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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Quarter Ended September 30, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from ____________ to ____________
Commission file number 0-19880
ENDOSONICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 68-0028500
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
2870 Kilgore Road, Rancho Cordova, California 95670
(Address of principal executive offices)
Registrant's telephone number, including area code (916) 638-8008
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
On September 30, 1998, the registrant had outstanding 17,439,701 shares of
Common Stock of $.001 par value, which is the registrant's only class of Common
Stock.
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ENDOSONICS CORPORATION
FORM 10-Q
THIRD QUARTER
TABLE OF CONTENTS
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Page
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Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed consolidated balance sheets at September 30, 1998 and
December 31, 1997........................................................ 3
Condensed consolidated statements of operations for the three months
and nine months ended September 30, 1998 and 1997........................ 4
Condensed consolidated statements of cash flows for the
nine months ended September 30, 1998 and 1997............................ 5
Notes to condensed consolidated financial statements.......................... 6
Item 2. Management's discussion and analysis of financial condition
and results of operations................................................ 9
Part II. Other Information Information
Item 1 through 5. Not Applicable.
Item 6 Exhibits and Reports on Form 8K...................................................... 17
Signatures................................................................................... 18
</TABLE>
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ENDOSONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,425 $ 13,889
Short-term investments 10,449 9,120
Trade accounts receivable, net 13,310 13,351
Inventories 6,089 6,915
Accrued interest receivable and other current assets 10 424
--------- ---------
Total current assets 36,283 43,699
Property and equipment, net 3,884 3,408
Investment in CardioVascular Dynamics, Inc. 5,233 8,478
Intangible assets, net 12,853 7,222
Other non-current assets 11 --
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$ 58,264 $ 62,807
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 8,307 $ 7,536
Accrued restructuring and integration expenses 4,865 6,017
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Total current liabilities 13,172 13,553
Deferred revenue - long term portion 504 --
--------- ---------
13,676 13,553
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value
5,000,000 shares authorized, no shares issued
and outstanding -- --
Common stock, $.001 par value; 25,000,000 shares
authorized as of December 31, 1997 and September 30, 1998; and
17,439,701 and 16,153,113 shares issued as of September 30, 1998 and
December 31, 1997,
respectively 17 16
Additional paid-in capital 167,938 157,588
Accumulated deficit (118,612) (108,263)
Unrealized gain on available-for-sale securities 117 1
Foreign currency translation (33) (88)
Treasury stock at cost: 860,000 shares and no shares
as of September 30, 1998 and December 31,1997 respectively (4,839) --
--------- ---------
Total stockholders' equity 44,588 49,254
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$ 58,264 $ 62,807
========= =========
</TABLE>
See accompanying notes
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ENDOSONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenue $ 11,702 $ 10,262 $ 30,818 $ 23,726
Cost of sales 4,940 5,996 14,473 13,235
------------ ------------ ------------ ------------
Gross profit 6,762 4,266 16,345 10,491
Operating expenses:
Research, development and clinical 1,710 1,956 5,306 3,881
Marketing and sales 2,674 2,420 6,781 4,353
General and administrative 1,088 3,776 3,678 5,464
Restructuring 223 5,331 223 5,331
Acquired in-process research and development 11,107 43,000 11,107 43,000
Amortization of intangibles 396 208 930 208
------------ ------------ ------------ ------------
Total operating expenses 17,198 56,691 28,025 62,237
------------ ------------ ------------ ------------
Loss from operations (10,436) (52,425) (11,680) (51,746)
Equity in net loss of CardioVascular Dynamics, Inc. -- (502) (158) (1,028)
Other income:
Interest income 310 392 900 1,493
Gain realized on sale of common shares of
CardioVascular Dynamics, Inc. -- 3,954 739 3,954
------------ ------------ ------------ ------------
Total other income 310 4,346 1,639 5,447
------------ ------------ ------------ ------------
Net loss before provision for income tax (10,126) (48,581) (10,199) (47,327)
Provision for income taxes 150 -- 150 --
------------ ------------ ------------ ------------
Net loss $ (10,276) $ (48,581) $ (10,349) $ (47,327)
============ ============ ============ ============
Basic net loss per share $ (0.63) $ (3.14) $ (0.62) $ (3.34)
============ ============ ============ ============
Shares used in computing net loss per share:
Basic 16,367,639 15,461,563 16,616,069 14,188,661
============ ============ ============ ============
</TABLE>
See accompanying notes
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ENDOSONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997
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<S> <C> <C>
Cash flows from operating activities
Net loss $(10,349) $(47,327)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Acquired in-process research and development 11,107 43,000
Depreciation and amortization 1,563 801
Gain on sale of common shares of CardioVascular
Dynamics, Inc. (739) (3,954)
Equity in net loss CardioVascular Dynamics, Inc. 158 1,028
Net changes in :
Operating assets 1,684 (5,144)
Operating liabilities and deferred revenue (1,639) 5,657
-------- --------
Net cash provided by (used in) operating activities 1,785 (5,939)
-------- --------
Cash flows from investing activities:
Purchase of short-term investments (3,272) --
Proceeds from sale of CardioVascular Dynamics, Inc.
common stock 3,942 211
Maturities of short-term investments 1,943 5,249
Business acquisitions, net of cash acquired (6,511) (11,103)
Capital expenditures for property and equipment (840) (1,229)
-------- --------
Net cash used in investing activities (4,738) (6,872)
-------- --------
Cash flows from financing activities:
Treasury shares acquired (4,839) --
Proceeds from exercise of stock options 328 935
-------- --------
Net cash provided by (used in) financing activities (4,511) 935
-------- --------
Net decrease in cash and equivalents (7,464) (11,876)
Cash and equivalents, beginning of period 13,889 34,943
-------- --------
Cash and equivalents, end of period $ 6,425 $ 23,067
======== ========
</TABLE>
See accompanying notes.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial information is unaudited. In the opinion of management of
EndoSonics Corporation ("EndoSonics" or the "Company"), the condensed
consolidated financial statements included in this report reflect all
adjustments necessary, consisting only of normal recurring adjustments, to
present fairly the Company's consolidated financial position at September 30,
1998 and the consolidated results of its operations and cash flows for the three
and nine month periods ended September 30, 1998 and 1997. Results for the
interim periods are not necessarily indicative of consolidated results to be
expected for the entire fiscal year. These financial statements should be read
in conjunction with the Company's audited financial statements for the year
ended December 31, 1997, contained in the Company's Annual Report on Form 10-K.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EndoSonics and its
subsidiaries. (EndoSonics and its subsidiaries are collectively referred to
hereinafter as the "Company"). All significant intercompany accounts and
transactions have been eliminated. Investments in unconsolidated subsidiaries,
and other investments in which the Company has a 20% to 50% interest or
otherwise has the ability to exercise significant influence, are accounted for
under the equity method.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period balances to conform
with the current period presentation.
INVESTMENTS
In accordance with SFAS 115, the Company has classified its investment portfolio
as available-for-sale. Unrealized gains (losses) on available-for-sale
securities are recorded as a separate component of stockholders' equity.
2. INVENTORIES
Inventories are stated at the lower of cost, determined on a first in, first out
(FIFO) basis, or market value. Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
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<S> <C> <C>
Raw materials $2,505 $2,817
Work-in-process 2,259 1,842
Finished goods 1,325 2,256
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Total $6,089 $6,915
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</TABLE>
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3. COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income (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 of net loss per share because
their effect is antidilutive. Conversely, common equivalent shares from stock
options are included in the computation of net income per share as this effect
is dilutive.
At September 30, 1998 and December 31, 1997 the Company had outstanding options
to purchase 3,838,524 and 2,993,638 shares of common stock, respectively (with
exercise prices ranging from $0.32 to $16.50) and outstanding warrants to
purchase 12,304 shares of common stock (with exercise prices from $11.76 to
$12.55). If exercised, these options and warrants could potentially dilute basic
earnings per share in future periods.
4. COMPREHENSIVE INCOME (LOSS)
In 1998 the company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, which establishes new rules for the reporting
and display of comprehensive income and its components. SFAS No. 130 requires
companies to report, in addition to net income, other components of
comprehensive income including unrealized gains or losses on available for sale
securities and foreign currency translation adjustments. Adoption of SFAS No.
130 had no effect on the Company's results of operations or financial position
as reported elsewhere in the condensed consolidated financial statements. The
following table sets forth the computation of comprehensive income:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net loss $(10,449) $(48,581) $(10,522) $(47,327)
Other comprehensive income:
Unrealized gain (loss) on available for
sale securities (1,415) -- 72 --
Foreign currency translation 32 87 35 63
-------- -------- -------- --------
Comprehensive loss $(11,832) $(48,484) $(10,415) $(47,264)
======== ======== ======== ========
</TABLE>
5. RESTRUCTURING AND OTHER CHARGES
In 1998, concurrent with the acquisition of Navius, the Company recorded a
restructuring charge of $223 primarily related to the cancellation of certain
duplicative research contracts.
Concurrent with the purchase of Cardiometrics, Inc., the Company recorded
restructuring and integration charges in July, 1997 of approximately $8,600
related to plans to reduce overhead of the combined companies and increase
operating efficiency in future periods. The restructuring and integration
charges include approximately $7,100 of corporate reorganization costs,
including the costs related to the cancellation of certain distribution
agreements, and approximately $1,500 related to relocation of certain product
lines and overall integration of the Company's operations.
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6. STOCK REPURCHASE
In February, 1998, the Board of Directors authorized a stock repurchase program
whereby the Company may repurchase up to $5,000 worth of its common stock from
time-to-time in the open market or private transactions. During the quarter
ended September 30, 1998, the Company repurchased 360,000 shares of its Common
Stock on the open market, bringing the total number of shares held in treasury
to 860,000 at an aggregate cost of approximately $4,800. In September 1998, the
Board of Directors expanded the existing stock repurchase program, such that the
Company may, from time-to-time, purchase a total of up to 1.7 million shares of
its common stock in open market or private transactions.
7. BUSINESS ACQUISITION
On August 5, 1998, the Company acquired all of the outstanding capital stock of
Navius Corporation (Navius) for approximately $19,500. The results of Navius'
operations have been combined with those of the Company since the date of
acquisition.
The acquisition was accounted for using the purchase method of accounting.
Consideration for this transaction consisted of the following:
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Cash $ 7,700
EndoSonics common stock 9,500
Liabilities assumed (including termination benefits of $100) 1,700
Transaction costs 600
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$19,500
=======
</TABLE>
A summary of the preliminary purchase price allocation is as follows:
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Tangible assets acquired $ 2,300
In-process research and development 10,600
Developed technology 6,300
Other Intangibles 300
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$19,500
=======
</TABLE>
The purchased in-process research and development had not reached technological
feasibility, had no probable alternative future uses, and was charged to
operations upon acquisition. Acquired intangibles are being amortized over three
to nine years.
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Unaudited proforma combined results of operations for the nine month period
ending September 30, 1998 and 1997 have been prepared as if the acquisition
occurred at the beginning of each period.
<TABLE>
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Nine months ended September 30,
-------------------------------------
1998 1997
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Total revenue $ 32,099 $ 24,974
========== ========
Net loss $ (12,353) $(60,553)
========== ========
Basic net loss per share $ (0.70) $ (3.55)
========== ========
</TABLE>
In preparing the proforma data, adjustments have been made for the write-off of
acquired in-process research and development, amortization of intangibles, and a
reduction of interest income as a result of the use of cash to consummate the
acquisition at the beginning of the period.
8. STRATEGIC ALLIANCE
On August 31, 1998, the company entered into a strategic relationship with
Fukuda Denshi Co., Ltd. ("Fukuda"), a Japanese medical products company, which
includes an equity investment and research and development funding totaling $13
million in EndoSonics by Fukuda. Approximately, 65% of the $13 million
represents an equity investment, and the balance will fund research and
development programs over the next 24 months. In October, 1998, the Company
received approximately $9,400 in cash and issued 965,730 shares of the Company's
common stock at a price of $8.70 per share, related to this strategic alliance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward looking statements. The
Company's business is subject to risks and uncertainties and the Company's
actual results may differ significantly from the results discussed in the
forward looking statements. Factors that might cause such a difference include,
but are not limited to, the Company's ability to transition to new distribution
arrangements in Europe and North America, the introduction of new products, FDA
approval of new products and changes in regulatory requirements and third-party
reimbursement policies. For a discussion of these and other factors, please see
"Risk Factors" in the Company's Annual Report on Form 10-K (starting at page 21)
for the fiscal year ended December 31, 1997.
INTRODUCTION
Since its inception in 1984, EndoSonics has been engaged primarily in the
research and development of products for the diagnosis and treatment of
cardiovascular disease. The Company markets and distributes its products in the
United States, and Germany through a direct sales force, and to the rest of the
world through relationships with strategic partners and certain other
distributors.
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The Company's business strategy includes acquiring related businesses, products
or technologies. On August 5, 1998, the Company acquired Navius Corporation, a
San Diego based, privately-held developer of angioplasty balloons, stents,
intravascular radiation devices and other medical products. Navius' results of
operations are combined with those of the Company since the date of the
acquisition. The transaction was accounted for under the purchase method of
accounting. The Company paid approximately $7.7 million in cash and issued
1,105,049 shares of the Company's common stock, valued at $9.5 million, for all
the outstanding capital stock of Navius. In addition, the Company incurred a
charge of approximately $10.6 million related to acquired in-process research
and development.
In addition, in August, 1998, the Company entered into a strategic relationship
with the Fukuda Denshi Co., Ltd. (Fukuda), a Japanese medical products company,
which includes an equity investment and research and development funding
totaling $13 million in EndoSonics by Fukuda. Approximately 65% of the $13
million represents an equity investment, the balance will fund research and
development programs over the next 24 months. In October 1998, the Company
issued 965,750 shares of the Company's common stock at a price of $8.70 per
share, to Fukuda and received approximately $9.4 million in cash, related to the
equity investment and the research and development funding.
The Company expects that it may pursue additional acquisitions in the future.
Any future acquisitions may result in potentially dilutive issuances of equity
securities, the write-off of in-process research and development, the incurrence
of debt and contingent liabilities and amortization expenses related to
intangible assets acquired, any of which could materially adversely affect the
Company's business, financial condition and results of operations. In
particular, if the Company is unable to use the "pooling of interests" method of
accounting, the Company will be required to amortize any intangible assets
acquired in connection with any additional acquisitions. Additionally,
unanticipated expenses may be incurred relating to the integration of
technologies and research and development, and administrative functions. Any
acquisition will involve numerous risks, including difficulties in the
assimilation of the acquired company's employees, operations and products,
uncertainties associated with operating in new markets and working with new
customers, the potential loss of the acquired company's key employees as well as
the costs associated with completing the acquisition and integrating the
acquired company.
RESULTS OF OPERATIONS
THIRD QUARTER OF 1998 COMPARED TO THE SAME PERIOD IN 1997
Total Revenue. Total revenue increased 14% to $11.7 million for the third
quarter of 1998, from $10.3 million in the third quarter of 1997. Revenues for
the IVUS business increased by 29%, from $7.0 million to $9.0 million, primarily
due to the growth in demand for IVUS catheter products coupled with the
transition to a direct sales force. Revenues for the Cardiometrics business
decreased by 18%, to $2.7 million from $3.3 million, primarily due to a
decline in shipments of FloWire products.
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In May 1998, EndoSonics concluded an agreement with Cordis (a Johnson & Johnson
Company) on the terms under which Cordis' exclusive distribution rights for
certain EndoSonics products in the United States, Europe, the Middle East and
Africa will be terminated. Further revenue growth will be dependent, among other
factors, on the ability of the Company to continue to successfully transition
its selling efforts from a distribution relationship to direct sales and
marketing in certain geographic areas, regulatory approval of certain new
products, customer acceptance of new products, actions by the Company's
competitors, and changes in the reimbursement rates for certain medical devices.
Cost of Sales. Cost of sales as a percentage of sales decreased to 42% for the
third quarter of 1998, from 58% for the third quarter of 1997. Cost of sales as
a percentage of product sales in 1998 decreased due in part to increased
operating efficiency, coupled with higher average selling prices of IVUS
products resulting from an improved geographical mix, sales of combination IVUS
imaging and therapeutic catheters and the Company's decision to transition from
a distribution relationship to a direct sales approach in certain geographic
markets. Due to the uncertainty associated with continued improvements in the
efficiency of the Company's manufacturing process and the impact of increasingly
competitive pricing, there can be no assurance that the Company's gross profit
margin will be maintained or continue to improve in future periods.
Research, Development, and Clinical. Research, development and clinical expenses
decreased by $0.3 million from $2.0 million for the third quarter of 1997 to
$1.7 million for the third quarter of 1998. As part of a strategic alliance with
Fukuda, the Company recognized approximately $0.2 million in research and
development funding, which offset certain third quarter expenditures. Also, in
early 1998, the Company consolidated the research, development and clinical
functions for EndoSonics and Cardiometrics. This consolidation resulted in the
elimination of certain redundant expenses.
Marketing and Sales. Marketing and sales increased to $2.7 million in the third
quarter of 1998 from $2.4 million in the third quarter of 1997. As a percentage
of total revenue, marketing and sales has decreased to 23% in the third quarter
of 1998 from 24% in the third quarter of 1997. The decrease is due to a 14%
increase in sales, which is only partially offset by increased staffing and
other costs related to the transition to a direct sales force in certain world
markets.
General and Administrative. General and administrative expenses decreased by $
2.7 million dollars to $1.1 million dollars for the third quarter of 1998
compared to $3.8 million dollars for the third quarter of 1997. General and
administrative expenses decreased to 9% of total revenue in the third quarter of
1998 as compared to 37% of total revenue in the third quarter of 1997. The
improvement relates primarily to a reduction, from 1997, in legal charges
pertaining to patent litigation and the presence of certain integration and
other charges in the third quarter of 1997, associated with the acquisition of
Cardiometrics and the distribution of CVD shares to employees of the Company.
These expenses are not present in the third quarter of 1998. In addition the
consolidation of the general and administrative functions for EndoSonics and
Cardiometrics in early 1998, resulted in the elimination of certain redundant
positions, facilities and other expenses.
Restructuring. Concurrent with the purchase of Navius Corporation in August
1998, the Company recorded restructuring charges of $0.2 million primarily
related with the cancellation of certain duplicative research and development
contracts. In 1997, the Company recorded a
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charge of $5.3 million related to corporate reorganization costs, including the
costs related to the cancellation of certain distribution agreements.
Acquired In-process Research and Development Write-off In connection with the
Company's acquisition of Navius Corporation, the Company engaged an independent
appraiser to provide the Company with a recommendation of the value of the
assets and technology acquired. Based on this estimate $10.6 million of the
purchase price has been assigned to in-process research and development. Because
the technological feasibility of the acquired in-process research and
development has not been established and has no alternative future uses, it was
expensed in the third quarter of 1998.
In the third quarter of 1997, based on the results of an independent appraisal,
$43 million was charged to the Company's operations related to the in-process
research and development acquired in the purchase of Cardiometrics.
Amortization of Intangibles. Amortization of intangibles increased to $0.4
million for the third quarter of 1998 from $0.2 for the same period in 1997. The
increase relates to the intangible assets acquired in the purchase of Navius
Corporation August, 1998. In 1997, amortization expense related to goodwill and
intangibles acquired in the purchase of Cardiometrics. Goodwill and intangibles
are being amortized over periods varying from three to nine years.
Equity in Net Loss of CardioVascular Dynamics, Inc. There was no equity in net
loss of CardioVascular Dynamics, Inc. ("CVD") in the third quarter of 1998 as
compared to $0.5 million (loss) in the third quarter of 1997. Since February
1998, the Company's ownership in CVD has been less than 20%. At September
30, 1997, the Company's ownership in CVD common stock was 24%. The Company
accounts for its investment in CVD in accordance with the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115).
Other Income. Other income was $0.3 million in the third quarter of 1998 as
compared to $4.4 million in the third quarter of 1997. In 1997 the Company
recognized a gain of $4.0 million related to gains realized on the disposition
of CVD common shares. In addition, interest income decreased $0.1 million,
primarily due to the use of cash in the acquisition of Navius.
Net loss. Net loss was $10.3 million or ($0.63) per share for the third
quarter of 1998 as compared to a net loss of $48.6 million or ($3.14) per share
in the third quarter of 1997.
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FIRST NINE MONTHS OF 1998 COMPARED TO SAME PERIOD OF 1997
Total Revenue. Total revenue increased 30% to $30.8 million for the nine months
ended September 30, 1998, from $23.7 million in the nine months ended September
30, 1997. Revenues for the IVUS business increased by 10%, to $22.5 million in
the nine months ended September 30, 1998, from $20.4 million for the same period
in 1997. The increase is primarily due to the growth in demand for IVUS catheter
products coupled with the transition to a direct sales force. Cardiometrics
revenues were included in the results of operations for the entire nine months
ended September 30, 1998 as compared to only two of the nine months ended
September 30, 1997. In May 1998, EndoSonics concluded an agreement with Cordis
on the terms under which Cordis' exclusive distribution rights for certain
EndoSonics products in the United States, Europe, the Middle East and Africa was
terminated. Further revenue growth will be dependent, among other factors, on
the ability of the Company to continue to successfully transition its selling
efforts from a distribution relationship to direct sales and marketing in
certain geographic areas, regulatory approval of certain new products. Customer
acceptance of new products, actions by the Company's competitors, and changes
in the reimbursement rates for certain medical devices.
Cost of Sales. Cost of sales as a percentage of sales decreased to 47% for the
nine months ended September 30, 1998, from 56% for the nine months ended
September 30, 1997. Cost of sales as a percentage of product sales in 1998
decreased due to the overall improvements in manufacturing efficiency, coupled
with higher average selling prices of IVUS products resulting from an improved
geographical mix, sales of combination IVUS imaging and therapeutic catheters,
and the Company's decision to transition from a distribution relationship to a
direct sales approach in certain geographic markets. Due to the uncertainty
associated with continued improvements in the efficiency of the Company's
manufacturing process and the impact of increasingly competitive pricing, there
can be no assurance that the Company's gross profit margin will be maintained or
continue to improve in future periods.
Research, Development, and Clinical. Research, development and clinical expenses
increased by $1.4 million from $3.9 million for the nine months ended September
30, 1997 to $5.3 million for the nine months ended September 30, 1998, due
primarily to on-going Cardiometrics clinical studies. These expenses were only
included in the results of operations for two of the nine months ended September
30, 1997.
Marketing and Sales. Marketing and sales increased to $6.8 million in the nine
months ended September 30, 1998 from $4.4 million dollars for the nine months
ended September 30, 1997. As a percentage of total revenue, marketing and sales
expense has increased to 22% in the nine months ended September 30, 1998 from
18% in the nine months ended September 30, 1997. The increase is due to
increased staffing and marketing programs related to the transition to a direct
sales force in certain world markets.
General and Administrative. General and administrative expenses decreased by
$1.8 million to $3.7 million for the nine months ended September 30, 1998
compared to $5.5 million for the nine months ended September 30, 1997. General
and administrative expenses decreased to 12% of sales for the nine months ended
September 30, 1998 from 23% of sales for the nine months ended September 30,
1997. The improvement relates primarily to the presence of certain integration
and other charges in the third quarter of 1997, associated with the acquisition
of Cardiometrics and the distribution of CVD shares to employees of the Company.
These expenses are not present in 1998.
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Amortization of Intangibles. Amortization of intangibles increased to $0.9
million for the nine months ended September 30, 1998 from $0.2 for the same
period in 1997. Due to the timing of the Cardiometrics acquisition only two
months of amortization expense were included in operating results for the nine
months ended September 30, 1997. In addition a portion of the increase relates
to amortization on the intangible assets acquired in the purchase of Navius
Corporation in August, 1998. Goodwill and intangibles are being amortized over
periods varying from three to nine years.
Restructuring Concurrent with the purchase of Navius Corporation in August 1998,
the Company recorded restructuring charges of $0.2 million primarily related
with the cancellation of certain research and development contracts. In 1997,
the Company recorded a charge of $5.3 million related corporate reorganization
costs, including the costs related to the cancellation of certain distribution
agreements.
Acquired In-process Research and Development Write-off In connection with the
Company's acquisition of Navius Corporation, the Company engaged an independent
appraiser to provide the Company with a recommendation of the value of the
assets and technology acquired. Based on this estimate, $10.6 million of the
purchase price has been assigned to in-process research and development. Because
the technological feasibility of the acquired in-process research and
development has not been established and has no alternative future uses, it was
expensed in the third quarter of 1998.
In the third quarter of 1997, based on the results of an independent appraisal,
$43 million was charged to the Company's operations related to the in-process
research and development acquired in the purchase of Cardiometrics.
Equity in Net Loss of CardioVascular Dynamics, Inc. Equity in the net loss of
CardioVascular Dynamics, Inc. for the nine months ended September 30, 1998 was
$0.2 million as compared to $1.0 million for nine months ended September 30,
1997. Since February 1998, the Company's ownership in CVD has been less than
20%. During the nine months ended September 30, 1997, the Company's ownership in
CVD common stock ranged from 44% to 24%. The Company accounts for its investment
in CVD in accordance with the provisions of SFAS No. 115.
Other Income. Other income was $1.6 million for the nine months ended September
30,1998 as compared to $5.4 million for the same period in 1997. The Company
recognized a gain of $0.7 million and $4.0 million for the nine months ended
September 30, 1998 and 1997 respectively, related to the disposition of
CardioVascular Dynamics common stock. In addition, interest
14
<PAGE> 15
income has decreased in 1998 as compared to 1997 due to the reduction in the
Company's cash, cash equivalents, and short-term investment balances during the
nine month period ended September 30, 1998, as compared to the same period in
1997.
Net Loss. Net loss was $10.3 million, or ($0.62) per share, for the
nine months ended September 30, 1998 as compared to a net loss of $47.3 million,
or $(3.34) per share, for the nine months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1998, the Company had cash and cash equivalents of $6.4
million, short-term investments of $10.4 million and no borrowings or credit
facilities. Net cash provided by (used in) operations was $1.8 million in the
nine months ended September 30, 1998 as compared to $(5.9) million in the nine
months ended September 30, 1997. The increase is due primarily to increased
accounts receivable collections and a reduction in other operating assets. In
October, 1998, the Company received equity and research and development funding
totaling approximately $9.4 million from Fukuda. The Company believes that with
this cash infusion, its existing cash, cash equivalents, and short-term
investments will be sufficient to meet the Company's operating expenses and
capital requirements through 1999. However, there can be no assurance that the
Company will not be required to seek other financing or that such financing, if
required, will be available on terms satisfactory to the Company.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions to operations, including, a
temporary inability to process transactions, send invoices, or engage in similar
normal business activities. Should any of these disruptions occur, the financial
impact on the Company is unknown.
The Company has completed an assessment and will have to modify or replace
certain portions of its existing software in order for its computer systems to
function properly with respect to dates in the year 2000 and thereafter.
However, independent of the Year 2000 Issue, the Company has plans to replace
the majority of its existing computer programs with an integrated,
enterprise-wide software platform. The Company has identified a software program
which meets the Company's operational needs and is also Year 2000 compliant. The
Company believes that the new software can be installed and tested with regards
to the Year 2000 Issue by September, 1999. It is expected that the cost of the
new software, installation, and testing will be between $0.5 million and $1.0
million, the majority of which would be capitalized. In the event that the new
software does not function properly with regard to the Year 2000, and an
adequate solution is not readily available, the Company's believes that it can
make the necessary modifications, (consisting primarily of software version
upgrades), to its current computer programs in order to make them Year 2000
compliant.
15
<PAGE> 16
It is anticipated that the Year 2000 project will be completed not later than
September, 1999, which is prior to any anticipated impact on the Company's
operating systems. The Company believes that with the planned software
conversion or with modifications to the existing software, the Year 2000 Issue
will not pose a significant operational problem. However, if such modifications
are not completed timely, the Year 2000 Issue could have a material impact on
the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which assume certain future events, including the continued availability of
certain resources. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
effectiveness of the new software and, if necessary, the upgrades received from
the Company's software vendors at addressing the Year 2000 Issue and similar
uncertainties.
16
<PAGE> 17
Part II.
OTHER INFORMATION
ITEM 1. Not applicable.
ITEM 2. Changes in Securities.
(a) The Company entered into a Preferred Shares Rights Agreement,
dated as of October 20, 1998, with ChaseMellon Shareholder Services, L.L.C.
(b) Not applicable.
(c) On October 7, 1998, the Company sold 965,730 shares of Common
Stock to Fukuda Denshi Co. Ltd., a Japanese corporation, for an aggregate
offering price of $8.4 million. There were no underwriters for the transaction,
there were no underwriting discounts or commissions, and the shares were not
offered to any other person. The securities were sold to a single purchaser in
a transaction not involving any public offering and exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended.
(d) Not applicable.
ITEMS 3 through 5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 4.1 Preferred Shares Rights Agreement, dated as of
October 20, 1998, between the Company and
ChaseMellon Shareholder Services, L.L.C.
Exhibit 10.1* Distribution Agreement dated August 31, 1998,
between the Company and Fukuda Denshi Co., Ltd.
Exhibit 10.2 Amendment to Distribution Agreement (June 28,
1997) dated August 31, 1998, among the Company,
Navius Corporation and Fukuda Denshi Co., Ltd.
Exhibit 10.3 Research and Development Agreement dated August
31, 1998, between the Company and Fukuda Denshi Co.,
Ltd.
Exhibit 10.4 Common Stock Purchase Agreement dated October
7, 1998, between the Company and Fukuda Denshi Co.,
Ltd.
Exhibit 10.5 Investors' Rights Agreement dated September 21,
1998, between the Company and Fukuda Denshi Co.,
Ltd.
Exhibit 27 Financial Data Schedule
(b) On August 20, 1998, the Company filed a report on Form 8-K, as amended
on October 19, 1998 on Form 8-K/A, for an Item 2 event regarding its
acquisition of Navius Corporation, pursuant to the Agreement and Plan of
Reorganization.
- - - - - - - - - - - - - - - -
* Confidential Treatment Requested
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENDOSONICS CORPORATION
/s/ REINHARD J. WARNKING
------------------------
Reinhard J. Warnking
President and
Chief Executive Officer
Date: November 16, 1998
/s/ RICHARD L. FISCHER
----------------------
Richard L. Fischer
Vice President, Finance and
Chief Financial Officer
Date: November 16, 1998
/s/ KATHLEEN E. REDD
--------------------
Kathleen E. Redd
Corporate Controller and
Principal Accounting Officer
Date: November 16, 1998
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
Exhibit 4.1 Preferred Shares Rights Agreement, dated as of
October 20, 1998, between the Company and
ChaseMellon Shareholder Services, L.L.C.
Exhibit 10.1* Distribution Agreement dated August 31, 1998,
between the Company and Fukuda Denshi Co., Ltd.
Exhibit 10.2 Amendment to Distribution Agreement (June 28,
1997) dated August 31, 1998, among the Company,
Navius Corporation and Fukuda Denshi Co., Ltd.
Exhibit 10.3 Research and Development Agreement dated August
31, 1998, between the Company and Fukuda Denshi Co.,
Ltd.
Exhibit 10.4 Common Stock Purchase Agreement dated October
7, 1998, between the Company and Fukuda Denshi Co.,
Ltd.
Exhibit 10.5 Investors' Rights Agreement dated September 21,
1998, between the Company and Fukuda Denshi Co.,
Ltd.
Exhibit 27 Financial Data Schedule
</TABLE>
- - - - - - - - - - - - - - - -
* Confidential Treatment Requested
<PAGE> 1
EXHIBIT 4.1
================================================================================
ENDOSONICS CORPORATION
AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
RIGHTS AGENT
PREFERRED SHARES RIGHTS AGREEMENT
Dated as of October 20, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Certain Definitions....................................................1
Section 2. Appointment of Rights Agent............................................5
Section 3. Issuance of Rights Certificate.........................................6
Section 4. Form of Rights Certificate.............................................7
Section 5. Countersignature and Registration......................................8
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates...............9
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Right...........9
Section 8. Cancellation and Destruction of Rights Certificate.....................11
Section 9. Reservation and Availability of Preferred Share........................12
Section 10. Preferred Shares Record Date...........................................13
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Right......13
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.............21
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power...22
Section 14. Fractional Rights and Fractional Shares................................25
Section 15. Rights of Action.......................................................25
Section 16. Agreement of Rights Holders............................................26
Section 17. Rights Certificate Holder Not Deemed a Stockholder.....................26
Section 18. Concerning the Rights Agent............................................27
Section 19. Merger or Consolidation or Change of Name of Rights Agent..............27
Section 20. Duties of Rights Agent.................................................28
Section 21. Change of Rights Agent.................................................30
Section 22. Issuance of New Rights Certificates....................................31
Section 23. Redemption.............................................................31
Section 24. Exchange...............................................................32
Section 25. Notice of Certain Events...............................................34
Section 26. Notices................................................................34
Section 27. Supplements and Amendments.............................................35
Section 28. Successors.............................................................35
Section 29. Determinations and Actions by the Board of Directors, etc..............35
Section 30. Benefits of this Agreement.............................................35
Section 31. Severability...........................................................36
Section 32. Governing Law..........................................................36
Section 33. Counterparts...........................................................36
Section 34. Descriptive Headings...................................................36
-ii-
</TABLE>
<PAGE> 3
EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Rights Certificate
Exhibit C Summary of Rights
-iii-
<PAGE> 4
PREFERRED SHARES RIGHTS AGREEMENT
Agreement, dated as of October 20, 1998, between EndoSonics Corporation,
a Delaware corporation (the "COMPANY"), and ChaseMellon Shareholders Services,
L.L.C. (the "RIGHTS Agent").
On October 20, 1998 (the "RIGHTS DIVIDEND DECLARATION DATE"), the Board
of Directors of the Company authorized and declared a dividend of one Preferred
Share purchase right (a "RIGHT") for each Common Share (as hereinafter defined)
of the Company outstanding as of the Close of Business (as hereinafter defined)
on November 13, 1998 (the "RECORD DATE"), each Right representing the right to
purchase one one-thousandth of a share of Series A Participating Preferred Stock
(as such number may be adjusted pursuant to the provisions of this Agreement),
having the rights, preferences and privileges set forth in the form of
Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock attached hereto as Exhibit A, upon the terms and
subject to the conditions herein set forth, and further authorized and directed
the issuance of one Right (as such number may be adjusted pursuant to the
provisions of this Agreement) with respect to each Common Share that shall
become outstanding between the Record Date and the earlier of the Distribution
Date and the Expiration Date (as such terms are hereinafter defined), and in
certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares then outstanding, but shall
not include the Company, any Subsidiary of the Company or any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, no Person shall be deemed to be an Acquiring Person either (i) as the
result of an acquisition of Common Shares by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 20% or more of the Common Shares of the
Company then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 20% or more of the Common Shares of the Company then
outstanding by reason of share purchases by the Company and shall, after such
share purchases by the Company, become the Beneficial Owner of any additional
Common Shares of the Company (other than pursuant to a dividend or distribution
paid or made by the Company on the outstanding Common Shares in Common Shares or
pursuant to a split or subdivision of the outstanding Common Shares), then such
Person shall be deemed to be an Acquiring Person unless upon becoming the
Beneficial Owner of such additional Common Shares of the Company such Person
does not beneficially own 20% or more of the Common Shares of the Company then
outstanding. Notwithstanding the foregoing, (i) if the Board of
<PAGE> 5
Directors of the Company determines in good faith that a Person who would
otherwise be an "Acquiring Person" as defined pursuant to the foregoing
provisions of this Section 1(a) has become such inadvertently (including,
without limitation, because (A) such Person was unaware that it beneficially
owned a percentage of the Common Shares that would otherwise cause such Person
to be an "Acquiring Person," as defined pursuant to the foregoing provisions of
this Section 1(a) or (B) such Person was aware of the extent of the Common
Shares it beneficially owned but had no actual knowledge of the consequences of
such beneficial ownership under this Agreement) and without any intention of
changing or influencing control of the Company, and if such Person divested or
divests as promptly as practicable a sufficient number of Common Shares that
such Person would no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this Section 1(a), then such person shall not be deemed
to be or to have become an "Acquiring Person" for the purposes of this
Agreement; and (ii) if, as of the date hereof, any Person is the Beneficial
Owner of 20% or more of the Common Shares outstanding, such Person shall not
become an "Acquiring Person," as defined pursuant to the foregoing provisions of
this Section 1(a), unless and until such time as such Person shall become the
Beneficial Owner of additional Common Shares (other than pursuant to a dividend
or distribution paid or made by the Company on the outstanding Common Shares in
Common Shares or pursuant to a split or subdivision of the outstanding Common
Shares), unless, upon becoming the Beneficial Owner of such additional Common
Shares, such Person is not then the Beneficial Owner of 20% or more of the
Common Shares then outstanding.
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "BENEFICIAL OWNER" of and shall
be deemed to "BENEFICIALLY OWN" any securities:
(i) which such Person or any of such Person's Affiliates
or Associates beneficially owns, directly or indirectly, for purposes of Section
13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable or
successor law or regulation);
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding, whether or not in writing (other than
customary agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon the exercise
of conversion rights, exchange rights, rights (other than the Rights), warrants
or options, or otherwise; provided, however, that a Person shall not be deemed
pursuant to this Section l(c)(ii)(A) to be the Beneficial Owner of, or to
beneficially own, (1) securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange,
or (2) securities which a Person or any of such Person's Affiliates or
Associates may be deemed to have the right to acquire pursuant to any merger or
other acquisition agreement between the Company and such Person (or one or more
of its Affiliates or Associates) if such agreement has
<PAGE> 6
been approved by the Board of Directors prior to a Triggering Event; or (B) the
right to vote pursuant to any agreement, arrangement or understanding; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security under this Section l(c)(ii)(B) if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations of the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof) with
which such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing) (other than
customary agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the proviso to
Section l(c)(ii)(B)) or disposing of any securities of the Company; provided,
however, that in no case shall an officer or director of the Company be deemed
(x) the Beneficial Owner of any securities beneficially owned by another officer
or director of the Company solely by reason of actions undertaken by such
persons in their capacity as officers or directors of the Company or (y) the
Beneficial Owner of securities held of record by the trustee of any employee
benefit plan of the Company or any Subsidiary of the Company for the benefit of
any employee of the Company or any Subsidiary of the Company, other than the
officer or director, by reason of any influence that such officer or director
may have over the voting of the securities held in the plan.
(d) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company then in office.
(e) "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in San Francisco, California are
authorized or obligated by law or executive order to close.
(f) "CLOSE OF BUSINESS" on any given date shall mean 5:00 P.M.,
San Francisco, California time, on such date; provided, however, that if such
date is not a Business Day it shall mean 5:00 P.M., San Francisco, California
time, on the next succeeding Business Day.
(g) "COMMON SHARES" when used with reference to the Company shall
mean the shares of Common Stock of the Company, $0.001 par value. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(h) "DISTRIBUTION DATE" shall mean the earlier of (i) the Close
of Business on the tenth day (or such later date as may be determined by action
of a majority of the Board of
<PAGE> 7
Directors) after the Shares Acquisition Date (or, if the tenth day after the
Shares Acquisition Date occurs before the Record Date, the Close of Business on
the Record Date) or (ii) the Close of Business on the tenth day (or such later
date as may be determined by action of a majority of the Board of Directors)
after the date that a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any such
plan) is first published or sent or given within the meaning of Rule 14d-2(a) of
the General Rules and Regulations under the Exchange Act, if, assuming the
successful consummation thereof, such Person would be the Beneficial Owner of
20% or more of the shares of Common Stock then outstanding.
(i) "EQUIVALENT SHARES" shall mean Preferred Shares and any other class
or series of capital stock of the Company that is entitled to participate in
dividends and other distributions, including distributions upon the liquidation,
dissolution or winding up of the Company, on a proportional basis with the
Common Shares. In calculating the number of any class or series of Equivalent
Shares for purposes of Section 11 of this Agreement, the number of shares, or
fractions of a share, of such class or series of capital stock that is entitled
to the same dividend or distribution as a whole Common Share shall be deemed to
be one share.
(j) "EXPIRATION DATE" shall mean the earliest of (i) the Close of
Business on the Final Expiration Date, (ii) the Redemption Date, (iii) the time
at which the Board of Directors orders the exchange of the Rights as provided in
Section 24 of this Agreement or (iv) the consummation of a transaction
contemplated by Section 13(d) of this Agreement.
(k) "FINAL EXPIRATION DATE" shall mean October 20, 2008.
(l) "PERMITTED OFFER" shall mean a tender offer for all outstanding
Common Shares made in the manner prescribed by Section 14(d) of the Exchange Act
and the rules and regulations promulgated thereunder; provided, however, that a
majority of the Board of Directors has determined that the offer is both
adequate and otherwise in the best interests of the Company and its stockholders
(taking into account all factors that the Board of Directors deems relevant,
including without limitation prices that could reasonably be achieved if the
Company or its assets were sold on an orderly basis designed to realize maximum
value).
(m) "PERSON" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(n) "PREFERRED SHARES" shall mean shares of Series A Participating
Preferred Stock of the Company.
(o) "PURCHASE PRICE" shall have the meaning set forth in Section 4(a) of
this Agreement.
(p) "RECORD DATE" shall have the meaning set forth in the recitals at
the beginning of this Agreement.
<PAGE> 8
(q) "REDEMPTION DATE" shall mean the time at which the Board of
Directors of the Company orders redemption of the Rights as provided in Section
23 of this Agreement.
(r) "REDEMPTION PRICE" shall have the meaning set forth in
Section 23(a) of this Agreement.
(s) "RIGHT" shall have the meaning set forth in the recitals at
the beginning of this Agreement.
(t) "RIGHTS DIVIDEND DECLARATION DATE" shall have the meaning
set forth in the recitals at the beginning of this Agreement.
(u) "SECTION 13 EVENT" shall mean any event described in clause
(i), (ii) or (iii) of Section 13(a) of this Agreement.
(v) "SHARES ACQUISITION DATE" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) of the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such; provided that, if such person is determined not to have become an
Acquiring Person pursuant to Section l(a)(ii) of this Agreement, then no Shares
Acquisition Date shall be deemed to have occurred.
(w) "SUBSIDIARY" of any Person shall mean any corporation or
other entity of which an amount of voting securities sufficient to elect a
majority of the directors or Persons having similar authority of such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or any corporation or other entity otherwise controlled by such
Person.
(x) "TOTAL EXERCISE PRICE" shall have the meaning set forth in
Section 4(a) of this Agreement.
(y) "TRADING DAY" shall have the meaning set forth in Section
11(d) of this Agreement.
(z) A "TRIGGERING EVENT" shall be deemed to have occurred upon
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becoming an Acquiring Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions of this Agreement, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issuance of Rights Certificates.
<PAGE> 9
(a) Until the Distribution Date, (i) the Rights will be
evidenced (subject to the provisions of Sections 3(b) and 3(c) of this
Agreement) by the certificates for Common Shares registered in the names of the
holders thereof (which certificates shall also be deemed to be Rights
Certificates) and not by separate Rights Certificates and (ii) the right to
receive Rights Certificates will be transferable only in connection with the
transfer of Common Shares. Until the earlier of the Distribution Date or the
Expiration Date, the surrender for transfer of such certificates for Common
Shares shall also constitute the surrender for transfer of the Rights associated
with the Common Shares represented thereby. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the Rights Agent
will, if requested, send) by first-class, postage-prepaid mail, to each record
holder of Common Shares as of the close of business on the Distribution Date, at
the address of such holder shown on the records of the Company, a Rights
Certificate, in substantially the form of Exhibit B to this Agreement (a "RIGHTS
Certificate"), evidencing one Right for each Common Share so held, subject to
adjustment as provided herein. In the event that an adjustment in the number of
Rights per Common Share has been made pursuant to Section 11(a)(i), Section
11(i) or Section 11(p) of this Agreement, then at the time of distribution of
the Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a) of this Agreement) so
that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of the
Distribution Date, the Rights will be evidenced solely by such Rights
Certificates and may be transferred by the transfer of the Rights Certificates
as permitted hereby, separately and apart from any transfer of one or more
Common Shares, and the holders of such Rights Certificates as listed in the
records of the Company or any transfer agent or registrar for the Rights shall
be the record holders thereof.
(b) On the Record Date or as soon as practicable thereafter, the
Company will send (or cause to be sent) a copy of a Summary of Rights in
substantially the form of Exhibit C to this Agreement (the "SUMMARY OF RIGHTS"),
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Record Date, at the address of such holder shown
on the records of the Company.
(c) Unless the Board of Directors by resolution adopted at or
before the time of the issuance (including pursuant to the exercise of rights
under the Company's benefit plans) of any Common Shares specifies to the
contrary, Rights shall be issued in respect of all Common Shares that are issued
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date or, in certain circumstances provided in Section 22 of this
Agreement, after the Distribution Date. Certificates representing such Common
Shares shall also be deemed to be certificates for Rights, and shall bear the
following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Preferred Shares Rights Agreement
between EndoSonics Corporation and ChaseMellon Shareholder Services,
L.L.C. as the Rights Agent, dated as of October 20, 1998 (the "RIGHTS
AGREEMENT"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of EndoSonics Corporation. Under certain circumstances, as set
forth in the Rights
<PAGE> 10
Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. EndoSonics Corporation
will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or becomes an Acquiring
Person or any Affiliate or Associate thereof (as such terms are defined
in the Rights Agreement), whether currently held by or on behalf of such
Person or by any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby. In the event that the Company purchases or
acquires any Common Shares after the Record Date but prior to the Distribution
Date, any Rights associated with such Common Shares shall be deemed canceled and
retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Shares which are no longer outstanding.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase Common Shares and of assignment to be printed on the reverse thereof)
shall be substantially in the form of Exhibit B to this Agreement and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 of this Agreement, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date (or in
the case of Rights issued with respect to Common Shares issued by the Company
after the Record Date, as of the date of issuance of such Common Shares), shall
show the date of countersignature by the Rights Agent, and on their face shall
entitle the holders thereof to purchase such number of one-thousandths of a
Preferred Share as shall be set forth therein at the price set forth therein
(such exercise price per one one-thousandth of a Preferred Share being
hereinafter referred to as the "PURCHASE PRICE" and the aggregate exercise price
of all Preferred Shares issuable upon exercise of one Right being hereinafter
referred to as the "TOTAL EXERCISE PRICE"), but the number and type of
securities purchasable upon the exercise of each Right and the Purchase Price
shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 of this Agreement that represents Rights beneficially owned by: (i)
an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a
<PAGE> 11
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer that the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding that has as a primary
purpose or effect avoidance of Section 7(e) of this Agreement, and any Rights
Certificate issued pursuant to Section 6 or Section 11 of this Agreement upon
transfer, exchange, replacement or adjustment of any other Rights Certificate
referred to in this sentence, shall contain (to the extent feasible) the
following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of the Rights Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its President
or any Vice President, either manually or by facsimile signature, and by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature, and shall have affixed thereto the Company's seal (if any)
or a facsimile thereof. The Rights Certificates shall be manually countersigned
by the Rights Agent and shall not be valid for any purpose unless countersigned.
In case any officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep
or cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
<PAGE> 12
(a) Subject to the provisions of Sections 7(e), 14 and 24 of
this Agreement, at any time after the Close of Business on the Distribution
Date, and at or prior to the Close of Business on the Expiration Date, any
Rights Certificate or Rights Certificates may be transferred, split up, combined
or exchanged for another Rights Certificate or Rights Certificates, entitling
the registered holder to purchase a like number of one-thousandths of a
Preferred Share (or, following a Triggering Event, other securities, cash or
other assets, as the case may be) as the Rights Certificate or Rights
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Rights
Certificate or Rights Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Rights Certificate or Rights
Certificates to be transferred, split up, combined or exchanged at the office of
the Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Sections
7(e), 14 and 24 of this Agreement, countersign and deliver to the person
entitled thereto a Rights Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, the Company will make and deliver a new
Rights Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e), 23(b) or 24 of this Agreement, the
registered holder of any Rights Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date upon surrender of the Rights Certificate, with the
form of election to purchase on the reverse side thereof duly executed, to the
Rights Agent at the office of the Rights Agent designated for such purpose,
together with payment of the Purchase Price for each one-thousandth of a
Preferred Share as to which the Rights are exercised, at or prior to the
Expiration Date.
(b) The Purchase Price for each one-thousandth of a Preferred
Share issuable pursuant to the exercise of a Right shall initially be $35.00,
shall be subject to adjustment from time to time as provided in Sections 11 and
13 of this Agreement and shall be payable in lawful money of the United States
of America in accordance with paragraph (c) below.
<PAGE> 13
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the number of one-thousandths
of a Preferred Share (or other securities or property, as the case may be) to be
purchased and an amount equal to any applicable transfer tax required to be paid
by the holder of such Rights Certificate in accordance with Section 9 of this
Agreement in cash, or by certified check or cashier's check payable to the order
of the Company, the Rights Agent shall, subject to Section 20(k) of this
Agreement, thereupon promptly (i) (A) requisition from any transfer agent of the
Preferred Shares (or make available, if the Rights Agent is the transfer agent
for the Preferred Shares) a certificate or certificates for the number of
one-thousandths of a Preferred Share to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests or
(B) if the Company shall have elected to deposit the total number of
one-thousandths of a Preferred Share issuable upon exercise of the Rights
hereunder with a depository agent, requisition from the depository agent of
depository receipts representing such number of one-thousandths of a Preferred
Share as are to be purchased (in which case certificates for the Preferred
Shares represented by such receipts shall be deposited by the transfer agent
with the depository agent) and the Company hereby directs the depository agent
to comply with such request, (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 of this Agreement, (iii) after receipt of such
certificates or depository receipts, cause the same to be delivered to or upon
the order of the registered holder of such Rights Certificate, registered in
such name or names as may be designated by such holder and (iv) when
appropriate, after receipt thereof, deliver such cash to or upon the order of
the registered holder of such Rights Certificate. The payment of the Purchase
Price (as such amount may be reduced (including to zero) pursuant to Section
11(a)(iv) of this Agreement) may be made in cash or by certified check or
cashier's check payable to the order of the Company. In the event that the
Company is obligated to issue other securities of the Company, pay cash and/or
distribute other property pursuant to Section 11(a) of this Agreement, the
Company will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if and
when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Rights
Certificate or to his or her duly authorized assigns, subject to the provisions
of Section 14 of this Agreement.
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of a Triggering Event or a Section 13 Event,
any Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such (a "POST TRANSFEREE"), (iii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of
<PAGE> 14
equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
has determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e) (a "PRIOR
TRANSFEREE") or (iv) any subsequent transferee receiving transferred Rights from
a Post Transferee or a Prior Transferee, either directly or through one or more
intermediate transferees, shall become null and void without any further action
and no holder of such Rights shall have any rights whatsoever with respect to
such Rights, whether under any provision of this Agreement or otherwise. The
Company shall use all reasonable efforts to ensure that the provisions of this
Section 7(e) and Section 4(b) of this Agreement are complied with, but shall
have no liability to any holder of Rights Certificates or to any other Person as
a result of its failure to make any determinations with respect to an Acquiring
Person or any of such Acquiring Person's Affiliates, Associates or transferees
hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of and to the extent of
its authorized and unissued shares of preferred stock not reserved for another
purpose (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Shares and/or other securities), the
number of Preferred Shares (and, following the occurrence of the Triggering
Event, Common Shares and/or other securities) that will be sufficient to permit
the exercise in full of all outstanding Rights.
<PAGE> 15
(b) If the Company shall hereafter list any of its Preferred
Shares on a national securities exchange, then so long as the Preferred Shares
(and, following the occurrence of a Triggering Event, Common Shares and/or other
securities) issuable and deliverable upon exercise of the Rights may be listed
on a national securities exchange, the Company shall use its best efforts to
cause, from and after such time as the Rights become exercisable (but only to
the extent that it is reasonably likely that the Rights will be exercised), all
shares reserved for such issuance to be listed on such exchange upon official
notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon
as practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Sections 11(a)(ii)
or 11(a)(iv) of this Agreement, or as soon as is required by law following the
Distribution Date, as the case may be, a registration statement under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), with respect to the
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities and (B) the date of expiration of the
Rights. The Company may temporarily suspend, for a period not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating, and notify
the Rights Agent, that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement and notification to the Rights Agent
at such time as the suspension is no longer in effect. The Company will also
take such action as may be appropriate under, or to ensure compliance with, the
securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. Notwithstanding any provision of this Agreement to
the contrary, the Rights shall not be exercisable in any jurisdiction, unless
the requisite qualification in such jurisdiction shall have been obtained, or an
exemption therefrom shall be available, and until a registration statement has
been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares delivered upon
exercise of Rights shall, at the time of delivery of the certificates for such
Preferred Shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the original issuance or delivery of the
Rights Certificates or of any Preferred Shares upon the exercise of Rights. The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Rights Certificates to a
person other than, or the issuance or delivery of certificates or depository
receipts for the Preferred Shares in a name other than that of, the registered
holder of the Rights Certificate evidencing Rights surrendered for exercise or
to issue or to deliver any certificates or depository receipts for Preferred
Shares
<PAGE> 16
upon the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name any
certificate for a number of one-thousandths of a Preferred Share is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of Preferred Shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
multiplied by the number of one-thousandths of a Preferred Share with respect to
which the Rights have been exercised (and any applicable transfer taxes) was
made; provided, however, that if the date of such surrender and payment is a
date upon which the Preferred Shares transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the Preferred Shares transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Rights Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares (by reverse stock split or otherwise) into a smaller
number of Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11(a) and Section 7(e) of this Agreement: (1) each of
the Rights outstanding at the time of the record date for such dividend or the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted to that number of Rights (calculated to the nearest one
ten-thousandth (1/10,000) of a Right) equal to a fraction (the "EXCHANGE
RATIO"), the numerator of which shall be the total number of Common Shares or
shares of capital stock issued in such dividend, subdivision, combination or
reclassification of the Common Shares outstanding immediately following such
dividend, subdivision, combination or reclassification and the denominator of
which shall be the total number of Common Shares outstanding immediately prior
to such time, and the number of Rights that shall thereafter be issued with
respect to each Common Share or share of such other capital stock that shall
become outstanding thereafter prior to the Distribution Date shall be equal to
the total number of outstanding Rights immediately after such event (as adjusted
pursuant to this clause (1)) divided by the total number of
<PAGE> 17
outstanding Common Shares or shares of such other capital stock immediately
after such event (subject to further adjustment pursuant to the provisions of
this Agreement); (2) the Purchase Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that the Purchase Price thereafter shall
equal the result obtained by dividing the Purchase Price in effect immediately
prior to such time by the Exchange Ratio; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (3) the number of Preferred Shares or shares of
such other capital stock issuable upon the exercise of each Right shall remain
unchanged immediately after such event, but, in the event of a reclassification,
the kind of shares issuable upon the exercise of each Right immediately after
such reclassification shall be adjusted to be the kind of shares of such other
capital stock issued in such reclassification, rather than Preferred Shares. If
an event occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) of this Agreement, the adjustment provided for in
this Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) of this Agreement.
(ii) Subject to Section 24 of this Agreement, in the event a
Triggering Event shall have occurred, then promptly following such Triggering
Event, proper provision shall be made so that each holder of a Right, except as
provided in Section 7(e) of this Agreement, shall thereafter have the right to
receive for each Right, upon exercise thereof in accordance with the terms of
this Agreement and payment of the then-current Total Exercise Price, in lieu of
a number of one-thousandths of a Preferred Share, such number of Common Shares
of the Company as shall equal the result obtained by multiplying the
then-current Purchase Price by the then number of one-thousandths of a Preferred
Share for which a Right was exercisable (or would have been exercisable if the
Distribution Date had occurred) immediately prior to the first occurrence of a
Triggering Event, and dividing that product by 50% of the current per share
market price (determined pursuant to Section 11(d) of this Agreement) for Common
Shares on the date of occurrence of the Triggering Event (such number of shares
being hereinafter referred to as the "ADJUSTMENT SHARES").
(iii) The right to buy Common Shares of the Company pursuant to
Section 11(a)(ii) of this Agreement shall not arise as a result of any Person
becoming an Acquiring Person through an acquisition of Common Shares pursuant to
a Permitted Offer.
(iv) In lieu of issuing Common Shares in accordance with Section
11(a)(ii) of this Agreement, the Company may, if the Board of Directors
determines that such action is necessary or appropriate and not contrary to the
interest of holders of Rights (and, in the event that the number of Common
Shares which are authorized by the Company's Certificate of Incorporation but
not outstanding or reserved for issuance for purposes other than upon exercise
of the Rights are not sufficient to permit the exercise in full of the Rights,
or if any necessary regulatory approval for such issuance has not been obtained
by the Company, the Company shall): (A) determine the excess of (1) the value of
the Common Shares issuable upon the exercise of a Right (the "CURRENT VALUE")
over (2) the Purchase Price (such excess, the "SPREAD") and (B) with respect to
each Right, make adequate provision to substitute for such
<PAGE> 18
Common Shares, upon exercise of the Rights, (1) cash, (2) a reduction in the
Purchase Price, (3) other equity securities of the Company (including, without
limitation, shares or units of shares of any series of Preferred Stock which the
Board of Directors has deemed to have the same value as Common Shares (such
shares or units of shares of Preferred Stock are herein called "COMMON STOCK
EQUIVALENTS")), except to the extent that the Company has not obtained any
necessary stockholder or regulatory approval for such issuance, (4) debt
securities of the Company, except to the extent that the Company has not
obtained any necessary stockholder or regulatory approval for such issuance, (5)
other assets or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value, where such aggregate value has been determined by
the Board of Directors based upon the advice of a nationally recognized
investment banking firm selected by the Board of Directors; provided, however,
if the Company shall not have made adequate provision to deliver value pursuant
to clause (B) above within thirty (30) days following the later of (x) the first
occurrence of a Triggering Event and (y) the date on which the Company's right
of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being
referred to herein as the "SECTION 11(a)(ii) TRIGGER DATE"), then the Company
shall be obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, Common Shares (to the extent
available), except to the extent that the Company has not obtained any necessary
stockholder or regulatory approval for such issuance, and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the Spread. If
the Board of Directors shall determine in good faith that it is likely that
sufficient additional Common Shares could be authorized for issuance upon
exercise in full of the Rights or that any necessary regulatory approval for
such issuance will be obtained, the thirty (30) day period set forth above may
be extended to the extent necessary, but not more than ninety (90) days after
the Section 11(a)(ii) Trigger Date, in order that the Company may seek
stockholder approval for the authorization of such additional shares or take
action to obtain such regulatory approval (such period, as it may be extended,
the "SUBSTITUTION PERIOD"). To the extent that the Company determines that some
action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iv), the Company (x) shall provide, subject to Section 7(e) of
this Agreement, that such action shall apply uniformly to all outstanding Rights
and (y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares, to
take any action to obtain any required regulatory approval and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iv),
the value of the Common Shares shall be the current per share market price (as
determined pursuant to Section 11(d) of this Agreement) of the Common Shares on
the Section 11(a)(ii) Trigger Date and the value of any "common stock
equivalent" shall be deemed to have the same value as the Common Shares on such
date.
(b) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the issuance of rights, options or
warrants to all holders of Common Shares or of any class or series of Equivalent
Shares entitling such holders (for a period expiring within forty-five (45)
calendar days after such record date) to subscribe for or purchase Common Shares
<PAGE> 19
or Equivalent Shares or securities convertible into Common Shares or Equivalent
Shares at a price per share (or having a conversion price per share, if a
security convertible into Common Shares or Equivalent Shares) less than the then
current per share market price of the Common Shares or Equivalent Shares (as
defined in Section 11(d)) on such record date, then, in each such case, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Common Shares and
Equivalent Shares (if any) outstanding on such record date, plus the number of
Common Shares or Equivalent Shares, as the case may be, which the aggregate
offering price of the total number of Common Shares or Equivalent Shares, as the
case may be, so to be offered (and/or the aggregate initial conversion price of
the convertible securities so to be offered) would purchase at such current
market price, and the denominator of which shall be the number of Common Shares
and Equivalent Shares (if any) outstanding on such record date, plus the number
of additional Common Shares or Equivalent Shares, as the case may be, to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights. Common Shares and Equivalent Shares owned by or held for
the account of the Company shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made successively whenever such a
record date is fixed, and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall, at any time after the date of this
Agreement, fix a record date for the making of a distribution to all holders of
the Common Shares or of any class or series of Equivalent Shares (including any
such distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend, if any, or a dividend
payable in Common Shares) or subscription rights, options or warrants (excluding
those referred to in Section 11(b)), then, in each such case, the Purchase Price
to be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the current market price (as determined pursuant
to Section 11(d) of this Agreement) of a Common Share or an Equivalent Share on
such record date, less the fair market value (as determined in good faith by the
Board of Directors, whose determination shall be described in a statement filed
with the Rights Agent) of the portion of the cash, assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to a Common Share or Equivalent Share, as the case may be, and the
denominator of which shall be such current market price (as determined pursuant
to Section 11(d) of this Agreement) of a Common Share or Equivalent Share on
such record date. Such adjustments shall be made successively whenever such a
record date is fixed, and in the event that such distribution is not so made,
the Purchase Price shall be adjusted to be the Purchase Price which would have
been in effect if such record date had not been fixed.
<PAGE> 20
(d) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iv) of this Agreement, the "CURRENT
PER SHARE MARKET PRICE" of any security (a "SECURITY" for the purpose of this
Section 11(d)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the thirty (30) consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date, and for purposes of computations made pursuant to Section 11(a)(iv) of
this Agreement, the "current per share market price" of any Security on any date
shall be deemed to be the average of the daily closing prices per share of such
Security for the ten (10) consecutive Trading Days immediately prior to such
date; provided, however, that in the event that the current per share market
price of the Security is determined during a period following the announcement
by the issuer of such Security of (i) a dividend or distribution on such
Security payable in shares of such Security or securities convertible into such
shares or (ii) any subdivision, combination or reclassification of such
Security, and prior to the expiration of the requisite thirty (30) Trading Day
or ten (10) Trading Day period, after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
sale price or, if such last sale price is not reported, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors. If on any such date no market
maker is making a market in the Common Shares, the fair value of such shares on
such date as determined in good faith by the Board of Directors shall be used.
The term "TRADING DAY" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day. If the
Common Shares are not publicly held or so listed or traded, "current per share
market price" shall mean the fair value per share as determined in good faith by
the Board of Directors, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Purchase Price; provided,
however, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in
<PAGE> 21
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-thousandth of a Common Share or other
share or one hundred-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which requires such adjustment or
(ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Sections
11(a) or 13(a) of this Agreement, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Shares, thereafter the number of such other shares so receivable upon
exercise of any Right and if required, the Purchase Price thereof, shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Shares
contained in Sections 11(a), (b), (c), (e), (h), (i), (j), (k), (1) and (m), and
the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Section 11(b), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of Preferred
Shares (calculated to the nearest one hundred-thousandth of a share) obtained by
(i) multiplying (x) the number of Preferred Shares covered by a Right
immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment
of the Purchase Price as a result of the calculations made in Section 11(b) to
adjust the number of Rights, in substitution for any adjustment in the number of
Preferred Shares purchasable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be exercisable
for the number of one-thousandths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have
<PAGE> 22
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14 of this Agreement, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of Preferred Shares issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Purchase Price per one one-thousandth of a Preferred Share and
the number of one-thousandths of a Preferred Share which were expressed in the
initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the par or stated value, if any, of the number
of one-thousandths of a Preferred Share issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue as
fully paid and nonassessable shares such number of one-thousandths of a
Preferred Share at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
prior to the Distribution Date, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole discretion
shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred or Common Shares, (ii) issuance wholly for cash of
any Preferred or Common Shares at less than the current market price, (iii)
issuance wholly for cash of Preferred or Common Shares or securities which by
their terms are convertible into or exchangeable for Preferred or Common Shares,
(iv) stock dividends or (v) issuance of rights, options or warrants
<PAGE> 23
referred to in this Section 11, hereafter made by the Company to holders of its
Preferred or Common Shares shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, effect or permit to occur any Triggering Event
or Section 13 Event, if (i) at the time or immediately after such Triggering
Event or Section 13 Event there are any rights, warrants or other instruments or
securities outstanding or agreements in effect which would substantially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights or (ii) prior to, simultaneously with or immediately after such Section
13 Event, the stockholders of the Person who constitutes, or would constitute,
the "Principal Party" for purposes of Section 13(b) of this Agreement shall have
received a distribution of Rights previously owned by such Person or any of its
Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Sections 23, 24 or 27 of this
Agreement, take (or permit to be taken) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding,
in the event the Company shall at any time after the date of this Agreement (A)
declare a dividend on the Preferred Shares payable in Preferred Shares, (B)
subdivide the outstanding Preferred Shares, (C) combine the outstanding
Preferred Shares (by reverse stock split or otherwise) into a smaller number of
Preferred Shares, or (D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11 and Section 7(e) of this Agreement: (1) each of the
Rights outstanding at the time of the record date for such dividend or the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted to that number of Rights (calculated to the nearest one
ten-thousandth (1/10,000) of a Right) equal to a fraction (the "EXCHANGE
FRACTION"), the numerator of which shall be the total number of Preferred Shares
or shares of capital stock issued in such reclassification of the Preferred
Shares outstanding immediately following such time and the denominator of which
shall be the total number of Preferred Shares outstanding immediately prior to
such time, and the number of Rights that shall thereafter be issued with respect
to each Common Share or share of other capital stock that shall be issued in a
reclassification of the Common Shares prior to the Distribution Date shall be
equal to the total number of outstanding Rights immediately after such event (as
adjusted pursuant to this clause (1)) divided by the total number of outstanding
Common Shares or shares of such other capital stock immediately after such event
(subject to further adjustment pursuant to the provisions of this Agreement);
(2) the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that the Purchase Price thereafter shall
equal the result obtained by dividing the Purchase Price in effect immediately
prior to such time by the Exchange Fraction; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company
<PAGE> 24
issuable upon exercise of such Right; and (3) the number of one-thousandths of a
Preferred Share or share of such other capital stock issuable upon the exercise
of each Right shall remain unchanged immediately after such event, but, in the
event of a reclassification, the kind of shares issuable upon the exercise of
each Right immediately after such reclassification shall be adjusted to be the
kind of shares of such other capital stock issued in such reclassification,
rather than Preferred Shares.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13 of this
Agreement, the Company shall promptly (a) prepare a certificate setting forth
such adjustment and a brief statement of the facts accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Rights Certificate in accordance with Section 26 of this
Agreement. Notwithstanding the foregoing sentence, the failure of the Company to
make such certification or give such notice shall not affect the validity of
such adjustment or the force or effect of the requirement for such adjustment.
The Rights Agent shall be fully protected in relying on any such certificate and
on any adjustment contained therein and shall not be deemed to have knowledge of
such adjustment unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Shares Acquisition Date,
directly or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction the principal purpose of which is to change the state of
incorporation of the Company or that complies with Section 11(o) of this
Agreement);
(ii) any Person (other than a Subsidiary of the Company
in a transaction that complies with Section 11(o) of this Agreement) shall
consolidate with the Company, or merge with and into the Company and the Company
shall be the continuing or surviving corporation of such consolidation or
merger; or
(iii) the Company shall sell or otherwise transfer (or
one or more of its Subsidiaries shall sell or otherwise transfer), in one or
more transactions, assets or earning power aggregating 50% or more of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company or one or more of its wholly
owned Subsidiaries in one or more transactions, each of which complies with
Section 11(o) of this Agreement),
then, and in each such case, proper provision shall be
made so that
(A) each holder of a Right (except as otherwise
provided herein) shall thereafter have the right to receive, upon the exercise
thereof in accordance with the
<PAGE> 25
terms of this Agreement, such number of validly authorized and issued, fully
paid and nonassessable Common Shares of the Principal Party (as hereinafter
defined), free of any liens, encumbrances, rights of first refusal or other
adverse claims, as shall be equal to the result obtained by (1) multiplying the
then current Purchase Price by the number of one-thousandths of a Preferred
Share for which a Right was exercisable immediately prior to the first
occurrence of a Section 13 Event (or, if a Triggering Event has occurred prior
to the first occurrence of a Section 13 Event, multiplying the number of such
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Triggering Event by the Purchase
Price in effect immediately prior to such first occurrence) and (2) dividing
that product (which, following the first occurrence of a Section 13 Event, shall
be referred to as the "TOTAL EXERCISE PRICE" for each Right and for all purposes
of this Agreement) by 50% of the current per share market price (determined
pursuant to Section 11(d) of this Agreement) of the Common Shares of such
Principal Party on the date of consummation of such Section 13 Event;
(B) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement;
(C) the term "Company" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 of this Agreement shall apply only to such Principal
Party following the first occurrence of a Section 13 Event;
(D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares) in connection with the consummation of any such transaction as
may be necessary to assure that the provisions of this Agreement shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
Common Shares thereafter deliverable upon the exercise of the Rights.
(b) "PRINCIPAL PARTY" shall mean, in the case of any transaction
described in clause (i), (ii) or (iii) of Section 13(a), the Person referred to
therein or such Person's successor, including, if applicable, the Company, if it
is the surviving corporation), provided, however, that in any such case, (i) if
such Person is a direct or indirect Subsidiary of another Person, "Principal
Party" shall refer to such other Person and (ii) in case such Person is a
Subsidiary, directly or indirectly, of more than one Person, "Principal Party"
shall refer to whichever of such Persons is the issuer of the Common Shares
having the greatest aggregate value, and provided, further, that for purposes of
transactions described in clause (iii) of this Section 13(b), "Principal Party"
shall refer to that Person receiving the greatest portion of the assets or
earning power transferred pursuant to such transaction or transactions.
(c) If, for any reason, the Rights cannot be exercised for Common
Shares of such Principal Party as provided in Section 13(a), then each holder of
Rights shall have the right to exchange its Rights for cash from such Principal
Party in an amount equal to the number of Common Shares that it would otherwise
be entitled to purchase times 50% of the current per share market price, as
determined pursuant to Section 11(d) of this Agreement, of such Common
<PAGE> 26
Shares of such Principal Party. If, for any reason, the foregoing formulation
cannot be applied to determine the cash amount into which the Rights are
exchangeable, then the Board of Directors, based upon the advice of one or more
nationally recognized investment banking firms, and based upon the total value
of the Company, shall determine such amount reasonably and with good faith to
the holders of Rights. Any such determination shall be final and binding on the
Rights Agent.
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in clauses (i) and
(ii) of Section 13(a) if: (i) such transaction is consummated with a Person or
Persons who acquired Common Shares pursuant to a Permitted Offer (or a
wholly-owned Subsidiary of any such Person or Persons); (ii) the price per share
of Common Shares offered in such transaction is not less than the price per
share of Common Shares paid to all holders of Common Shares whose shares were
purchased pursuant to such Permitted Offer; and (iii) the form of consideration
being offered to the remaining holders of Common Shares pursuant to such
transaction is the same form as the form of consideration paid pursuant to such
Permitted Offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
(e) The Company shall not consummate any Section 13 Event unless
the Principal Party shall have a sufficient number of authorized Common Shares
that have not been issued or reserved for issuance to permit the exercise in
full of the Rights in accordance with this Section 13 and unless prior thereto
the Company and such issuer shall have executed and delivered to the Rights
Agent a supplemental agreement confirming that such Principal Party shall, upon
consummation of such Section 13 Event, assume this Agreement in accordance with
Sections 13(a) and (b) of this Agreement, that all rights of first refusal or
preemptive rights in respect of the issuance of Common Shares of such Principal
Party upon exercise of outstanding Rights have been waived, that there are no
rights, warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights and that such transaction shall not result in a default by such Principal
Party under this Agreement, and further providing that, as soon as practicable
after the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as practicable after
such filing and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the Expiration Date, and similarly comply with applicable
state securities laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon exercise of the
Rights on a national securities exchange or to meet the eligibility requirements
for quotation on Nasdaq; and
<PAGE> 27
(iii) deliver to holders of the Rights historical
financial statements for such Principal Party which comply in all respects with
the requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
In the event that at any time after the occurrence of a
Triggering Event some or all of the Rights shall not have been exercised at the
time of a transaction described in this Section 13, the Rights which have not
theretofore been exercised shall thereafter be exercisable in the manner
described in Section 13(a) (without taking into account any prior adjustment
required by Section 11(a)(ii)).
(f) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates that evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable, as determined pursuant to
the second sentence of Section 11(d) of this Agreement.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions that are integral multiples of one one-thousandth of a Preferred
Share). In lieu of fractional Preferred Shares that are not integral multiples
of one one-thousandth of a Preferred Share, the Company shall pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of a Common Share. For purposes of this Section 14(b), the current
market value of a Common Share shall be the closing price of a Common Share (as
determined pursuant to the second sentence of Section 11(d) of this Agreement)
for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 of this Agreement, are vested in the respective registered holders of
the Rights Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares); and any registered holder of any Rights
Certificate (or, prior to the Distribution Date, of the Common Shares), without
the consent of the Rights Agent or of the holder of any other Rights
Certificate (or, prior to the
<PAGE> 28
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or offices of the Rights Agent designated for such purposes, duly
endorsed or accompanied by a proper instrument of transfer and with the
appropriate forms and certificates fully executed; and
(c) subject to Sections 6(a) and 7(f) of this Agreement, the
Company and the Rights Agent may deem and treat the person in whose name the
Rights Certificate (or, prior to the Distribution Date, the associated Common
Shares certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Rights Certificates or the associated Common Shares certificate made by
anyone other than the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent shall be affected by any notice to
the contrary.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 of this Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions of this Agreement.
<PAGE> 29
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
shall indemnify the Rights Agent for, and hold it harmless against, any loss,
liability, claim or expense ("Loss") arising out of or in connection with its
duties under this Agreement, including the costs and expenses of defending
itself against any Loss, unless such Loss shall have been determined by a court
of competent jurisdiction to be a result of the Rights Agent's gross negligence
or intentional misconduct.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Common Shares or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 of this Agreement.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the shareholder services business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties to this Agreement; provided, however, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 of this Agreement. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name
<PAGE> 30
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion or advice of such counsel shall
be full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such opinion
or advice.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "current per share market price") be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the
Secretary or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or willful misconduct.
In no case will the Rights Agent be liable for special, indirect, incidental or
consequential loss or damages of any kind whatsoever (including but not limited
to lost profits), even if the Rights Agent has been advised of the possibility
of such damages.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery of this
Agreement (except the due execution of this Agreement by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any change in the
exercisability of the Rights or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Sections 3, 11,
13, 23 or 24, or the ascertaining of the existence of facts that would require
any such change or adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after receipt by the Rights Agent of a
certificate furnished pursuant to Section 12
<PAGE> 31
describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares to be issued pursuant to this Agreement or
any Rights Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Chief Financial Officer, the Secretary or any Assistant
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Rights
Agreement and the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
<PAGE> 32
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its rights
if there shall be reasonable grounds for believing that repayment of such funds
or adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Preferred Shares and the Common Shares by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Preferred
Shares and the Common Shares by registered or certified mail, and to the holders
of the Rights Certificates by first-class mail. If the Rights Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his or her Rights
Certificate for inspection by the Company), then the registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall either (a) be a corporation organized
and doing business under the laws of the United States or of any state of the
United States, in good standing, which is authorized under such laws to exercise
corporate trust or stockholder services powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million or (b) be an affiliate of such a corporation. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Preferred Shares and the Common Shares, and mail
a notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
<PAGE> 33
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement or upon the exercise,
conversion or exchange of any convertible subordinated debentures of the Company
outstanding at the date hereof or upon the exercise, conversion or exchange of
securities hereinafter issued by the Company and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued and this sentence shall be null and void ab initio if, and to
the extent that, such issuance or this sentence would create a significant risk
of or result in material adverse tax consequences to the Company or the Person
to whom such Rights Certificate would be issued or would create a significant
risk of or result in such options' or employee plans' or arrangements' failing
to qualify for otherwise available special tax treatment and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption.
(a) The Company may, at its option and with the approval of the
Board of Directors, at any time prior to the Close of Business on the earlier of
(i) the tenth day following the Shares Acquisition Date or such later date as
may be determined by action of a majority of the Board of Directors and publicly
announced by the Company or (ii) the Final Expiration Date, redeem all but not
less than all the then outstanding Rights at a redemption price of $.001 per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date of this Agreement (such redemption
price being herein referred to as the "Redemption Price") and the Company may,
at its option, pay the Redemption Price either in Common Shares (based on the
current per share market price thereof (as determined pursuant to Section 11(d)
of this Agreement) at the time of redemption) or cash. Such redemption by the
Company may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors
ordering the redemption of the Rights, evidence of which shall have been filed
with the Rights Agent, and without any further action and without any notice,
the right to exercise the Rights will terminate and the only right thereafter of
the holders of Rights shall be to receive the Redemption Price. Within ten (10)
days after the action of the Board of Directors ordering the redemption of the
Rights, the Company shall give notice of such redemption to the Rights Agent and
the holders of the then outstanding Rights by mailing such notice to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the
<PAGE> 34
registry books of the transfer agent for the Common Shares. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the method
by which the payment of the Redemption Price will be made. Neither the Company
nor any of its Affiliates or Associates may redeem, acquire or purchase for
value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 of this Agreement, and other than in
connection with the purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange.
(a) Subject to applicable laws, rules and regulations, and
subject to subsection (c) below, the Company may, at its option, by majority
vote of the Board of Directors, at any time after the occurrence of a Triggering
Event, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section 7(e) of this Agreement) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date of this Agreement (such
exchange ratio being hereinafter referred to as the "RATIO OF EXCHANGE").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection (a) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Ratio of Exchange. The Company
shall give public notice of any such exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. The Company shall mail a notice of any such exchange to all of
the holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) of this
Agreement) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with Section 24(a), the Company shall
either take such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights or alternatively, at the option
of a majority of the Board of Directors, with respect to each Right (i) pay cash
in an
<PAGE> 35
amount equal to the Current Value (as hereinafter defined), in lieu of issuing
Common Shares in exchange therefor, or (ii) issue debt or equity securities or a
combination thereof, having a value equal to the Current Value, in lieu of
issuing common Shares in exchange for each such Right, where the value of such
securities shall be determined by a nationally recognized investment banking
firm selected by the Board of Directors by majority vote of the Board of
Directors, or (iii) deliver any combination of cash, property, Common Shares
and/or other securities having a value equal to the Current Value in exchange
for each Right. For purposes of this Section 24(c) only, the Current Value shall
mean the product of the current per share market price of Common Shares
(determined pursuant to Section 11(d) on the date of the occurrence of the event
described above in subparagraph (a)) multiplied by the number of Common Shares
for which the Right otherwise would be exchangeable if there were sufficient
shares available. To the extent that the Company determines that some action
need be taken pursuant to clauses (i), (ii) or (iii) of this Section 24(c), the
Board of Directors may temporarily suspend the exercisability of the Rights for
a period of up to sixty (60) days following the date on which the event
described in Section 24(a) shall have occurred, in order to seek any
authorization of additional Common Shares and/or to decide the appropriate form
of distribution to be made pursuant to the above provision and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates that evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal to
the same fraction of the current per share market value of a whole Common Share
(as determined pursuant to the second sentence of Section 11(d) of this
Agreement).
(e) The Company may, at its option, by majority vote of the Board
of Directors, at any time before any Person has become an Acquiring Person,
exchange all or part of the then outstanding Rights for rights of substantially
equivalent value, as determined reasonably and with good faith by the Board of
Directors, based upon the advice of one or more nationally recognized investment
banking firms.
(f) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection (e) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of rights in exchange therefor as has
been determined by the Board of Directors in accordance with subsection (e)
above. The Company shall give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company shall mail a notice of any
such exchange to all of the holders of such Rights at their last addresses as
they appear upon the registry books of the transfer agent for the Common Shares
of the Company. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Rights will be
effected.
<PAGE> 36
Section 25. Notice of Certain Events.
(a) In case the Company shall propose to effect or permit to
occur any Section 13 Event, the Company shall give notice thereof to each holder
of Rights in accordance with Section 26 of this Agreement at least twenty (20)
days prior to occurrence of such Section 13 Event.
(b) In case any Triggering Event or Section 13 Event shall occur,
then, in any such case, the Company shall as soon as practicable thereafter give
to each holder of a Rights Certificate, in accordance with Section 26 of this
Agreement, a notice of the occurrence of such event, which shall specify the
event and the consequences of the event to holders of Rights under Sections
11(a)(ii) and 13 of this Agreement.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
EndoSonics Corporation
2870 Kilgore Road
Rancho Cordova, CA 95670
Attention: President
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid addressed (until another address is
filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
235 Montgomery Street, 23rd Floor
San Francisco, California 94104
Attn: Paul Collins
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to or on the holder of any Rights Certificate shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
<PAGE> 37
Section 27. Supplements and Amendments. Prior to the Distribution Date,
the Company may supplement or amend this Agreement in any respect without the
approval of any holders of Rights and the Rights Agent shall, if the Company so
directs, execute such supplement or amendment. From and after the Distribution
Date, the Company and the Rights Agent may from time to time supplement or amend
this Agreement without the approval of any holders of Rights in order to (i)
cure any ambiguity, (ii) correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, (iii)
shorten or lengthen any time period hereunder or (iv) change or supplement the
provisions hereunder in any manner that the Company may deem necessary or
desirable and that shall not adversely affect the interests of the holders of
Rights (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); provided, this Agreement may not be supplemented or amended
to lengthen, pursuant to clause (iii) of this sentence, (A) a time period
relating to when the Rights may be redeemed at such time as the Rights are not
then redeemable or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Company that states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the interests
of the holders of Common Shares.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc.
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
of Directors in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights Certificates and all other
parties and (y) not subject the Board of Directors to any liability to the
holders of the Rights.
Section 30. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any Person other
than the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the
<PAGE> 38
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors determines in its good faith judgment that severing the invalid
language from this Agreement would adversely affect the purpose or effect of
this Agreement, the right of redemption set forth in Section 23 of this
Agreement shall be reinstated and shall not expire until the close of business
on the tenth day following the date of such determination by the Board of
Directors.
Section 32. Governing Law. This Agreement and each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions of this
Agreement.
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this Preferred Shares
Rights Agreement to be duly executed as of the day and year first above written.
ENDOSONICS CORPORATION
By: /s/ RICHARD L. FISCHER
---------------------------------------------
Richard L. Fischer
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
By: /s/ PAUL COLLINS
---------------------------------------------
Paul Collins
<PAGE> 1
Exhibit 10.1
FUKUDA DENSHI CO., LTD. AND ENDOSONICS CORPORATION
JAPANESE DISTRIBUTION AGREEMENT
THIS AGREEMENT ("Agreement"), effective on the Effective Date
(defined below), is made and entered into between EndoSonics Corporation, a
Delaware corporation, with its principal offices at 2870 Kilgore Road, Rancho
Cordova, California 95670, U.S.A. (hereinafter referred to as "EndoSonics"), and
Fukuda Denshi Co., Ltd., a corporation of Japan, with its principal offices at
3-39-4 Hongo, Bunkyo-ku, Tokyo 113, Japan (hereinafter referred to as "Fukuda").
In consideration of the mutual promises contained herein, the
parties agree as follows:
1. DEFINITIONS
A. "Act" shall mean any act, statute, or regulation of any kind
governing the products in the U.S.A. including the Federal Food, Drug and
Cosmetic Act (21 U.S.C. Sections 301 392 (1993)).
B. "Best Efforts" shall mean every necessary and prudent effort of a
party applied in a prompt, commercially reasonable manner, to the maximum extent
reasonably allowed by such party's available financial resources, taking into
account all of such party's business commitments for such financial resources.
C. "Cardiometrics Products" shall mean those guidewire based
products for physiological testing such as WaveWire(TM) and FloWire(TM) adapted
to be utilized on the In-Vision(TM) System.
D. "Effective Date" shall mean August 31, 1998.
E. "EndoSonics Products" shall mean all products for use with the
ultrasound imaging systems developed by EndoSonics during the term of this
Agreement and available for sale during the term of this Agreement.
F. "QSR's" shall mean the good manufacturing practices for medical
devices set forth by any Act governing the products in the U.S.A. including
United States 21 C.F.R. Section 820 (1993).
G. "IVUS Products" shall mean those EndoSonics intravascular
ultrasound products listed in Exhibit "A" attached hereto and all successor
products thereto. IVUS Products may be changed, abandoned or added by
EndoSonics, at its sole discretion, provided that EndoSonics gives one hundred
twenty (120) days' prior written notice to Fukuda.
<PAGE> 2
H. "Sites" shall mean a hospital or other medical facility in the
Territory wherein the IVUS Products can be used.
I. "Territory" shall mean the country of Japan.
2. APPOINTMENT AND AUTHORITY OF FUKUDA
A. Appointment. Subject to the terms and conditions set forth
herein, EndoSonics hereby appoints Fukuda as EndoSonics' exclusive distributor
for the IVUS Products in the Territory for the period commencing January 1, 2000
until June 30, 2007; provided, however, for the period from January 1, 2000
until December 31, 2001, Johnson & Johnson Medical KK ("JJMKK") shall be
entitled to promote and sell the IVUS Products solely to JJMKK's Sites. The
parties hereto shall determine JJMKK's Sites and other terms and conditions for
the supply to JJMKK by Fukuda on or before December 31, 1999.
Subject to the terms and conditions set forth herein, Fukuda hereby accepts such
appointment.
Subject to the terms and conditions of this Agreement, EndoSonics
shall not appoint any other distributor, sales agent or other representative
concerning the IVUS products in the Territory during the term of this Agreement.
B. Transition of Distribution. Fukuda hereby acknowledges that
EndoSonics and JJMKK are parties to that certain Exclusive Distribution
Agreement dated June 1, 1998 ("JJMKK Agreement") whereby JJMKK has exclusive
distribution rights to certain IVUS Products in the Territory. EndoSonics agrees
to terminate the JJMKK Agreement no later than January 1, 2000. EndoSonics, as
per Fukuda's request, will keep Fukuda advised in regard to the termination of
the JJMKK Agreement. In addition, EndoSonics will use Best Efforts to: (i)
assist Fukuda in gaining rights to distribute to additional Sites other than the
82 Sites specified in that certain Distribution Transition Agreement between
Fukuda and EndoSonics effective March 1, 1997 ("Distribution Transition
Agreement") as soon as practical before January 1, 2000; and (ii) extend to
December 31, 1999 the rights of Fukuda pursuant to the Distribution Transition
Agreement to continued distribution of the IVUS Products already installed by
Fukuda as of the Effective Date.
C. Other Product Rights. EndoSonics hereby grants Fukuda a right of
first refusal or right of first negotiation for the exclusive distribution of
Cardiometrics Products by Fukuda in the Territory after December 31, 1999,
provided that the Cardiometrics Product are functionally compatible with the
In-Vision(TM) System at such time. In addition, EndoSonics hereby grants Fukuda
a right of first refusal for the distribution of all EndoSonics Products after
December 31, 1999 to the extent that EndoSonics may grant to Fukuda such rights.
With respect to all EndoSonics Products where Fukuda has the right of first
refusal hereunder, EndoSonics shall deliver written notice ("Notice") to Fukuda
should EndoSonics desire to appoint a distributor in the Territory for such
product. The parties shall negotiate in good faith an agreement for the
distribution of such product for a period of no more than sixty (60) days after
Fukuda receives such Notice. If the parties agree not to enter into a written
agreement within sixty (60) days from the receipt of the Notice by Fukuda, then
EndoSonics shall be free to enter into an agreement
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<PAGE> 3
with a third party for the distribution of such product in the Territory, but
the terms and conditions are substantially the same as those previously declined
by Fukuda. EndoSonics agrees that it will not appoint any distributor for any
EndoSonics Products in the Territory on or before December 31, 1999 which may
effect Fukuda's right of first refusal granted hereunder.
D. Use of Trademarks. EndoSonics hereby grants to Fukuda a
non-exclusive license to use the EndoSonics' Trademarks (defined herein below)
for the purpose of identifying and marketing the products in the Territory. Any
use of the EndoSonics' Trademarks will be in accordance with such instructions
as EndoSonics may give Fukuda from time to time. EndoSonics shall, at its
expense, use reasonable efforts to protect and maintain all registration,
filings and issuance of EndoSonics' Trademarks in full force and effect.
E. Fukuda Trademarks. EndoSonics shall not, without the prior
written consent of Fukuda in each instance, use in any manner whatsoever,
Fukuda's name, its trademarks, logos, symbols or other images of Fukuda or of
any party affiliated therewith.
F. Territorial Limitation. Fukuda shall not, without the prior
written consent of EndoSonics: (i) promote, advertise, sell, distribute the
IVUS, EndoSonics and Cardiometrics Products in any country outside the
Territory; (ii) cause, directly or indirectly, the importation of the Product
into any country outside the Territory; nor (iii) establish a repair or
maintenance facility in any country outside the Territory.
G. Conflict of Interest. Commencing on January 1, 2000, Fukuda shall
use its Best Efforts in the promotion and sale of the IVUS Products and all
other products to which it acquires exclusive distribution rights hereunder, and
Fukuda will not promote, advertise, sell nor distribute directly or indirectly
any products competitive to the IVUS Products or any other products to which it
acquires exclusive distribution rights hereunder.
H. Independent Contractors. The relationship of EndoSonics and
Fukuda established by this Agreement is that of independent contractors, and
nothing contained in this Agreement shall be construed to (i) give either party
the power to direct and control the day-to-day activities of the other or (ii)
allow either party to create or assume any obligation on behalf of the other
party for any purpose whatsoever. All financial obligations associated with each
party's business are the sole responsibility of such party. All sales and other
agreements between Fukuda and its customers are Fukuda's exclusive
responsibility and shall have no effect on EndoSonics' obligations under this
Agreement. EndoSonics shall be solely responsible for, and shall indemnify and
hold Fukuda free and harmless from, any and all claims, damages or lawsuits
(including attorneys' fees) arising out of the acts of EndoSonics, its employees
or its agents. Fukuda shall be solely responsible for, and shall indemnify and
hold EndoSonics free and harmless from, any and all claims, damages or lawsuits
(including attorneys' fees) arising out of the acts of Fukuda, its employees or
its agents.
3. TERMS OF PURCHASE OF PRODUCTS BY FUKUDA
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<PAGE> 4
A. Terms and Conditions. All purchases of IVUS Products by Fukuda
from EndoSonics during the term of this Agreement shall be subject to the terms
and conditions of this Agreement.
B. Prices. All prices are F.O.B. EndoSonics' plant. This purchase
price to Fukuda for each of the IVUS Products ("Purchase Price") are set forth
on Exhibit "A" hereto, as such Purchase Prices shall be amended from time to
time during the term of this Agreement by mutual agreement of the parties.
The prices may be revised from time to time through consultation
between EndoSonics and Fukuda, taking into account the then prevailing market
prices of the similar products. Such revisions shall apply to all orders
received after the effective date of revision. Price increases shall not affect
unfulfilled purchase orders accepted by EndoSonics prior to the effective date
of the price increase.
C. Taxes. The amounts payable by Fukuda under Section 3 are
exclusive of all taxes and government charges (including, without limitation,
interest and penalties) payable to Japanese government, if any. If Fukuda is
required to withhold any taxes on amounts payable to EndoSonics in accordance
with this Agreement, pursuant to the laws and regulations of Japan, Fukuda shall
compensate EndoSonics for any such withholding by paying EndoSonics an
additional amount equal to such amount withheld. Nothing in this Section 3.C.
shall be construed to mean that Fukuda is responsible for taxes and charges
(including, without limitation, interest and penalties) to the federal or state
government of the U.S.A. which are imposed on EndoSonics.
D. Order and Acceptance. All orders for IVUS Products submitted by
Fukuda shall be initiated by written purchase orders sent to EndoSonics and
requesting a delivery date during the term of this Agreement; provided, however,
that an order may initially be placed orally or by facsimile if a confirmational
written purchase order is received by EndoSonics within ten (10) days after said
oral or facsimile order. To facilitate EndoSonics' production scheduling, Fukuda
shall use reasonable commercial efforts to submit purchase orders to EndoSonics
at least sixty (60) days prior to the first day of the requested month of
delivery. No order shall be binding upon EndoSonics until accepted by EndoSonics
in writing, and EndoSonics shall have no liability to Fukuda with respect to
purchase orders that are not accepted. EndoSonics shall notify Fukuda of the
acceptance or rejection of an order and of the assigned delivery date for
accepted orders within ten (10) days of receipt of the purchase order, if not
rejected within such period of ten (10) days, the order shall be deemed
accepted. EndoSonics will use its Best Efforts, consistent with its obligations
to other similarly-situated customers, to process and ship all orders in
accordance with requested delivery dates by Fukuda.
E. Terms of Purchase Orders. Fukuda's purchase orders submitted to
EndoSonics from time to time with respect to IVUS Products to be purchased
hereunder shall be governed by the terms of this Agreement, and nothing
contained in any such purchase order shall in any way modify such terms of
purchase or add any additional terms or conditions.
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<PAGE> 5
F. Payment. EndoSonics shall submit an invoice to Fukuda upon each
shipment of IVUS Products ordered by Fukuda. The invoice shall cover Fukuda's
purchase price for the IVUS Products in a given shipment plus any freight, taxes
or other applicable costs initially paid by EndoSonics but to be borne by
Fukuda. Payment shall be made in U.S. dollars and payment shall be by wire
transfer, check or other instrument approved by EndoSonics. Payment terms shall
be the full invoiced amount due for payment received by EndoSonics within sixty
(60) days of the date of the invoice. Fukuda may take a two (2) percent discount
as a reduction of the invoice price if payment is received by EndoSonics within
fifteen (15) days of the date of invoice. Any invoiced amount not received
within sixty (60) days of the date of invoice shall be subject to a service
charge of one and a half percent (1.5%) per month or such lesser percentage
permitted by applicable law.
G. Shipping. All IVUS Products delivered pursuant to the terms of
this Agreement shall be suitably packed for air freight shipment in EndoSonics'
standard shipping cartons, marked for shipment at Fukuda's address set forth
above or any other address in the Territory as Fukuda indicates, and delivered
to Fukuda or its carrier agent F.O.B. EndoSonics' manufacturing plant, at which
time title to such IVUS Products and risk of loss shall pass to Fukuda. Unless
otherwise instructed in writing by Fukuda, EndoSonics shall select the carrier.
All freight, insurance, and other applicable expenses, as well as any special
packing expense, shall be paid by Fukuda.
H. Rejection of Products. Fukuda shall inspect all IVUS Products,
except those IVUS Products which are sterilized and sealed by EndoSonics at its
plant, promptly upon receipt thereof and may reject any IVUS Product that fails
to meet the specifications set forth in EndoSonics' current product
specifications for that IVUS Product. Any IVUS Product not properly rejected
within sixty (60) days of receipt of that IVUS Product at Fukuda's facility
after customs clearance for import (the "Rejection Period") shall be deemed
accepted. To reject an IVUS Product, Fukuda shall, within the Rejection Period,
notify EndoSonics in writing by facsimile of its rejection and request a Return
Material Authorization ("RMA") number. EndoSonics shall provide the RMA number
in writing by facsimile to Fukuda within ten (10) days of receipt of the
request. Within ten (10) days of receipt of the RMA number, Fukuda shall return
to EndoSonics the rejected IVUS Product, freight collect, in its original
shipping carton with the number displayed on the outside of the carton. Provided
that EndoSonics has complied with its obligations in this Agreement, EndoSonics
reserves the right to refuse to accept any rejected IVUS Products that do not
bear an RMA number on the outside of the carton. As promptly as possible but no
later than fifteen (15) working days after receipt by EndoSonics of properly
rejected IVUS Products, EndoSonics shall, at its expense, replace the IVUS
Products and ship such replacement IVUS Products freight prepaid.
I. Return of Products After Rejection Period. After the Rejection
Period, EndoSonics' Standard Limited Warranty shall be applied. For sterilized
and sealed IVUS Products such as catheters, however, EndoSonics shall replace
those IVUS Products found defective with new IVUS Products if such defects
should be found within fifteen (15) months of shipment of such IVUS Products to
Fukuda if a notice with the details of such defects is given by
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<PAGE> 6
Fukuda to EndoSonics within a reasonable period after Fukuda or the user has
discovered defects or ought to have discovered them. If EndoSonics tests and
inspects these returned IVUS Products and determines that such IVUS Products
perform according to EndoSonics written specifications, no credit will be given
to Fukuda. If upon such test and inspections, such returned IVUS Products do not
perform to EndoSonics' written specification, these IVUS Products will be
replaced at no cost to Fukuda except in the case that EndoSonics proves that
such defect was caused after the F.O.B. point of shipment by EndoSonics to
Fukuda.
J. No Time Restriction. Notwithstanding any provision herein to the
contrary, Fukuda's rights and remedies under this Agreement or laws of the
Territory shall not be subject to any time restriction that may be imposed by
any provisions of the laws of non-mandatory nature so long as Fukuda gives
notice specifying the nature of the lack of conformity within a reasonable time
after Fukuda or the user has discovered it or ought to have discovered it.
4. WARRANTY TO FUKUDA'S CUSTOMERS
A. Standard Limited Warranty. Fukuda shall pass on to its customers
EndoSonics Standard Limited Warranty for the IVUS Products. This warranty shall
cover the IVUS Products for a period of fifteen (15) months from the date of
shipment to Fukuda. This warranty is contingent upon proper use of an IVUS
Product in the application for which it was intended and does not cover IVUS
Products that were modified without EndoSonics' approval or that were subjected
by the customer to unusual physical stress. If an IVUS Product fails to meet the
warranty provided herein, EndoSonics' sole liability and Fukuda and/or the
end-user's sole remedy shall be either the replacement by EndoSonics of the
defective unit with another unit of the same product (or a unit of a
substantially equivalent product thereto if the original model is no longer
manufactured) or the refund by EndoSonics of the purchase price paid for such
defective product.
B. No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTY SET FORTH
ABOVE, ENDOSONICS HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, BY
STATUTE OR OTHERWISE, REGARDING THE IVUS PRODUCTS, INCLUDING BUT NOT LIMITED TO
THEIR FITNESS FOR A PARTICULAR PURPOSE, OR THEIR MERCHANTABILITY. OTHER THAN FOR
PUNITIVE DAMAGES, NOTHING IN THIS SECTION 4. SHALL LIMIT THE INDEMNIFICATION
OBLIGATION UNDER SECTION 8.A. WITH RESPECT TO DAMAGE CLAIMS FOR PERSONAL INJURY
AND/OR DEATH CAUSED BY DEFECT OF THE IVUS PRODUCTS.
5. ADDITIONAL OBLIGATIONS OF ENDOSONICS AND FUKUDA
A. Clinical Trials: Management, Product Supply and Regulatory
Approvals. Fukuda agrees that it will undertake to manage, at Fukuda's expense,
all animal trials and human clinical trials required to obtain approval from all
Japanese regulatory authorities to market in the Territory the IVUS Products and
all other products to which Fukuda acquires exclusive
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<PAGE> 7
distribution rights under this Agreement. Fukuda agrees to expeditiously submit
for Ministry of Health and Welfare ("MOHW") approval for the In-Vision(TM)
System and upon receipt of such approval, transfer the approval to the party
specified by EndoSonics. Fukuda will continue to process the existing submission
for the amended Oracle 96(TM) System and transfer such approval to JJMKK in
accordance with the Distribution Transition Agreement. EndoSonics will use Best
Efforts to cause JJMKK to transfer to Fukuda all MOHW approvals held by JJMKK on
products to which Fukuda acquires exclusive distribution rights hereunder upon
the termination of the JJMKK Agreement. Any costs and expenses which exceed the
amount paid by JJMKK to Fukuda in consideration of the transfer of the MOHW
approvals from Fukuda to JJMKK will not be the responsibility of Fukuda.
EndoSonics agrees that it will sell products to Fukuda to conduct
the animal trials and human clinical trials for Japanese marketing approval at a
fifty percent (50%) discount to EndoSonics' regular prices to Fukuda. Payment
for these products will be sixty (60) days following shipment from EndoSonics.
Shipment costs will be added to invoice amounts.
EndoSonics shall assist Fukuda in obtaining regulatory approvals and
registration of the products in the Territory by providing Fukuda with;
(i) materials in EndoSonics possession necessary to obtain MOHW
approvals and marketing approvals, licenses, and permits;
(ii) certificates of analysis, export and compliance;
(iii) trademark authorizations; and
(iv) such other information as Fukuda shall reasonably request from
time to time.
EndoSonics agrees to train Fukuda in the proper clinical use of all
IVUS Products, and Fukuda shall be responsible in turn for training their
customers. Also at Fukuda's request, EndoSonics agrees to make arrangements to
send one of EndoSonics' major U.S. Clinical Investigator Physicians to Japan to
(i) give lectures on the use of these products and (ii) perform clinical
training of these products to Japanese physicians. Fukuda agrees to reimburse
EndoSonics for all out-of-pocket expenses for the travel of this physician to
Japan.
B. Minimum Purchases. Commencing on January 1, 2000 until the
termination or expiration of this Agreement, Fukuda commits to purchase from
EndoSonics certain annual minimum quantities of IVUS Products ("Minimums"). The
Minimums for the calendar year 2000 shall [*]. Fukuda shall use reasonable
commercial efforts to ensure that the annual purchase commitment is reasonably
distributed over each calendar quarter. For each calendar year after 2000, the
parties shall discuss in good faith and agree upon Minimums in writing no later
than six (6) months prior to the commencement of such calendar year. If Fukuda
fails to purchase the required Minimums in any calendar year, EndoSonics may,
* Confidential Treatment Requested. Confidential Portion Has Been Filed
Separately with the Securities and Exchange Commission.
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<PAGE> 8
as the sole remedy for Fukuda's failure to purchase the Minimums, upon thirty
(30) days written notice to Fukuda, either terminate this Agreement or render
non-exclusive the distribution rights granted to Fukuda in Section 2.A.
C. Forecasts. Within the first ten (10) days of every quarter,
Fukuda shall provide EndoSonics with a four quarter rolling forecast
("Forecast") showing prospective orders by product model and intended purchase
order submittal date. The quantities forecasted for the first quarter of each
Forecast ("Binding Quarter") shall be binding on Fukuda and deemed supported by
a non-cancelable purchase order. In addition, the quantities corresponding to
the Binding Quarter of the next four quarter rolling forecast may not be less
than 50% of the quantities corresponding to the second quarter forecast of the
previous Forecast.
D. Promotion of the Products. Fukuda shall, at its own expense, use
its best efforts to promote the sale of the IVUS Products within the Territory.
Such promotion shall include, but not be limited to, preparing promotional
materials in languages appropriate for the Territory, advertising the IVUS
Products in trade publications within the Territory, participating in
appropriate trade shows to the extent Fukuda thinks fit, and directly soliciting
orders from customers for the IVUS Products.
E. Finances and Personnel. Fukuda shall devote sufficient financial
resources, technically qualified sales personnel, and service personnel to the
IVUS Products to fulfill its responsibilities under this Agreement.
F. Customer and Sales Reporting. Fukuda shall, at its own expense:
(i) place the IVUS Products in Fukuda's catalogues as
soon as possible and feature IVUS Products in any applicable trade show that it
attends to the extent Fukuda thinks fit;
(ii) provide adequate contact with existing and
potential customers within the Territory on a regular basis, consistent with
good business practice;
(iii) assist EndoSonics in assessing customer
requirements for the IVUS Products, including modifications and improvements
thereto, in terms of quality design, functional capability, and other features;
(iv) submit market research information, as reasonably
requested by EndoSonics, regarding competition and changes in the
market within the Territory; and
(v) provide EndoSonics with a report, by product type,
of all sales of IVUS Products for each quarter no later than thirty
(30) days following the end of such quarter.
G. Import Requirements. Fukuda shall, at its own expense, pay all
import licenses and permits, pay customs charges and duty fees, imposed by any
Japanese governmental authority upon or applicable to any import by Fukuda under
this Agreement, and take all other actions required to accomplish the import of
the IVUS Products purchased by Fukuda.
H. Export Law Compliance. Fukuda understands and recognizes that the
Product and other materials made available to it hereunder may be subject to the
export administration regulations of the United States Department of Commerce
and other United States government
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regulations, as amended from time to time, related to the export of technical
data and equipment and products produced therefrom. Fukuda agrees to comply with
all such regulations in connection with the distribution of the IVUS Product.
Fukuda agrees to cooperate with EndoSonics and to provide EndoSonics with such
reasonable assistance as is required in order to comply with the export
administration regulations of the United States. Nothing in this Section 5. H.
shall be construed to require that Fukuda shall bear any cost or expense
required to comply with such U.S. export regulations.
I. Upgrade of IVUS Products. No later than June 30, 1999, Fukuda
hereby agrees to upgrade the Oracle 96(TM) Systems installed as of the Effective
Date to: (i) conform to the specification for the In-Vision(TM) Systems, and
(ii) include both the ChromaFlo(TM) and In-Line Digital(TM) features. EndoSonics
shall supply to Fukuda kits required for such upgrade at the following prices:
<TABLE>
<CAPTION>
Feature Price per Unit (U.S. $)
------- -----------------------
<S> <C>
Upgrade to In-Vision(TM) System [*]
Addition of ChromaFlo(TM) and In-Line
Digital(TM) to the In-Vision(TM)
System [*]
</TABLE>
J. In-Vision(TM) System Promotional Allowances. During 1999, up to
10 In-Vision(TM) Systems may be purchased by Fukuda from JJMKK for which
EndoSonics will provide promotional allowances to Fukuda. [*]. The promotional
allowances will be paid within thirty (30) days after the end of the 1999
calendar quarter in which Fukuda purchases the In-Vision(TM) Systems.
6. ADDITIONAL OBLIGATIONS OF ENDOSONICS
A. Supply of Sample Products and Materials. EndoSonics shall supply
Fukuda's requirements for the IVUS Products in the Territory consistent with the
delivery schedules and the Minimums. EndoSonics shall promptly provide Fukuda
without any charges with marketing and technical information concerning the IVUS
Products as well as reasonable quantities of brochures, instructional material,
advertising literature, and other IVUS Product data, with all such material
printed in the English language. EndoSonics agrees to discuss with Fukuda for
* Confidential Treatment Requested. Confidential Portion Has Been Filed
Separately with the Securities and Exchange Commission.
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<PAGE> 10
supplying appropriate number of sample IVUS Products or granting a fifty percent
(50%) discount for appropriate number of IVUS Products for assistance of
Fukuda's sales.
B. Response to Inquiries. EndoSonics shall promptly respond to all
inquiries from Fukuda concerning matters pertaining to this Agreement.
C. Testing. EndoSonics shall test all IVUS Products before shipment
to Fukuda under U.S. FDA GMP or QSR requirements.
D. Delivery Time. EndoSonics shall minimize delivery time as much as
possible and to fulfill delivery obligations as committed in any acceptance.
E. Territorial Inquiries. EndoSonics shall submit to Fukuda any
inquiry originating from the Territory rather than answering the inquiry
directly.
F. Quotations to exporters. EndoSonics shall refrain from giving
quotations to exporters whom EndoSonics knows or has reason to suspect will ship
IVUS Products to the Territory.
G. Market Information. Upon reasonable request of Fukuda, EndoSonics
shall provide Fukuda with information as to general market movement,
competitors' prices and strategies, names of EndoSonics' major customers (users)
and other information that may help Fukuda promote and sell the IVUS Products in
the Territory.
H. Customer's Special Requirements. In case Fukuda encounters
requests from customers for special changes or modifications on IVUS Products so
that the IVUS Products meet their particular usage. In such cases, if Fukuda
deems it necessary to comply with such requirements for its market strategy,
Fukuda shall request EndoSonics to make such changes or modifications on the
IVUS Products and EndoSonics shall use its reasonable commercial efforts to meet
such requirements.
I. New Developments. EndoSonics shall inform Fukuda of new IVUS
Product developments during regularly scheduled quarterly reviews.
J. Regulatory Reporting and Analysis of Returned Products.
EndoSonics shall file, or cause to be filed, all reports required of a
manufacturer pursuant to the applicable U.S. medical device reporting
regulations. EndoSonics, as the manufacturer of the products, shall perform all
failure analysis on the products within thirty (30) days of receipt of each
failed product and shall file all reports required with the applicable U.S.
regulatory agency. EndoSonics shall further cooperate with and assist Fukuda in
submitting all reports that Fukuda, as distributor of the products, may be
required to file. Fukuda shall promptly provide EndoSonics with copies of all
such reports.
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7. TERM AND TERMINATION
A. Term. This Agreement shall be effective on the Effective Date and
shall continue in force through June 30, 2007, unless terminated earlier under
the provisions of this Section 7. Six (6) months prior to expiration, the
parties will meet to discuss in good faith an extension to this Distribution
Agreement. Thereafter the term of the Distribution Agreement may be renewed by
mutual agreement of the parties for successive periods of two (2) years each,
provided that (i) Fukuda has fulfilled its minimum purchase obligation agreed
upon with EndoSonics on or before September 30 of each year and (ii) the parties
mutually agree to minimums for each extension year.
B. Termination for Cause. If either party materially defaults in the
performance any obligation in this Agreement, then the non-defaulting party may
give written notice to the defaulting party that if the default is not cured
within ninety (90) days after receipt of such notice, the Agreement will be
terminated. If the non-defaulting party gives such notice and the default is not
cured during the ninety-day period, then the Agreement shall automatically
terminate at the end of that period.
C. Termination for Insolvency. This Agreement shall terminate,
without notice, (i) upon the institution by or against Fukuda or EndoSonics of
insolvency, receivership or bankruptcy proceedings or any other proceedings for
the settlement of debts; (ii) upon Fukuda's or EndoSonics' making an assignment
for the benefit of creditors; or (iii) upon Fukuda's or EndoSonics' dissolution.
D. Fulfillment of Orders upon Termination. Upon termination of this
Agreement, EndoSonics shall continue to fulfill, subject to the terms of Section
3 above and if so requested by Fukuda, all orders accepted by EndoSonics prior
to the date of termination.
E. Return of Materials. All trademarks, trade names, patents,
copyrights, designs, drawings, formulas or other data, photographs, samples,
literature and sales aids of every kind with respect to the IVUS Products shall
remain the property of EndoSonics as long as the objects sill remain in Fukuda's
possession. Within thirty (30) days after the termination of this Agreement,
Fukuda shall prepare all such items in its possession for shipment as EndoSonics
may direct, at EndoSonics' expense. Fukuda shall not make or retain any copies
of any confidential items or information or any product literature which may
have been entrusted to it. Effective upon the termination of this Agreement,
Fukuda shall cease to use all trademarks, marks and trade names of EndoSonics;
provided, however, that Fukuda may continue to use such trademarks to market,
distribute or sell any inventory of the products in Fukuda's possession at the
time of such termination as permitted pursuant to Section 7.F.
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<PAGE> 12
F. Inventory on Termination. Upon termination of this Agreement due
to expiration (7.A.) Fukuda may return to EndoSonics, or its nominee, its
remaining inventory which is new and unused for credit or refund at then current
selling prices or, upon mutual agreement, for a period not to exceed one hundred
eighty (180) days, sell any remaining inventory. Upon termination due to
Fukuda's default or insolvency (7.B., 7.C.), Fukuda at EndoSonics' option will
return its remaining inventory which is new and unused for credit or refund at
then current selling prices or for a period not to exceed one hundred eighty
(180) days, sell any remaining inventory. Upon termination due to EndoSonics'
default or insolvency (7.B., 7.C.), Fukuda at its option will return its
remaining inventory which is new and unused for credit or refund at then current
selling prices, or for a period not to exceed one hundred eighty (180) days,
sell any remaining inventory.
G. Limitation on Liability. 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 EndoSonics or
Fukuda. Termination shall not, however, relieve either party of obligations
incurred prior to the termination.
H. Survival of Certain Terms. The provisions of Sections 2.F, 3.F,
4, 7, 8, 9, 10, 11 and 12 shall survive the termination of this Agreement for
any reason. All other rights and obligations of the parties shall cease upon
termination of this Agreement
8. LIABILITY COVERAGE AND LIMITATIONS
A. Products Liability. EndoSonics agrees to carry products liability
insurance for all of its IVUS Products. This liability insurance will cover the
design, manufacture and performance of IVUS Products when these products are
promoted, sold and used by customers for uses specified in EndoSonics labeling,
promotional materials and instructions for use. Fukuda will be responsible for
any liability arising out of (1) Fukuda's sales of IVUS Products for
applications not included in EndoSonics' labeling, promotional material and
instructions for use, (2) for liability claims arising from Fukuda's wrongful
training of customer users, and (3) liability claims arising from wrongful use
of IVUS Products by Fukuda's customers. EndoSonics shall indemnify and hold
Fukuda free and harmless from all costs, expenses and damages incurred by Fukuda
in connection with third party claims concerning personal injury or death caused
by a defect in the design or manufacture of an IVUS Product or a non-conformance
with EndoSonics' then current specifications for IVUS Products existing at the
time of delivery of such IVUS Product by EndoSonics under Section 3.G.
B. Limitation on Liability. ENDOSONICS' LIABILITY ARISING OUT OF
THIS AGREEMENT AND/OR SALE OF THE IVUS PRODUCT SHALL BE LIMITED TO THE AMOUNT
PAID BY THE CUSTOMER FOR THE IVUS PRODUCTS. IN NO EVENT
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<PAGE> 13
SHALL ENDOSONICS BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS. IN NO
EVENT SHALL ENDOSONICS BE LIABLE TO FUKUDA OR ANY OTHER ENTITY FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF
LIABILITY, AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OR ANY LIMITED
PURPOSE OR ANY LIMITED REMEDY. OTHER THAN FOR PUNITIVE DAMAGES, NOTHING IN THIS
SECTION 8.B. SHALL LIMIT THE INDEMNIFICATION OBLIGATION UNDER SECTION 8.A. WITH
RESPECT TO DAMAGE CLAIMS FOR PERSONAL INJURY AND/OR DEATH CAUSED BY DEFECT OF
THE IVUS PRODUCTS.
9. PROPERTY RIGHTS AND CONFIDENTIALITY
A. Property Rights. Fukuda agrees that EndoSonics owns all right,
title and interest in the IVUS Product lines that include the IVUS Products now
or hereafter subject to this Agreement and in all of EndoSonics' patents,
trademarks, trade names, inventions, copyrights, know-how, and trade secrets
relating to the design, manufacture, operation or service of the IVUS Products.
The use by Fukuda of any of these property rights is authorized only for the
purposes herein set forth, and upon termination of this Agreement for any
reason, such authorization shall cease.
B. Sale Conveys No Right to Manufacture or Copy. The IVUS Products
are offered for sale and are sold by EndoSonics subject in every case to the
condition that such sale does not convey any license, expressly or by
implication, to manufacture, duplicate or otherwise copy or reproduce any of the
IVUS Products. Fukuda shall take appropriate steps with its customers, as
EndoSonics may request, to inform them of and assure compliance with the
restrictions contained in this Subsection 9.B.
C. Confidentiality. Each party shall maintain in confidence all
Confidential Information, as defined below, of the other party and shall not
use, disclose or grant use of such Confidential Information except as expressly
authorized by this Agreement. A party may disclose Confidential Information, as
authorized hereunder, only to those of its employees or agents who agree to be
bound by the terms of this Section 9. Fukuda may disclose the Confidential
Information to MOHW, if and when it is so required, during the MOHW approval
proceedings, provided that Fukuda shall make its Best Efforts to avoid or limit
such disclosure. As used in this Agreement, the term "Confidential Information"
shall mean information deemed by a party to be its confidential or proprietary
information and disclosed to the other party in writing and marked
"Confidential", or disclosed orally under confidence, including without
limitation, any confidential engineering designs and drawings, know-how, trade
secret, research, data, process, technique, research project, work in process,
future development, scientific, manufacturing, marketing, business plan,
financial or personnel matter relating to the party, its present or future
products, sales suppliers, customers, employees, investors or business. Upon
request of either of the parties hereto, the other party shall advise whether or
not it considers any particular information or materials to be confidential.
Fukuda shall not publish any technical description of the IVUS Products beyond
the description published by EndoSonics (except to
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<PAGE> 14
translate that description into appropriate languages for the Territory). In the
event of termination of this Agreement, there shall be no use or disclosure by
either of the parties hereto of any Confidential Information of the other party,
provided that the restrictions under Section 9 hereof does not in any manner
affect Fukuda's rights and/or licenses granted under any other agreements
entered into between EndoSonics and Fukuda.
D. Exclusions. The term "Confidential Information" shall not be
deemed to include information which: (i) is now, or hereafter becomes, through
no act or failure to act on the part of a party receiving such information,
generally known or available; (ii) is known by the party receiving such
information at the time of receiving such information, as evidenced by its
records; (iii) is hereafter furnished to the party receiving such information by
a third party, as a matter of right and without restriction on disclosure; (iv)
is the subject of a written consent to disclose provided by the disclosing
party, which consent may be withheld in the sole discretion of such party; or
(v) is discovered or developed by a party independent of and without any
reference to Confidential Information of the disclosing party, as evidenced by
the written records of the receiving party.
10. TRADEMARKS AND TRADE NAMES
A. Use. During the term of this Agreement, Fukuda shall have the
right to indicate to the public that it is an authorized distributor of IVUS
Products and to advertise (within the Territory) such IVUS Products under the
trademarks, marks and trade names that EndoSonics may adopt from time to time
("EndoSonics' Trademarks"). Fukuda shall not alter or remove any EndoSonics'
Trademark applied to the IVUS Products at the factory. Nothing herein shall
grant to Fukuda any right, title or interest in EndoSonics' Trademarks. At no
time during or after the term of this Agreement shall Fukuda challenge or assist
others to challenge EndoSonics' Trademarks or the registration thereof or
attempt to register any trademarks, marks or trade name confusing similar to
those of EndoSonics.
B. Approval of Representations. Fukuda shall respect EndoSonics'
Trademarks and follow the instructions of EndoSonics as to the usage of
EndoSonics' Trademarks. If any of EndoSonics' Trademarks are to be used in
conjunction with another trademark on or in relation to the IVUS Products, then
EndoSonics' mark shall be presented equally legibly, equally prominently, and of
the same or greater size than the other but nevertheless separated from the
other so that each appears to be a mark in its own right, distinct from the
other mark.
11. PATENT, COPYRIGHT AND TRADEMARK INDEMNITY
A. Indemnification. Fukuda agrees that EndoSonics has the right to
defend, or at its option to settle, and EndoSonics agrees, at its own expense,
to defend or at its option to settle, any claim, suit or proceeding brought
against Fukuda or its customer on the issue of infringement of any Japanese
patent, or trademark by the IVUS Products sold hereunder, or the use thereof,
subject to the limitations hereinafter set forth. EndoSonics shall have sole
control of any such action or settlement negotiations, and EndoSonics agrees to
pay, subject to the limitations hereafter set forth, any final judgment entered
against Fukuda or its customer on such issue in
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<PAGE> 15
any such suit or proceeding defended by EndoSonics. Fukuda agrees to notify
EndoSonics promptly in writing of such claim, suit or proceeding and gives
EndoSonics authority to proceed as contemplated herein, and, at EndoSonics'
expense, gives EndoSonics proper and full information and assistance to settle
and/or defend any such claim, suit or proceeding. If the IVUS Products, or any
part thereof, are the subject of any claim, suit or proceeding for infringement
of any Japanese patent, or trademark, or if the sale or use of the IVUS
Products, or any part thereof, is, as a result, enjoined, then EndoSonics shall,
at its expense (i) procure for Fukuda and its customers the right under such
patent, or trademark to sell or use, as appropriate, the IVUS Products or such
part thereof; or (ii) replace the IVUS Products, or part thereof, with other
suitable IVUS Products or parts; or (iii) suitably modify the IVUS Products, or
part thereof; or (iv) if the use of the IVUS Products, or part thereof is
prevented by injunction, remove the IVUS Products, or part thereof, and refund
the aggregate payments paid therefor by Fukuda, less a reasonable sum for use
and damage.
B. Limitation. Notwithstanding the provisions of Subsection 11.A.
above, EndoSonics assumes no liability for (i) infringements covering completed
equipment or any assembly, circuit, combination method or process in which any
of the IVUS Products may be used but not covering the IVUS Products standing
alone; (ii) any trademark infringement involving any marking or branding not
applied by EndoSonics or involving any marking or branding applied at the
request of Fukuda; or (iii) the modification of the IVUS Products, or any part
thereof, unless such modification or servicing was done by EndoSonics.
C. Entire Liability. The foregoing provision of this Section 11
states the entire liability and obligations of EndoSonics and the exclusive
remedy of Fukuda and its customers, with respect to any alleged patent or
trademark infringement by the IVUS Products or any part thereof.
12. GENERAL PROVISIONS
A. Arbitration. All disputes, controversies, or differences which
may arise between the parties hereto, out of, in relation to, or in connection
with this Agreement or the breach thereof, shall be finally settled by
arbitration in accordance with the Japan-American Trade Arbitration Agreement of
September 16, 1952 (as amended), by which each party hereto agrees to be bound.
If arbitration is requested by Fukuda, arbitration shall be conducted in Palo
Alto, California, U.S.A.; if arbitration is requested by EndoSonics, arbitration
shall be conducted in Tokyo, Japan. Judgment upon an award rendered may be
entered in any court having jurisdiction, or application may be made to such
court for judicial acceptance of the award and an order of endorsement, as the
case may be.
B. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter herein and
merges all prior discussions
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<PAGE> 16
between them. No modification of or amendment to this Agreement, nor any waiver
of any rights under this Agreement, shall be effective unless in writing signed
by the party to be charged.
C. Notices. Any notice required or permitted by this Agreement shall
be in writing and; (i) upon personal delivery to the party be notified; (ii)
when sent by confirmed facsimile if sent during normal business hours of the
recipient (if not, then on the next business day); (iii) ten (10) days after
having been sent by registered or certified airmail, return receipt requested,
postage prepaid; or (iv) four (4) business days, after being properly deposited
with an internationally recognized overnight courier, specifying express
delivery, with written verification of receipt addressed to the other party at
the address shown at the beginning of this Agreement or at such other address
for which such party gives notice hereunder.
D. Force Majeure. Nonperformance of either party shall be excused to
the extent that performance is rendered impossible by strike, fire, flood,
governmental acts or orders or restrictions, failure of suppliers, or any other
reason where failure to perform is beyond the control of and not caused by the
negligence of the non-performing party.
E. Change of Control; Assignment. This Agreement, including all
terms and conditions hereof which survive any termination or expiration of this
Agreement, shall be binding upon and inure to the benefit of the parties hereto
and their permitted successors and assigns. Neither party may assign any of its
rights and obligations hereunder without prior written consent of the other
party, and any such assignment or purported assignment shall be void, except
that an assignment pursuant to merger, acquisition or sale of all or
substantially all of the assets of a party shall not require such consent.
F. Partial Invalidity. If any provision of this Agreement is held to
be invalid by a court of competent jurisdiction, then the remaining provisions
shall nevertheless remain in full force and effect. The parties agree to
renegotiate in good faith any term held invalid and to be bound by the mutually
agreed substitute provision.
G. Legal Expenses. The prevailing party in any legal action brought
by one party against the other and arising out of this Agreement shall be
entitled, in addition to any other rights an remedies it may have, to
reimbursement for its expense, including arbitration costs and reasonable
attorneys' fees.
H. Counterparts. This Agreement shall be executed in two
counterparts, each of which shall be deemed an original, each party retaining
one copy thereof.
ENDOSONICS CORPORATION
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<PAGE> 17
By: /s/ Reinhard J. Warnking
--------------------------------
PRINTED NAME: Reinhard J. Warnking
TITLE: President, CEO
FUKUDA DENSHI CO., LTD.
By: /s/ Kotaro Fukuda
--------------------------------
PRINTED NAME: Kotaro Fukuda
TITLE: President and Board Member
-17-
<PAGE> 18
EXHIBIT A
[*]
* Confidential Treatment Requested. Confidential Portion Has Been Filed
Separately with the Securities and Exchange Commission.
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<PAGE> 19
EXHIBIT A (CONT'D)
[*]
* Confidential Treatment Requested. Confidential Portion Has Been Filed
Separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.2
AMENDMENT AGREEMENT
to
Distributor Agreement dated June 28, 1997
between Navius and Fukuda Denshi
RECITALS
This AMENDMENT AGREEMENT is entered into as of August 31st, 1998, by and among
Navius Corporation, a California corporation ("Navius"), Fukuda Denshi Co., Ltd.
("Distributor") a Japanese corporation, and EndoSonics corporation,
("EndoSonics") a Delaware corporation.
WITNESSETH
WHEREAS, on the 5th day of August, 1998, Navius was acquired by EndoSonics and
is now a wholly owned subsidiary of EndoSonics, and WHEREAS, there is currently
a DISTRIBUTION AGREEMENT between Navius and Distributor dated June 28, 1997
("DISTRIBUTION AGREEMENT"), and
WHEREAS, Navius, EndoSonics, and Distributor desire to amend the DISTRIBUTION
AGREEMENT in order to reflect the new ownership of Navius and the new
arrangements as hereinbelow set forth, NOW THEREFORE, in consideration of the
mutual covenants and agreements on the amendment of the DISTRIBUTION AGREEMENT
contained herein, Navius, EndoSonics, and Distributor agree as follows:
Sections 7.1.1. and 7.1.2. of the DISTRIBUTION AGREEMENT shall be amended as
follows:
7.1.1. Price. Distributor agrees to pay Navius the purchase price set
forth in Exhibit D. Distributor and Navius will negotiate and agree on an
annual basis changes to the prices set forth in Exhibit D.
7.1.2. Price Reduction. Navius shall reduce the current price to
Distributor of the vintage balloon catheter by $50 U.S. Dollars per unit on all
shipments to Distributor from the date of this Amendment Agreement.
Section 9.3. of the DISTRIBUTION AGREEMENT shall be amended as follows:
9.3. Infringement by Third Party. If Distributor is or becomes
aware of an infringement or a potential infringement of any Product trademarks
registered in the name of Navius, it will promptly notify Navius. If Navius
decides not to take action against such infringement, Distributor shall have
the right to defend the trademark, at its own expense, provided that it will
hold harmless and reimburse Navius for all costs, expense and damages which may
be imposed on Navius in connection with such action, and provided further that
if Distributor decides to defend the trademark, Navius shall register the sale
and exclusive fully paid up license ("Senyo Shiyou Ken") of such Navius'
trademark in favor of Distributor.
Section 14.1. of the DISTRIBUTION AGREEMENT shall be amended as follows:
<PAGE> 2
14.1. Term. The initial term of this Agreement shall commence of June
28, 1997, and continue unless earlier terminated, until the date ten (10) years
from the Approval Date. Thereafter, the term of the Distribution Agreement may
be renewed by mutual agreement of the parties for successive periods of two (2)
years each, provided that (i) Distributor has fulfilled its minimum purchase
obligation agreed upon with Navius on or before September 30 of each year and
(ii) the parties mutually agree to minimums for each extension year.
Section 17.6. of the DISTRIBUTION AGREEMENT shall be amended as follows to add
notice to EndoSonics;
If to EndoSonics 2870 Kilgore Road
Rancho Cordova, CA 95670
Fax: (916) 638-7976
Attn: President
The parties hereto confirm that the DISTRIBUTION AGREEMENT shall continue in
effect with the amendments thereto made by this Amendment Agreement. EndoSonics
as the sole owner of Navius hereby undertakes to succeed to and fulfill the
obligations of Navius under the Distribution Agreement.
IN WITNESS WHEREOF, Navius, Distributor and EndoSonics have executed this
Amendment Agreement, in triplicate originals, by their respective officer
hereunto duly authorized, as of the day and year hereinabove written.
Navius
By: /s/ Richard L. Fischer
---------------------------
Name: Richard L. Fischer
-------------------------
(print)
Title: President
------------------------
DISTRIBUTOR
Fukuda Denshi Co., Ltd.
By: /s/ Kotaro Fukuda
---------------------------
Name: Kotaro Fukuda
-------------------------
(print)
Title: President
------------------------
EndoSonics
By: /s/ Reinhard J. Warnking
---------------------------
Name: Reinhard J. Warnking
-------------------------
(print)
Title: President & CEO
------------------------
<PAGE> 1
EXHIBIT 10.3
RESEARCH AND DEVELOPMENT AGREEMENT
This RESEARCH AND DEVELOPMENT AGREEMENT (the "Research and Development
Agreement") is made and entered into effective as of August 31, 1998 (the
"Effective Date"), by and between EndoSonics Corporation ("EndoSonics"), a
Delaware corporation and Fukuda Denshi Co. Ltd. ("Fukuda"), a Japanese
corporation.
RECITALS
A. EndoSonics is in the business of developing medical products. Fukuda is in
the business of, among other things, distributing medical products in Japan.
B. EndoSonics and Fukuda are entering into a distribution agreement of even
date herewith (the "EndoSonics Distribution Agreement"). In addition, Navius
Corporation ("Navius"), now a wholly owned subsidiary of EndoSonics, is entering
into an amendment to the distribution agreement by and between Navius and Fukuda
dated as of June 28, 1997, of even date herewith (the "Navius Distribution
Agreement" and together with the EndoSonics Distribution Agreement, the
"Distribution Agreements").
C. To further develop the relationship between EndoSonics and Fukuda, and as
a condition to the execution of the Distribution Agreements, EndoSonics and
Fukuda agree to enter into this Research and Development Agreement.
Now, therefore, in consideration of the foregoing promises and the covenants
contained herein and for sufficient consideration, the receipt of which is
hereby acknowledged, the parties hereby agree to enter into this Research and
Development Agreement as follows:
AGREEMENT
1. RESEARCH AND DEVELOPMENT FUNDING.
1.1 Fukuda shall pay EndoSonics twenty-four (24) consecutive monthly
payments, each in the amount of $125,000 (the "Development Funds") for a total
amount of $3 million dollars. The first payment should be made on or before
thirty (30) days from the Effective Date of this Research and Development
Agreement. The Development Funds shall be paid in United States dollars by wire
transfer, check or other instrument approved by EndoSonics.
1.2 EndoSonics shall use the Development Funds for costs and expenses
related to the projects identified on Exhibit A attached hereto.
<PAGE> 2
2. TECHNICAL GUIDANCE FEES AND DELIVERABLES.
2.1 Fukuda shall pay EndoSonics four semi-annual payments, each in the
amount of $0.4 million (the "Technical Guidance Fees") for a total amount of
$1.6 million. The first payment should be made on or before thirty (30) days
from the Effective Date of this Research and Development Agreement. The
Technical Guidance Fees shall be paid in United States dollars by wire
transfer, check or other instrument approved by EndoSonics.
2.2 In consideration for the Technical Guidance Fees, EndoSonics shall
render technical guidance and training to Fukuda's personnel for the tasks
identified on Exhibit B attached hereto, with the intent and understanding of
the parties that Fukuda's personnel will obtain technical knowledge, know-how
and capability in order to allow Fukuda to perform final assembly of the
Vintage and Navicross catheters.
2.3 The technical guidance and training to be rendered hereunder shall be
made through dispatch of EndoSonics' and/or Navius' technical personnel to the
place in Japan designated by Fukuda and/or acceptance of Fukuda's personnel at
EndoSonics' and/or Navius' facilities to be agreed upon between Fukuda and
EndoSonics. The details not provided for in Exhibit B shall be discussed and
negotiated in good faith between Fukuda and EndoSonics from time to time.
2.4 Deliverables. EndoSonics shall transfer, at no cost to Fukuda, final
assembly test equipment to enable Fukuda to perform final test procedures on
"Vintage" or Navius PTCA balloon catheters. Details of such equipment shall be
decided in good faith discussions between the parties. Fukuda shall not be
liable for any license nor royalty fee on the manufacture of the catheters.
2.5 The parties agree to meet and discuss further technical guidance and
training to Fukuda's personnel for the purpose of Fukuda's local manufacture
based on the locally procured materials and development of its PTCA catheters
on or before year 2000.
3. INTELLECTUAL PROPERTY.
3.1 Nothing contained in this Research and Development Agreement shall be
construed to convey to Fukuda any rights in or license to any EndoSonics or
Navius intellectual property, whether presently existing or developed pursuant
to this Research and Development Agreement. Fukuda agrees that any inventions
or discoveries, whether or not patentable, developed, made, conceived, reduced
to practice or otherwise developed by use of the Development Funds or Technical
Guidance Fees or in connection with the projects and tasks identified on
Exhibit A and Exhibit B hereto, and all current and future patents, copyrights,
trademarks, trade secrets and other intellectual property rights throughout the
world, including without limitation all applications or registrations with
respect thereto, shall be the sole property of EndoSonics or of Navius, subject
to the determination of EndoSonics and Navius, provided however to the extent
that Fukuda contributes its own inventions or discoveries in the course of
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<PAGE> 3
performance of this Research and Development Agreement, Fukuda and EndoSonics
shall discuss in good faith compensation payable to Fukuda or co-ownership of
such invention or discoveries.
3.2 Notwithstanding Section 3.1 above, EndoSonics agrees to (a), keep
Fukuda informed of the progress and results of the projects identified in
Exhibit A; (b), to grant to Fukuda a perpetual, non-exclusive, royalty free
license (without right to sublicense) to use any and all know-how it acquires
through the operation of this Research and Development Agreement to the extent
necessary for performing final assembly of the Vintage and Navicross catheters;
(c), to grant to Fukuda an option to import and market in Japan on an exclusive
basis any commercial products resulting from the projects identified in Exhibit
A subject to any distribution agreement between Fukuda and EndoSonics and (d),
to meet and discuss with Fukuda in good faith for a future license to
manufacture Navius' products. Products imported as samples or for clinical
trials will be discounted by 50% from the selling price of any distribution
agreement between Fukuda and EndoSonics.
4. GENERAL PROVISIONS
4.1 Arbitration. All disputes, controversies, or differences which may
arise between the parties hereto, out of, in relation to, or in connection with
this Research and Development Agreement or the breach thereof, shall be finally
settled by arbitration in accordance with the Japan-American Trade Arbitration
Agreement of September 16, 1952 (as amended), by which each party hereto agrees
to be bound. If arbitration is requested by EndoSonics, arbitration shall be
conducted in Tokyo, Japan. Judgment upon an award rendered may be entered in any
court having jurisdiction, or application may be made to such court for judicial
acceptance of the award and an order of endorsement, as the case may be.
4.2 Entire Agreement. The Research and Development Agreement sets forth the
entire agreement and understanding of the parties relating to the subject matter
herein and merges all prior discussion between them. No modifications of or
amendment to this Research and Development Agreement, nor any waiver of any
rights under this Research and Development Agreement, shall be effective unless
in writing signed by the party to be charged.
4.3 Notices. Any notice required or permitted by this Research and
Development Agreement shall be in writing and shall be sent by prepaid
registered or certified mail, return receipt requested, addressed to the other
party at the address shown at the beginning of this Research and Development
Agreement or at such other address for which such party gives notice hereunder.
Such notice shall be deemed to have been given ten (10) days after deposit in
the mail, on the next business day when sent by confirmed telex or facsimile,
four (4) business days after being properly deposited with an internationally
recognized overnight courier, or upon personal deliver to the party being
notified.
4.4 Nonassignability and Binding Effect. This Research and Development
Agreement shall not be assignable, except in the case of a change of control of
the assigning
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<PAGE> 4
party, without the prior written consent of the other party and shall be binding
upon and inure to the benefit of the parties hereto, their successors and
assigns.
F. Partial Invalidity. If any provision of this Research and
Development Agreement is held to be invalid by a court of competent
jurisdiction, then the remaining provision shall nevertheless remain in full
force and effect. The parties agree to renegotiate in good faith any term held
invalid and to be bound by the mutually agreed substitute provision.
G. Legal Expenses. The prevailing party in any legal action
brought by one party against the other and arising out of this Research and
Development Agreement shall be entitled, in addition to any other rights an
remedies it may have, to reimbursement for its expense, including arbitration
costs and reasonable attorneys' fees.
H. Counterparts. This Research and Development Agreement shall
be executed in two counterparts, each of which shall be deemed an original, each
party retaining one copy thereof.
ENDOSONICS CORPORATION
By: /s/ Reinhard J. Warnking
---------------------------------------
PRINTED NAME: Reinhard J. Warnking
TITLE: President, CEO
FUKUDA DENSHI CO., LTD.
By: /s/ Kotaro Fukuda
---------------------------------------
PRINTED NAME: Kotaro Fukuda
TITLE: President and Board Member
-4-
<PAGE> 5
EXHIBIT A
RESEARCH AND DEVELOPMENT PROJECTS
1. Research and development of the ZR1 Stent
2. Research and development of the Navius ultrasound guided radiation catheter
3. Development of the Vintage balloon catheter
4. Research and Development of the IVUS Products
5. Any successor product to the above products that the parties mutually agree
to commence development during the funding period, to the extent that
funding is continued in a successor development agreement negotiated in
good faith between EndoSonics and Fukuda.
This list is not exclusive and from time to time EndoSonics may substitute
other development projects as mutually agreed. On a quarterly basis, EndoSonics
will submit to Fukuda a progress report on the projects, including latest
target date of completion of respective projects.
-5-
<PAGE> 6
EXHIBIT B
TECHNICAL GUIDANCE TASKS
Tasks for Technical Guidance to be rendered by EndoSonics/Navius to Fukuda
1. Purpose of the Technical Guidance: To enable Fukuda to perform final
assembly on the Vintage or Navicross PTCA balloon catheter at Fukuda's
facility in Japan.
2. Expected Term for the Technical Guidance and Training: From the Effective
Date of the Research and Development Agreement through December 31, 2000.
3. Fukuda's plan for domestic final assembly of the Vintage or Navicross PTCA
balloon catheter:
a. Activity by Fukuda: Final assembly, packing and sterilization of
Navius Vintage and/or Navicross catheter parts (parts to be supplied
by Navius).
b. Target year for completion of Technical Guidance and commencement of
Fukuda's production: December 31, 2000.
-6-
<PAGE> 1
EXHIBIT 10.4
ENDOSONICS CORPORATION
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of the
7th day of October, 1998 by and between EndoSonics Corporation, a Delaware
corporation (the "Company") and the Fukuda Denshi Co. Ltd., a Japanese
corporation, (the "Purchaser").
RECITALS
A. On August 5, 1998, the Company completed the acquisition of Navius
Corporation, the purchase price of which included payment by the Company of
approximately $9.5 million in cash. The Company will use the proceeds from the
sale of the Stock (as defined below) primarily to offset cash expenditures by
the Company in connection with the acquisition of Navius Corporation.
B. Contemporaneously with the execution and delivery of this Agreement,
the Company and Purchaser are entering into the Investor's Rights Agreement (as
defined in Section 4.8), Research and Development Agreement (as defined in
Section 4.7), EndoSonics Distribution Agreement (as defined in Section 4.6) and
Navius Distribution Agreement (as defined in Section 4.5).
AGREEMENT
In consideration of the foregoing premises and mutual promises set for the
herein, the parties, intending to be legally bound, hereby agree as follows:
1. PURCHASE AND SALE OF STOCK
1.1 SALE AND ISSUANCE OF STOCK
(a) Subject to the terms and conditions of this Agreement, the
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to the Purchaser at the Closing 965,730 shares Common Stock to a purchase
price of $8.69808 per share, which price has been determined between the Company
and the Purchaser as derived from the average closing price over time of the
Company's common stock as reported on the Nasdaq National Market. The shares of
Common Stock issued to the Purchaser pursuant to this Agreement shall be
hereinafter referred to as the "Stock."
1.2 CLOSING: DELIVERY
(a) The purchase and sale of the Stock shall take place at the
offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at
10:00 a.m., on September ___, 1998, or at such other time and place as the
Company and the Purchasers mutually agree upon, orally or in writing (which time
and place are designated as the "Closing").
<PAGE> 2
(b) At the Closing, the Company shall deliver to the Purchaser a
certificate, registered in the Purchaser's name, representing the Stock being
purchased thereby against payment of the purchase price therefor by wire
transfer to the Company's designated account or certified or cashier's check
drawn on a United States bank made payable to the order of EndoSonics
Corporation.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser that, except as expressly indicated on
a Schedule of Exceptions attached hereto as Exhibit A (the "Schedule of
Exceptions"), which exceptions shall be deemed to be representations and
warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware and has all requisite corporate power and authority to own its
property and assets and to carry on its business. The Company is duly qualified
to transact business and is in good standing in all jurisdictions where such
qualification is required, except for such failures to be so qualified or in
good standing as would not, individually or in the aggregate, have a material
adverse effect on the business, condition (financial or otherwise), assets,
liabilities, properties or results of operations of the Company.
2.2 CAPITALIZATION. As of September 24, 1998, the authorized capital
of the Company consisted of:
(a) 5,000,000 shares of Preferred Stock, none of which are
issued and outstanding.
(b) 25,000,000 shares of Common Stock, 16,491,282 shares of
which are issued and outstanding. All of the outstanding shares of Common Stock
have been duly authorized, fully paid and are non-assessable and issued in
compliance with all applicable federal and state securities laws. The Company
has reserved an aggregate of 2,933,766 shares of Common Stock for issuance to
employees, directors and independent contractors upon exercise of outstanding
options to acquire shares of the Company's Common Stock issued under the
Amended and Restated 1988 EndoSonics Stock Option Plan, and the Company has
reserved for issuance 720,000 shares of Common Stock for future grants under
such option plan.
2.3 AUTHORIZATION. The Company has full power to execute, deliver
and perform this Agreement. All corporate action on the part of the Company,
its officers and directors necessary for the authorization, execution and
delivery of this Agreement, the performance of all obligations of the Company
hereunder and the authorization, sale, issuance and delivery of the Stock has
been taken or will be taken prior to the Closing, and the Agreement, when
executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with its terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws
of general application affecting enforcement of creditors'
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rights generally, as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
2.4 VALID ISSUANCE OF SECURITIES. The Stock that is being issued to the
Purchaser hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued and outstanding, fully paid and non-assessable, free of any liens,
encumbrances, preemptive rights or rights of first refusal, and free of
restrictions on transfer other than restrictions on transfer under this
Agreement and applicable state and federal securities laws.
2.5 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the valid and lawful authorization, execution and
delivery by the Company of this Agreement and the consummation of the
transactions contemplated hereby, or for or in connection with the valid and
lawful authorization, issuance, sale and delivery of the Stock in accordance
with this Agreement, other than filings pursuant to Regulation D of the
Securities Act of 1933, as amended (the "Securities Act"), and the qualification
(or taking of such action as may be necessary to secure an exemption from
qualification if available) of the offer and sale of the Stock under all
applicable state securities laws, which filings and qualifications, if required,
will be accomplished in a timely manner so as to comply with such qualification
or exemption from qualification requirements.
2.6 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has timely filed all
the documents that it was required to file with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934, as amended
("Exchange Act") (the "SEC Documents"), since December 31, 1996. As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act or the Securities Act, as applicable,
and were duly and timely filed with the SEC. None of the SEC Documents as of
their respective dates 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. The consolidated financial statements of the Company
included in the SEC Documents (the "Financial Statements") comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto. Except as may
be indicated in the notes to the Financial Statements or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC, the Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present the financial position of the
Company and its subsidiary at the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end adjustments).
2.7 CHANGES. Except as disclosed in the SEC Documents, since December 31,
1997, the Company has conducted its business only in the ordinary and usual
course and, without limiting the generality of the foregoing, there has not been
a material adverse effect on
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the condition (financial or otherwise), business, net worth, assets,
liabilities, properties or results of operations of the Company.
2.8 NO CONFLICT. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not, (i)
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation or Bylaws of the Company or any
mortgage, indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets, which conflict,
violation, default or right would have a material adverse effect on the Company
or (ii) result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or the Stock.
2.9 SECURITIES LAWS. Assuming that the Purchaser's representations
and warranties contained in Section 3 of this Agreement are true and correct,
the offer, issuance and sale of the Securities are and will be exempt from the
registration and prospectus delivery requirements of the Securities Act and have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
2.10 DISCLOSURE. Neither this Agreement, nor any other written
document, certificate, instrument or statement furnished or made available in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading. There
is no fact known to the Company materially affecting the Company or its business
or the existence of which could have a material adverse effect on the Company,
which has not been set forth in this Agreement or in the Schedule of Exceptions
prepared by the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company that:
3.1 AUTHORIZATION. The Purchaser has full power and authority to
enter into this Agreement. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be
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<PAGE> 5
acquired by the Purchaser will be acquired for investment for the Purchaser's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The Purchaser has
received and has had the opportunity to review the Company's Annual Report for
the year ended December 31, 1997, the Company's Report on Form 10-K for the year
ended December 31, 1997, the Company's Proxy Statement dated April 30, 1998 and
the Company's Report on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998. The Purchaser understands that such discussions, and any other written
information delivered by the Company to the Purchaser, were intended to describe
the aspects of the Company's business which it believes to be material. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Purchasers to
rely thereon.
3.4 RESTRICTED SECURITIES. The Purchaser understands that the
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 which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the
Purchaser's control, and, subject to the Company's obligations under the
Investors' Rights Agreement, which the Company is under no obligation and may
not be able to satisfy.
3.5 LEGENDS. The Purchaser understands that the Securities and any
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
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<PAGE> 6
REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS SOLD PURSUANT
TO RULE 144 OF SUCH ACT."
(b) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.6 ACCREDITED INVESTOR. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
3.7 FOREIGN INVESTORS. If the Purchaser is not a United States person
(as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii)
any governmental or other consents that may need to be obtained, and (iv) the
income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Stock. Such Purchaser's
subscription and payment for and continued beneficial ownership of the Stock,
will not violate any applicable securities or other laws of the Purchaser's
jurisdiction.
4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived in writing by each Purchaser:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects (disregarding for this purpose any qualifications with
respect to materiality), on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the date
of the Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 4.1, 4.2 and 4.4 have been fulfilled.
4.4 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 Stock pursuant to this Agreement shall be obtained and effective as of
the Closing.
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<PAGE> 7
4.5 NAVIUS DISTRIBUTION AGREEMENT. Navius Corporation ("Navius") and
Purchaser shall have agreed to amend that certain Distribution Agreement by and
between Navius and Purchaser dated as of June 28, 1997, according to the terms
attached hereto as Exhibit B (the "Navius Distribution Agreement").
4.6 ENDOSONICS DISTRIBUTION AGREEMENT. The Company and the Purchaser
shall have executed and delivered the Distribution Agreement in the form
attached hereto as Exhibit C (the "EndoSonics Distribution Agreement").
4.7 RESEARCH AND DEVELOPMENT AGREEMENT. The Company and the Purchaser
shall have executed and delivered the Distribution Agreement in the form
attached hereto as Exhibit D (the "Research and Development Agreement").
4.8 INVESTOR'S RIGHTS AGREEMENT. The Company and the Purchaser shall
have executed and delivered the Investor's Rights Agreement in the form attached
hereto as Exhibit E (the "Investor's Rights Agreement").
4.9 BOARD OF DIRECTORS. [Jakob Stapfer], the Purchaser's designee,
shall have been appointed to the Company's Board of Directors.
4.10 LEGAL INVESTMENT. The sale of the Shares pursuant to the terms
of this Agreement shall be permitted by all laws to which Purchaser is subject.
4.11 OPINION OF COUNSEL. Purchaser shall have received an opinion of
Venture Law Group, counsel to the Company, dated as of the Closing, in
substantially the form attached hereto as Exhibit F.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to the Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived in writing.
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions contained
in this Agreement to be performed by the Purchaser on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 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
Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. COVENANTS OF COMPANY AND PURCHASER.
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<PAGE> 8
6.1 NOMINATION OF PURCHASER DESIGNEE TO COMPANY BOARD OF DIRECTORS.
For so long as Purchaser owns at least 650,000 shares of the Company's Common
Stock, the Company shall nominate a designee of Purchaser reasonably acceptable
to the Company's Board of Directors to serve as a member of the Company's Board
of Directors.
6.2 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Purchaser the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit the Purchaser to sell securities of the Company to the public
without registration, for so long as Purchaser owns shares of the Company's
Common Stock, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144 at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to the Purchaser, so long as the Purchaser owns any
of the Shares, forthwith upon request (i) a written statement by the Company
that it has complied with the reporting requirements of SEC Rule 144, the
Securities Act and the Exchange At and (ii) such other information as may be
reasonably requested in availing the Purchaser of any rule or regulation of the
SEC which permits the selling of any such securities without registration.
6.3 NASDAQ NOTIFICATION. The Company shall file such forms and take
such other actions as are required under the rules of Nasdaq National Market in
connection with the issuance of the Shares.
6.4 RESTRICTIONS ON CERTAIN ACTIONS BY PURCHASER. Purchaser agrees
that it shall not, nor shall it permit any of its affiliates (as such term is
defined in Rule 12b-2 of the General Rules and Regulations promulgated under
the Exchange Act) (Purchaser, together with such affiliates, the "Purchaser
Group") to, directly or indirectly, without the prior written consent of the
Company duly authorized by a majority of its Board of Directors (the "Board of
Directors"):
(a) acquire, directly or indirectly, by purchase or otherwise,
any securities of the Company entitled to vote generally for the election of
directors, or securities convertible into, or entitling the holder thereof to
acquire, such voting securities (collectively, "Voting Securities"), except for
the Stock and except by way of stock dividends or other distributions or
offerings made available to holders of Voting Securities generally, provided,
however, that:
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<PAGE> 9
(i) in the event that (A)(1) a tender or exchange offer shall be
commenced as evidenced by the filing with the SEC of a statement on Schedule
14D-1, or any successor schedule or form promulgated or adopted for adopted for
such purpose by the SEC, by any Person or 13D Group (each as hereinafter
defined) (other than an affiliate of, or any Person acting in concert with, any
member of the Purchaser Group), or (2) any Person or 13D Group shall file with
the SEC a statement on Schedule 13D, or any successor schedule or form
promulgated or adopted for such purpose by the SEC, or shall file any amendment
thereto, proposing, in each such case to acquire Voting Securities which, if
added to the Voting Securities already beneficially owned by such Person or 13D
Group, would represent more than 15.0% of the total combined voting power of all
Voting Securities then outstanding, and (B) either of the following events shall
have occurred: (1) such tender or exchange offer by such Person or 13D Group
shall have been consummated, or (2) the Company shall have taken all actions
necessary to ensure that such Person or 13D Group shall not be deemed an
"interested stockholder" under Section 203 of the Delaware General Corporation
Law, then the Purchaser Group shall be permitted to (i) commence a tender or
exchange offer on its own behalf for Voting Securities without regard to the
foregoing limitation, or (ii) make an Acquisition Proposal (as hereinafter
defined) to the Board of Directors without regarding to the limitation set forth
in paragraph (f) below; and
(ii) no member of the Purchaser Group shall be obligated to
dispose of any Voting Securities if the aggregate percentage ownership of such
Voting Securities of the Purchaser Group shall be increased as a result of a
recapitalization of the Company or any other action taken by the Company or its
affiliates (other than the Purchaser Group), including, without limitation, any
repurchase of Voting Securities by the Company;
(b) deposit any Voting Securities in a voting trust or subject them
to any arrangement or agreement with respect to the voting thereof;
(c) "solicit" proxies with respect to Voting Securities under any
circumstances or become a "participant" in a "solicitation" (as such terms are
defined in Regulation 14A of the General Rules and Regulations promulgated under
the Exchange Act) in opposition to the recommendation of a majority of the
directors of the Company with respect to any matter;
(d) initiate, propose or otherwise solicit stockholders of the
Company for the approval of one or more stockholder proposals relating to the
Company at any time, or induce or attempt to induce any other Person to initiate
any stockholder proposal with respect to the Company;
(e) join a partnership, limited partnership, syndicate or other
group, or otherwise act in concert with any other Person, for the purpose of
acquiring, holding, voting or disposing of Voting Securities, or otherwise
become a "person" within the meaning of Section 13(d)(3) of the Exchange Act (in
each case, other than solely with members of the Purchaser Group); or
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(f) make any proposal to the Board of Directors or
otherwise with respect to the purchase of additional Voting Securities by any
member of the Purchaser Group or with respect to a merger or consolidation with,
or a sale of a substantial portion of the Company's assets to, any member of the
Purchaser Group, if such proposal would be of a kind such that public disclosure
thereof might reasonably be required under applicable law (each such proposal,
an "Acquisition Proposal").
As used in this Agreement, the term "13D Group" shall mean any
group of Persons formed for the purpose of acquiring, holding, voting or
disposing of Voting Securities which would be required under Section 13(d) of
the Exchange Act and the rules and regulations thereunder to file a statement
with the SEC on Schedule 13D as a "person" within the meaning of Section
13(d)(3) of the Exchange Act if such group shall beneficially own Voting
Securities representing more than 5% of the total combined voting power of all
Voting Securities then outstanding, and the term "Person" shall mean an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department, agency or other
political subdivision thereof.
6.5 RESTRICTIONS ON RESALES OF SHARES. Purchaser agrees that,
subject to the further provisions of this Agreement, it shall not, nor shall it
permit any member of the Purchaser Group to, directly or indirectly, without the
prior written consent of the Company, offer, sell or transfer any Voting
Securities, other than:
(a) to a wholly owned subsidiary of Purchaser, or by any
such subsidiary to Purchaser;
(b) pursuant to Rule 144 ("Rule 144") of the General
Rules and Regulations promulgated under the Securities Act of 1933 (the
"Securities Act") (provided, however, that no opinion of counsel shall be
required for sales by Purchaser pursuant to Rule 144, except for such transfers
as reasonably requested by the Company based on the advice of outside counsel);
(c) pursuant to any tender or exchange offer that shall
have been recommended to the stockholders of the Company by the Board of
Directors; or
(d) pursuant to any bona fide public offering of Voting
Securities (including any sale pursuant to Rule 144).
With respect to permitted sales or other transfers of Voting
Securities by Purchaser pursuant to paragraph (a) above, any buyer or transferee
of such Voting Securities shall as a precondition to the consummation of the
proposed sale or transfer be required to execute in writing an agreement to be
bound by the terms of this Agreement, which agreement to be bound shall be in
form and substance reasonably satisfactory to the Company.
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7. MISCELLANEOUS
7.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this Agreement,
the warranties, representations and covenants of the Company and the Purchaser
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement for a period of one year following the Closing and
shall in no way be affected by an investigation of the subject matter thereof
made by or on behalf of the Company or the Purchaser.
7.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
7.4 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 instrument.
7.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.6 NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient (if not, then on the next business
day), (iii) ten (10) days after having been sent by registered or certified
airmail, return receipt requested, postage's prepaid, or (iv) four (4) business
days, after being properly deposited with an internationally recognized
overnight courier, specifying express delivery, with written verification of
receipt addressed to the party to be notified at such party's address as set
forth on the signature pages, or as subsequently modified by written notice with
a copy to Hiromasa Ogawa, Esq., Kojima Law Offices, Gobancho Kataoka Building
4F, Gobancho 2-7 Chitoda-ku, Tokyo 102, Japan, and if to the Company, with a
copy to Michael W. Hall, Venture Law Group, 2800 Sand Hill Road, Menlo Park, CA
94025.
7.7 FINDER'S FEE. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. The Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless the
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<PAGE> 12
Purchaser from any liability for any commission or compensation in the nature
of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
7.8 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to
which such party may be entitled.
7.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the
Purchaser. Any amendment or waiver effected in accordance with this Section 7.9
shall be binding upon the Purchaser and each transferee of the Stock (or the
Common Stock issuable upon conversion thereof), each future holder of all such
securities, and the Company.
7.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a)
such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provisions were so excluded and (c)
the balance of the Agreement shall be enforceable in accordance with its terms.
7.11 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting 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.
7.12 ENTIRE AGREEMENT. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
7.13 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 THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY
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EXHIBIT 10.4
SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS
OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE
QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.14 CONFIDENTIALITY. Each party hereto agrees that, except with the
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder. The provisions of this Section 7.14
shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
7.15 PUBLICITY. No party shall originate any publicity, news release or
other public announcement, written or oral (a "Release"), whether relating to
the performance under this Agreement or the existence of any arrangement
between the parties, without the prior written consent of the other party,
except where such Release is required by law.
[SIGNATURE PAGE FOLLOWS]
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EXHIBIT 10.4
The parties have executed this Common Stock Purchase Agreement as of the
date first written above.
COMPANY:
EndoSonics Corporation
By: /s/ Reinhard J. Warnking
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Name: Reinhard J. Warnking
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(print)
Title: President and CEO
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Address: 2870 Kilgore Road
Rancho Cordova, California 95670
PURCHASER:
By: /s/ Kotaro Fukuda
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Name: Kotaro Fukuda
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(print)
Title: President
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Address: 3-39-4 Hongo Bunkyo-Ku
Tokyo, 113, Japan
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 10.5
ENDOSONICS CORPORATION
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into
as of September 21, 1998, by and among ENDOSONICS CORPORATION, a Delaware
corporation (the "Company") and FUKUDA DENSHI CO., LTD., a Japanese corporation
(the "Investor").
RECITALS
A. The Company proposes to sell and issue up to 965,730 shares of
its Common Stock pursuant to the Common Stock Purchase Agreement between the
Company and the Investor of even date herewith (the "Purchase Agreement"); and
B. As a condition of entering into the Purchase Agreement, the
Investor has requested that the Company extend to it registration rights, as set
forth below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FORM S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 2.8 hereof.
"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 effectiveness of such
registration statement or document.
<PAGE> 2
"REGISTRABLE SECURITIES" means (a) Common Stock of the Company
purchased by the Investor pursuant to that certain Common Stock Purchase
Agreement dated as of September __, 1998, between the Company and the Investor.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public pursuant to a registration statement
or Rule 144 or sold in a private transaction in which the transferor's rights
under Section 2 of this Agreement are not assigned.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 2.1 and 2.2 hereof, including, without
limitation, all registration and filing fees, printing expenses, 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).
"SEC" OR "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.
SECTION 2. REGISTRATION
2.1 PIGGYBACK REGISTRATIONS. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for the Company or for stockholders other than the
Investor) any of its stock under the Securities Act in connection with the
public offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan or a transaction covered by Rule 145 under the Securities Act or a
registration in which the only stock being registered is Common Stock issuable
upon conversion of debt securities which are also being registered), the Company
shall, at such time, promptly give the Investor written notice of such
registration. Upon the written request of the Investor given within thirty (30)
days after receipt of such notice by the Company, the Company shall, subject to
the provisions of Section 2.1(a), cause to be registered under the Securities
Act all of the Registrable Securities that the Investor has requested to be
registered.
(a) UNDERWRITING. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 2 to include any securities of the
Investor or any other stockholders of the Company that have a contractual right
to include their securities in such underwritten offering unless the Investor or
such other stockholders accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in good faith will not jeopardize the success of the
offering by the Company; provided, however, that the number of
<PAGE> 3
shares that may be included in the underwriting shall be allocated, first, to
the Company; and second, to the Investor and to any stockholders of the Company
that have a contractual right to include their shares in such underwritten
offering on a pro rata basis based upon the total number of shares that the
Investor and such other stockholders request be included in the offering, and
provided further, that no such reduction shall reduce the amount of securities
of the Investor and any other stockholders below twenty-five percent (25%) of
the total amount of securities in such registration. If the total amount of
Registrable Securities requested by the Investor to be included in such offering
exceeds the amount of securities sold other than by the Company that the
underwriters determine in their sole discretion is compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (the securities so included to be apportioned pro rata among any
selling stockholders according to the total amount of securities entitled to be
included therein owned by each selling stockholder or in such other proportions
as shall mutually be agreed to by such selling stockholders).
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 2.1 prior to the effectiveness of such registration whether or not
the Investor has elected to include securities in such registration.
2.2 FORM S-3 REGISTRATION. In case the Company shall receive from
the Investor a written request or requests that the Company effect a
registration on Form S-3 (or any successor to Form S-3) or any similar
short-form registration statement and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by the
Investor, the Company will:
(a) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of the
Investor's Registrable Securities as are specified in such request; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.2:
(i) prior to the first anniversary of the
date of this Agreement, or
(ii) if Form S-3 (or any successor or
similar form) is not available for such offering by the Investor, or
(iii) if the Investor proposes to sell
Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than one million dollars ($1,000,000), or
(iv) if the Company shall furnish to the
Investor a certificate signed by the President or Chairman of the Board
of Directors of the Company stating that in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such Form S-3 registration to be effected at such time,
in
<PAGE> 4
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than forty five (45) days after
receipt of the request of the Investor under this Section 2.2; provided, that
such right to delay a request shall be exercised by the Company not more than
twice in any twelve (12) month period, or
(v) if the Company has, within the
twelve (12) month period preceding the date of such request, already effected
two (2) registrations on Form S-3 for the Investor pursuant to this Section 2.2,
or
(vi) if the Company has already effected
four (4) registrations on Form S-3 for the Investor pursuant to this Section
2.2, or
(vii) in any particular jurisdiction in
which the Company would be required to qualify to do business or to
execute a general consent to service of process in effecting such registration,
qualification or compliance.
(b) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities
and other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Investor.
2.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 2.1 and 2.2 shall be borne by the Company. All Selling Expenses
incurred in connection with any registrations hereunder, shall be borne by the
Investor. The Company shall not, however, be required to pay for expenses of any
registration proceeding begun pursuant to Section 2.1 or 2.2, the request of
which has been subsequently withdrawn by the Investor unless the withdrawal is
based upon material adverse information concerning the Company of which the
Investor was not aware at the time of such request.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective and remain
effective for a period of sixty (60) days. The Company shall not be required to
file, cause to become effective or maintain the effectiveness of any
registration statement that contemplates a distribution of securities on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for the period set forth in
paragraph (a) above.
<PAGE> 5
(c) Furnish to the Investor such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its reasonable best efforts to register and
qualify the securities covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Investor; provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. The
Investor participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify the Investor at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Use its best efforts to furnish, on the date that
such Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and (ii)
a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters.
2.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 2 shall terminate and be of no further force and
effect if all Registrable Securities held by and issuable to the Investor (and
its affiliates, partners, former partners, members and former members) may be
sold under Rule 144 during any ninety (90) day period.
2.6 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) The Investor shall not have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
(b) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to Section 2.1 or 2.2 that the
Investor shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of
<PAGE> 6
disposition of such securities as shall be required to effect the registration
of its Registrable Securities.
2.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.1 or 2.2:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless the Investor, the partners, officers and directors
of the Investor, any underwriter (as defined in the Securities Act) for such
Investor and each person, if any, who controls such Investor or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will pay as incurred to the Investor, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 2.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Investor or such partner, officer, director,
underwriter or controlling person of the Investor.
(b) To the extent permitted by law, the Investor will,
if Registrable Securities held by the Investor are included in the securities as
to which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers and
each person, if any, who controls the Company within the meaning of the
Securities Act and any underwriter selling securities under such registration
statement or any of such other Investor's partners, directors or officers or any
person who controls such Investor, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Investor, or partner,
director, officer or controlling person of such other person may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in
<PAGE> 7
conformity with written information furnished by the Investor under an
instrument duly executed by the Investor and stated to be specifically for use
in connection with such registration; and the Investor will pay as incurred any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other person, or partner, officer,
director or controlling person of such other person in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.7(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Investor, which
consent shall not be unreasonably withheld; provided further, that in no event
shall any indemnity under this Section 2.7 exceed the net proceeds from the
offering received by the Investor.
(c) Promptly after receipt by an indemnified party under
this Section 2.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.7, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.7.
(d) If the indemnification provided for in this Section
2.7 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
the Investor hereunder exceed the proceeds from the offering received by the
Investor.
<PAGE> 8
(e) The obligations of the Company and the Investor
under this Section 2.7 shall survive completion of any offering of Registrable
Securities in a registration statement and the termination of this agreement. 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.
2.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by the Investor to a transferee or assignee of Registrable Securities
which (a) is a wholly owned subsidiary or parent of the Investor and (b)
acquires at least One Hundred Twenty-Five Thousand (125,000) shares of
Registrable Securities (as adjusted for stock splits and combinations);
provided, however, (i) the transferor shall, within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned and (ii) such transferee shall agree to
be subject to all restrictions set forth in this Agreement and the Purchase
Agreement.
2.9 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section
2 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this Section 2.9 shall be
binding upon each holder or Registrable Securities and the Company. By
acceptance of any benefits under this Section 2, holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.
2.10 RESTRICTIONS ON AND PROCEDURE FOR SALES. The Investor shall
comply with following procedures:
(a) If the Investor shall propose to sell any
Registrable Securities pursuant to a registration statement filed by the Company
pursuant to Section 2.2, the Investor shall notify the Company of its intent to
do so at least three (3) full business days prior to such sale (the "Notice of
Sale"). The Notice of Sale shall be deemed to constitute a representation that
any information previously supplied by such Investor is accurate as of the date
of such Notice of Sale.
(b) The Notice of Sale in substantially the form
attached as Exhibit A shall be delivered to the Company in writing. However, the
Investor may give the Notice of Sale orally by telephoning Richard Fischer or
the then current Chief Financial Officer of the Company at (916) 638-8008. An
oral Notice of Sale shall be deemed to have been received only at such time as
the selling Investor speaks directly with Mr. Fischer (or such then current
Chief Financial Officer). In addition, an oral Notice of Sale shall only be
deemed effective if it is followed by a written Notice of Sale received by the
Company by personal delivery or facsimile within twenty-four (24) hours after
giving the oral Notice of Sale.
<PAGE> 9
(c) Unless the Company has notified the Investor in
writing that the Company will not refuse the sale of Registrable Securities
identified in a Notice of Sale pursuant to this Section 2.10, at any time within
such three (3) business-day period, the Company may refuse to permit the
Investor to sell any Restricted Securities; provided, however, that in order to
exercise this right, the Company must deliver a certificate in writing from an
officer of the Company to the Investor to the effect that a delay in such sale
is necessary because a sale pursuant to the Registration Statement in its then
current form could constitute a violation of the federal securities laws. In no
event shall such delay exceed ten (10) trading days; provided, however, that if,
prior to the expiration of such ten (10) trading day period, the Company
delivers a certificate in writing from an officer of the Company to the Investor
to the effect that the Board of Directors of the Company has determined in
reasonable good faith that a further delay in such sale beyond such ten (10)
trading day period is necessary because a sale pursuant to such Registration
Statement in its then current form could constitute a violation of the federal
securities laws, the Company may refuse to permit the Investor to resell any
Shares for an additional period not to exceed ten (10) trading days. The Company
shall not exercise this right of delay for more than twenty (20) consecutive
trading days or for more than thirty (30) trading days in any six (6) month
period. In the event that the Company exercises its rights to refuse the sale of
Registrable Securities for any period under this Section 2.10(c), the Company
shall extend the period of effectiveness of the registration statement then in
effect for the same number of trading days as the Investor has been refused the
opportunity to sell Registrable Securities.
SECTION 3. MISCELLANEOUS
3.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
3.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Purchase Agreement and the other documents delivered pursuant
thereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
<PAGE> 10
3.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
3.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of at least two-thirds (66 2/3%) of the Registrable
Securities.
(b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the holders of Registrable
Securities under this Agreement may be waived only with the written consent of
the holders of at least sixty-six and two-thirds percent (66 2/3%) of the
Registrable Securities.
(c) Notwithstanding the foregoing, this Agreement may be
amended with only the written consent of the Company to include additional
purchasers of Shares as "Investors" or parties hereto.
3.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to the Investor, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
the Investor's part of any breach, default or noncompliance under the Agreement
or any waiver on the Investor's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded the Investor, shall be cumulative and
not alternative.
3.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (c) ten (10) days after having been sent by registered or certified
airmail, return receipt requested, postage prepaid, or (d) four (4) day after
deposit with an internationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on the signature
pages hereof or Exhibit A hereto or at such other address as such party may
designate by ten (10) days advance written notice to the other parties hereto.
3.8 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
<PAGE> 11
3.9 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
3.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Investor's
Rights Agreement as of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
ENDOSONICS CORPORATION FUKUDA DENSHI CO., LTD.
By: /s/ Reinhard J. Warnking By: /s/ Kotaro Fukuda
-------------------------------------- ------------------------------
Name: Reinhard J. Warnking Name: Kotaro Fukuda
------------------------------------ ----------------------------
Title: President & CEO Title: President
----------------------------------- ---------------------------
Address: 2870 Kilgore Road Address: 3-39-4 Hongo Bunkyo-Ku
Rancho Cordova, California 95670 Tokyo 113
U.S.A. Japan
SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENT
<PAGE> 12
EXHIBIT A
ENDOSONICS CORPORATION
NOTICE OF SALE
Pursuant to Section 2.10 of the Investors' Rights Agreement dated as
of ___ __, 1998 among EndoSonics Corporation (the "Company") and the
undersigned, the undersigned hereby gives notice to the Company of the
undersigned's intent to sell _______ shares of the Company's Common Stock
registered pursuant to the Registration Statement on Form S-3 (File No.
33-_____).
Dated: ______________, 199__ By:
------------------------------------
(signature)
Name:
---------------------------------
(print)
Title:
---------------------------------
(if applicable)
[NOTE: THIS NOTICE OF SALE MUST BE COMPLETED AND DELIVERED (VIA PERSONAL
DELIVERY OR FACSIMILE) TO THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT LEAST
THREE (3) BUSINESS DAYS PRIOR TO SALE OF THE SHARES OF THE COMPANY'S COMMON
STOCK REGISTERED PURSUANT TO THE REGISTRATION STATEMENT.]
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,425
<SECURITIES> 10,449
<RECEIVABLES> 13,310
<ALLOWANCES> 0
<INVENTORY> 6,089
<CURRENT-ASSETS> 10
<PP&E> 3,884
<DEPRECIATION> 0
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<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 44,588
<TOTAL-LIABILITY-AND-EQUITY> 58,264
<SALES> 30,818
<TOTAL-REVENUES> 30,818
<CGS> 14,473
<TOTAL-COSTS> 28,025
<OTHER-EXPENSES> (1,481)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,199)
<INCOME-TAX> 150
<INCOME-CONTINUING> (10,349)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,349)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> 0
</TABLE>
