional
matching contributions to the 401(k) Plan by the Company on behalf of all
participants in the 401(k) Plan. The Company has not made any contributions to
the 401(k) Plan.
(12) RELATED PARTY TRANSACTIONS
A director of the Company is a partner of a law firm, which provides
international regulatory counsel to the Company. The Company paid minimal fees
to the law firm in the three years ended December 31, 1995.
From October 1993 to December 1995, one director received $700 per month
for his service as a director, and, effective January 1996, this monthly stipend
was increased to $1,500 per month. In January 1996, the Company also began
paying another Board member $1,500 per month for his service as the Chairman of
the Board of Directors. From time to time, certain directors who are not
employees of the company have received grants of nonstatutory stock options to
purchase shares of the Company's common stock under the 1988 Plan (Note 8).
(13) SUBSEQUENT EVENTS
On March 12, 1996 the Board of Directors approved, subject to shareholder
approval and effective upon closing of the Company's proposed IPO, a loan of up
to $500,000 to the President of the Company, the terms and conditions of which
will be determined upon funding of the loan, to be secured by shares of the
Company's common stock held by the President.
F-16
<PAGE> 72
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
In April 1996, the Company and Mochida Pharmaceutical Co., Ltd. ("Mochida")
entered into a collaborative agreement for the exclusive marketing and
distribution of Norian SRS in Japan for use in certain applications. Mochida
paid the Company $2.0 million upon execution of the contract and additional
payments are payable upon achievement of certain milestones. In addition, in
connection with the collaboration, Mochida made a $7.0 million equity investment
in the Company in exchange for 350,000 shares of the Company's Series D
convertible preferred stock. Mochida will be responsible for performing clinical
development in accordance with the Company's protocols and obtaining government
approval for Norian SRS in Japan. The Company will be responsible for
manufacturing and supplying the product to Mochida. The agreement has an initial
term of the greater of 10 years from the date of regulatory approval in Japan or
15 years from the date of the agreement. Mochida has a right of first refusal as
to any term extension.
On April 22, 1996, the Board authorized management of the Company to file a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public.
On April 22, 1996, the Board of Directors approved, contingent upon
shareholder approval and effective upon the closing of the Company's proposed
IPO, the following resolutions:
- An one-for-eight reverse split of the Company's common and preferred
stock. All references in the accompanying financial statements to the
number of shares of common stock and per share amounts have been
retroactively restated to reflect this stock split.
- An amendment to the Company's Articles of Incorporation to increase the
number of authorized shares of common stock to 75,000,000 at no par
value.
- An amendment to the Articles of Incorporation to create a new class of
preferred stock, consisting of 5,000,000 shares, and to grant the Board
of Directors the authority to issue the preferred stock in such series
and with such rights, preferences and privileges as the Board shall
determine without further shareholder approval.
On April 28, 1996 and May 2, 1996, the Company granted options to purchase
53,125 and 86,000 shares, respectively, of the Company's common stock under the
1988 Plan at an exercise price of $9.60 per share, vesting over four years and
expiring ten years from the date of grant.
On May 7, 1996, the Board of Directors approved a resolution, subject to
shareholder approval, to amend the Articles of Incorporation to provide for the
automatic conversion of the convertible preferred stock at the time of an IPO of
not less than $10,000,000 at an effective offering price of not less than $10.00
per share.
On April 28, 1996, the Board of Directors adopted the following stock
option and stock purchase plans subject to shareholder approval:
1996 Stock Option Plan (the "1996 Plan")
The 1996 Plan will serve as the successor equity incentive program to the
Company's 1988 Plan beginning on the effective date of the Company's IPO. The
Company has reserved 1,000,000 shares of the Company's common stock for issuance
under the 1996 Plan, plus an annual increase to be added on each anniversary of
the effective date of the plan equal to the lesser of 500,000 shares, two
percent of the outstanding common shares on such date, or a lesser amount
determined by the
F-17
<PAGE> 73
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
Board. The 1996 Plan provides for the grant of stock options and stock purchase
rights to employees (including directors who are employees) and consultants of
the Company or any parent or subsidiary of the Company. No person will be
eligible to receive an option under the 1996 Plan covering more than 100,000
shares in any fiscal year of the Company; other than new employees of the
Company, who will be eligible to receive options covering up to a maximum of
400,000 shares in the calendar year in which they begin employment with the
Company. The terms of options and stock purchase rights will be determined by
the Company's Compensation Committee.
The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will
terminate by its terms in June 2006 unless sooner terminated by the Board.
1996 Director Option Plan (the "Director Plan")
A total of 200,000 shares have been reserved for issuance under the
Director Plan, plus an annual increase to be added on each anniversary of the
effective date of the Director Plan equal to 0.5% of the outstanding common
shares as of such date or a lesser amount determined by the Board. The Director
Plan will become effective beginning on the effective date of the Registration
Statement.
Only non-employee directors are eligible to participate in the Director
Plan. Each non-employee who becomes a director will automatically be granted a
nonstatutory option to purchase 10,000 shares of common stock on the date he or
she first becomes a non-employee director. In addition, each non-employee
director will automatically be granted an option to purchase 2,000 shares in
June of each year, provided he or she is then a non-employee director and if, as
of such date, he or she has served on the Board for at least the preceding six
months. The per share exercise price of options granted under the Director Plan
will be equal to the fair market value of the common stock on the date of grant.
The initial option grant to non-employee directors will vest 1/48th per month
over four years following the date of grant, provided the non-employee director
continues to serve as a director on such dates. Each subsequent option grant
will vest 1/12th per month over the next year following the date of grant,
provided the non-employee director continues to serve as a director on such
date.
The Board may amend or terminate the Director Pan at any time. The Director
Plan will terminate by its terms in June 2006.
1996 Employee Stock Purchase Plan (the "Purchase Plan")
A total of 300,000 shares of common stock have been authorized for issuance
under the Purchase Plan, plus an annual increase to be added on each anniversary
date of the Purchase Plan equal to the lesser of 150,000 shares, one percent of
the outstanding common shares on such date, or a lesser amount determined by the
Board.
Any employee who is customarily employed for at least 20 hours per week and
for at least five months in any calendar year by the Company or any designated
subsidiary of the Company will be eligible to participate in the Purchase Plan.
Under the Purchase Plan, eligible participants can elect to have withheld a
specific percentage (not to exceed 15%) of the compensation paid to each
participant, and the amount withheld will be used to purchase common stock from
the Company on the last day of each purchase period. The price at which common
stock will be purchased under the
F-18
<PAGE> 74
NORIAN CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
(Information for the three months ended March 31, 1995 and 1996
and for the period from March 17, 1987 (inception)
through March 31, 1996 is unaudited.)
Purchase Plan will be equal to 85% of the fair market value of the common stock
on the first day of the applicable offering period, or the last day of the
applicable purchase period, whichever is lower. The length of each offering
period and each purchase period will be determined by the Board or the
Compensation Committee, but no offering period will exceed 27 months in
duration. Unless the Board or the Compensation Committee determines otherwise,
offering periods will be divided into consecutive purchase periods of
approximately six months. The first offering period and the first purchase
period will begin on the effective date of the Company's IPO. New offering
periods will begin approximately every six months thereafter.
Employees may end their participation in an offering period at any time,
and participation ends automatically on termination of employment with the
Company. The maximum number of shares that a participant may purchase during any
purchase period will be equal to $12,500 divided by the fair market value of the
shares on the first day of the applicable offering period. In addition, no
participant may purchase shares under the Purchase Plan to the extent that such
participant would own five percent or more of the total combined voting power or
value of all classes of the capital stock of the Company or any subsidiary, or
to the extent that such participant's right to purchase the stock under all
employee stock purchase plans of the Company accrues at a rate that exceeds
$25,000 worth of stock during any calendar year. The Board may amend or
terminate the Purchase Plan at any time. The Purchase Plan will terminate by its
terms in June 2006.
F-19
<PAGE> 75
INSIDE BACK COVER
Photo Top Left
Computer-enhanced cutaway depiction of distal radius fracture in cadaver bone
treated with Norian SRS.
DISTAL RADIUS FRACTURE
Photo Top Right
Computer-enhanced cutaway depiction of vertebral body crush fracture in cadaver
bone treated with Norian SRS.
VERTEBRAL BODY CRUSH FRACTURE
Photo Lower Left
Computer-enhanced cutaway depiction of intertrochanteric hip fracture in
cadaver bone treated with Norian SRS and a sliding hip screw.
INTERTROCHANTERIC HIP FRACTURE
Photo Lower Right
Computer-enhanced cutaway depiction of tibial plateau fracture in cadaver
bone treated with Norian SRS.
TIBIAL PLATEAU FRACTURE
Norian SRS is an investigational device and has not been approved by the FDA
for marketing in the United States. Norian SRS cannot be sold commercially in
the United States unless and until such FDA approval is obtained, and FDA
approvals may not be received for several years, if at all.
<PAGE> 76
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
The Company........................... 15
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Consolidated Financial
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 22
Management............................ 38
Certain Transactions.................. 46
Principal Shareholders................ 47
Description of Capital Stock.......... 49
Shares Eligible for Future Sale....... 50
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 53
Additional Information................ 53
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,000,000 SHARES
LOGO
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
ROBERTSON, STEPHENS & COMPANY
June , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee.................................................. $ 16,655.18
NASD filing fee....................................................... 5,330.00
Nasdaq National Market listing fee.................................... 50,000.00
Printing and engraving costs.......................................... 150,000.00
Legal fees and expenses............................................... 250,000.00
Accounting fees and expenses.......................................... 180,000.00
Blue Sky fees and expenses............................................ 15,000.00
Transfer Agent and Registrar fees..................................... 15,000.00
Director's and Officer's Prospectus Liability Insurance............... 150,000.00
Miscellaneous expenses................................................ 68,014.82
--------
Total....................................................... $900,000.00
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation eliminate the personal liability of
its directors and officers for monetary damages arising from a breach of their
fiduciary duties in certain circumstances to the fullest extent permitted by law
and authorize the Company to indemnify its directors and officers to the fullest
extent permitted by law. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Bylaws of the Company provide for the indemnification of the Company's
officers and directors against certain liabilities and expenses relating to
lawsuits and other proceedings in which they may become involved. Section
204(a)(10) and (11) and Section 317 of the California Corporations Code also
provide for indemnification of a corporation's directors and officers under
certain circumstances.
The Bylaws of the Company contain provisions covering indemnification of
corporate directors and officers against certain liabilities and expenses
incurred as a result of proceedings involving such persons in their capacities
as directors and officers, including proceedings under the Securities Act or the
Exchange Act.
The Company currently provides indemnity insurance pursuant to which its
directors and officers are indemnified or insured under certain circumstances
against certain liabilities or losses, including liabilities under the
Securities Act. The Company has entered into indemnity agreements with certain
of its respective directors and officers, which provide for the indemnification
of the affected officer or director for certain expenses (including attorneys
fees), judgments, fines, settlements and other amounts incurred by such person
in any action, including any action by or in the right of the Company in
connection with the good faith performance of his or her duties as a director or
officer. The indemnification agreements also provide for the advance payment by
the Company of expenses incurred in defending any proceeding to which the
director or officer may be a party, provided that the affected director or
officer undertakes to repay all amounts advanced for defense of the proceeding
if it shall be ultimately determined that such director or officer is not
entitled to be indemnified in accordance with Sections 204(a)(10) and (11) and
Section 317 of the California Corporations Code.
II-1
<PAGE> 78
The Company understands that the staff of the Commission is of the opinion
that statutory, charter and contractual provisions as are described above have
no effect on claims arising under the federal securities laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 1993 the registrant has issued and sold the following
unregistered securities:
1. From March 31, 1993 to May 8, 1996, the Registrant issued and sold
221,460 shares of Common Stock to employees and consultants at prices
ranging from $0.40 to $2.80 per share pursuant to the Registrant's 1988
Stock Plan.
2. From April 13, 1995 to September 14, 1995, the Registrant issued
and sold 3,529,516 shares of Series D Preferred Stock to a total of 97
investors for an aggregate purchase price of $19,765,287.99.
3. On April 16, 1996, the Registrant issued and sold 350,000 shares of
Series D Preferred Stock to Mochida for an aggregate purchase price of
$7,000,000.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under such Rule 701.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
where affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Registrant.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Sixth Amended and Restated Articles of Incorporation of the Registrant, as
currently in effect.
3.2* Seventh Amended and Restated Articles of Incorporation of the Registrant to
be filed after the closing of the offering made under this Registration
Statement.
3.4 Bylaws of the Registrant, as currently in effect.
3.5* Bylaws of the Registrant, as in effect immediately following the closing of
the offering made under this Registration Statement.
4.1 Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P. C.
10.1 Form of Indemnification Agreement between the Company and each of its
directors and officers.
10.2 1988 Stock Plan and form of Stock Option Agreement thereunder.
10.3 1996 Stock Plan and form of Stock Option Agreement thereunder.
10.4 1996 Director Option Plan and form of Stock Option Agreement thereunder.
10.5 1996 Employee Stock Purchase Plan and forms of agreements thereunder.
10.6 Series C Preferred Stock Purchase Agreement dated August 9, 1990, between
the Registrant and Pfizer Hospital Products Group, Ltd.
</TABLE>
II-2
<PAGE> 79
<TABLE>
<C> <S>
10.7** Exclusive Marketing Agreement dated April 16, 1996, between the Registrant
and Mochida Pharmaceutical Co., Ltd.
10.8 Series D Preferred Stock Purchase Agreement dated April 16, 1996, between
the Registrant and certain holders of the Registrant's securities.
10.9 Modification Agreement dated April 16, 1996, between the Registrant and
certain holders of the Registrant's securities.
10.10* Lease dated July 22, 1994, as amended October 3, 1994, between Registrant
and Renault & Handley Employee Investment Company for the facility located
at 10260 Bubb Road, Cupertino, California.
11.1 Calculation of pro forma net loss per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP (see page II-5).
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment requested for certain portions.
(b) Financial Statement Schedules None.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified n the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 80
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CUPERTINO, STATE OF
CALIFORNIA, ON THE 8TH DAY OF MAY, 1996.
NORIAN CORPORATION
By: /s/ BRENT R. CONSTANTZ
------------------------------------
Brent R. Constantz
(President, Chief Executive Officer
and Chief Scientist)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brent R. Constantz and Marc E. Faerber
and each of them his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming that such
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES SET FORTH BELOW ON THE 8TH DAY OF MAY, 1996:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------
<C> <S> <C>
/s/ BRENT R. President, Chief Executive Officer and
CONSTANTZ Chief Scientist
- ---------------------------------------------
(Brent R. Constantz)
/s/ MARC E. Vice President, Finance and Chief
FAERBER Financial Officer (Principal
- --------------------------------------------- Financial and Accounting Officer)
(Marc E. Faerber)
/s/ PETER BARTON HUTT Director
- ---------------------------------------------
(Peter Barton Hutt)
/s/ JON N. Director
GILBERT
- ---------------------------------------------
(Jon N. Gilbert)
/s/ COSTA G. SEVASTOPOULOS Director
- ---------------------------------------------
(Costa G. Sevastopoulos)
/s/ HARRY B. Director
SKINNER
- ---------------------------------------------
(Harry B. Skinner)
/s/ HANSJORG Director
WYSS
- ---------------------------------------------
(Hansjorg Wyss)
</TABLE>
II-4
<PAGE> 1
EXHIBIT 1.1
[ NUMBER] SHARES
NORIAN CORPORATION
COMMON STOCK
(NO PAR VALUE)
UNDERWRITING AGREEMENT
June , 1996
ALEX. BROWN & SONS INCORPORATED
ROBERTSON, STEPHENS & COMPANY
As Representatives of the Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Ladies/Gentlemen:
Norian Corporation, a California corporation (the "Company"), proposes
to sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as representatives (the "Representatives") an
aggregate of [NUMBER] shares (the "Firm Shares") of the Company's common stock,
no par value per share (the "Common Stock"). The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The Company also proposes to sell at the
Underwriters' option an aggregate of up to [NUMBER] additional shares of the
Company's Common Stock (the "Option Shares") as set forth below. If the firms
listed in Schedule I hereto include only the Representatives, then the terms,
"Underwriters" and "Representatives," as used herein, shall each be deemed to
refer to such firms.
As Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
<PAGE> 2
In consideration of the mutual agreements contained herein and of the interests
of the parties in the transactions contemplated hereby, the parties hereto agree
as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants as follows:
(i) A registration statement on Form S-1 (File No. 33-
) with respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission under the Act. The Company has complied with the
conditions for the use of Form S-1. Copies of such registration statement,
including any amendments thereto, the preliminary prospectuses contained therein
and the exhibits, financial statements and schedules, as finally amended and
revised through the date hereof, have heretofore been delivered by the Company
to you. The term "Registration Statement" as used in this Agreement shall mean
such registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A) and, in the event of any amendment thereto
after the effective date of such registration statement, shall also mean (from
and after the effectiveness of such amendment) such registration statement as so
amended. If the Company files a registration statement to register a portion of
the Shares and relies on Rule 462(b) for such registration statement to become
effective upon filing with the Commission (the "Rule 462 Registration
Statement"), then any reference to the "Registration Statement" shall be deemed
to refer both to the registration statement referenced above (File No. 33-____)
and to the Rule 462 Registration Statement, both as amended from time to time.
The form of prospectus first filed by the Company with the Commission pursuant
to its Rule 424(b) and Rule 430A is herein referred to as the "Prospectus." Each
preliminary prospectus included in the Registration Statement prior to the time
it becomes effective is herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of California, has the power and authority to own its properties and conduct its
business as described in the Registration Statement, and is duly qualified to
transact business and is in good standing in all jurisdictions in which the
conduct of its business requires such qualification and in which the failure so
to qualify would have a material adverse effect on the business, condition
(financial or otherwise), results of operations or prospects of the Company.
(iii) Other than Norian B.V., a corporation organized
and existing under the laws of The Netherlands, and Norian Ltd., a corporation
organized and existing under the laws of the United Kingdom, both of which are
wholly owned subsidiaries of the Company (each of which is a "Subsidiary" and,
collectively, the "Subsidiaries"), the Company has no
-2-
<PAGE> 3
subsidiaries. Each Subsidiary has been duly organized and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
organization, has the power and authority to own its properties and conduct its
business as described in the Registration Statement, and is duly qualified to
transact business and is in good standing in all jurisdictions in which the
conduct of its business requires such qualification and in which the failure so
to qualify would have a material adverse effect on the business, condition
(financial or otherwise), results of operations, or prospects of the Company.
All of the issued and outstanding shares of the capital stock of each Subsidiary
have been duly authorized and validly issued, are fully paid and non-assessable,
and are owned by the Company, free and clear of any security interests, claims,
liens, pledges, equities or other encumbrances of any kind.
(iv) The Company has authorized and outstanding
capital stock as set forth under the heading "Capitalization" in the Prospectus
as of the date stated therein; the outstanding shares of Common Stock have been
duly authorized and validly issued, are fully paid and non-assessable and have
been issued in compliance with all applicable federal and state securities laws;
the Shares to be sold by the Company have been duly authorized and, when issued
hereunder, will be validly issued, fully paid and non-assessable and will have
been issued in compliance with all federal and state securities laws; no
shareholder of the Company has any right pursuant to any agreement which has not
been waived to require the Company to register the sale of any shares owned by
such shareholder under the Act in the public offering contemplated hereby; the
public offering contemplated hereby will cause a conversion of the outstanding
shares of the Company's preferred stock, no par value per share ("Preferred
Stock") into Common Stock pursuant to the Company's articles of incorporation
and agreements between the Company and such shareholders; all necessary and
proper corporate proceedings have been taken in order validly to authorize and
issue such Common Stock and no further approval or authority of the shareholders
or the board of directors of the Company is required for the sale of the Shares
to be sold by the Company as contemplated hereby.
(v) The Shares conform with the statements concerning
them in the Registration Statement in all material respects. Except as
specifically disclosed in the Registration Statement and the consolidated
financial statements of the Company and the related notes thereto, the Company
does not have outstanding any options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments, to issue or sell, shares of
its capital stock or the capital stock of any of the Subsidiaries or any such
options, rights, convertible securities or obligations. The descriptions of the
Company's stock option, stock purchase and other stock-based plans
(collectively, the "Stock Plans"), and of the options or other rights granted
and exercised thereunder, set forth in the Prospectus, are accurate summaries
and fairly present the information required to be shown with respect to such
plans and rights in all material respects.
(vi) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus relating to the
proposed offering of the Shares, nor instituted or, to the knowledge of the
Company, threatened instituting proceedings for that purpose. The Registration
Statement contains, and the Prospectus and any amendment or supplements thereto
will contain, all statements which are required to be stated therein by, and in
-3-
<PAGE> 4
all respects conforms or will conform, as the case may be, to the requirements
of, the Act and the Rules and Regulations. Neither the Registration Statement
nor any amendment thereto contains or will contain, as the case may be, any
untrue statement of a material fact, or omits or will omit, as the case may be,
to state any material fact required to be stated therein or necessary to make
the statements therein, as the case may be, not misleading. Neither the
Prospectus, nor any supplement thereto, contains or will contain, as the case
may be, any untrue statement of a material fact, or omits or will omit, as the
case may be, any material fact necessary to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, however, the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
therein.
(vii) The consolidated financial statements of the
Company, together with related notes and schedules as set forth in the
Registration Statement, present fairly the consolidated financial position and
results of operations of the Company and the Subsidiaries, at the indicated
dates and for the indicated periods. Such consolidated financial statements,
schedules and related notes have been prepared in accordance with generally
accepted accounting principles, consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data and
schedules included in the Registration Statement present fairly the information
shown therein and have been compiled on a basis consistent with the financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(viii) There is no action, suit or proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary before any court or regulatory, governmental or administrative agency
or body which might result in any material adverse change in the business,
condition (financial or otherwise), results of operations, or prospects of the
Company and the Subsidiaries, taken as a whole, except as set forth in the
Registration Statement. Neither the Company nor any Subsidiary is a party or
subject to the provisions of any injunction, judgment, order, decree of any
court, or any regulatory, administrative or governmental body or agency.
(ix) Each of the Company and the Subsidiaries has good
and marketable title to all of the properties and assets owned by it, reflected
in either the consolidated financial statements or as described in the
Registration Statement, and is subject to no security interest, claim, lien,
pledge, equity, mortgage, or other encumbrance of any kind, except those
reflected in such consolidated financial statements or as described in the
Registration Statement and except for such encumbrances that, individually or in
the aggregate, would not have a material adverse effect on the business,
condition (financial or otherwise), results of operations, or prospects of the
Company and the Subsidiaries, taken as a whole. Each of the Company and the
Subsidiaries occupies its leased properties under valid and binding leases
conforming to the descriptions thereof set forth in the Registration Statement.
-4-
<PAGE> 5
(x) Each of the Company and the Subsidiaries has filed
all foreign, federal, state and local income tax returns which have been
required to be filed and has paid all taxes indicated by said returns and all
assessments received by it. There is no tax deficiency which has been, or might
reasonably be expected to be, asserted or threatened against the Company or any
Subsidiary that could have a material adverse effect on the Company and the
Subsidiaries, taken as a whole. Each of the Company and the Subsidiaries has
paid all sales, user and transfer taxes applicable to it and its business and
operations which were or are due. Neither the Company nor any Subsidiary has
received any notice or deficiency or claim for payment from any governmental or
regulatory body with respect to such sales, user or transfer taxes.
(xi) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, as
amended or supplemented, (i) there has not been any material adverse change or
development involving a prospective material adverse change in or affecting the
business, condition (financial or otherwise), results of operations or prospects
of the Company and the Subsidiaries, taken as a whole, (ii) there has not been
any transaction entered into by the Company or any Subsidiary, other than
transactions in the ordinary course or transactions specifically described in
the Registration Statement and the Prospectus, as amended or supplemented, (iii)
neither the Company nor any Subsidiary has sustained any material loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity, not covered by insurance, (iv) the Company has not
paid or declared any dividends or other distribution with respect to its capital
stock, except as described in the Registration Statement and the Prospectus, (v)
neither the Company nor any Subsidiary is in default in the payment of principal
of, or interest on, any outstanding debt obligations, and (vi) there has not
been any change in the capital stock (other than the sale of the Shares, the
conversion of the Preferred Stock into Common Stock or the exercise of
outstanding stock options pursuant to a Stock Plan described in the Registration
Statement and the Prospectus) or increase in indebtedness of the Company or any
Subsidiary. Neither the Company nor any Subsidiary has any material contingent
obligation that is not disclosed in the Registration Statement (or contained in
the consolidated financial statements or related notes thereto), as amended or
supplemented.
(xii) Neither the Company nor any Subsidiary is in
violation or default under any provision of its articles of incorporation,
bylaws (or comparable organizational or governing documents), or any of its
agreements, leases, licenses, contracts, franchises, mortgages, permits, deeds
of trust, indentures or other instruments or obligations to which the Company or
any Subsidiary is a party or by which any of them or any of their properties is
or may be bound or affected, except for any such violation or default that would
not have a material adverse effect on the business, condition (financial or
otherwise), results of operations or prospects of the Company and the
Subsidiaries, taken as a whole.
(xiii) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated do not
and will not: (A) conflict with or result in a breach of, or violation of, any
of the terms or provisions of, or constitute, either by itself or with the
giving of notice or the passage of time or both, a default under, any indenture,
license, mortgage, lease, franchise, permit, deed of trust or other agreement or
instrument to
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<PAGE> 6
which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of their property is or may be bound or
affected, except for any breach, violation or default that would not have a
material adverse effect on the business, condition (financial or otherwise),
results of operations or prospects of the Company and the Subsidiaries, taken as
a whole, or (B) violate any provision of the articles of incorporation or bylaws
of the Company, or comparable organizational or governing documents of either
Subsidiary, or (C) violate any injunction, judgment, order, decree, statute,
rule or regulation applicable to the Company or any Subsidiary of any court or
of any regulatory, administrative or governmental body or agency having
jurisdiction over the Company, either of the Subsidiaries, or any of their
property.
(xiv) The Company has the legal right, corporate power
and authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid, legal and binding obligation
of the Company.
(xv) Each approval, registration, qualification,
license, permit, consent, order, authorization, designation, declaration or
filing by or with any regulatory, administrative or other governmental body or
agency necessary in connection with the execution and delivery by the Company of
this Agreement and the consummation of the transactions herein contemplated
(except such additional action as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or that may be necessary to qualify the
offer and sale of the Shares under state securities or blue sky laws) has been
obtained or made and each is in full force and effect.
(xvi) Except as otherwise expressly described in the
Registration Statement, each of the Company and the Subsidiaries owns or
possesses adequate and sufficient rights to use all patents, patent rights,
copyrights, trademarks and trademark rights, inventions, trade secrets,
tradenames, licenses or royalty arrangements, service marks, know-how or
proprietary techniques, including processes or substances, or rights thereto of
others, and governmental, regulatory or administrative authorizations, orders,
permits, certificates and consents necessary for the conduct of the business of
the Company and the Subsidiaries, except if the failure so to possess would not
have a material adverse effect on the business, condition (financial or
otherwise), results of operations or prospects of the Company and the
Subsidiaries, taken as a whole. The Company is not aware of any material pending
or threatened action, suit, proceeding or claim by others, either domestically
or internationally, that the Company or any Subsidiary is violating any patents,
patent rights, copyrights, trademarks or trademark rights, inventions, trade
secrets, tradenames, licenses or royalty arrangements, service marks, know-how
or proprietary techniques including processes or substances, or rights thereto
of others, or governmental, regulatory or administrative authorizations, orders,
permits, certificates and consents; except as otherwise expressly described in
the Registration Statement, the Company is not aware of any rights of third
parties to, or any infringement of, any of the Company's or either of the
Subsidiaries' patents, patent rights, copyrights, trademarks or trademark
rights, inventions, trade secrets, tradenames, licenses or royalty arrangements,
service marks, know-how or proprietary techniques, including processes and
substances, or rights thereto of others, which could have a material adverse
effect on the business, condition (financial or otherwise), results of
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<PAGE> 7
operations or prospects of the Company and the Subsidiaries, taken as a whole.
The Company is not aware of any pending or threatened material action, suit,
proceeding or claim by others challenging the validity or scope of any of such
patents, patent rights, copyrights, trademarks or trademark rights, inventions,
trade secrets, tradenames, licenses or royalty arrangements, service marks,
know-how or proprietary techniques, including processes or substances, or rights
thereto of others.
(xvii) There are no contracts or other documents
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement by the Act or by the Rules and
Regulations which have not been described or filed as required.
(xviii) Each of the Company and the Subsidiaries is
conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state, federal and foreign laws and
regulations relating to (i) the preclinical and clinical development,
manufacture, marketing, promotion, distribution, sale, or use of medical devices
and (ii) the protection of human health and safety, the environment, hazardous
or toxic substances or wastes, pollutants, or contaminants, except if the
failure so to comply would not have a material adverse effect on the business,
condition (financial or otherwise), results of operations, or prospects of the
Company and the Subsidiaries, taken as a whole.
(xix) Neither the Company nor any of the Subsidiaries
has directly or indirectly, at any time during the past five years (i) made any
unlawful contribution to any candidate for public office or failed to disclose
fully any contribution in violation of laws, or (ii) made any payment to any
federal, state or local governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(xx) Each of the Company and the Subsidiaries
maintains insurance of the types and in the amounts that are customary for
companies in its business, including, but not limited to, products liability
insurance, general liability insurance, and insurance governing all real and
personal property owned or leased by it against theft, damage, destruction, acts
of vandalism and all other risk customarily insured against, all of which
insurance is in full force and effect.
(xxi) KPMG Peat Marwick, LLP, who has certified the
consolidated financial statements filed with the Commission as part of the
Registration Statement, is an independent public accounting firm as required by
the Act and the Rules and Regulations.
(xxii) The Company is not an "investment company" or
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company", as such terms are defined in the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
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<PAGE> 8
(xxiii) Prior to the Closing Date, the Shares will be
duly authorized for listing on the National Market System of the National
Association of Securities Dealers Automatic Quotation System ("NASDAQ") upon
official notice of issuance.
(xxiv) Neither the Company nor any of the Subsidiaries
has made or offered to make any payment to any foreign official, foreign
political party or candidate for foreign political office for the purpose of (A)
influencing any act in such person's official capacity, (B) inducing such person
to act or refrain from acting in violation of his or her lawful duty, or (C)
inducing such person to influence a decision of a foreign government or entity,
in order to assist the Company in retaining or obtaining business.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES. On the basis of the
representations, warranties and covenants herein contained, and subject to the
conditions herein set forth, the Company agrees to sell to the Underwriters, and
each Underwriter agrees, severally and not jointly, to purchase, at a price of
$_____ per share, the number of Firm Shares set forth opposite the name of each
Underwriter in Schedule I hereof, subject to adjustments in accordance with
Section 9 hereof.
Payment for the Firm Shares to be sold hereunder is to be made
in New York Clearing House funds by certified or bank cashier's check drawn to
the order of the Company against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters. Such payment and
delivery are to be made at the offices of Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland at 10:00 a.m., Baltimore time, on the
third business day after the date of this Agreement or at such other time and
date not later than three business days thereafter as you and the Company shall
agree upon in writing, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and are not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second business day prior to the Closing Date, and will be made available for
inspection by the Representatives at least one business day prior to the Closing
Date.
In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in whole
or in part but only once and at any time upon written notice given within 30
days after the date of this Agreement, by you, as Representatives of the several
Underwriters, to the Company setting forth the number of Option Shares as to
which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time and
date at which such certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date").
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<PAGE> 9
If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The number of Option Shares to be purchased by each Underwriter
shall be in the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such Underwriter bears
to the total number of Firm Shares, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Company. To the extent, if any, that the
option is exercised, payment for the Option Shares shall be made on the Option
Closing Date in New York Clearing House funds by certified or bank cashier's
check drawn to the order of the Company against delivery of certificates
therefor at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore
Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS. It is understood that the several
Underwriters are to make a public offering of the Firm Shares as soon as the
Representatives deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price of $ per share (the
"Initial Public Offering Price") and to certain dealers at a price that
represents a concession not in excess of $ per share, and that any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $ per
share to any Underwriter and certain other dealers. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Underwriters.
4. COVENANTS OF THE COMPANY.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (A) prepare and timely file with
the Commission under Rule 424(b) of the Rules and Regulations a Prospectus
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and Regulations,
(B) not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy, or which is not in compliance with the Rules and
Regulations, or to which the Representatives shall have reasonably objected in
writing.
(ii) The Company will advise the Representatives
promptly of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information,
or of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the use of the Prospectus or of
the institution of any proceedings for that purpose, and the Company will use
its best efforts to
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<PAGE> 10
prevent the issuance of any such stop order preventing or
suspending the use of the Prospectus and to obtain as soon as possible the
lifting thereof, if issued.
(iii) The Company will cooperate with the
Representatives in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose;
provided, however, that the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent. The Company will, from time to time, prepare and file such statements,
reports, and other documents, as are or may be required to continue such
qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order
of, the Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period when
delivery of a Prospectus is required under the Act, as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto, including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement, but without exhibits, and of all amendments thereto, as
the Representatives may reasonably request.
(v) If during the period in which a Prospectus is
required by law to be delivered by an Underwriter or dealer any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of counsel for the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus,
as amended or supplemented, will not, in light of the circumstances when it is
so delivered, be misleading, or so that the Prospectus, as amended or
supplemented, will comply with the law.
(vi) The Company will make generally available to its
security holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration Statement, an
earnings statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date of
the Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been so made
available.
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<PAGE> 11
(vii) The Company will, for a period of five years
after the Closing Date, deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information furnished by the
Company to its shareholders or filed with any securities exchange pursuant to
the requirements of such exchange or with the Commission pursuant to the Act or
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company will deliver to the Representatives similar reports with respect to any
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(viii) No offering, sale or other disposition of any
Common Stock of the Company will be made for a period of 180 days after the date
of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of the Representatives except that
the Company may, without such consent, issue shares (i) upon the exercise of
options outstanding on the date of this Agreement issued pursuant to the Stock
Plans, and (ii) in any transaction in which the shares issued are not eligible
for sale in the public market during such 180-day period.
(ix) The Company will use its best efforts to include
the Shares on the Nasdaq National Market and to maintain such inclusion for a
period of three years after the date hereto or until such earlier date as the
Shares shall be listed on another national securities exchange approved by the
Representatives.
(x) The Company will apply the net proceeds from the
offering and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds" and will timely file a Form SR
as required under the Securities Act regarding the use of proceeds from the sale
of the Shares.
(xi) For a period of 180 days after the commencement
of the public offering of the Shares, the Company will not modify or waive any
provision in any agreement between the Company and any of its directors,
officers, shareholders or option holders, which provision or agreement restricts
the ability to sell, contract to sell or otherwise dispose of any shares of
Common Stock or rights to acquire such shares.
5. COSTS AND EXPENSES. The Company will pay all costs, expenses and
fees incident to the performance of the obligations of the Company under this
Agreement, including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of counsel
for the Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Master Agreement Among Underwriters, the Master
Selected
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<PAGE> 12
Dealers Agreement, the Underwriters' Selling Memorandum, the Underwriters'
Questionnaire, the Invitation Letter, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses incident to securing any required review by the NASD of the terms of
the sale of the Shares; the listing fee of the Nasdaq National Market; and the
expenses, including the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under state
securities or blue sky laws. Any transfer taxes imposed on the sale of the
Shares to the several Underwriters will be paid by the Company. The Company
shall not, however, be required to pay for any of the Underwriters' expenses
(other than those related to qualification under state securities or blue sky
laws), except that, if this Agreement shall not be consummated because the
conditions in Section 7 hereof are not satisfied, or because this Agreement is
terminated by the Representatives pursuant to Section 6 hereof, or by reason of
any failure, refusal or inability on the part of the Company to perform such
undertaking or to satisfy any condition of this Agreement or to comply with any
of the terms hereof on the Company's part to be performed, unless such failure
to perform said undertaking or to satisfy said condition or to comply with said
terms is due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date are subject to the
accuracy, as of the Closing Date or the Option Closing Date, as the case may be,
of the representations and warranties of the Company contained herein, and to
the performance by the Company of its covenants and obligations hereunder and to
the following additional conditions:
(a) No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have been issued and
no proceedings for that purpose shall have been taken or, to the knowledge of
the Company, shall be contemplated by the Commission.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, counsel for the Company,
dated the Closing Date or the Option Closing Date, as the case may be, addressed
to the Underwriters to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
California, has full corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and is duly qualified to
transact business and is in good standing in all jurisdictions in which the
conduct of its business requires such qualification, except if the failure so to
qualify would not
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<PAGE> 13
have a material adverse effect upon the business, condition
(financial or otherwise), results of operations or prospects of the Company.
(ii) Other than Norian B.V., a corporation organized
and existing under the laws of The Netherlands, and Norian Ltd., a corporation
organized and existing under the laws of the United Kingdom, both of which are
wholly owned subsidiaries of the Company (each of which is a "Subsidiary" and,
collectively, the "Subsidiaries"), the Company has no subsidiaries. Each
Subsidiary has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its organization, has the
power and authority to own its properties and conduct its business as described
in the Registration Statement, and is duly qualified to transact business and is
in good standing in all jurisdictions in which the conduct of its business
requires such qualification and in which the failure so to qualify would have a
material adverse effect on the business, condition (financial or otherwise),
results of operations, or prospects of the Company. All of the issued and
outstanding shares of the capital stock of each Subsidiary have been duly
authorized and validly issued, are fully paid and non-assessable, and are owned
by the Company, free and clear of any security interests, claims, liens,
pledges, equities or other encumbrances of any kind.
(iii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus,
as of the dates stated therein, and such counsel shall specify the shares of
Common Stock issued and outstanding as of the date of such opinion; the
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and non-assessable; the Shares (including the Firm Shares and
Option Shares, if any) to be sold by the Company pursuant to this Agreement have
been duly authorized and, when issued and paid for as contemplated by this
Agreement, will be validly issued, fully paid and non-assessable; no liens,
encumbrances, preemptive or similar rights of shareholders set forth in the
Company's Articles of Incorporation, or similar contractual rights to purchase,
exist with respect to any of the Shares or the issue and sale thereof; and, to
the knowledge of such counsel, no registration rights exist with respect to the
capital stock of the Company which have not been satisfied or waived in
connection with the offering of the Shares; and no further approval or authority
of the shareholders or the Board of Directors of the Company is required for the
sale of the Shares to be sold by the Company as contemplated hereby.
(iv) The authorized capital stock of the Company
conforms in all material respects as to legal matters to the description thereof
contained in the Prospectus, and the certificates evidencing the Shares are in
due and proper form under the California General Corporation Law.
(v) Except as specifically disclosed in the
Registration Statement and the consolidated financial statements of the Company,
and the related notes thereto, to such counsel's knowledge, the Company does not
have outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell shares of its
capital stock or the capital stock of any of the Subsidiaries or any such
options, rights, convertible securities or obligations. The descriptions of the
Company's stock option and other stock-based plans set
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<PAGE> 14
forth in the Prospectus are accurate summaries and fairly present in all
material respects the information required to be shown with respect to such
plans and rights.
(vi) The Registration Statement has become effective
under the Act and, to the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act and nothing has come to such counsel's attention to lead it to believe that
such proceedings are contemplated; any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has been
made in the manner and within the time period required by such Rule 424(b).
(vii) The Registration Statement and the Prospectus
and each amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the Rules and Regulations
thereunder (except that such counsel need express no opinion as to financial
statements, notes thereto and related schedules and other financial information
and statistical data included therein).
(viii) The statements (A) in the Prospectus under the
caption "Management -- Employee Benefit Plans," "Certain Transactions,"
"Principal Shareholders," "Description of Capital Stock" and "Shares Eligible
for Future Sale" and (B) in the Registration Statement in Items 14 and 15, in
each case insofar as such statements constitute summaries of documents,
proceedings, or matters of law, fairly present the information called for with
respect to such documents, proceedings, and matters of law and fairly summarize
the matters referred to therein in all material respects.
(ix) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not so filed
or described as required, and such contracts and documents as are described in
the Registration Statement or the Prospectus are accurately described in all
material respects.
(x) To such counsel's knowledge, there is no legal
action, suit or proceeding pending or threatened against the Company or any
Subsidiary of a character required to be disclosed in the Prospectus pursuant to
the Act or the Rules and Regulations; to such counsel's knowledge, neither the
Company nor any Subsidiary is a party to or subject to the provisions of, any
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body or agency which could have a
material adverse effect on the business, condition (financial or otherwise),
results of operations or prospects of the Company and the Subsidiaries, taken as
a whole.
(xi) To such counsel's knowledge, the execution,
delivery and performance of this Agreement and the consummation of the
transactions herein contemplated do not and will not: (a) violate any of the
provisions of the articles of incorporation or bylaws of the Company or
comparable organizational or governing documents of either Subsidiary; (b) to
such counsel's knowledge, violate any statute, injunction, judgment, order,
decree, rule or regulation of any court or any governmental, regulatory or
administrative body or agency having jurisdiction over the Company, either of
the Subsidiaries, or any of their property (other than as
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<PAGE> 15
may be required by the NASD with respect to compensation of underwriters or as
required by state securities or blue sky laws as to which such counsel need
express no opinion); and (c) conflict with, or result in the breach or violation
of, any of the terms or provisions of, or constitute, either by itself or with
the giving of notice or the passage of time or both, a default under any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument known to such counsel to which the Company or any Subsidiary
is a party or by which the Company or any Subsidiary or any of their property is
or may be bound or affected, except if such breach, violation or default would
not have a material adverse effect on the business, condition (financial or
otherwise), results of operations or prospects of the Company and the
Subsidiaries, taken as a whole.
(xii) The Company has the corporate power and
authority to enter into this Agreement and to perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company.
(xiii) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby (other than as may be required by the NASD with respect to compensation
of the Underwriters or as required by state securities and blue sky laws as to
which such counsel need express no opinion), except such as have been obtained
or made and are in full force and effect, specifying the same.
(xiv) The Company will not, upon the consummation of
the transactions contemplated hereby, be an "investment company," or a
"promoter" or "principal underwriter" or a "registered investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
(xv) The Shares have been duly authorized for listing
on the National Market System of the National Association of Securities Dealers
Automatic Quotation System, subject to official notice of issuance.
In rendering such opinions, such counsel may rely as
to matters governed by laws other than the laws of the State of California and
the federal laws of the United States, on local counsel in such jurisdictions,
provided that in each case such counsel shall state that they believe that they
and the Underwriters are justified in relying on such other counsel.
In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel which causes them to believe that the Registration
Statement, or any amendment thereto, at the time the Registration Statement or
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus or any
amendment or supplement thereto, at the time it was filed pursuant to Rule
424(b) or at the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the
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<PAGE> 16
circumstances under which they were made, not misleading (except
that such counsel need express no view as to financial statements, notes thereto
and related schedules and the other financial information and statistical data
included therein). With respect to such statement, such counsel may state that
their belief is based upon the procedures set forth in their opinion, but is
without independent check and verification.
(c) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Hogan &
Hartson, L.L.P., special regulatory counsel for the Company, dated the Closing
Date or the Option Closing Date, as the case may be, addressed to the
Underwriters to the effect that the statements in the Prospectus under the
captions "Risk Factors-Lack of Regulatory Approvals," "Risk Factors-Extensive
Government Regulation," "Risk Factors - Limitations on Third-Party
Reimbursement," "Business-Government Regulation--United States," and
"Business-Third Party Reimbursement," insofar as such statements purport to
summarize applicable provisions of the Federal Food, Drug, and Cosmetic Act, as
amended, and the regulations promulgated thereunder, and Title XVIII of the
Social Security Act, as amended, and the regulations promulgated thereunder,
have been reviewed by such counsel and are accurate summaries in all material
respects of the provisions purported to be summarized under such captions in the
Prospectus.
In addition, such counsel shall state that, although they have
not verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel that caused them to believe that, at the time the Registration
Statement became effective, the statements made under the captions "Risk
Factors-Lack of Regulatory Approvals," "Risk Factors-Extensive Government
Regulation," "Risk Factors-Limitations on Third-Party Reimbursement,"
"Business-Government Regulation--United States," and "Business-Third Party
Reimbursement" in the Registration Statement and Prospectus contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statement therein not misleading, or
that at the Closing Date or the Option Closing Date, as the case may be, the
statements made under the captions "Risk Factors-Lack of Regulatory Approvals,"
"Risk Factors-Extensive Government Regulation," "Risk Factors-Limitations on
Third-Party Reimbursement," "Business-Government Regulation--United States," and
"Business-Third Party Reimbursement" in the Registration Statement and
Prospectus contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. In rendering such opinion, such counsel may state that
they have not independently verified nor do they take any responsibility for nor
are they addressing in any way any advents of fact, any statements concerning
state or foreign law or any legal conclusions or statements of belief
attributable to the Company.
(d) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Covington &
Burling, special international regulatory counsel for the Company, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters, to the effect that the statements in the Registration Statement
and the Prospectus under the captions "Risk Factors-Lack of Regulatory
Approvals,"
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<PAGE> 17
"Risk Factors Extensive Government Regulation," "Risk Factors-Limitations on
Third-Party Reimbursements," "Business-Third Party Reimbursement" and
"Business-Government Regulation--International," insofar as such statements
purport to summarize applicable provisions of international regulatory
requirements, have been reviewed by such counsel and are accurate summaries in
all material respects of the provisions purported to be summarized under such
captions in the Registration Statement and the Prospectus.
In addition, such counsel shall state that, although they have
not verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel that caused them to believe that, at the time the Registration
Statement became effective, the statements made under the captions "Risk
Factors-Lack of Regulatory Approvals," "Risk Factors-Extensive Government
Regulation," "Risk Factors-Limitations on Third-Party Reimbursement,"
"Business-Government Regulation--International," and "Business-Third Party
Reimbursement" in the Registration Statement and Prospectus contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statement therein not misleading, or
that at the Closing Date or the Option Closing Date, as the case may be, the
statements made under the captions "Risk Factors-Lack of Regulatory Approvals,"
"Risk Factors-Extensive Government Regulation," "Risk Factors-Limitations on
Third-Party Reimbursement," "Business-Government Regulation--International," and
"Business-Third Party Reimbursement" in the Registration Statement and
Prospectus contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. In rendering such opinion, such counsel may state that
they have not independently verified nor do they take any responsibility for nor
are they addressing in any way any advents of fact, any statements concerning
state or foreign law or any legal conclusions or statements of belief
attributable to the Company.
(e) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Flehr,
Hohbach, Test et al., special patent counsel for the Company, dated the Closing
Date or the Option Closing Date, as the case may be, addressed to the
Underwriters to the effect that:
(i) The statements in the Registration Statement under
the captions "Risk Factors-Potential Patent Infringement in Japan," "Risk
Factors - Dependence on Patents and Proprietary Rights," and "Business-Patents
and Proprietary Rights" and other statements in the Registration Statement and
Prospectus that discuss patents, patent rights and other proprietary rights, to
the extent that they constitute matters of law, summaries of legal matters,
documents or proceedings, or legal conclusions, are accurate and complete
statements or summaries of the matters therein set forth.
(ii) Such counsel is not aware of any patent, patent
right or other proprietary right of others which would prevent the conduct of
the business of the Company now being or currently proposed to be conducted by
the Company as described in the Prospectus; and
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<PAGE> 18
such counsel is not aware of any rights of third parties to, or any infringement
by third parties of, any of the Company's patents, patent rights or other
proprietary rights.
(iii) To such counsel's knowledge, there is no pending
or threatened action, suit, proceeding or claim by others, domestic or
international, that the Company is violating any patents, patent rights, or
other proprietary rights of others; or otherwise challenging the validity or
scope of any such patents, patent rights, and other proprietary rights thereto
of others.
In addition, such counsel shall state that, although
they have not verified the accuracy or completeness of the statements contained
in the Registration Statement or the Prospectus, nothing has come to the
attention of such counsel that caused them to believe that, at the time the
Registration Statement became effective, the description of the Company's
patents, patent rights and other proprietary rights matters and the statements
made under the captions "Risk Factors-Potential Patent Infringement in Japan,"
"Risk Factors-Reliance on Patents and Protection of Proprietary Rights," and
"Business-Patents and Proprietary Rights" in the Registration Statements and
Prospectus contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or the Option Closing
Date, as the case may be, the description of the patent, patent rights and other
proprietary rights, situation of the Company and the statements made under the
captions "Risk Factors-Potential Patent Infringement in Japan," "Risk
Factors-Reliance on Patents and Protection of Proprietary Rights," and
"Business-Patents and Proprietary Rights" in the Registration Statement and
Prospectus contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(f) The Representatives shall have received from Venture Law
Group, A Professional Corporation, counsel for the Underwriters, an opinion
dated the Closing Date or the Option Closing Date, as the case may be, covering
the matters referred to in paragraphs 6(b)(i), (vi), (vii) (but only as to the
statements under the captions "Description of Capital Stock" and "Underwriting,"
and (xi) (but only as to the second sentence thereof) of paragraph 6(a) above
and with regard to the second paragraph following subparagraph (xii) of
paragraph 6(a) above.
(g) The Representatives shall have received at or prior to the
Closing Date from Venture Law Group, A Professional Corporation, a memorandum or
summary, in form and substance satisfactory to the Representatives, with respect
to the qualification for offering and sale by the Underwriters of the Shares
under the state securities or blue sky laws of such jurisdictions as the
Representatives may reasonably have designated to the Company.
(h) The Representatives shall have received on the effective
date of the Registration Statement, the Closing Date or the Option Closing Date,
as the case may be, a signed letter from KPMG Peat Marwick LLP, dated the
effective date of the Registration Statement, the Closing Date or the Option
Closing Date, as the case may be, which shall confirm, on the basis of a review
in accordance with the procedures set forth in the letter signed by such
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<PAGE> 19
firm and dated and delivered to the Representatives on the date hereof, that
nothing has come to their attention during the period from the date five days
prior to the date hereof, to a date not more than five days prior to the Closing
Date or the Option Closing Date, as the case may be, which would require any
change in their letter dated the date hereof if it were required to be dated and
delivered on the Closing Date or the Option Closing Date, as the case may be.
All such letters shall be in form and substance satisfactory to the
Representatives.
(i) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them as an officer of the Company severally
represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and, to his knowledge, no proceedings for such
purpose have been taken or are contemplated by the Commission.
(ii) He does not know of any litigation instituted or
threatened against the Company of a character required to be disclosed in the
Registration Statement which is not so disclosed; he does not know of any
material contract required to be filed as an exhibit to the Registration
Statement which is not so filed; and the representations and warranties of the
Company contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be.
(iii) He has carefully examined the Registration
Statement and the Prospectus and, to his knowledge, as of the effective date of
the Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and Prospectus
did not omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading and, to his knowledge,
since the effective date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an amendment of the
Prospectus which has not been so set forth in such supplement or amendment.
(j) The Company shall have furnished to the Representatives
such further certificates and documents confirming the representations and
warranties contained herein and related matters as the Representatives may
reasonably have requested.
(k) The Firm Shares and Option Shares, if any, have been
approved for listing on the Nasdaq National Market.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to Venture Law
Group, A Professional Corporation, counsel for the Underwriters.
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<PAGE> 20
If any of the conditions herein above provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company of such termination in writing
or by telegram at or prior to the Closing Date or the Option Closing Date, as
the case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell and deliver the portion of the Shares required to be delivered
as and when specified in this Agreement are subject to the conditions that at
the Closing Date or the Option Closing Date, as the case may be, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and in effect or proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages, or liabilities to which
such Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter and
each such controlling person for any legal or other expenses reasonably incurred
by such Underwriter or such controlling person in connection with investigating
or defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that (i) the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement, or omission or
alleged omission, made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company by or
through the Representatives specifically for use therein (which the parties
hereto agree is limited solely to that information contained on the cover page
of the Preliminary Prospectus or Prospectus or in the section thereof entitled
"Underwriting"); and (ii) that the Company shall not be liable to any
Underwriter with respect to any Preliminary Prospectus to the extent that any
loss, claim, damage or liability of such Underwriter results from the fact that
such Underwriter sold Shares to a person to whom there was not given or sent, at
or prior to the written confirmation of such sale, a copy of the Prospectus or
of the Prospectus as then amended or supplemented in any case where such
delivery is required by the Act if the Company has previously furnished copies
thereof to such Underwriter and the loss, claim, damage or liability of such
Underwriter results from an untrue statement or omission of a material fact
contained in the Preliminary Prospectus which was
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<PAGE> 21
corrected in the Prospectus (or the Prospectus as amended or supplemented). This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims, damages, or liabilities to
which the Company or any such director, officer, or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use therein (which the parties hereto agree
is limited solely to that information contained on the cover page of the
Preliminary Prospectus or Prospectus or in the section thereof entitled
"Underwriting"). This indemnity agreement will be in addition to any liability
which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such notice,
but the failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of the provisions of Section 8(a)
or (b). In case any such proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
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<PAGE> 22
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them (based on advice of counsel to the indemnified party). It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Sections 8(a) and by the Company in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a) or (b) above in respect of any losses, claims, damages, or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, or liabilities
(or actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits `received by the Company on the one
hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under Section 8(c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bears to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the
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<PAGE> 23
provisions of this Subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, including any document incorporated by reference therein, each party
against whom contribution may be sought under this Section 8 hereby consents to
the jurisdiction of any court having jurisdiction over any other contributing
party, agrees that process issuing from such court may be served upon him or it
by any other contributing party and consents to the service of such process and
agrees that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party is a
party.
9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option
Closing Date, as the case may be, any Underwriter shall fail to purchase and pay
for the portion of the Shares which such Underwriter has agreed to purchase and
pay for on such date (otherwise than by reason of any default on the part of the
Company), you, as Representatives of the Underwriters, shall use your best
efforts to procure within 24 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be
agreed upon and upon the terms set forth herein, the Firm Shares or Option
Shares, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 24 hours you, as such Representatives, shall
not have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of Firm Shares or Option Shares, as the
case may be, with respect to which such default shall occur exceeds 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the Company or
you as the Representatives of the Underwriters will have the right, by written
notice given within the next 24-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the nondefaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
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<PAGE> 24
10. NOTICES. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered or telegraphed
and confirmed as follows: if to the Underwriters to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention:
Syndicate; and if to the Company, to Norian Corporation, 10260 Bubb Road,
Cupertino, CA 95014, Attention: Brent R. Constanz.
11. TERMINATION. This Agreement may be terminated by you by notice to
the Company as follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30
A.M., Baltimore time, on the first business day following the date of this
Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change in or
affecting the business, condition (financial or otherwise), results of
operations, or management of the Company, whether or not arising in the ordinary
course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency after the date hereof or other national
or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration, emergency,
calamity, crisis or change on the financial markets of the United States would,
in your reasonable judgment, make the offering or delivery of the Shares
impracticable, (iii) suspension of trading in securities on the New York Stock
Exchange or the American Stock Exchange or limitation on prices (other than
limitations on hours or number of days of trading) for securities on either such
Exchange, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your reasonable opinion materially and adversely
affects or will materially or adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by either federal or New York
State authorities, or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
your reasonable opinion has a material adverse effect on the securities markets
in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
This Agreement may also be terminated by you, by notice to the
Company, as to any obligation of the Underwriters to purchase the Option Shares,
upon the occurrence at any time prior to the Option Closing Date of any of the
events described in subparagraph (b) above or as provided in Sections 6 and 9 of
this Agreement.
12. SUCCESSORS. This Agreement has been and is made solely for the
benefit of the Underwriters, and the Company and their respective successors,
executors, administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Shares merely because of such purchase.
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<PAGE> 25
13. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
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<PAGE> 26
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
NORIAN CORPORATION
By:
-------------------------------------
Brent R. Constanz
President and Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
ALEX. BROWN & SONS INCORPORATED
ROBERTSON, STEPHENS & COMPANY
As Representatives of the
several Underwriters listed
on Schedule I
By: ALEX. BROWN & SONS INCORPORATED
By
-------------------------------------
Authorized Officer
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<PAGE> 27
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
Alex. Brown & Sons Incorporated
Robertson, Stephens & Company
</TABLE>
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<PAGE> 1
EXHIBIT 3.1
SIXTH AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
NORIAN CORPORATION
Brent R. Constantz and Steven E. Bochner certify that:
1. They are the President and Assistant Secretary, respectively, of
Norian Corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
I
The name of this corporation is Norian Corporation.
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
This corporation is authorized to issue two classes of stock,
designated "Common Stock" and "Preferred Stock". The total number of shares
which this corporation is authorized to issue is 160,800,000. The number of
shares of Common Stock which this corporation is authorized to issue is
86,000,000. The number of shares of Preferred Stock which this corporation is
authorized to issue is 74,800,000. 5,000,000 shares of Preferred Stock shall be
designated Series A Preferred Stock, 10,037,500 shares of Preferred Stock shall
be designated Series B Preferred Stock, 2,750,000 shares of Preferred Stock
shall be designated Series C Preferred Stock, and 56,800,000 shares of Preferred
Stock shall be designated Series D Preferred Stock, which shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series
D Preferred Stock shall have the rights, preferences, and restrictions as
follows:
<PAGE> 2
Section 1.
(a) General Definitions. For purposes of these Restated Articles of
Incorporation, the following definitions shall apply:
A. "Series A Preferred" shall refer to the Series A Preferred
Stock.
B. "Series B Preferred" shall refer to the Series B Preferred
Stock.
C. "Series C Preferred" shall refer to the Series C Preferred
Stock.
D. "Series D Preferred" shall refer to the Series D Preferred
Stock.
E. "Preferred" shall refer to the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred.
F. "Common" shall mean all Common Stock.
G. "Subsidiary" shall mean any corporation at least 50% of
whose outstanding voting shares shall at the time be owned by this corporation
or by one or more of such subsidiaries.
H. "Original Issue Date" shall mean the date on which a share
of Series D Preferred is first issued by the corporation in 1995.
I. "Board" shall mean the Board of Directors of this
corporation.
Section 2. Dividend Rights of Preferred. The holders of the Series A
Preferred, Series B Preferred, Series C Preferred, and Series D Preferred shall
be entitled to receive, out of any funds legally available therefor, dividends
in an amount equal to $.03 per annum for each share of Series A Preferred held
by them, $.04 per annum for each share of Series B held by them, $.075 per annum
for each share of Series C held by them, and $.070 per annum for each share of
Series D held by them respectively, payable in preference and priority to any
payment of any dividend on Common when and as declared by the Board. After
payment of such dividends, any additional dividends declared shall be
distributed among all holders of Series A Preferred, Series B Preferred, Series
C Preferred and Series D Preferred and all holders of Common in proportion to
the number of shares of Common which would be held by each such holder if all
shares of Series A Preferred, Series B Preferred, Series C Preferred and Series
D Preferred were converted into Common at the then effective Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price, and Series D
Conversion Price respectively (as defined in Section 4(a) below). The right to
such dividends on the Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred shall not be cumulative, and no right shall accrue to
holders of Series A Preferred, Series B Preferred, Series C Preferred or Series
D Preferred by reason of the fact that dividends on such shares are not declared
or paid in any prior year; provided, however, that in the event dividends are
declared or paid on the Common in any year, each holder of the Series D
Preferred purchased pursuant to the
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<PAGE> 3
Series D Preferred Stock Purchase Agreement dated August 5, 1992 (the "1992
Series D Preferred) shall be entitled to receive, prior and in preference to any
such dividends on the Common, a dividend payment equal to the aggregate amount
which would have been accumulated by the holder of the 1992 Series D Preferred
had the dividend rights of the 1992 Series D Preferred been cumulative since the
date of issuance of the first share of 1992 Series D Preferred; each holder of
the Series D Preferred purchased pursuant to the Series D Preferred Stock
Purchase Agreement dated April 13, 1995 as amended on June 5, 1995 (the "1995
Series D Preferred) shall be entitled to receive, prior and in preference to any
such dividends on the Common, a dividend payment equal to the aggregate amount
which would have been accumulated by the holder of the 1995 Series D Preferred
had the dividend rights of the 1995 Series D Preferred been cumulative since the
date of issuance and each holder of the Series D Preferred purchased pursuant to
the Series D Preferred Stock Purchase Agreement dated April 16, 1996 (the "1996
Series D Preferred) shall be entitled to receive, prior and in preference to any
such dividends on the Common, a dividend payment equal to the aggregate amount
which would have been accumulated by the holder of the 1996 Series D Preferred
had the dividend rights of the 1996 Series D Preferred been cumulative since the
date of issuance. If no dividends are declared or paid on the Common, no rights
to any dividends shall accrue to the holder of the Series D Preferred for the
purposes of this Section 2, Section 3 or otherwise.
In the event that the corporation shall have declared but unpaid
dividends outstanding immediately prior to, and in the event of, a conversion of
the Preferred (as provided in Section 4 hereof), the corporation shall, at the
option of the holder, pay in cash to the holder(s) of the Preferred subject to
conversion the full amount of any such dividends or allow such dividends to be
converted into Common in accordance with, and pursuant to the terms specified
in, Section 4 hereof.
Section 3. Liquidation Preference; Mergers.
(a) In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of the Series D
Preferred shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the corporation to the
holders of any other series of Preferred or the holders of the Common by reason
of their ownership thereof, the amount of $.70 per share for each share of
Series D Preferred then held by them and, in addition, an amount equal to all
declared but unpaid dividends on the Series D Preferred. If upon occurrence of
such event the assets and funds thus distributed among the holders of the Series
D Preferred shall be insuffi cient to permit the payment to such holders of the
full preferential amount, then the entire assets and funds of the corporation
legally available for distribution shall be distributed among the holders of the
Series D Preferred pro rata based on the number of shares held.
(b) After payment has been made to the holders of the Series D
Preferred of the full amounts to which they shall be entitled as aforesaid, the
holders of the Series A Preferred, Series B Preferred and Series C Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the corporation to the holders of the Common
by reason of their ownership thereof the amount of (i) $.30 per share for each
share of Series A Preferred then held by them, (ii) $.40 per share for each
share of Series B Preferred then held by them and (iii) $.75 for each share of
Series C
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<PAGE> 4
Preferred then held by them and, in addition, an amount equal to all declared
but unpaid dividends on the Preferred. If upon the occurrence of such event the
assets and funds thus distributed to the holders of the Preferred as aforesaid
shall be insufficient to permit the payment to such holders of their full
preferential amount as set forth in this paragraph (b), then the entire assets
and funds of the corporation legally available for distribution shall be
distributed among the holders of the Preferred with each such holder being
entitled to receive a fraction of the amount so available for distribution,
based on the ratio that the aggregate liquidation preferences of the Series A,
Series B and Series C Preferred held by such holder as set forth in this
paragraph (b) bears to the aggregate liquidation preferences of shares of Series
A, Series B and Series C Preferred held by all such holders of Preferred as set
forth in this paragraph (b).
(c) After payment has been made to the holders of the Preferred of the
full amounts to which they shall be entitled as aforesaid, the holders of the
Preferred shall participate on a pro rata basis based on the number of Common
equivalent shares held by a holder in the distribution of all remaining assets
of the corporation legally available for distribution, with the outstanding
shares of the Preferred treated as though they had been converted into the
appropriate number of shares of Common pursuant to Section 4 hereof as of the
date of such distribution.
(d) For purposes of this Section 3, a merger, consolidation or sale of
all or substantially all of the assets of the corporation with and into any
other corporation or corporations or the merger or consolidation of any other
corporation or corporations into the corporation, in which consolidation or
merger the shareholders of the corporation will receive distributions in cash or
securities of another corporation or corporations as a result of such
consolidation or merger, or sale of all or substantially all of the assets of
the corporation, shall be treated as a liquidation, dissolution or winding-up of
the corporation in accordance with Sections 3(a), 3(b) and 3(c) above; provided,
however, that, notwithstanding the foregoing, such merger, consolidation or sale
of assets shall not be treated as a liquidation, dissolution or winding up if
(i) the per share consideration to be received by a holder of Preferred pursuant
to any of the above-mentioned transactions (without reference to the provisions
of Sections 3(a), 3(b) and 3(c) above) is in the form of cash and/or securities,
which securities are publicly traded on the New York or American Stock Exchange
or quoted on the NASDAQ National Market System, and have a fair market value on
a fully distributed basis of at least $1.50 per share, in which event such
merger, consolidation or sale of all or substantially all of the assets, the
corporation shall be treated as set forth in Section 3(e) below, or (ii) the
shareholders of this corporation immediately prior to the merger, consolidation
or sale of assets continue to hold, or receive by virtue of their equity
interest in the corporation, hold greater than 50% of the voting equity
securities of the successor or surviving corporation immediately after such
merger, consolidation or sale of assets.
(e) In the event of a merger, consolidation or sale of all or
substantially all of the assets of the corporation which is not treated as a
liquidation, dissolution or winding-up pursuant to Section 3(d) above with
respect to the outstanding series of Preferred, the consideration to be paid by
the acquiring corporation or entity in such transaction shall be distributed
among the holders of the Preferred and Common on a pro rata basis based on the
number of Common equivalent shares held by a holder, with the outstanding shares
of Preferred treated as though they had been converted into the appropriate
number of shares of Common pursuant to Section 4 hereof as of the date of such
distribution.
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<PAGE> 5
Section 4. Conversion. The holders of the Preferred shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred shall be
convertible, at the option of the holder thereof, at any time, into such number
of fully paid and nonassessable shares of Common as is determined by dividing
$.30 (the "Series A Original Purchase Price") by the then applicable Series A
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. The price at which shares of Common shall be deliverable upon
conversion (the "Series A Conversion Price") shall initially be $.30 per share
of Common. Such initial Series A Conversion Price shall be subject to adjustment
as hereinafter provided.
Each share of Series B Preferred shall be convertible, at the
option of the holder thereof, at any time, into such number of fully paid and
nonassessable shares of Common as is determined by dividing $.40 (the "Original
Series B Purchase Price") by the then applicable Series B Conversion Price,
determined as hereinafter provided, in effect at the time of the conversion. The
price at which shares of Common shall be deliverable upon conversion (the
"Series B Conversion Price") shall initially be $.40 per share of Common. Such
initial Series B Conversion Price shall be subject to adjustment as hereinafter
provided.
Each share of Series C Preferred shall be convertible, at the
option of the holder thereof, at any time, into such number of fully paid and
nonassessable shares of Common as is determined by dividing $.75 (the "Original
Series C Purchase Price") by the then applicable Series C Conversion Price,
determined as hereinafter provided, in effect at the time of the conversion. The
price at which shares of Common shall be deliverable upon conversion (the
"Series C Conversion Price") shall initially be $.75 per share of Common. Such
initial Series C Conversion Price shall be subject to adjustment as hereinafter
provided.
Each share of Series D Preferred shall be convertible, at the
option of the holder thereof, at any time, into such number of fully paid and
nonassessable shares of Common as is determined by dividing $.70 (the "Series D
Original Purchase Price") by the then applicable Series D Conversion Price,
determined as hereinafter provided, in effect at the time of conversion. The
price at which shares of Common shall be deliverable upon conversion (the
"Series D Conversion Price") shall initially be $.70 per share of Common. Such
initial Series D Conversion Price shall be subject to adjustment as hereinafter
provided.
Each share of the Preferred shall automatically be converted
into shares of Common at the then effective Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as
applicable, immediately prior to the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common for
the account of the corporation to the public yielding gross proceeds of not less
than $10,000,000 at a price per share (determined without regard to underwriter
commissions and expenses) of not less than $1.50 (as adjusted for stock splits,
reverse stock splits and the like effected after the Original Issue Date). In
the event of such an offering as described
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<PAGE> 6
above, the person(s) entitled to receive the Common issuable upon such
conversion of the Preferred shall not be deemed to have converted such Preferred
until immediately prior to the closing of such underwritten public offering.
Notwithstanding the above, in the event of a public offering as described above,
no share of Series D Preferred shall be automatically converted in accordance
with the above unless prior thereto or concurrently therewith all other shares
of Preferred are so converted.
(b) Mechanics of Conversion. No fractional shares of Common shall be
issued upon conversion of the Preferred. In lieu of any fractional share to
which a holder would otherwise be entitled, the corporation shall pay cash equal
to such fraction multiplied by the then effective Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as applicable. Before any holder of the Preferred shall be entitled to
convert the same into full shares of Common, he or she shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for the Preferred, and shall give written
notice to the corporation at such office that (i) he elects to convert the same
and (ii) whether the holder elects, pursuant to Section 2 hereof, to receive
declared but unpaid dividends on the Preferred proposed to be converted in cash,
or to convert such dividends into shares of Common at the then effective Series
A Conversion Price, Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price, as applicable, provided, however, that in the event
of an automatic conversion pursuant to Section 4(a), the outstanding shares of
Preferred shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the corporation or its transfer agent, and provided
further that the corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless the certificates evidencing such shares of Preferred are either delivered
to the corporation or its transfer agent as provided above, or the holder
notifies the corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
corporation to indemnify the corporation from any loss incurred by it in
connection with such certificates. The corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of the Preferred, a
certificate or certificates for the number of shares of Common to which he shall
be entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into a fractional share of
Common, and any declared but unpaid dividends on the converted Preferred which
the holder elected to receive in cash. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred to be converted, and the person or persons
entitled to receive the shares of Common issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common on such date.
(c) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section 4(c),
the following definitions shall apply:
(1) 'Options' shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common or Convertible
Securities.
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<PAGE> 7
(2) 'Convertible Securities' shall mean any evidences
of indebtedness, shares (other than Common, Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred) or other securities
directly or indirectly convertible into or exchangeable for Common.
(3) 'Additional Shares of Common' shall mean all
shares of Common issued (or, pursuant to Section 4(c)(iii), deemed to be issued)
by the corporation after the Original Issue Date, other than:
(A) shares of Common Stock issued or
issuable upon conversion of shares of Series A Preferred, Series B Preferred,
Series C Preferred or Series D Preferred;
(B) up to 4,762,652 shares of Common issued
or issuable to directors, officers or employees of, or consultants to, the
corporation or to members of the corporation's Scientific Advisory Board
pursuant to a stock grant, option plan or purchase plan or other employee stock
incentive program (collectively, the "Plans") approved by the Board, in an
amount not to exceed 4,762,652 shares;
(C) shares of Common issued or issuable as a
dividend or distribution on Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred;
(D) up to 529,234 shares of Common issued or
issuable upon the exercise of the warrant dated August 4, 1992 held by Alex.
Brown & Sons Incorporated.
(E) up to 28,571,429 shares of Series D
Preferred including shares of Common issued or issuable upon the conversion
thereof, pursuant to the terms of that certain Series D Preferred Stock Purchase
Agreement dated April 13, 1995, as amended;
(F) up to 2,800,000 shares of Series D
Preferred including shares of Common issued or issuable upon the conversion
thereof, pursuant to the terms of that certain Series D Preferred Stock Purchase
Agreement dated April 16, 1996;
(G) up to 2,859,087 shares of Series D
Preferred issued or issuable upon the exercise of certain Warrants held by
Frazier Investment Securities, L.P. issued in connection with the offer and sale
of the Company's 1995 Series D Preferred; or
(H) shares of Common Stock issued or
issuable by way of dividend or other distribution on shares of Common excluded
from the definition of Additional Shares of Common by the foregoing clauses (A),
(B), (E) or this clause (G) or on shares of Common so excluded.
(ii) No Adjustment of Conversion Price. No adjustment in the
applicable Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price of a particular share of Preferred
shall be made in respect of the issuance of Additional Shares of Common unless
the consideration per share for an Additional Share of Common issued or deemed
to be issued by the corporation is less than the applicable Series A Conversion
Price, Series B Conversion
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<PAGE> 8
Price, Series C Conversion Price or Series D Conversion Price in effect on the
date of, and immediately prior to, such issue for such share of Preferred.
(iii) Deemed Issue of Additional Shares of Common.
(1) Options and Convertible Securities. In the event
the corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common shall
not be deemed to have been issued unless the consideration per share (determined
pursuant to Section 4(c)(vi) hereof) of such Additional Shares of Common would
be less than the applicable Series A Conversion Price or Series B Conversion
Price or Series C Conversion Price or Series D Conversion Price for such share
of Preferred in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common are deemed to be issued:
(A) no further adjustment in the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common upon the exercise of such Options or conversion
or exchange of such Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the corporation, or decrease in the
number of shares of Common issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities; and
(C) upon the expiration of any such Options
or any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if;
(I) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
Stock issued were shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received
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<PAGE> 9
by the corporation for the issue of all such Options, whether or not exercised,
plus the consideration actually received by the corporation upon such exercise,
or for the issue of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any, actually
received by the corporation upon such conversion or exchange, and
(II) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such Options, and
the consideration received by the corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration actually
received by the corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
corporation upon the issue of the Convertible Securities with respect to which
such Options were actually exercised;
(D) no readjustment pursuant to clause (B)
or (C) above shall have the effect of increasing the applicable Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price to an amount which exceeds the lower of (i) the applic able
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
or Series D Conversion Price on the original adjustment date, or (ii) the
applicable Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date; and
(E) in the case of any Options which expire
by their terms not more than 30 days after the date of issue thereof, no
adjustment of the applicable Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price shall be made
until the expiration or exercise of all such Options, however such adjustment
shall be made if shares of Preferred are converted during such period.
(2) Stock Dividends. In the event the corporation at
any time or from time to time after the Original Issue Date shall declare or pay
any dividend on the Common payable in Common, then Additional Shares of Common
shall be deemed to have been issued immediately after the close of business on
the record date for the determination of holders of any class of securities
entitled to receive such dividend.
(iv) Adjustment of Conversion Price. In the event this
corporation shall issue at any time after the Original Issue Date Additional
Shares of Common (including Additional Shares of Common deemed to be issued
pursuant to Section 4(c)(iii)) without consideration or for a consideration per
share less than the applicable Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price in effect on the
date of and immediately prior to such issue, then and in such event, such Series
A Conversion Price, Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price shall be reduced, concurrently with such issue, to a
price (calculated to the nearest cent) determined by multiplying such Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price by a fraction, the numerator of which shall be the number
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<PAGE> 10
of shares of Common outstanding immediately prior to such issue plus the number
of shares of Common which the aggregate consideration received by the
corporation for the total number of Additional Shares of Common so issued would
purchase at such Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price; and the denominator of which
shall be the number of shares of Common outstanding immediately prior to such
issue plus the number of such Additional Shares of Common so issued; and
provided further that, for the purposes of this Section (iv), all shares of
Common (a) issuable upon conversion of all outstanding Series A Preferred,
Series B Preferred, Series C Preferred, and Series D Preferred, (b) issuable
upon conversion of all outstanding Convertible Securities, and (c) issuable upon
exercise of all outstanding Options bearing an exercise price which is lower
than the price at which the Additional Shares of Common were issued (or deemed
to be issued), shall be deemed to be outstanding, and immediately after any
Additional Shares of Common are deemed issued pursuant to Section (iii), such
Additional Shares of Common shall be deemed to be outstanding. In the event of
the issuance of Additional Shares of Common which results in an adjustment to
the Series C Conversion Price, the Series D Conversion Price shall be subject to
adjustment (in addition to any adjustment provided above) such that the number
of shares of Common issuable upon conversion of the Series D Preferred after
giving effect to such issuance of Additional Shares of Common shall represent
the same percentage equity interest in the Company as if the Series C Conversion
Price in effect immediately prior to such issuance of Additional Shares of
Common had been equal to the Series D Conversion Price in effect immediately
prior to such issuance of Additional Shares of Common. The purpose and intent of
the foregoing sentence is to ensure that the percentage equity interest of the
holders of Series D Preferred is not reduced by virtue of the fact that the
Series C Conversion Price is greater than the Series D Conversion Price.
(v) Determination of Consideration. For purposes of this
Section 4(c), the consideration received by the corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined by the Board in the good faith exercise of its reasonable business
judgment; provided, however, that if within 10 days of such determination
holders of a majority of the outstanding shares of Preferred advise the Board of
Directors in writing that such holders object to such determination, then the
fair value of such property shall be determined pursuant to the appraisal of an
independent appraiser mutually acceptable to the Board and such holders; and
(C) in the event Additional Shares of Common
are issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the
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<PAGE> 11
proportion of such consideration so received, computed as provided in clauses
(A) and (B) above, as determined in good faith by the Board.
(2) Options and Convertible Securities. The
consideration per share received by the corporation for Additional Shares of
Common deemed to have been issued pursuant to Section 4(c)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjust ment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Adjustments for Subdivisions, Combinations, or
Consolidations of Common. In the event the outstanding shares of Common Stock
shall be subdivided (by stock split, stock dividend, or otherwise) at any time
after the Original Issue Date, into a greater number of shares of Common Stock,
the applicable Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price and Series D Conversion Price then in effect shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the applicable Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price and Series D Conversion Price then
in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) Adjustments for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon conversion of the Preferred
shall be changed at any time after the Original Issue Date into the same or a
different number of shares of any other class or classes of stock or other
securities or property, whether by capital reorganization, reclassification and
otherwise (other than a subdivision or combination of shares provided for
above), the applicable Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price and Series D Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted such that the Preferred shall be convertible into,
in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock or other securities or property equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Preferred immediately before that change and, in any such
case, appropriate adjustment (as determined by the Board) shall be made in
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<PAGE> 12
the application of the provisions herein set forth with respect to the rights
and interest thereafter of the holders of the Preferred, to the end that the
provisions set forth herein (including provisions with respect to change in and
other adjustments of the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price or Series D Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Preferred.
(d) No Impairment. The corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the applicable conversion rights of the holders
of the Preferred, as set forth in this Section 4, against impairment.
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the applicable Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price
pursuant to this Section 4, the corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of such series of Preferred a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon the written
request at any time of any holder of Preferred, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the applicable Conversion Price for such series of Preferred
at the time in effect, and (iii) the number of shares of Common and the amount,
if any, of other property which at the time would be received upon the
conversion of such series of Preferred.
(f) Notices of Record Date. In the event that this corporation shall
propose at any time:
(i) to declare any dividend or distribution upon the Common,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of
the Common outstanding; or
(iv) to merge or consolidate with or into any other
corporation, the result of which is that this corporation is not the surviving
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
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<PAGE> 13
then, in connection with each such event, this corporation
shall send to the holders of the Preferred:
(1) at least 20 days' prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
shall be entitled thereto) or for determining rights to vote in respect of the
matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii)
and (iv) above, at least 20 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common shall
be entitled to exchange their Common for securities or other property
deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of the Preferred shares at the address
for each such holder as shown on the books of this corporation.
(g) The corporation shall at all times keep a sufficient number of
shares of Common Stock authorized to allow the conversion of Preferred as set
forth in this Section 4.
Section 5. Voting Rights. Except as otherwise required by law, the
holder of each share of Common Stock issued and outstanding shall have one vote
and the holder of each share of the Preferred shall be entitled to the number of
votes equal to the number of shares of Common Stock into which such share of
Preferred could be converted at the record date for determination of the
shareholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited, such votes to be counted together with all other
shares of stock of the Company having general voting power and not separately as
a class. Holders of Common Stock and Preferred shall be entitled to notice of
any shareholders' meeting in accordance with the Bylaws of the corporation.
Fractional votes by the holders of Preferred shall not, however, be permitted
and any fractional voting rights shall (after aggregating all shares into which
shares of Preferred held by each holder could be converted) be rounded to the
nearest whole number.
Section 6. Series D Preferred Protective Provisions. In addition to the
other rights provided by law, so long as at least 500,000 shares of Series D
Preferred shall be outstanding, this corporation shall not, without first
obtaining the affirmative consent or written vote of the holders of not less
than a majority of such outstanding shares of Series D Preferred voting, as a
single class, approve:
(i) any increase in the authorized number of shares
of Series D Preferred;
(ii) the authorization or issuance of any new series
or class of stock senior to or on a parity with the Series D Preferred with
respect to the payment of dividends or the distribution of assets on
liquidation, and increases in the authorized shares of any such class or series;
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<PAGE> 14
(iii) any amendment to the Articles of Incorporation
that adversely affects the rights of the Series D Preferred (including, without
limitation, the liquidation preference of the Series D Preferred); and
(iv) issue any dividends or distributions on, or
repurchases of, junior securities, other than pursuant to this corporation's
employee stock purchase agreements or other employee benefit plans.
Section 7. Covenants. In addition to any other rights provided by law,
so long as at least 10% of the Preferred shall be outstanding, this corporation
shall not, without first obtaining the affirmative vote or written consent of
the holders of not less than 66 2/3% of such outstanding shares of Preferred:
(a) amend or repeal any provision of, or add any provision to, this
corporation's articles of incorporation or bylaws if such action would alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, any Preferred;
(b) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Preferred, or authorize or issue shares
of stock of any class or any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having option rights to purchase, any
shares of stock of this corporation having any preference or priority as to
dividends or assets superior to or on a parity with any such preference or
priority of the Preferred;
(c) reclassify any Common into shares having any preference or priority
as to dividends or assets superior to or on a parity with any such preference or
priority of the Preferred;
(d) increase the authorized number of shares of Preferred; or
(e) effect any sale or other conveyance of all or substantially all of
the assets of the corporation, or any consolidation or merger involving the
corporation that results in the exchange of outstanding shares of this
corporation for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its subsidiary (except for a merger or
consolidation in which the shareholders of this corporation do not receive cash
or securities and after the consummation of which the shareholders of this
corporation own more than five-sixths of the voting power of the surviving or
acquiring corporation or parent party).
Section 8. Status of Converted Stock. In the event any shares of
Preferred shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled and shall not be issuable by the corporation and the
articles of incorporation of this corporation shall be appropriately amended to
effect the corresponding reduction in the corporation's authorized capital
stock.
Section 9. Consent for Certain Repurchases of Common Stock Deemed to be
Distributions. Each holder of Preferred shall be deemed to have consented, for
purposes of Section 502, 503 and 506
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<PAGE> 15
of the California Corporations Code, to distributions made by the corporation in
connection with the repurchase of shares of Common issued to or held by
employees or consultants upon termination of their employment or services or
pursuant to agreements providing for the right of said repurchase between the
corporation and such persons.
IV
Section 1. Limitation of Directors' Liability. The liability of the
directors of this corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
Section 2. Indemnification of Corporate Agents. This corporation is
authorized to provide indemnification of agents (as defined in Section 317 of
the California Corporations Code) through bylaw provisions, agreements with
agents, vote of shareholders or disinterested directors or otherwise, in excess
of the indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the corporation and its shareholders.
Section 3. Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to acts or omissions occurring prior to such repeal or modification.
3. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the required vote of Shareholders in accordance with
Sections 902 and 903 of the Corporations Code. The total number of outstanding
shares of the corporation is 5,373,739 shares of Common Stock, 4,902,919 shares
of Series A Preferred, 10,037,500 shares of Series B Preferred, 2,666,666 shares
of Series C Preferred and 49,044,423 shares of Series D Preferred. The number of
shares voting in favor of the Amendment equaled or exceeded the vote required.
The percentage vote required was more than 50% of the outstanding Common Stock
voting as a class, more than 50% of the outstanding shares of Series A
Preferred, Series B Preferred, and Series C Preferred, voting as separate
classes, more than 50% of the Series D Preferred Stock and not less than 66 2/3%
of the outstanding Preferred Stock voting as a single class.
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<PAGE> 16
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: April 10, 1996.
------------------------
Brent R. Constantz,
President
------------------------
Steven E. Bochner,
Assistant Secretary
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
NORIAN CORPORATION
<PAGE> 2
BYLAWS OF
NORIAN CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I - CORPORATE OFFICES.............................................................................. 1
1.1 PRINCIPAL OFFICE......................................................................... 1
1.2 OTHER OFFICES............................................................................ 1
ARTICLE II - MEETINGS OF SHAREHOLDERS...................................................................... 1
2.1 PLACE OF MEETINGS........................................................................ 1
2.2 ANNUAL MEETING........................................................................... 1
2.3 SPECIAL MEETING.......................................................................... 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS......................................................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE............................................. 3
2.6 QUORUM................................................................................... 4
2.7 ADJOURNED MEETING; NOTICE................................................................ 4
2.8 VOTING................................................................................... 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT........................................ 5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING............................................................................... 6
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING
CONSENTS.............................................................................. 7
2.12 PROXIES.................................................................................. 7
2.13 INSPECTORS OF ELECTION................................................................... 8
ARTICLE III - DIRECTORS.................................................................................... 9
3.1 POWERS................................................................................... 9
3.2 NUMBER OF DIRECTORS...................................................................... 9
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS................................................. 9
3.4 RESIGNATION AND VACANCIES................................................................ 10
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE................................................. 10
3.6 REGULAR MEETINGS......................................................................... 11
3.7 SPECIAL MEETINGS; NOTICE................................................................. 11
3.8 QUORUM................................................................................... 11
3.9 WAIVER OF NOTICE......................................................................... 12
3.10 ADJOURNMENT.............................................................................. 12
3.11 NOTICE OF ADJOURNMENT.................................................................... 12
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING........................................ 12
3.13 FEES AND COMPENSATION OF DIRECTORS....................................................... 12
3.14 APPROVAL OF LOANS TO OFFICERS............................................................ 13
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE IV - COMMITTEES.................................................................................... 13
4.1 COMMITTEES OF DIRECTORS.................................................................. 13
4.2 MEETINGS AND ACTION OF COMMITTEES........................................................ 14
ARTICLE V - OFFICERS....................................................................................... 14
5.1 OFFICERS................................................................................. 14
5.2 ELECTION OF OFFICERS..................................................................... 15
5.3 SUBORDINATE OFFICERS..................................................................... 15
5.4 REMOVAL AND RESIGNATION OF OFFICERS...................................................... 15
5.5 VACANCIES IN OFFICES..................................................................... 15
5.6 CHAIRMAN OF THE BOARD.................................................................... 15
5.7 PRESIDENT................................................................................ 16
5.8 VICE PRESIDENTS.......................................................................... 16
5.9 SECRETARY................................................................................ 16
5.10 CHIEF FINANCIAL OFFICER.................................................................. 17
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS.............................................................. 17
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................................................ 17
6.2 INDEMNIFICATION OF OTHERS................................................................ 18
ARTICLE VII - RECORDS AND REPORTS.......................................................................... 18
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER............................................. 18
7.2 MAINTENANCE AND INSPECTION OF BYLAWS..................................................... 19
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS.................................................................................. 19
7.4 INSPECTION BY DIRECTORS.................................................................. 20
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER.................................................... 20
7.6 FINANCIAL STATEMENTS..................................................................... 20
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS........................................... 21
ARTICLE VIII - GENERAL MATTERS............................................................................. 21
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND
VOTING................................................................................... 21
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS................................................ 22
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED....................................... 22
8.4 CERTIFICATES FOR SHARES.................................................................. 22
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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<S> <C>
8.5 LOST CERTIFICATES........................................................................ 23
8.6 CONSTRUCTION; DEFINITIONS................................................................ 23
ARTICLE IX - AMENDMENTS.................................................................................... 23
9.1 AMENDMENT BY SHAREHOLDERS................................................................ 23
9.2 AMENDMENT BY DIRECTORS................................................................... 23
</TABLE>
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<PAGE> 5
BYLAWS
OF
NORIAN CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The board of directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the board of directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year within 180
days from the end of the corporation's fiscal year as determined by the Board of
Directors or such other time as the Board of Directors may designate. However,
if such day falls on a legal holiday, then the meeting shall be held at the same
time and place on the next succeeding full business day. At the meeting,
directors shall be elected, and any other proper business may be transacted.
<PAGE> 6
2.3 SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
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<PAGE> 7
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving
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<PAGE> 8
the notice, shall be prima facie evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting is
fixed or if the adjournment is for more than forty-five (45) days from the date
set for the original meeting, then notice of the adjourned meeting shall be
given. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by
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<PAGE> 9
ballot if demanded by any shareholder at the meeting and before the voting has
begun.
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit. The
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected; votes against any candidate and
votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or
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<PAGE> 10
by proxy, and if, either before or after the meeting, each person entitled to
vote, who was not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. The waiver of notice or consent or approval need not specify either the
business to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section
2.4 of these bylaws, the waiver of notice or consent or approval shall state the
general nature of the proposal. All such waivers, consents, and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number
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<PAGE> 11
of shares required to authorize the proposed action have been filed with the
secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING
CONSENTS
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held; and
(b) the record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken,
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shall be the day on which the first written consent is given, or (ii) when prior
action by the board has been taken, shall be at the close of business on the day
on which the board adopts the resolution relating to that action, or the
sixtieth (60th) day before the date of such other action, whichever is later.
The record date for any other purpose shall be as provided in Article
VIII of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
writing to the corporation stating that the proxy is revoked or by executing a
subsequent proxy and presenting it to the meeting or by voting in person at the
meeting, or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless otherwise provided in the
proxy. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of
the Code.
2.13 INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more shareholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be
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appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than five
(5) nor more than nine (9). The exact number of directors shall be seven (7)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
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without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the board of directors by resolu-
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tion declares vacant the office of a director who has been declared of unsound
mind by an order of court or convicted of a felony, (iii) if the authorized
number of directors is increased, or (iv) if the shareholders fail, at any
meeting of shareholders at which any director or directors are elected, to elect
the number of directors to be elected at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records
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of the corporation. If the notice is mailed, it shall be deposited in the United
States mail at least four (4) days before the time of the holding of the
meeting. If the notice is delivered personally or by telephone or telegram, it
shall be delivered personally or by telephone or to the telegraph company at
least forty-eight (48) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
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A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation,
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* This section is effective only if it has been approved by the
shareholders in accordance with Sections 315(b) and 152 of the Code.
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(ii) the corporation has outstanding shares held of record by 100 or more
persons (determined as provided in Section 605 of the Code) on the date of
approval by the board of directors, and (iii) the approval of the board of
directors is by a vote sufficient without counting the vote of any interested
director or directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in
any committee;
(c) the fixing of compensation of the directors for serving on
the board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of
new bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined by
the board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
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4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
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The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer
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of the corporation and shall, subject to the control of the board of directors,
have general supervision, direction, and control of the business and the
officers of the corporation. He shall preside at all meetings of the
shareholders and, in the absence or non-existence of a chairman of the board, at
all meetings of the board of directors. He shall have the general powers and
duties of management usually vested in the office of president of a corporation,
and shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of
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the corporation, if one be adopted, in safe custody and shall have such other
powers and perform such other duties as may be prescribed by the board of
directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.1, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
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6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder
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by the transfer agent on or before the later of five (5) days after the demand
is received or five (5) days after the date specified in the demand as the date
as of which the list is to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person
or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts.
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Such rights of inspection shall extend to the records of each subsidiary
corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of
the fiscal year, (ii) an income statement, (iii) a statement of changes in
financial position for the fiscal year, and (iv) any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
thereafter, a copy of a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the cor-
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poration makes a written request to the corporation for an income statement of
the corporation for the three-month, six-month or nine-month period of the then
current fiscal year ended more than thirty (30) days before the date of the
request, and for a balance sheet of the corporation as of the end of that
period, then the chief financial officer shall cause that statement to be
prepared, if not already prepared, and shall deliver personally or mail that
statement or statements to the person making the request within thirty (30) days
after the receipt of the request. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, the statements referred
to in the first paragraph of this Section 7.6 shall likewise be delivered or
mailed to the shareholder or shareholders within thirty (30) days after the
request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more
-22-
<PAGE> 27
than sixty (60) days before any such action. In that case, only shareholders of
record at the close of business on the date so fixed are entitled to receive the
dividend, distribution or allotment of rights, or to exercise such rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date so fixed, except as otherwise provided in the
Code.
If the board of directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the share-
-23-
<PAGE> 28
holder. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the autho-
-24-
<PAGE> 29
rized number of directors may be changed only by an amendment of the articles of
incorporation.
9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
-25-
<PAGE> 30
CERTIFICATE OF ADOPTION OF BYLAWS
OF
NORIAN CORPORATION
Adoption by Incorporator
The undersigned person appointed in the Articles of Incorporation to
act as the Incorporator of Norian Corporation hereby adopts the foregoing
bylaws, comprising twenty-four (24) pages, as the Bylaws of the corporation.
Executed this 21st day of April 1987.
-------------------------------
Steven E. Bochner, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of Norian Corporation and that the foregoing
Bylaws, comprising twenty-four (24) pages, were adopted as the Bylaws of the
corporation on April 21, 1987, by the person appointed in the Articles of
Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 21st day of April 21, 1987.
-------------------------------
Brent Constantz, Secretary
-26-
<PAGE> 31
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
NORIAN CORPORATION
The undersigned, being the Assistant Secretary of Norian Corporation,
hereby certifies that Section 6 of Article VI of the Bylaws of this corporation
was amended on March __, 1988, by the Board of Directors to provide in its
entirety as follows:
ARTICLE VI
Section 6. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS.
6.1 Indemnification of Directors and Officers
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 Indemnification of Others
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
<PAGE> 32
6.3 Payment of Expenses in Advance
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Section 6.
6.4 Indemnity Not Exclusive
The indemnification provided by this Section 6 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 Insurance Indemnification
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against or incurred by such
person in such capacity or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify him against such
liability under the provisions of this Section 6.
6.6 Conflicts
No indemnification or advance shall be made under this Section 6,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
<PAGE> 33
Dated: March __, 1988
---------------------
Assistant Secretary
-3-
<PAGE> 34
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
NORIAN CORPORATION
The undersigned, being the Assistant Secretary of Norian Corporation,
hereby certifies that Section 3.2 of Article III of the Bylaws of this
corporation was amended on April 18, 1988, by the Board of Directors to provide
in its entirety as follows:
ARTICLE III
Section 3.2 NUMBER OF DIRECTORS
3.2 The number of directors of the corporation shall be not less than
four (4) nor more than seven (7). The exact number of directors shall be six (4)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote of written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16- 2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
This Certificate of Amendment of Bylaws shall be effective as of this
18th day of April, 1988.
----------------------
Assistant Secretary
<PAGE> 35
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
NORIAN CORPORATION
The undersigned, being the Assistant Secretary of Norian Corporation,
hereby certifies that Section 3.2 of Article III of the Bylaws of this
corporation was amended on July 28, 1992 by the Board of Directors to provide in
its entirety as follows:
"ARTICLE III
Section 3.2 NUMBER OF DIRECTORS
3.2 The number of directors of the corporation shall be not less than
five (5) nor more than nine (9). The exact number of directors shall be six (6)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote of written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than six (6) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1)."
This Certificate of Amendment of Bylaws shall be effective as of this
28th day of August, 1992.
-----------------------
Steven E. Bochner
Assistant Secretary
<PAGE> 36
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
NORIAN CORPORATION
The undersigned, being the Assistant Secretary of Norian Corporation,
hereby certifies that Section 3.2 of Article III of the Bylaws of this
corporation was amended on March 29, 1994 by the Board of Directors to provide
in its entirety as follows:
"ARTICLE III
Section 3.2 NUMBER OF DIRECTORS
3.2 The number of directors of the corporation shall be not less than
five (5) nor more than nine (9). The exact number of directors shall be seven
(7) until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote of written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than six (6) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1)."
This Certificate of Amendment of Bylaws shall be effective as of this
29th day of March, 1994.
-------------------------
Steven E. Bochner
Assistant Secretary
<PAGE> 37
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
NORIAN CORPORATION
The undersigned, being the Assistant Secretary of Norian Corporation,
hereby certifies that Section 3.2 of Article III of the Bylaws of this
corporation was amended on September 26, 1995 by the Board of Directors to
provide in its entirety as follows:
"ARTICLE III
Section 3.2 NUMBER OF DIRECTORS
3.2 The number of directors of the corporation shall be not less than
five (5) nor more than nine (9). The exact number of directors shall be nine
(9) until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote of written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than six (6) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1)."
This Certificate of Amendment of Bylaws shall be effective as of this
26th day of September, 1995.
----------------------
Steven E. Bochner
Assistant Secretary
<PAGE> 1
EXHIBIT 4.1
[CERTIFICATE GRAPHIC]
NUMBER [NORIAN LOGO] SHARES
NORI
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR STATEMENTS RELATING
THE STATE OF CALIFORNIA TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
CUSIP
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF
NORIAN CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[NORIAN CORPORATION Stamp]
/s/ /s/
CHIEF FINANCIAL OFFICER PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
- --------------------------------------------------
AMERICAN BANK NOTE COMPANY APRIL 30, 1996
3504 ATLANTIC AVENUE
SUITE 12 043644fc
LONG BEACH, CA 90807
(310) 989-2333 600-19X NEW
(FAX) (310) 426-7450
- --------------------------------------------------
<PAGE> 2
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares and upon the
holders thereof as established, from time to time, by the Articles of
Incorporation of the Corporation and by any certificate of determination, and
the number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon written request and without
charge from the Secretary of the Corporation at its corporate headquarters.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- .........................Custodian.........................
(Cust.) (Minor)
Under Uniform gifts to Minors
Act .......................................................
(State)
UNIF TRF MIN ACT -- ...................Custodian (until age...................)
(Cust.)
....................................under Uniform Transfers
(Minor)
to Minors Act..............................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ................ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-----------------------------
X
----------------------------------
X
----------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17AG-15.
- --------------------------------------------------
AMERICAN BANK NOTE COMPANY APRIL 30, 1996
3504 ATLANTIC AVENUE
SUITE 12 043644bk
LONG BEACH, CA 90807
(310) 989-2333 NEW
(FAX) (310) 426-7450
- --------------------------------------------------
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this _____
day of ____________, 19__ by and between Norian Corporation, a California
corporation (the "Company"), and ____________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action or proceeding if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any action or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that (i) Indemnitee did not act in
good faith and in a manner which Indemnitee reasonably believed to be in the
best interests of the Company, or (ii) with respect to any criminal
<PAGE> 2
action or proceeding, Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The
Company shall indemnify Indemnitee if Indemnitee was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding by or in the right of the Company or any subsidiary of the Company to
procure a judgment in its favor by reason of the fact that Indemnitee is or was
a director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement, in each case to the extent
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action or proceeding if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the best interests of the
Company and its shareholders, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duty to
the Company and its shareholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding referenced in
Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any
such action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as
a condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three business days after the date
postmarked if sent by domestic certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Com pany. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
-2-
<PAGE> 3
(c) Procedure. Any indemnification provided for in Section
1 shall be made no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, under any statute, or
under any provision of the Company's Articles of Incorporation or By-laws
providing for indemnification, is not paid in full by the Company within
forty-five (45) days after a written request for payment thereof has first been
received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 12 of this Agreement, Indemnitee shall also be entitled
to be paid for the expenses (including attorneys' fees) of bringing such action.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with any action or
proceeding in advance of its final disposition) that Indemnitee has not met the
standards of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company, and Indemnitee shall be entitled
to receive interim payments of expenses pursuant to Subsection 2(a) unless and
until such defense may be finally adjudicated by court order or judgment from
which no further right of appeal exists. It is the parties' intention that if
the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its shareholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
shareholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a
notice of a claim pursuant to Section 2(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, which approval
shall not be unreasonably withheld, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same proceeding,
provided that (i) Indemnitee shall have the right to employ his counsel in any
such proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the
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<PAGE> 4
conduct of any such defense or (C) the Company shall not, in fact, have employed
counsel to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) Scope. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Articles of Incorporation, the Company's By-laws or by statute. In the event of
any change, after the date of this Agreement, in any applicable law, statute or
rule which expands the right of a California corporation to indemnify a member
of its board of directors or an officer, such changes shall be, ipso facto,
within the purview of Indemnitee's rights and Company's obligations, under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a California corporation to indemnify a member of its
Board of Directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Articles of Incorporation, its By-laws, any
agreement, any vote of shareholders or disinterested directors, the California
General Corporation Law, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time of
any action or other covered proceeding.
4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. Indemnitee understands and acknowledges that the Company
has undertaken or may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
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<PAGE> 5
6. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company
shall, from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or main tain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
7. SEVERABILITY. Nothing in this Agreement is intended to require
or shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 7. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or
omissions or transactions from which a director may not be relieved of liability
under the California General Corporation Law.
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 317 of the California General Corporation Law, but such indemnification
or advancement of expenses may be provided by the Company in specific cases if
the Board of Directors has approved the initiation or bringing of such suit; or
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<PAGE> 6
(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. EFFECTIVENESS OF AGREEMENT. To the extent that the
indemnification permitted under the terms of certain provisions of this
Agreement exceeds the scope of the indemnification provided for in the
California General Corporation Law, such provisions shall not be effective
unless and until the Company's Articles of Incorporation authorize such
additional rights of indemnification. In all other respects, the balance of this
Agreement shall be effective as of the date set forth on the first page and may
apply to acts or omissions of Indemnitee which occurred prior to such date if
Indemnitee was an officer, director, employee or other agent of the Company, or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, at the time such act or omission occurred.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees or agents, so that if Indemnitee is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes
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<PAGE> 7
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressee, on the
date of such receipt, or (ii) if mailed by domestic certified or registered mail
with postage prepaid, on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of this
Agreement, or as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
California.
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<PAGE> 8
16. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California as
applied to contracts between California residents entered into and to be
performed entirely within California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NORIAN CORPORATION
By:
---------------------------------
Title:
------------------------------
AGREED TO AND ACCEPTED:
INDEMNITEE:
- -----------------------------------
(Signature)
- -----------------------------------
(Type Name)
- -----------------------------------
- -----------------------------------
(address)
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<PAGE> 1
EXHIBIT 10.2
NORIAN CORPORATION
1988 STOCK OPTION PLAN
(AS AMENDED THROUGH JANUARY 1995)
1. Purposes of the Plan. The purposes of this Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees and
Consultants of the Company and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock
options," as defined in Section 422A of the Internal Revenue Code of 1986 or
"nonstatutory stock options," at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions
shall apply:
(a) "Board" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company, if no
Committee is appointed.
(b) "Common Stock" shall mean the Common Stock of the
Company.
(c) "Company" shall mean Norian Corporation, a
California corporation.
(d) "Committee" shall mean the Committee appointed by
the Board of Directors in accordance with paragraph (a) of Section 4 of the
Plan, if one is appointed.
(e) "Consultant" shall mean any person who is engaged by
the Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that if and in the event
the Company registers any class of any equity security pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(f) "Continuous Status as an Employee or Consultant"
shall, for the purposes of this Plan and the Options granted and shares issued
hereunder only, mean the absence of any interruption
<PAGE> 2
or termination of service as an Employee or Consultant. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of sick
leave (including leave on account of disability or military leave, provided that
such sick leave or military leave is for a period of not more than 90 days,
except as may otherwise be approved by the Board and specified in writing by the
Company, or any other leave of absence approved by the Board and specified in
writing by the Company, subject to any conditions of such approval. In the event
that at the end of such leave the Employee or Consultant does not resume his
service to the Company, his employment or relationship with the Company (and his
Continuous Status as an Employee or Consultant) shall be deemed to have
terminated as of the end of the leave period.
(g) "Employee" shall mean any person, including officers
and directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be sufficient
to constitute "employment" by the Company.
(h) "Incentive Stock Option" shall mean an Option
intended to qualify as an incentive stock option within the meaning of Section
422A of the Internal Revenue Code of 1986.
(i) "Option" shall mean a stock option granted pursuant
to the Plan.
(j) "Optioned Stock" shall mean the Common Stock subject
to an Option.
(k) "Optionee" shall mean an Employee who receives an
Option.
(l) "Parent" shall mean a "parent corporation", whether
now or hereafter existing, as defined in Section 425(e) of the Internal Revenue
Code of 1986.
(m) "Plan" shall mean this 1987 Stock Option Plan.
(n) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(o) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 425(f) of the Internal
Revenue Code of 1986.
3. Stock Subject to the Plan. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of shares which may be
optioned under the Plan is 7,000,000 shares of Common
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<PAGE> 3
Stock. The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. However, any shares sold under the Plan and
subsequently repurchased by the Company shall not be available for new issuance
pursuant to the Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the
Board of Directors of the Company.
(i) Subject to subparagraph (ii), the Board of
Directors may appoint a Committee consisting of not less than two members of the
Board of Directors or one or more officers of the Company to administer the Plan
on behalf of the Board of Directors, subject to such terms and conditions as the
Board of Directors may prescribe. Once appointed, the Committee shall continue
to serve until otherwise directed by the Board of Directors. From time to time
the Board of Directors may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan.
Members of the Board who either are eligible for
Options or have been granted Options may vote on any matters affecting the
administration of the Plan or the grant of any Options pursuant to the Plan,
except that no such member shall act upon the granting of an Option to himself,
but any such member may be counted in determining the existence of a quorum at
any meeting of the Board during which action is taken with respect to the
granting of Options to him.
(ii) Notwithstanding the foregoing subparagraph
(i), if and in the event the Company registers any class of any equity security
pursuant to Section 12 of the Exchange Act, from the effective date of such
registration until six months after the termination of such registration, any
grants of Options to directors shall only be made by the Board of Directors;
provided, however, that if a majority of the Board of Directors is eligible to
participate in this Plan or any other stock option or other stock plan of the
Company or any of its affiliates, or has been eligible at any time within the
preceding year, any grants of
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<PAGE> 4
Options to directors must be made by, or only in accordance with the
recommendation of, a Committee consisting of three or more persons, who may but
need not be directors or employees of the Company, appointed by the Board of
Directors and having full authority to act in the matter, none of whom is
eligible to participate in this Plan or any other stock option or other stock
plan-of the Company or any of its affiliates, or has been eligible at any time
within the preceding year. Any Committee administering the Plan with respect to
grants to officers who are not also directors shall conform to the requirements
of the preceding sentence. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board of Directors. Subject to the foregoing,
from time to time the Board of Directors may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused,
or remove all members of the Committee and thereafter directly administer the
Plan.
(b) Powers of the Board. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to grant
Incentive Stock Options, in accordance with Section 422A of the Internal Revenue
Code of 1986 or "non-statutory stock options"; (ii) to determine, upon review of
relevant information and in accordance with Section 7(b) of the Plan, the fair
market value of the Common Stock; (iii) to determine the exercise price per
share of Options to be granted, which exercise price shall be determined in
accordance with Section 7(a) of the Plan; (iv) to determine the Employees or
Consultants to whom, and the time or times at which, Options shall be granted
and the number of shares to be represented by each Option; (v) to interpret the
Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the
Plan; (vii) to determine the terms and provisions of each Option granted (which
need not be identical) and, with the consent of the holder thereof, modify or
amend each Option; (viii) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option, consistent with the provisions of
Section 5 of the Plan; (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted by the Board; and (x) to make all other determinations deemed necessary
or advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions,
determinations and interpretations of the Board shall be final and
binding on all Optionees and any other holders of any Options granted under the
Plan.
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<PAGE> 5
5. Eligibility.
(a) Options may be granted only to Employees or
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) No Incentive Stock Option may be granted to an
Employee which, when aggregated with all other incentive stock options granted
to such Employee by the Company or any Parent or Subs~diary, would result in
Shares having an aggregate fair market value (determined for each Share as of
the date of grant of the Option covering such Share) in excess of $100,000
becoming first available for purchase upon exercise of one or more incentive
stock options during any calendar year.
(c) Section 5(b) of the Plan shall apply only to an
Incentive Stock Option evidenced by an "Incentive Stock Option Agreement" which
sets forth the intention of the Company and the Optionee that such Option shall
qualify as an incentive stock option. Section 5(b) of the Plan shall not apply
to any Option evidenced by a "Nonstatutory Stock Option Agreement" which sets
forth the intention of the Company and the Optionee that such Option shall be a
nonstatutory stock option.
(d) The Plan shall not confer upon any Optionee any right
with respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 16 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 12 of the Plan.
7. Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be such price as is determined by
the Board, but shall be subject to the following:
(i) In the case of any Incentive Stock Option
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<PAGE> 6
(A) granted to an Employee who, at the
time of the grant of such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the fair market value per Share on the date of grant.
(B) granted to any other Employee, the
per Share exercise price shall be no less than 100% of the fair market value per
Share on the date of grant.
(ii) In the case of a Non-Statutory Stock Option
(A) granted to a person who at the time
of the grant of such Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the fair
market value per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the fair market value per Share on
the date of grant.
(iii) In the case of any Option granted on or
after the effective date of registration of any class of equity security of the
Company pursuant to Section 12 of the Exchange Act and prior to six months after
the termination of such registration, the per Share exercise price shall be no
less than 100% of the fair market value per Share on the date of grant.
(b) The fair market value shall be determined by the
Board in its discretion; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share shall be the mean of the
last reported bid and asked prices of the Common Stock on the last trading day
immediately preceding the date of grant (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
(NASDAQ) System), or, in the event the Common Stock is listed on a stock
exchange or quoted on the NASDAQ National Market System, the fair market value
per Share shall be the reported closing price on such exchange or in the NASDAQ
National Market on the last trading day immediately prior to the date of grant.
(c) The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of cash, check, promissory
note, other shares of Common Stock having a fair
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<PAGE> 7
market value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, or any combination of
such methods of payment, or such other consideration and method of payment for
the issuance of Shares to the extent permitted under Sections 408 and 409 of the
California General Corporations Law. In making its determination as to. the type
of consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company, (Section 315(b)
of the California General Corporation Law).
8. Options.
(a) Term of Option. The term of each Incentive Stock
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Stock Option Agreement. The term of each Option
that is not an Incentive Stock Option shall be five (5) years and one (1) day
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement.
(b) Exercise of Option.
(i) Procedure for Exercise; Rights as a
Shareholder. Any Option granted hereunder shall be exercisable and shall vest at
such times and under such conditions as determined by the Board, including
performance criteria with respect to the Company and/or the Optionee, and as
shall be permissible under the terms of the Plan.
An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed to be exercised
when written notice of such exercise has been given to the Company in accordance
with the terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised has
been received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section 7(c)
of the Plan. Until the issuance (as evidenced by the appropriate entry on the
books of the company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 11 of the
Plan.
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<PAGE> 8
Exercise of an Option in any manner shall
result in a decrease in the number of Shares that thereafter shall be available,
both for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised. Any Shares issued and sold pursuant
to the Plan and repurchased by the Company shall not be available for reissuance
under the Plan.
(ii) Termination of Status as an Employee. If an
Optionee's Continuous Status as an Employee terminates, the Optionee may, but
only within one (1) month (or such other period of time not exceeding three (3)
months as is determined by the Board and is specified in writing by the Company)
after the date he ceases to be an Employee (as the case may be) of the Company
(but in no event later than ten years from the date of grant of the Option),
exercise his Option to the extent that (A) the Option was vested and (B) he was
entitled to exercise it, at the date of such termination. To the extent that the
Option was not vested or he was not entitled to exercise the Option, at the date
of such termination, or if he does not exercise such Option within the time
specified herein, the Option shall terminate.
(iii) Disability. Notwithstanding the provisions
of Section 8(b) (ii) above, in the event of termination of Continuous Status as
an Employee as a result of an Optionee's disability (as defined in Section
22(e)(3) of the Internal Revenue Code of 1986), the Optionee may, but only
within three (3) months (or such other period of time not less then three (3)
months nor more than twelve (12) months, as determined by the Board and
specified in writing by the Company) from the date of termination (but in no
event later than ten years from the date of grant of the Option), exercise his
Option to the extent that (A) the Option was vested and (B) the Optionee was
entitled to exercise it, at the date of such termination. To the extent that the
Option was not vested or the Optionee was not entitled to exercise the Option,
at the date of such termination, or if the Optionee does not exercise such
Option within the time specified herein, the Option shall terminate.
(iv) Death of Optionee. Notwithstanding the
provisions of Section 8(b) (ii) above, in the event of (A) the death of an
Optionee during the term of his Option, where such Optionee is at the time of
his death an Employee of the Company and such Optionee shall at the date of
death have been in Continuous Status as an Employee since the date of grant of
the Option, or (B) the death of an Optionee within thirty (30) days after the
termination of such Optionee's Continuous Status as an Employee then the Option
may be exercised at any time within six (6) months (or such other period of time
not less than six (6) months nor more
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<PAGE> 9
than twelve (12) months as determined by the Board and specified in writing by
the Company) following the date of death (but in no event later than ten years
from the date of grant of the Option), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that (A) the Option was vested as of the date of termination,
and (8) the Optionee was entitled to exercise it at the date of termination.
9. Non-Transferability of Options. Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee only by
such Optionee.
10. Adjustments Upon Changes in Capitalization or Merger. Subject
to any required action by the shareholders of the Company, the number of shares
of Common Stock covered by each outstanding Option and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option shall terminate immediately prior to the consummation of such proposed
action. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is
-9-
<PAGE> 10
not assumed or substituted, the Option shall terminate as of the date of the
closing of the merger. For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger, the option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger, the consideration (whether stock, cash, or other securities
or property) received in the merger by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger was not solely common stock of the
successor corporation or its Parent, the Board may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of the Option, for each share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of common stock in the merger.
11. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination shall be given to each
Employee or Consultant to whom an Option is so granted within a reasonable time
after the date of such grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the holders of a majority of the outstanding shares of the Company
entitled to vote:
(i) any increase in the number of Shares subject
to the Plan, other than in connection with
an adjustment under Section 10 of the Plan;
(ii) any material change in the designation of
the class of employees or consultants
eligible to be granted Options; or
(iii) if the Company has a class of equity
security registered under Section 12 of the
Exchange Act at the time of such revision or
amendment, any material increase in the
benefits accruing to participants under the
Plan.
-10-
<PAGE> 11
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 12(a) of the Plan is made subsequent to the
first registration of any class of equity security by the Company under Section
12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 16(a) of the Plan.
(c) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated, unless mutually agreed otherwise between the Board
and the Optionee which agreement must be in writing and signed by the Company
and the Optionee.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
14. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. Option Agreements. Options shall be evidenced by written
option agreements in such form as the Board shall approve.
-11-
<PAGE> 12
16. Shareholder Approval. Continuance of the Plan shall be subject
to approval by the shareholders of the Company within twelve months before or
after the date the Plan is adopted. If such shareholder approval is obtained at
a duly held shareholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. If and in the event that the Company
registers any class of any equity security pursuant to Section 12 of the
Exchange Act, the approval of such shareholders of the Company shall be:
(a) (1) solicited substantially in accordance with
Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder, or (2) solicited after the Company has furnished in writing to the
holders entitled to vote substantially the same information concerning the Plan
as that which would be required by the rules and regulations in effect under
Section 14(a) of the Exchange Act at the time such information is furnished; and
(b) obtained at or prior to the first annual meeting of
shareholders held subsequent to the first registration of any class of equity
securities of the Company under Section 12 of the Exchange Act.
If such shareholder approval is obtained by written consent,
it must be obtained by the unanimous written consent of all shareholders of the
Company.
17. Information to Optionees. The Company shall provide to each
Optionee during the period for which such person has one or more Options
outstanding, copies of all annual reports and other information provided to all
Shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties to the Company assure their access to equivalent
information.
-12-
<PAGE> 13
NORIAN CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
Name of Optionee:
-----------------------------------------------------
Date of Grant:
--------------------------------------------------------
Number of Option Shares:
----------------------------------------------
Exercise Price:
-------------------------------------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 198__.
NORIAN CORPORATION
a California corporation
By:
--------------------------------
Title:
-----------------------------
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
annexed hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions thereof. Optionee has reviewed the Plan, this Option and the
Investment Representation Statement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option, fully understands
all provisions of the Option and the Investment Representation Statement, and
specifically acknowledges that the vesting of shares hereunder is earned only by
continuing employment at the will of the Company (and not through the act of
being hired, being granted this option or acquiring shares pursuant to this
Option). Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan.
------------------------------------
Optionee
<PAGE> 14
Norian Corporation, a California corporation (the "Company"), has
granted to the person whose name is written on the first page hereof (the
"Optionee"), an option to purchase the number of shares of Common Stock stated
on the first page hereof, at the price determined as provided herein, and in all
respects subject to the terms, definitions and provisions of the 1988 Incentive
Stock Option Plan (the "Plan") adopted by the Company which is incorporated
herein by reference. The terms defined in the Plan shall have the same defined
meanings herein.
1. Nature of the Option. This Option is intended to qualify
as an Incentive Stock Option as defined in Section 422A of the Internal Revenue
Code of 1986 (the "Code").
2. Exercise Price. The exercise price for each share of Common
Stock is as stated on the first page hereof, which price is not less than the
fair market value per share of the Common Stock on the date of grant.
3. Exercise of Option. This Option shall be exercisable during
its term in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
(a) Subject to subsections 3(i)(b), (c), (d) and
(e) below, this Option shall be exercisable cumulatively beginning one year from
__________ (the "Commencement Date"), and those shares eligible for exercise
shall be a portion of the Shares subject to the Option which is a fraction of
100% of the Shares, the numerator of which shall be a number equal to the total
number of calendar months elapsed from the Commencement Date, and the
denominator of which shall be 48.
(b) This Option may not be exercised for a
fraction of a share.
(c) In the event of Optionee's death, disability
or other termination of employment, the exercisability of the Option is governed
by Sections 7, 8 and 9 below, subject to the limitations contained in
subsections 3(i)(d) and (e).
(d) In no event may this Option be exercised
after the date of expiration of the term of this Option as set forth in Section
11 below.
(e) In no event may this Option become
exercisable at a time or times which, when this Option is aggregated with all
other incentive stock options granted to Optionee by the Company or any Parent
or Subsidiary, would result in Shares having an aggre-
<PAGE> 15
gate fair market value (determined for each Share as of the date of grant of the
option covering such share) in excess of $100,000 becoming first available for
purchase upon exercise of one or more incentive stock options during any
calendar year.
(ii) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price. This Option shall be deemed to be exercised upon receipt by the Company
of such written notice accompanied by the exercise price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
4. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, concurrently with the exercise of all or any portion of this
Option, deliver to the Company his Investment Representation Statement in the
form attached hereto as Exhibit A, and shall read the applicable rules of the
Commissioner of Corporations attached to such Investment Representation
Statement.
5. Method of Payment. Payment of the exercise price shall be by any
of the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check.
6. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regula-
-2-
<PAGE> 16
tion G") as promulgated by the Federal Reserve Board. As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
7. Termination of Status as an Employee. In the event of termination
of Optionee's Continuous Status as an Employee, he may, but only within thirty
(30) days (or such other period of time not exceeding three (3) months as is
determined by the Board) after the date of such termination (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 11 below), exercise this Option to the extent that he was entitled to
exercise it at the date of such termination. To the extent that he was not
entitled to exercise this Option at the date of such termination, or if he does
not exercise this Option within the time specified herein, the Option shall
terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section
7 above, in the event of termination of Optionee's Continuous Status as an
Employee as a result of his total and permanent disability (as defined in
Section 22(e)(3) of the Code), he may, but only within six (6) months (or such
other period of time not exceeding twelve (12) months as is determined by the
Board) from the date of termination of employment (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise his Option to the extent he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to exercise the
Option at the date of termination, or if he does not exercise such Option (which
he was entitled to exercise) within the time specified herein, the Option shall
terminate.
9. Death of Optionee. In the event of the death of Optionee:
(i) during the term of this Option and while an Employee of
the Company and having been in Continuous Status as an Employee since the date
of grant of the Option, the Option may be exercised, at any time within six (6)
months following the date of death (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as an Employee twelve (12) months after the date of death, subject to the
limitations contained in Section 3(i)(e) above; or
(ii) within thirty (30) days (or such other time not exceeding
three (3) months as is determined by the Board) after the termination of
Optionee's Continuous Status as an Employee, the
-3-
<PAGE> 17
Option may be exercised, at any time within six (6) months following the date of
death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 11 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
termination.
10. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by him. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
11. Term of Option. This Option may not be exercised more than five
(5) years from the date of grant of this Option, and may be exercised during
such term only in accordance with the Plan and the terms of this Option.
12. Early Disposition of Stock. Optionee understands that if he
disposes of any Shares received under this Option within two (2) years after the
date of this Agreement or within one (1) year after such Shares were transferred
to him, he will be treated for federal income tax purposes as having received
ordinary income at the time of such disposition in an amount generally measured
by the difference between the price paid for the Shares and the lower of the
fair market value of the Shares at the date of the exercise or the fair market
value of the Shares at the date of disposition. The amount of such ordinary
income may be measured differently if Optionee is an officer, director or 10%
shareholder of the Company, or if the Shares were subject to a substantial risk
of forfeiture at the time they were transferred to Optionee. Optionee hereby
agrees to notify the Company in writing within 30 days after the date of any
such disposition. Optionee understands that if he disposes of such Shares at any
time after the expiration of such two-year and one-year holding periods, any
gain on such sale will be taxed as long-term capital gain.
DATE OF GRANT:
-------------------
NORIAN CORPORATION
a California corporation
By:
---------------------------------
Brent Constantz, President
-4-
<PAGE> 18
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
OPTION, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
EMPLOYMENT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL.
Optionee acknowledges receipt of a copy of the Plan and certain
information related thereto and represents that he is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. Optionee has reviewed the Plan and this Option in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions arising under the Plan.
Dated:
--------------------
------------------------------------
Optionee
-5-
<PAGE> 19
NORIAN CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
Name of Optionee:
------------------------------------------------------
Date of Grant:
---------------------------------------------------------
Number of Option Shares:
-----------------------------------------------
Exercise Price:
--------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of , 198 .
NORIAN CORPORATION
a California corporation
By:
---------------------------------
Title:
------------------------------
Optionee acknowledges receipt of a copy of the Plan, which is annexed
hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions thereof. Optionee has reviewed the Plan, this Option and the Purchase
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Option, fully understands all provisions of the
Option and the Purchase Agreement, and specifically acknowledges that the
vesting of shares hereunder is earned only by continuing employment at the will
of the Company (and not through the act of being hired, being granted this
option or acquiring shares pursuant to this Option). Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
------------------------------------
Optionee
<PAGE> 20
Norian Corporation, a California corporation (the "Company"), has
granted to the person whose name is written on the first page hereof (the
"Optionee"), an option to purchase the number of shares (the "Shares") of Common
Stock of the Company stated on the first page hereof, at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the 1988 Stock Option Plan (the "Plan") adopted by the Company
which is incorporated herein by reference. The terms defined in the Plan shall
have the same defined meanings herein.
1. NATURE OF THE OPTION. This Option is intended by the Company
and the Optionee to be a nonstatutory stock option, and does not qualify for any
special tax benefits to the Optionee. This Option is not an Incentive Stock
Option and is not subject to Section 5(b) of the Plan.
2. EXERCISE PRICE. The exercise price for each share of Common
Stock is as stated on the first page hereof.
3. TERM OF OPTION. This Option may not be exercised more than
five (5) years from the date of grant of this Option, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
This Option shall terminate following termination of Optionee's Continuous
Status as an Employee or Consultant, in accordance with Section 8(b) of the
Plan.
4. EXERCISE OF OPTION. This Option shall be exercisable during
its term, subject to the provisions of Section 8 of the Plan, as follows:
(i) VESTING. For so long as the Optionee shall maintain
Continuous Status as an Employee or Consultant of the Company, this Option shall
vest cumulatively as follows: 1/4 of the Shares subject to the Option shall vest
on the first anniversary of the date of grant of this option and 1/48 of the
Shares subject to the Option shall vest each month thereafter.
(ii) RIGHT TO EXERCISE. This Option shall be exercisable at
any time during its term, in whole or in part, and whether or not the shares as
to which the Option is exercised have vested under the above vesting schedule;
provided, however, that the Optionee (and Optionee's spouse, if any) shall
execute, as a condition to any exercise of this Option, a Restricted Stock
Purchase Agreement in the form attached hereto as Attachment 1 (the "Purchase
Agreement"). The Optionee's right to exercise this Option shall not be limited
by the grant of any incentive stock option (as defined in Section 422A of the
Internal Revenue Code of 1986 (the "Code")) either before or after the granting
of this Option to Optionee.
-2-
<PAGE> 21
(iii) METHOD OF EXERCISE. This Option shall be exercisable by
delivery to the Company of a duly executed Purchase Agreement, accompanied by
payment of the exercise price. The Purchase Agreement and exercise price shall
be delivered in person or by certified mail to the President of the Company, and
this Option shall be deemed to be exercised on receipt of the same.
5. METHOD OF PAYMENT. Payment of the exercise price shall be by
any of the following, or a combination thereof, at the election of the Board:
(i) cash;
(ii) check;
(iii) execution and delivery of a promissory note (the
"Note") in the form attached to the Purchase Agreement as Exhibit A and in the
amount of the exercise price, together with the execution and delivery of an
escrow agreement (the "Escrow Agreement") in the form attached to the Purchase
Agreement as Exhibit E securing the amount of the Note by a pledge of the Shares
purchased by the Note; or,
(iv) surrender of other shares of Common Stock of the
Company of a value equal to the exercise price of the Shares as to which the
Option is being exercised.
6. RESTRICTIONS ON EXERCISE.
(a) This Option may not be exercised until such time as the
Plan has been approved by the shareholders of the Company, or if the issuance of
such Shares upon such exercise or the method of payment of consideration for
such shares would constitute a violation of any applicable federal or state
securities or other law or regulation, including any rule under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by
the Federal Reserve Board or any requirements of any stock exchange upon which
the Shares may then be listed.
(b) The Option may only be exercised in accordance with the
provisions of the Plan and the provisions of the Purchase Agreement attached
hereto as Exhibit A. The Purchase Agreement contains certain restrictions on
transfer of the shares that may be acquired on exercise of this Option. As a
condition to the exercise of this Option, the Company may require Optionee to
make any representation and warranty to the Company as may be required by any
applicable law or regulation.
7. NON-TRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of
-3-
<PAGE> 22
Optionee only by him. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
8. TAX CONSIDERATIONS. Certain federal tax consequences of any
exercise of this Option or the sale of Shares acquired thereby are summarized in
the Purchase Agreement.
9. AMENDMENT. Neither this Option Agreement nor any term or
provision hereof may be modified, amended or waived except by a written
instrument signed by the party against whom enforcement of any such
modification, amendment or waiver is sought.
10. GOVERNING LAW. This Option Agreement shall be governed by,
and shall be construed and enforced in accordance with, the laws of the State of
California.
VESTING OF SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY
CONTINUING EMPLOYMENT OR CONSULTING AT THE WILL OF THE COMPANY (NOT THROUGH THE
ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER).
THIS OPTION, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING
SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF
CONTINUED EMPLOYMENT OR CONSULTING RELATIONSHIP FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL.
-4-
<PAGE> 23
NORIAN CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
(Consultant Optionees)
Name of Optionee:
-----------------------------------------------------
Date of Grant:
--------------------------------------------------------
Number of Option Shares:
----------------------------------------------
Exercise Price:
-------------------------------------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 198__.
NORIAN CORPORATION
a California corporation
By:
---------------------------------
Title:
------------------------------
Optionee acknowledges receipt of a copy of the Plan, which is annexed
hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions thereof. Optionee has reviewed the Plan, this Option and the
Investment Representation Statement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option, fully understands
all provisions of the Option and the Investment Representation Statement, and
specifically acknowledges that the vesting of shares hereunder is earned only by
continuing employment at the will of the Company (and not through the act of
being hired, being granted this option or acquiring shares pursuant to this
Option). Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan.
------------------------------------
Optionee
<PAGE> 24
Norian Corporation, a California corporation (the "Company"), has
granted to the person whose name is written on the first page hereof (the
"Optionee"), an option to purchase the number of shares (the "Shares") of Common
Stock of the Company stated on the first page hereof, at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the 1988 Stock Option Plan (the "Plan") adopted by the Company
which is incorporated herein by reference. The terms defined in the Plan shall
have the same defined meanings herein.
1. Nature of the Option. This Option is intended by the Company
and the Optionee to be a nonstatutory stock option, and does not qualify for any
special tax benefits to the Optionee. This Option is not an Incentive Stock
Option and is not subject to Section 5(b) of the Plan.
2. Exercise Price. The exercise price for each share of Common
Stock is as stated on the first page hereof.
3. Exercise of Option. This Option shall be exercisable during
its term in accordance with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) Subject to subsections 3(i)(b), (c) and (d)
below, this Option shall be exercisable cumulatively beginning one year from
_________ (the "Commencement Date"), and those shares eligible for exercise
shall be a portion of the Shares subject to the Option which is a fraction of
100% of the Shares, the numerator of which shall be a number equal to the total
number of calendar months elapsed from the Commencement Date, and the
denominator of which shall be 48.
(b) This Option may not be exercised for a
fraction of a share.
(c) In no event may this Option be exercised
after the date of expiration of the term of this Option as set forth in Section
11 below.
(ii) Method of Exercise. This Option shall be exercisable
by written notice which shall state the election to exercise the Option, the
number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to
<PAGE> 25
the Secretary of the Company. The written notice shall be accompanied by payment
of the exercise price. This Option shall be deemed to be exercised upon receipt
by the Company of such written notice accompanied by the exercise price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
4. Optionee's Representations. In the event the Shares
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act of 1933, as amended, at the time this Option is
exercised, Optionee shall, concurrently with the exercise of all or any portion
of this Option, deliver to the Company his Investment Representation Statement
in the form attached hereto as Exhibit A, and shall read the applicable rules of
the Commissioner of Corporations attached to such Investment Representation
Statement.
5. Method of Payment. Payment of the exercise price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check.
6. Restrictions on Exercise. This Option may not be exercised
until such time as the Plan has been approved by the shareholders of the
Company, or if the issuance of such Shares upon such exercise or the method of
payment of consideration for such shares would constitute a violation of any
applicable federal or state securities or other law or regulation, including any
rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation
G") as promulgated by the Federal Reserve Board. As a condition to the exercise
of this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
7. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him.
The terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
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<PAGE> 26
8. Term of Option. This Option may not be exercised more than
five (5) years and one (1) day from the date of grant of this Option, and may be
exercised during such term only in accordance with the Plan and the terms of
this Option.
9. Taxation Upon Exercise of Option. Optionee understands that,
upon exercise of this Option, he will recognize income for tax purposes in an
amount equal to the excess of the then fair market value of the shares over the
exercise price. The Company will be required to withhold tax from Optionee's
current compensation with respect to such income; to the extent that Optionee's
current compensation is insufficient to satisfy the withholding tax liability,
the Company may require the Optionee to make a cash payment to cover such
liability as a condition to exercise of this Option. Upon a resale of such
shares by the Optionee, any difference between the sale price and the fair
market value of the shares on the date of exercise of the Option will be treated
as capital gain or loss.
DATE OF GRANT:
-------------------
NORIAN CORPORATION
a California corporation
By:
---------------------------------
Brent Constantz, President
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
OPTION, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
EMPLOYMENT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL.
Optionee acknowledges receipt of a copy of the Plan and certain
information related thereto and represents that he is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. Optionee has reviewed the Plan and this Option in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the
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<PAGE> 27
Option. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan.
Dated:
------------------
------------------------------------
Optionee
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<PAGE> 1
EXHIBIT 10.3
NORIAN CORPORATION
1996 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel
for positions of substantial responsibility,
- to provide additional incentive to Employees and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4 of
the Plan.
(b) "Applicable Laws" means the legal requirements
relating to the administration of stock option plans under U. S. state corporate
laws, U.S. federal and state securities laws, the Code and the applicable laws
of any foreign country or jurisdiction where Options or Stock Purchase Rights
are, or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a Committee appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Norian Corporation, a California
corporation.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services and who is
compensated for such services. The term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(i) "Continuous Status as an Employee or Consultant"
means that the employment or consulting relationship with the Company, any
Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as
an Employee or Consultant shall not be considered interrupted in the
<PAGE> 2
case of (i) any leave of absence approved by the Company or (ii) transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. A leave of absence approved by the Company shall
include sick leave, military leave, or any other personal leave approved by an
authorized representative of the Company. For purposes of Incentive Stock
Options, no such leave may exceed ninety days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract. If reemployment
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held by
the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
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<PAGE> 3
(p) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the
Plan.
(t) "Option Agreement" means a written agreement between
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(u) "Option Exchange Program" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
(v) "Optioned Stock" means the Common Stock subject to an
Option or Stock Purchase Right.
(w) "Optionee" means an Employee or Consultant who holds
an outstanding Option or Stock Purchase Right.
(x) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1996 Stock Plan.
(z) "Restricted Stock" means shares of Common Stock
acquired pursuant to a grant of Stock Purchase Rights under Section 11 below.
(aa) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
(cc) "Section 16(b)" means Section 16(b) of the Securities
Exchange Act of 1934, as amended.
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<PAGE> 4
(dd) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase
Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of
Grant.
(ff) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 13 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan shall be 1,000,000 Shares plus an annual
increase to be added on each anniversary date of the adoption of the Plan equal
to the lesser of (i) 500,000 Shares, (ii) two percent of the outstanding Shares
on such date or (iii) a lesser amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan. In
addition, Shares of Restricted Stock that are repurchased by the Company at
their original purchase price, shall become available for future grant or sale
under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If
permitted by Rule 16b-3, the Plan may be administered by different bodies with
respect to Directors, Officers who are not Directors, and Employees who are
neither Directors nor Officers.
(ii) Administration With Respect to Directors and
Officers Subject to Section 16(b). With respect to Option or Stock Purchase
Right grants made to Employees who are also Officers or Directors subject to
Section 16(b) of the Exchange Act, the Plan shall be administered by (A) the
Board, if the Board may administer the Plan in a manner complying with the rules
under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made, or (B) a committee designated by the Board
to administer the Plan, which committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities
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<PAGE> 5
are to be made. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made.
(iii) Administration With Respect to Other
Persons. With respect to Option or Stock Purchase Right grants made to Employees
or Consultants who are neither Directors nor Officers of the Company, the Plan
shall be administered by (A) the Board or (B) a committee designated by the
Board, which committee shall be constituted to satisfy Applicable Laws. Once
appointed, such Committee shall serve in its designated capacity until otherwise
directed by the Board. The Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the
provisions of the Plan, and in the case of a Committee, subject to the specific
duties delegated by the Board to such Committee, the Administrator shall have
the authority, in its discretion:
(i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to
whom Options and Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent
Options and Stock Purchase Rights or any combination thereof, are granted
hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
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<PAGE> 6
(vii) to reduce the exercise price of any Option
or Stock Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase Right shall
have declined since the date the Option or Stock Purchase Right was granted;
(viii) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option or Stock
Purchase Right (subject to Section 15(c) of the Plan), including the
discretionary authority to extend the post-termination exercisability period of
Options longer than is otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to determine the terms and restrictions
applicable to Options and Stock Purchase Rights and any Restricted Stock; and
(xiv) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The
Administrator's decisions, determinations and interpretations shall be final and
binding on all Optionees and any other holders of Options or Stock Purchase
Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase
Rights may be granted to Employees and Consultants. Incentive Stock Options may
be granted only to Employees. If otherwise eligible, an Employee or Consultant
who has been granted an Option or Stock Purchase Right may be granted additional
Options or Stock Purchase Rights.
6. Limitations.
(a) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds $100,000,
such Options shall
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<PAGE> 7
be treated as Nonstatutory Stock Options. For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted. If an Option is granted
hereunder that is part Incentive Stock Option and part Nonstatutory Stock Option
due to becoming first exercisable in any calendar year in excess of $100,000,
the Incentive Stock Option portion of such Option shall become exercisable first
in such calendar year, and the Nonstatutory Stock Option portion shall commence
becoming exercisable once the $100,000 limit has been reached.
(b) Neither the Plan nor any Option or Stock Purchase
Right shall confer upon an Optionee any right with respect to continuing the
Optionee's employment or consulting relationship with the Company, nor shall
they interfere in any way with the Optionee's right or the Company's right to
terminate such employment or consulting relationship at any time, with or
without cause.
(c) The following limitations shall apply to grants of
Options to Employees:
(i) No Employee shall be granted, in any fiscal
year of the Company, Options to purchase more than 100,000 Shares.
(ii) In connection with his or her initial
employment, an Employee may be granted Options to purchase up to an additional
400,000 Shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same
fiscal year of the Company in which it was granted (other than in connection
with a transaction described in Section 13), the cancelled Option will be
counted against the limits set forth in subsections (i) and (ii) above. For
this purpose, if the exercise price of an Option is reduced, the transaction
will be treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan
shall become effective upon the earlier to occur of its adoption by the Board or
its approval by the shareholders of the Company as described in Section 19 of
the Plan. It shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term as may be provided in the Notice of Grant. Moreover, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all
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<PAGE> 8
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the
time the Incentive Stock Option is granted, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than
an Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option,
the per Share exercise price shall be determined by the Administrator.
(b) Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator shall fix the period within which the
Option may be exercised and shall determine any conditions which must be
satisfied before the Option may be exercised. In so doing, the Administrator may
specify that an Option may not be exercised until the completion of a service
period.
(c) Form of Consideration. The Administrator shall
determine the acceptable form of consideration for exercising an Option,
including the method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the time
of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
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<PAGE> 9
(v) delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company
receives: (i) written notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full pay-
ment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship.
Upon termination of an Optionee's Continuous Status as an Employee or
Consultant, other than upon the Optionee's death or Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Notice of Grant to the extent that he or she is entitled to exercise it on the
date of termination (but
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<PAGE> 10
in no event later than the expiration of the term of such Option as set forth in
the Notice of Grant). In the absence of a specified time in the Notice of Grant,
the Option shall remain exercisable for three (3) months following the
Optionee's termination. In the case of an Incentive Stock Option, such period of
time for exercise shall not exceed three (3) months from the date of
termination. If, on the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's
change in status from Consultant to Employee or Employee to Consultant, the
Optionee's Continuous Status as an Employee or Consultant shall not
automatically terminate solely as a result of such change in status. In such
event, an Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option three months and one day following such change of
status.
(c) Disability of Optionee. Upon termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of termination, but only to the extent
that the Optionee is entitled to exercise it on the date of termination (and in
no event later than the expiration of the term of the Option as set forth in the
Notice of Grant). If, on the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. Upon the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee would have been entitled to exercise the
Option on the date of death. If, at the time of death, the Optionee is not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If the
Optionee's estate or the person who acquires the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
(f) Rule 16b-3. Options granted to individuals subject
to Section 16 of the Exchange Act ("Insiders") must comply with the applicable
provisions of Rule 16b-3 and shall contain
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<PAGE> 11
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be
issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing, by means of a Notice of Grant, of
the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer, which shall
in no event exceed six (6) months from the date upon which the Administrator
made the determination to grant the Stock Purchase Right. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or Disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock purchase agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate determined
by the Administrator.
(c) Rule 16b-3. Stock Purchase Rights granted to
Insiders, and Shares purchased by Insiders in connection with Stock Purchase
Rights, shall be subject to any restrictions applicable thereto in compliance
with Rule 16b-3. An Insider may only purchase Shares pursuant to the grant of a
Stock Purchase Right, and may only sell Shares purchased pursuant to the grant
of a Stock Purchase Right, during such time or times as are permitted by Rule
16b-3.
(d) Other Provisions. The Restricted Stock Purchase
Agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its sole
discretion. In addition, the provisions of Restricted Stock Purchase Agreements
need not be the same with respect to each purchaser.
(e) Rights as a Shareholder. Once the Stock Purchase
Right is exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. An
Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
-11-
<PAGE> 12
13. Adjustments Upon Changes in Capitalization, Dissolution,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of shares of Common Stock
covered by each outstanding Option and Stock Purchase Right, and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but as to which no Options or Stock Purchase Rights have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option or Stock Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable. In
addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option shall lapse as to
all such Shares, provided the proposed dissolution or liquidation takes place at
the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall have the right to exercise the Option
or Stock Purchase Right as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option or Stock Purchase
Right is exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of
-12-
<PAGE> 13
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock
Purchase Right shall be, for all purposes, the date on which the Administrator
makes the determination granting such Option or Stock Purchase Right, or such
other later date as is determined by the Administrator. Notice of the
determination shall be provided to each Optionee within a reasonable time after
the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain
shareholder approval of any Plan amendment to the extent necessary and desirable
to comply with Rule 16b-3 or with Section 422 of the Code (or any successor rule
or statute or other applicable law, rule or regulation, including the
requirements of any exchange or quotation system on which the Common Stock is
listed or quoted). Such shareholder approval, if required, shall be obtained in
such a manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant
to the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act, the rules and regula-
tions promulgated thereunder, Applicable Laws, and the requirements of any stock
exchange or quotation system upon which the Shares may then be listed or quoted,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
-13-
<PAGE> 14
(b) Investment Representations. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. Liability of Company.
(a) Inability to Obtain Authority. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned
Stock covered by an Option or Stock Purchase Right exceeds, as of the date of
grant, the number of Shares which may be issued under the Plan without
additional shareholder approval, such Option or Stock Purchase Right shall be
void with respect to such excess Optioned Stock, unless shareholder approval of
an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. Continuance of the Plan shall be subject
to approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the manner and to the degree required under Applicable Laws and the
rules of any stock exchange upon which the Common Stock is listed.
-14-
<PAGE> 15
NORIAN CORPORATION
1996 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number
-------------------------------
Date of Grant
-------------------------------
Vesting Commencement Date
-------------------------------
Exercise Price per Share $
------------------------------
Total Number of Shares Granted
-------------------------------
Total Exercise Price $
------------------------------
Type of Option: Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date:
-------------------------------
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter.
<PAGE> 16
Termination Period:
This Option may be exercised for 90 days after termination
of the Optionee's employment or consulting relationship with the Company. Upon
the death or Disability of the Optionee, this Option may be exercised for such
longer period as provided in the Plan. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, this Option
Agreement shall remain in effect. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Grant
and the applicable provisions of the Plan and this Option Agreement. In the
event of Optionee's death, Disability or other termination of Optionee's
employment or consulting relationship, the exercisability of the Option is
governed by the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by
delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The Exercise Notice shall be accompanied by
payment of the aggregate Exercise Price as to all Exercised Shares. This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with all relevant provisions
of law and the requirements of any stock exchange
-2-
<PAGE> 17
or quotation service upon which the Shares are then listed. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price
shall be by any of the following, or a combination thereof, at the election of
the Optionee:
(a) cash;
(b) check;
(c) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
or
(d) surrender of other Shares which (i) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, AND (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
4. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by the
Optionee. The terms of the Plan and this Option Agreement shall be binding upon
the executors, administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences
relating to this Option, as of the date of this Option, are set forth below.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
-3-
<PAGE> 18
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may
incur regular federal income tax and state income tax liability upon exercise
of a NSO. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an Employee or a former Employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option
qualifies as an ISO, the Optionee will have no regular federal income tax or
state income tax liability upon its exercise, although the excess, if any, of
the Fair Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price will be treated as an adjustment to alternative minimum
taxable income for federal tax purposes and may subject the Optionee to
alternative minimum tax in the year of exercise. In the event that the Optionee
undergoes a change of status from Employee to Consultant, any Incentive Stock
Option of the Optionee that remains unexercised shall cease to qualify as an
Incentive Stock Option and will be treated for tax purposes as a Nonstatutory
Stock Option on the ninety-first (91st) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for
at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for
at least one year after exercise and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the lesser of (A) the
difference between the Fair Market Value of the Shares acquired on the date of
exercise and the aggregate Exercise Price, or (B) the difference between the
sale price of such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If
the Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (i) two years after the grant date, or (ii)
one year after the exercise date, the Optionee shall immediately notify the
Company in writing of such disposition. The Optionee agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
-4-
<PAGE> 19
7. Entire Agreement; Governing Law. The Plan is incorporated
herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by California law except for
that body of law pertaining to conflict of laws.
8. NO GUARANTEE OF EMPLOYMENT. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE
COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR
PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD,
OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH
OR WITHOUT CAUSE.
-5-
<PAGE> 20
Optionee's and the signature of the Company's representative below
indicate that Optionee and the Company agree that this Option is granted under
and governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety, has
had an opportunity to obtain the advice of counsel prior to executing this
Option Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Administrator upon any questions relating to
the Plan and Option Agreement. Optionee further agrees to notify the Company
upon any change in the residence address indicated below.
OPTIONEE: NORIAN CORPORATION
- ---------------------------------- By:
Signature ---------------------------------
- ---------------------------------- Title:
Print Name ------------------------------
- ----------------------------------
Residence Address
- ----------------------------------
-6-
<PAGE> 21
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
------------------------------------
Spouse of Optionee
<PAGE> 22
EXHIBIT A
NORIAN CORPORATION
1996 STOCK PLAN
EXERCISE NOTICE
Norian Corporation
10260 Bubb Road
Cupertino, CA 95014-4166
Attention: Secretary
1. Exercise of Option. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of Norian Corporation (the "Company")
under and pursuant to the 1996 Stock Plan (the "Plan") and the Stock Option
Agreement dated ________________, 19___ (the "Option Agreement"). The purchase
price for the Shares shall be $________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the
Company the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 13 of
the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may
suffer adverse tax consequences as a result of Purchaser's purchase or
disposition of the Shares. Purchaser represents that Purchaser has consulted
with any tax consultants Purchaser deems advisable in connection with the
purchase or disposition of the Shares and that Purchaser is not relying on the
Company for any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option
Agreement are incorporated herein by reference. This Agreement, the Plan and the
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all
<PAGE> 23
prior undertakings and agreements of the Company and Purchaser with respect to
the subject matter hereof, and may not be modified adversely to the Purchaser's
interest except by means of a writing signed by the Company and Purchaser. This
agreement is governed by California law except for that body of law pertaining
to conflict of laws.
Submitted by: Accepted by:
PURCHASER: NORIAN CORPORATION
By:
- ---------------------------------- ---------------------------------
Signature
Its:
- ---------------------------------- --------------------------------
Print Name
Address: Address:
- ---------------------------------- 10260 Bubb Road
Cupertino, CA 95014-4166
- ----------------------------------
-2-
<PAGE> 1
EXHIBIT 10.4
NORIAN CORPORATION
1996 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1996 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Norian Corporation, a California corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable, or;
<PAGE> 2
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Optioned Stock" means the Common Stock subject to an Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1996 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 200,000 Shares plus an annual increase to be added on
each anniversary date of the adoption of the Plan, equal to (i) 1/2 percent of
the outstanding Shares as of such date or (ii) a lesser amount determined by the
Board (collectively, the "Pool"). The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. The provisions set forth in this Section
4(a) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
-2-
<PAGE> 3
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director who is not a Director as of the
effective date of this Plan shall be automatically granted an Option to purchase
10,000 Shares (the "First Option") on the date on which such person first
becomes an Outside Director, whether through election by the shareholders of the
Company or appointment by the Board to fill a vacancy; provided, however, that
an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 2,000 Shares (a "Subsequent Option") on June 30 of each year
provided he or she is then an Outside Director and if as of such date, he or she
shall have served on the Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option. In the event
that the date of grant of the First Option is not a trading day, the exercise
price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to 1/48 of the Shares subject to the First Option on each
monthly anniversary of its date of grant, provided that the Optionee continues
to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
-3-
<PAGE> 4
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100%. of the
Fair Market Value per Share on the date of grant of the Subsequent Option. In
the event that the date of grant of the Subsequent Option is not a trading day,
the exercise price per Share shall be the Fair Market Value on the next trading
day immediately following the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to 1/12 of the Shares subject to the Subsequent
Option on each monthly anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate the Director's relationship with the Company at
any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) delivery of a properly
executed exercise notice together with such other documentation as the Company
and the broker, if applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (v) any combination of the foregoing methods of payment.
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<PAGE> 5
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors must comply
with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify Plan transactions, and
other transactions by Outside Directors that otherwise could be matched with
Plan transactions, for the maximum exemption from Section 16 of the Exchange
Act.
(c) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
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<PAGE> 6
(d) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(e) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
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<PAGE> 7
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(c) through (e)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in Section 4,
the Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made, without his
or her consent. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act (or any other applicable law or
regulation), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
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<PAGE> 8
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated there-
under, state securities laws, and the requirements of any stock exchange upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
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<PAGE> 1
EXHIBIT 10.5
NORIAN CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock
Purchase Plan of Norian Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean a committee designated by the Board in
accordance with Section 13 of the Plan. If at any time no Committee shall be in
office, then the functions of the Committee specified in the Plan shall be
exercised by the Board and any references herein to the Committee shall be
construed as references to the Board.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" shall mean the Common Stock of the Company.
(e) "Company" shall mean Norian Corporation and any Designated
Subsidiary of the Company.
(f) "Compensation" shall mean all base straight time gross earnings,
including commissions, incentive bonuses and performance bonuses.
(g) "Designated Subsidiaries" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(h) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's
<PAGE> 2
right to reemployment is not guaranteed either by statute or by contract, the
employment relationship will be deemed to have terminated on the 91st day of
such leave.
(i) "Enrollment Date" shall mean the first day of each Offering
Period.
(j) "Exercise Date" shall mean the last trading day of each Purchase
Period.
(k) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Committee deems reliable,
or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Committee deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Committee.
(4) For purposes of the Enrollment Date under the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final Prospectus included within the Registration
Statement filed with the Securities and Exchange Commission for the initial
public offering of the Company's Common Stock.
(l) "Offering Period" shall mean the period beginning with the date
an option is granted under the Plan and ending with the date determined by the
Committee. During the term of the Plan, the duration of each Offering Period
shall be determined from time to time by the Committee, provided that no
Offering Period may exceed twenty-seven (27) months in duration. If determined
by the Committee, an Offering Period may include one or more Purchase Periods.
The first Offering Period shall begin on the effective date of the Company's
initial public offering of its Common Stock that is registered with the
Securities and Exchange Commission and shall end on the last Trading Day on or
before June 30, 1998.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
(n) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
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<PAGE> 3
(o) "Purchase Period" shall mean a period commencing on an
Enrollment Date or on the day after an Exercise Date and which is of such
duration as the Committee shall determine.
(p) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(r) "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee (as defined in Section 2(g)), who shall be employed
by the Company on a given Enrollment Date shall be eligible to participate in
the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering and Purchase Periods. The Plan shall be implemented by
consecutive, overlapping Offering Periods, each of which shall be of such
duration (not to exceed 27 months) as the Committee shall determine from time to
time in its discretion, and each of which shall consist of such number of
Purchase Periods as the Committee shall determine from time to time in its
discretion. The Plan shall continue until terminated in accordance with Section
19 hereof. The first Offering Period shall begin on the effective date of the
Company's initial public offering of its Common Stock that is registered with
the Securities and Exchange Commission and shall end on the last Trading Day on
or before August 1, 1998. The first Offering Period shall consist of four (4)
Purchase Periods, the first commencing on the effective date of the Company's
initial registered public offering, as aforesaid, and ending on the last Trading
Day on or before February 1, 1996. The Committee shall have the power to change
the duration of Offering Periods (including the commencement dates thereof) at
any time or from time to time, provided that (except as the shareholders may
otherwise approve) any such change shall be effected only with respect to
Offering Periods commencing at least five (5) days following the date on which
the change is announced.
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<PAGE> 4
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office not
later than two (2) weeks prior to the applicable Enrollment Date. Eligible
employees who begin employment with the Company within two weeks of an
Enrollment Date may file a subscription agreement with the Company's payroll
office up to one day prior to the applicable Enrollment Date. With respect to
the first Enrollment Date, eligible Employees may file a subscription agreement
up to one day prior to the Enrollment Date. An eligible Employee may participate
in only one Offering Period at a time.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Committee may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at such time during any
Purchase Period which is scheduled to end during the current calendar year (the
"Current Purchase Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such
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<PAGE> 5
participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than a
number of shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the Participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
Participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the shares shall be credited to an account in
the participant's name with a brokerage firm selected by the Committee to hold
the shares in its street name.
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<PAGE> 6
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account will be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period will be automatically terminated, and no further payroll
deductions for the purchase of shares will be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions will not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof), for any reason, he or she will be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option will be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
(c) A participant's withdrawal from an Offering Period shall not
have any effect on his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company, or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) Subject to Section 18, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 300,000 shares plus an annual increase to be added on each anniversary
date of the adoption of the Plan equal to the lesser of (i) 150,000 shares, (ii)
one percent of the outstanding shares on such date or (iii) a lesser amount
determined by the Board. If, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of shares then
available under the Plan, the Company shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
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<PAGE> 7
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the
Board or a committee of members of the Board appointed by the Board. The Board
or its Committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its Committee shall, to the full
extent permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment,
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<PAGE> 8
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds from an Offering
Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves as well as the price per share and
the number of shares of Common Stock covered by each option under the Plan which
has not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Periods will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Purchase Period then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date") and the
Offering Period then in progress shall end on the New Exercise Date. The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Committee shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
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<PAGE> 9
19. Amendment or Termination.
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 18 hereof, no such termination can
affect options previously granted, provided that an Offering Period may be
terminated by the Committee on any Exercise Date if the Committee determines
that the termination of the Plan is in the best interests of the Company and its
shareholders. Except as provided in Section 18 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Rule 16b-3 or under
Section 423 of the Code (or any successor rule or provision or any other
applicable law or regulation), the Company shall obtain shareholder approval in
such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Committee shall be entitled to change the Offering Periods, limit the frequency
and/or number of changes in the amount withheld during an Offering Period,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, permit payroll withholding in excess of the amount designated
by a participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the
Committee determines in its sole discretion advisable which are consistent with
the Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
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<PAGE> 10
22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
23. Automatic Transfer to Low Price Offering Period. To the extent
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period immediately after the exercise of their option on such
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
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<PAGE> 11
EXHIBIT A
NORIAN CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate Date of Change:_____________
_____ Change of Beneficiary
1. _______________________ hereby elects to participate in the Norian
Corporation 1996 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to pur chase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to [ ]%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete "Norian Corporation 1996
Employee Stock Purchase Plan." I understand that my participation in
the Employee Stock Purchase Plan is in all respects subject to the
terms of the Plan. I understand that my ability to exercise the option
under this Subscription Agreement is subject to obtaining shareholder
approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and spouse only):____
_______________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes
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<PAGE> 12
as having received ordinary income at the time of such disposition in
an amount equal to the excess of the fair market value of the shares at
the time such shares were purchased over the price which I paid for the
shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS
AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE
PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF
ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The Company
may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value
of the shares at the time of such disposition over the purchase price
which I paid for the shares, or (2) 15% of the fair market value of the
shares on the first day of the Offering Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital
gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
_______________________________ ___________________________
Relationship
___________________________
(Address)
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<PAGE> 13
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN
EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ____________________________________
Signature of Employee
____________________________________
Spouse's Signature (If beneficiary
other than spouse)
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<PAGE> 14
EXHIBIT B
NORIAN CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Norian
Corporation 1996 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned under stands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
___________________________________
___________________________________
___________________________________
Signature:
___________________________________
Date:______________________________
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<PAGE> 1
EXHIBIT 10.6
NORIAN CORPORATION
1025 Terra Bella Avenue
Mountain View, California 94043
-------------------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
August 9, 1990
-------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
SECTION 1 - Authorization and Sale of Preferred Stock .................. 1
1.1 Authorization ................................................ 1
1.2 Sale of Series C Preferred ................................... 1
SECTION 2 - Closing Dates; Delivery .................................... 1
2.1 Location of Closing .......................................... 1
2.2 First Closing ................................................ 1
2.3 Second Closing ............................................... 1
2.4 Delivery ..................................................... 2
SECTION 3 - Representations and Warranties of the Company .............. 2
3.1 Organization and Standing; Articles and By-Laws .............. 2
3.2 Corporate Power .............................................. 3
3.3 Subsidiaries ................................................. 3
3.4 Capitalization ............................................... 3
3.5 Authorization ................................................ 4
3.6 Material Contracts and Commitments ........................... 4
3.7 Title to Properties and Assets; Liens, etc ................... 4
3.8 Compliance With Other Instruments, None
Burdensome, etc .............................................. 5
3.9 Litigation, etc .............................................. 5
3.10 Employees .................................................... 5
3.11 Registration Rights .......................................... 6
3.12 Governmental Consent, etc .................................... 6
3.13 Offering ..................................................... 6
3.14 Brokers or Finders; Other Offers ............................. 6
3.15 Patents, Trademarks, Licenses ................................ 6
3.16 Financial Statements ......................................... 7
3.17 Agreements with Principals ................................... 7
3.18 Minute Books ................................................. 7
3.19 Disclosure ................................................... 8
SECTION 4 - Representations and Warranties of the Purchaser ............ 8
4.1 Accredited Investor .......................................... 8
4.2 Investment ................................................... 8
4.3 Rule 144 ..................................................... 8
4.4 No Public Market ............................................. 9
4.5 Access to Data ............................................... 9
4.6 Authorization ................................................ 9
4.7 Brokers or Finders ........................................... 9
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
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<S> <C> <C>
SECTION 5 - Conditions to Closing of Purchaser ......................... 9
5.1 First Closing ................................................ 9
5.2 Second Closing ............................................... 11
SECTION 6 - Conditions to Closing of Company ........................... 11
6.1 First Closing ................................................ 11
6.2 Second Closing ............................................... 12
SECTION 7 - Affirmative Covenants of the Company ....................... 13
7.1 Financial Information ........................................ 13
7.2 Termination of Covenants ..................................... 14
7.3 Transfer of Information Rights ............................... 14
7.4 Proprietary Information Agreements ........................... 14
7.5 Key Man Insurance ............................................ 14
7.6 Board of Directors ........................................... 14
SECTION 8 - Restrictions on Transferability of Securities;
Compliance With Securities Act; Registration
Rights ..................................................... 15
8.1 Restrictions on Transferability .............................. 15
8.2 Certain Definitions .......................................... 15
8.3 Restrictive Legend ........................................... 16
8.4 Notice of Proposed Transfers ................................. 17
8.5 Requested Registration ....................................... 18
8.6 Company Registration ......................................... 21
8.7 Registration on Form S-3 ..................................... 22
8.8 Expenses of Registration ..................................... 23
8.9 Registration Procedures ...................................... 24
8.10 Indemnification .............................................. 24
8.11 Information by Holder ........................................ 27
8.12 Rule 144 Reporting ........................................... 27
8.13 Transfer of Registration Rights .............................. 27
8.14 Lockup Agreement ............................................. 28
SECTION 9 - Right of First Refusal ..................................... 28
9.1 Right of First Refusal ....................................... 28
SECTION 10 - Right of First Negotiation ................................ 30
10.1 Right of First Negotiation ................................... 30
10.2 Termination of Rights ........................................ 31
SECTION 11 - Miscellaneous ............................................. 31
11.1 Governing Law ................................................ 31
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
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<S> <C> <C>
11.2 Survival ..................................................... 31
11.3 Successors and Assigns ....................................... 31
11.4 Entire Agreement; Amendment .................................. 31
11.5 Notices, etc ................................................. 32
11.6 Delays or Omissions .......................................... 32
11.7 California Corporate Securities Law .......................... 33
11.8 Expenses ..................................................... 33
11.9 Counterparts ................................................. 33
11.10 Severability ................................................. 33
11.11 Titles and Subtitles ......................................... 33
</TABLE>
EXHIBITS
A. Form of Amended and Restated Articles of Incorporation
B. Exceptions to Representations and Warranties
C. Form of Proprietary Information Agreement
D. Form of Compliance Certificate
E. Form of Opinion of Counsel
F. Form of Modification Agreement
G. Development Agreement
H. License Agreement
I. Standstill Agreement
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<PAGE> 5
NORIAN CORPORATION
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of August 9, 1990 among Norian Corporation, a
California corporation (the "Company"), and Pfizer Hospital Products Group, Inc.
(the "Purchaser").
SECTION 1
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
up to 2,750,000 shares (the "Shares") of its Series C Preferred Stock ("Series C
Preferred"), having the rights, privileges and preferences as set forth in the
Company's Second Amended and Restated Articles of Incorporation (the "Restated
Articles") in the form attached to this Agreement as Exhibit A.
1.2 SALE OF SERIES C PREFERRED. Subject to the terms and conditions
hereof, the Company will issue and sell to Purchaser and the Purchaser will buy
from the Company the total number of shares of Series C Preferred specified in
Sections 2.2 and 2.3 below, at a price per share as specified in Sections 2.2
and 2.3 below.
SECTION 2
CLOSING DATES; DELIVERY
2.1 LOCATION OF CLOSING. The closing of the purchase and sale of the
Series C Preferred hereunder shall be held at the offices of Wilson, Sonsini,
Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California.
2.2 FIRST CLOSING. The First Closing shall occur at 11:00 a.m., local
time, on August 9, 1990 (the "First Closing") or as such other time and place
upon which the Company and the Purchaser shall agree (the "First Closing Date").
At the First Closing, the Purchaser shall purchase 1,333,333 shares of Series C
Preferred, at a price of $.75 per share.
2.3 SECOND CLOSING. The Second Closing may occur at such time as
Purchaser and the Company may agree (the "Second Closing Date"), provided
however, that Purchaser and Company agree as set forth below. Purchaser may
elect at any time to purchase additional shares of Preferred with an aggregate
purchase price of $1,000,000 within two years after the First Closing. The
purchase price of such shares shall be $1.125 per share. Such additional shares
of Preferred shall have the same rights, preferences and privileges as the
Series C Preferred and shall be on a parity with
<PAGE> 6
respect to such series; provided, however, that the dividend, liquidation and
conversion price provisions shall be adjusted to reflect the per share purchase
price of such additional shares of Preferred. In the event that the Purchaser
does not elect to purchase the additional shares of Preferred within one year
after the First Closing as provided above, the Company shall have the right
commencing the day following the first anniversary date of the First Closing to
require the Purchaser to purchase an additional 1,333,333 shares of Series C
Preferred at a price of $.75 per share, and the Purchaser shall be required, and
hereby agrees, to purchase such additional shares of Series C Preferred. The
Purchaser's rights and obligations as set forth herein shall not terminate in
the event of termination of either the License Agreement or the Development
Agreement (as defined below). The Company's right to require the Purchaser to
purchase the additional shares of Series C Preferred shall expire in the event
the Company does not provide the Purchaser with notice of its election to
require the purchase of the additional shares of Preferred within six (6) months
after the first anniversary date of the First Closing. The Purchaser agrees to
use its best efforts to consummate the sale of the additional shares of Series C
Preferred pursuant to this Section 2.3 within forty-five (45) days of the
Company's notice. All rights under this Section 2.3 shall expire upon the first
purchase and sale of additional shares of Preferred pursuant to this Section
2.3, whether at the election of the Purchaser or the Company.
2.4 DELIVERY. At each Closing, the Company will deliver to Purchaser a
certificate or certificates registered in Purchaser's name representing the
number of Shares set forth in Section 2.2 and 2.3 above to be purchased by such
Purchaser at the Closing, against payment of the purchase price therefor, by
check payable to the Company or wire transfer per the Company's instructions.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Exceptions to Representations and Warranties
attached hereto as Exhibit B (the "Schedule of Exceptions"), the Company
represents and warrants to the Purchasers as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of California and is in good standing under such laws. The Company has the
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed
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<PAGE> 7
to be conducted. The Company is not presently qualified to do business as a
foreign corporation in any jurisdiction, and the failure to be so qualified will
not have a material adverse effect on the Company's business as now conducted or
as proposed to be conducted.
3.2 CORPORATE POWER. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement, to sell and issue the
Shares hereunder, to issue the Common Stock issuable upon conversion of the
Series C Preferred, and to carry out and perform its obligations under the terms
of this Agreement.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation, association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock, of which 3,355,677 shares are
issued and outstanding immediately prior to the Closing and 17,787,500 shares of
Preferred Stock, 5,000,000 of which are designated as Series A Preferred Stock
(the "Series A Preferred") and 4,902,919 of which are issued and outstanding
immediately prior to the Closing, 10,037,500 of which are designated Series B
Preferred, 10,037,500 of which are outstanding immediately prior to the Closing
and 2,750,000 shares of Preferred Stock shall be designated Series C Preferred
Stock, none of which are outstanding immediately prior to the Closing. The
Company has reserved 2,000,000 shares of its Common Stock for issuance under
plans or arrangements approved by the Board of Directors to employees, officers,
or directors of, or consultants to, the Company. There are currently 1,586,112
shares of Common Stock issuable upon the exercise of outstanding options which
were granted, subject to vesting restrictions, to employees, consultants,
directors and members of the Scientific Advisory Board of the Company pursuant
to the Company's 1988 Stock Option Plan. The outstanding shares have been duly
authorized and validly issued, and are fully paid and nonassessable. The Company
has reserved 2,750,000 shares of Series C Preferred for issuance hereunder and
an appropriate number of shares of Common Stock as may be deemed necessary for
issuance upon conversion of the Series A Preferred, Series B Preferred and
Series C Preferred. The Series C Preferred shall have the rights, preferences,
privileges and restrictions set forth in the Restated Articles. Except as set
forth herein and in the Schedule of Exceptions, there are no options, warrants
or other rights to purchase any of the Company's authorized and unissued capital
stock.
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<PAGE> 8
3.5 AUTHORIZATION. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, sale,
issuance and delivery of the Series C Preferred (and the Common Stock issuable
upon conversion of the Series C Preferred), and the performance of all of the
Company's obligations hereunder has been taken prior to the Closing. This
Agreement, when executed and delivered by the Company, shall constitute a valid
and binding obligation of the Company, enforceable in accordance with its terms,
except as the indemnification provisions of Section 8.10 hereof may be limited
by principles of public policy, and subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The Series C Preferred, when issued in compliance with the provisions of this
Agreement and the Restated Articles, will be validly issued, fully paid and
non-assessable, and will have the rights, preferences and privileges described
in the Restated Articles. The Common Stock issuable upon conversion of the
Series C Preferred has been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement and the Restated Articles, will
be validly issued, fully paid and nonassessable; and the Series C Preferred and
such Common Stock will be free of any liens or encumbrances other than any liens
or encumbrances created by or imposed upon the holders; provided, however, that
the Series C Preferred and the Common Stock issuable upon conversion of the
Series C Preferred may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein. The Series C Preferred and Common
Stock issuable upon conversion of the Series C Preferred is not subject to any
preemptive rights or rights of first refusal which have not been waived.
3.6 MATERIAL CONTRACTS AND COMMITMENTS. Except as set forth on the
Schedule of Exceptions attached hereto as Exhibit B, there are no material
contracts, agreements and instruments to which the Company is a party. The
agreements referred to above are valid, binding and in full force and effect in
all material respects, and are valid, binding and enforceable by the Company in
accordance with their respective terms. Brent Constantz has transferred to the
Company his proprietary rights to the technology to modulate the growth and
morphology of crystals in a manner similar to the processes of skeletal growth,
together with all other proprietary rights and technology and intellectual
property necessary for the conduct of the business of the Company as proposed.
3.7 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to the proprietary technology which was transferred to the
Company by Brent Constantz. The Company has good and marketable title to its
other properties and assets and
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<PAGE> 9
has good title to all its leasehold interests, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of
current taxes not yet due and payable and (ii) possible minor liens and
encumbrances which do not in any case materially detract from the value of the
property subject thereto or materially impair the operations of the Company and
which have not arisen otherwise than in the ordinary course of business.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The
Company is not in violation of any term of its Articles of Incorporation or
By-Laws. The Company is not in violation in any material respect of any term or
provision of any material mortgage, indebtedness, indenture, contract,
agreement, instrument, judgment or decree, and to the best of its knowledge is
not in violation of any order, statute, rule or regulation applicable to the
Company in which such violation would materially and adversely affect the
Company. The execution, delivery and performance of and compliance with this
Agreement, and the issuance of the Series C Preferred and the Common Stock
issuable upon conversion of the Series C Preferred, have not resulted and will
not result in any material violation of, or conflict with, or constitute a
material default under any of the foregoing nor result in the creation of, any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company. There is no such violation or default which materially
and adversely affects the business of the Company or any of its properties or
assets.
3.9 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency (nor, to the best of the Company's knowledge, is there any
threat thereof or basis therefor). The Company is not currently subject to any
judgment, writ, decree or order of any court or governmental agency. The Company
has no current plans to initiate any litigation or dispute resolution
proceedings against any third parties.
3.10 EMPLOYEES. Each employee of the Company has executed a proprietary
information agreement, the form of which is attached hereto as Exhibit D. To the
best of the Company's knowledge and after due investigation, no employee of the
Company is or is now expected to be in violation of any term of any employment
contract, patent disclosure agreement or any other contract or agreement
relating to the relationship of such employee with the Company or any other
party because of the nature of the business conducted or proposed to be
conducted by the Company. To the best of the Company's knowledge, there is no
pending or threatened action, suit, proceeding or claim with respect to any
contract or agreement referred to in the preceding sentence (nor to the best of
the Company's knowledge, is there any threat thereof or basis
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<PAGE> 10
therefor). To the best of the Company's knowledge and after due investigation,
its employees have not improperly used and are not making or expected to make
improper use of any confidential information, trade secrets or intellectual
property of others including, without limitation, those of any former employer,
and, to the best of the Company's knowledge, there is no pending or threatened
action, suit, proceeding or claim with respect to the foregoing.
3.11 REGISTRATION RIGHTS. Except as set forth in this Agreement, the
Company is not under any contractual obligation to register (as defined in
Section 8.2 below) any of its presently outstanding securities or any of its
securities which may hereafter be issued.
3.12 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Series C
Preferred (and the Common Stock issuable upon conversion of the Series C
Preferred), or the consummation of any other transaction contemplated hereby,
except (a) filing of the Restated Articles in the office of the California
Secretary of State (b) qualification (or taking such action as may be necessary
to secure an exemption from qualification, if available) of the offer and sale
of the Series C Preferred (and the Common Stock issuable upon conversion of the
Series C Preferred) under the California Corporate Securities Law of 1968, as
amended, and other applicable state securities laws, which filings and
qualifications, if required, will be accomplished in a timely manner.
3.13 OFFERING. Subject to the accuracy of the Purchaser's
representations in Section 4 hereof, the offer, sale and issuance of the Series
C Preferred to be issued in conformity with the terms of this Agreement, and the
issuance of the Common Stock to be issued upon conversion of the Series C
Preferred, constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended (the "Securities Act").
3.14 BROKERS OR FINDERS; OTHER OFFERS. Neither the Company nor the
Purchaser has incurred, or will incur, directly or indirectly, as a result of
any action taken by the Company (assuming that no unilateral action is taken by
the Purchaser), any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
3.15 PATENTS, TRADEMARKS, LICENSES. Except as disclosed in the Schedule
of Exceptions the Company has sufficient title and ownership of patents,
copyrights, trademarks, trade secrets, and
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all other proprietary rights needed to conduct its business as proposed to be
conducted.
There are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
copyrights, trademarks, trade secrets or proprietary rights and processes of any
other person or entity.
There are no pending infringement claims regarding any third party's
patents, copyrights, trademarks, trade secrets or proprietary rights and
processes against the Company nor, to the best of the Company's knowledge, is
there any threat thereof or basis therefor. To the best of the Company's
knowledge, the Company is not infringing upon or otherwise acting adversely to,
and will not, by conducting its business as presently conducted, infringe upon
or otherwise act adversely to, the right or claimed right of any other person
with respect to any of the foregoing. The Company is not aware of any violation
by a third party of any of its patents, copyrights, trademarks, trade secrets or
other proprietary rights. The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of its proprietary information.
3.16 FINANCIAL STATEMENTS. Purchaser has been furnished copies of (i)
the Company's audited balance sheet as of February 28, 1990 and the Company's
audited income statement and statement of changes in financial position for the
twelve-month period ended February 28, 1990 and (ii) the Company's unaudited
balance sheet as of May 31, 1990 and the Company's unaudited income statement
and statement of changes in financial position for the three month period ended
May 31, 1990 (collectively the "Financial Statements"). The Financial Statements
are prepared in accordance with generally accepted accounting principles and
fairly represent the financial position of the Company as of their respective
dates and the results of its operations for the periods then ended.
3.17 AGREEMENTS WITH PRINCIPALS. Except for agreements explicitly
contemplated hereby and restricted stock purchase agreements between the Company
and several employees of the Company: (i) there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors or affiliates, and (ii) no officer, director or affiliate is
indebted to the Company nor is the Company indebted to any of them.
3.18 MINUTE BOOKS. The minute books of the Company provided to counsel
for the Purchaser for review contain a complete summary of all meetings of and
actions by directors and shareholders of the Company from the time of its
incorporation to the date of such review and reflect all transactions referred
to in such minutes accurately in all material respects.
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3.19 DISCLOSURE. To the best of the Company's knowledge, this Agreement
with the Exhibits hereto and the Company's disclosures to Purchaser when taken
as a whole, do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained herein
or made by the Company not misleading in light of the circumstances under which
they were made. Any financial projections disclosed were prepared in good faith;
however, the Company does not warrant that it will achieve any financial
projections. Any assumptions used for projections are materially correct and
unchanged as of the date hereof, provided, however, that no warranty or
representation is given as to opinions, forecasts, or other non-factual matters.
The Company has provided the Purchaser with all the information which such
Purchaser has requested for deciding whether to purchase the Shares and all
information which the Company believes is reasonably necessary to enable the
Purchaser to make such decision.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company with
respect to the purchase of the Shares as follows:
4.1 ACCREDITED INVESTOR. It is an accredited investor within the
meaning of Rule 501 of Regulation D under the Securities Act.
4.2 INVESTMENT. It is acquiring the Series C Preferred and the
underlying securities for investment for its own account, not as a nominee or
agent and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the securities to be purchased and the
underlying securities have not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
Purchaser's representations as expressed herein.
4.3 RULE 144. It acknowledges that the Series C Preferred and the
underlying securities must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is
available. It is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the Company's securities, the
availability of certain current public information about the Company, the resale
occurring not less than two years after a party has purchased and paid for the
security to be sold,
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the sale being effected through a "broker's transaction" or in transactions
directly with a "market maker" and the number of shares being sold during any
three-month period not exceeding specified limitations.
4.4 NO PUBLIC MARKET. It understands that no public market now exists
for any of the securities issued by the Company and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
4.5 ACCESS TO DATA. It has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management. It has
also had an opportunity to ask questions of officers of the Company, which
questions were answered to its satisfaction. It understands that such
discussions, as well as any written information issued by the Company were
intended to describe certain aspects of the Company's business and prospects but
were not an exhaustive description. The foregoing, however, does not limit or
modify the representations and warranties of Section 3 herein or the right of
the Purchasers to rely thereon.
4.6 AUTHORIZATION. This Agreement when executed and delivered by such
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as the
indemnification provisions of Section 8.10 hereof may be limited by principles
of public policy, and subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
4.7 BROKERS OR FINDERS. Except as disclosed in the Schedule of
Exceptions, neither the Company nor the Purchaser has incurred, directly or
indirectly, as a result of any action taken by the Purchaser (assuming that no
unilateral action is taken by the Company), any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement.
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SECTION 5
CONDITIONS TO CLOSING OF PURCHASER
5.1 FIRST CLOSING. The Purchaser's obligations to purchase the Shares
at the First Closing are, at the option of the Purchaser, subject to the
fulfillment of the following conditions:
(a) Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the First Closing Date.
(b) Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the First
Closing Date shall have been performed or complied with in all material
respects.
(c) Compliance Certificate. The Company shall have delivered to the
Purchaser a certificate of the Company in the form of Exhibit D hereto, executed
by the Chief Financial Officer of the Company, dated the First Closing Date, and
certifying, among other things, to the fulfillment of the conditions specified
in Sections 5.1(a) and 5.1(b) of this Agreement.
(d) State Securities Laws. The Company shall have obtained all
necessary state securities law permits and qualifications, or have the
availability of exemptions therefrom, required by any state for the offer and
sale of the Series C Preferred and the Common Stock issuable upon conversion of
the Series C Preferred.
(e) Restated Articles of Incorporation. The Restated Articles shall
have been filed with the California Secretary of State.
(f) Legal Matters. All material matters of a legal nature which
pertain to this Agreement, and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Purchaser.
(g) Opinion of Counsel. The Company shall have delivered to the
Purchaser an opinion of counsel in the form attached hereto as Exhibit E.
(h) Modification Agreement. Concurrently with the First Closing,
all persons with both registration rights and rights of first refusal prior to
the Closing will execute a Modification Agreement attached hereto as Exhibit F
(the "Modification
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Agreement") agreeing to, among other things, the provisions of Sections 8, 9 and
11.4 hereof.
(i) Development Agreement. The Company and Purchaser shall have
executed a Development Agreement substantially in the form of Exhibit G.
(j) License Agreement. The Company and the Purchaser shall have
executed a License Agreement in substantially the form of Exhibit H.
5.2 SECOND CLOSING. The Purchaser's obligations to purchase the Shares
at the Second Closing are, at the option of the Purchaser, subject only to the
fulfillment of the following conditions:
(a) Representations and Warranties at First Closing Date. The
representations and warranties made by the Company in Section 3 hereof shall be
true and correct in all material respects as of the First Closing Date.
(b) Representations and Warranties at Second Closing. The
representations and warranties made by the Company in the following Sections (or
portions thereof) shall be true and correct in all material respects as of the
Second Closing Date: 3.1, 3.2, 3.5, 3.12, 3.13, the third sentence of Section
3.6, the first sentence of Section 3.7 and the first and third sentences of
Section 3.8.
(c) Compliance Certificate. The Company shall have delivered to
Purchaser a certificate of the Company executed by the Chief Financial Officer
of the Company, dated the Second Closing Date, and certifying to the fulfillment
of the conditions specified in Sections 5.2(a) and 5.2(b).
(d) No Bankruptcy Proceedings. As of the Second Closing, the
Company shall not have (i) ceased the conduct of its business, (ii) had
appointed a receiver, custodian, trustee or liquidator for a substantial portion
of its assets for the purpose of satisfying creditor claims, (iii) made a
general assignment for the benefit of its creditors, (iv) be the subject of a
voluntary case under the United Stated Bankruptcy Code; or (v) have pending a
voluntary or involuntary petition under any law pertaining to the bankruptcy or
insolvency of the Company for the purposes of satisfying creditor claims;
provided that if an involuntary petition against the Company as described in
clause (v) is dismissed within ninety (90) days after the Second Closing Date,
such condition shall be deemed to be satisfied.
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SECTION 6
CONDITIONS TO CLOSING OF COMPANY
6.1 FIRST CLOSING. The Company's obligation to sell and issue the
Shares at the First Closing Date is, at the option of the Company, subject to
the fulfillment as of the First Closing Date of the following conditions:
(a) Representations. The representations made by the Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the First Closing Date.
(b) State Securities Laws. The Company shall have obtained all
necessary state securities law permits and qualifications, or have the
availability of exemptions therefrom, required by any state for the offer and
sale of the Series C Preferred and the Common Stock issuable upon conversion of
the Series C Preferred.
(c) Restated Articles of Incorporation. The Restated Articles shall
have been filed with the California Secretary of State.
(d) Legal Matters. All material matters of a legal nature which
pertain to this Agreement, and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
(e) Modification Agreement. Concurrently with the Closing, all
persons with both registration rights and rights of first refusal prior to the
Closing will execute the Modification Agreement attached hereto as Exhibit F
agreeing to, among other things, the provisions of Sections 8, 9 and 11.4
hereof.
(f) Development Agreement. The Company and Purchaser shall have
executed a Development Agreement substantially in the form of Exhibit G.
(g) License Agreement. The Company and the Purchaser shall have
executed a License Agreement in substantially the form of Exhibit H.
(h) Standstill Agreement. The Company and the Purchaser shall have
executed a Standstill Agreement in substantially the form of Exhibit I.
6.2 SECOND CLOSING. The Company's obligation to sell and issue the
Shares at the Second Closing Date is, at the option of
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the Company, subject to the fulfillment as of the Second Closing Date of the
following conditions:
(a) First Closing. The First Closing shall have occurred.
(b) Representations. The representations made by the Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Second Closing Date.
(c) State Securities Laws. The Company shall have obtained all
necessary state securities law permits and qualifications, or have the
availability of exemptions therefrom, required by any state for the offer and
sale of the Series C Preferred and the Common Stock issuable upon conversion of
the Series C Preferred.
(d) Legal Matters. All material matters of a legal nature which
pertain to this Agreement, and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
SECTION 7
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
7.1 FINANCIAL INFORMATION. The Company will mail the following reports
to the Purchaser for so long as (i) Purchaser is a holder of any shares of
Series C Preferred or Common Stock issued upon conversion of the Series C
Preferred with respect to subparagraph (a) and (b) below, and (ii) Purchaser
is a holder of at least 500,000 shares of Series C Preferred and/or Common Stock
issued upon conversion of the Series C Preferred with respect to subparagraph
(c) below:
(a) As soon as practicable after the end of each fiscal year, and
in any event within 90 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited by independent public accountants of
national standing selected by the Company.
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(b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and in any
event within 45 days thereafter, a consolidated balance sheet of the Company and
its subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and consolidated statements of changes in
financial condition of the Company and its subsidiaries for such period and for
the current fiscal year to date, prepared in accordance with generally accepted
accounting principles (other than for accompanying notes), subject to changes
resulting from year-end audit adjustments, all in reasonable detail and signed
by the principal financial or accounting officer of the Company.
(c) As soon as practicable after the end of each month, and in any
event within 30 days thereafter, a consolidated balance sheet of the Company and
its subsidiaries, if any, as of the end of such month, and consolidated
statements of income for such month, prepared in accordance with generally
accepted accounting principles (other than for accompanying notes), subject to
changes resulting from year-end audit adjustments, all in reasonable detail and
signed by the principal financial or accounting officer of the Company and, as
soon as available after the end of each fiscal year, an annual budget for the
next succeeding fiscal year.
7.2 TERMINATION OF COVENANTS. The covenants set forth in Section 7.1
shall terminate and be of no further force or effect at the closing of a firm
commitment underwritten public offering of the Company's capital stock pursuant
to an effective registration statement under the Securities Act.
7.3 TRANSFER OF INFORMATION RIGHTS. The rights to cause the Company to
provide information as described in Section 7.1 above may be assigned to a
transferee or assignee reasonably acceptable to the Company in connection with
any transfer or assignment of Series C Preferred or Common Stock issued upon
conversion of such Series C Preferred, provided that such assignee or transferee
(i) acquires at least 50,000 shares of such securities or all such securities
held by such transferror, or (ii) receives such securities pursuant to a
distribution to beneficial owners without consideration.
7.4 PROPRIETARY INFORMATION AGREEMENTS. All employees of and
consultants to the Company having access to the Company's proprietary and
confidential information shall execute proprietary information agreements with
the Company containing substantive provisions substantially similar to those set
forth in Exhibit C hereto.
7.5 KEY MAN INSURANCE. The Company shall maintain a key-man insurance
policy on the life of Brent Constantz, with the Company
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designated as beneficiary, in the amount of $1,000,000. In addition, the Company
shall maintain a key-man life insurance policy on the life of Donald Caddes, in
such amount as the Board of Directors of the Company determines it is
appropriate.
7.6 BOARD OF DIRECTORS. Subject to Section 10.2 as long as Purchaser
continues to hold at least 80% of the total Series C Preferred Stock purchased
at the First Closing, and the Second Closing, Purchaser shall be entitled to
elect a member of the Board of Directors of the Company, which member shall be
reasonably acceptable to the Company. In the event that the Board member is not
present at a board meeting or if Purchaser chooses not to elect a member of the
Board of Directors, Purchaser shall be entitled to receive notice of such
meetings and to have a representative of Purchaser observe such meetings, which
observer shall be reasonably acceptable to the Company. Purchaser acknowledges
that the rights granted herein shall be subject to the Board's fiduciary
obligations relating to confidentiality and conflicts of interest.
SECTION 8
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS
8.1 RESTRICTIONS ON TRANSFERABILITY. The Series A Preferred, Series B
Preferred, and Series C Preferred and the Conversion Stock (as defined below)
shall not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 8, which conditions are intended to ensure compliance
with the provisions of the Securities Act. Purchaser will cause any proposed
purchaser, assignee, transferee, or pledgee of the Series C Preferred or the
Conversion Stock held by a Purchaser to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Section 8.
8.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Conversion Stock" means the Common Stock issued or issuable
pursuant to conversion of the Series A Preferred, the Series B Preferred, and
the Series C Preferred.
"Holder" shall mean any holder of Registrable Securities and any
person holding Registrable Securities to whom the rights
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under this Section 8 have been transferred in accordance with Section 8.13
hereof.
"Initiating Holders" shall mean any Holders who in the aggregate
are Holders of at least 40% of the Registrable Securities.
"Registrable Securities" means (i) the Conversion Stock; and (ii)
any Common Stock of the Company issued or issuable in respect of the Conversion
Stock or other securities issued or issuable pursuant to the conversion of the
Series A Preferred, Series B Preferred, or Series C Preferred upon any stock
split, stock dividend, recapitalization, or similar event, or any Common Stock
otherwise issued or issuable with respect to such securities; provided, however,
that shares of Common Stock or other securities shall only be treated as
Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) transferred without concurrent transfer of
registration rights pursuant to Section 8.13.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 8.5, 8.6 and 8.7 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company and exclusive of
underwriting discounts and commissions and exclusive of legal fees and expenses
for counsel to the Holders).
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 8.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
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8.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Series A
Preferred, Series B Preferred and Series C Preferred, (ii) the Conversion Stock
and (iii) any other securities issued in respect of the Series A Preferred,
Series B Preferred, Series C Preferred or the Conversion Stock upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 8.4 below) be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT"). SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH SALE OR TRANSFER
COMPLIES WITH THE PROVISIONS OF RULE 144 UNDER THE ACT IN THE
OPINION OF COUNSEL TO THE COMPANY OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE ACT. COPIES OF THE AGREEMENT COVERING
THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
Each Purchaser and Holder consents to the Company making a notation
on its records and giving instructions to any transfer agent of the Series A
Preferred, Series B Preferred, Series C Preferred or the Conversion Stock in
order to implement the restrictions on transfer established in this Section 8.
Any legend endorsed on a certificate as described above shall be
removed and the Company shall issue a certificate without such legend to the
holder of such security if such security is registered under the Securities Act
or if a notification under Regulation A of the Securities Act is in effect with
respect thereto, or if such security may be sold under Rule 144(k) of the
Commission under the Securities Act.
8.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to
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the Company of such holder's intention to effect such transfer, sale, assignment
or pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, except in the case of (i) a transfer not involving a change in
beneficial ownership, (ii) a transfer which complies with the provisions of Rule
144 under the Securities Act in the opinion of counsel to the Company, or (iii)
in transactions involving the distribution without consideration of Restricted
Securities by any of the Purchasers to any of its partners, retired partners, or
to the estate of any of its partners or retired partners, or to such holder's
spouse, siblings, spouse of such siblings, ancestors and descendants and any
trust established solely for such holder's benefit or for the benefit of such
holder's spouse, siblings, ancestors and/or descendants, at such holder's
expense by either (i) a written opinion of legal counsel who shall be, and whose
legal opinion shall be, reasonably satisfactory to the Company addressed to the
Company, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act or (ii) a "no
action" letter from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
8.3 above, except that such certificate shall not bear such restrictive legend
if in the opinion of counsel for such holder and the Company such legend is not
required in order to establish compliance with any provision of the Securities
Act.
8.5 REQUESTED REGISTRATION.
(a) Request for Registration. In case the Company shall receive
from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to such Initiating
Holders' Registrable Securities where the reasonably anticipated aggregate
offering price to the public, net of underwriting discounts and commissions,
would exceed $2,500,000, the Company shall:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue
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sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within 20 days
after receipt of such written notice from the Company;
Provided, however, that the Company shall not be obligated to file a
registration statement to effect any such registration, qualification or
compliance pursuant to this Section 8.5:
(A) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(B) Prior to six months after the effective date of the
Company's first registered public offering of its stock;
(C) Starting on a date sixty (60) days prior to and ending on a
date six months immediately following the effective date of any registration
statement pertaining to the securities of the Company (other than a registration
of securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(D) After (i) the Company has effected two such registrations
pursuant to this Section 8.5 and (ii) such registrations have been declared or
ordered effective; or
(E) If the Company shall furnish to such Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its shareholders for a registration statement to be filed in the near future,
then the Company's obligation to use its best efforts to register, qualify or
comply under this Section 8.5 shall be deferred for a period not to exceed 120
days from the date of receipt of written request from the Initiating Holders.
Subject to the foregoing clauses (A) through (E), the Company shall
file a registration statement covering the Registrable
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Securities so requested to be registered as soon as practicable, after receipt
of the request or requests of the Initiating Holders.
(b) Underwriting. In the event that the Initiating Holders specify
that a registration pursuant to Section 8.5 is for a registered public offering
involving an underwriting, the Company shall so advise the Holders as part of
the notice given pursuant to Section 8.5(a)(i). In such event, the right of any
Holder to registration pursuant to Section 8.5 shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
8.5, and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter of nationally recognized
standing selected for such underwriting by a majority in interest of the
Initiating Holders, but subject to the Company's reasonable approval.
Notwithstanding any other provision of this Section 8.5, if the managing
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all holders of Registrable Securities who have elected
to participate in such offering and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 120 days after the effective date
of such registration, or such other shorter period of time as the underwriters
may permit. If by the withdrawal of such Registrable Securities a greater number
of Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation then imposed by the
underwriters), then the Company shall offer to all Holders, if any, whose shares
have been excluded from the registration by the terms of this paragraph, the
right to include additional Registrable Securities in the same proportion used
in determining the underwriter limita-
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<PAGE> 25
tion in this Section 8.5(b) up to the limitation then imposed by the
Underwriters.
8.6 COMPANY REGISTRATION.
(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction or (iii) a registration in
which the only Common Stock being registered is Common Stock issuable upon
conversion of convertible debt securities which are also being registered, the
Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 15 days after receipt of such written notice from the
Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 8.6(a)(i). In such event the right of any Holder to
registration pursuant to Section 8.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein.
All Holders proposing to distribute their securities through
such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. If the managing underwriter determines
that marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may exclude some or all Registrable Securities
from such registration and underwriting. Any such exclusion shall apply pro rata
to all Holders, but the foregoing shall not be interpreted to require any
cutback in the number of shares to be sold by the Company in such an offering.
Notwithstanding the above, in the event of an offering other than the Company's
initial public offering, the number of Registrable Securities included in such
offering shall not be reduced to less than 30% of the shares to be offered in
such offering.
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The Company shall advise all Holders and other holders
distributing their securities through such underwriting of any such limitation,
and the number of shares of Registrable Securities and other securities that may
be included in the registration and underwriting shall be allocated among all
Holders and such other holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders and such other
holders at the time of filing the registration statement. If any Holder or
holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 120 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require. If by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other Holders may be included
in such registration (up to the maximum of any limitation then imposed by the
underwriters), then the Company shall offer to all Holders, if any, whose shares
have been excluded from the registration by the terms of this paragraph, the
right to include additional Registrable Securities in the same proportion used
in determining the underwriter limitation in this Section up to the limitation
then imposed by the Underwriters.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 8.6 prior to the effectiveness of such registration whether or not any
Holder elected to include securities in such registration.
8.7 REGISTRATION ON FORM S-3.
(a) If a Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $1,000,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than two registrations pursuant to this
Section 8.7. The substantive provisions of Section 8.5(b) shall be applicable to
each registration initiated under this Section 8.7. The Company shall give
notice to all Holders of Registrable Securities of the
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<PAGE> 27
receipt of a request for registration pursuant to this Section 8.7 and shall
provide a reasonable opportunity for other Holders to participate in the
registration.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to file a registration statement pursuant to this Section 8.7:
(i) in any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(ii) if the Company, within ten (10) days of the receipt of
the request of the initiating Holders, gives notice of its bona fide intention
to effect the filing of a registration statement with the Commission within
ninety (90) days of receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction or an offering solely
to employees);
(iii) starting with a date sixty (60) days prior to, and ending
on a date six months immediately following, the effective date of any
registration statement pertaining to the securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective;
(iv) if the shares proposed to be sold can be sold pursuant to
Rule 144 within a three month period of the date of the request for a
registration under this Section 8.7; or
(v) if the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed 120 days
from the receipt of the request to file such registration by such Holder.
8.8 EXPENSES OF REGISTRATION.
(a) All Registration Expenses incurred in connection with all
registrations pursuant to Sections 8.5 and 8.6 shall be borne by the Company.
Unless otherwise stated, all Selling
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Expenses relating to securities registered on behalf of the Holders and all
other Registration Expenses shall be borne by the Holders of such securities pro
rata on the basis of the number of shares so registered. In the event that the
Company elects to register Registrable Securities under Section 8.5 on a Form
S-3, all Registration Expenses incurred in connection with such registration
shall be borne by the Company.
(b) All Registration Expenses and Selling Expenses incurred in
connection with a registration pursuant to Section 8.7 shall be borne pro rata
by the Holder or Holders participating in the registration according to the
number of Registrable Securities included in such registration.
8.9 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 8,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof, including any stop order or other proceeding initiated with respect to
such offering. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least 120 days or
until the distribution described in the Registration Statement has been
completed, whichever first occurs; and
(b) Furnish to the Holders participating in such registration such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such Holders may
reasonably request.
8.10 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers
and directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 8, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or
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<PAGE> 29
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Company of the Securities Act or any state securities law or
any rule or regulation promulgated thereunder applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by any Holder, controlling person or underwriter and stated to be
specifically for use therein; provided, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement, alleged untrue statement, omission or alleged omission made in
a preliminary prospectus on file with the Commission at the time the
registration statement becomes effective or the amended prospectus filed with
the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter or any Holder, if
there is no underwriter, if a copy of the Final Prospectus was not furnished to
the person asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Securities Act.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or
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<PAGE> 30
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged untrue
statement, omission or alleged omission made in a preliminary prospectus on file
with the Commission at the time the registration statement becomes effective or
in the Final Prospectus, such indemnity agreement shall not inure to the benefit
of any underwriter or any Holder, if there is no underwriter, if a copy of the
Final Prospectus was not furnished to the person asserting the loss, liability,
claim or damage at or prior to the time such action is required by the
Securities Act. Notwithstanding the foregoing, the liability of each Holder
under this subsection (b) shall be limited in an amount equal to the initial
public offering price of the shares sold by such Holder, unless such liability
arises out of or is based on willful conduct by such Holder.
(c) Each party entitled to indemnification under this Section 8.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and the
Indemnifying Party shall have the option to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 8 unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No claim may be settled without the consent of
the Indemnifying Party (which consent shall not be unreasonably withheld). No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
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<PAGE> 31
8.11 INFORMATION BY HOLDER. Each Holder holding Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Registrable Securities held by them and the distribution proposed
by such Holder as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 8.
8.12 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to 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, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements); and
(c) So long as a Purchaser owns any Restricted Securities, to
furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Securities Exchange Act of 1934 (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Purchaser may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Purchaser
to sell any such securities without registration.
8.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted Purchasers under Sections 8.5, 8.6 and 8.7 may be
assigned to a transferee or assignee reasonably acceptable to the Company in
connection with any transfer or assignment of Registrable Securities by a
Purchaser provided that: (i) such transfer may otherwise be effected in
accordance with applicable securities laws, (ii) such assignee or transferee
acquires at least 50,000 shares of Registrable Securi-
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ties, (iii) written notice is promptly given to the Company and (iv) such
transferee agrees to be bound by the provisions of this Section 8.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned to any constituent partner of a Purchaser or to such
Purchaser's spouse, siblings, spouse of such siblings, ancestors and descendants
and any trust established solely for such Purchaser's benefit or for the benefit
of such Purchaser's spouse, siblings, ancestors and/or descendants, without
compliance with item (ii) above, provided written notice thereof is promptly
given to the Company.
8.14 LOCKUP AGREEMENT. Each holder of Registrable Securities and each
transferee pursuant to Section 8 hereof agrees, in connection with any
registration of the Company's securities, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company or such
underwriter, as the case may be, for such period of time (not to exceed 120
days) from the effective date of such registration as the Company or the
underwriters may specify. The holders of Registrable Securities agree that the
Company may instruct its transfer agent to place stop-transfer notations in its
records to enforce the provisions of this Section 8.14.
SECTION 9
RIGHT OF FIRST REFUSAL
9.1 RIGHT OF FIRST REFUSAL. The Company hereby grants to each holder
of Series A Preferred, Series B Preferred and Series C Preferred (collectively,
the "Rights Holders") the right of first refusal to purchase, pro rata, a
portion of "New Securities" (as defined in this Section 9.1) that the Company
may, from time to time, propose to sell and issue. Each Rights Holder's pro rata
share, for purposes of this right of first refusal, is the ratio of (X) the
number of shares of Common Stock owned or issuable upon the conversion of the
Series A Preferred, Series B Preferred and/or Series C Preferred owned by such
Rights Holder immediately after the last Closing pursuant to this Agreement to
(Y) the total number of shares of Common Stock outstanding or issuable upon the
conversion of all outstanding Series A Preferred, Series B Preferred and Series
C Preferred immediately after the last Closing pursuant to this Agreement,
provided, however, that notwithstanding any other provision of this Section 9.1,
in no event shall this right of first refusal permit a Purchaser to purchase a
number of shares which would result in such Purchaser's percentage equity
interest in the Company after such issuance of New Securities being in
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excess of the percentage equity interest of the Purchaser in the Company
immediately after the last Closing pursuant to this Agreement. This right of
first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any Common Stock and Preferred
Stock of the Company whether or not authorized on the date hereof, and rights,
options, or warrants to purchase such Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into said
Common Stock or Preferred Stock; provided, however, that "New Securities" does
not include the following:
(i) up to 2,000,000 shares of Common Stock, or options to
purchase shares of Common Stock, issued or granted to officers, directors,
employees, consultants and Scientific Advisory Board members of the Company
pursuant to stock and option plans or arrangements approved by the Board of
Directors;
(ii) shares of Common Stock issuable upon conversion of any of
the Company's Series A Preferred, Series B Preferred or Series C Preferred;
(iii) securities of the Company offered to the public pursuant
to a registration statement filed under the Securities Act;
(iv) securities of the Company issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization whereby the Company
owns not less than fifty-one percent (51%) of the voting power of such other
corporation;
(v) shares of Common Stock or Preferred Stock issued in
connection with any stock split, stock dividend, or recapitalization by the
Company; or
(vi) the shares of Series C Preferred issued pursuant to this
Agreement.
(b) In the event that the Company proposes to undertake an issuance
of New Securities, it shall give each Rights Holder written notice of its
intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. Each Rights Holder
shall have ten (10) business days from the date such notice is given to agree to
purchase its pro rata share of such New Securities at the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
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<PAGE> 34
(c) In the event that the Rights Holders' aggregate pro rata
exercised portion is less than the amount of New Securities proposed to be
issued in the notice referred to above, the Company shall have sixty (60) days
thereafter to sell (or enter into an agreement pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, within thirty (30) days
from the date of such agreement) with the New Securities respecting which the
Rights Holders' rights were not exercised at a price and upon general terms no
more favorable to the purchasers thereof than specified in the Company's notice.
In the event the Company has not sold the New Securities within such sixty (60)
day period (or sold and issued New Securities in accordance with the foregoing
within thirty (30) days from the date of such agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such New
Securities to the Rights Holders in the manner provided above.
(d) The right of first refusal granted under this Agreement shall
expire upon the closing of the Company's initial public offering pursuant to a
registration statement filed and declared effective under the Securities Act.
(e) This right of first refusal is nonassignable.
(f) This right of first refusal shall not apply to Rights Holders
who no longer own any shares of Series A Preferred, Series B Preferred, Series C
Preferred or Common Stock issuable upon conversion thereof as of the date of the
notice referred to above.
SECTION 10
RIGHT OF FIRST NEGOTIATION
10.1 RIGHT OF FIRST NEGOTIATION. In the event the Board of Directors of
the Company shall decide to commence discussions with any party with respect to
the sale of the Company whether through merger, stock exchange or sale of all or
substantially all of its assets (a "Transaction"), the Company shall promptly
provide Purchaser with notice of such decision in writing and shall negotiate
with Purchaser with respect to such Transaction for a period not to exceed 60
days from the date of notice to Purchaser, provided, however, that during such
period the Company shall not be precluded from concurrently negotiating with
respect to such Transaction with any third party. In the event that Purchaser
and the Company do not reach a written agreement in principle (subject to
necessary corporate approvals) with respect to the major terms of such
Transaction within such 60 day period, or in the event a Transaction is not
consummated within 60 days from the date a written
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agreement in principle is reached, the Company shall be free to consummate any
Transaction it deems appropriate without further obligation or notice to
Purchaser.
10.2 TERMINATION OF RIGHTS. The rights provided in Sections 7.6 and
10.1 hereof shall terminate (i) in the event Purchaser does not purchase the
additional shares of Preferred Stock (whether at the election of the Purchaser
or the Company) pursuant to Section 2.3 above (ii) in the event the exclusive
license granted by the Company pursuant to the License Agreement becomes
non-exclusive, (iii) upon termination of the License Agreement, or (iv) upon the
consummation of a Transaction (as defined in Section 10.1).
SECTION 11
MISCELLANEOUS
11.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of California.
11.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Purchaser and the
closing of the transactions contemplated hereby.
11.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided, however, that the rights of a Purchaser to purchase the Series C
Preferred shall not be assignable without the consent of the Company.
11.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought; provided, however, that (i) holders
of a majority of the Common Stock issued or issuable upon conversion of the
Series C Preferred may, with the Company's prior written consent, waive, modify
or amend on behalf of all such holders, any provisions hereof other than the
provisions of Sections 8, 9 and clause (ii) of this Section 11.4 hereof, and
(ii) holders of a majority of the Common Stock issued or issuable upon
conversion of the Series A Preferred,
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Series B Preferred and Series C Preferred may, with the Company's prior written
consent, waive, modify or amend on behalf of all such holders, the provisions of
Sections 8, 9 and clause (ii) of this Section 11.4 hereof.
11.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to Purchaser, at Purchaser's address set forth on the cover
page of this Agreement, or at such other address as Purchaser shall have
furnished to the Company in writing, or (b) if to any other holder of any
Shares, at such address as such holder shall have furnished the Company in
writing, or, until any such holder so furnishes an address to the Company, then
to and at the address of the last holder of such Shares who has so furnished an
address to the Company, or (c) if to the Company, at its address set forth on
the cover page of this Agreement and addressed to the attention of the Corporate
Secretary, or at such other address as the Company shall have furnished in
writing to the Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.
11.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement (including said party's successors and assigns as defined in Section
10.3) upon any breach or default of any other party to this Agreement (including
said party's successors and assigns as defined in Section 10.3) under this
Agreement, shall impair any such right, power or remedy of such party, nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
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11.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
11.8 EXPENSES. The Company and Purchaser each shall bear its own
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
11.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
11.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
11.11 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
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<PAGE> 38
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY" NORIAN CORPORATION,
a California corporation
By: ________________________________
Donald E. Caddes, President
"PURCHASER" PFIZER HOSPITAL PRODUCTS GROUP, INC.
____________________________________
(Signature)
____________________________________
(Print name and title of signatory,
if applicable)
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<PAGE> 1
EXHIBIT 10.7
EXCLUSIVE MARKETING AGREEMENT
<PAGE> 2
EXCLUSIVE MARKETING AGREEMENT
This EXCLUSIVE MARKETING AGREEMENT (the "Agreement"), effective as of
April 15, 1996 (the "Effective Date"), is made by and between Norian
Corporation, a California corporation having offices at 10260 Bubb Road,
Cupertino, California 95014-4166 ("Norian"), and Mochida Pharmaceutical Co.,
Ltd., a corporation organized under the laws of Japan having offices at 7,
Yotsuya 1-chome, Shinjuku-ku, Tokyo 160, Japan ("Mochida").
BACKGROUND
A. Norian is developing certain cementing biomaterials and
related delivery systems.
B. Norian and Mochida desire that Mochida perform clinical
development activities in Japan with respect to such biomaterials and related
delivery systems.
C. Norian desires to grant Mochida the exclusive right to market,
sell and distribute such biomaterials and related delivery systems in Japan and
Mochida desires to accept such grant, on the terms and conditions set forth
below.
NOW THEREFORE, for and in consideration of the covenants, conditions,
and undertakings hereinafter set forth, it is agreed by and between the parties
as follows:
ARTICLE 1
DEFINITIONS
1.1 "Affiliate" shall mean any entity which controls, is
controlled by or is under common control with Mochida or Norian. An entity
shall be regarded as in control of another entity for purposes of this
definition if it owns or controls more than fifty percent (50%) of the shares
of the subject entity entitled to vote in the election of directors (or, in the
case of an entity that is not a corporation, for the election of the
corresponding managing authority).
1.2 "Cementing" shall mean the hardening of a biomaterial in situ.
1.3 "Clinical Development" shall mean all clinical trials,
preclinical studies and all other activities reasonably required to obtain and
maintain all governmental approvals required to market a Product for use within
the Field in Japan.
1.4 "Delivery/Nonbiomaterial Components" shall mean, collectively
and individually, components selected by Norian for incorporation into the
Products, which in each case were developed for use in the mixing or local
delivery of the biomaterial component of Products, including without limitation
mixers, injection guns, delivery nozzles, and delivery needles.
<PAGE> 3
1.5 "Education Programs" shall mean programs conducted by surgeons
directed toward other surgeons to educate such other surgeons in orthopaedic
science and surgical principles specific to the clinical attributes of the
Products.
1.6 "Europe" shall mean those countries which are members of the
European Union.
1.7 "Field" shall mean all applications other than veterinary,
dental, and periodontal applications. As used herein, it is understood that
"dental" and "periodontal" applications shall include without limitation all
procedures in the oral cavity or performed by dentists, dental implantologists,
periodontists, or similar specialists.
1.8 "Joint Development Committee" shall have the meaning set forth
in the provisions of Article 2 below.
1.9 "Marketing Approval Application" shall mean any application
with a governmental regulatory agency for authority to market a Product within
Japan, including without limitation an import approval application ("yunyu
shonin shinsei"), import license application ("yunyu kyoka shinsei"), or other
similar application or filing.
1.10 "Net Sales" shall mean the total amounts invoiced by Mochida
or its Affiliates to third parties upon sales of the Products, less the
following reasonable and customary deductions to the extent applicable to such
invoiced amounts: (i) trade and cash discounts; (ii) amounts for claims,
allowances or credits for Product returns; (iii) prepaid freight and sales
taxes, in each case if charged separately on the invoice and paid by the
customer. A "sale" shall include a transfer or other disposition for
consideration other than cash, in which case such consideration shall be valued
at the fair market value thereof.
1.11 "New Products" shall mean new Norian calcium phosphate
Cementing biomaterials other than the Products; provided that Norian has the
right to grant the rights set forth herein to Mochida with respect to such
biomaterials, and further provided that such biomaterials are specifically
intended by Norian for use within the Field.
1.12 "Norian Applications" shall mean any and all applications of a
Product for which Norian elects to conduct clinical development or otherwise
promote or distribute such Product in any country of North America or Europe,
or for which Norian has developed Education Programs and/or Training Programs,
from time to time during the term of this Agreement. The Norian Applications
existing as of the Effective Date include those applications set forth in
Exhibit E.
1.13 "North America" shall mean the United States, Canada, and
Mexico.
1.14 "Production Costs" with respect to units of a Product shall
mean Norian's fully burdened direct and indirect costs associated with the
manufacture and/or preparation of such Product, including without limitation
the costs of facilities, equipment, management time, general and administrative
expenses, inventory costs, other overhead, materials and validation studies,
and packaging and labeling
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<PAGE> 4
costs, calculated in accordance with cost accounting procedures generally
accepted in the United States, and with respect to units or portions acquired
from a non-Affiliate vendor, the amounts paid to the vendor plus costs
associated with acquisition from such vendor, in each case including without
limitation freight, insurance, shipping, packaging and other similar costs
associated with acquiring such portions or units for delivery to Mochida's
destination point. Production Costs shall also include royalties or other
consideration payable to non-Affiliate third parties with respect to the
manufacture, sale or use of Products.
1.15 "Products" shall mean, collectively and individually, Norian's
calcium phosphate Cementing biomaterials and Delivery/Nonbiomaterial
Components known collectively within Norian as the Norian Skeletal Repair
System (SRS), in each case as defined in Norian's Investigational Device
Exemption filed with the U.S. Food and Drug Administration prior to the
Effective Date and supplements thereto, or a Pre-Market Approval (PMA) received
from the FDA with respect to the foregoing Investigational Device Exemption and
supplements to such PMA, to the extent such biomaterials and
Delivery/Nonbiomaterial Components are specifically intended for use within the
Field and with respect to technology acquired by Norian after the Effective
Date, to the extent Norian has the right to include the same hereunder. It is
understood that Products, and/or any component thereof, may be changed,
substituted or added to by Norian to the extent such changes do not require
modifications or changes to a Market Approval Application for a Product
approved by the Ministry of Health and Welfare in Japan to market and
distribute such Product in Japan, upon ninety (90) days prior written notice to
Mochida. If a change to a Product requires modifications or changes to a
Market Approval Application for such Product approved by the Ministry of Health
and Welfare in Japan, the Joint Development Committee shall consult in good
faith and determine a reasonable transition period with respect to
implementation of such Product change in Japan.
1.16 "Reimbursement Price" shall mean the reimbursement price
assigned by the Ministry of Health and Welfare for the Products or, prior to
establishment of a reimbursement price by the Ministry of Health and Welfare,
the provisional price established by competent authorities on a
prefecture-by-prefecture basis in Japan for the Products. It is understood and
agreed that if no such reimbursement price or provisional price is established
for the Products, or if the actual Net Sales price of a Product is higher than
such reimbursement price or provisional price, then the "Reimbursement Price"
shall be the Net Sales price charged for the Products.
1.17 "Subdistributor" shall mean, with respect to a particular
Product, a third party, including a wholesaler, who has obtained through
Mochida directly or indirectly the right to distribute, but not to actively
promote or market such Product.
1.18 "Training Programs" shall mean programs conducted by Mochida
in specific technical aspects relating to surgical techniques and procedures
specific to the use of the Products, which training is provided to all product
managers, clinical trial teams, medical representatives and medical
professionals, and other participants in Clinical Development or
commercialization of the Products, both within and outside of Mochida.
-3-
<PAGE> 5
ARTICLE 2
JOINT DEVELOPMENT COMMITTEE
2.1 Joint Development Committee. Mochida and Norian shall
establish a joint development committee to oversee, review and coordinate the
conduct of Clinical Development of Products and to review and approve research
programs, if any, with respect to the Products ("Joint Development Committee").
2.2 Membership. The Joint Development Committee shall be
comprised of an equal number of representatives from each of Mochida and
Norian, selected by such party. The exact number of such representatives shall
be three (3) for Mochida and three (3) for Norian. Each of Norian and Mochida
shall at all times have at least one representative on the Joint Development
Committee at the Vice President level or above for Norian and at the Managing
Director level or above for Mochida. Subject to the foregoing provisions of
this Section 2.2, Norian and Mochida each may replace its Joint Development
Committee representatives at any time, with prior written notice to the other
parties.
2.3 Joint Development Committee Meetings. During the term of this
Agreement, the Joint Development Committee shall meet quarterly during the
first year of this Agreement and every six months thereafter, or as otherwise
agreed by the parties, at such locations as the parties agree. At its
meetings, the Joint Development Committee will monitor the Clinical Development
of the Products. With the consent of Norian and Mochida, other representatives
of Norian or Mochida may attend Joint Development Committee meetings as
non-voting observers. Norian's lead representative shall chair meetings of the
Joint Development Committee and shall be responsible for preparing the meeting
agendas and minutes. Such minutes shall be deemed accepted and effective if
and when authorized representatives of each party have signed the same. Each
party shall bear its own personnel and travel costs and expenses relating to
Joint Development Committee meetings.
2.4 Decision Making. Decisions of the Joint Development Committee
shall be made by majority approval.
ARTICLE 3
CLINICAL DEVELOPMENT
3.1 Clinical Development. Mochida shall be responsible
for conducting all Clinical Development with respect to Products, [CONFIDENTIAL
INFORMATION REDACTED], in accordance with protocols supplied by Norian, or if
the Joint Development Committee mutually approves an alternative or
supplemental protocol, in accordance with such alternative or supplemental
protocols. Accordingly, it is understood that all protocols used in Clinical
Development of Products or Norian Applications shall be Japanese translations
of those supplied by Norian (translated at Mochida's expense) modified to the
extent required to comply with Japanese laws and regulations, it being
understood that Norian shall not unreasonably withhold its consent to
modifications to the Norian protocols which incorporate additional end points
or accommodate adopted standards of the Japanese Orthopaedic
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<PAGE> 6
Association. If Mochida desires to pursue Clinical Development of one or more
applications of Products other than the Norian Applications, Mochida shall
submit the proposed application to the Joint Development Committee for review
and approval, and if the Joint Development Committee mutually approves the
incorporation of such application under the Clinical Development, the protocols
used in Clinical Development of such application shall be prepared by Mochida
and submitted to the Joint Development Committee for review and approval prior
to initiation of any such Clinical Development and submission of product
registration plans and applications for marketing approval for Products with
any health regulatory agency. Norian shall be consulted and informed with
respect to Clinical Development through its representatives on the Joint
Development Committee. It is understood and agreed that except as otherwise
expressly agreed in writing, [CONFIDENTIAL INFORMATION REDACTED] pre-clinical
or clinical studies or other portions of the Clinical Development. Norian
shall supply Mochida with Products for use in clinical trials in accordance
with the Japanese Pharmaceutical Affairs Law and Good Clinical Practice (GCP)
standards prevailing in Japan, to the extent Mochida communicates such legal
and standards requirements to Norian in writing in advance.
3.2 Regulatory Filings.
(a) Mochida shall prepare and file all regulatory
documents in Mochida's name with respect to Products. Norian shall have the
right to obtain copies directly from Mochida of, and to reference or authorize
third parties to reference, for any purpose, any and all regulatory filings
made by Mochida with respect to Products.
(b) All product registration plans and applications for
marketing approvals (including Marketing Approval Applications filed with the
Ministry of Health and Welfare, and similar applications, including
applications for pricing approval and governmental reimbursement authorization,
to be filed in Japan) for Products shall be submitted to the Joint Development
Committee for review and approval by the Joint Development Committee prior to
filing of such registrations with any health regulatory agency.
(c) Upon Norian's written request, Norian may visit the
clinical trial sites at which Mochida is conducting Clinical Development to
review the Clinical Development activities being performed at such clinical
trial site, including without limitation the clinical data and other documents
relating to the performance of the Clinical Development. Mochida agrees not to
conduct any clinical testing involving the Products except in accordance with
protocols described in Section 3.1 above.
ARTICLE 4
MILESTONE PAYMENTS
4.1 Initial Fee. Mochida shall make a nonrefundable and
noncreditable payment to Norian in the amount of Two Million Dollars
($2,000,000) within ten (10) days after the Effective Date.
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<PAGE> 7
4.2 Product Milestones. Mochida shall make the following payments
to Norian upon the first occurrence of each milestone specified below:
<TABLE>
<CAPTION>
PRODUCT MILESTONES PAYMENT
<S> <C> <C>
1. [CONFIDENTIAL INFORMATION REDACTED] FOR A PRODUCT IN U.S.$2,000,000
JAPAN, [CONFIDENTIAL INFORMATION REDACTED].
2. [CONFIDENTIAL INFORMATION REDACTED] FOR A PRODUCT U.S.$2,000,000
IN JAPAN, [CONFIDENTIAL INFORMATION REDACTED].
3. [CONFIDENTIAL INFORMATION REDACTED] IN JAPAN, U.S.$2,000,000
[CONFIDENTIAL INFORMATION REDACTED].
</TABLE>
4.3 Other. Norian and Mochida agree to promptly notify the other
in writing of its achievement of any milestone. If at the time a particular
milestone is achieved under Section 4.2, above, any prior milestones under
Section 4.2 have not been achieved with respect to a Product, the payments for
such prior milestones shall then be due. The payments set forth in Section 4.2
above shall each be due and payable within fifteen (15) days after the
occurrence of the milestone event. If the parties do not agree upon the
definition or achievement of a particular milestone set forth above, the matter
shall be settled by arbitration pursuant to Section 20.2 below. It is
understood that milestones shall be payable on achievement of milestones for
Products incorporating biomaterial and not for milestones achieved solely for
nonbiomaterial components of Products.
ARTICLE 5
RECORDKEEPING; PUBLICATION
5.1 Records. Mochida shall maintain records of the Clinical
Development (or cause such records to be maintained) in sufficient detail and
in good scientific manner as will properly reflect all work done and results
achieved in the performance of the Clinical Development (including all data in
the form required under any applicable governmental regulations). Subject to
confidentiality provisions reasonably acceptable to Mochida and Norian, upon
Norian's request, Mochida shall allow Norian to have prompt access to all
records, materials and data generated with respect to each Product during
Mochida's normal business hours at times mutually agreed upon by Norian and
Mochida and in a reasonable manner. The parties will endeavor to minimize
disruption of Mochida's normal business activities to the extent reasonably
practicable.
5.2 Reports. Mochida shall periodically provide the Joint
Development Committee with a written report summarizing the progress of the
Clinical Development performed by Mochida with respect to each Product and
application of the Product for which Mochida is conducting Clinical Development
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<PAGE> 8
during the preceding calendar half-year. Unless otherwise agreed, such reports
shall be due semi-annually, by March 1 and September 1 of each calendar year.
ARTICLE 6
USE OF PRECLINICAL AND CLINICAL DATA
6.1 Exchange. Norian shall have access to any preclinical and/or
clinical data acquired and/or produced by or for Mochida with respect to
Products. Norian shall provide to Mochida such preclinical and clinical data
set forth in Exhibit F that Norian possesses and has the right to disclose to
Mochida which relates to the usefulness or disadvantage or side-effects of the
Products, to the extent such data is reasonably necessary or useful in
obtaining governmental approval to market Products in Japan. Norian shall
maintain the preclinical and/or clinical data in Exhibit F in good scientific
manner as will properly reflect all work done and results achieved in Norian's
prelinical studies and clinical trials with respect to the Products, and
Mochida shall maintain all preclinical and/or clinical data relating to the
Products in the same manner. Subject to the provisions of Section 15 below,
Norian shall allow Mochida to have prompt access to the materials set forth in
Exhibit F during Norian's normal business hours at times mutually agreed upon
by Norian and Mochida and in a reasonable manner. The parties will endeavor to
minimize disruption of Norian's normal business activities to the extent
reasonably practicable. Upon Mochida's written request, Norian further shall
provide to Mochida reprints of articles published by Norian's clinical
investigators pertaining to the Products. To the extent required for Mochida
to obtain governmental approval to market Products in Japan, Norian shall make
its manufacturing facilities for the Products available for inspection by the
Ministry of Health and Welfare upon reasonable written notice and during
Norian's normal business hours subject to confidentiality provisions reasonably
acceptable to the parties. Mochida will provide to Norian access to and copies
of all Market Approval Applications and other regulatory and governmental
filings made with respect to clinical trials and marketing approval in Japan
(including without limitation pricing approvals) with respect to each Product,
together with the underlying preclinical and clinical data, promptly after
submission to the Ministry of Health and Welfare and shall provide to Norian
copies of all correspondence with the Ministry of Health and Welfare with
respect to the Products promptly after receipt or submission thereof.
6.2 Disclosure. Norian may use, reference and provide copies of
regulatory and governmental filings, clinical data and/or preclinical data
("Data") made, developed or acquired by Mochida in accordance with this
Agreement relating to the Products, to third parties as is reasonably necessary
or useful for commercialization of any and all products outside Japan or as
required by law. Mochida will only use, reference and disclose Data relating
to the Products to third parties as required to obtain governmental approval to
market and distribute Products in Japan, or as required by law, and in each
case subject to Section 6.3 and Article 15 below. In all agreements with third
parties or Affiliates involving the development of Data for a Product, Mochida
shall require that such third parties and Affiliates provide Norian access to
all such Data. Norian will use good faith efforts during the term of the
Clinical Development to make available to Mochida for use with Products
comparable Data generated by Norian alone or jointly with others in developing
Products within the Field outside Japan. If Norian does not
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<PAGE> 9
obtain from a third party that is commercializing a Product outside Japan the
right to permit Mochida to use such comparable Data generated by the third
party for such Products for the purpose of obtaining governmental approval in
Japan to market and distribute the Products, Norian shall not disclose to such
third party the Data developed by Mochida under the Clinical Development
hereunder for such Product.
6.3 Review of Publication. As soon as is practicable prior to the
oral public disclosure, and prior to the submission to any outside person for
public dissemination of a manuscript describing the scientific data with
respect to Products generated in any stage of the Clinical Development, in each
case to the extent the contents of the oral disclosure or manuscript have not
been previously disclosed pursuant to this Section 6.3 before such proposed
disclosure, Mochida shall disclose to Norian the disclosure or manuscript to be
made or submitted, and shall allow Norian at least thirty (30) days to
determine whether such disclosure or manuscript contains subject matter for
which patent protection should be sought prior to publication or which Norian
reasonably believes should be modified to avoid (i) disclosure of information
of a confidential or proprietary nature, or (ii) regulatory or other similar
problems.
6.3.1 Publication Rights. After the expiration of thirty
(30) days from the date of mailing such disclosure or manuscript, unless
Mochida has received the written notice specified below, Mochida shall be free
to submit such manuscript for publication or to orally disclose or publish the
disclosed research results in any manner consistent with academic standards.
6.3.2 Delay of Publication. Prior to the expiration of the
thirty (30) day period specified in Section 6.3 above, Norian may notify
Mochida in writing of its determination that such oral presentation or
manuscript contains confidential or objectionable material or material that
consists of patentable subject matter for which patent protection should be
sought. If so notified, Mochida shall withhold its proposed public disclosure
and the parties shall mutually consult in good faith to determine the best
course of action to take in order to modify the disclosure or to obtain patent
protection. After resolution of the confidentiality, regulatory or other
issues, including without limitation the filing of a patent application, to
both parties' reasonable satisfaction Mochida shall be free to submit the
manuscript and/or make its public oral disclosure.
ARTICLE 7
MARKETING AND DISTRIBUTION RIGHTS
7.1 Appointment. Subject to the terms and conditions of this
Agreement, including without limitation the payment by Mochida to Norian of all
of the milestone payments set forth in Article 4, Norian hereby grants to
Mochida, the exclusive right under Norian's patents and know-how to market,
sell and distribute directly or indirectly the Products in Japan solely for use
within the Field. Mochida agrees not to market, promote or distribute any
Product for use outside the Field or outside Japan, or for an application other
than a Norian Application for which Norian and Mochida then have a Training
Program and an Education Program in place in Japan. Mochida further agrees not
to provide Products to any third party if Mochida knows or has reason to
believe that Products provided to such third party
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<PAGE> 10
have been sold for use or used outside the Field or outside Japan or by
personnel other than surgeons who have attended Education Programs in the
Norian Applications. Mochida may authorize Subdistributors to market, sell or
distribute any Product in accordance with this Section 7.1, provided that
Mochida provides Norian with prior written notice of the identity of the
Subdistributors, uses best efforts to ensure that such Subdistributors comply
with the provisions of this Agreement and ensures that a Mochida medical
representative supervises the activities of each Subdistributor.
7.2 Exclusivity of Efforts. Neither [CONFIDENTIAL INFORMATION
REDACTED] nor their [CONFIDENTIAL INFORMATION REDACTED] shall directly or
indirectly develop, market, sell or otherwise distribute any [CONFIDENTIAL
INFORMATION REDACTED] materials, technologies or products, or any other
[CONFIDENTIAL INFORMATION REDACTED], technologies or products, other than the
Products. In addition, except for the Products, Mochida shall not appoint or
license any third party to develop, market, sell or otherwise distribute any
[CONFIDENTIAL INFORMATION REDACTED] materials, technologies or products or any
other [CONFIDENTIAL INFORMATION REDACTED], technologies or products.
7.3 No Rights Beyond Products. Nothing in this Agreement shall be
deemed to grant to Mochida rights in products or technology other than the
Products; nor shall any provision of this Agreement be deemed to restrict
Norian's right to exploit Products, or patents or any other intellectual
property rights, outside the Field, outside Japan or in products other than
Products.
7.4 Sale Conveys No Right to Manufacture or Modify. The Products
are offered for sale and are sold by Norian subject in every case to the
condition that such sale does not convey any license, expressly or by
implication, to manufacture, modify, duplicate or otherwise copy or reproduce
any of the Products.
7.5 Conflicts of Interest. Mochida acknowledges that the price for
Products to be paid hereunder by Mochida to Norian will depend upon
Reimbursement Prices. Accordingly, Mochida agrees that neither Mochida nor any
of its Affiliates shall [CONFIDENTIAL INFORMATION REDACTED] a Product to a
greater degree than Mochida or such Affiliate generally [CONFIDENTIAL
INFORMATION REDACTED] of other products or services of Mochida or such
Affiliate to a third party. It is understood that the foregoing sentence
shall apply to negotiation of Reimbursement Prices as well as Net Sales
prices of Products.
ARTICLE 8
TERMS OF SALE
8.1 Terms and Conditions. All Product purchases hereunder shall
be subject to the terms and conditions of this Agreement. Nothing contained in
any purchase order submitted pursuant to this Agreement shall in any way modify
or add any terms or conditions to said purchases, unless otherwise agreed in
writing by the parties.
8.2 Product Supply. Subject to the terms and conditions of this
Article 8, Norian shall supply Mochida with all Mochida's commercial
requirements for Products in Japan during the term of this Agreement in
accordance with Good Manufacturing Practices as defined in the regulations
promulgated
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<PAGE> 11
under the U.S. Food and Drug Administration Food and Cosmetics Act for medical
devices, and Mochida shall exclusively purchase all such commercial
requirements from Norian.
8.3 Forecasts. At least one hundred eighty (180) days prior to
the first commercial sale of a Product in Japan, and at least sixty (60) days
prior to the first day of each calendar quarter for two (2) years after first
commercial sale of a Product, Mochida shall provide to Norian a good faith
rolling twelve (12) month forecast showing Mochida's prospective requirements
for the Products and anticipated purchase order submittal dates for the next
four (4) calendar quarters, in a format reasonably specified by Norian. Such
forecasts shall commence on the first day of the calendar quarter following
submission of the forecast to Norian. Thereafter, on a calendar monthly basis,
by the fifth (5th) day of each calendar month, Mochida shall provide to Norian
a good faith rolling twelve (12) month forecast showing Mochida's prospective
requirements for the Products and anticipated purchase order submittal dates
for the next twelve (12) months, which forecasts shall commence on the first
day of the calendar month following submission of the forecast to Norian (the
foregoing forecasts referred to collectively herein as "Forecasts"). Such
Forecasts are for Norian's planning purposes only and shall not constitute a
binding obligation upon Norian or Mochida. In the event that Mochida believes,
in good faith, that the information provided in any Forecast is no longer
accurate, Mochida will promptly notify Norian and provide Norian with a revised
Forecast.
8.4 Order and Acceptance. Mochida shall place its firm order with
Norian for Product requirements at least ninety (90) days in advance of the
start of each calendar quarter for Products to be shipped in such calendar
quarter, and Norian shall supply such requirements in accordance with its
normal practices and lead times then in effect. All orders for Products
submitted by Mochida shall be initiated by the office at Mochida's address for
notice hereunder. All orders shall be by means of signed written purchase
orders by Mochida to Norian, sent to Norian at Norian's address for notice
hereunder and requesting a delivery date during the term of this Agreement.
Orders may initially be placed by telephone, provided that a signed confirming
purchase order is received in writing (which may include telecopy transmission)
by Norian within five (5) days after a telephone order is placed. Norian shall
notify Mochida within twenty-one (21) days from receipt of a purchase order of
its acceptance or rejection of such purchase order. Mochida may cancel or
reschedule purchase orders for Products only with Norian's prior written
approval.
8.5 Invoicing. Norian shall submit an invoice to Mochida upon
shipment of Product ordered by Mochida. All invoices shall be sent to Mochida's
address for notices hereunder, and each such invoice shall state Mochida's
aggregate and unit transfer price for Products in a given shipment, plus any
insurance, taxes or other costs incident to the purchase or shipment initially
paid by Norian but to be borne by Mochida hereunder.
8.6 Shipping. All Products delivered pursuant to the terms of
this Agreement shall be suitably packed for shipment in Norian's standard
shipping cartons, marked for shipment to the destination point indicated in
Mochida's purchase order, and delivered to Mochida to such destination point.
The carrier shall be selected by agreement between Norian and Mochida, provided
that in the event no such agreement is reached Norian shall select the carrier.
All insurance, as well as any special packaging
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<PAGE> 12
expenses, shall be paid by [CONFIDENTIAL INFORMATION REDACTED]. Freight and
other shipping expenses for Products shipped in accordance with Norian's
standard shipping practices by surface to Mochida's warehouse in Tokyo or such
other location as the parties agree shall be paid by Norian. In the event
Mochida selects a carrier other than in accordance with Norian's standard
shipping practices, Mochida shall bear any incremental increase in cost. Risk
of loss and title shall pass to Mochida upon delivery to Mochida or its designee
in Japan. Mochida shall also bear all applicable taxes, duties, and similar
charges that may be assessed against the Products or the transfer price thereof
after delivery to the carrier at Norian's shipping location. All shipments and
all shipping and other charges shall be deemed correct unless Norian receives
from Mochida, no later than fifteen (15) days after Mochida's receipt of a given
shipment, a written notice specifying the shipment, the purchase order number,
and the exact nature of the discrepancy between the order and the shipment or
the exact nature of the discrepancy in the shipping or other charges, as
applicable.
8.7 Product Returns. Except as set forth in Article 11 below,
Mochida may return Products only with Norian's prior written approval.
Products returned to Norian other than under Article 11 shall be returned
F.O.B. the destination point designated by Norian and shall be subject to a
restocking fee in an amount equal to [CONFIDENTIAL INFORMATION REDACTED] of the
sum of (i) the transfer price paid by Mochida to Norian for such Products
computed in accordance with Exhibit A, and (ii) all freight, customs duties,
taxes and other charges incurred by Norian in shipping the Products to Mochida.
ARTICLE 9
TRANSFER PRICES; EQUITY; PAYMENTS; BOOKS AND RECORDS
9.1 Prices. The difference between Mochida's transfer price and
Mochida's price to its customers shall be Mochida's sole remuneration for the
sale of the Products. The transfer price to Mochida for each of the Products
shall be as set forth in Exhibit A.
9.2 Payment Terms. Mochida shall make payments to Norian under
this Agreement by wire transfer in [CONFIDENTIAL INFORMATION REDACTED] in
immediately available funds to a bank designated by Norian. Payment for
Product supplied hereunder shall be made [CONFIDENTIAL INFORMATION REDACTED]
after the date of invoice or date of shipment, whichever is later. Any
payments due hereunder which are not paid on the date such payments are due
shall bear interest at the lesser of [CONFIDENTIAL INFORMATION REDACTED] per
month or the [CONFIDENTIAL INFORMATION REDACTED] rate permitted by California
law, calculated on the number of days such payment is delinquent. This Section
9.2 shall in no way limit any other remedies available to Norian.
9.3 Equity. On the Effective Date or within two (2) days
thereafter, Mochida shall purchase U.S. Seven Million Dollars ($7,000,000) of
Norian's Series D Preferred Stock, at a price equal to Two Dollars and Fifty
Cents ($2.50) per share, all per the terms and conditions set forth in the
Preferred Stock Purchase Agreement attached hereto as Exhibit D.
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<PAGE> 13
9.4 Taxes.
9.4.1 Any and all amounts payable hereunder do not include
any government taxes (including without limitation sales, use, excise, and
value added taxes) or duties imposed by any Japanese governmental agency that
are applicable to the export, import, or purchase of the Products (other than
taxes on the net income of Norian), and Mochida shall bear all such taxes and
duties. When Norian has the legal obligation to collect and/or pay such taxes,
the appropriate amount shall be added to Mochida's invoice and paid by Mochida,
unless Mochida provides Norian with a valid tax exemption certificate
authorized by the appropriate taxing authority.
9.4.2 All payments by Mochida specified hereunder
(including those under Article 4 above) are expressed as [CONFIDENTIAL
INFORMATION REDACTED] and shall be made free and clear of, and without
reduction for, any [CONFIDENTIAL INFORMATION REDACTED]. Any such [CONFIDENTIAL
INFORMATION REDACTED] on payments to Norian shall be the sole responsibility of
Mochida. Mochida shall provide Norian with official receipts issued by the
appropriate [CONFIDENTIAL INFORMATION REDACTED] or such other evidence as is
reasonably requested by Norian to establish that such [CONFIDENTIAL INFORMATION
REDACTED] have been paid. If Norian uses a [CONFIDENTIAL INFORMATION REDACTED]
received by Norian as a result of the payment of [CONFIDENTIAL INFORMATION
REDACTED] by Mochida and thereby reduces the amount of [CONFIDENTIAL
INFORMATION REDACTED] that Norian otherwise would have paid, Norian shall
refund to Mochida the amount of such [CONFIDENTIAL INFORMATION REDACTED] with
respect to such [CONFIDENTIAL INFORMATION REDACTED].
9.5 Third Party Royalties. If during the term of this Agreement
Norian enters into a royalty-bearing license or agreement or a license or
agreement requiring payment of license fees or other payments for the license
or other acquisition of rights to new technologies applicable to the
manufacture, sale or use of Products, and after consultation with Mochida,
Mochida does not agree to pay any such amounts applicable to the manufacture,
sale or use of Products, within thirty (30) days after a written request by
Norian, Norian at its option may exclude from this Agreement the subject matter
covered by such license or agreement, and in such event the same shall not be
within the Products for any purposes of this Agreement. The provisions of this
Section 9.5 shall not limit the obligations of the parties under Section 13.3.
9.6 Currency Conversion. If any currency conversion shall be
required in connection with the calculation of amounts payable under this
Agreement, other than transfer prices of Products or components thereof
pursuant to Exhibit A, such conversion shall be made using the selling exchange
rate for conversion of the foreign currency into U.S. Dollars, quoted for
current transactions reported by the Bank of Tokyo-Mitsubishi in Japan for the
[CONFIDENTIAL INFORMATION REDACTED] to which such payment pertains. With
respect to any currency conversion required in connection with calculation of
transfer prices of Products or components thereof pursuant to Exhibit A
attached hereto, such conversion for the first year from the date of issuance
of the Reimbursement Price for such Product or component thereof, shall be made
using the selling exchange rate for conversion of the foreign currency into
U.S. Dollars, quoted for current transactions reported by the Bank of
Tokyo-Mitsubishi in Japan
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<PAGE> 14
[CONFIDENTIAL INFORMATION REDACTED]. Thereafter, such transfer price in United
States Dollars shall be [CONFIDENTIAL INFORMATION REDACTED] by using the
selling exchange rate for conversion of the foreign currency into U.S. Dollars
quoted for current transactions reported by the Bank of Tokyo-Mitsubishi in
Japan, on the day of [CONFIDENTIAL INFORMATION REDACTED] of the date of
issuance of the Reimbursement Price for such Product or component thereof.
9.7 Records; Inspection. Mochida shall keep complete, true and
accurate books of account and records for the purpose of determining the
amounts payable under Articles 4, 8 and 9. Such books and records shall be
kept at the principal place of business of Mochida for at least five (5) years
following the end of the calendar quarter to which they pertain. Such records
will be open for inspection during such five (5) year period by a certified
public accountant, or if not a certified public accountant, then a
representative or agent of Norian reasonably acceptable to Mochida, for the
purpose of verifying the amounts payable by Mochida under Articles 4, 8 and 9.
Such inspections may be made no more than once each calendar year, at
reasonable times mutually agreed upon by Norian and Mochida. Norian's
representative or agent will be obliged to execute a reasonable confidentiality
agreement prior to commencing any such inspection. Inspections conducted under
this Section 9.7 shall be at the expense of Norian, unless a variation or error
producing an underpayment in amounts payable exceeding five percent (5%) of the
amount paid for any period covered by the inspection is established in the
course of any such inspection, whereupon all costs relating to the inspection
for such period and any unpaid amounts that are discovered will be paid by
Mochida, together with interest on such unpaid amounts at the rate specified in
Section 9.2 above. The parties will endeavor to minimize disruption of
Mochida's normal business activities to the extent reasonably practicable.
ARTICLE 10
DUE DILIGENCE
10.1 General. Mochida shall use its best efforts to conduct as
expeditiously as possible all Clinical Development for Products for each Norian
Application and to launch Products in Japan as soon as possible after
regulatory approval to market such Products in Japan have been obtained, and to
maximize sales of Products in Japan for all Norian Applications.
10.2 Milestones; Particular Applications. Without limiting
Section 10.1 above:
(a) Mochida shall use its best efforts to achieve the
following milestones within the times to complete set forth below:
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<PAGE> 15
Table 1
<TABLE>
<CAPTION>
Time to Complete
Milestone from the Effective Date
------------------------------------------------- -----------------------------------
<S> <C> <C>
1. [CONFIDENTIAL INFORMATION REDACTED] for a Product [CONFIDENTIAL INFORMATION REDACTED]
in Japan
2. [CONFIDENTIAL INFORMATION REDACTED] for a Product [CONFIDENTIAL INFORMATION REDACTED]
in Japan
3. [CONFIDENTIAL INFORMATION REDACTED] a Product in [CONFIDENTIAL INFORMATION REDACTED]
Japan
</TABLE>
(b) On a Product-by-Product basis, if at any time Mochida
is not using [CONFIDENTIAL INFORMATION REDACTED] to conduct Clinical
Development or marketing, promotion and distribution of a Product in all of the
Norian Applications for such Product, Norian may notify Mochida in writing
("Application Notice") ofits intent to terminate Mochida's rights with respect
to those Norian Applications for which Mochida is not conducting Clinical
Development or marketing, promotion and distribution activities ("Notified
Applications"). Norian will consider in good faith whether Mochida's decision
not to pursue Clinical Development or other marketing and distribution
activities within the Notified Applications is justified taking into account
specific regulatory and/or market conditions substantially different from those
in the United States or Japanese pricing conditions, which in each case make
commercialization of the Notified Applications infeasible in Japan. If Norian
determines that such decision is not justified, notwithstanding the provisions
of Section 7.1 above, if Mochida does not commence Clinical Development or
marketing, promotion and distribution of each of such Products in the Notified
Applications immediately after receipt of the Application Notice, and
thereafter use its continuing best efforts with respect to such Clinical
Development, marketing, promotion and distribution, Norian may terminate
Mochida's rights to such Products with respect to the Notified Applications
effective upon written notice, and thereafter Norian may proceed to conduct
clinical development, and to manufacture, market, distribute and/or sell the
Products in such Notified Applications itself or through third parties in
Japan.
10.3 Training and Education Programs. Mochida shall provide, at
Mochida's cost and expense, Education Programs and Training Programs in
accordance with the schedule set forth in Exhibit B. Each Training Program and
Education Program shall incorporate the training modules and education modules
developed by Norian for use outside Japan, and the scope and content of each
such Training Program and Education Program shall be presented in full detail
at the Joint Development Committee and in the Business Plan (as defined in
Section 12.8). Mochida shall be responsible for fully implementing and
utilizing Education Programs and Training Programs to generate maximum demand
for the Products in Japan, which Education Programs and Training Programs shall
include training of medical representatives in all Norian Applications.
10.4 New Products Option. Norian agrees to notify Mochida of each
planned New Product that Norian proposes to be commercialized in Japan ("New
Product Notice"). Mochida shall have an option, on a New Product-by-New
Product basis, to include such New Product under this Agreement
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<PAGE> 16
("Option"), exercisable by written notice to Norian delivered to Norian during
the ninety (90) day period immediately following Norian's delivery of the New
Product Notice to Mochida ("Option Period"). If Mochida exercises the Option
within the Option Period, the New Product described in the New Product Notice
shall be deemed a Product for all purposes of this Agreement and Mochida shall
commence human clinical trials on the New Product within twelve (12) months
after the date of Mochida's exercise notice and use its best efforts to
complete Clinical Development of such New Product for all Norian Applications
therefor, as expeditiously as possible. If Mochida exercises the Option for a
New Product, Mochida shall pay to Norian reasonable milestone payments to be
mutually agreed upon, taking into account the investment by Norian in
developing such New Product, the level of innovation embodied therein and other
similar factors. If Mochida does not exercise the Option during the Option
Period, Norian may proceed to commercialize all or any part of the New Product
itself or through third parties in Japan, with no further obligation to Mochida
under this Section 10.4.
ARTICLE 11
PRODUCT WARRANTY
11.1 Product Warranty. Norian warrants to Mochida that at the time
of delivery to Mochida the Products purchased by Mochida shall conform to
packaging and labeling specifications agreed upon by the parties and the
specifications for the Products set forth in the Marketing Approval Application
for such Product approved by the Ministry of Health and Welfare. This warranty
is contingent upon proper use of Products in the application for which they
were intended as indicated in the Product label claims, and Norian makes no
warranty (express, implied, or statutory) for Products that are modified
(except as expressly contemplated herein) or subjected to accident, misuse,
neglect, unauthorized repair, or improper testing or storage.
11.2 Exclusive Remedy. In the event that any Product purchased by
Mochida from Norian fails to conform to the warranty set forth in Section 11.1
above or is recalled pursuant to Section 12.6.2, Norian's sole and exclusive
liability and Mochida's exclusive remedy shall be, at Norian's sole election,
to repair or replace the Product, or component thereof, or credit Mochida's
account for the net amount actually paid for any such Product, or component
thereof, provided that (i) Mochida promptly notifies Norian in writing that
such Product failed to conform and furnishes a detailed explanation of any
alleged nonconformity and requests a return material authorization number; (ii)
such Product is returned to Norian by Mochida F.O.B. the address designated by
Norian during the warranty period with the return material authorization number
affixed prominently to the outside packaging; and (iii) the claimed
nonconformities actually exist and were not caused by accident, misuse,
neglect, alteration, repair or improper testing or storage. If such Product
fails to so conform, Norian will reimburse Mochida for shipment charges for
return of the nonconforming Product.
11.3 Exclusion of Other Warranties. EXCEPT FOR THE LIMITED
WARRANTIES PROVIDED IN SECTION 11.1 ABOVE AND SECTION 14.1 BELOW, NORIAN GRANTS
NO OTHER WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE, IN ANY
COMMUNICATION WITH MOCHIDA OR THE CUSTOMER, OR OTHERWISE, REGARDING
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<PAGE> 17
THE PRODUCTS OR VALIDITY OF NORIAN TECHNOLOGY, AND NORIAN SPECIFICALLY
DISCLAIMS THE IMPLIED WARRANTIES OF FITNESS FOR ANY PURPOSE, MERCHANTABILITY,
AND NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. NORIAN
NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME ANY OTHER LIABILITIES
ARISING OUT OF OR IN CONNECTION WITH THE SALE OR USE OF ANY NORIAN PRODUCT.
ARTICLE 12
COMMERCIALIZATION
12.1 Advertising and Promotions. Mochida shall list the Products
in its catalogs and make such Products available to its customers. Mochida
shall vigorously advertise and promote the Products and shall transmit Product
information and promotional materials to its customers, in order to maximize
Product sales in Japan. Such advertising and promotion shall include, but
shall not be limited to, trade show displays, training workshops, educational
seminars and other activities related to promoting Products.
12.2 Materials. Norian shall provide to Mochida samples of
Norian's promotional, educational and training materials for the Products in
English. Mochida shall translate Norian's promotional and educational
materials into Japanese, at Mochida's expense, and copy, use and distribute
such materials in Japanese in Japan. Mochida shall provide to Norian samples
of all promotional, advertising, exhibition, training and educational materials
prepared by or on behalf of Mochida and relating to the Products, for purposes
of review and approval by Norian (in Japanese and English), at least four (4)
weeks prior to the date of intended commercial release of such materials or
commencement of such programs. Norian shall make its best efforts to provide
to Mochida, within ten (10) business days after receipt of such materials, any
and all comments and suggestions relating to such materials.
12.3 Product Packaging and Labeling. Mochida shall not repackage
or relabel Products supplied to Mochida by Norian hereunder without the prior
written consent of Norian.
12.4 Inventory. Mochida shall maintain a quantity of each Product
at all times during the term of this Agreement as necessary in order to meet
the demand and service level requirements of Mochida's customers and potential
customers. Mochida shall provide to Norian, at Mochida's expense, Product
inventory levels and sales data as reasonably requested by Norian.
12.5 Market Research. Mochida shall assist Norian in assessing
customer requirements for the Products, including modifications and
improvements thereto, in terms of quality, design, functional capability, and
other features. Mochida shall advise Norian on market conditions as reasonably
requested by Norian.
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<PAGE> 18
12.6 Other Reporting.
12.6.1 Mochida shall provide, at Mochida's expense, within
thirty (30) days after publication, copies of any and all articles,
manuscripts, abstracts or other literature relating to the Products generated
by investigators or others in Japan in each case to the extent reasonably
available to Mochida.
12.6.2 Pursuant to the FDA's Medical Device Reporting (MDR)
Regulations, Norian may be required to report to the FDA information that
reasonably suggests that a Product may have caused or contributed to the death
or serious injury or has malfunctioned and that the device would be likely to
cause or contribute to a death or serious injury if the malfunction were to
recur. Each of Norian and Mochida agree to supply to the other any such
information promptly after becoming aware of it so that each of Norian and
Mochida can comply with governmental reporting requirements. It is understood
and agreed that reporting to Norian shall be within twenty-four (24) hours to
enable Norian to comply with FDA reporting requirements. In the event that
Norian is required by any regulatory agency to recall the Products or if Norian
voluntarily initiates a recall of the Products, Mochida shall cooperate with
and assist Norian in locating and retrieving if necessary, the recalled
Products from Mochida's customers. Mochida shall maintain records of sales of
Products to wholesalers and Subdistributors by lot number, and shall procure
wholesalers and Subdistributors to maintain such records of sales of Products
to end users, that is hospitals and physicians. Upon Norian's request, Mochida
shall provide Norian with access to such records in the event of a Product
recall or other quality related issue. Mochida shall be responsible for
obtaining all records of Mochida and its Subdistributors' sales to end users in
the event of a Product recall or other quality related issue. During the time
that the Products are commercially marketed, distributed, or sold by Mochida,
Mochida also shall promptly forward all Product complaints which it received to
Norian. Mochida shall make available to Norian for inspection Mochida's
process and records for adverse event and other regulatory reporting purposes
at mutually agreed upon times and further shall ensure that Mochida's processes
comply with all applicable laws and regulations in (i) the United States to the
extent known to Mochida through Norian or which reasonably should be known to
Mochida, and (ii) Japan.
12.7 Business Obligations. Any and all obligations associated with
Mochida's business shall remain the sole responsibility of Mochida. Any and
all sales and other agreements between Mochida and its customers are and shall
remain Mochida's exclusive responsibility and shall have no affect on Mochida's
obligations pursuant to this Agreement.
12.8 Annual Operating and Marketing Plans. Mochida shall develop
annual operating and marketing plans for the Products (collectively, the
"Business Plan") which shall include without limitation [CONFIDENTIAL
INFORMATION REDACTED] personnel and customers which conform with the
requirements of Section 10.3 above and 12.9 below. For each year during the
term of this Agreement, the Business Plan shall be provided to Norian for
review and approval by Norian not later than September 30 of such year.
Mochida shall comply with the Business Plan, and shall appoint a product
manager who shall be exclusively responsible for management of the Business
Plan and for ensuring that Mochida complies with such Business Plan.
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<PAGE> 19
12.9 Customer Support. Mochida shall maintain knowledgeable
support personnel to provide instructions to customers in the use of the
Products. Without limiting the provisions of Section 10.3, Mochida agrees that
such support personnel, that is medical representatives, product managers and
product specialists, will, at Mochida's expense attend a hands-on sales
training session relating to the Products in a location to be designated by
Mochida, and observe the use of the Products in applicable surgical
applications to improve the clinical knowledge of such personnel relating to
the Products. Mochida shall be fully responsible for any and all technical
support of Mochida's customers, that is surgeons, nurses, and hospital
technical support staff. It is understood and agreed that as part of worldwide
development of Products, Norian may contact Japanese users of the Products and
will keep Mochida reasonably informed of such activity.
12.10 Norian Training. Norian shall provide basic training relating
to use and application of the Products once per year free of charge for product
managers, product specialists, clinical trial teams, and medical
representatives, and other medical professionals and participants in Clinical
Development for all Norian Applications free of charge at times to be mutually
agreed upon by the parties, provided that such training shall be provided to
surgeon clinical trialists up to [CONFIDENTIAL INFORMATION REDACTED] per year
during the [CONFIDENTIAL INFORMATION REDACTED] of this Agreement and thereafter
[CONFIDENTIAL INFORMATION REDACTED] (collectively "Basic Training"), and
Mochida will ensure that such personnel both within and outside Mochida attend
such training. Mochida will also ensure that all product managers, product
specialists, clinical trial teams, and medical representatives, and other
medical professionals and participants in Clinical Development attend Norian
training specific to use of the Products in Norian Applications introduced from
time to time during the term of this Agreement. Additional training may be
provided by Norian to Mochida upon Mochida's request, which request shall not
be unreasonably denied. Training in excess of the Basic Training first
described above or that is provided at a location other than Norian's
facilities in Cupertino, California shall be provided [CONFIDENTIAL INFORMATION
REDACTED] the Basic Training or at Norian's facility in Cupertino, California,
respectively. In addition, all expenses incurred by Mochida's personnel in
connection with all training including without limitation travel and lodging
expenses shall be borne by Mochida. All training set forth in this Section
12.10 shall be conducted at facilities mutually agreed upon by the parties.
12.11 Sales and Inventory Reports. Mochida shall provide to Norian
semi-annual sales and inventory reports setting forth Mochida's sales and
inventory of Products, on a Product-by-Product basis, during the prior six (6)
month period. Such sales and inventory reports shall be submitted to Norian by
June 30 and December 31 of each calendar year.
12.12 Marketing Committee. Upon submission of a Marketing Approval
Application for the first Product, the parties shall establish a steering
committee to oversee, review and coordinate Product launch in Japan, marketing
activities in Japan with respect to the Products, and Training Programs
("Marketing Committee"). The Marketing Committee shall be comprised of an equal
number of representatives from Mochida and Norian [CONFIDENTIAL INFORMATION
REDACTED], selected by such party with at least one representative from Mochida
at the Director level or above and at least one representative from Norian at
the Vice President level or above. Each party may replace its
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<PAGE> 20
Marketing Committee representatives at any time, with prior written notice to
the other party. The Marketing Committee shall meet at times and locations to
be mutually agreed, provided that the Marketing Committee shall meet no less
frequently than once every six (6) months.
ARTICLE 13
INTELLECTUAL PROPERTY
13.1 License. In consideration of the rights granted to Mochida
under Section 7.1, Mochida grants to Norian the rights set forth in this
Section 13.1. As used herein, "Mochida Intellectual Property Rights" shall
mean all inventions, discoveries, know-how, information, and data and all
patent rights and other intellectual property rights therein, made, conceived
or reduced to practice by Mochida, alone or jointly with Norian or a third
party in connection with the Clinical Development, or otherwise relating to or
including Cementing biomaterial, a Product or any part thereof, or the
manufacture or use of any of the foregoing. Mochida hereby grants to Norian
[CONFIDENTIAL INFORMATION REDACTED], with the right to [CONFIDENTIAL
INFORMATION REDACTED], under Mochida Intellectual Property Rights to
manufacture, use and sell all products or components; practice any method or
process; and otherwise exploit the Mochida Intellectual Property Rights;
provided that such license shall be [CONFIDENTIAL INFORMATION REDACTED] with
respect to the manufacture, use or sale of products, the practice of methods or
processes and other exploitation of the Mochida Intellectual Property Rights
outside Japan. Mochida promptly shall disclose to Norian all inventions and
patent rights within the Mochida Intellectual Property Rights, and upon
Norian's request shall disclose all know-how and information within the Mochida
Intellectual Property Rights, including without limitation know-how and
information reasonably required or useful for Norian to manufacture the
Products. Subject to Mochida's use of best efforts to obtain from third
parties the rights under Mochida Intellectual Property Rights made, conceived,
or reduced to practice by Mochida jointly with third parties sufficient for
Mochida to grant to Norian the rights and licenses set forth above, it is
understood that the foregoing license under Mochida Intellectual Property
Rights made, conceived or reduced to practice by Mochida jointly with third
parties shall be limited to the extent that Mochida has the right to grant to
Norian the rights and licenses set forth above. Upon Norian's request and at
Norian's expense, Mochida further agrees to, and to cause its employees, agents
and consultants to, sign, execute and acknowledge such documents and perform
such acts as may be reasonably necessary for Norian to perfect Norian's rights
in Mochida Intellectual Property Rights and obtain, enforce and defend all
intellectual property rights worldwide in Mochida Intellectual Property Rights.
At Mochida's option and election, Mochida may assign to Norian, [CONFIDENTIAL
INFORMATION REDACTED], all or any part of the Mochida Intellectual Property
Rights, in which event Norian's obligation to keep Mochida reasonably informed
and consult with Mochida with respect to prosecution and maintenance of the
Mochida Intellectual Property assigned to Norian shall terminate.
13.2 Prosecution; Cooperation. Norian shall have the exclusive
right to pursue patent or other intellectual property protection for Mochida
Intellectual Property Rights, and to enforce and defend such Mochida
Intellectual Property Rights, in countries outside Japan at [CONFIDENTIAL
INFORMATION REDACTED] and without accounting to Mochida, and Mochida agrees to
take all reasonable action to
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<PAGE> 21
cooperate fully with Norian in this regard. Norian and Mochida each shall keep
the other reasonably informed as to the status of patent matters pertaining to
the Mochida Intellectual Property Rights, and shall each cooperate with and
assist the other in connection with such activities, at the other party's
request and expense, and shall use good faith efforts to consult with each
other regarding the prosecution and maintenance of the Mochida Intellectual
Property Rights as is reasonably appropriate.
13.3 Defense of Third Party Infringement Claims.
13.3.1 If the manufacture, preparation, sale or use of any
Product pursuant to this Agreement results in a claim, suit or proceeding
brought by a third party against Mochida or Norian alleging infringement of such
third party's Japanese patents (including utility models), or if the use of
Norian's Marks (as defined in Section 18.6 below) in accordance with this
Agreement results in such claim alleging infringement of such third party's
trademark rights in Japan (collectively, "Actions"), such party shall promptly
notify the other parties hereto in writing. The party subject to such Action
shall have the exclusive right to defend and control the defense of any such
Action using counsel of its own choice, and the Action, subject to Section 16.1,
[CONFIDENTIAL INFORMATION REDACTED]. The party subject to the Action agrees to
keep the other parties hereto reasonably informed of all material developments
in connection with any such Action.
13.3.2 If such an Action is brought against Mochida, and
Norian agrees in writing or a court of competent jurisdiction has determined,
that the Product or Mark infringes the third party intellectual property rights
that are the subject of such Action, then Mochida shall have the right to
deduct up to [CONFIDENTIAL INFORMATION REDACTED] of the amounts actually paid
by Mochida to the third party bringing such Action from the transfer prices set
forth in Exhibit A paid by Mochida for such Product, provided that in no event
shall the transfer price for the Product be reduced by more than [CONFIDENTIAL
INFORMATION REDACTED]. The foregoing right of offset shall be Mochida's
exclusive remedy and Norian's sole liability to Mochida or its Subdistributors
with respect to infringement of third party intellectual property rights by the
Products, or the manufacture, sale or use thereof.
13.4 Enforcement. Subject to the provisions of this Section 13.4,
in the event that Norian or Mochida reasonably believes that any Norian patents
necessary for the manufacture, use or sale of a Product is infringed or
misappropriated by a third party or is subject to a declaratory judgment action
arising from such infringement in Japan, in each case with respect to the
manufacture, sale or use of a product in Japan, Norian or Mochida (respectively)
shall promptly notify the other party hereto, and Mochida shall cooperate with
Norian and provide to Norian full information with respect to third party
infringement or misappropriation. [CONFIDENTIAL INFORMATION REDACTED] (for
purposes of this Section 13.4, an "Enforcement Action"). The parties shall
consult with one another concerning the possibility of initiating an Enforcement
Action, it being understood that the decision whether to initiate an Enforcement
Action shall be made [CONFIDENTIAL INFORMATION REDACTED] [CONFIDENTIAL
INFORMATION REDACTED] of the costs and expenses (including attorneys' and
professional fees) of such Enforcement Action under this
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<PAGE> 22
Section 13.4. Any recovery received as a result of any Enforcement Action to
enforce Norian patents pursuant to this Section 13.4 shall be used first to
reimburse Norian for the costs and expenses (including attorneys' and
professional fees) incurred in connection with such Enforcement Action, and the
remainder of the recovery shall be shared equally between Norian and Mochida;
provided, however, if the Enforcement Action applies outside the Field or
Norian initiates the Enforcement Action and does not request that Mochida pay
the costs and expenses thereof, Norian shall retain one hundred percent (100%)
of the amounts recovered in such Enforcement Action.
ARTICLE 14
REPRESENTATIONS AND WARRANTIES
14.1 Norian Warranties. Norian warrants and represents to Mochida
that (i) it has the full right and authority to enter into this Agreement and
grant the rights granted herein; (ii) it has not previously granted and will
not grant any rights in conflict with the rights granted herein; and (iii) to
Norian's knowledge and belief, there are no existing or threatened actions,
suits or claims pending against it with respect to its right to enter into and
perform its obligations under this Agreement. Notwithstanding the foregoing,
Mochida acknowledges that Norian may obtain Delivery/Nonbiomaterial Components
included within the Products from third party suppliers, and the rights granted
under this Agreement with respect to such Delivery/Nonbiomaterial Components
shall be limited to the extent that Norian has the right to grant the same to
Mochida.
14.2 Mochida Warranties. Mochida warrants and represents to Norian
that (i) Mochida has the full right and authority to enter into this Agreement
and grant the rights granted herein; (ii) Mochida has not previously granted
and will not grant any rights in conflict with the rights granted herein; and
(iii) to Mochida's knowledge and belief, there are no existing or threatened
actions, suits or claims pending against it with respect to its right to enter
into and perform its obligations under this Agreement.
14.3 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN
SECTION 11.1 AND THIS ARTICLE 14, NORIAN AND MOCHIDA EXPRESSLY DISCLAIM ANY
WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH
RESPECT TO THE CLINICAL DEVELOPMENT, THE PRODUCTS AND NORIAN INTELLECTUAL
PROPERTY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, OR
FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF NORIAN TECHNOLOGY, PATENTED OR
UNPATENTED, AND NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.
ARTICLE 15
CONFIDENTIALITY
15.1 Confidential Information. Except as expressly provided
herein, the parties agree that, for the term of this Agreement and for seven
(7) years thereafter, the receiving party shall not publish or
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otherwise disclose and shall not use for any purpose any information furnished
to it by the other party hereto pursuant to this Agreement which if disclosed
in tangible form is marked "Confidential" or with other similar designation to
indicate its confidential or proprietary nature, or if disclosed orally is
confirmed as confidential or proprietary by the party disclosing such
information at the time of such disclosure ("Confidential Information").
Notwithstanding the foregoing, it is understood and agreed that Confidential
Information shall not include information that, in each case as demonstrated by
written documentation:
(a) was already known to the receiving party, other than
under an obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise
part of the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise
part of the public domain after its disclosure and other than through any act
or omission of the receiving party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving
party by a person other than a party hereto or developed by the receiving party
without reference to any information or materials disclosed by the disclosing
party.
15.2 Permitted Disclosures. Notwithstanding the provisions of
Section 15.1 above, each party hereto may disclose the other's Confidential
Information to the extent such disclosure is reasonably necessary, in filing or
prosecuting patent applications, prosecuting or defending litigation, complying
with applicable governmental regulations, submitting information to tax or
other governmental authorities, or conducting clinical trials, provided that if
a party is required to make any such disclosure of another party hereto's
Confidential Information, to the extent it may legally do so, it will give
reasonable advance written notice to the latter party of such disclosure and,
save to the extent inappropriate in the case of patent applications, will use
its reasonable efforts to secure confidential treatment of such Confidential
Information prior to its disclosure (whether through protective orders or
otherwise). If the party whose Confidential Information is to be disclosed has
not filed a patent application with respect to such Confidential Information,
it may require the other party to delay the proposed disclosure (to the extent
the disclosing party may legally do so), for up to ninety (90) days after
receipt of written notice from the disclosing party of its intent to disclose,
to allow for the filing of such an application.
ARTICLE 16
INDEMNIFICATION
16.1 Indemnification of Norian. Mochida shall indemnify each of
Norian and the directors, officers, and employees of Norian and the licensors,
successors and assigns of any of the foregoing (the "Norian Indemnitees"), and
hold each Norian Indemnitee harmless from and against any and all liabilities,
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<PAGE> 24
damages, settlements, claims, actions, suits, penalties, fines, costs or
expenses (including, without limitation, reasonable attorneys' fees and other
expenses of litigation) (any of the foregoing, a "Claim") incurred by any
Norian Indemnitee, arising from or occurring as a result of (a) claims relating
to any Products used, sold or otherwise distributed by Mochida, or
Subdistributors of Mochida except to the extent such claim is covered under
Section 16.2 below or is caused by the gross negligence or willful misconduct
of a Norian Indemnitee; (b) subject to Section 13.3.1 above, infringement
claims brought in Japan by third parties with respect to Norian's manufacture
or supply of Products hereunder, except to the extent caused by Norian's
willful infringement of a third party intellectual property right, which third
party intellectual property right Mochida was not aware of and should not
reasonably have been aware of at the time the cause of action arose; or (c) the
gross negligence or willful misconduct of Mochida.
16.2 Indemnification of Mochida. Norian shall indemnify each of
Mochida and the directors, officers, and employees of Mochida and the
successors and assigns of any of the foregoing (the "Mochida Indemnitees"), and
hold each Mochida Indemnitee harmless from and against any and all liabilities,
damages, settlements, claims, actions, suits, penalties, fines, costs or
expenses (including, without limitation, reasonable attorneys' fees and other
expenses of litigation) (any of the foregoing, a "Claim") incurred by any
Mochida Indemnitee, arising from or occurring as a result of a claim brought by
a third party caused by a failure by Norian to manufacture the Product in
accordance with the specifications for such Product set forth in the packaging
and labeling specifications agreed upon by the parties pursuant to Section 11.1
and the Marketing Approval Application for such Product, or the gross
negligence or willful misconduct of Norian, except to the extent such claim is
covered under Section 16.1 above or is caused by the gross negligence of
willful misconduct of Mochida.
16.3 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Article 16 shall promptly notify the other party
(the "Indemnitor") in writing of any loss, claim, damage, liability or action
in respect of which the Indemnitee or any of its directors, officers,
employees, agents, licensors, successors or assigns intends to claim such
indemnification, and, except for matters described in Section 16.1(b) above,
the Indemnitor shall have sole control of the defense and/or settlement
thereof. The indemnity agreement in this Article 16 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
consent of the Indemnitor, which consent shall not be withheld unreasonably.
The failure to deliver written notice to the Indemnitor within a reasonable
time after the commencement of any such action, if prejudicial to its ability
to defend such action, shall relieve such Indemnitor of any liability to the
Indemnitee under this Article 16 but the omission so to deliver written notice
to the Indemnitor shall not relieve the Indemnitor of any liability that it may
have to any Indemnitee otherwise than under this Article 16. The Indemnitee
under this Article 16, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives and provide full information in the
investigation of any Claim covered by this indemnification. The foregoing
sentence shall also apply with respect to each party's cooperation and
assistance in the event a third party claim is brought against the other party
arising out of the manufacture, use, or sale of the Products which claim is not
included within the indemnification obligations of such other party, provided
that such cooperation or assistance would not, in such other party's judgment,
be prejudicial to its ability to defend itself against a claim brought against
such other party by the same third party.
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<PAGE> 25
ARTICLE 17
TERM AND TERMINATION
17.1 Term. This Agreement shall become effective as of the
Effective Date and, unless earlier terminated pursuant to the other provisions
of this Article 17, shall continue in full force and effect for a period of ten
(10) years after approval of the first Marketing Approval Application by the
Japanese Ministry of Health and Welfare for the first biomaterial component of
a Product, but in no event more than fifteen (15) years after the Effective
Date ("Initial Term"), unless earlier terminated in accordance with this
Article 17. This Agreement may be renewed for up to an additional five (5)
year period by mutual written agreement of the parties prior to the expiration
of the Initial Term. Unless the parties so agree to extend this Agreement,
this Agreement shall expire at the end of the Initial Term.
17.2 Termination for Cause. Either Norian or Mochida may terminate
this Agreement by written notice stating each party's intent to terminate in
the event the other shall have materially breached or defaulted in the
performance of any of its material obligations hereunder, and such default
shall have continued for sixty (60) days after written notice thereof was
provided to the breaching party by the non-breaching party.
17.3 Termination for Serious Adverse Events. In the event a
Product causes death or serious injury resulting in a requirement by the
Ministry of Health and Welfare to cease Clinical Development of the Products
("Serious Event"), Mochida shall notify Norian promptly and thereafter Mochida
and Norian shall consult with one another to determine the cause of the Serious
Event and the appropriate course of action. If the parties do not agree upon
an acceptable course of action during the sixty (60) days following a Serious
Event, either party may terminate this Agreement during the sixty (60) days
thereafter upon thirty (30) days prior written notice.
17.4 Effect of Breach or Termination.
17.4.1 Accrued Obligations. In the event of termination by
either party in accordance with any of the provisions of this Agreement,
neither party shall be liable to the other, because of such termination, for
compensation, reimbursement or damages on account of the loss of prospective
profits or anticipated sales or on account of expenditures, inventory,
investments, leases or commitments in connection with the business or goodwill
of Norian or Mochida. Termination of this Agreement for any reason, however,
shall not release any party hereto from any liability which, at the time of
such termination, has already accrued to the other party or which is
attributable to a period prior to such termination, nor preclude either party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement. Subject to any liability
for damages by reason of a breach of this Agreement by Norian, Norian may
retain any amounts paid to it prior to the effective date of any termination of
this Agreement.
17.4.2 Other Rights on Termination. Upon expiration or any
termination of this Agreement, other than termination of this Agreement by
Mochida for Norian's breach pursuant to Section 17.2 Mochida shall transfer
ownership of any and all preclinical and/or clinical data made by or
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<PAGE> 26
for Mochida and of all product registrations of any kind with respect to
Products and applications therefor, including without limitation Marketing
Approval Applications, Reimbursement Price approvals, and any other
governmental approvals, registrations and the like to Norian, at Mochida's cost
and expense and shall execute such documents and perform such acts as may be
necessary, useful, or convenient to perfect such transfer. It is understood
that Norian may use and disclose the foregoing for any purpose.
17.4.3 Repurchase of Inventory. As soon as reasonably
practicable but no later than thirty (30) days after the effective date of
termination of this Agreement, Mochida shall provide Norian a complete
inventory of Products in Mochida's possession, or in transit to Mochida from
Norian or otherwise in Mochida's control. At such time, Norian may inspect
Mochida's Product inventory and audit Mochida's records in the manner provided
hereinabove. If Norian terminates this Agreement pursuant to Section 17.2 for
Mochida's breach, then Norian, in Norian's sole discretion, may purchase or
instruct Mochida to destroy, and Mochida shall sell to Norian or destroy and
provide to Norian written certification of destruction, respectively, all or
any part of Mochida's inventory of Products in Mochida's possession on the
effective date of such termination. If Mochida terminates this Agreement
pursuant to Section 17.2 for Norian's breach or Mochida terminates this
Agreement pursuant to Section 17.3, Norian shall purchase and Mochida shall
sell to Norian those Products in Mochida's inventory of Products existing on
the effective date of such termination that Mochida purchased from Norian
within the three (3) month period prior to the effective date of termination
and that are in good and resaleable condition in their original packaging. All
other units of Products existing in inventory shall be destroyed by Mochida,
and Mochida shall provide written certification of destruction to Norian. The
price of repurchased inventory, whether this Agreement is terminated by Norian
or Mochida, shall be the net price actually paid by Mochida (i.e., net of any
prior Mochida price adjustment, credits or other allowances) plus any shipping
insurance, customs duties, or taxes (other than taxes paid with respect to
Mochida's net income) actually paid by Mochida with respect to such repurchased
Products. Products purchased from Mochida by Norian pursuant to this Section
17.4.3 shall be shipped promptly by Mochida, at Norian's expense, to a location
specified by Norian.
17.5 Return of Materials. All trademarks, marks, trade names,
patents, copyrights, designs, drawings, formulas or other data, photographs,
samples, literature, and sales and promotional aids of every kind relating to
the Products and received from or owned by Norian shall remain the property of
Norian. Within thirty (30) days after the effective date of termination of
this Agreement, Mochida shall destroy all tangible items bearing, containing,
or contained in, any of the foregoing, in its possession or control and provide
written certification of such destruction, or prepare such tangible items for
shipment to Norian, as Norian may direct, at Norian's expense. Mochida shall
not make or retain any copies of any Confidential Information of Norian which
may have been entrusted to it. Effective upon the termination of this
Agreement, Mochida shall cease to use all trademarks and trade names of Norian.
During the term of this Agreement and after any termination or expiration of
this Agreement, Norian shall have the right to continue to use and disclose for
any purpose customer lists, customer data and other customer information and
any and all clinical trial results and other data relating to the Products,
which is or was provided or required to be provided by Mochida to Norian
pursuant to this Agreement.
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<PAGE> 27
17.6 No Renewal, Extension or Waiver. Acceptance of any order
from, or sale or license of, any Product to Mochida after the effective date of
termination of this Agreement shall not be construed as a renewal or extension
hereof, or as a waiver of termination of this Agreement.
17.7 Survival. Articles 1, 15, 16, 19, 20, and 21; Sections 5.1,
6.2, 7.4, 9.7, 12.6.2, 13.1, 13.2, 17.4, 17.5, 17.6 and 17.7; and the second
sentence of Section 3.2(a) shall survive expiration or termination of this
Agreement for any reason. In addition, in the event this Agreement is
terminated by Norian, pursuant to Section 17.2, the provisions of Section 7.2
shall survive for a period of five (5) years.
ARTICLE 18
TRADEMARKS
18.1 Marks. During the term of this Agreement, Mochida shall have
the right and agrees to, advertise and promote the Products in Japan under
Norian's trademarks and trade names identified on Exhibit C as modified by
Norian pursuant to this Section 18.1 ("Marks"). Norian reserves the right to
modify Marks or substitute alternative marks for any or all of the Marks at any
time upon thirty (30) days prior written notice, provided that Norian shall not
modify the Marks unreasonably after the filing of the Marketing Approval
Application. The rights granted under this Section 18.1 shall automatically
terminate on termination or expiration of this Agreement. Norian shall
endeavor to register the Marks with the Japanese Patent Office as trademarks in
the appropriate classes and maintain the registrations of such Marks, and
Mochida shall cooperate and upon Norian's request, provide full information and
reasonable assistance to Norian in registering and maintaining the Marks,
including without limitation providing evidence of use of the Marks as
reasonably required to renew registrations or defend actions for cancellations.
18.2 Use. Mochida shall not remove, modify, or obscure Marks
affixed to Products without the prior written consent of Norian. Except as set
forth in this Section 18.2, nothing contained in this Agreement shall grant to
Mochida any right, title or interest in or to Marks whether or not specifically
recognized or perfected under applicable laws of Japan, and Mochida irrevocably
assigns to Norian all such right, title and interest, if any, in any Marks. At
no time during or after the term of this Agreement shall Mochida challenge or
assist others to challenge Marks or the registration thereof or attempt to
register any trademarks, marks or trade names confusingly similar to Marks.
All representations of Marks that Mochida intends to use shall first be
submitted to Norian for approval (which shall not be unreasonably withheld) of
design, color, and other details or shall be exact copies of those used by
Norian. In addition, Mochida shall fully comply with all reasonable
guidelines, if any, communicated by Norian concerning the use of Marks.
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<PAGE> 28
ARTICLE 19
LIMITATION OF LIABILITY
EXCEPT FOR LIABILITY ARISING UNDER SECTION 16.2, NORIAN'S LIABILITY
ARISING OUT OF THIS AGREEMENT, THE TERMINATION THEREOF, AND/OR SALE OF THE
PRODUCTS SHALL BE LIMITED TO THE AMOUNT PAID BY MOCHIDA FOR THE PRODUCT. IN NO
EVENT SHALL NORIAN BE LIABLE TO MOCHIDA OR ANY OTHER ENTITY FOR COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS, LOST PROFITS, OR ANY OTHER SPECIAL,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND UNDER ANY THEORY OF
LIABILITY ARISING OUT OF THIS AGREEMENT WHETHER BASED IN CONTRACT, TORT
(INCLUDING NEGLIGENCE), OR OTHERWISE. THESE LIMITATIONS SHALL APPLY WHETHER OR
NOT NORIAN HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED
HEREIN.
ARTICLE 20
DISPUTE RESOLUTION
20.1 Disputes. If the Joint Development Committee, or Norian and
Mochida, are unable to resolve any dispute between them, either Norian or
Mochida may, by written notice to the other, have such dispute referred to the
chief executive officers (or equivalent) of Norian and Mochida, for attempted
resolution by good faith negotiations within twenty-one (21) days after such
notice is received. Unless otherwise mutually agreed, the negotiations between
the designated officers shall be conducted by telephone, with three (3) days
and times within the period stated above offered by the designated officers of
Mochida to the designated officer of Norian for consideration.
20.2 Arbitration. Any dispute, controversy or claim arising out of
or relating to the validity, construction, enforceability or performance of
this Agreement, including disputes relating to alleged breach or to termination
of this Agreement, shall be settled by final, binding arbitration in the manner
described in this Section 20.2. The arbitration shall be conducted pursuant to
the Commercial Arbitration Rules of the American Arbitration Association then
in effect ("Rules"). Notwithstanding those rules, the following provisions
shall apply to the arbitration hereunder:
20.2.1 Arbitrators. The arbitration shall be conducted by a
panel of three (3) arbitrators ("the Panel"). Each party shall have the right
to appoint one (1) member of the Panel, with the third member to be mutually
agreed by the two (2) Panel members appointed by the parties or appointed in
accordance with the rules of the American Arbitration Association. The
arbitrators shall be persons in the medical device industry with experience in
the matters in dispute.
20.2.2 Proceedings. The parties and the arbitrators shall
use their best efforts to complete the arbitration within one (1) year after
the appointment of the Panel under Section 20.2.1 above, unless a party can
demonstrate to the Panel that the complexity of the issues or other reasons
warrant the
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<PAGE> 29
extension of the time table. In such case, the Panel may extend such time
table as reasonably required. Notwithstanding the foregoing, any arbitration of
whether a milestone payment is due under Section 4.2 above shall be completed
and a decision reached within sixty (60) days after the appointment of the
Panel. The Panel shall, in rendering its decision, apply the substantive law
of the State of California, without regard to its conflict of laws provisions,
except that the interpretation of and enforcement of this Article 20 shall be
governed by the U.S. Federal Arbitration Act. The proceeding shall take place
in the city and county of San Francisco, California. The fees of the Panel
shall be paid by the losing party which party shall be designated by the Panel.
If the Panel is unable to designate a losing party, it shall so state and the
fees shall be shared equally between the parties.
ARTICLE 21
MISCELLANEOUS
21.1 Governing Law. This Agreement and any dispute arising from
the performance or breach hereof shall be governed by and construed and
enforced in accordance with, the laws of the State of California, without
reference to conflicts of laws principles and without regard to the 1980
Convention on the International Sale of Goods.
21.2 Review by Fair Trade Commission. Mochida agrees to file this
Agreement, if required, with the Japan Fair Trade Commission (the "JFTC"), and
shall provide to Norian English translations of all notifications filed in
connection with this Agreement promptly after such filing. If the JFTC advises
or recommends the amendment or deletion of any terms and conditions of, or any
addition to, this Agreement, Mochida shall immediately inform Norian of such
advice or recommendation and the parties shall negotiate in good faith to
modify this Agreement in accordance with such advice or recommendation.
Notwithstanding the provisions of Section 21.9, if within thirty (30) days
after receipt of a written recommendation from the JFTC, the parties do not
reach agreement, either party may terminate this Agreement without incurring
any further liability or obligation.
21.3 Force Majeure. Nonperformance of any party (except for
payment obligations) shall be excused to the extent that performance is
rendered impossible by strike, fire, earthquake, flood, governmental acts or
orders or restrictions, delay or failure of suppliers, or any other reason
where failure to perform is beyond the reasonable control and not caused by the
gross negligence or willful misconduct of the nonperforming party.
21.4 No Implied Waivers; Rights Cumulative. No failure on the part
of Norian or Mochida to exercise and no delay in exercising any right under
this Agreement, or provided by statute or at law or in equity or otherwise,
shall impair, prejudice or constitute a waiver of any such right, nor shall any
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right.
21.5 Independent Contractors. Nothing contained in this Agreement
is intended implicitly, or is to be construed, to constitute Norian or Mochida
as partners in the legal sense. No party hereto shall have any express or
implied right or authority to assume or create any obligations on behalf of or
in the
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<PAGE> 30
name of any other party or to bind any other party to any contract, agreement
or undertaking with any third party.
21.6 Notices. All notices, requests and other communications
hereunder shall be in writing and shall be personally delivered or sent by
registered or certified mail, return receipt requested, postage prepaid, in
each case to the respective address specified below, or such other address as
may be specified in writing to the other parties hereto:
Mochida: __________________________________
__________________________________
Attn: _________________________
with a copy to:
__________________________________
__________________________________
__________________________________
__________________________________
Attn: General Counsel
Norian: Norian Corporation
10260 Bubb Road
Cupertino, California 95014-4166
Attn: _________________________
with a copy to: Wilson, Sonsini, Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Kenneth A. Clark, Esq.
21.7 Assignment. This Agreement shall not be assignable by either
party to any third party hereto without the written consent of the other party
hereto; except that either party may assign this Agreement without the other
party's consent to an entity that acquires all or substantially all of the
business or assets of the assigning party, in each case whether by merger,
acquisition, or otherwise.
21.8 Modification. No amendment or modification of any provision
of this Agreement shall be effective unless in writing signed by all parties
hereto. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by all parties.
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<PAGE> 31
21.9 Severability. If any provision hereof should be held invalid,
illegal or unenforceable in any jurisdiction, all other provisions hereof shall
remain in full force and effect in such jurisdiction and shall be liberally
construed in order to carry out the intentions of the parties hereto as nearly
as may be possible. Such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of such provision in any other
jurisdiction. The provisions of this Section 21.9 shall be subject to the
provisions of Section 21.2.
21.10 Publicity. Each of the parties hereto agrees not to disclose
to any third party the financial terms of this Agreement without the prior
written consent of the other party hereto, except to advisors, investors and
others on a need-to-know basis under circumstances that reasonably ensure the
confidentiality thereof, or to the extent required by law. Notwithstanding the
foregoing, the parties shall agree upon a press release to announce the
execution of this Agreement, together with a corresponding Question & Answer
outline for use in responding to inquiries about the Agreement; thereafter,
Mochida and Norian may each disclose to third parties the information contained
in such press release and Question & Answer outline without the need for
further approval by the other. From time to time during the term of this
Agreement, upon Norian's request, the parties shall agree upon additional press
releases.
21.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together, shall constitute one and the same instrument.
21.12 Headings. Headings used herein are for convenience only and
shall not in any way affect the construction of or be taken into consideration
in interpreting this Agreement.
21.13 Export Laws. Notwithstanding anything to the contrary
contained herein, all obligations of Norian and Mochida are subject to prior
compliance with United States export regulations and such other United States
laws and regulations as may be applicable, and to obtaining all necessary
approvals required by the applicable agencies of the government of the United
States. Norian and Mochida shall cooperate with each other and shall provide
assistance to the other as reasonably necessary to obtain any required
approvals.
21.14 No Implied Licenses. Except as expressly provided herein, no
party hereto grants to any other party hereto any rights or licenses under such
party's patent rights, trade secrets or other intellectual property rights.
21.15 Entire Agreement. This Agreement, including the Exhibits
attached hereto, constitutes the entire agreement with respect to the subject
matter hereof, and supersedes all prior or contemporaneous understandings or
agreements, whether written or oral, between Norian and Mochida with respect to
such subject matter.
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<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered effective as of the Effective Date.
NORIAN CORPORATION MOCHIDA PHARMACEUTICAL CO. LTD.
By: ________________________________ By: _______________________________
Name: ______________________________ Name: _____________________________
Title: _____________________________ Title: ____________________________
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<PAGE> 33
EXHIBIT A
Transfer Prices
1. The price to Mochida for Products intended for commercial sale shall
be equal to the prices set forth in this paragraph 1 below:
a. Durable components of the Products such as mixers and
injection guns ("Durable Components"): [CONFIDENTIAL INFORMATION REDACTED] of
the Reimbursement Price, but in the event that a Reimbursement Price is not
obtained, then the transfer price set forth in Section 1(d) below shall apply.
b. Consumable components of the Products such as delivery
nozzles, needles, and other single-use components of the Products, but
excluding Biomaterial Components ("Consumable Components"): [CONFIDENTIAL
INFORMATION REDACTED] of the Reimbursement Price, but in the event that a
Reimbursement Price is not obtained, then the transfer price set forth in
Section 1(d) below shall apply.
c. Biomaterial components of the Products ("Biomaterial
Components"):
i. Until the earlier of (i) [CONFIDENTIAL INFORMATION
REDACTED] after approval of a Marketing Approval Application in Japan, or (ii)
such time as [CONFIDENTIAL INFORMATION REDACTED] exceed either [CONFIDENTIAL
INFORMATION REDACTED] in any given one year period after the date of first
commercial sale of the first Product, [CONFIDENTIAL INFORMATION REDACTED] of
the Reimbursement Price.
ii. Thereafter, the transfer price shall be [CONFIDENTIAL
INFORMATION REDACTED] of the Reimbursement Price up to or equaling the
threshold for the amount of annual Net Sales calculated as set forth below, and
if the amount of annual Net Sales exceeds any of the threshold levels
calculated as set forth below, then the transfer price for Products exceeding
the threshold for annual Net Sales shall be [CONFIDENTIAL INFORMATION REDACTED]
of the Reimbursement Price:
1. If the Reimbursement Price for 10cc of
Biomaterial Components is less than [CONFIDENTIAL INFORMATION REDACTED], then
the threshold for annual Net Sales shall be [CONFIDENTIAL INFORMATION
REDACTED].
2. If the Reimbursement Price for 10cc of
Biomaterial Components is more than [CONFIDENTIAL INFORMATION REDACTED], then
the threshold for annual Net Sales shall be [CONFIDENTIAL INFORMATION
REDACTED].
<PAGE> 34
3. If the Reimbursement Price for 10cc of
Biomaterial Components is between [CONFIDENTIAL INFORMATION REDACTED], then the
threshold for annual Net Sales shall be calculated in accordance with the
following formula:
[CONFIDENTIAL INFORMATION REDACTED], where
[CONFIDENTIALITY INFORMATION REDACTED]
iii. In the event that a Reimbursement Price is not
obtained for Biomaterial Components, the transfer price set forth in Section
1(d) below shall apply to sales of Biomaterial Components to Mochida, and
notwithstanding the foregoing provisions of this Section 1(c) set forth above,
in no event shall the transfer price for Biomaterial Components be less than
[CONFIDENTIAL INFORMATION REDACTED] for 5cc of Biomaterial Components,
[CONFIDENTIAL INFORMATION REDACTED] for 10cc of Biomaterial Components, and
[CONFIDENTIAL INFORMATION REDACTED] for 20cc of Biomaterial Components;
provided that upon either party's request, the parties shall negotiate in good
faith as mutually agreed a reduction in the foregoing fixed prices in the event
Norian's Production Costs for the Biomaterial Components materially decrease.
d. Notwithstanding the prices set forth in Paragraphs 1(a), 1(b)
and 1(c) above, in no event shall the price for Biomaterial Components of
Products be less than a price that provides Norian with a gross margin of
[CONFIDENTIAL INFORMATION REDACTED], and the price of Consumable Components and
Durable Components shall not be less than Norian's Production Cost plus
[CONFIDENTIAL INFORMATION REDACTED].
2. Norian shall provide to Mochida mutually agreed upon quantities of
Products intended for use in clinical trials free of charge.
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<PAGE> 35
EXHIBIT B
Training and Educational Programs
Mochida shall provide Education Programs and Training Programs in
accordance with the schedule set forth below for all Norian Applications:
<TABLE>
<CAPTION>
Training Time to Complete
-------- ----------------
<S> <C>
1. Education Programs and Training Programs for all Within [CONFIDENTIAL INFORMATION REDACTED] after the
investigators and trialists who will participate in Effective Date
Clinical Development
2. Education Programs and Training Programs for all Within [CONFIDENTIAL INFORMATION REDACTED] after
faculty who will participate in providing the Training receipt of governmental approval of a Marketing
Programs and Education Programs set forth in Sections Approval Application for a Product in Japan
3 and 4 below
3. Education Programs and Training Programs comprised Within [CONFIDENTIAL INFORMATION REDACTED] after
of workshops for a minimum of [CONFIDENTIAL receipt of governmental approval of a Marketing
INFORMATION REDACTED] key universities and large Approval Application for a Product in Japan
hospitals
4. Education Programs for a minimum of [CONFIDENTIAL On [CONFIDENTIAL INFORMATION REDACTED], commencing on
INFORMATION REDACTED] surgeons per year, with a the date of receipt of governmental approval of a
[CONFIDENTIAL INFORMATION REDACTED] surgeons in Marketing Approval Application for a Product in Japan
attendance at any one Education Program workshop.
</TABLE>
Education Programs and Training Programs provided by Mochida shall address all
Norian Applications.
<PAGE> 36
EXHIBIT C
Marks
[TO BE COMPLETED BY NORIAN]
<PAGE> 37
EXHIBIT D
Preferred Stock Purchase Agreement
<PAGE> 38
EXHIBIT E
Norian Applications
1. Fractured distal radius repair
2. Tibial plateau repair
3. Intertrochanteric fracture of the hip repair
4. Spinal reconstructive surgery
<PAGE> 39
EXHIBIT F
Norian Data
U.S. F.D.A. IDE #G92077 and all supplements thereto
<PAGE> 1
Exhibit 10.8
NORIAN CORPORATION
10260 BUBB ROAD
CUPERTINO, CALIFORNIA 95014-4166
-------------------------------------------
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
APRIL 16, 1996
-------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page No.
<S> <C>
SECTION 1 - Authorization and Sale of Preferred Stock......................................... 1
1.1 Authorization........................................................... 1
1.2 Sale of Series D Preferred.............................................. 1
SECTION 2 - Closing Dates; Delivery........................................................... 1
2.1 Closing Dates........................................................... 1
2.2 Delivery................................................................ 1
SECTION 3 - Representations and Warranties of the Company..................................... 2
3.1 Organization and Standing; Articles and By-Laws......................... 2
3.2 Corporate Power......................................................... 2
3.3 Subsidiaries............................................................ 2
3.4 Capitalization.......................................................... 2
3.5 Authorization........................................................... 3
3.6 Agreements; Action...................................................... 3
3.7 Title to Properties and Assets; Liens, etc.............................. 4
3.8 Compliance With Other Instruments, None Burdensome, etc................. 4
3.9 Litigation, etc......................................................... 4
3.10 Employees............................................................... 5
3.11 Registration Rights..................................................... 5
3.12 Governmental Consent, etc............................................... 5
3.13 Offering................................................................ 5
3.14 Brokers or Finders; Other Offers........................................ 5
3.15 Patents, Trademarks, Licenses........................................... 5
3.16 Agreements with Principals.............................................. 6
3.17 Disclosure.............................................................. 6
3.18 Corporate Documents..................................................... 6
3.19 Financial Statements.................................................... 7
3.20 Changes................................................................. 7
3.21 Employee Benefit Plans.................................................. 8
3.22 Tax Returns, Payments and Elections..................................... 8
3.23 Insurance............................................................... 8
3.24 Labor Agreements and Actions............................................ 8
3.25 Section 83(b) Elections................................................. 8
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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Page No.
<S> <C>
SECTION 4 - Representations and Warranties of Mochida......................................... 9
4.1 Accredited Investor..................................................... 9
4.2 Investment.............................................................. 9
4.3 Rule 144................................................................ 9
4.4 No Public Market........................................................ 9
4.5 Access to Data.......................................................... 9
4.6 Authorization........................................................... 9
4.7 Brokers or Finders...................................................... 10
4.8 Further Limitations on Disposition...................................... 10
4.9 Legends................................................................. 10
SECTION 5 - Conditions to Closing of Mochida.................................................. 11
5.1 Representations and Warranties Correct.................................. 11
5.2 Covenants............................................................... 11
5.3 Compliance Certificate.................................................. 11
5.4 State Securities Laws................................................... 11
5.5 Compliance with Japanese Law............................................ 11
5.6 Restated Articles of Incorporation...................................... 11
5.7 Legal Matters........................................................... 11
5.8 Opinion of Counsel...................................................... 12
5.9 Modification Agreement.................................................. 12
5.10 No Bankruptcy Proceedings............................................... 12
5.11 Minimum Investment by Mochida........................................... 12
5.12 Qualifications.......................................................... 12
5.13 Proceedings and Documents............................................... 12
5.14 Proprietary Information and Inventions Employee Agreements.............. 12
5.15 Bylaws.................................................................. 12
5.16 Board of Directors...................................................... 12
5.17 Voting Agreement........................................................ 13
5.18 Co-Sale Agreement....................................................... 13
SECTION 6 - Conditions to Closing of Company.................................................. 13
6.1 Representations......................................................... 13
6.2 State Securities Laws................................................... 13
6.3 Restated Articles of Incorporation...................................... 13
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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Page No.
<S> <C>
6.4 Legal Matters........................................................... 13
6.5 Modification Agreement.................................................. 13
SECTION 7 - Affirmative Covenants of the Company.............................................. 14
7.1 Financial Information................................................... 14
7.2 Rule 144A Information................................................... 15
7.3 Termination of Information and Inspection Covenants..................... 15
7.4 Additional Agreements................................................... 16
7.5 Nondisclosure........................................................... 16
7.6 Proprietary Information Agreements...................................... 17
7.7 Key Man Insurance....................................................... 17
7.8 Reservation of Shares................................................... 17
7.9 Public Disclosures...................................................... 17
SECTION 8 - Indemnification................................................................... 17
SECTION 9 - Restrictions on Transferability of Securities; Compliance With Securities Act;
Registration Rights............................................................... 18
9.1 Restrictions on Transferability......................................... 18
9.2 Certain Definitions..................................................... 18
9.3 Restrictive Legend...................................................... 19
9.4 Notice of Proposed Transfers............................................ 20
9.5 Requested Registration.................................................. 21
9.6 Company Registration.................................................... 23
9.7 Registration on Form S-3................................................ 25
9.8 Expenses of Registration................................................ 25
9.9 Registration Procedures................................................. 25
9.10 Indemnification......................................................... 26
9.11 Information by Holder................................................... 28
9.12 Rule 144 Reporting...................................................... 28
9.13 Transfer of Registration Rights......................................... 28
9.14 Lockup Agreement........................................................ 28
SECTION 10 - Right of First Refusal........................................................... 29
10.1 Right of First Refusal.................................................. 29
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page No.
<S> <C>
SECTION 11 - Miscellaneous.................................................................... 31
11.1 Governing Law........................................................... 31
11.2 Survival................................................................ 31
11.3 Successors and Assigns.................................................. 31
11.4 Entire Agreement; Amendment............................................. 31
11.5 Notices, etc............................................................ 32
11.6 Delays or Omissions..................................................... 32
11.7 California Corporate Securities Law..................................... 32
11.8 Expenses and Counterparts............................................... 33
11.9 Severability............................................................ 33
11.10 Titles and Subtitles.................................................... 33
</TABLE>
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<PAGE> 6
EXHIBITS
A. Sixth Amended and Restated Articles of Incorporation
B. Exceptions to Representations and Warranties
C. Form of Compliance Certificate
D. Form of Opinion of Counsel
E. Form of Modification Agreement
F. Form of Proprietary Information and Inventions Employee Agreement
G. Form of Fourth Amended and Restated Voting Agreement
H. Form of Fourth Amended and Restated Co-Sale Agreement
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<PAGE> 7
NORIAN CORPORATION
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement is made as of April
16, 1996 (the "Agreement") by and between Norian Corporation, a California
corporation (the "Company"), and Mochida Pharmaceutical Co., Ltd., a corporation
organized under the laws of Japan ("Mochida").
SECTION 1
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
up to an additional 2,800,000 shares (the "Shares") of its Series D Preferred
Stock ("Series D Preferred"), having the rights, privileges and preferences as
set forth in the Company's Sixth Amended and Restated Articles of Incorporation
(the "Restated Articles") in the form attached to this Agreement as Exhibit A.
1.2 SALE OF SERIES D PREFERRED. Subject to the terms and conditions
hereof, the Company will issue and sell to Mochida and Mochida will buy from the
Company, shares of Series D Preferred in the aggregate amount of U.S. Seven
Million Dollars (US$7,000,000) within two (2) days after the Effective Date of
the Exclusive Marketing Agreement by and between the Company and Mochida dated
as of April 15, 1996 (the "Exclusive Marketing Agreement") (the meaning of
"Effective Date" is as defined in the Exclusive Marketing Agreement).
SECTION 2
CLOSING DATES; DELIVERY
2.1 CLOSING DATES. The closing of the purchase and sale of the Series
D Preferred hereunder shall be held at the offices of Wilson, Sonsini, Goodrich
& Rosati, 650 Page Mill Road, Palo Alto, California on April 16, 1996 (the
"Closing") or at such other times and places upon which the Company and Mochida
shall agree (the "Closing Date"). The term "Closing" with respect to sales of
Series D Preferred shall mean each closing under this Agreement and the term
"Closing Date" shall refer to the date on which such Closing occurred.
2.2 DELIVERY. At the Closing, the Company will deliver to Mochida a
certificate registered in Mochida's name, representing the number of Shares
purchased by Mochida at the Closing against payment of the purchase price
therefor, by check payable to the Company or wire transfer per the Company's
instructions.
<PAGE> 8
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company's Exceptions to Representations and
Warranties attached hereto as Exhibit B (the "Schedule of Exceptions"), the
Company represents and warrants to Mochida as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of California and is in good standing under such laws. The Company has the
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is not
presently qualified to do business as a foreign corporation in any jurisdiction,
and the failure to be so qualified will not have a material adverse effect on
the Company's business as presently conducted. As the Company's business
expands, additional qualifications in foreign jurisdictions may be required.
3.2 CORPORATE POWER. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement and all other
agreements attached as Exhibits hereto (collectively and unless otherwise
stated, the "Agreements"), to sell and issue the Shares hereunder, to issue the
Common Stock issuable upon conversion of the Series D Preferred, and to carry
out and perform its obligations under the terms of the Agreements.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation, association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists of 86,000,000 shares of Common Stock, of which 5,373,739 shares are
issued and outstanding immediately prior to the Closing and 74,800,000 shares of
Preferred Stock, 5,000,000 of which are designated as Series A Preferred Stock
(the "Series A Preferred"), 4,902,919 of which are issued and outstanding
immediately prior to the Closing, 10,037,500 of which are designated Series B
Preferred, 10,037,500 of which are outstanding immediately prior to the Closing,
2,750,000 of which are designated Series C Preferred, 2,666,666 of which are
outstanding immediately prior to the Closing and 56,800,000 of which are
designated Series D Preferred, 49,044,423 of which are outstanding immediately
prior to the Closing. The Company has reserved and available for issuance
1,131,552 shares of its Common Stock to be granted to employees, consultants,
directors and members of the Scientific Advisory Board of the Company pursuant
to the Company's 1988 Stock Option Plan (the "Option Plan"). There are currently
outstanding options to purchase 3,631,100 shares of Common Stock under the
Option Plan. The outstanding shares have been duly authorized and validly
issued, and are fully paid and nonassessable. The Company has reserved 2,800,000
shares of Series D Preferred for issuance hereunder and an appropriate number of
shares of Common Stock as may be deemed necessary for issuance upon conversion
of the Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred. The Series D Preferred shall have the rights, preferences, privileges
and restrictions set forth in the Restated Articles. Except as set forth herein,
in the Schedule of Exceptions or as described in the "Modification
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<PAGE> 9
Agreement", as defined in Section 5.8 herein, there are no options, warrants or
other rights to purchase any of the Company's authorized and unissued capital
stock.
3.5 AUTHORIZATION. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance of the Agreements by the Company, the authorization,
sale, issuance and delivery of the Series D Preferred (and the Common Stock
issuable upon conversion of the Series D Preferred), and the performance of all
of the Company's obligations under the Agreements has been taken prior to the
Closing. The Agreements, when executed and delivered by the Company, shall
constitute a valid and binding obligation of the Company, enforceable in
accordance with their terms, except as the indemnification provisions of Section
9.10 of this Agreement may be limited by principles of public policy, and
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. The Series D Preferred, when
issued in compliance with the provisions of the Agreements and the Restated
Articles, will be validly issued, fully paid and nonassessable, and will have
the rights, preferences and privileges described in the Restated Articles. The
Common Stock issuable upon conversion of the Series D Preferred has been duly
and validly reserved and, when issued in compliance with the provisions of the
Agreements and the Restated Articles, will be validly issued, fully paid and
nonassessable; and the Series D Preferred and such Common Stock will be free of
any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders; provided, however, that the Series D Preferred and the
Common Stock issuable upon conversion of the Series D Preferred may be subject
to restrictions on transfer under state and/or federal securities laws as set
forth herein. The Series D Preferred and Common Stock issuable upon conversion
of the Series D Preferred is not subject to any preemptive rights or rights of
first refusal which have not been waived. As of the date hereof, there has been
no issuance by the Company of its securities which has triggered an adjustment
to the "Conversion Price" applicable to any outstanding series of the Company's
Preferred Stock, as set forth in Article III, Section 4(c) of the Restated
Articles ("Antidilution Adjustment"). Additionally, the issuance of the shares
under this Agreement will not trigger any rights which currently exist or which
have not been waived of any holders of Preferred Stock to such an Antidilution
Adjustment at the Closing.
3.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates, or any affiliate
thereof.
(b) There are no material agreements, understandings,
instruments, contracts or proposed transactions to which the Company is a party
or by which it is bound which involve (i) obligations of, or payments to the
Company in excess of, $50,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $50,000,
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<PAGE> 10
(iii) made any loans or advances to any person, other than ordinary advances for
travel expenses or loans for stock purchases not exceeding $10,000, or (iv)
sold, exchanged or otherwise disposed of any of its assets or rights, other than
the sale of its inventory in the ordinary course of business.
(d) To its knowledge, the Company is not a party to and is not
bound by any contract, agreement or instrument, or subject to any restriction
under its Restated Articles or Bylaws, which adversely affects its business as
now conducted, its properties or its financial condition.
3.7 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to its property, assets and proprietary technology,
and has good title to all its leasehold interests, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of
current taxes not yet due and payable and (ii) possible minor liens and
encumbrances which do not in any case materially detract from the value of the
property subject thereto or materially impair the operations of the Company and
which have not arisen otherwise than in the ordinary course of business.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The
Company is not in violation of any term of its Articles of Incorporation or
By-Laws. The Company is not in violation in any material respect of any term or
provision of any material mortgage, indebtedness, indenture, contract,
agreement, instrument, judgment or decree, and to the best of its knowledge is
not in violation of any order, statute, rule or regulation applicable to the
Company in which such violation would materially and adversely affect the
Company. The execution, delivery and performance of and compliance with the
Agreements, and the issuance of the Series D Preferred and the Common Stock
issuable upon conversion of the Series D Preferred, have not resulted and will
not result in any material violation of, or conflict with, or constitute a
material default under any of the foregoing nor result in the creation of, any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company. There is no such violation or default which materially
and adversely affects the business of the Company or any of its properties or
assets.
3.9 LITIGATION, ETC. There is no action, suit, proceeding or
investigation pending or, to the knowledge of the Company, currently threatened
against the Company which questions the validity of the Agreements or the right
of the Company to enter into them, or to consummate the transactions
contemplated thereby, or which might result, either individually or in the
aggregate, in any material adverse changes in the assets, condition, affairs or
prospects of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation, actions
pending or, to the Company's knowledge, threatened (or any basis therefor known
to the Company) involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
-4-
<PAGE> 11
3.10 EMPLOYEES. Each employee of the Company has executed the
Company's standard form of proprietary information agreement. To the best of the
Company's knowledge, no employee of the Company is or is now expected to be in
violation of any term of any employment contract, patent disclosure agreement or
any other contract or agreement relating to the relationship of such employee
with the Company or any other party because of the nature of the business
conducted or proposed to be conducted by the Company. To the best of the
Company's knowledge, its employees have not improperly used and are not making
or expected to make improper use of any confidential information, trade secrets
or intellectual property of others including, without limitation, those of any
former employer, and, to the best of the Company's knowledge, there is no
pending or threatened action, suit, proceeding or claim with respect to the
foregoing.
3.11 REGISTRATION RIGHTS. Except as set forth in the Agreements, the
Company is not under any contractual obligation to register (as defined in
Section 9.2 below) any of its presently outstanding securities or any of its
securities which may hereafter be issued.
3.12 GOVERNMENTAL CONSENT, ETC. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of the Agreements, or the offer, sale or issuance of the
Series D Preferred (and the Common Stock issuable upon conversion of the Series
D Preferred), or the consummation of any other transaction contemplated hereby,
except (a) filing of the Restated Articles in the office of the California
Secretary of State (b) qualification (or taking such action as may be necessary
to secure an exemption from qualification, if available) of the offer and sale
of the Series D Preferred (and the Common Stock issuable upon conversion of the
Series D Preferred) under the California Corporate Securities Law of 1968, as
amended, and other applicable state securities laws, which filings and
qualifications, if required, will be accomplished in a timely manner.
3.13 OFFERING. Subject to the accuracy of Mochida's representations
in Section 4 of this Agreement, the offer, sale and issuance of the Series D
Preferred to be issued in conformity with the terms of the Agreements, and the
issuance of the Common Stock to be issued upon conversion of the Series D
Preferred, constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended (the "Securities Act").
3.14 BROKERS OR FINDERS; OTHER OFFERS. Neither the Company nor
Mochida has incurred, or will incur, directly or indirectly, as a result of any
action taken by the Company (assuming that no unilateral action is taken by
Mochida), any liability for brokerage or finders' fees or agents' commissions or
any similar charges in connection with the Agreements.
3.15 PATENTS, TRADEMARKS, LICENSES. The Company has sufficient
title and ownership of patents, copyrights, trademarks, trade secrets, and all
other proprietary rights needed to conduct its business as proposed to be
conducted.
There are no outstanding options, licenses or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
copyrights, trademarks, trade secrets or proprietary rights and processes of
-5-
<PAGE> 12
any other person or entity. A list of all patents, patent applications,
trademarks and trademark applications is set forth on the Schedule of
Exceptions.
There are no pending infringement claims regarding any third
party's patents, copyrights, trademarks, trade secrets or proprietary rights and
processes against the Company nor, to the best of the Company's knowledge, is
there any threat thereof or basis therefor. To the best of the Company's
knowledge, the Company is not infringing upon or otherwise acting adversely to,
and will not, by conducting its business as presently conducted, infringe upon
or otherwise act adversely to, the right or claimed right of any other person
with respect to any of the foregoing. The Company is not aware of any violation
by a third party of any of its patents, copyrights, trademarks, trade secrets or
other proprietary rights. The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of its proprietary information.
The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of the
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of the Agreements, nor the carrying on of the Company's
business by the employees of the Company will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to their employment by the Company.
3.16 AGREEMENTS WITH PRINCIPALS. Except for agreements explicitly
contemplated hereby, option agreements and restricted stock purchase agreements
between the Company and several employees of the Company: (i) there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors or affiliates, and (ii) no officer, director or
affiliate is indebted to the Company nor is the Company indebted to any of them.
3.17 DISCLOSURE. To the best of the Company's knowledge, the
Agreements and the Company's disclosures to Mochida, when taken as a whole, do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained herein or made by the
Company not misleading in light of the circumstances under which they were made.
Any financial projections disclosed were prepared in good faith; however, the
Company does not warrant that it will achieve any financial projections. Any
assumptions used for projections are materially correct and unchanged as of the
date hereof, provided, however, that no warranty or representation is given as
to opinions, forecasts, or other non-factual matters. The Company has provided
Mochida with all the information which Mochida has requested for deciding
whether to purchase the Shares and all information which the Company believes is
reasonably necessary to enable Mochida to make such decision.
3.18 CORPORATE DOCUMENTS. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by Mochida
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<PAGE> 13
or its counsel), the Restated Articles and Bylaws of the Company are in the form
previously provided to Mochida.
3.19 FINANCIAL STATEMENTS. The Company has delivered to Mochida or
its counsel its audited financial statements (balance sheet and profit and loss
statement, statement of shareholders' equity and statement of cash flows) as of
December 31, 1995 (the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except for the failure of the unaudited
Financial Statements to include the footnotes required by generally accepted
accounting principles. The Financial Statements accurately set out and describe
the financial condition and operating results of the Company as of the dates,
and for the periods, indicated therein, subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments which will not in the
aggregate be material. Except as set forth in the Financial Statements, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 1995 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
3.20 CHANGES. Since December 31, 1995 there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business which have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business or which is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted);
(e) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(f) other than in the ordinary course of business, any
material change in any compensation arrangement or agreement with any employee;
or
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<PAGE> 14
(g) to the Company's knowledge, any other event or condition
of any character which might materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company
(as such business is presently conducted).
3.21 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
3.22 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith which are listed in
the Schedule of Exceptions. The provision for taxes of the Company as shown in
the Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 341(f) or Section 1362(a) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a material effect on the Company, its financial
condition, its business as presently conducted or any of its properties or
material assets.
3.23 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
3.24 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other material labor dispute involving the
Company pending, or to the knowledge of the Company threatened, nor is the
Company aware of any labor organization activity involving its employees. The
Company is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing. The employment of each officer and employee of the Company is
terminable at the will of the Company.
3.25 SECTION 83(B) ELECTIONS. To the best of the Company's
knowledge, all elections and notices required by Section 83(b) of the Internal
Revenue Code and any analogous provisions of applic able state tax laws have
been timely filed by all individuals who have purchased shares of the Company's
Common Stock which are subject to repurchase pursuant to vesting provisions.
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SECTION 4
REPRESENTATIONS AND WARRANTIES OF MOCHIDA
Mochida hereby represents and warrants to the Company with respect to
the purchase of the Shares as follows:
4.1 ACCREDITED INVESTOR. It is an accredited investor within the
meaning of Rule 501 of Regulation D under the Securities Act.
4.2 INVESTMENT. It is acquiring the Series D Preferred and the
underlying securities for investment for its own account, not as a nominee or
agent and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the securities to be purchased and the
underlying securities have not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
Mochida's representations as expressed herein.
4.3 RULE 144. It acknowledges that the Series D Preferred and the
underlying securities must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is
available. It is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the Company's securities, the
availability of certain current public information about the Company, the resale
occurring not less than two years after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction" or
in transactions directly with a "market maker" and the number of shares being
sold during any three-month period not exceeding specified limitations.
4.4 NO PUBLIC MARKET. It understands that no public market now
exists for any of the securities issued by the Company and that the Company has
made no assurances that a public market will ever exist for the Company's
securities.
4.5 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management. It has also had an opportunity to ask questions of officers of the
Company, which questions were answered to its satisfaction. It understands that
such discussions, as well as any written information issued by the Company were
intended to describe certain aspects of the Company's business and prospects but
were not an exhaustive description. The foregoing, however, does not limit or
modify the representations and warranties of Section 3 herein or the right of
Mochida to rely thereon.
4.6 AUTHORIZATION. The Agreements when executed and delivered by
Mochida will constitute a valid and legally binding obligation of Mochida,
enforceable in accordance with its terms, except as the indemnification
provisions of Section 9.10 hereof may be limited by principles of public policy,
and
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subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
4.7 BROKERS OR FINDERS. Except as disclosed in the Schedule of
Exceptions, neither the Company nor Mochida has incurred, directly or
indirectly, as a result of any action taken by Mochida (assuming that no
unilateral action is taken by the Company), any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
the Agreements.
4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Mochida further agrees not to make any
disposition of all or any portion of the Shares (or the Common Stock issuable
upon the conversion thereof) unless and until:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) Mochida shall have (i) notified the Company of the proposed
disposition and furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration of such shares under the Act. It is agreed that the Company will
not require opinions of counsel for transactions made pursuant to Rule 144 or
Rule 144A except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by Mochida to any "affiliate" of Mochida, as defined in Rule 405
promulgated under the Securities Act, or any partnership or company, provided
the transferee agrees in writing to be subject to the terms hereof to the same
extent as if it were the original purchaser hereunder and such transfer may
otherwise be effected in accordance with applicable securities laws.
4.9 LEGENDS. It is understood that the certificates evidencing the
Shares will bear the following legends, in addition to any legend required by
applicable state securities laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT"). SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH SALE OR TRANSFER COMPLIES WITH THE PROVISIONS OF RULE 144 OR RULE
144A UNDER THE ACT IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT."
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<PAGE> 17
"COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE
SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES."
SECTION 5
CONDITIONS TO CLOSING OF MOCHIDA
Unless otherwise specifically stated, Mochida's obligations to purchase
the Shares at the Closing are, at the option of Mochida, subject to the
fulfillment of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Section 3 hereof shall be true and correct
in all material respects as of the Closing Date.
5.2 COVENANTS. All covenants, agreements and conditions contained
in the Agreements to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to
Mochida a certificate of the Company in the form of Exhibit C hereto, executed
by the Chief Financial Officer of the Company, dated the Closing Date, and
certifying, among other things, to the fulfillment of the conditions specified
in Section 5.1, 5.2, 5.4, 5.6, 5.7, 5.8, 5.9, 5.10, 5.12, 5.13, 5.14, 5.15,
5.16, 5.17 and 5.18 of this Agreement.
5.4 STATE SECURITIES LAWS. The Company shall have obtained all
necessary state securities law permits and qualifications, or have the
availability of exemptions therefrom, required by any state for the offer and
sale of the Series D Preferred and the Common Stock issuable upon conversion of
the Series D Preferred.
5.5 COMPLIANCE WITH JAPANESE LAW. Mochida shall have obtained all
necessary Japanese government approvals.
5.6 RESTATED ARTICLES OF INCORPORATION. The Restated Articles shall
have been filed as of the date of the Closing to occur pursuant to the terms of
this Agreement and are in full force and effect with the California Secretary of
State.
5.7 LEGAL MATTERS. All material matters of a legal nature which
pertain to the Agreements, and the transactions contemplated hereby, shall have
been reasonably approved by counsel to Mochida.
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<PAGE> 18
5.8 OPINION OF COUNSEL. The Company shall have delivered to
Mochida an opinion of counsel in the form attached hereto as Exhibit D.
5.9 MODIFICATION AGREEMENT. Concurrently with the Closing to occur
pursuant to the terms of this Agreement, certain persons with both registration
rights and rights of first refusal prior to the Closing will execute a
Modification Agreement attached hereto as Exhibit E (the "Modification
Agreement").
5.10 NO BANKRUPTCY PROCEEDINGS. As of the Closing, the Company shall
not have (i) ceased the conduct of its business, (ii) had appointed a receiver,
custodian, trustee or liquidator for a substantial portion of its assets for the
purpose of satisfying creditor claims, (iii) made a general assignment for the
benefit of its creditors, (iv) be the subject of a voluntary case under the
United Stated Bankruptcy Code; or (v) have pending a voluntary or involuntary
petition under any law pertaining to the bankruptcy or insolvency of the Company
for the purposes of satisfying creditor claims; provided that if an involuntary
petition against the Company as described in clause (v) is dismissed within
ninety (90) days after the Closing Date, such condition shall be deemed to be
satisfied.
5.11 MINIMUM INVESTMENT BY MOCHIDA. At the Closing to occur pursuant
to the terms of this Agreement, Mochida shall purchase shares of Series D
Preferred with an aggregate offering price of at least $7,000,000.
5.12 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to the Agreement shall be duly obtained and effective as
of the Closing.
5.13 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Mochida and Mochida's counsel, and they shall have received all
such counterpart original and certified or other copies of such documents as
they may reasonably request.
5.14 PROPRIETARY INFORMATION AND INVENTIONS EMPLOYEE AGREEMENTS.
Each employee of the Company shall have entered into a Proprietary Information
and Inventions Employee Agreement in the form attached hereto as Exhibit F.
5.15 BYLAWS. The Bylaws of the Company shall provide that the Board
of Directors of the Company shall consist of not less than six (6) nor more than
nine (9) directors, the exact number of directors to be fixed from time to time
within such limit by a duly adopted resolution of the Board of Directors or the
Company's shareholders; the exact number of directors presently authorized shall
be nine (9).
5.16 BOARD OF DIRECTORS. Effective as of the Closing, the directors
of the Company shall be Brent R. Constantz, Peter Barton Hutt, Dr. Harry
Skinner, Costa G. Sevastopoulos, Peter H. Gleason, Jon N. Gilbert and Hansjorg
Wyss.
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<PAGE> 19
5.17 VOTING AGREEMENT. Mochida shall have entered into a Fourth
Amended and Restated Voting Agreement ("Voting Agreement") concerning the
election of certain directors of the corporation, in the form attached hereto as
Exhibit G.
5.18 CO-SALE AGREEMENT. The Company, Mochida and certain of the
Company's shareholders shall have entered into that the Fourth Amended and
Restated Co-Sale Agreement ("Co-Sale Agreement") in the form attached hereto as
Exhibit H.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing
Date is, at the option of the Company, subject to the fulfillment as of the
Closing Date of the following conditions:
6.1 REPRESENTATIONS. The representations made by Mochida in Section
4 hereof shall be true and correct when made, and shall be true and correct on
the Closing Date.
6.2 STATE SECURITIES LAWS. The Company shall have obtained all
necessary state securities law permits and qualifications, or have the
availability of exemptions therefrom, required by any state for the offer and
sale of the Series D Preferred and the Common Stock issuable upon conversion of
the Series D Preferred.
6.3 RESTATED ARTICLES OF INCORPORATION. The Restated Articles
shall have been filed with the California Secretary of State as of the date of
the Closing to occur pursuant to the terms of this Agreement.
6.4 LEGAL MATTERS. All material matters of a legal nature which
pertain to the Agreements, and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
6.5 MODIFICATION AGREEMENT. Concurrently with the Closing to occur
pursuant to the terms of this Agreement, certain persons with both registration
rights and rights of first refusal prior to the Closing will execute the
Modification Agreement attached hereto as Exhibit E.
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SECTION 7
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
7.1 FINANCIAL INFORMATION. The Company shall deliver by
international courier delivery service the following reports or information
indicated below to Mochida or any transferee of Mochida who is a holder,
together with affiliates, of at least 500,000 shares of Series D Preferred and
any shares of Common Stock issued upon conversion of the Series D Preferred (the
"Requisite Minimum Shares"):
(a) Monthly Financial Statement. As soon as available, but in
any event not later than 30 days after the end of each month (other than the
last month of any fiscal year of the Company), the unaudited consolidated
balance sheet of the Company and its subsidiaries as at the end of each such
month and the related unaudited consolidated statements of income and cash flows
of the Company and its subsidiaries for such month and for the elapsed period in
such fiscal year, all in reasonable detail and stating in comparative form (i)
the figures as of the end of and for the comparable periods of the preceding
fiscal year and (ii) the figures reflected in the operating budget for such
period as specified in the financial plan of the Company delivered pursuant to
subparagraph (c) hereof. All such financial statements shall be complete and
correct in all material respects, shall be prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods reflected therein except as stated therein and shall be accompanied by a
certificate of the Company's president or chief financial officer to such
effect.
(b) Annual Financial Statements. As soon as available, but in
any event within 90 days after the end of each fiscal year of the Company, a
copy of the audited consolidated and consolidating balance sheet of the Company
and its subsidiaries as at the end of such fiscal year and the related audited
consolidated statements of operations, stockholders' equity and cash flows of
the Company and its subsidiaries for such fiscal year, all in reasonable detail
and stating in comparative form the figures as at the end of and for the
previous fiscal year, accompanied by an opinion of an accounting firm of
recognized national standing selected by the Company, which opinion shall state
that such accounting firm's audit was conducted in accordance with generally
accepted auditing standards. All such financial statements shall be complete and
correct in all material respects and prepared in reasonable detail and in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods reflected therein except as stated therein.
(c) Budgets and Other Information. As soon as available, but
in any event not later than 30 days prior to the end of each fiscal year of the
Company, the draft financial plan of the Company for the next succeeding fiscal
year, and prior to the end of each fiscal year the final draft of such plan, in
each such case, including but not limited to a cash flow projection and
operating budget, calculated monthly, as contained in its operating plan
approved by the Company's Board of Directors as well as any updates or revisions
to such plan as soon as available. From time to time, such additional
information regarding results or operations, financial condition, business or
prospects of the Company and its subsidiaries, including without limitation,
cash flow analyses, projections and minutes of any meetings
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of the Board of Directors, as Mochida, if still holding the Requisite Minimum
Shares may reasonably request. The Company shall also afford to Mochida (and its
representatives) access, at reasonable times and on reasonable prior notice, to
the books, records and properties of the Company.
(d) Accountants' Management Letters, etc. Promptly after
receipt by the Company, copies of all accountants' management letters and all
management and board responses to such letters, and all certificates as to
compliance, defaults, material adverse changes, material litigation or similar
matters relating to the Company and its subsidiaries.
(e) Shareholders' Lists. As soon as available, but in any event
within 60 days after the end of each of the first three fiscal quarters, a
shareholders' list, showing, as of the end of each fiscal quarter, the
authorized and outstanding shares by class (including the Common Stock
equivalents of any convertible security), the holders of all outstanding shares
(both before giving effect to dilution and on a fully-diluted basis) and all
outstanding options, warrants and convertible securities and detailing all
options granted, exercised or lapsed and all shares issued or sold.
(f) Other Reports and Statements. Promptly (but in any event
within ten days) after any distribution to the Company's shareholders generally,
to its directors or to the financial community of an annual report, proxy
statement or other report or communication, a copy of each such report, proxy
statement or other report or communication and promptly (but in any event within
ten days) after any filing by the Company with the Securities and Exchange
Commission or with any national securities exchange, of any publicly available
annual or periodic or special report or proxy statement or registration
statement, a copy of such report or statement and copies of all press releases
and other statements made available generally by the Company to the public
concerning material developments in the Company's business.
7.2 RULE 144A INFORMATION. The Company will, as promptly as
practicable after, but in any event within 30 days of a written request from
Mochida, if it holds in the aggregate at least 1,428,572 shares of the Series D
Preferred or Common Stock issued upon the conversion thereof, provide the
information required in Rule 144A(d)(4) to Mochida and any person designated by
Mochida to the Company as a prospective buyer in a transaction pursuant to Rule
144A, provided that each such person shall agree to maintain the confidentiality
of the Company's confidential information and provided that no such person is a
competitor of the Company. The Company further agrees that its obligations
pursuant to this Section 7.2 shall extend to any person who acquires any Series
D Preferred or Common Stock issued upon the conversion thereof, pursuant to a
transaction pursuant to Rule 144A.
7.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The
covenants set forth in Section 7.1 and 7.2 shall terminate and be of no further
force or effect upon the consummation of the Company's sale of Common Stock in a
firm commitment underwriting pursuant to a registration statement under the Act
which results in aggregate gross proceeds to the Company of not less than
$10,000,000 at a per share offering price of $1.50 per share (a "Qualified
Public Offering").
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7.4 ADDITIONAL AGREEMENTS.
(a) Rule 144. If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or a registration statement
pursuant to the requirements of the Securities Act, the Company will timely file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission (the "SEC") thereunder, to the extent required from time to time to
enable Mochida to sell Shares without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of
Mochida, the Company will deliver a written statement as to whether it has
complied with such requirements.
(b) Transaction with Affiliates. Neither the Company nor any
subsidiary of the Company shall, directly or indirectly, enter into any
transaction or agreement with any shareholder of the Company or with any
affiliate of the Company or of any such shareholder unless the transaction or
agreement is reviewed and approved by a majority of the disinterested directors
of the Board of Directors of the Company.
(c) Meetings. The Company will hold an annual informational
meeting of all shareholders at which information with respect to the business of
the Company will be furnished and discussed, such meeting to be held within 180
days after the end of each fiscal year of the Company. The Company will notify
each shareholder of the time and place of such annual meeting not less than 20
nor more than 60 days prior to the date of such meetings.
7.5 NONDISCLOSURE. Mochida agrees that, except as otherwise
required by law he or it will keep confidential and will not disclose or divulge
any confidential, proprietary or secret information which Mochida may obtain
from the Company, and which the Company has prominently marked "confidential,"
"proprietary" or "secret" or has otherwise identified in writing as being such,
pursuant to financial statements, reports and other materials submitted by the
Company as required hereunder, or pursuant to visitation or inspection rights
granted hereunder, unless such information is or becomes known to Mochida from a
source other than the Company or is or becomes publicly known, or unless the
Company gives its written consent to Mochida's release of such information,
except that no such written consent shall be required (and Mochida shall be free
to release such information) if such information is to be provided to Mochida's
lawyer, accountant, or to an employee, officer, director, trustee or partner of
Mochida or Mochida's affiliate or an Institutional Holder, as defined below, who
is a prospective transferee of the Shares or the Common Stock issuable upon the
conversion thereof, other than a competitor of the Company, provided that
Mochida shall inform the recipient of the confidential nature of such
information, and shall obtain the agreement of the recipient, which agreement
shall be written in the case of an Institutional Holder who is a prospective
transferee of the Shares or the Common Stock issuable upon the conversion
thereof, to treat the information as confidential. For the purposes of this
Section 7.5 only, it is understood that any Institutional Holder who is a
prospective transferee of the Shares or the Common Stock issuable upon the
conversion thereof or its affiliates which holds debt or equity securities of
any competitor of the Company solely as a portfolio investment shall not be
deemed
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a competitor for the purposes of this provision. An "Institutional Holder" shall
mean: (a) any bank, savings institution or trust company, acting for its own
account or in a fiduciary capacity, (b) any charitable foundation, (c) any
insurance company or fraternal benefit society, (d) any investment company (as
defined in the Investment Company Act of 1940, as amended), (e) any small
business investment company licensed under the Small Business Investment Act of
1958, as amended, (f) any broker or dealer registered under the Securities
Exchange Act of 1934, as amended, or any investment adviser registered under the
Investment Adviser Act of 1940, as amended, (g) any government, any public
employees' pension or retirement system, or any other government agency
supervising the investment of public funds, (h) any other entity all of the
equity owners of which are Institutional Holders or (i) any other person or
entity that qualifies under the definition of "qualified institutional buyer" as
such term is used in Rule 144A, as amended.
7.6 PROPRIETARY INFORMATION AGREEMENTS. All employees of and
consultants to the Company having access to the Company's proprietary and
confidential information shall execute the Company's standard form of
proprietary information agreement.
7.7 KEY MAN INSURANCE. The Company shall maintain a key-man
insurance policy on the life of Brent R. Constantz, with the Company designated
as beneficiary, in the amount of $1,000,000. In addition, the Company shall
maintain a key-man life insurance policy on the lives of such other key officers
and in such amounts as the Board of Directors of the Company determines is
appropriate.
7.8 RESERVATION OF SHARES. So long as there are shares of Series D
Preferred outstanding, the Company shall reserve and keep reserved a sufficient
number of shares of its Common Stock for issuance upon the conversion of the
Series D Preferred hereunder.
7.9 PUBLIC DISCLOSURES. Except as required by law, the Company
shall not use the name of, or make reference to, Mochida or any of its
affiliates in any press release or in any other public manner without Mochida's
prior written consent.
SECTION 8
INDEMNIFICATION
The Company agrees to indemnify Mochida and each officer, director,
trustee, employee and affiliate of Mochida (the "Indemnified Parties") for, and
hold each Indemnified Party harmless from and against: (i) any and all damages,
losses and other liabilities of any kind, including, without limitation,
judgments and costs of settlement, and (ii) any and all out-of-pocket costs and
expenses of any kind, including, without limitation, reasonable fees and
disbursements of one counsel for such Indemnified Parties (selected by the
holders of a majority of the Shares held by such Indemnified Parties) (all of
which expenses shall be periodically reimbursed as incurred), in each case,
suffered or incurred in connection with (A) any investigative, administrative or
judicial proceeding or claim (collectively, a "claim") brought or threatened
relating to or arising out of the Agreements, or the transactions contemplated
hereby and thereby or the Company's use of the proceeds received in connection
with the sale of the Shares or
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<PAGE> 24
(B) any inaccuracy or alleged inaccuracy in any representation or warranty of
the Company made or incorporated by reference in the Agreements or any breach or
alleged breach by the Company of any covenant or agreement made or incorporated
by reference in the Agreements; provided, however, that, without limiting any
other remedy such Indemnified Party may have, such Indemnified Party shall have
no right to be indemnified or held harmless under clause (A) of this Section 8
for any claims or inaccuracies derived solely from Indemnified Party's own
negligence or arising from Indemnified Party's willful misconduct as finally
determined by a court of competent jurisdiction and provided further that with
respect to a claim referred to in either clause A or B above (X) the Company
shall be entitled to control the defense of such claim (and to pay the fees and
expenses only of such counsel as are thereby necessitated) unless counsel for
either the Company or an indemnified party shall determine that a conflict of
interest would occur as a result of such joint representation, provided that
with respect to any claims in which the Indemnified Parties are named, the
Indemnified Parties shall be required to consent to any such settlement (such
consent not be unreasonably withheld), (Y) the Company shall not be required to
pay any amounts incurred in settlement of any claim unless it has consented to
such settlement (such consent not to be unreasonably withheld) and (Z) the
indemnified party shall give the Company notice of such claim provided that the
failure to give such notice shall not relieve the Company of its obligation to
indemnify hereunder except to the extent the Company is actually prejudiced
thereby. The indemnified party shall provide the Company with reasonable
cooperation in the event of any claim referred to in clause (X) above.
SECTION 9
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS
9.1 RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock and the
Conversion Stock (as defined below) shall not be sold, assigned, transferred or
pledged except upon the conditions specified in this Section 9, which conditions
are intended to ensure compliance with the provisions of the Securities Act.
Mochida and each Holder (as defined below) will cause any proposed purchaser,
assignee, transferee, or pledgee of the Preferred Stock or the Conversion Stock
held by Mochida or the Holder to agree to take and hold such securities subject
to the provisions and upon the conditions specified in this Section 9.
9.2 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Conversion Stock" means the Common Stock issued or issuable
pursuant to conversion of the Series A Preferred, the Series B Preferred, the
Series C Preferred, the Series D Preferred or upon exercise of that certain
warrant granted to Alex. Brown & Sons Incorporated and those certain warrants
granted to Frazier Investment Securities, L.P.
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"Holder" shall mean any holder of Registrable Securities and
any person holding Registrable Securities to whom the rights under this Section
9 have been transferred in accordance with Section 9.13 hereof.
"Initiating Holders" shall mean any Holders who in the
aggregate are Holders of at least 40% of the Registrable Securities.
"Preferred Stock" shall mean the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred.
"Registrable Securities" means (i) the Conversion Stock; and
(ii) any Common Stock of the Company issued or issuable in respect of the
Conversion Stock or other securities issued or issuable pursuant to the
conversion of the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred upon any stock split, stock dividend, recapitalization, or
similar event, or any Common Stock otherwise issued or issuable with respect to
such securities; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) transferred
without concurrent transfer of registration rights pursuant to Section 9.13.
The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 9.5, 9.6 and 9.7 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of legal counsel for the Company,
fees and disbursements for one special legal counsel for all Holders, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company and exclusive of
underwriting discounts and commissions).
"Restricted Securities" shall mean the securities of the
Company required to bear the legend set forth in Section 9.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders.
9.3 RESTRICTIVE LEGEND. Each certificate representing (i) the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred, (ii) the Conversion Stock and (iii) any other securities issued in
respect of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D
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Preferred or the Conversion Stock upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by the provisions of Section 9.4 below) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). SUCH SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS SUCH SALE OR TRANSFER COMPLIES
WITH THE PROVISIONS OF RULE 144 OR RULE 144A UNDER THE ACT IN
THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY STATING
THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT.
COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES
AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
Mochida and each Holder consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
or the Conversion Stock in order to implement the restrictions on transfer
established in this Section 9.
Any legend endorsed on a certificate as described above shall
be removed and the Company shall issue a certificate without such legend to the
holder of such security if such security is registered under the Securities Act
or if a notification under Regulation A of the Securities Act is in effect with
respect thereto, or if such security may be sold under Rule 144(k) of the
Commission under the Securities Act.
9.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 9.4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, except in the case of (i) a transfer not involving a change in
beneficial ownership, (ii) a transfer which complies with the provisions of Rule
144 or Rule 144A under the Securities Act in the opinion of counsel to the
Company, or (iii) in transactions involving the distribution without
consideration of Restricted Securities by any of the holders to any of its
"affiliates", as defined in Rule 405 under the Securities Act, partners, retired
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partners, or to the estate of any of its partners or retired partners, or to
such holder's spouse, siblings, spouse of such siblings, ancestors and
descendants and any trust established solely for such holder's benefit or for
the benefit of such holder's spouse, siblings, ancestors and/or descendants, at
such holder's expense by either (i) a written opinion of legal counsel who shall
be, and whose legal opinion shall be, reasonably satisfactory to the Company
addressed to the Company, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration under the Securities
Act or (ii) a "no action" letter from the Commission to the effect that the
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear, except if such
transfer is made pursuant to Rule 144 or Rule 144A, the appropriate restrictive
legend set forth in Section 9.3 above, except that such certificate shall not
bear such restrictive legend if in the opinion of counsel for such holder and
the Company such legend is not required in order to establish compliance with
any provision of the Securities Act.
9.5 REQUESTED REGISTRATION.
(a) Request for Registration. In case the Company shall
receive from either (i) holders of at least 25% of the Series D Preferred
("Series D Holders") outstanding as of the date of the last closing pursuant to
the terms of the Agreement or the Common Stock issued upon conversion thereof,
or (ii) Initiating Holders, a written request that the Company effect any
registration, qualification or compliance where the reasonably anticipated
aggregate offering price to the public, net of underwriting discounts and
commissions, would exceed $7,500,000, provided, however, that if the
registration qualification or compliance relates to the Company's initial public
offering then, in such event, the written request must include holders of at
least 40% of the outstanding Registrable Securities and shall be for a firmly
underwritten public offering where the reasonably anticipated aggregate offering
price to the public, net of underwriting discounts and commissions, would exceed
$15,000,000, the Company shall:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within 20 days after receipt of such
written notice from the Company;
Provided, however, that the Company shall not be obligated to
file a registration statement to effect any such registration, qualification or
compliance pursuant to this Section 9.5:
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(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) Prior to six months after the effective
date of the Company's first registered public offering of its stock;
(C) Starting on a date two (2) days prior to
and ending on a date six months immediately following the effective date of any
registration statement pertaining to the securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective;
(D) After (i) the Company has effected two such
registrations pursuant to this Section 9.5 and (ii) such registrations have been
declared or ordered effective; or
(E) If the Company shall furnish to such
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its shareholders for a registration statement to be filed in
the near future, then the Company's obligation to use its best efforts to
register, qualify or comply under this Section 9.5 shall be deferred for a
period not to exceed 120 days from the date of receipt of written request from
the Initiating Holders and/or Series D Holders, as the case may be.
Subject to the foregoing clauses (A) through (E), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable, after receipt of the request
or requests of the Initiating Holders and/or Series D Holders, as the case may
be.
(b) Underwriting. In the event that the Initiating Holders
and/or Series D Holders, as the case may be, specify that a registration
pursuant to Section 9.5 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the notice
given pursuant to Section 9.5(a)(i). In such event, the right of any Holder to
registration pursuant to Section 9.5 shall be conditioned upon such Holder's
participation in the underwriting arrangements required by this Section 9.5, and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent requested shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter of
nationally recognized standing selected for such underwriting by a majority in
interest of the Initiating Holders, and/or Series D Holders, as the case may be,
but subject to the Company's reasonable approval. Notwithstanding any other
provision of this Section 9.5, if the managing underwriter advises the
Initiating Holders and/or Series D Holders, as the case may be, in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all holders of Registrable
Securities who have elected to participate in such offering and the
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<PAGE> 29
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders and/or Series D Holders, as the case may be. The Registrable Securities
and/or other securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to 120 days after the effective date of such registration, or
such other shorter period of time as the underwriters may permit. If by the
withdrawal of such Registrable Securities a greater number of Registrable
Securities held by other Holders may be included in such registration (up to the
maximum of any limitation then imposed by the underwriters), then the Company
shall offer to all Holders, if any, whose shares have been excluded from the
registration by the terms of this paragraph, the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 9.5(b) up to the limitation then imposed
by the Underwriters. In the event that the registration does not become
effective due to the withdrawal of Registrable Securities then, unless the
withdrawal was due to adverse market conditions or the discovery by the
withdrawing Holder or Holders of material information relating to the
registration which was not previously known by such Holder or Holders, then, at
the Holder's or Holders' option, (i) the Holder or Holders shall not be entitled
to another demand registration under Section 9.6 unless such Holder or Holders
notwithstanding Section 9.8 hereof, shall pay all Registration Expenses and
Selling Expenses incurred in connection therewith, or (ii) the Holder or Holders
shall reimburse the Company for all of the Company's out-of-pocket expenses
incurred in connection with the aborted registration.
9.6 COMPANY REGISTRATION.
(a) Notice of Registration. If at any time or from time to
time the Company shall determine to register any of its securities, either for
its own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction or (iii) a registration in
which the only Common Stock being registered is Common Stock issuable upon
conversion of convertible debt securities which are also being registered, the
Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 15 days after receipt of such written notice from the
Company, by any Holder.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part
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of the written notice given pursuant to Section 9.6(a)(i). In such event the
right of any Holder to registration pursuant to Section 9.6 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company; provided however that no Holder
participating in such underwriting shall be required to make any representations
or warranties except as they relate to such Holder and its intended method of
distribution and that the liability of such a Holder shall be limited to an
amount equal to the net proceeds from the offering received by such Holder. If
the managing underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, the underwriter may exclude some or
all Registrable Securities from such registration and underwriting. Any such
exclusion shall apply pro rata to all Holders, but the foregoing shall not be
interpreted to require any cutback in the number of shares to be sold by the
Company in such an offering. Notwithstanding the above, in the event of an
offering other than the Company's initial public offering, the number of
Registrable Securities included in such offering shall not be reduced to less
than 40% of the shares to be offered in such offering.
The Company shall advise all Holders and other holders
distributing their securities through such underwriting of any such limitation,
and the number of shares of Registrable Securities and other securities that may
be included in the registration and underwriting shall be allocated among all
Holders and such other holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders and such other
holders at the time of filing the registration statement.
If any Holder or holder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 120 days after the effective date
of the registration statement relating thereto, or such other shorter period of
time as the underwriters may require. If by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation then
imposed by the underwriters), then the Company shall offer to all Holders, if
any, whose shares have been excluded from the registration by the terms of this
paragraph, the right to include additional Registrable Securities in the same
proportion used in determining the underwriter limitation in this Section up to
the limitation then imposed by the Underwriters.
(c) Right to Terminate Registration. The Company shall have
the right to reasonably terminate or withdraw any registration initiated by it
under this Section 9.6 prior to the effectiveness of such registration whether
or not any Holder elected to include securities in such registration.
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9.7 REGISTRATION ON FORM S-3.
(a) If at anytime or from time to time a Holder or Holders
request that the Company file a registration statement on Form S-3 (or any
successor form to Form S-3) for a public offering of shares of the Registrable
Securities, the reasonably anticipated aggregate price to the public of which,
net of underwriting discounts and commissions, would exceed $1,000,000, and the
Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall use its best efforts to cause
such Registrable Securities to be registered for the offering on such form and
to cause such Registrable Securities to be qualified in such jurisdictions as
the Holder or Holders may reasonably request. The substantive provisions of
Section 9.5(b) shall be applicable to each registration initiated under this
Section 9.7. The Company shall give notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this Section
9.7 and shall provide a reasonable opportunity for other Holders to participate
in the registration.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to file a registration statement pursuant to this Section 9.7:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) starting with a date two (2) days prior to, and
ending on a date six months immediately following, the effective date of any
registration statement pertaining to the securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or
(iii) if the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed 120 days
from the receipt of the request to file such registration by such Holder.
9.8 EXPENSES OF REGISTRATION.
(a) All Registration Expenses incurred in connection with
all registrations pursuant to Sections 9.5, 9.6 and 9.7 shall be borne by the
Company. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.
9.9 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 9,
the Company will keep each Holder advised in
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writing as to the initiation of each registration, qualification and compliance
and as to the completion thereof, including any stop order or other proceeding
initiated with respect to such offering. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least 120 days or
until the distribution described in the Registration Statement has been
completed, whichever first occurs; and
(b) Furnish to the Holders participating in such
registration such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
Holders may reasonably request.
9.10 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers, directors, trustees and partners, and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 9, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act or any
state securities law or any rule or regulation promulgated thereunder applicable
to the Company in connection with any such registration, qualification or
compliance, and the Company will reimburse each such Holder, each of its
officers, trustees and directors, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by any Holder,
controlling person or underwriter and stated to be specifically for use therein;
provided, however, that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any such untrue statement, alleged
untrue statement, omission or alleged omission made in a preliminary prospectus
on file with the Commission at the time the registration statement becomes
effective or the amended prospectus filed with the Commission pursuant to Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any underwriter or any Holder, if there is no underwriter, if a copy
of the Final Prospectus was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
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(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers, trustees and
directors and each person controlling such Holder within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Holders, such directors, officers, trustees,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged untrue
statement, omission or alleged omission made in a preliminary prospectus on file
with the Commission at the time the registration statement becomes effective or
in the Final Prospectus, such indemnity agreement shall not inure to the benefit
of any underwriter or any Holder, if there is no underwriter, if a copy of the
Final Prospectus was not furnished to the person asserting the loss, liability,
claim or damage at or prior to the time such action is required by the
Securities Act. Notwithstanding the foregoing, the liability of each Holder
under this subsection (b) shall be limited in an amount equal to the initial
public offering price of the shares sold by such Holder.
(c) Each party entitled to indemnification under this Section
9.10 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and the Indemnifying Party shall have the option to assume the defense
of any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 9 unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No claim may be settled without the consent of
the Indemnifying Party (which consent shall not be unreasonably withheld). No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
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9.11 INFORMATION BY HOLDER. Each Holder holding Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Registrable Securities held by them and the
distribution proposed by such Holder as the Company may request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Section 9.
9.12 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to 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, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Restricted Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public), and of
the Securities Act and the Securities Exchange Act of 1934 (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company 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.
9.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted Mochida and each Holder under Sections
9.5, 9.6 and 9.7 may be assigned to a transferee or assignee in connection with
any transfer or assignment of Registrable Securities by Mochida and each Holder
provided that: (i) such transfer may otherwise be effected in accordance with
applicable securities laws, (ii) such assignee or transferee acquires at least
50,000 shares of Registrable Securities, (iii) written notice is promptly given
to the Company and (iv) such transferee agrees to be bound by the provisions of
this Section 9. Notwithstanding the foregoing, the rights to cause the Company
to register securities may be assigned to any constituent partner of Mochida or
the Holder or to such Holder's spouse, siblings, spouse of such siblings
ancestors and descendants and any trust established solely for Mochida's or the
Holder's benefit or for the benefit of such Holder's spouse, siblings, ancestors
and/or descendants without compliance with item (ii) above, provided written
notice thereof is promptly given to the Company.
9.14 LOCKUP AGREEMENT. Each holder of Registrable Securities and
each transferee pursuant to Section 9 hereof agrees, in connection with any
registration of the Company's securities, upon request of the Company and the
underwriters managing any underwritten offering of the Company's securities,
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not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company and such
underwriter for such period of time (not to exceed 180 days) from the effective
date of such registration as the Company and the underwriters may specify. The
holders of Registrable Securities agree that the Company may instruct its
transfer agent to place stop-transfer notations in its records to enforce the
provisions of this Section 9.14.
SECTION 10
RIGHT OF FIRST REFUSAL
10.1 RIGHT OF FIRST REFUSAL. The Company hereby grants to each
holder of Series A Preferred, Series B Preferred, Series C Preferred and Series
D Preferred (collectively, the "Rights Holders") the right of first refusal to
purchase, pro rata, a portion of "New Securities" (as defined in this Section
10.1) that the Company may, from time to time, propose to sell and issue. Each
Rights Holder's pro rata share, for purposes of this right of first refusal, is
the ratio of (X) the number of shares of Common Stock owned or issuable upon the
conversion of the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred owned by such Rights Holder immediately after the Closing to
(Y) the total number of shares of Common Stock outstanding or issuable upon the
conversion of all outstanding Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred immediately after the Closing, provided,
however, that in the event that any Rights Holder elects not to purchase its pro
rata share in accordance with the above (a "Non-Participating Holder"), then
each participating Rights Holder purchasing New Securities may purchase, on a
pro rata basis among the participating Rights Holders, such Non-Participating
Holder's pro rata share. This right of first refusal shall be subject to the
following provisions:
(a) "New Securities" shall mean any Common Stock and
Preferred Stock of the Company whether or not authorized on the date hereof, and
rights, options, or warrants to purchase such Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, convertible into
said Common Stock or Preferred Stock; provided, however, that "New Securities"
does not include the following:
(i) up to 4,762,652 shares of Common Stock, or
options to purchase shares of Common Stock, issued or granted to officers,
directors, employees, consultants and Scientific Advisory Board members of the
Company pursuant to stock and option plans or arrangements approved by the Board
of Directors;
(ii) shares of Common Stock issuable upon conversion
of any of the Company's Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred;
(iii) securities of the Company offered to the public
pursuant to a bona fide public offering;
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(iv) securities of the Company issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization whereby the Company
owns not less than fifty-one percent (51%) of the voting power of such other
corporation;
(v) shares of Common Stock or Preferred Stock issued
in connection with any stock split, stock dividend, or recapitalization by the
Company;
(vi) up to 529,234 shares of Common issued or issuable
upon the exercise of the warrant dated August 4, 1992 held by Alex. Brown & Sons
Incorporated.
(vii) the shares of Series D Preferred issued pursuant
to the Agreements; or
(viii) up to 2,859,087 shares of Preferred Stock or
Common Stock issued upon exercise of warrants dated April 13, 1995, June 12,
1995 and September 5, 1995 by Frazier Investment Securities, L.P.
(b) In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Rights Holder written notice of
its intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. Each Rights Holder
shall have ten (10) business days from the date such notice is given to agree to
purchase its pro rata share of such New Securities or any portion thereof at the
price and upon the general terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.
(c) In the event that the Rights Holders' aggregate pro rata
exercised portion is less than the amount of New Securities proposed to be
issued in the notice referred to above, the Company shall have sixty (60) days
thereafter to sell (or enter into an agreement pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, within thirty (30) days
from the date of such agreement) with the New Securities respecting which the
Rights Holders' rights were not exercised at a price and upon general terms no
more favorable to the purchasers thereof than specified in the Company's notice.
In the event the Company has not sold the New Securities within such sixty (60)
day period (or sold and issued New Securities in accordance with the foregoing
within thirty (30) days from the date of such agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such New
Securities to the Rights Holders in the manner provided above.
(d) The right of first refusal granted under this Agreement
shall expire upon the closing of the Company's initial public offering pursuant
to a registration statement filed and declared effective under the Securities
Act.
(e) This right of first refusal is nonassignable except if
(i) assigned to an assignee who acquires at least 500,000 shares of assignor's
Preferred Stock having such rights under this Section 10 (or such lesser amount
if assignee acquires all of such assignor's shares), (ii) such assignee agrees
to be bound by the provisions of this Section 10 and (iii) written notice of
such transfer is promptly furnished
-30-
<PAGE> 37
to the Company; provided, however, the rights pursuant to this Section 10 may be
assigned without regard to item (i) above to any constituent or partner of the
Rights Holders or to such Rights Holders' spouse, siblings, spouse of siblings,
ancestors and descendants and any trust established solely for such Rights
Holders' benefit or for the benefit of such Rights Holders' spouse, siblings,
ancestors and/or descendants, provided written notice thereof is promptly given
to the Company.
(f) This right of first refusal shall terminate as to any
Rights Holder who no longer owns any shares of Series A Preferred, Series B
Preferred, Series C Preferred, or Series D Preferred or Common Stock issuable
upon conversion thereof as of the date of the notice referred to above.
SECTION 11
MISCELLANEOUS
11.1 GOVERNING LAW. The Agreements shall be governed in all
respects by the internal laws of the State of California.
11.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Mochida and the
closing of the transactions contemplated hereby.
11.3 SUCCESSORS AND ASSIGNS. Subject to such restrictions contained
in this Agreement to the contrary, including certain share minimums set forth in
Sections 7, 9 and 10 hereof, Mochida and each assignee of Mochida may otherwise,
without the Company's consent, assign its rights under this Agreement, in whole
or in part, in connection with a sale or transfer of the Shares issued hereunder
and the terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the parties, including
the consent given in Section 11.4 hereof. Nothing in the Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of the Agreement, except as expressly provided in
the Agreement.
11.4 ENTIRE AGREEMENT; AMENDMENT. The Agreement and the other
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Neither the Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought; provided, however, that (i) holders
of at least 66-2/3% of the Common Stock issued or issuable upon conversion of
the Series D Preferred may, with the Company's prior written consent, waive,
modify or amend on behalf of all such holders, any provisions hereof other than
the provisions of Sections 9, 10 and clause (ii) of this Section 11.4 hereof;
and (ii) holders of at least 66-2/3% of the Common Stock issued or issuable upon
conversion of the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred may, with the Company's prior written consent, waive, modify
or amend on behalf of all such holders, the provisions of Sections 9, 10
-31-
<PAGE> 38
and clause (ii) of this Section 11.4 hereof. Additionally, notwithstanding the
above, in the event Mochida or a holder of Preferred Stock desires to waive any
beneficial right contained in this Agreement with respect to Mochida or a
holder, then, in such event, Mochida or such holder may waive such beneficial
right without regard to the Company's prior written consent referred to in items
(i) and (ii) above. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Shares purchased under the
Agreement at the time outstanding (including securities into which such Shares
are convertible), each future holder of all such shares and the Company;
provided, however, that no condition set forth in Section 5 hereof may be waived
with respect to Mochida or any holder of Preferred Stock who does not consent
thereto.
11.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by international
courier delivery to Japan, or otherwise delivered by hand or by messenger,
addressed (a) if to Mochida, at Mochida's address, as furnished to the Company
by Mochida in writing, or (c) if to the Company, one copy should be sent to its
address set forth on the cover page of this Agreement and addressed to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to Mochida.
Each such notice or other communications shall for all
purposes of this Agreement be treated as effective or having been given when
delivered if delivered personally or by international courier delivery to Japan,
addressed and mailed as aforesaid. Each such notice or other communications
shall for all purposes of this Agreement be treated as effective or having been
given when sent by international courier delivery service, postage prepaid, at
the earlier of its receipt or 72 hours after the same has been deposited with an
international courier delivery service, addressed and mailed as aforesaid.
11.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any party
to this Agreement (including said party's successors and assigns as defined in
Section 11.3) upon any breach or default of any other party to this Agreement
(including said party's successors and assigns as defined in Section 11.3) under
the Agreement, shall impair any such right, power or remedy of such party, nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under the Agreement, or any waiver on the part of
any party of any provisions or conditions of this agreement, must be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under the Agreement or by law or otherwise
afforded to any party, shall be cumulative and not alternative.
11.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTIONS 25100,
-32-
<PAGE> 39
25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL
PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
11.8 EXPENSES AND COUNTERPARTS. The Company and Mochida each shall
bear its own expenses incurred on its behalf with respect to the Agreement and
the transactions contemplated hereby. This Agreement may be executed in any
number of counterparts each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall constitute
one instrument.
11.9 SEVERABILITY. In the event that any provision of the Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, the Agreement shall continue in full force and effect
without said provision.
11.10 TITLES AND SUBTITLES. The titles and subtitles used in the
Agreement are used for convenience only and are not considered in construing or
interpreting the Agreement.
-33-
<PAGE> 40
The foregoing Series D Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
"COMPANY" NORIAN CORPORATION,
a California corporation
By:
-------------------------------------------
Dr. Brent R. Constantz, President, Chief
Executive Officer and Chief Scientist
"MOCHIDA" MOCHIDA PHARMACEUTICAL CO., LTD.,
a corporation organized under the laws of Japan
By:
-------------------------------------------
*** PURCHASE AGREEMENT ***
<PAGE> 1
Exhibit 10.9
NORIAN CORPORATION
MODIFICATION AGREEMENT
This Modification Agreement (the "Agreement") is entered into as of
the 16th day of April, 1996 by and among Norian Corporation, a California
corporation (the "Company") and the persons and entities listed on Exhibit A
hereto (the "Investors").
RECITALS:
A. The Investors hold certain rights to registration of securities and
certain rights of first refusal to acquire securities of the Company which are
set forth in that certain Series D Preferred Stock Purchase Agreement dated
April 13, 1995, as amended on June 5, 1995 and as further amended on September
5, 1995 (the "Series D Agreement") and which were rendered consistent among all
Investors pursuant to the terms of that certain Modification Agreement dated
September 5, 1995 (the "Prior Modification Agreement").
B. The Company and certain of the Investors desire to amend the Series
D Agreement.
C. The Company, certain of the Investors and other new investor(s)
desire to enter into the Series D Agreement dated as of April 16, 1996, (the
"Purchase Agreement"), which is attached hereto as Exhibit B, to which Purchase
Agreement a copy of this Agreement is attached as an exhibit, providing for,
among other things, the sale and issuance of up to 2,800,000 shares of Series D
Preferred Stock, or such other securities described in the Purchase Agreement
(the "Securities"), to the Company's Japanese distribution partner (the "New
Investor(s)").
D. The Company and the Investors desire to render consistent with the
Purchase Agreement all registration rights of securities and rights of first
refusal to acquire securities of the Company as set forth in the Series D
Agreement and as modified by the Prior Modification Agreement.
E. The Company, Brent Constantz and Donald Caddes (the "Other
Shareholders") and certain of the Investors desire to amend the Third Amended
and Restated Co-Sale Agreement dated September 5, 1995 (the "Co-Sale
Agreement"), which is attached hereto as Exhibit C, to provide a further
inducement to the New Investor(s) to purchase the Company's Series D Preferred
Stock pursuant to the Purchase Agreement.
F. The Company, Morgan Investment Corporation or any affiliate thereof
("Morgan") and Frazier Healthcare Investments, L.P. or any affiliate thereof
("Frazier") and certain of the Investors desire to amend the Third Amended and
Restated Voting Agreement dated September 5, 1995 (the "Voting Agreement"),
which is attached hereto as Exhibit D.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company, certain Investors and New Investors hereby agree as
follows:
1. Termination of Prior Rights. Effective and contingent upon the
closing of the sale of the Securities pursuant to the Purchase Agreement,
Sections 7.3, 9, 10 and 11.4 of the Series D Agreement, and the rights granted
pursuant to the Prior Modification Agreement (relating to registration rights,
rights of first refusal and amendment of such rights) shall be null and void
(except for prior waivers) and superseded by the rights and obligations agreed
to herein and in the Purchase Agreement.
2. Agreement to be Bound by Certain Provisions of Purchase Agreement.
As contemplated by the Purchase Agreement, the Company and each Investor hereby
agrees to be bound by all of the provisions of Sections 7.3, 9, 10 and 11.4 of
the Purchase Agreement (insofar as each such section by its terms applies to
each such Investor). Each Investor acknowledges receipt of a copy of the
Purchase Agreement.
3. Waiver of Rights of First Refusal. Each Investor hereby agrees that
upon the closing of the sale of the Securities pursuant to the Purchase
Agreement, the Investor waives (i) all right to any notice of the issuance and
sale of the Securities as required by Section 10.1 of the Series D Agreement,
and (ii) any right of first refusal it may have to acquire the Securities to be
issued pursuant to the Purchase Agreement, including any shares issuable upon
conversion or exercise of the Securities.
4. Agreement to Amend the Series D Agreement The Company and certain
of the Investors hereby agree to amend the Series D Agreement to terminate
certain information rights upon the occurrence of the Company's initial public
offering, to extend the lock up period from 120 days to 180 days and to amend
Sections 7.3 and 9.14 to read as follows:
Section 7.3 is amended in its entirety to read as follows:
"TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The
covenants set forth in Section 7.1 and 7.2 shall terminate and
be of no further force or effect upon the consummation of the
Company's sale of Common Stock in a firm commitment
underwriting pursuant to a registration statement under the
Act which results in aggregate gross proceeds to the Company
of not less than $10,000,000 at a per share offering price of
$1.50 per share (a "Qualified Public Offering")."
Section 9.14 is amended in its entirety to read as follows:
"LOCKUP AGREEMENT. Each holder of Registrable Securities and
each transferee pursuant to Section 9 hereof agrees, in
connection with any registration of the Company's securities,
upon request of the Company and the underwriters managing any
underwritten offering of the Company's securities, not to
sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose
-2-
<PAGE> 3
of any Registrable Securities (other than those included in
the registration) without the prior written consent of the
Company and such underwriter for such period of time (not to
exceed 180 days) from the effective date of such registration
as the Company and the underwriters may specify. The holders
of Registrable Securities agree that the Company may instruct
its transfer agent to place stop-transfer notations in its
records to enforce the provisions of this Section 9.14."
5. Agreement to Amend the Co-Sale Agreement. The Company, the Other
Shareholders and certain of the Investors hereby agree to amend the Co-Sale
Agreement to include the New Investor(s) as an "Investor" within the meaning of
the defined term "Investor" in the Co-Sale Agreement with all the rights and
obligations thereto.
6. Agreement to Amend the Voting Agreement. The Company, Morgan,
Frazier, the Wyss Trust and certain of the Investors hereby agree to amend the
Voting Agreement to include the New Investor(s) as an "Investor" within the
meaning of the defined term "Investor" in the Voting Agreement with all the
rights and obligations thereto.
7. Amendment. Any amendment or waiver of Sections 1, 2, 3 and 4 hereof
may only be effected by amendment or waiver of the appropriate provision(s) of
the Purchase Agreement, in accordance with the provisions of Section 11.4
thereof. Any amendment or waiver of Section 5 hereof may only be effected by
amendment or waiver of the appropriate provision(s) of the Co-Sale Agreement, in
accordance with the provisions of Section 1.8 thereof. Any amendment or waiver
of Section 6 hereof may only be effected by amendment or waiver of the
appropriate provision(s) of the Voting Agreement, in accordance with the
provisions of Section 5(e) thereof.
8. Miscellaneous.
(a) Except as expressly modified herein or by the Prior
Modification Agreement, the Series D Agreement, the Co-Sale Agreement, the
Voting Agreement and the Prior Modification Agreement shall remain in full force
and effect.
(b) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(c) This Agreement shall be governed by the laws of the State of
California.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have set their hands hereunto effective
upon the date first above written.
<TABLE>
<CAPTION>
THE "COMPANY": THE "INVESTORS":
<S> <C>
NORIAN CORPORATION
-------------------------------------------
(Print Name)
By:
----------------------------------- -------------------------------------------
Brent Constantz (Signature)
President
-------------------------------------------
(Print name of signatory, if applicable)
Signing for the Purposes of Amending the Signing for the Purposes of Amending the
Third Amended and Restated Co-Sale Third Amended and Restated Voting Agreement
Agreement dated September 5, 1995: dated September 5, 1995:
THE "OTHER SHAREHOLDERS" "MORGAN"
By:
- ---------------------------------------- ----------------------------------------
Brent Constantz
Title:
-------------------------------------
- ----------------------------------------
Donald Caddes "FRAZIER"
By:
----------------------------------------
Title:
-------------------------------------
"WYSS TRUST"
By:
----------------------------------------
Title:
-------------------------------------
</TABLE>
**MODIFICATION AGREEMENT**
<PAGE> 5
EXHIBIT A
TO MODIFICATION AGREEMENT
<TABLE>
<CAPTION>
SHAREHOLDER CLASS/SERIES HELD
- ----------------------------------------------------------- ---------------------
<S> <C>
ABS Venture III Limited Partnership Series D Preferred
David L. Anderson Series A Preferred
Series B Preferred
Series D Preferred
Anvest, L.P. Series A Preferred
Series B Preferred
Series D Preferred
G. Leonard Baker, Jr. Series A Preferred
Series B Preferred
Series D Preferred
Banner Partners, Minaret Series D Preferred
BEA Associates
Batterybox & Co. fbo Temple Inland Master Trust
Comply & Co. fbo Tab Products Company Pension Plan Series D Preferred
Polly & Co. fbo Mary Van Schuyler Raiser Series D Preferred
Series D Preferred
Carl Behnke Series D Preferred
Charles H. Blanchard Series D Preferred
Steven E. Bochner Series B Preferred
Brown Technology Associates Limited Series D Preferred
Partnership
Richard A. Carone Irrevocable Trust Series D Preferred
Gerald L. Cohn Revocable Trust Series D Preferred
Martin D. Cohn and George L. Cohn
Trustees for George L. Cohn Trust
</TABLE>
-i-
<PAGE> 6
<TABLE>
<CAPTION>
SHAREHOLDER CLASS/SERIES HELD
- ----------------------------------------------------------- ---------------------
<S> <C>
Tench Coxe Series A Preferred
Series B Preferred
Series D Preferred
Wells Fargo Bank, N.A., Trustee for the Series B Preferred
SHV M/P/T Keogh FBO Tench Coxe
Dean Wittier Reynolds Custodian for Series D Preferred
Herbert L. Damner Jr. IRA Rollover
DTD 10/16/89
William Davidowitz Series D Preferred
Delphi BioInvestments, L.P. Series B Preferred
Series D Preferred
Delphi BioInvestments II, L.P. Series D Preferred
Delphi BioVentures, L.P. Series B Preferred
Series D Preferred
Delphi BioVentures II, L.P. Series D Preferred
Frederick DeMatteis Series D Preferred
Robert Dietrich Series D Preferred
William H. Draper, Revocable Trust Series D Preferred
Peter W. Eising Series D Preferred
Donald J. Elmer Series D Preferred
John C. Fiddes & Karen D. Talmadge, Series D Preferred
Trustees of the Fiddes-Talmadge Family
Trust U/D/T dated 8/8/88
Frazier Healthcare Investments, L.P. Series D Preferred
Donald C. Freeman, Jr. Series A Preferred
James C. Gaither Series A Preferred
Series B Preferred
Series D Preferred
</TABLE>
-ii-
<PAGE> 7
<TABLE>
<CAPTION>
SHAREHOLDER CLASS/SERIES HELD
- ----------------------------------------------------------- ---------------------
<S> <C>
Genstar Investment Corporation Series A Preferred
Series B Preferred
Series D Preferred
Fred M. Gibbons, A Separate Trust Series D Preferred
Guarantee & Trust Co. TTEE FBO John F. Series D Preferred
Banker R-IRA
Guarantee & Trust TTEE FBO Donovan S. Series D Preferred
Thayer IRA DTD 11/4/87
Anthony Hedley Series D Preferred
Carl Hoag Series D Preferred
Lamont W. Hornbeck, III, M.D. Series A Preferred
Howmedica Inc. Series C Preferred
George P. Hutchinson Series D Preferred
P. Anthony Jacobs Series D Preferred
JIBS Equities Series D Preferred
Peter A. Johnson Series D Preferred
J.P. Morgan Investment Corporation Series D Preferred
Robert Eliot King, Trustee under the Series A Preferred
Trust of the R.E.K. Profit Sharing Plan Series B Preferred
Kirlan I, L.P. Series D Preferred
Gitta M. Kurlat Series D Preferred
Saul Kurlat Series D Preferred
Richard F. Kyle Series D Preferred
Michael G. Lyons & Patricia J. Wiesler as Series D Preferred
Trustees or Their Successors of M.G.
Lyons and P.J. Wiesler Trust
David MacCallum Series D Preferred
</TABLE>
-iii-
<PAGE> 8
<TABLE>
<CAPTION>
SHAREHOLDER CLASS/SERIES HELD
- ----------------------------------------------------------- ---------------------
<S> <C>
Mallard Investments Limited Partnership Series D Preferred
David Maryatt Series D Preferred
James & Susan McClatchy, TTEES of the Series D Preferred
McClatchy 1992 Revocable Trust
James and Susan McClatchy, TTEES of the McClatchy 1992 Series D Preferred
Revocable Trust
Don Stevenson McGuire & Clay Felchlin Series D Preferred
McGuire, Common Property
John C. McGuire & Elinor McGuire TTEES Series D Preferred
FBO The McGuire Living Trust
Scott McNealy Series A Preferred
Medical Innovation Fund, a Limited Series D Preferred
Partnership
Medical Innovation Partners Series B Preferred
MicroCap Partners, Limited Partners Series D Preferred
Ali J. Naini Series D Preferred
Northwestern Mutual Life Insurance Company Series D Preferred
Norwest Equity Partners, IV a Minnesota Series B Preferred
Limited Partnership Series D Preferred
Orien II, L.P. Series B Preferred
Series D Preferred
Palo Alto Investors, Inc. Series D Preferred
Palo Alto Investors, Limited Partners Series D Preferred
Penn Footwear Retirement Trust Series D Preferred
Ronald L. Perkins Series A Preferred
Series B Preferred
Series D Preferred
</TABLE>
-iv-
<PAGE> 9
<TABLE>
<CAPTION>
SHAREHOLDER CLASS/SERIES HELD
- ----------------------------------------------------------- ---------------------
<S> <C>
Jeffrey Pfeffer Series A Preferred
The Phoenix Partners II Limited Series D Preferred
Partnership
The Phoenix Partners III Limited Partnership Series D Preferred
Pirate Ship & Co. Series D Preferred
Patricia M. Pope TTEE FBO George A. Series D Preferred
Pope, Jr. Marital Trust
Joe A. Provines and Candace S. Provines, Series D Preferred
as Community Property
Adrienne M. Provo Series D Preferred
G. Keith Provo Series D Preferred
R.D. Merrill Associates II Series D Preferred
Ralph H. Rinne, M.D. Series D Preferred
Rousso Family Trust Series D Preferred
Bertram Rowland Series A Preferred
Saunders Holdings, L.P. Series A Preferred
Series B Preferred
Series D Preferred
SBC Capital Markets Inc. Series D Preferred
Scudder Development Fund Series D Preferred
Seafield Capital Corporation Series D Preferred
Costa G. Sevastopoulos Series A Preferred
James R. Seward Series D Preferred
Charles Shenk Series D Preferred
Martin R. Smith Series D Preferred
Larry W. Sonsini Series A Preferred
Series B Preferred
</TABLE>
-v-
<PAGE> 10
<TABLE>
<CAPTION>
SHAREHOLDER CLASS/SERIES HELD
- ----------------------------------------------------------- ---------------------
<S> <C>
Rees A. Stevenson TTEE FBO Don McGuire Series D Preferred
DM-2
Rees A. Stevenson TTEE FBO Jean C. Series D Preferred
McGuire (JM 2)
Robert J. Sullivan TTEE FBO J. Sullivan Series D Preferred
Revocable Trust
Sutter Hill Ventures, a California Series A Preferred
Limited Partnership Series B Preferred
Series D Preferred
TIFF Investment Program (TIP), US Equity Fund Series D Preferred
Technology Venture Investors - 3 Series A Preferred
Series B Preferred
Technology Venture Investors IV Series B Preferred
Technology Venture Investors IV, as Series D Preferred
nominee for Technology Venture
Investors 4, L.P., TVI Partners 4, L.P.
and TVI Affiliates 4, L.P.
David Teece, Ph.D. Series A Preferred
TOW Partners, a California Limited Series A Preferred
Partnership Series B Preferred
Series D Preferred
TVI Management - 3 Series A Preferred
Series B Preferred
Ventures West III - U.S. Limited Series B Preferred
Partnership Series D Preferred
Vulcan Ventures, Inc. Series D Preferred
W&K Partners Series D Preferred
</TABLE>
-vi-
<PAGE> 11
<TABLE>
<CAPTION>
SHAREHOLDER CLASS/SERIES HELD
- ----------------------------------------------------------- ---------------------
<S> <C>
Jonathan Wilcox & Cynthia Wu Wilcox, Series D Preferred
TTEES of the Jonathan J. Wilcox and
Cynthia Wu Wilcox Revocable Trust
DTD 5/5/89
WS Investment Company 88 Series A Preferred
WS Investment Company 89B Series B Preferred
WS Investments Series D Preferred
Guarantee & Trust Co., Trustee FBO Series D Preferred
Donald L. Wyler IRA
The Amy Wyss 1995 Irrevocable Trust Series D Preferred
Paul M. Wythes & Marsha R. Wythes, Series A Preferred
Trustees of the Wythes Living Trust Series B Preferred
Series D Preferred
William H. Younger, Jr. Series A Preferred
Series B Preferred
Series D Preferred
Zesiger Capital Group LLC,
Albert Zesiger as Attorney-in-fact for:
Hare & Co. fbo American Medical International Pension Series D Preferred
Plan
Kane & Co. fbo Arthur D. Little Employee Pension Plan Series D Preferred
City of Milford CT Pension and Retirement Plan Series D Preferred
Olen & Co. fbo Norwalk Employee Pension Fund Series D Preferred
Albert L. Zesiger Series D Preferred
Atwell & Co. fbo Wells Family LLC Series D Preferred
Daly & Co. fbo Alza Corporation Retirement Plan Series D Preferred
Hare & Co. fbo Brearley School General Investment Series D Preferred
Fund
Cudd & Co. fbo Chapin School Endowment Fund Series D Preferred
Daly & Co. fbo Dean Witter Foundation Series D Preferred
Kinko & Co. fbo Demvest Equities, L.P. Series D Preferred
Batrus & Co. fbo The Jenifer Altman Foundation Series D Preferred
Meehan Investment Partnership I Series D Preferred
</TABLE>
-vii-
<PAGE> 12
<TABLE>
<CAPTION>
SHAREHOLDER CLASS/SERIES HELD
- ----------------------------------------------------------- ---------------------
<S> <C>
Morgan Trust Company of the Bahamas Ltd. Series D Preferred
First American Trust Co. as Trustee for NFIB Employee Series D Preferred
Pension Trust
Sigler & Co. fbo Raiser Marital Trust Series D Preferred
Winsal & Co. fbo Roanoke College Series D Preferred
Robert J. Suslow Series D Preferred
Calmont & Co. fbo Van Loben Sels Foundation Series D Preferred
Barrie Ramsay Zesiger Series D Preferred
Cudd & Co. fbo Helen Hunt Series D Preferred
Heil & Co. fbo The Ferris F. Hamilton Family Trust Series D Preferred
Leonard E. Kingsley Series D Preferred
Dr. William H. Lippy Series D Preferred
Heil & Co. fbo Planned Parenthood of New York City Series D Preferred
Strafe & Co. fbo Warren Otologic Group Profit Sharing Series D Preferred
Trust
Frederick L. Jacobson Series D Preferred
Harold and Grace Willens, JTWROS Series D Preferred
Psychology Associates Series D Preferred
</TABLE>
-viii-
<PAGE> 13
EXHIBIT B
PURCHASER(S)
Mochida Pharmaceutical Co., Ltd.
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
<S> <C> <C>
Net loss.............................................. $(5,858,000) $ (2,284,000)
Pro forma weighted average shares used to compute pro
forma net loss per share:
Convertible preferred stock...................... 6,580,582 7,162,689
Common stock outstanding......................... 608,496 636,696
Convertible preferred stock from Mochida
Transaction.................................... -- 3,846
Number of common shares, preferred shares and warrants
issued and stock options granted in accordance with
Staff Accounting Bulletin 83........................ 1,008,027 1,008,027
----------- -----------
Total....................................... 8,197,105 8,811,258
=========== ===========
Pro forma net loss per share................ $ (0.71) $ (0.26)
</TABLE>
The calculation includes the shares of convertible preferred stock (Series
A, Series B, Series C and Series D) as if they had converted to common stock on
their respective original dates of issuance and the weighted average shares
outstanding resulting from the issuance of 350,000 shares of Series D preferred
stock in conjunction with the Mochida Transaction assumed to have occurred on
March 31, 1996, because such shares automatically convert to common stock upon
closing of the initial public offering of the Company's common stock.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and "Experts"
in the Prospectus.
/s/ KPMG Peat Marwick LLP
------------------------------------
KPMG Peat Marwick LLP
San Francisco, California
May 8, 1996
